As filed with the Securities and Exchange Commission on January 29, 1998
Registration No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MRS. FIELDS' ORIGINAL COOKIES, INC.
(Exact name of Registrant as THE MRS. FIELDS' BRAND, INC.
specified in its charter) Exact Name of Registrant as
charter) specified in its charter)
DELAWARE DELAWARE
(State or other jurisdiction of (State of jurisdiction of
incorporation or organization) incorporation or organization)
--------- ---------
6749 6749
(Primary Standard Industrial (Primary Standard Industrial
Classification Code Number) Classification Code Number)
87-0552899 87-0563472
(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.)
462 West Bearcat Drive
462 West Bearcat Drive Salt Lake City, Utah 84115
Salt Lake City, Utah 84115 (801) 463-2000
(801) 463-2000 (Address, including zip code and
(Address, including zip code and telephone telephone number, including area
number, including area code, or code or Registrant's principal
Registrant's principal executive offices) executive offices)
Michael Ward, Esq. Michael Ward, Esq.
Vice President of Administration The Mrs. Fields' Brand, Inc.
Mrs. Fields' Original Cookies, Inc. 462 West Bearcat Drive
462 West Bearcat Drive Salt Lake City, Utah 84115
Salt Lake City, Utah 84115 (801) 463-2000
(801) 463-2000 (Name, address, including zip code
(Name, address, including zip code, and and telephone number, including
telephone number, including area code area code of agents for service)
of agents for service)
COPIES TO:
Randall H. Doud, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(d) 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.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
========================================---------------------------------------------------------------------------------
Title of Each Class of Securities Amount Proposed Maximum Proposed Maximum Amount of
to be Registered to be Offering Price Aggregate Registration
Registered Per Unit(1) Offering Price(1) Fee
- -------------------------------------------------------------------------------------------------------------------------
Series B 10 1/8% Senior Notes due $100,000,000 100% $100,000,000 $29,500
2004(2).................................
- -------------------------------------------------------------------------------------------------------------------------
Series B Guarantee of 10 1/8% Series B
Senior Notes due 2004(3)................
=========================================================================================================================
Total............................... $100,000,000 100% $100,000,000 $29,500
=========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee.
(2) Issued by Mrs. Fields' Original Cookies, Inc., as obligor.
(3) Pursuant to Rule 457(a), no separate fee is being paid with respect to
the guarantee.
The Registrants hereby amend this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Offer for All Outstanding 101/8 % Series A Senior Notes due 2004
in Exchange for 101/8 % Series B Senior Notes due 2004,
Which Have Been Registered Under the Securities Act of 1933, As Amended, of
MRS. FIELDS' ORIGINAL COOKIES, INC.
UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
THE MRS. FIELDS' BRAND, INC.
THEEXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
--------------------
Mrs. Fields' Original Cookies, Inc., a Delaware corporation ("Mrs. Fields"
or the "Company"), hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus (as the same may be amended or supplemented from
time to time, the "Prospectus") and in the accompanying Letter of Transmittal
(which together constitute the "Exchange Offer"), to exchange an aggregate
principal amount at maturity of up to $100,000,000 of 101/8 % Series B Senior
Notes due 2004 (the "New Senior Notes") of the Company, which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like principal amount of its outstanding 10
1/8% Series A Senior Notes due 2004 (the "Old Senior Notes" and, together with
the New Senior Notes, the "Senior Notes") of the Company from the holders (the
"Holders") thereof. The terms of the New Senior Notes are identical in all
material respects to the Old Senior Notes except (i) that the New Senior Notes
have been registered under the Securities Act, (ii) for certain transfer
restrictions and registration rights relating to the Old Senior Notes and (iii)
that the New Senior Notes will not contain certain provisions relating to an
additional payment to be made to Holders of Old Senior Notes under certain
circumstances relating to the timing of the Exchange Offer. The Mrs. Fields'
Brand, Inc., a Delaware corporation ("MFB"), is also offering to exchange its
guarantee of the Old Senior Notes (the "Old Guarantee") for a like guarantee of
the New Senior Notes (the "New Guarantee").
On November 26, 1997, the Company issued $100,000,000 principal amount of
Old Senior Notes. The Old Senior Notes were issued pursuant to exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws.
The Senior Notes will be redeemable at the option of the Company, in whole
or in part, at any time on or after December 1, 2001 in cash at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. In addition, at any time prior to December 1, 2001, the Company
may on any one or more occasions redeem up to an aggregate of 35% of the
aggregate principal amount of Senior Notes ever issued under the Indenture (as
defined herein) at a redemption price equal to 110.125% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the redemption
date, with the net cash proceeds of one or more Public Equity Offerings (as
defined herein); provided that at least 65% of the aggregate principal amount of
Senior Notes ever issued under the Indenture remains outstanding immediately
after the occurrence of such redemption. See "Description of the Senior
Notes-Optional Redemption." In addition, upon the occurrence of a Change of
Control (as defined herein), each Holder of Senior Notes will have the right to
require the Company to repurchase all or any part of such Holder's Senior Notes
at an offer price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
repurchase. See "Description of the Senior Notes-Repurchase at the Option of
Holders-Change of Control." There can be no assurance that, in the event of a
Change of Control, the Company would have sufficient funds to repurchase all
Senior Notes tendered. See "Risk Factors-Inability to Repurchase Senior Notes
Upon a Change of Control."
(Continued on the following page)
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of Old Senior Notes on , 1998.
SEE "RISK FACTORS" COMMENCING ON PAGE 20 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD SENIOR NOTES
IN THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is January 29, 1998.
<PAGE>
The Senior Notes are general unsecured obligations of the Company, rank
senior in right of payment to all subordinated indebtedness of the Company and
rank pari passu in right of payment with all existing and future indebtedness
(including capital lease obligations) of the Company. As of January 3, 1998, the
Company (excluding its subsidiaries) had $0.2 million in indebtedness other than
the Senior Notes. The Senior Notes are unconditionally guaranteed (the
"Guarantees") on a senior basis by the Guarantors (as defined herein). The
Guarantees are general unsecured obligations of the Guarantors, will rank senior
in right of payment to all subordinated indebtedness of the Guarantors and rank
pari passu in right of payment with all existing and future senior indebtedness
of the Guarantors. Currently MFB is, under the Old Guarantee, and will continue
to be upon issuance of the New Guarantee, the sole Guarantor of the Senior
Notes. As of January 3, 1998, the aggregate amount of debt of the Company's
subsidiaries (including capital lease obligations) was approximately $0.9
million and the aggregate liquidation preference of mandatorily redeemable
preferred stock of the Company's subsidiaries was approximately $1.5 million,
all of which was issued by subsidiaries other than the Guarantors and will
effectively rank senior in right of payment to the Senior Notes. Although the
Indenture limits the ability of the Company and its subsidiaries to incur
additional indebtedness and issue preferred stock, the Company is permitted to
incur additional indebtedness and issue preferred stock, including secured
indebtedness, under certain circumstances, which will effectively rank senior to
the Senior Notes with respect to the assets securing such indebtedness. See
"Risk Factors-Effective Subordination" and "Description of Senior
Notes-General."
The New Senior Notes are being offered hereunder in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement (as defined herein). Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission"), as set forth in no-action
letters issued to third parties, the Company believes that New Senior Notes
issued pursuant to the Exchange Offer in exchange for Old Senior Notes may be
offered for resale, resold and otherwise transferred by Holders thereof (other
than any Holder which is an "affiliate" of the Company within the meaning of
Rule 405 of the Securities Act), without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Senior Notes are acquired in the ordinary course of such Holder's business and
such Holder, other than broker-dealers, has no arrangement with any person to
engage in a distribution of such New Senior Notes. However, the Commission has
not considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Each Holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of such New Senior Notes
and has no arrangement or understanding to participate in a distribution of New
Senior Notes. If any Holder is an affiliate of the Company, is engaged in or
intends to engage in or has any arrangement with any person to participate in
the distribution of the New Senior Notes to be acquired pursuant to the Exchange
Offer, such Holder (i) could not rely on the applicable interpretations of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Senior Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of such New Senior Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Senior Notes received in exchange for Old Senior Notes where
such Old Senior Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 120 days after the Expiration Date (as defined herein), it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all of its own and the Guarantor's expenses incidental to the
Exchange Offer, and will reimburse the Initial Purchasers and Holders of
Transfer Restricted Securities for fees and expenses of counsel, not to exceed
$50,000. Tenders of Old Senior Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Senior
Notes, the Company will promptly return the Old Senior Notes to the Holders
thereof. See "The Exchange Offer."
There is no existing trading market for the New Senior Notes, and there
can be no assurance regarding the future development of a market for the New
Senior Notes. The Initial Purchasers (as defined herein) have advised the
Company that they currently intend to make a market in the New Senior Notes. The
Initial Purchasers are not obligated to do so, however, and any market-making
with respect to the New Senior Notes may be discontinued at any time without
notice. The Company does not intend to apply for listing or quotation of the New
Senior Notes on any securities exchange or stock market.
<PAGE>
--------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE GUARANTOR. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY OR THE GUARANTOR SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
--------------
<PAGE>
AVAILABLE INFORMATION
The Company has not been, prior to the effectiveness of this
Registration Statement, subject to the periodic reporting and other information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company has agreed that, whether or not it is required to do so by
the rules and regulations of the Commission, it shall deliver to The Bank of New
York, as trustee under the Indenture (the "Trustee"), to each Holder of Senior
Notes and to each prospective purchaser of Senior Notes identified to the
Company by an Initial Purchaser, annual and quarterly financial statements
substantially equivalent to financial statements that would be included in
reports filed with the Commission, if the Company were subject to the reporting
and other informational requirements of the Exchange Act.
The Company and the Guarantor have filed with the Commission a
registration statement on Form S-4 (herein, together with all amendments and
exhibits, referred to as the "Registration Statement") under the Securities Act
with respect to the New Senior Notes offered hereby. This Prospectus, which
forms a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company, the
guarantor and the New Notes offered hereby, reference is made to the
Registration Statement. Any statements made in this Prospectus concerning the
provisions of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement otherwise filed with the Commission.
Upon the effectiveness of the Registration Statement, the Company will
become subject to the informational requirements of the Exchange Act, and in
accordance therewith will file reports and other information with the
Commission. MFB has submitted to the staff of the Commission a no-action request
that MFB not be subject to the informational requirements of the Exchange Act.
If this request is granted, MFB would not be required to make such filings but
the Company, as the issuer of the New Senior Notes, would be required to include
summarized financial information regarding MFB in the periodic reports and
certain other documents that the Company files with the Commission. If this
request is not granted, MFB would be required to file with the Commission such
periodic reports, but would not be required to file proxy or information
statements. The Registration Statement, the exhibits forming a part thereof and
the reports and other information filed by the Company and MFB with the
Commission in accordance with the Exchange Act may be inspected, without charge,
at the Public Reference Section of the Commission located at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the following regional offices of
the Commission: 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10004; and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of all or any portion of the material may also be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such information
may also be accessed electronically by means of the Commission's home page on
the Internet (http://www.sec.gov.).
In the event that the Company is not required to be subject to the
reporting requirements of the Exchange Act in the future, the Company will be
required under the Indenture pursuant to which the Old Senior Notes were, and
the New Senior Notes will be, issued, to file with the Commission, and to
furnish the Holders of the New Senior Notes with (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's independent public accountants and (ii) all
current reports that would be required to be filed with the SEC on Form 8-K if
the Company were required to file such reports, in each case, within the time
periods specified in the Commission's rules and regulations.
This prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents are available upon
request from Michael Ward, Mrs. Fields' Original Cookies, Inc., 462 West Bearcat
Drive, Salt Lake City, Utah 84115, (801) 463-2000. In order to ensure timely
delivery, any request should be made by 1998.
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Capitalized
terms used and not otherwise defined in this summary have the meanings given to
them elsewhere in this Prospectus. Unless the context otherwise requires,
references herein to: (i) ?Mrs. Fields? or the ?Company? are to Mrs. Fields'
Original Cookies, Inc., a Delaware corporation, and its subsidiaries, or to Mrs.
Fields' Original Cookies, Inc., as the offeror or the obligor on the Senior
Notes; (ii) ?Pretzel Time? are to Pretzel Time, Inc., a Pennsylvania
corporation; (iii) ?MFB? or the "Guarantor" are to The Mrs. Fields' Brand, Inc.,
a Delaware corporation; and (iv) ?H&M? are to H & M Concepts Ltd. Co., an Idaho
limited liability company, and its subsidiaries. Pro forma financial information
included in this Prospectus gives effect to the offering of the Old Senior Notes
and the application of net proceeds therefrom (the "Refinancing"), and the
Transactions referred to herein, as if each of the Transactions and the Offering
of Old Senior Notes and the Refinancing had occurred on December 29, 1996, (the
first day of the most recently completed fiscal year) with respect to the pro
forma condensed consolidated statement of operations for the year ended January
3, 1998.
The Company
Mrs. Fields is the largest retailer of baked on-premises cookies and
the second largest retailer of baked on-premises pretzels in the United States.
Mrs. Fields is one of the most widely recognized and respected brand names in
the premium cookie industry, with a 94% brand awareness among customers. The
Company has recently developed a significant presence in the rapidly growing,
health-oriented pretzel segment as a result of the acquisitions of the pretzel
businesses of Hot Sam Company, Inc. (?Hot Sam?), H&M (the largest Pretzel Time
franchisee) and a 60% majority interest in Pretzel Time. As of January 3, 1998,
the Company's retail network consisted of 1,034 locations, of which 711 were
cookie stores and 323 were pretzel stores. Of the total 1,034 stores, 481 were
Company-owned and 553 were franchised or licensed. The Company's stores average
approximately 600 square feet in size and are located predominantly in high-end
shopping malls. The Company, through licensed locations also operates kiosks and
carts at airports, universities, stadiums, hospitals and office building
lobbies. The Company's objective is to increase sales and profitability by
focusing on its higher-profitability stores in prime locations ("core stores").
As a result, by the end of fiscal 1999, the Company plans to close or franchise
approximately 64 Company-owned cookie stores and 38 Company-owned pretzel stores
that do not meet certain financial and geographical criteria. For the fiscal
year ended January 3, 1998, the Company generated pro forma net revenue and
adjusted EBITDA (as defined herein) of $142.5 million and $23.1 million,
respectively.
The Cookie Business
The Company operates and franchises 711 retail cookie stores: 556 under
the Mrs. Fields brand and 155 under The Original Cookie Company, Incorporated
("Original Cookie") brand. Management believes that Mrs. Fields cookies are
positioned in the premium quality, baked on-premises segment of the
approximately $12 billion (according to a recent study by KPMG Peat Marwick LLP)
U.S. cookie industry. The Company offers over 50 different types of cookies,
brownies and muffins, which are baked continuously and served fresh throughout
the day. Baked products are made using only high quality ingredients, and all
dough is centrally manufactured and frozen to maintain product quality and
consistency. All products pass strict quality assurance and control steps at
both the manufacturing plants and the stores. In addition, the Company
continually creates and tests new products to attract new customers and satisfy
current customers. Product development is currently focused on sugar-free dough
and reduced-fat cookies and brownies.
Mrs. Fields Inc. ("MFI"), one of the predecessors of the Company, was
founded in 1977 by Debbi Fields and, following its initial success, embarked on
an aggressive national expansion program in the early 1980s. By the late 1980s,
however, MFI experienced financial difficulty as a result of excessive debt
levels, certain poor real estate locations, and a recessionary retailing
environment. In connection with a financial restructuring by its lenders, a new
management team was put into place in mid-1994 under the leadership of Larry A.
Hodges, who has extensive experience in the food and retailing industries. Mr.
Hodges introduced a new strategic plan for the Company, which involved the
following key elements: (1) identifying non-core stores to close or franchise,
(2) introducing Company-wide operating procedures to improve store operating
margins, (3) developing a marketing strategy and promotional calendar to turn
around comparable store sales and (4) improving employee morale through
selective new senior hires, increased training and various incentive plans. The
savings from the improved store operations were reinvested in marketing and
other measures designed to improve comparable store sales.
<PAGE>
Mrs. Fields' Original Cookies, Inc. was formed in September 1996 in
connection with the acquisitions of MFI, Original Cookie and Hot Sam by Mrs.
Fields' Holding Company, Inc. ("MFH"), a subsidiary of Capricorn Investors II,
L.P. ("Capricorn"). Capricorn has invested more than $28 million in the Company
through MFH. Capricorn retained Mr. Hodges as Chief Executive Officer of Mrs.
Fields. Management believes that Mrs. Fields has a more well-recognized brand
name than Original Cookie and that Mrs. Fields stores have, during fiscal 1997,
achieved higher average revenue per core store ($350,000 versus $301,000) than
Original Cookie stores. As a result, the Company intends to continue converting
its core and to-be-franchised Original Cookie stores to the Mrs. Fields brand,
which it believes will result in an increase in net sales, comparable store
sales and store contribution for the Company's cookie business.
The Pretzel Business
The Company operates and franchises 323 retail pretzel stores (221
under the Pretzel Time name and 102 under the Hot Sam name), which offer "sweet
dough" soft pretzels and "Bavarian" style pretzels with a variety of toppings.
Pretzel Time's primary product is an all natural, hand-rolled soft pretzel,
freshly baked from scratch at each store location. Pretzel Time stores prepare
pretzels with a variety of flavors and specialty toppings, including cheddar
cheese, cream cheese and pizza sauce. The stores also offer soft drinks and
freshly squeezed lemonade. The Hot Sam pretzel stores specialize in the Bavarian
style pretzel. This product has declined in popularity in recent years as sweet
dough pretzel sales have grown dramatically. In addition, Pretzel Time stores
have, during fiscal 1997, achieved higher average revenue per core store
($275,000 versus $241,000) than Hot Sam stores. As a result, the Company intends
to continue converting its core and to-be-franchised Hot Sam stores to Pretzel
Time stores, which it believes will result in an increase in net sales,
comparable store sales and store contribution for the Company's pretzel
business.
Management believes that the retail pretzel business has similar
operating characteristics to the retail cookie business that will permit some
co-branding of the Company's products. In addition, the retail pretzel business
has grown more quickly than the retail cookie business in recent years. Hot Sam
was acquired by the Company in connection with the acquisition of Original
Cookie. In order to expand its presence in the retail pretzel industry, the
Company recently acquired the business of H&M and 60% (56% on September 2, 1997
and 4% on January 2, 1998) of the common stock of Pretzel Time. Pretzel Time is
a franchisor of 221 hand-rolled soft pretzel retail outlets, which are located
in shopping malls as well as at airports, sports arenas, amusement parks and
resort areas throughout the United States and Canada. Prior to the Pretzel
Acquisitions, H&M operated 79 of the franchised stores of Pretzel Time and was
the nonexclusive franchisee and developing agent for Pretzel Time stores in 16
Western and Midwestern states, four provinces in Canada and Mexico.
Business Strategy
The Company's objective is to increase sales and profitability at its
core and franchised stores in prime locations by implementing the key elements
of its business strategy. Management believes that the Company's recent
operating results reflect the successful implementation of its business
strategy. Comparable core store sales have increased for fiscal 1997 as compared
to fiscal 1996. In addition, franchising and licensing revenues have increased
by 44.9% for fiscal 1997 over fiscal 1996. The key elements of the Company's
business strategy are as follows:
Enhance Quality of Company-Owned Store Base. Since current management
assumed responsibility in 1994, the Company has focused on closing and
franchising Company-owned stores that do not meet certain financial and
geographical criteria. From June 1994 through December 1997, the
Company closed 120 Mrs. Fields brand stores and franchised an
additional 144 stores. The Company has targeted 102 additional stores
across all product concepts to be either closed or franchised by the
end of fiscal 1999. Such measures are expected to result in enhanced
operating margins, as unprofitable stores are closed and certain other
stores are converted into franchises, thereby increasing royalty
payments and eliminating general and administrative costs associated
with such stores.
Improve Productivity of Core Stores. The Company is embarking on a
program to improve the performance of its core stores by (i) expanding
product offerings to include breakfast items, such as muffins,
croissants and bagels, and low-fat cookies, brownies and muffins, (ii)
raising the average ticket through increased bundling of product
offerings, (iii) promoting catering services by individual stores to
corporate customers, (iv) decreasing store expenses by reducing waste
in the cookie baking process and controlling the cost of ingredients
and supplies, (v) improving merchandising by enhancing product
presentation and refining product mix and (vi) increasing training and
various incentive programs for management and sales staff.
<PAGE>
Capitalize on the Strong "Mrs. Fields" Brand Name. Management believes
that the Mrs. Fields brand is the most widely recognized and respected
brand name in the retail premium cookie industry, with a 94% brand
awareness among consumers, and that Mrs. Fields brand stores have,
during fiscal 1997, achieved higher average revenue per core store than
Original Cookie stores. As a result, the Company intends to continue
converting its core and to-be-franchised Original Cookie stores to Mrs.
Fields brand stores, which it believes will result in an increase in
net sales, comparable store sales and store contribution for the
Company's cookie business. Original Cookie stores represent 52% of all
Company-owned cookie stores. In addition, the Company intends to
further capitalize on the Mrs. Fields brand name by (i) further
developing and expanding new channels of distribution for the Company's
products, including kiosks and carts in malls, airports, convention
centers, office buildings, street fronts and sports complexes, (ii)
increasing the emphasis on the mail order business and (iii) developing
and capitalizing on licensing opportunities such as co-branding the
Mrs. Fields concept with prominent names in the retailing and food
service industry, expanding licensing agreements with the Company's
existing licensees, entering into new licensing agreements with food
service operators (such as the Company's existing arrangements with
ARAMark, Host Marriott and United Airlines), and developing product
line extensions, such as frozen cookie dough and in-store bakery
products to be sold in supermarkets and other convenient locations.
Capitalize on the Strong ?Pretzel Time? Brand Name. Through the
acquisition of its 60% controlling interest in Pretzel Time, the
Company has obtained the use of the "Pretzel Time" brand name, one of
the leading brand names in the pretzel retailing segment. Management
believes that there are significant opportunities to improve its
existing Hot Sam store operations by continuing to convert its core and
to-be-franchised Hot Sam stores to Pretzel Time stores. Pretzel Time
stores have, during fiscal 1997, achieved higher average revenue per
core store and store contribution than Hot Sam stores. Hot Sam stores
represent 56% of all Company-owned pretzel stores. Management believes
that the conversion to the Pretzel Time name will result in an increase
in net sales, comparable store sales and store contribution for the
Company's pretzel business. In addition, the Company believes there are
significant new Pretzel Time franchising opportunities.
Develop New Company-Owned and Franchised Stores. The Company plans to
build and franchise new stores, as well as carts and kiosks, in
existing and new markets. The Company has identified over 100 mall and
non-traditional locations, such as amusement parks and other
entertainment centers, that it believes would be ideal for cookie and
pretzel stores. During 1998, the Company intends to focus primarily on
franchising approximately 38 and 14 cookie and pretzel stores,
respectively. After 1998, the Company intends to add approximately 15
new Company-owned cookie and 10 new Company-owned pretzel stores per
year and to franchise approximately 25 new cookie and 25 new pretzel
stores per year. In addition to pursuing new store development
opportunities within the United States, the Company plans to grow
internationally by expanding its franchise operations. As of January 3,
1998, there were 81 franchised Mrs. Fields brand stores open
internationally and approximately 200 Mrs. Fields brand stores
committed for development by franchisees over the next several years in
Latin America, Canada and Asia.
Realize Purchasing and Overhead Cost Savings. As a result of the
Pretzel Contributions, the Company expects to realize significant cost
savings from the elimination of duplicative administrative functions,
the consolidation of management information systems and the reduction
of the cost of food and other supplies as a result of its enhanced
purchasing power with vendors. Management believes that incremental
pre-tax cost savings would have totaled approximately $1.1 million for
the year ended January 3, 1998.
Pursue Further Strategic Acquisitions of Related Businesses. The
Company intends to selectively pursue strategic acquisitions in order
to expand its geographic presence and achieve operating efficiencies.
The Company's management has demonstrated its ability to identify and
integrate new businesses through its acquisitions of the cookie and
pretzel businesses of Original Cookie and Hot Sam, respectively, in
September 1996. Among other acquisitions that it has been considering,
the Company has recently been in discussions concerning the possible
acquisition by the Company of Great American Cookie Company, Inc.
("GACC") or some of its owned or franchised stores. No agreement with
respect to such a transaction has been concluded, and there can be no
assurance that such an agreement will be concluded.
<PAGE>
The Transactions
On July 25, 1997, a subsidiary of MFH acquired substantially all of the
assets of H&M for aggregate consideration of $13.8 million (excluding the
assumption of certain liabilities). On September 2, 1997, MFH acquired 56% of
the shares of common stock of Pretzel Time for an aggregate purchase price of
$4.2 million and extended a $500,000 loan to the founder and minority
stockholder of Pretzel Time. The acquisitions of the pretzel business of H&M and
the common stock of Pretzel Time are referred to herein as the "Pretzel
Acquisitions." Concurrently with the offering of the Old Senior Notes (the
"Offering"), (i) the Company received as a contribution from MFH the business of
H&M and 56% of the shares of common stock of Pretzel Time (the "Pretzel
Contributions") , (ii) the Company received as a contribution from MFH all of
the common stock of MFB, (iii) various debt of the Company, MFB and MFH was
refinanced (collectively, the "Refinancing"), and (iv) the Company paid a
dividend of $1,065,000 and repaid an advance of $1,500,000 to MFH. On January 2,
1998, the Company purchased an additional 4% of the shares of the common stock
of Pretzel Time. The Pretzel Acquisitions, the Pretzel Contributions and the
Refinancing, together with the purchase of the additional 4% of Pretzel Time
common stock are referred to herein as the "Transactions." See "The
Transactions."
<PAGE>
The Company's principal executive offices are located at 462 West
Bearcat Drive, Salt Lake City, Utah 84115, and its telephone number is (801)
463-2000.
Effective January 19, 1998, the Company signed a lease for
approximately 31,000 sq. ft. of new office space located at 2855 E. Cottonwood
Parkway, Suite 400, Salt Lake City, Utah 84121. The Company expects to re-locate
its corporate offices to the new location in May 1998. The Company will continue
to operate certain general and administrative functions from the existing office
space.
<PAGE>
The Exchange Offer
On November 26, 1997, the Company issued $100 million principal amount
of the Old Senior Notes. The Old Senior Notes were sold pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws, in order to enable the
Company to raise funds on a more expeditious basis than necessarily would have
been possible had the initial sale been pursuant to an offering registered under
the Securities Act. Jefferies & Company and BT Alex. Brown Incorporated (the
"Initial Purchasers"), as a condition to their purchase of the Old Senior Notes,
requested that the Company agree to commence the Exchange Offer following the
offering of the Old Senior Notes. The Senior Notes are unconditionally
guaranteed by the Guarantor.
Securities Offered.....................................
Up to $100,000,000 principal amount of 101/8 % Series B Senior
Notes due 2004, which have been registered under the Securities
Act. The terms of the New Senior Notes and the Old Senior Notes
are identical in all material respects, except that (i) the New
Senior Notes have been registered under the Securities Act, (ii)
for certain transfer restrictions and registration rights
relating to the Old Senior Notes and (iii) that the New Senior
Notes will not contain certain provisions relating to an
additional payment to be made to the Holders of the Old Senior
Notes under certain circumstances relating to the timing of the
Exchange Offer described below. See "Summary Description of the
New Senior Notes."
The Exchange Offer.....................................
The New Senior Notes are being offered in exchange for a like
aggregate principal amount of Old Senior Notes. The issuance of
the New Senior Notes is intended to satisfy obligations of the
Company contained in the Registration Rights Agreement, dated
November 26, 1997, among the Company, the Guarantor and the
Initial Purchasers (the "Registration Rights Agreement"). For a
description of the procedures for tendering Old Senior Notes, see
"The Exchange Offer-Procedures for Tendering Old Senior Notes."
Tenders; Expiration Date; Withdrawal...................
The Exchange Offer will expire at 5:00 p.m., New York City time,
on , 1998, or such later date and time to which it is extended.
Each Holder tendering Old Senior Notes must acknowledge that it
is not engaging in, nor intends to engage in, a distribution of
the New Senior Notes. The tender of Old Senior Notes pursuant to
the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined herein), in which case the Expiration
Date will be the latest date and time to which the Exchange Offer
is extended. Any Old Senior Note not accepted for exchange for
any reason will be returned to the tendering Holder thereof as
promptly as practicable after the expiration or termination of
the Exchange Offer. See "The Exchange Offer-Terms of the Exchange
Offer."
United States Federal Income Tax Considerations........
The exchange pursuant to the Exchange Offer should not result in
any income, gain or loss to the Holders or the Company for United
States federal income tax purposes. See "Certain United States
Federal Income Tax Considerations."
<PAGE>
Use of Proceeds........................................
Neither the Company nor the Guarantor will receive any cash
proceeds from the issuance of the New Senior Notes offered
hereby. See "Use of Proceeds."
Exchange Agent.........................................
The Bank of New York (the "Exchange Agent") is serving as
Exchange Agent in connection with the Exchange Offer. The
addresses, and telephone and facsimile numbers, of the Exchange
Agent are set forth in "The Exchange Offer-Exchange Agent" and in
the Letter of Transmittal.
Shelf Registration Statement...........................
Under certain circumstances, certain Holders of Senior Notes
(including Holders who are not permitted to participate in the
Exchange Offer or who may not freely resell New Senior Notes
received in the Exchange Offer) may require the Company to file,
and cause to become effective, a shelf registration statement
under the Securities Act, which would cover resales of Senior
Notes by such Holders. See "Description of the Senior
Notes-Exchange Offer; Registration Rights."
Consequences of Exchanging Old Notes
Holders of Old Senior Notes who do not exchange their Old Senior Notes
for New Senior Notes pursuant to the Exchange Offer will continue to be subject
to the restrictions on transfer of such Old Senior Notes as set forth in the
legend thereon as a consequence of the issuance of the Old Senior Notes pursuant
to exemptions from, or in transactions not subject to, the Securities Act and
applicable state securities laws. In general, the Old Senior Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Based on interpretation by the staff of the
Commission, as set forth in no-action letters issued to third parties, the
Company believes that New Senior Notes issued pursuant to the Exchange Offer in
exchange for Old Senior Notes may be offered for resale, resold or otherwise
transferred by Holders thereof (other than any Holder which is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Senior Notes are acquired in the ordinary
course of such Holder's business and such Holder, other than broker-dealers, has
no arrangement with any person to participate in the distribution of such New
Senior Notes. However, the Commission has not considered the Exchange Offer in
the context of a no-action letter and there can be no assurance that the staff
of the Commission would make a similar determination with respect to the
Exchange Offer as in such other circumstances. Each Holder, other than a
broker-dealer, must at the request of the Company furnish a written
representation that it is not an affiliate of the Company, is not engaged in,
and does not intend to engage in, a distribution of such New Senior Notes and
has no arrangement or understanding to participate in a distribution of New
Senior Notes, and that it is acquiring the New Senior Notes in its ordinary
course of business. Each broker-dealer that receives New Senior Notes for its
own account in exchange for Old Senior Notes must acknowledge that such Old
Senior Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with any resale of such New Senior Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, it may
be necessary to qualify for sale or register thereunder the New Senior Notes
prior to offering or selling such New Senior Notes. The Company has agreed,
pursuant to the Registration Rights Agreement, subject to certain limitations
specified therein, prior to any public offering of Transfer Restricted
Securities (as defined herein) to register or qualify the Transfer Restricted
Securities for offer or sale under the securities laws of such jurisdictions as
any Holder requests. Unless a Holder so requests, the Company does not intend to
register or qualify the sale of the New Senior Notes in any such jurisdiction.
<PAGE>
Summary Description of the New Senior Notes
The terms of the New Senior Notes and the Old Senior Notes are
identical in all material respects, except (i) that the New Senior Notes have
been registered under the Securities Act, (ii) for certain transfer restrictions
and registration rights relating to the Old Senior Notes and (iii) that the New
Senior Notes will not contain certain provisions relating to an additional
payment to be made to Holders of Old Senior Notes under certain circumstances
relating to the timing of the Exchange Offer. The New Senior Notes will bear
interest from the most recent date to which interest has been paid on the Old
Senior Notes or, if no interest has been paid on the Old Senior Notes, from
November 26, 1997, the date of original issuance. Old Senior Notes accepted for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer. Holders whose Old Senior Notes are accepted for exchange
will not receive any payment in respect of such interest on such Old Senior
Notes otherwise payable on any interest payment date the record date for which
occurs on or after consummation of the Exchange Offer.
Securities Offered.....................................
Up to $100,000,000 aggregate principal amount of 101/8 % Series B
Senior Notes due 2004, which have been registered under the
Securities Act.
Maturity Date..........................................
December 1, 2004.
Interest Payment Dates.................................
June 1 and December 1 of each year, commencing June 1, 1998.
Guarantee..............................................
The Senior Notes are unconditionally guaranteed on a senior basis
by MFB and, under certain circumstances, certain existing and
future subsidiaries of the Company (collectively, the
?Guarantors?). The Guarantees are general unsecured obligations
of the Guarantors, rank senior in right of payment to all
subordinated indebtedness of the Guarantors and rank pari passu
in right of payment with all existing and future senior
indebtedness of the Guarantors (including MFB's Old Guarantee of
any Old Senior Notes outstanding following consummation of the
Exchange Offer). See ?Description of Senior Notes-Guarantees.?
Ranking................................................
The Senior Notes are general unsecured obligations of the
Company, rank senior in right of payment to all subordinated
indebtedness of the Company and rank pari passu in right of
payment with all existing and future senior indebtedness of the
Company (including any Old Senior Notes that remain outstanding
following completion of the Exchange Offer). As of January 3,
1998, the Company (excluding its subsidiaries) had approximately
$0.2 million in indebtedness other than the Senior Notes. As of
January 3, 1998, the aggregate amount of indebtedness of the
Company's subsidiaries was approximately $0.9 million and the
aggregate liquidation preference of mandatorily redeemable
preferred stock of the Company's subsidiaries was approximately
$1.5 million, all of which was issued by a subsidiary other than
the Guarantors and effectively ranks senior in right of payment
to the Senior Notes.
<PAGE>
Although the Indenture limits the ability of the Company and its
subsidiaries to incur additional indebtedness and issue preferred
stock, the Company is permitted to incur additional indebtedness
and issue preferred stock, including secured indebtedness, under
certain circumstances, which will effectively rank senior to the
Senior Notes with respect to the assets securing such
indebtedness. See "Risk Factors-Effective Subordination? and
?Description of Senior Notes-General."
Optional Redemption....................................
The Senior Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after December 1, 2001 in
cash at the redemption prices set forth herein, plus accrued and
unpaid interest thereon to the date of redemption. In addition,
at any time prior to December 1, 2001, the Company may on any one
or more occasions redeem up to an aggregate of 35% of the
aggregate principal amount of Senior Notes ever issued under the
Indenture at a redemption price equal to 110.125% of the
principal amount thereof, plus accrued and unpaid interest
thereon to the redemption date, with the net cash proceeds of one
or more Public Equity Offerings; provided that at least 65% of
the aggregate principal amount of Senior Notes ever issued under
the Indenture remain outstanding immediately after the occurrence
of any such redemption. See ?Description of Senior Notes-Optional
Redemption.?
Change of Control......................................
Upon the occurrence of a Change of Control, each holder of Senior
Notes will have the right to require the Company to repurchase
all or any part of such holder's Senior Notes at an offer price
in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon to the date of
repurchase. See ?Description of Senior Notes-Repurchase at the
Option of Holders-Change of Control.? There can be no assurance
that, in the event of a Change of Control, the Company would have
sufficient funds to purchase all Senior Notes tendered. See ?Risk
Factors-Inability to Repurchase Senior Notes Upon a Change of
Control.?
Certain Covenants......................................
The Indenture contains certain covenants that limit, among other
things, the ability of the Company and its subsidiaries to: (i)
pay dividends, redeem capital stock or make certain other
restricted payments or investments; (ii) incur additional
indebtedness or issue preferred equity interests; (iii) merge,
consolidate or sell all or substantially all of their assets;
(iv) create liens on assets; (v) engage in certain asset sales;
and (vi) enter into certain transactions with affiliates or
related persons. See ?Description of Senior Notes-Certain
Covenants.?
<PAGE>
Form, Denomination and Registration of Notes...........
New Senior Notes exchanged for Old Senior Notes will be eligible
for trading through the facilities of the Depository Trust
Company ("DTC"). New Senior Notes traded through the facilities
of DTC will be represented by a global note or notes in
definitive, fully registered form without interest coupons
deposited with the trustee for the New Senior Notes (the
"Trustee") as custodian for and registered in the name of a
nominee of DTC. New Senior Notes exchanged for Old Senior Notes
which are in the form of registered definitive certificates will
be issued in the form of registered definitive certificates until
otherwise directed by the Holders of such New Senior Notes. See
"Description of the Senior Notes-Book-Entry, Delivery and Form."
Use of Proceeds........................................
The Company will not receive any proceeds from the Exchange
Offer. The net proceeds of the offering of the Old Senior Notes
were used, together with funds from other sources, to fund
certain acquisitions and to refinance certain of the Company's
debt and to pay certain related fees and expenses. See ?The
Transactions? and ?Use of Proceeds.?
<PAGE>
Risk Factors
In addition to the information contained elsewhere in this Prospectus,
Holders of the Old Senior Notes should carefully consider the matters set forth
under "Risk Factors" commencing on page 20 before making a decision to tender
their Old Senior Notes in the Exchange Offer.
<PAGE>
Summary Historical and Pro Forma Financial Data
The following table presents: (i) summary combined historical financial
and store data for Mrs. Fields' Original Cookies, Inc. and subsidiaries (?Mrs.
Fields?) and its predecessors, Mrs. Fields Inc. and subsidiaries, The Original
Cookie Company, Incorporated and the Carved-out Portion (pretzel business) of
Hot Sam Company, Inc. (collectively, the ?Predecessors?), as of December 30,
1995 and December 28, 1996 and for the fiscal years then ended, (ii) summary
consolidated historical financial and store data for Mrs. Fields as of January
3, 1998 and for the fiscal year then ended and (iii) summary consolidated pro
forma financial and store data for Mrs. Fields for the fiscal year ended January
3, 1998 as if each of the Offering, the Pretzel Contributions and the
Refinancing had occurred as of December 29, 1996. The summary consolidated pro
forma data do not purport to represent what Mrs. Fields' results actually would
have been had the Offering, the Pretzel Contributions and the Refinancing
occurred at December 29, 1996 nor do such data purport to project the results of
Mrs. Fields for any future period. The summary historical and pro forma
financial and store data should be read in conjunction with ?Management's
Discussion and Analysis of Financial Condition and Results of Operations,? the
?Unaudited Pro Forma Condensed Consolidated Statement of Operations,? ?Selected
Historical Financial Data? and the related notes thereto, and the historical
financial statements and the related notes thereto, contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MRS. FIELDS AND MRS.
PREDECESSORS(1) MRS.FIELDS (1)
----------------------- ---------------------------
HISTORICAL HISTORICAL PRO FORMA
COMBINED(2) CONSOLIDATED CONSOLIDATED
----------------------- ------------ ------------
FISCAL YEARS ENDED(3)
DECEMBER DECEMBER JANUARY JANUARY
30,1995 28,1996 3, 1998 3, 1998(4)
-------- -------- ------------ ------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Statement of Operations Data:
Net sales:
Core stores (5)............. $ 93,775 $ 93,235 $ 104,316 $ 112,594
Stores in the process of
being closed or franchised....... 51,762 30,695 19,671 21,023
-------- --------- ---------- ---------
Total store sales....... 145,537 123,930 123,987 133,617
--------- --------- ---------- ---------
Store contribution: (6)
Core stores (5)............. 21,992 21,213 26,885 28,056
Stores in the process of
being closed or franchised (2,344) (1,933) (1,798) (1,742)
--------- ---------- ----------- --------
Total store contribution 19,648 19,280 25,087 26,314
-------- ---------- ----------- --------
.
Franchising, licensing and
other revenue, net.......... 5,993 5,278 5,602 8,879
General and administrative
expenses.................... 21,037 19,557 16,730 18,923
expenses .
Income (loss) from operations. (1,091) 1,135 8,415 9,054
Other Data:
EBITDA (7).................... 9,336 10,327 18,818 20,790
Adjusted EBITDA (8)........... 13,127 14,577 20,711 23,063
Cash flows from operating
activities.................. (27) 6,784 919 1,630
Cash flows from investing
activities.................. 1,958 (22,716) (15,505) (15,561)
Cash flows from financing
activities.................. (4,784) 18,793 24,164 23,689
Interest expense, net......... 4,319 4,701 7,584 11,584
Total depreciation and
amortization................ 10,427 9,192 10,403 $ 11,736
Capital expenditures.......... $ 4,714 $ 3,524 $ 4,678 N/A
Pro Forma Credit Statistics:
Ratio of adjusted EBITDA/net cash
interest expense (9)............................................ 2.46x
Ratio of net debt/adjusted EBITDA (10)................................. 3.71x
Store Data:
Percentage change in comparable
core store sales (11)....... (1.3%) (0.7%) 0.8% N/A
Percentage change in comparable
sales from stores in the
process of being closed or
franchised (11).............. (2.8%) (3.3%) (0.8%) N/A
Total Company-owned stores open
at end of period............ 540 482 481 481
Total franchised or licensed
stores open at end of period....... 415 418 553 553
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS
JANUARY 3,
1998
------------
(Dollars in
thousands)
<S> <C>
Balance Sheet Data:
Cash and cash equivalents..................................... $ 16,287
Total assets.................................................. 149,684
Mandatorily redeemable cumulative preferred stock of
subsidiary.................................................... 902
Total debt and capital lease obligations...................... 101,081
Total stockholder's equity.................................... 30,765
</TABLE>
(1) On September 17, 1996, Mrs. Fields completed the acquisitions of
substantially all of the assets and assumed certain liabilities of the
Predecessors. In order for the presentations to be comparable for the
periods presented, certain statement of operations information for the
Predecessors has been reclassified to be consistent with the Mrs. Fields
historical financial statement presentation. The most significant
reclassifications relate to segregating the statement of operations data
into a core stores/stores in the process of being closed or franchised
format.
(2) Information for fiscal year 1995 reflects the combined results of the
Predecessors. Information for the fiscal year 1996 reflects the combined
results of the Predecessors (for the period December 31, 1995 through
September 17, 1996) and Mrs. Fields for the period September 18, 1996
through December 28, 1996. Information for these periods for the
Predecessors and Mrs. Fields are set out separately in the "Selected
Historical Financial Data" but are combined here. This presentation is not
in conformity with generally accepted accounting principles.
(3) Mrs. Fields and its Predecessors operate using a 52/53-week year ending
near December 31.
(4) The Company's consolidated pro forma data for the fiscal year 1997 reflects
the consolidated results of Pretzel Time, H&M and Mrs. Fields assuming the
Offering, the Pretzel Contributions and the Refinancing occurred on
December 29, 1996. See ?Unaudited Pro Forma Condensed Consolidated
Statement of Operations.?
(5) Stores not in the process of being sold or franchised are referred to as
"core stores."
(6) Store contribution is determined by subtracting all store operating
expenses including depreciation from net store sales.
(7) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income (expense). EBITDA is not intended to
represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income as an indicator of operating performance or to cash flows as a
measure of liquidity. EBITDA has been included herein because it is one of
the indicators by which Mrs. Fields assesses its financial performance and
its capacity to service its debt (see footnote 8).
(8) Adjusted EBITDA consists of EBITDA before (i) nonrecurring headquarters,
severance and related expenses resulting from the acquisitions of the
Predecessors and the Pretzel Contributions, (ii) indirect costs (including
management bonuses) of the Offering, (iii) the provision for store closure
costs, and (iv) costs associated with the sale of existing stores to
franchisees.
<TABLE>
<CAPTION>
MRS. FIELDS AND
PREDECESSORS MRS.FIELDS
--------------------- -------------------
HISTORICAL HISTORICAL PRO FORMA
CONSOLIDATED CONSOLIDATED CONSOLIDATED
FISCAL YEARS ENDED
DECEMBER DECEMBER JANUARY JANUARY
30, 1995 28, 1996 3, 1998 3, 1998
----------- --------- --------- -------
<S> <C> <C> <C> <C>
Income (loss) from operations $(1,091) $ 1,135 $ 8,415 $ 9,054
Add:
Depreciation and amortization 10,427 9,192 10,403 11,736
----------- --------- -------- --------
EBITDA....................... 9,336 10,327 18,818 20,790
Add:
Certain non-recurring
headquarters, severance and
related expenses - 2,250 - 380
Indirect costs (including
management bonuses, of the
Offering................... - - 455 455
Provision for store 3,791 1,000 538 538
closure costs.................
Costs associated with sale
of existing stores to
stores to franchisees......... - 1,000 900 900
---------- ---------- -------- --------
Adjusted EBITDA.............. $13,127 $14,577 $20,711 $23,063
========== ========== ======== ========
</TABLE>
<PAGE>
(9) Pro forma to reflect the Offering, the Pretzel Contributions and the
Refinancing as if the Offering, the Pretzel Contributions and the
Refinancing had occurred on December 29, 1996. Ratio of pro forma adjusted
EBITDA to pro forma net cash interest expense is based upon adjusted EBITDA
of $23.1 million and net cash interest expense of $9.4 million (net of $0.8
million of interest income calculated assuming 5% interest earned on the
cash and cash equivalents balance of $16.3 million) for the fiscal year
ended January 3, 1998. Net cash interest expense excludes $0.9 million of
interest expense related to amortization of deferred loan costs.
(10) Pro forma to reflect the Offering, the Pretzel Contributions and the
Refinancing as if the Offering, the Pretzel Contributions and the
Refinancing had occurred on December 29, 1996. Ratio of net debt to pro
forma adjusted EBITDA is based upon net debt (total debt and preferred
stock less cash and cash equivalents) of $85.7 million at January 3, 1998
and pro forma adjusted EBITDA of $23.1 million for the fiscal year ended
January 3, 1998. See ?Capitalization.?
(11) The Company includes in comparable store sales only those stores that have
been in operation for a minimum of 24 consecutive months. The percentage
change in comparable store sales is calculated from the previous period.
<PAGE>
Risk Factors
Holders of Old Senior Notes should consider carefully all of the
information set forth in this Prospectus. Holders should particularly evaluate
the following risks before tendering their Old Senior Notes in the Exchange
Offer, although the risk factors set forth below (other than the first two risk
factors) are generally applicable to the New Senior Notes as well as the Old
Senior Notes. Information contained in this Prospectus contains "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "should," "estimates," "projected,"
"contemplates" or "anticipates" or the negative thereof or other variations
thereon or comparable terminology. See, e.g., "Prospectus Summary-The Company"
and "Business." No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including certain risks and uncertainties, that
could cause actual results to vary materially from the future results covered in
such forward-looking statements. Other factors, such as the general state of the
economy of the United States could also cause actual results to vary materially
from the future results covered in such forward-looking statements.
Consequences of Failure to Exchange Old Senior Notes
Issuance of the New Senior Notes in exchange for the Old Senior Notes
pursuant to the Exchange Offer will be made following the prior satisfaction, or
waiver, of the conditions set forth in "The Exchange Offer-Certain Conditions to
the Exchange Offer" and only after a timely receipt by the Exchange Agent (as
defined) of such Old Senior Notes, a properly completed and duly executed Letter
of Transmittal in respect of such Old Senior Notes and all other required
documents. Therefore, holders of Old Senior Notes desiring to tender such Old
Senior Notes in exchange for New Senior Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Company is under any
duty to give notification of defects or irregularities with respect to the
tenders of Old Senior Notes for exchange. Old Senior Notes that are not tendered
or are tendered but not accepted will, following the consummation of the
Exchange Offer, continue to be subject to the provisions of the Indenture
regarding transfer and exchange of the Old Senior Notes, the existing
restrictions upon transfer thereof set forth in the legend on the Old Senior
Notes and in the (Offering Circular) dated November 20, 1997 relating to the Old
Senior Notes (the "Offering Circular"). Except in certain limited circumstances
with respect to certain types of Holders of Old Senior Notes, the Company will
have no further obligation to provide for the registration under the Securities
Act of such Old Senior Notes. See "Description of the Notes -Exchange Offer;
Registration Rights." In general, Old Senior Notes, unless registered under the
Securities Act, may not be offered or sold except pursuant to an exemption from,
or in a transaction not subject to, the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will take any
action to register the Old Senior Notes under the Securities Act or blue sky
laws.
To the extent that Old Senior Notes are tendered and accepted in the
Exchange Offer, a Holder's ability to sell untendered Old Senior Notes could be
adversely affected.
Upon consummation of the Exchange Offer, holders of the Old Senior Notes
will not be entitled to any increase in the interest rate thereon or any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Description of the Notes-Exchange Offer;
Registration Rights."
Consequences of Exchanging Old Senior Notes
Based on interpretations by the staff of the Commission, as set forth in no
action letters issued to third parties, the Company believes that the New Senior
Notes issued in exchange for the Old Senior Notes pursuant to the Exchange Offer
may be offered for resale, resold or otherwise transferred by Holders thereof
(other than any such Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Senior Notes are acquired in the ordinary course of such Holders'
business and such Holders have no arrangement with any person to participate in
the distribution (within the meaning of the Securities Act) of such New Senior
Notes. Each Holder, other than a broker-dealer, must at the request of the
Company furnish a written representation that it is not an affiliate of the
Company, is not engaged in, and does not intend to engage in, a distribution of
such New Senior Notes and has no arrangement or understanding to participate in
a distribution of New Senior Notes, and that it is acquiring the New Senior
Notes in its ordinary course of business. If any Holder is an affiliate of the
Company, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Senior Notes to be
acquired pursuant to the Exchange Offer, such Holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
<PAGE>
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transactions. Each broker-dealer that receives New
Senior Notes for its own account in exchange for Old Senior Notes must
acknowledge that such Old Senior Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities and that it will
deliver a prospectus in connection with any resale of such New Senior Notes.
Each broker-dealer who holds Old Senior Notes acquired for its own account as a
result of market-making activities or other trading activities, and who receives
New Senior Notes in exchange for such Old Senior Notes pursuant to the Exchange
Offer, may be an "underwriter" within the meaning of the Securities Act in
connection with any resale of such New Senior Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Senior Notes received in exchange for Old Senior Notes where such Old Senior
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that starting on
the date of consummation of the Exchange Offer and ending on the close of
business of the 120th day following the date of consummation of the Exchange
Offer, it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution." In addition, to
comply with the securities laws of certain jurisdictions, it may be necessary to
qualify for sale or register thereunder the New Senior Notes prior to offering
or selling such New Senior Notes. The Company has agreed, pursuant to the
Registration Rights Agreement, subject to certain limitations specified therein,
prior to any public offering of Transfer Restricted Securities (as defined
herein) to register or qualify the Transfer Restricted Securities for offer or
sale under the securities laws of such jurisdictions as any Holder requests.
Unless a Holder so requests, the Company does not intend to register or qualify
the sale of the New Senior Notes in any such jurisdiction.
Substantial Leverage
The Company is and, following the Exchange Offer, will continue to be
highly leveraged. As of January 3, 1998, after giving effect to the use of
proceeds from the offering of the Old Senior Notes, the Company on a
consolidated basis had total indebtedness of approximately $101.1 million and
mandatorily redeemable cumulative preferred stock having an aggregate
liquidation preference of approximately $1.5 million outstanding, together
representing 77% of its total book capitalization, and the Company's ratio of
pro forma Adjusted EBITDA to pro forma net cash interest expense was 2.46x for
the fiscal year ended January 3, 1998. The Company may incur additional
indebtedness and issue preferred stock in the future, subject to limitations
imposed by the Indenture. See ?Capitalization,? ?Unaudited Pro Forma Condensed
Consolidated Statement of Operations,? ?Selected Historical Financial Data,?
?The Transactions? and ?Description of Senior Notes-Certain Covenants.?
The Company's ability to make scheduled payments of principal of, or to
pay interest on, or to refinance its indebtedness (including the Senior Notes)
depends on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. There can be no assurance that the Company's
business will generate sufficient cash flows from operations or that future
borrowings will be available in an amount sufficient to enable the Company to
service its indebtedness, including the Senior Notes, or to make necessary
capital expenditures, or that any refinancing would be available on commercially
reasonable terms or at all. See ?Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources.?
The degree to which the Company is leveraged could have important
consequences to holders of the Senior Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flows from operations
is required to be dedicated to debt service and will not be available for other
purposes; (ii) the Company's ability to obtain additional financing in the
future could be limited; and (iii) the Indenture contains financial and
restrictive covenants that limit the ability of the Company to, among other
things, borrow additional funds, dispose of assets or pay cash dividends.
Failure by the Company to comply with such covenants could result in an event of
default, which, if not cured or waived, could have a material adverse effect on
the Company. In addition, the degree to which the Company is leveraged could
prevent it from repurchasing all Senior Notes tendered to it upon the occurrence
of a Change of Control. See ?Description of Senior Notes-Repurchase at the
Option of Holders-Change of Control.?
Effective Subordination
The Senior Notes are general unsecured obligations of the Company, rank
senior in right of payment to all subordinated indebtedness of the Company and
rank pari passu in right of payment to all existing and future senior
indebtedness of the Company. As of January 3, 1998, the Company (excluding its
subsidiaries) had approximately $0.2 million in indebtedness other than the
<PAGE>
Senior Notes. The Senior Notes are unconditionally guaranteed on a senior basis
by the Guarantors. The Guarantees are general unsecured obligations of the
Guarantors, rank senior in right of payment to all subordinated indebtedness of
the Guarantors and rank pari passu in right of payment with all existing and
future senior indebtedness of the Guarantors. As of January 3, 1998, the
aggregate amount of indebtedness of the Company's subsidiaries was approximately
$0.9 million and the aggregate liquidation preference of mandatorily redeemable
cumulative preferred stock of the Company's subsidiaries was approximately $1.5
million, all of which was issued by a subsidiary other than the Guarantors and
effectively ranks senior in right of payment to the Senior Notes. Although the
Indenture limits the ability of the Company and its subsidiaries to incur
additional indebtedness and issue preferred stock, the Company is permitted to
incur additional indebtedness and issue preferred stock, including secured
indebtedness, under certain circumstances, which will effectively rank senior to
the Senior Notes with respect to the assets securing such indebtedness. See
?Description of Senior Notes-General.?
History of Net Losses
Mrs. Fields and its predecessors have incurred net losses during the
past several years. Although the Company has implemented new business strategies
aimed at enhancing revenues and operating results and Mrs. Fields' Original
Cookies, Inc. has recorded positive EBITDA since its formation in September
1996, the Company's operations generally are subject to economic, financial,
competitive, legal and other factors, many of which are beyond its control.
Accordingly, there can be no assurance that the Company will be able to
implement its planned strategies without delay or that these strategies will
result in future profitability. See ?Selected Historical Financial Data? and
?Management's Discussion and Analysis of Financial Condition and Results of
Operations.?
Ability to Integrate Acquisitions
The Company has achieved growth through acquisitions and intends to
continue doing so. While the Company believes there are significant
opportunities for cost savings and volume efficiencies as a result of the
Pretzel Contributions and future acquisitions, there can be no assurance of such
results. Realization of such economic benefits from the Pretzel Contributions
and future acquisitions could also be affected by a number of factors beyond the
Company's control, such as general economic conditions, increased operating
costs, the response of the Company's customers or competitors, and regulatory
developments. There can be no assurance that the Pretzel Contributions or future
acquisitions will result in the economic benefits that management expects on a
timely basis or at all. See ?Business -Business Strategy.?
Dependence on Real Estate Leases; Continuing Obligations on Leases
The Company leases locations for all of its Company-owned stores and
most of its franchised stores and subleases these locations to its franchisees.
Accordingly, the Company is the primary obligor with respect to payment
obligations under such leases. The Company's success depends in part on its
ability to secure leases in high quality shopping malls at rents it believes to
be reasonable. Approximately half of the leases for Company-owned stores and
franchised stores expire during the next five years and generally do not provide
for renewal options in favor of the Company. In addition, the Company currently
plans to open approximately 340 new Company-owned and franchised stores over the
next five years. Management believes that the market for the type of prime mall
locations historically leased by the Company is highly competitive.
Consequently, there can be no assurance that the Company will succeed in
obtaining such leases in the future at rents that it believes to be reasonable
or at all. Moreover, if certain locations should prove to be unprofitable, the
Company would remain obligated for lease payments if it determined to withdraw
from such locations. See ?Business-Properties.?
Dependence on Mall Traffic
The Company believes its products are primarily viewed by its customers
as snack treats and, as such, frequently constitute ?impulse? purchases.
Accordingly, the Company believes its sales are strongly influenced by the
amount and proximity of pedestrian traffic near its stores. In recent years,
visits to major shopping malls, where a large percentage of the Company's stores
are located, have declined from 3.7 visits per month in 1989 to 3.3 visits per
month in 1995, which trend has had a negative impact on the Company's revenues.
There can be no assurance that this trend will not continue or that such trend
can be offset by increased sales per customer. A continued decline in mall
traffic could adversely affect the Company's financial condition and results of
operations.
<PAGE>
Volatility in Cost of Ingredients
The cost of butter, eggs, sugar, flour, chocolate and other ingredients
is subject to fluctuations due to changes in economic conditions, weather,
demand and other factors, many of which are beyond the Company's control.
Although the Company believes that there are alternative suppliers of these
ingredients, the Company has no control over fluctuations in the price of
commodities and no assurance can be given that the Company will be able to pass
on any price increases in its product ingredients to its customers.
Integration of Information Systems
The Company has made a substantial investment in developing a
customized, sophisticated point-of-sale management information system (the ?POS
system?), which gathers information transmitted daily to corporate headquarters
from most of the Mrs. Fields brand core stores. The POS system tracks sales from
the point of purchase through a central mid-range computer to store, district
and corporate management, allowing management to track performance data and
react quickly to developments at the store level. See ?Management's Discussion
and Analysis of Financial Condition and Results of Operations.? Information
transmitted from the Company-owned stores on daily sales permits the Company,
among other things, to monitor performance across the network of stores. The
Company believes that it can improve operating efficiencies by introducing its
improved system into all Company-owned stores. There can be no assurance that
the Company will successfully integrate this system or that a fully integrated
system will be achieved within budget. Therefore, there can be no assurance that
the financial condition and results of operations will not be adversely affected
by the attempts to integrate the POS system.
Management has assessed the Year 2000 issue and has determined that all
financial software, corporate networks, the AS400 system and all other corporate
systems are Year 2000 compliant. The systems used for collecting sales data from
retail locations are not Year 2000 compliant. It has been determined that the
sales collection system will be replaced. This project is currently underway
with initial roll-out into retail locations beginning in August 1998 with
completion to all locations by August 1999. The cost of the project, which is
being completed with the assistance of outside consultants, is $300,000.
Impact of Minimum Wage Increase
Many of the Company's employees are paid an hourly wage based upon the
federal minimum wage. The federal minimum wage increased from $4.75 to $5.15 on
September 1, 1997. As of January 3, 1998, 2,167 of the Company's 4,007 employees
in Company-owned stores earned the federal minimum wage. The September 1, 1997
minimum wage increase is expected to negatively impact the Company's labor
costs, increasing wages by approximately $316,000 annually. There can be no
assurance that the increased labor costs will be fully absorbed through the
Company's efforts to increase efficiencies in other areas of its operations.
These increased labor costs could adversely affect the Company's financial
condition and results of operations.
Dependence Upon Key Franchisees
The Company depended upon five franchisees for 17.4% of its franchise
revenues for the year ended January 3, 1998. For the same period, franchise
revenues made up 3.1% of the Company's total net revenues. There can be no
assurance that these franchise agreements will not be terminated. The
termination of these key franchise agreements may have an adverse affect on the
Company's financial condition and results of operations.
Trademarks
The Company believes that its trademarks have significant value and are
important to the marketing of its retail outlets and products. Although the
Company's trademarks are registered in all 50 states and registered or pending
in 49 foreign countries, there can be no assurance that the Company's trademarks
cannot be circumvented, do not or will not violate the proprietary rights of
others, or would be upheld if challenged or that the Company would not be
prevented from using its trademarks. Any challenge to the Company for its use of
its trademarks could have an adverse effect on the Company's financial condition
and results of operations, through either a negative ruling with regards to the
Company's use, validity or enforceability of its trademarks, or through the time
consumed and the legal costs of defending against such a claim. In addition,
there can be no assurance that the Company will have the financial resources
necessary to enforce or defend its trademarks .
<PAGE>
Dependence Upon Key Personnel
The success of the Company is dependent on the continued services of
its senior management, particularly Larry A. Hodges, the Company's President and
Chief Executive Officer. The loss of the services of Mr. Hodges or other senior
management personnel could have an adverse effect on the Company's operations.
The Company has entered into employment agreements with all of its senior
management personnel. In addition, the Company's continued growth depends, in
part, on attracting and retaining skilled managers and employees as well as
management's ability to effectively utilize its key personnel in light of recent
and future acquisitions. There can be no assurance that management's efforts to
integrate, utilize, attract and retain personnel will be successful. See
?Management.?
Competition and Demographic Trends
The Company competes with other cookie and pretzel retailers, as well
as other confectionery, sweet snack and specialty food retailers, many of which
have greater resources than those of the Company. The specialty retail food and
snack industry is highly competitive with respect to price, service, location
and food quality. Consequently, there can be no assurance that the Company will
compete successfully with these other specialty food retailers. In addition to
the risks associated with current competitors, no assurance can be given as to
the Company's ability to compete with any new entrants into the specialty foods
or snack foods industry.
Moreover, the specialty retail food and snack business is often
affected by changes in consumer preferences, tastes and eating habits, local,
regional and national economic conditions, demographic trends and mall traffic
patterns. Factors such as increased food, labor and benefits costs and the
availability of experienced management and hourly employees may adversely affect
the specialty retail industry in general and the Company's outlets in
particular. Consequently, the Company's success will depend on its ability to
recognize and react to such trends. Any changes in these factors could adversely
affect the profitability of the Company. See ?Business-Competition.?
Risk of Adverse Publicity
The Company's ability to compete depends in part on maintaining its
reputation with the consumer. Multi-unit specialty retail food and snack chains
such as the Company can be substantially adversely affected by publicity
resulting from food quality, illness, injury, or other health concerns
(including food-borne illness claims) or operating issues stemming from one
store, a limited number of stores, or even a competitor's store. Consequently,
there can be no assurance that the Company's financial condition and results of
operations will not be adversely affected by such publicity.
Government Regulation; Litigation
The Company's stores and products are subject to regulation by numerous
governmental authorities, including, without limitation, federal, state and
local laws and regulations governing health, sanitation, environmental
protection, safety and hiring and employment practices, including laws, such as
the Fair Labor Standards Act, governing such matters as minimum wages, overtime
and other working conditions. The Company's products are subject to federal
regulations administered by the Food and Drug Administration. The failure to
obtain or retain the required food licenses or to be in compliance with
applicable governmental regulations, or any increase in the minimum wage rate,
employee benefit costs or other costs associated with employees, could adversely
affect the business, financial condition or results of operations of the
Company. Even if such regulatory approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to periodic inspection
and discovery of problems may adversely affect the business of the Company.
In addition, the sale of franchises is regulated by various state laws
as well as by the Federal Trade Commission (the ?FTC?). The FTC requires that
franchisors make extensive disclosure in a Uniform Franchise Prospectus to
prospective franchisees but does not require registration. However, a number of
states require registration of the Uniform Franchise Prospectus with state
authorities or other disclosure in connection with franchise offers and sales.
In addition, several states have ?franchise relationship laws? or ?business
opportunity laws? that limit the ability of the franchisors to terminate
agreements or to withhold consent to renewal or transfer of these agreements.
While the Company believes that it is in compliance with existing regulations,
the Company cannot predict the effect of any future legislation or regulation on
its business operations or financial condition. Additionally, bills have
occasionally been introduced in Congress which would provide for federal
regulation of certain aspects of franchisor-franchisee relationships.
<PAGE>
In the ordinary course of business, the Company is involved in routine
litigation, including franchise disputes. Although the Company has not been
adversely affected in the past by such litigation, there can be no assurance as
to the effect of any future disputes.
Although the Company is not currently subject to any product liability
litigation, there can be no assurance that product liability litigation will not
occur in the future involving the Company's products. The Company's quality
control program is designed to maintain high standards for the food and
materials and food preparation procedures used by Company-owned and franchised
stores. Products are randomly inspected by Company personnel at both the
point-of-sale locations and the manufacturing facility to ensure that they
conform to the Company's standards. In addition to insurance of the Company's
suppliers, the Company maintains insurance relating to personal injury and
product liability in amounts that it considers adequate for the retail food
industry. While the Company has been able to obtain such insurance in the past,
there can be no assurance that it will be able to maintain these insurance
policies in the future. Consequently, any successful claim against the Company,
in an amount materially exceeding its coverage, could have a material adverse
effect on the Company's business, financial condition or results of operations.
All full-time store managers and assistant managers are able to enroll
in a group health insurance plan. However, there have been a number of proposals
before Congress which would require employers to provide health insurance for
all of their full-time and part-time employees. The approval of such proposals
could have a material adverse impact on the results of operations and financial
condition of the Company in particular and the specialty retail industry as a
whole.
Controlling Stockholder
As of the date of this Prospectus, all of the capital stock of the
Company is owned by MFH, and, upon completion of the Exchange Offer, MFH will
continue to own all of the capital stock of the Company. As a result, MFH will
be in a position to elect all of the Company's directors who, in turn, elect all
of the Company's executive officers, and to amend the Company's certificate of
incorporation and by-laws, effect corporate transactions such as mergers and
asset sales and otherwise control the management and policies of the Company
without the approval of any other security holder. Accordingly, MFH will be able
to, directly or indirectly, control all of the affairs of the Company. It is
currently expected that an option plan will be established providing for the
issuance of up to 15% of the capital stock of MFH to officers, other employees
and consultants of the Company. See ?Management-Option Grants and Exercises? and
"-Board Compensation." Capricorn's ownership interest in MFH is subject to
reduction for stock options and stock to be issued by the Company to its
management and directors. Without giving effect to such option plan, more than
95% of the capital stock of MFH is and will continue to be owned by Capricorn.
See ?Ownership of Capital Stock? and ?Certain Relationships and Related
Transactions.?
Quarterly Fluctuations and Seasonality
The Company's operating results are subject to seasonal fluctuations.
Historically, the Company has realized its highest level of sales in the fourth
quarter due to increased mall traffic during the Christmas holiday season.
However, there can be no assurance that this seasonal trend will continue or
that the Company can continue to rely on increased sales during the fourth
quarter. Should this seasonal trend change, the Company's financial condition
and results of operations may be adversely affected. See ?Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Seasonality.?
Inability to Repurchase Senior Notes Upon a Change of Control
Upon the occurrence of a Change of Control, each holder of Senior Notes
may require the Company to repurchase all or a portion of such holder's Senior
Notes at 101% of the principal amount of the Senior Notes, together with the
accrued and unpaid interest, if any, and Liquidated Damages, if any, to the date
of repurchase. If a Change of Control were to occur, the Company may not have
the financial resources to repay all of its obligations under the Senior Notes
and the other indebtedness that would become payable upon such event. See
"Description of Senior Notes-Repurchase at the Option of Holders-Change of
Control."
<PAGE>
Fraudulent Conveyance Considerations
Management believes that the indebtedness represented by the Senior
Notes and the Guarantees was incurred for proper purposes and in good faith, and
that, after the consummation of the Transactions and the offering of the Old
Senior Notes and the application of the new proceeds therefrom, the Company
remained solvent, had sufficient capital for carrying on its business and would
be able to pay its debts as they matured. Notwithstanding management's belief,
however, if a court of competent jurisdiction in a suit by an unpaid creditor or
a representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that, at the time of the incurrence of such
indebtedness, the Company was insolvent, was rendered insolvent by reason of
such incurrence, was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital, intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, or intended to hinder, delay or defraud its creditors, and that the
indebtedness was incurred for less than reasonably equivalent value, then such
court could, among other things, (i) void all or a portion of the Company's
obligations to the holders of the Senior Notes, the effect of which would be
that the holders of the Senior Notes may not be repaid in full, and/or (ii)
subordinate the Company's obligations to the holders of the Senior Notes to
other existing and future indebtedness of the Company to a greater extent than
would otherwise be the case, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Senior
Notes.
The Company's obligations under the Senior Notes have been and will
continue to be unconditionally guaranteed, jointly and severally, on a senior
basis, by the Guarantors. Management believes that the indebtedness represented
by each of the Guarantees is being incurred by the Guarantors for proper
purposes and in good faith, and that, after the consummation of the Transactions
and the offering of the Old Senior Notes, each of the Guarantors was solvent,
had sufficient capital for carrying on its business and would be able to pay
their debts as they matured. Notwithstanding management's belief, however, if a
court of competent jurisdiction in a suit by an unpaid creditor or a
representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that, at the time of the incurrence of such
indebtedness, the Guarantors were insolvent, were rendered insolvent by reason
of such incurrence, were engaged in a business or transaction for which their
remaining assets constituted unreasonably small capital, intended to incur, or
believed that they would incur, debts beyond their ability to pay such debts as
they matured, or intended to hinder, delay or defraud their creditors, and that
the indebtedness was incurred for less than reasonably equivalent value, then
such court could, among other things, (i) void all or a portion of the
Guarantors' obligations to the holders of the Senior Notes, the effect of which
would be that the holders of the Senior Notes may not be repaid in full, and/or
(ii) subordinate the Guarantors' obligations to the holders of the Senior Notes
to other existing and future indebtedness of the Guarantors to a greater extent
than would otherwise be the case, the effect of which would be to entitle such
other creditors to be paid in full before any payment could be made on the
Senior Notes. Among other things, a legal challenge to the Guarantees on
fraudulent conveyance grounds may focus on the benefits, if any, realized by the
Guarantors as a result of the issuance by the Company of the Senior Notes.
Absence of Public Market; Volatility; Restrictions on Transfers
The New Senior Notes are being offered only to the Holders of the Old
Senior Notes. The Old Senior Notes were issued on November 26, 1997 to
institutional investors and certain accredited investors and are eligible for
trading in the Private Offering, Resale and Trading through Automated Linkages
("PORTAL") Market of the National Association of Securities Dealers, Inc. a
screen-based automated market for trading of securities eligible for resale
under Rule 144A. To the extent that the Old Senior Notes are tendered and
accepted in the Exchange Offer, the trading market for the remaining untendered
Old Senior Notes could be adversely affected.
There is no existing market for the New Senior Notes and there can be
no assurance regarding the future development of a market for the New Senior
Notes, or the ability of the holders of the New Senior Notes, or the price at
which such holders may be able, to sell their New Senior Notes. If such a market
were to develop, the New Senior Notes could trade at prices that may be higher
or lower than the initial offering price of the Old Senior Notes. Prevailing
market prices from time to time will depend on many factors, including then
existing interest rates, the Company's operating results and the market for
similar securities. The Initial Purchasers have advised the Company that they
currently intend to make a market in the New Senior Notes. The Initial
Purchasers are not obligated to do so, however, and any market-making with
respect to the New Senior Notes may be discontinued at any time without notice.
Accordingly, even if a trading market for the New Senior Notes does develop,
there can be no assurance as to the liquidity of that market. The Company does
not intend to apply for listing or quotation of the New Senior Notes on any
securities exchange or stock market.
<PAGE>
THE TRANSACTIONS
Concurrently with the consummation of the Offering, the Company
consummated the Pretzel Contributions and completed the Refinancing. The Company
used the net proceeds of the offering of the Old Senior Notes to complete the
Pretzel Contributions and the Refinancing and to pay related expenses.
The Pretzel Contributions
H&M. On July 25, 1997, a subsidiary of MFH ("MFPC") acquired
substantially all of the assets of H&M for aggregate consideration of $13.8
million (excluding the assumption of certain liabilities), consisting of (i)
$5.8 million of cash, financed through an advance by MFH of $1.5 million and a
$4.3 million bank loan to MFPC, (ii) a $4.0 million principal amount bridge note
of MFPC and (iii) a $4.0 million principal amount subordinated note of MFH
retained by the sellers (such loan and notes, collectively, the "H&M Debt").
Upon consummation of the offering of the Old Senior Notes, the Company assumed
and repaid the H&M Debt and repaid the advance to MFH as part of the
Refinancing.
In connection with the acquisition of the business of H&M, MFPC entered
into franchise agreements and an area development agreement with Pretzel Time.
Upon the Offering, MFPC was merged with and into the Company, and the agreements
were assigned to the Company as a result. The franchise agreements provide for
the franchise by the Company from Pretzel Time of the Pretzel Time stores
previously franchised by H&M or subsequently franchised by the Company and the
payment by the Company to Pretzel Time of an annual franchise royalty equal to
7% of the annual sales by such stores, plus an advertising fee of 1% of weekly
sales. The franchise agreements also provide for the conversion within three
years of the Company's Hot Sam and Pretzel Oven stores to Pretzel Time
franchises on a royalty-free basis for the first five years following the date
of conversion. The area development agreement provides for the grant by Pretzel
Time to the Company of area development rights to open additional Pretzel Time
stores in a territory covering 16 states, predominantly in the western United
States, four western Canadian provinces and in Mexico. The additional stores may
be opened by the Company as the franchisee or by third parties as franchisees.
Under the area development agreement, the Company is obligated to pay to Pretzel
Time a $5,000 franchise fee per new location within the territory. Pretzel Time
is obligated under the area development agreement to pay to the Company an
annual royalty of up to 2% with respect to Pretzel Time franchises opened by
parties other than the Company within the territory.
Pretzel Time. On September 2, 1997, MFH acquired 56% of the shares of
common stock of Pretzel Time for an aggregate purchase price of $4.2 million,
$750,000 of which was paid to Pretzel Time and is being used for working capital
purposes, and the balance of which was paid to Pretzel Time's shareholders for
their shares. In connection with the acquisition, MFH extended a $500,000 loan
evidenced by a note to the founder of Pretzel Time. Upon consummation of the
Offering, MFH contributed to the Company its 56% interest in Pretzel Time and
the related $500,000 note. In addition, MFH assigned its rights to the Company,
and the Company assumed MFH's obligations, under the various agreements
described below. The note issued by the founder of Pretzel Time bears interest
at a rate of 10% per annum and is payable as to principal and interest in
monthly installments beginning in January 1998 by setoff of, and to the extent
of, the founder's bonus payments described below and any dividends received by
the founder in his Pretzel Time stock; provided that in any calendar year no
more than $100,000 may be so offset. In addition, the founder has remained an
employee of Pretzel Time and receives annual compensation of $200,000 in
connection therewith, and will receive a bonus based on Pretzel Time's net
income before non-cash items, such as depreciation and amortization. The Company
purchased an additional 4% of the shares of common stock of Pretzel Time from
the founder for $300,000 in cash on January 2, 1998. The founder continues to
own 40% of the common stock of Pretzel Time.
The Company is a party to a management agreement, pursuant to which the
Company is managing Pretzel Time's operations, in return for a management fee
based on Pretzel Time's net income before non-cash items, such as depreciation
and amortization. Pretzel Time, the Company and the founder of Pretzel Time also
entered into a shareholders agreement providing for representation by the
Company and the founder on Pretzel Time's Board of Directors, the right of the
founder to approve certain extraordinary transactions, and the grant by the
Company and the founder to each other of certain preemptive rights upon the
issuance of, and rights of first refusal with respect to the sale of, Pretzel
Time common stock.
<PAGE>
The Refinancing
Pursuant to the Refinancing, the Company repaid approximately $79.1
million aggregate principal amount of indebtedness and accrued but unpaid
interest of the Company, MFB and MFPC. Such indebtedness consisted of (i)
approximately $52.3 million principal amount of indebtedness and accrued but
unpaid interest of the Company incurred in connection with the formation of the
Company in September 1996, (ii) approximately $14.1 million principal amount of
indebtedness and accrued but unpaid interest of MFB incurred in connection with
the formation of MFB in September 1996 and (iii) approximately $12.7 million
principal amount and accrued but unpaid interest of the H&M Debt.
As part of the Refinancing, MFH converted to common equity of the
Company $4.6 million aggregate principal amount of indebtedness of the Company
and contributed to the Company all of the common equity of MFB after converting
$3.5 million face amount of preferred stock issued by MFB, together with accrued
but unpaid dividends of approximately $0.4 million, to common equity. Also as
part of the Refinancing, the Company paid a dividend to MFH in the amount of
approximately $1.1 million and repaid an advance of $1.5 million to MFH.
Approximately $1.1 million was used by MFH to repurchase a portion of the equity
of MFH owned by a shareholder other than Capricorn. After giving effect to such
contributions and to the return of capital described above, the aggregate amount
of Capricorn's current investment in the Company through MFH was more than $28
million. See ?Unaudited Pro Forma Condensed Consolidated Statement of
Operations,? ?Selected Historical Financial Data? and ?Use of Proceeds.?
<PAGE>
USE OF PROCEEDS
Neither the Company nor the Guarantor will receive any cash proceeds
pursuant to the Exchange Offer. In consideration for issuing the New Senior
Notes as contemplated in this Prospectus, the Company will receive the Old
Senior Notes in like principal amount, the terms of which are identical in all
material respects to the New Senior Notes except (i) that the New Senior Notes
have been registered under the Securities Act, (ii) for certain transfer
restrictions and registration rights relating to the Old Senior Notes and (iii)
that the New Senior Notes will not contain certain provisions relating to an
additional payment to be made to Holders of the Old Senior Notes under certain
circumstances relating to the timing of the Exchange Offer. The Old Senior Notes
surrendered in exchange for New Senior Notes will be retired and cancelled and
cannot be reissued. Accordingly, issuance of the New Senior Notes will not
result in any increase in the indebtedness of the Company.
The net proceeds received by the Company from the sale of the Old
Senior Notes, after deducting the underwriting discounts and commissions and
estimated expenses of the offering of the Old Notes, were approximately $94
million. Of this amount, approximately $50.2 million was used to pay debt of the
Company, $13.6 million was used to pay debt of the Guarantor, $12.3 million was
used to pay H&M debt, $3.0 million was used to pay accrued interest (including
prepayment penalties of $0.3 million) on debt being retired and approximately
$2.6 million was used to pay MFH. The remaining balance of $12.3 million has
been and will be used for general corporate purposes.
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of Mrs. Fields' Original Cookies, Inc. and subsidiaries at
January 3, 1998. This table should be read in conjunction with the historical
financial statements and related notes included elsewhere in this Registration
Statement. See ?Selected Historical Financial Data? and ?Unaudited Pro Forma
Condensed Consolidated Statement of Operations.?
<TABLE>
<CAPTION>
Mrs. Fields'
Original Cookies,
Inc. and
subsidiaries
At January 3, 1998
(Dollars in
thousands)
<S> <C>
Cash and Cash Equivalents................................................. $ 16,287
========
Credit Facility(1)........................................................ $ -
--------
Debt and Capital Lease Obligations, including current portions:
101/8% Series A Senior Notes due 2004............................ 100,000
Pretzel Time Debt................................................ 756
Mrs. Fields' Original Cookies, Inc. Capital Lease Obligations... 219
Pretzel Time Capital Lease Obligations........................... 106
--------
Total Debt and Capital Lease Obligations, including current portion.. 101,081
Mandatorily Redeemable Preferred Stock of Pretzel Time (2): 902
--------
Stockholder's Equity:
Common Stock (3)................................................. -
Additional Paid-in Capital....................................... 30,843
Accumulated Deficit.............................................. (78)
---------
Total Stockholder's Equity....................................... 30,765
---------
Total Capitalization...................................................... $132,748
=========
</TABLE>
- ----------------
(1) Under the Indenture, the Company will be permitted to have one or more
credit facilities pursuant to which it will be able to borrow up to a
maximum aggregate principal amount of $15.0 million on a secured basis.
The Company is in preliminary discussions with several prospective
lenders, including the lender under the Company's existing $3.0 million
revolving credit facility, to enter into such a credit facility with
borrowing availability of up to $15.0 million.
(2) Liquidation preference as of January 3, 1998 was $1.5 million.
(3) Less than $1,000.
<PAGE>
THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Old Senior Notes
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), the Company will accept for exchange Old Senior
Notes which are properly tendered on or prior to the Expiration Date and not
withdrawn as permitted below. As used herein, the term "Expiration Date" means
5:00 p.m., New York City time, on ___, 1998; provided, however, that if the
Company in its sole discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended.
As of the date of this Prospectus, $100,000,000 aggregate principal
amount of the Old Senior Notes is outstanding. This Prospectus, together with
the Letter of Transmittal, is first being sent on or about _______, 1998 to all
Holders of Old Senior Notes known to the Company. The Company's obligation to
accept Old Senior Notes for exchange pursuant to the Exchange Offer is subject
to certain conditions as set forth under "-Certain Conditions to the Exchange
Offer" below.
The Company expressly reserves the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Senior Notes, by giving oral or
written notice of such extension to the Holders thereof as described below.
During any such extension, all Old Senior Notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by the Company.
Any Old Senior Notes not accepted for exchange for any reason will be returned
without expense to the tendering Holder thereof as promptly as practicable after
the expiration or termination of the Exchange Offer.
Old Senior Notes tendered in the Exchange Offer must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Senior Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
of the Exchange Offer specified below under "-Certain Conditions to the Exchange
Offer." The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the Holders of the Senior Notes as
promptly as practicable, such notice in the case of any extension to be issued
by means of a press release or other public announcement no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
Procedures for Tendering Old Senior Notes
The tender to the Company of Old Senior Notes by a Holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering Holder and the Company upon the terms
and subject to the conditions set forth in the Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a Holder who
wishes to tender Old Senior Notes for exchange pursuant to the Exchange Offer
must transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal or (in the
case of a book-entry transfer) an Agent's Message in lieu of such Letter of
Transmittal, to The Bank of New York (the "Exchange Agent") at the address set
forth below under "Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Senior Notes must be received by
the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Senior Notes, if such procedure is available, into the Exchange Agent's account
at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date with the Letter of Transmittal or an
Agent's Message in lieu of such Letter of Transmittal, or (iii) the Holder must
comply with the guaranteed delivery procedures described below. The term
"Agent's Message" means a message, transmitted by the Book-Entry Transfer
Facility to and received by the Exchange Agent and forming a part of a Book
Entry Confirmation, which states that the Book Entry Transfer Facility has
received an express acknowledgement from the tendering participant, which
acknowledgement states that such participant has received and agrees to be bound
by the Letter of Transmittal and that the Company may enforce such Letter of
Transmittal against such participant. THE METHOD OF DELIVERY OF OLD SENIOR
NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OLD SENIOR NOTES SHOULD BE SENT TO THE COMPANY.
<PAGE>
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Senior Notes surrendered for
exchange pursuant thereto are tendered (i) by a Holder of the Old Senior Notes
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Senior Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Old Senior Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered national
securities exchange with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Senior Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Old Senior Note not properly tendered or to not accept
any particular Old Senior Note which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Old Senior Note either before or after the Expiration Date
(including the right to waive the ineligibility of any Holder who seeks to
tender Old Senior Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Old Senior Notes
either before or after the Expiration Date (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on all
parities. Unless waived, any defects or irregularities in connection with
tenders of Old Senior Notes for exchange must be cured within such reasonable
period of time as the Company shall determine. Neither the Company, the Exchange
Agent nor any other person shall be under any duty to give notification of any
defect or irregularity with respect to any tender of Old Senior Notes for
exchange, nor shall any of them incur any liability for failure to give such
notification.
If the Letter of Transmittal is signed by a person or persons other
than the registered Holder or Holders of Old Senior Notes, such Old Senior Notes
must be endorsed or accompanied by powers of attorney, in either case signed
exactly as the name or names of the registered Holder or Holders that appear on
the Old Senior Notes.
If the Letter of Transmittal or any Old Senior Notes or powers of
attorneys are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted with the Letter of Transmittal.
By tendering, each Holder will represent to the Company that, among
other things, the New Senior Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person receiving such
New Senior Notes, whether or not such person is the Holder and that neither the
Holder nor such other person has any arrangement or understanding with any
person to participate in the distribution of the New Senior Notes. If any Holder
or any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company, is engaged in or intends to engage in or has an
arrangement or understanding with any person to participate in a distribution of
such New Senior Notes to be acquired pursuant to the Exchange Offer, such Holder
or any such other person (i) could not rely on the applicable interpretations of
the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Senior Notes for its
own account in exchange for Old Senior Notes, where such Old Senior Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Senior Notes. See "Plan of Distribution."
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
Acceptance of Old Senior Notes for Exchange; Delivery of New Senior Notes
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Old
Senior Notes properly tendered and will issue the New Senior Notes promptly
after acceptance of the Old Senior Notes. See "-Certain Conditions to the
Exchange Offer" below. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted properly tendered Old Senior Notes for exchange when, as
and if the Company has given oral (promptly confirmed in writing) or written
notice thereof to the Exchange Agent.
For each Old Senior Note accepted for exchange, the Holder of such Old
Senior Note will receive a New Senior Note having a principal amount equal to
that of the surrendered Old Senior Note. Accordingly, registered Holders of New
Senior Notes on the relevant record date for the first interest payment date
following the consummation of the Exchange Offer will receive interest accruing
from the most recent date to which interest has been paid or, if no interest has
been paid, from November 26, 1997. Old Senior Notes accepted for exchange will
cease to accrue interest from and after the date of consummation of the Exchange
Offer. Pursuant to the Registration Rights Agreement, certain additional
payments are required to be made to Holders of Old Senior Notes under certain
circumstances relating to the timing of the Exchange Offer.
In all cases, issuance of New Senior Notes for Old Senior Notes that
are accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) certificates for such Old Senior
Notes or a timely Book-Entry Confirmation of such Old Senior Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility, (ii) a properly
completed and duly executed Letter of Transmittal or an Agent's Message in lieu
thereof and (iii) all other required documents. If any tendered Old Senior Notes
are not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Senior Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged Old
Senior Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Senior Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such non-exchanged Old Senior Notes will
be credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Book-Entry Transfers
The Exchange Agent will make a request to establish an account with
respect to the Old Senior Notes at the Book-Entry Transfer Facility for purposes
of the Exchange Offer within two business days after the date of this
Prospectus. Any financial institution that is a participant in the Book-Entry
Transfer Facility systems must make book-entry delivery of Old Senior Notes by
causing the Book-Entry Transfer Facility to transfer such Old Senior Notes in
the Exchange Agent's account at the Book-Entry Transfer Facility in accordance
with such Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP")
procedures for transfer. Such participant should transmit its acceptance to the
Book-Entry Transfer Facility on or prior to the Expiration Date or comply with
the guaranteed delivery procedures described below. The Book-Entry Transfer
Facility will verify such acceptance, execute a book-entry transfer of the
tendered Old Senior Notes into the Exchange Agent's account at the Book-Entry
Transfer Facility and then send to the Exchange Agent confirmation of such
book-entry transfer, including an Agent's Message confirming that the Book Entry
Transfer Facility has received an express acknowledgement from such participant
that such participant has received and agrees to be bound by the Letter of
Transmittal and that the Company may enforce the Letter of Transmittal against
such participant. However, although delivery of Old Senior Notes may be effected
through book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or facsimile thereof or an Agent's Message in lieu thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under "?Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
Guaranteed Delivery Procedures
If a Holder of the Old Senior Notes desires to tender such Old Senior
Notes and the Old Senior Notes are not immediately available, or time will not
permit such Holder's Old Senior Notes or other required documents to reach the
Exchange Agent before the Expiration Date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if (i)
the tender is made through an Eligible Institution, (ii) prior to the Expiration
Date, the Exchange Agent received from such Eligible Institution a Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of the Old Senior Notes and the amount of Old
Senior Notes tendered, stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange ("NYSE") trading days
<PAGE>
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Senior Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed appropriate Letter of Transmittal (or
facsimile thereof or Agent's Message in lieu thereof) with any required
signature guarantees and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent, and (iii) the certificates for all physically tendered Old Senior Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
together with a properly completed and duly executed appropriate Letter of
Transmittal (or facsimile thereof or Agent's Message in lieu thereof) with any
required signature guarantees and all other documents required by the Letter of
Transmittal, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of Old Senior Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. For a withdrawal to be
effective, a written notice of withdrawal must be received by the Exchange Agent
at one of the addresses set forth below under "-Exchange Agent." Any such notice
of withdrawal must (i) specify the name of the person having tendered the Old
Senior Notes to be withdrawn, (ii) identify the Older Senior Notes to be
withdrawn (including the principal amount of such Old Senior Notes), and (iii)
(where certificates for Old Senior Notes have been transmitted) specify the name
in which such Old Senior Notes are registered, if different from that of the
withdrawing Holder. If certificates for Old Senior Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the release of such
certificates the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Senior Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of theaccount at the Book-Entry Transfer Facility to
be credited with the withdrawn Old Senior Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company whose determination shall be final and binding on all parties. Any
Old Senior Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Senior Notes which have
been tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Senior Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above such Old Senior Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Senior Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Senior Notes may be retendered by
following one of the procedures described under "-Procedures for Tendering Old
Senior Notes" above at any time on or prior to 5:00 p.m., New York City time, on
the Expiration Date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Senior Notes in
exchange for, any Old Senior Notes and may terminate or amend the Exchange
Offer, if at any time before the acceptance of such Old Senior Notes
(i) any federal law, statute, rule or regulation shall have
been adopted or enacted which, in the judgment of the Company,
would reasonably be expected to impair its ability to proceed
with the Exchange Offer;
(ii) if any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under
the Trust Indenture Act of 1939, as amended; or
(iii) there shall occur a change in the current interpretation
by the staff of the Commission which permits the New Senior
Notes issued pursuant to the Exchange Offer in exchange for
Old Senior Notes to be offered for resale, resold and
otherwise transferred by Holders thereof (other than
broker-dealers and any such Holder which is an "affiliate of
the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided
that such New Senior Notes are acquired in the ordinary course
of such Holders' business and such Holders have no arrangement
or understanding with any person to participate in the
distribution of such New Senior Notes.
<PAGE>
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
any such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
Exchange Agent
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
Main Delivery to: The Bank of New York,
As Exchange Agent
By Mail, By Hand and Overnight Courier: By Facsimile:
The Bank of New York
101 Barclay Street
New York, New York 10286 Confirm by telephone:
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER
THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
Fees and Expenses
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer except for reimbursement of mailing
expenses.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $200,000.
Transfer Taxes
Holders who tender their Old Senior Notes for exchange will not be
obligated to pay transfer taxes in connection therewith. If, however, New Senior
Notes are to be delivered to, or are to be issued in the name of, any person
other than the registered holder of the Old Senior Notes tendered, or if a
transfer tax is imposed for any reason other than the exchange of Old Senior
Notes in connection with the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering Holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering Holder.
Consequences of Failure to Exchange Old Senior Notes
Issuance of the New Senior Notes in exchange for the Old Senior Notes
pursuant to the Exchange Offer will be made following the prior satisfaction, or
waiver, of the conditions set forth in "-Certain Conditions to the Exchange
Offer" and only after a timely receipt by the Exchange Agent of such Old Senior
Notes, a properly completed and duly executed Letter of Transmittal in respect
of such Old Senior Notes and all other required documents. Therefore, Holders of
Old Senior Notes desiring to tender such Old Senior Notes in exchange for New
Senior Notes should allow sufficient time to ensure timely delivery. Neither the
Exchange Agent nor the Company is under any duty to give notification of defects
or irregularities with respect to the tenders of Old Senior Notes for exchange.
Old Senior Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
provisions of the Indenture regarding transfer and exchange of the Old Senior
Notes, the existing restrictions upon transfer thereof set forth in the legend
on the Old Senior Notes and in the Offering Circular relating to the Old Senior
Notes. Except in certain limited circumstances with respect to certain types of
Holders of Old Senior Notes, the Company will have no further obligation to
provide for the registration under the Securities Act of such Old Senior Notes.
See "Description of the Notes-Exchange Offer; Registration Rights." In general,
Old Senior Notes, unless registered under the Securities Act, may not be offered
or sold except pursuant to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities laws. The Company does
not currently anticipate that it will take any action to register the Old Senior
Notes under the Securities Act or blue sky laws.
<PAGE>
To the extent that Old Senior Notes are tendered and accepted in the
Exchange Offer, a Holder's ability to sell untendered Old Senior Notes could be
adversely affected.
Upon consummation of the Exchange Offer, Holders of the Old Senior
Notes will not be entitled to any increase in the interest rate thereon or any
further registration rights under the Registration Rights Agreement, except
under limited circumstances. See "Description of the Notes-Exchange Offer;
Registration Rights."
Holders of the New Senior Notes and any Old Senior Notes which remain
outstanding after consummation of the Exchange Offer will vote together as a
single class for purposes of determining whether Holders of the requisite
percentage thereof have taken certain actions or exercised certain rights under
the Indenture.
Consequences of Exchanging Old Senior Notes
Based on interpretations by the staff of the Commission, as set forth
in no-action letters issued to third parties, the Company believes that New
Senior Notes issued pursuant to the Exchange Offer in exchange for Old Senior
Notes may be offered for resale, resold or otherwise transferred by Holders
thereof (other than any Holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Senior Notes are acquired in the ordinary course of such
Holder's business and such Holder, other than broker-dealers, has no arrangement
with any person to participate in the distribution of such New Senior Notes.
However, the Commission has not considered the Exchange Offer in the context of
a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as in such other circumstances. Each Holder, other than a broker-dealer, must at
the request of the Company furnish a written representation that it is not an
affiliate of the Company, is not engaged in, and does not intend to engage in, a
distribution of such New Senior Notes and has no arrangement or understanding to
participate in a distribution of New Senior Notes, and that it is acquiring the
New Senior Notes in its ordinary course of business. Each broker-dealer that
receives New Senior Notes for its own account in exchange for Old Senior Notes
must acknowledge that such Old Senior Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities and that it
will deliver a prospectus in connection with any resale of such New Senior
Notes. See "Plan of Distribution." In addition, to comply with the securities
laws of certain jurisdictions, it may be necessary to qualify for sale or
register thereunder the New Senior Notes prior to offering or selling such New
Senior Notes. The Company has agreed, pursuant to the Registration Rights
Agreement, subject to certain limitations specified therein, prior to any public
offering of Transfer Restricted Securities (as defined herein) to register or
qualify the Transfer Restricted Securities for offer or sale under the
securities laws of such jurisdictions as any Holder requests. Unless a Holder so
requests, the Company does not intend to register or qualify the sale of the New
Senior Notes in any such jurisdiction.
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents selected historical financial data for
Mrs. Fields' Original Cookies, Inc. and subsidiaries ("Mrs. Fields") and its
predecessors, Mrs. Fields Inc. and subsidiaries ("Mrs. Fields Inc."), The
Original Cookie Company, Incorporated ("Original Cookie") and the Carved-out
Portion (pretzel business) of Hot Sam Company, Inc. ("Hot Sam") (collectively,
the ?Predecessors?), as of the dates and for the periods indicated. The results
of operations for the periods December 31, 1995 through September 17, 1996 and
September 18, 1996 through December 28, 1996 are not indicative of the results
for the full fiscal year. Such selected historical financial data has been
derived from the audited financial statements of Mrs. Fields and its
Predecessors. Due to the acquisitions of the assets of Mrs. Fields Inc.,
Original Cookie and Hot Sam on September 17, 1996, the financial data is not
comparable for all periods, however, in order for the presentations to be
meaningful for the periods presented, certain statement of operations
information for the Predecessors has been reclassified to be consistent with the
Mrs. Fields historical financial statement presentation. The most significant
reclassifications relate to segregating the statement of operations data into a
core stores/stores in the process of being closed or franchised format. The
selected historical financial data should be read in conjunction with
?Management's Discussion and Analysis of Financial Condition and Results of
Operations? and the historical financial statements and the related notes
thereto, contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
The Original Cookie Company,
Incorporated and the Carved-out
Mrs. Fields Inc. and Subsidiaries(1) Portion of Hot Sam Company, Inc.(1)
------------------------------------ -----------------------------------
DECEMBER DECEMBER
FISCAL YEARS ENDED (2) 31, 1995 FISCAL YEARS ENDED (2) 31, 1995
---------------------------- ---------------------------
THROUGH THROUGH
DECEMBER DECEMBER DECEMBER SEPTEMBER DECEMBER DECEMBER DECEMBER SEPTEMBER
31, 1993 31, 1994 30, 1995 17, 1996 31, 1993 31, 1994 30, 1995 17, 1996
-------- -------- -------- --------- -------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales:
Core stores (3)............... $ 36,809 $35,548 $35,115 $23,148 $56,773 $59,775 $58,660 $39,276
Stores in the process of being
closed or franchised 61,792 52,315 24,842 6,526 31.183 29,873 26,921 15,090
------ ------ -------- ----- ------ ------ ------- ------
Total store sales......... 98,601 87,863 59,957 29,674 87,956 89,648 85,581 54,366
------ ------ ------ ------ ------ ------ ------- ------
Store contribution: (4)
Core stores (3)............... 10,581 7,764 7,393 4,491 15,148 14,454 14,599 7,753
Stores in the process of being
closed or franchised 6,424 319 (802) (695) 933 (542) (1,542) (1,751)
- --------- ---- ------- ----- ---------- ----- ------- -------
Total store contribution. 17,005 8,083 6,591 3,796 16,081 13,912 13,057 6,002
------- ------ ------- ----- ------ ------ -------- -----
Franchising, licensing and other
revenue, net 4,303 7,241 5,993 3,786 - - - -
General and administrative expenses 17,736 16,379 12,612 7,984 8,536 9,583 8,425 7,538
Income (loss) from operations... (1,251) (1,691) (3,526) (1,742) 4,004 (750) 2.435 (2.772)
Net loss........................ (2,243) (5,320) (2,368) (2,304) (333) (5,355) (2,096) (5,645)
Other Data:
EBITDA (5)...................... 3,477 2,724 (1) 169 10,672 6,673 9,337 2,165
Adjusted EBITDA (6)............. 7,477 2,724 2,999 2,128 10,672 9,636 10,128 4,165
Cash flows from operating activities 5,839 1,728 (4,478) (447) (1,041) 3,699 4,451 (378)
Cash flows from investing activities (2,962) (2,030) 2,526 (385) (9,019) (3,779) (568) (1,200)
Cash flows from financing activities (2,496) (732) (185) (58) 7,052 3,134 (4,599) (1,380)
Interest expense................ 1,088 2,155 51 80 4,172 4,381 4,268 2,828
Total depreciation and amortization 4,728 4,415 3,525 1,911 6,668 7,423 6,902 4,937
Capital expenditures............ $ 3,856 $ 4,895 $ 4,146 $ 1,054 $ 8,791 $ 3,779 $ 568 $ 1,200
Ratio of earnings to fixed charges(7) - - - - 0.97x - 0.57x -
Balance Sheet Data:
Working capital (deficit) $(2,673) $(1,067) $(3,114)$(21,704) $(2,023) $ (46) $ 128 $ (3,640)
Total assets.................. 36,838 30,128 23,033 19,144 75,777 74,490 66,282 59,024
Total debt and capital lease oblig 87,549 22,850 21,226 21,224 33,822 36,956 32,357 30,977
Total stockholders' equity (deficit) (66,645) (25,419) (28,017) (30,318) 30,038 24,684 22,588 (8,930)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields (1)
------------------------
SEPTEMBER FISCAL
18, 1996 YEAR
THROUGH ENDED
DECEMBER JANUARY
28, 1996(2) 3, 1998(2)
<S> <C> <C>
Statement of Operations Data: (Dollars in thousands)
Net sales:
Core stores (3)............... $30,811 $ 104,316
Stores in the process of being
closed or franchised 9,079 19,671
------- ---------
Total store sales......... 39,890 123,987
------- ---------
Store contribution: (4)
Core stores (3)............... 8,969 26,885
Stores in the process of being
closed or franchised 513 (1,798)
------- -------
Total store contribution. 9,482 25,087
Franchising, licensing and other
revenue, net 1,492 6,520
General and administrative expenses 4,035 16,730
Income from operations.......... 5,649 8,415
Net income (loss)............... 1,961 (974)
Other Data:
EBITDA (5)...................... 7,993 18,818
Adjusted EBITDA (6)............. 8,284 20,711
Cash flows from operating activities 7,609 919
Cash flows from investing activities (21,131) (15,505)
Cash flows from financing activities 20,231 24,164
Interest expense, net........... 1,793 7,584
Total depreciation and amortization 2,344 10,403
Capital expenditures............ $ 1,638 $ 4,678
Ratio of earnings to fixed charges 2.97x 1.05x
Balance Sheet Data:
Working capital (deficit)...... $(2,889) $13,133
Total assets................... 110,055 149,684
Mandatorily redeemable cumulative
preferred stock of subsidiairies 3,597 902
Total debt and capital lease
obligations......................... 67,563 101,081
Total stockholder's equity .... 16,961 30,765
</TABLE>
(1) On September 17, 1996, Mrs. Fields completed the acquisitions of
substantially all of the assets and assumed certain liabilities of the
Predecessors. As a result of purchase accounting adjustments related to the
acquisitions, the Mrs. Fields financial statements are not directly
comparable to the Predecessors financial statements.
(2) Mrs. Fields and its Predecessors operate using a 52/53-week year ending
near December 31.
(3) Stores not in the process of being sold or franchised are referred to as
?core stores.?
(4) Store contribution is determined by subtracting all store operating
expenses including depreciation from net store sales.
(See notes continued on page 39)
<PAGE>
(5) EBITDA consists of earnings before depreciation, amortization,
interest, income taxes, minority interest, preferred stock accretion
and dividends of subsidiaries and other income (expense). EBITDA is not
intended to represent cash flows from operations as defined by
generally accepted accounting principles and should not be considered
as an alternative to net income as an indicator of operating
performance or to cash flows as a measure of liquidity. EBITDA has been
included herein because it is one of the indicators upon which Mrs.
Fields assesses its financial performance and its capacity to service
its debt (see footnote 6).
(6) Adjusted EBITDA consists of EBITDA before (i) nonrecurring
headquarters, severance and related expenses resulting from the
acquisitions of the Predecessors, (ii) indirect costs (including
management bonuses) of the Offering, (iii) the provision for store
closure costs, and (iv) costs associated with the sale of existing
stores to franchisees.
<TABLE>
<CAPTION>
The Original Cookie Company, Incorporated
Mrs. Fields Inc. and and the Carved-out Portion of Hot Sam
Mrs. Fields Inc. and Subsidiaries(1) Company, Inc. (1)
------------------------------------ ------------------------------------------
FISCAL YEARS ENDED (2) DECEMBER FISCAL YEARS ENDED (2) DECEMBER
-------------------------- 31, 1995 ---------------------------- 31, 1995
THROUGH THROUGH
DECEMBER DECEMBER DECEMBER SEPTEMBER DECEMBER DECEMBER DECEMBER SEPTEMBER
31, 1993 30, 1994 30, 1995 17, 1996 31, 1993 31, 1994 30, 1996 17, 1996
-------- -------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from operations... $(1,251) $(1,691) $(3,526) $(1,742) $ 4,004 $ (750) $ 2,435 $(2,772)
Add:
Depreciation and amortization... 4,728 4,415 3,525 1,911 6,668 7,423 6,902 4,937
-------- -------- -------- --------- -------- -------- -------- --------
EBITDA............................ 3,477 2,724 (1) 169 10,672 6,673 9,337 2,165
Add:
Certain non-recurring headquarters,
severance and related expenses - - - 250 - - - 2,000
and related expenses...............
Provision for store closure costs 4,000 - 3,000 1,000 - 2,963 791 -
Costs associated with sale of
existing stores to franchisees - - - 709 - - - -
-------- -------- ------- ------- ------- ------ ------- -------
Adjusted EBITDA................... $ 7,477 $ 2,724 $ 2,999 $ 2,128 $10,672 $9,636 $10,128 $ 4,165
======== ======== ======= ======= ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields (1)
SEPTEMBER FISCAL
18, 1996 YEAR
THROUGH ENDED
DECEMBER JANUARY
28, 1996(2) 3, 1998(2)
---------- ----------
<S> <C> <C>
Income from operations.......... $ 5,649 $ 8,415
Add:
Depreciation and amortization... 2,344 10,403
------- --------
EBITDA............................ 7,993 18,818
Add:
Indirect costs (including
management bonuses)of the Offering - 455
Provision for store closure costs - 538
Costs associated with sale of
existing stores to franchisees 291 900
------- -------
Adjusted EBITDA................... $ 8,284 $20,711
======= =======
</TABLE>
(7) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness (whether
paid or accrued and net of debt premium amortization), including the
amortization of debt issuance costs and original issue discount,
noncash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated
with capital lease obligations, letter of credit commissions, fees or
discounts and the product of all dividends and accretion on mandatorily
redeemable cumulative preferred stock multiplied by a fraction, the
numerator of which is one and the denominator of which is one minus the
current combined federal, state and local statutory tax rate. For
fiscal years 1993, 1994 and 1995 and the period December 31, 1995
through September 17, 1996, Mrs. Fields, Inc. and subsidiaries'
earnings were insufficient to cover fixed charges by $2,028,000,
$5,129,000, $2,127,000 and $2,019,000, respectively. For fiscal years
1993, 1994 and 1995 and the period December 31, 1995 through September
17, 1996, The Original Cookie Company, Incorporated and the Carved-out
Portion of Hot Sam Company, Inc's. (combined) earnings were
insufficient to cover fixed charges by $120,000, $5,131,000, $1,833,000
and $5,645,000, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
In 1996, an investor group led by Capricorn Investors II, L.P.
("Capricorn") formed Mrs. Fields' Original Cookies, Inc. and The Mrs. Fields'
Brand, Inc.(collectively, "Mrs. Fields" or the "Company") as subsidiaries of
Mrs. Fields' Holding Company, Inc. ("MFH").
On September 17, 1996, the Company initiated operations when it purchased
substantially all of the assets and assumed certain liabilities of Mrs. Fields
Inc. and subsidiaries, The Original Cookie Company, Incorporated ("Original
Cookie"), and the pretzel business of Hot Sam Company, Inc. ("Hot Sam").
The Company set out to increase sales and profitability of its cookie and
pretzel operations by implementing key elements of its business plan coupled
with strategic acquisitions. A key element of the business plan is closing or
franchising certain Company-owned stores that do not meet specific financial and
geographical criteria established by management. Implementation of this element
of the business plan is expected to result in enhanced operating margins as
these stores are franchised or closed. Stores not planned for franchise or
closure are referred to as "core" stores. Core stores will continue to be
operated by the Company into the foreseeable future. As a result of converting
certain stores to franchises, royalty revenues are expected to increase and
general and administrative expenses associated with operating those stores are
expected to be eliminated.
The Company is pursuing growth in both its cookie and pretzel
businesses through strategic acquisitions. Management expects that significant
operating synergies, expense leveraging and geographic market share can be
achieved through targeted acquisitions. On July 25, 1997, a subsidiary of MFH,
Mrs. Fields' Pretzel Concepts, Inc. ("MFPC") acquired substantially all of the
assets and assumed certain liabilities of H&M Concepts Ltd. Co. ("H&M"), the
largest franchisee of Pretzel Time, Inc.("Pretzel Time"). On September 2, 1997,
MFH acquired 56% of the common stock of Pretzel Time, the franchisor of the
Pretzel Time concept.
On November 26, 1997, concurrent with the offering of the Old Senior
Notes (the "Offering"), the Company received as a contribution from MFH, the
business of H&M and 56% of the shares of common stock of Pretzel Time (the
"Pretzel Contributions"). On that same date the Company received as a
contribution from MFH, all of the common stock of The Mrs. Fields' Brand, Inc.
On January 2, 1998, the Company acquired an additional 4% of Pretzel Time common
stock.
Management believes that the Company is now the largest fresh baked
cookie retailer and the second largest fresh baked, sweet dough pretzel retailer
in the United States. Management expects to achieve significant overhead savings
in connection with these acquisitions which should further improve the Company's
operating results.
Management believes that the Company's 1997 operating results reflect
the successful implementation of its business strategy. Comparable core store
sales in 1997 have increased 0.8% over 1996. Additionally, core store
contribution margins and franchising revenues improved during the same period.
These improvements coupled with overhead savings resulting from the
aforementioned acquisitions have resulted in 1997 pro forma adjusted EBITDA of
$23.1 million compared to historical adjusted EBITDA of $14.6 million for 1996.
Year 2000
Management has assessed the Year 2000 issue and has determined that all
financial software, corporate networks, the AS400 system and all other corporate
systems are Year 2000 compliant. The systems used for collecting sales data from
retail locations are not Year 2000 compliant. It has been determined that the
sales collection system will be replaced. This project is currently underway
with initial roll-out into retail locations beginning in August 1998 with
completion to all locations by August 1999. The estimated cost of the project,
which is being completed with the assistance of outside consultants, is
$300,000.
<PAGE>
Results of Operations of Mrs. Fields and its Predecessors
The following table sets forth, for the periods indicated, certain
information relating to the operations of Mrs. Fields and its Predecessors
expressed in thousands of dollars and percentage changes from period to period.
Annual data in the table reflects the combined results of the Predecessors for
fiscal year 1995, the combined results of the Predecessors (for the period
December 31, 1995 through September 17, 1996) and Mrs. Fields (for the period
September 18, 1996 through December 28, 1996) and the consolidated results of
Mrs. Fields for fiscal year 1997. In order for the presentations to be
comparable, certain historical financial statement information for the
Predecessors has been reclassified to be consistent with the Mrs. Fields
historical financial statement presentation. The most significant
reclassifications relate to segregating the statement of operations data into a
core stores/stores in the process of being closed or franchised format.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
----------------------------------------------
% OF % OF
CHG CHG
DECEMBER DECEMBER FROM JANUARY FROM
30, 1995 28, 1996 1995 3, 1998 1996
-------- -------- TO 1996 ---------- TO 1997
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Core stores:
Net store sales........... $93,775 $ 93,235 (0.6%) $104,316 11.9%
-------- --------- ---------
Operating costs and
expenses:
Selling and store
occupancy costs 44,501 44,963 1.0 50,858 13.1
Food cost of sales. 21,703 22,274 2.6 22,677 1.8
Depreciation and amortization 5,579 4,784 (14.2) 3,896 (18.6)
-------- -------- -------
Total operating costs and
EXPENSES................. 71,783 72,021 0.3 77,431 7.5
-------- -------- -------
Core stores contribution 21,992 21,214 (3.5) 26,885 26.7
-------- -------- -------
Stores in the process of
being closed or franchised:
Net store sales........... 51,762 30,695 (40.7) 19,671 (35.9)
-------- -------- ------
Operating costs and expenses:
Selling and store occupancy
costs, food cost of sales,
and depreciation and
amortization 54,106 32,628 (39.7) 21,469 (34.2)
-------- -------- ------
Stores in the process of being
closed or franchised
contribution (2,344) (1,933)(17.5) (1,798) (7.0)
--------- -------- -------
Franchising revenues.......... 1,870 2,414 29.1 3,574 48.1
Licensing revenues............ 2,031 1,451 (28.6) 2,028 39.8
Other revenue, net............ 2,092 1,413 (32.5) 918 (35.0)
General and administrative 21,037 19,557 (7.0) 16,730 (14.5)
expenses......................
Interest and other expenses,
net........................... 2,869 4,701 63.9 7,952 69.2
Net loss...................... (4,464) (5,988) 32.0 (974) (83.5)
EBITDA........................ $ 9,336 $ 10,327 10.6% $ 18,818 82.2%
</TABLE>
<PAGE>
53 Weeks Ended January 3, 1998 Compared to the 52 Weeks Ended December 28, 1996
(comprised of the pre-acquisition period of December 31, 1995 through September
17, 1996 and the post-acquisition period of September 18, 1996 through December
28, 1996)
Company-owned and Franchised or Licensed Store Activity
As of January 3, 1998, there were 481 Company-owned stores and 553 franchised or
licensed stores in operation. The store activity for the 52 weeks ended December
28, 1996 and the 53 weeks ended January 3, 1998 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
Stores open as of the beginning of the fiscal year 540 415 482 418
.........Stores opened (including relocations) 5 118 3 76
.........Stores acquired through acquisition - - 83 139
.........Stores closed (including relocations) (56) (122) (80) (87)
.........Stores sold to franchisees (12) 12 (12) 12
.........Stores acquired from franchisees 5 (5) 5 (5)
----- ------ ------ ------
Stores open as of the end of the fiscal year 482 418 481 553
==== ====== ====== ======
</TABLE>
The activity reflected above resulted in 26,572 and 25,520 Company-owned
equivalent store weeks and 21,658 and 25,705 franchisee/licensee equivalent
store weeks during the 52 weeks ended December 28, 1996 and the 53 weeks ended
January 3, 1998, respectively.
Core Stores
Net Stores Sales. Net sales from core stores increased $11,081,000, or
11.9%, from $93,235,000 to $104,316,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The increase in net store
sales from core stores was primarily attributable to the operation of 69 Pretzel
Time core stores obtained in connection with the Pretzel Acquisitions in July
1997 and an increase in average transaction amounts resulting from the
introduction of product line extensions and aggressive marketing initiatives,
offset in part by declining transaction counts in certain concepts. Also, three
additional core stores were opened during the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996.
Selling and Store Occupancy Costs. Selling and store occupancy costs
increased by $5,895,000, or 13.1%, from $44,963,000 to $50,858,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
Within this overall increase, selling expenses increased by $3,759,000, or
14.7%, from $25,650,000 to $29,409,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The increase in selling
expenses was primarily attributable to an increase in the minimum wage during
the third quarter of 1996 from $4.15 to $4.75 an hour and an increase in labor
hours to support the increase in sales. Store occupancy costs increased
$2,136,000, or 11.1%, from $19,313,000 to $21,449,000 for the 53 weeks ended
January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase
in store occupancy costs was primarily attributable to the addition of 69
Pretzel Time core stores in July 1997, and the opening of three core stores
during the 53 weeks ended January 3, 1998 coupled with lease renewal increases.
Food Cost of Sales. Food cost of sales increased $403,000, or 1.8%, from
$22,274,000 to $22,677,000 for the 53 weeks ended January 3, 1998. This increase
is primarily the result of the addition of 69 Pretzel Time core stores in July
1997 (which stores have a lower food cost of sales than cookie stores, offset by
an aggressive product waste control program which was uniformly applied to all
concepts early in the year. Additionally, the Company re-negotiated certain
vendor contracts to capitalize on the Company's economies of scale.
Depreciation and Amortization. Depreciation and amortization expense
decreased $888,000, or 18.6%, from $4,784,000 to $3,896,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The
decrease in depreciation and amortization expense was primarily attributable to
the Company recording the acquired assets of Mrs. Fields Inc. and subsidiaries,
Original Cookie and Hot Sam at their fair values at the time of purchase on
September 17, 1996, resulting in an overall reduction to the store asset base
and the corresponding depreciation. This decrease is partially offset by
additional depreciation expense resulting from the addition of 69 Pretzel Time
core stores in July 1997 and three newly opened core stores in fiscal 1997.
<PAGE>
Contribution from Core Stores. The contribution from core stores increased
by $5,671,000, or 26.7%, from $21,214,000 to $26,885,000 for the 53 weeks ended
January 3, 1998 compared to the 52 weeks ended December 28, 1996 due to the
combination of the factors described above.
Stores in the Process of Being Closed or Franchised
Net Store Sales. Net sales from stores in the process of being closed or
franchised decreased $11,024,000, or 35.9%, from $30,695,000 to $19,671,000 for
the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28,
1996. This decrease results from the partial year effect of closing 80 stores
and franchising 12 stores during fiscal 1997 and the full year effect of closing
56 stores and franchising 12 stores during fiscal year 1996.
Selling and Store Occupancy Costs, Food Cost of Sales and Depreciation and
Amortization. Selling and store occupancy costs, food cost of sales, and
depreciation and amortization for stores in the process of being closed or
franchised decreased $11,159,000, or 34.2%, from $32,628,000 to $21,469,000 for
the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28,
1996. This decrease is primarily the result of closing 80 stores and franchising
12 stores during fiscal 1997 and the full year effect of closing 56 stores and
franchising 12 stores during fiscal year 1996.
Negative Contribution from Stores in the Process of Being Closed or
Franchised. The negative contribution from stores in the process of being closed
or franchised decreased by $135,000, or 7.0%, from $1,933,000 to $1,798,000 for
the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28,
1996. The decrease in negative contribution was primarily attributable to
closing 80 stores and franchising 12 stores during fiscal 1997 and the full year
effect of closing 56 stores and franchising 12 stores during fiscal year 1996.
Other Statement of Operations Data for the Company
Franchising Revenues. Franchising revenues increased $1,160,000, or 48.1%,
from $2,414,000 to $3,574,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996. The increase in franchising revenues was
primarily attributable to royalties earned from Pretzel Time franchised stores
obtained in connection with the Pretzel Acquisitions coupled with 5 new
franchise openings in 1997 and the full year effect of 5 new franchise openings
in fiscal year 1996.
Licensing Revenues. Licensing revenues increased $577,000, or 39.8%, from
$1,451,000 to $2,028,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. The increase in licensing revenues is
primarily attributable to licensing fees earned on new license agreements
entered into during the 53 weeks ended January 3, 1998, and increased royalties
received from existing licensees.
Other Revenue, net. Other revenue, net, decreased $495,000, or 35.0%, from
$1,413,000 to $918,000 for the 53 weeks ended January 3, 1998 compared to the 52
weeks ended December 28, 1996. The decrease in other revenue, net, is primarily
attributable to a favorable adjustment resulting from the Company re-negotiating
a contract with one of its vendors during the 52 weeks ended December 28, 1996
that did not recur during the 53 weeks ended January 3, 1998.
General and Administrative Expenses. General and administrative expenses
decreased $2,827,000, or 14.5%, from $19,557,000 to $16,730,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The
decrease in general and administrative expenses was primarily attributable to
the cost savings achieved by combining the operations of Mrs. Fields Inc. and
subsidiaries, Original Cookie and Hot Sam and Pretzel Time which resulted in:
(i) reduced headcount with corresponding decreases in administrative salaries
and benefits; (ii) decreased professional service fees, including legal and
accounting services, and; (iii) decreased corporate office expenditures,
including general insurance, repairs and maintenance and utilities as a direct
result of closing the Original Cookie and Hot Sam headquarters in Cleveland,
Ohio, the Pretzel Time headquarters in Harrisburgh, Pennsylvania and the H&M
headquarters in Boise, Idaho.
<PAGE>
Interest and Other Expenses, net. Interest and other expenses, net,
increased $3,251,000, or 69.2%, from $4,701,000 to $7,952,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. This
increase is primarily attributable to an increase in interest expense as a
result of the purchase of the assets of Mrs. Fields Inc. and subsidiaries,
Original Cookie and Hot Sam on September 17, 1996.
Net Loss. The net loss decreased by $4,917,000, or 83.5%, from $5,891,000
to $974,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996. The net loss equaled 0.7% of total revenue during the
53 weeks ended January 3, 1998 compared to 4.6% of total revenue during the 52
weeks ended December 28, 1996. The decrease in net loss is primarily due to cost
savings achieved by combining the operations of Mrs. Fields Inc. and
subsidiaries, Original Cookie and Hot Sam, cost savings associated with the
Pretzel Acquisitions and improved store operations.
EBITDA. Earnings before interest, taxes, depreciation and amortization,
preferred stock accretion and dividends of subsidiaries, minority interest and
other income (expense) (?EBITDA?) is presented as management believes that
certain investors find it to be a useful tool for measuring the ability to
service debt. EBITDA does not represent net income or cash flows from operations
as these terms are defined by generally accepted accounting principles and does
not necessarily indicate whether cash flows have been or will be sufficient to
fund cash needs. EBITDA increased by $8,491,000, or 82.2%, from $10,327,000 to
$18,818,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996, for the reasons described above.
<PAGE>
Fiscal Year Ended December 28, 1996 (comprised of the pre-acquisition period of
December 31, 1995 through September 17, 1996 and the post-acquisition period of
September 18, 1996 through December 28, 1996) Compared to Fiscal Year Ended
December 30, 1995
Company-owned and Franchised or Licensed Store Activity
As of December 28, 1996, there were 482 Company-owned stores and 418
franchised or licensed stores in operation. The store activity for the fiscal
years ended December 30, 1995 and December 28, 1996 is summarized as follows:
<TABLE>
<CAPTION>
1995 1996
----- ----
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
<S> <C> <C> <C> <C>
Stores open as of the beginning of the fiscal year 669 324 540 415
.........Stores opened (including relocations) 4 69 5 118
.........Stores closed (including relocations) (51) (60) (56) (122)
.........Stores sold to franchisees (83) 83 (12) 12
.........Stores acquired from franchisees 1 (1) 5 (5)
------ ------ ------ -------
Stores open as of the end of the fiscal year 540 415 482 418
====== ====== ====== =======
</TABLE>
The activity reflected above resulted in 31,434 and 26,572 Company-owned
equivalent store weeks and 19,214 and 21,658 franchisee/licensee equivalent
store weeks during fiscal years 1995 and 1996, respectively.
Core Stores
Net Store Sales. Net sales from core stores decreased $540,000, or 0.6%,
from $93,775,000 to $93,235,000 for fiscal year 1996 compared to fiscal year
1995. The decrease in net store sales from core stores was primarily
attributable to a decline in customer counts from fiscal year 1995 to fiscal
year 1996, partially offset by an increase in the average ticket price resulting
from retail pricing increases and aggressive marketing initiatives.
Selling and Store Occupancy Costs. Selling and store occupancy costs
increased by $462,000, or 1.0%, from $44,501,000 during fiscal year 1995 to
$44,963,000 during fiscal year 1996. Within this overall increase, selling
expenses decreased by $330,000, or 1.3%, from $25,980,000 to $25,650,000 for
fiscal year 1996 compared to fiscal year 1995. Store occupancy costs increased
$792,000, or 4.3%, from $18,521,000 to $19,313,000 for fiscal year 1996 compared
to fiscal year 1995. The increase in store occupancy costs was primarily
attributable to the opening of five core stores during fiscal year 1996 and
renewed lease rent increases.
Food Cost of Sales. Food cost of sales increased $571,000, or 2.6%, from
$21,703,000 during fiscal year 1995 to $22,274,000 during fiscal year 1996. The
increase was primarily attributable to an increase in the costs of butter 40.8%
over 1995, and an increase in distribution costs as a result of the Company
changing its distribution channels for its Mrs. Fields brand stores.
Additionally, management introduced several product line extensions, some with
higher food costs, in an effort to offset the decline in customer counts.
Depreciation and Amortization. Depreciation and amortization expense
decreased $795,000, or 14.2%, from $5,579,000 to $4,784,000 for fiscal year 1996
compared to fiscal year 1995. The decrease in depreciation and amortization
expense was primarily attributable to the Company recording the acquired assets
of Mrs. Fields Inc. and subsidiaries, Original Cookie and Hot Sam at their fair
values, in accordance with purchase accounting, resulting in an overall
reduction to the store asset base.
Contribution from Core Stores. The contribution from core stores decreased
by $778,000, or 3.5%, from $21,992,000 to $21,214,000 for the fiscal year 1996
compared to fiscal year 1995 due to the combination of the factors described
above.
<PAGE>
Stores in the Process of Being Closed or Franchised
Net Store Sales. Net sales from stores in the process of being closed or
franchised decreased $21,067,000, or 40.7%, from $51,762,000 to $30,695,000 for
fiscal year 1996 compared to fiscal year 1995. This decrease is primarily the
result of closing 56 stores and franchising 12 stores during the period.
Selling and Store Occupancy Costs, Food Cost of Sales and Depreciation and
Amortization. Selling and store occupancy costs, food cost of sales, and
depreciation and amortization for stores in the process of being closed or
franchised decreased $21,478,000, or 39.7%, from $54,106,000 to $32,628,000 for
fiscal year 1996 compared to fiscal year 1995. This decrease is primarily the
result of closing 56 stores and franchising 12 stores during the period.
Negative Contribution from Stores in the Process of Being Closed or
Franchised. The negative contribution from stores in the process of being closed
or franchised decreased by $411,000, or 17.5%, from $2,344,000 to $1,933,000 for
fiscal year 1996 compared to fiscal year 1995. The decrease in negative
contribution was primarily attributable to closing 56 stores and franchising 12
stores during the period.
Other Statement of Operations Data for the Company
Franchising Revenues. Franchising revenues increased $544,000, or 29.1%,
from $1,870,000 to $2,414,000 for fiscal year 1996 compared to fiscal year 1995.
The increase in franchising revenues was primarily attributable to a full year
of royalty revenues from the 83 stores franchised in 1995, royalties earned from
new franchised stores in 1996 and development fees for new franchised locations.
Licensing Revenues. Licensing revenues decreased $580,000, or 28.6%, from
$2,031,000 to $1,451,000 for fiscal year 1996 compared to fiscal year 1995. The
decrease in licensing revenue is primarily attributable to licensing fees earned
in fiscal year 1995 that did not recur in fiscal year 1996.
Other Revenue, net. Other revenue, net, decreased $679,000, or 32.5%, from
$2,092,000 to $1,413,000 for fiscal year 1996 compared to fiscal year 1995. The
decrease in other revenue, net, is primarily attributable to favorable insurance
adjustments in fiscal year 1995 that did not recur in fiscal year 1996.
General and Administrative Expenses. General and administrative expenses
decreased $1,480,000, or 7.0%, from $21,037,000 to $19,557,000 for fiscal year
1996 compared to fiscal year 1995. The decrease in general and administrative
expenses was primarily attributable to the cost savings achieved by combining
the operations of Mrs. Fields Inc. and subsidiaries, Original Cookie and Hot Sam
which resulted in: (i) reduced headcount with corresponding decreases in
administrative salaries and benefits; (ii) decreased professional service fees,
including legal and accounting services, and (iii) decreased corporate office
expenditures, including general insurance, repairs and maintenance and utilities
as a direct result of closing the Original Cookie and Hot Sam headquarters
building in Cleveland, Ohio.
Interest and Other Expenses. Interest and other expenses increased
$1,832,000, or 63.9%, from $2,869,000 to $4,701,000 for fiscal year 1996
compared to fiscal year 1995. This increase was primarily attributable to an
increase in interest expense due to increased borrowings as a result of the
purchase of the assets of Mrs. Fields Inc. and subsidiaries, Original Cookie and
Hot Sam on September 17, 1996 and a loss of $277,000 on the sale of property and
equipment during fiscal year 1996 compared to a gain on the sale of property and
equipment of $1,450,000 during fiscal year 1995.
Net Loss. The net loss increased by $1,427,000, or 32.0%, from $4,464,000
to $5,891,000 for fiscal year 1996 compared to fiscal year 1995. The net loss
equaled 4.6% of total revenue during 1996 compared to 2.9% of total revenue
during fiscal year 1995. The increase in net loss is in part due to an increase
in interest expense as a result of the increased borrowings to facilitate the
purchase of Mrs. Fields Inc. and subsidiaries, Original Cookie and Hot Sam, net
of a reduction in the income tax provision.
EBITDA. EBITDA is presented as management believes that certain investors
find it to be a useful tool for measuring the ability to service debt. EBITDA
does not represent net income or cash flows from operations as these terms are
defined by generally accepted accounting principles and does not indicate
whether cash flows have been or will be sufficient to fund cash needs. EBITDA
increased by $991,000, or 10.6%, from $9,336,000 to $10,327,000 for fiscal year
1996 compared to fiscal year 1995, for the reasons described above.
<PAGE>
Liquidity and Capital Resources
General
The Company's principal sources of liquidity are cash flows from
operations, cash on hand obtained primarily from the Offering and available
borrowings under the Company's existing revolving credit facilities. At January
3, 1998, the Company had $16.3 million of cash. It is expected that the
Company's principal uses of cash will be to provide working capital, finance
capital expenditures (including acquisitions and store closure costs), meet debt
service requirements and other general corporate purposes. The Company is highly
leveraged. Based on current operations and anticipated cost savings, the Company
believes that its sources of liquidity will be adequate to meet its anticipated
requirements for working capital, capital expenditures (including acquisitions
and store closure costs), scheduled debt service requirements and other general
corporate purposes. There can be no assurance, however, that the Company's
business will continue to generate cash flow at or above current levels or that
cost savings can be achieved. Under the Indenture, the Company is permitted to
have one or more credit facilities pursuant to which it will be able to borrow
up to a maximum aggregate principal amount of $15.0 million on a secured basis.
At January 3, 1998, the Company has a $3.0 million credit facility in place,
none of which is utilized. The Company is in the process of expanding this
facility to $15.0 million. See ?Risk Factors-Substantial Leverage,? ?Risk
Factors-History of Net Losses? and ?Risk Factors-Ability to Integrate
Acquisitions.?
January 3, 1998 Compared to December 28, 1996
As of January 3, 1998, the Company had liquid assets (cash and cash
equivalents and accounts receivable) of $20,033,000, an increase of 112.4%, or
$10,600,000, from December 28, 1996 when liquid assets were $9,433,000. Cash
increased 142.8% to $16,287,000 at January 3, 1998 from $6,709,000 at December
28, 1996 primarily as a result of cash obtained from the Offering on November
26, 1997 and from the addition of the Pretzel Contributions. Accounts receivable
increased $1,022,000, or 37.5%, to $3,746,000 at January 3, 1998 from $2,724,000
at December 28, 1996 due to the addition of Pretzel Time franchise receivables.
Current assets increased by $12,931,000, or 81.4% to $28,823,000 at January
3, 1998 from $15,892,000 at December 28, 1996. This increase was primarily the
result of an increase in cash of $9,578,000, accounts receivable of $1,022,000,
and prepaids of $1,601,000.
Long-term assets increased $26,698,000 or 28.4%, to $120,861,000 at January
3, 1998 from $94,163,000 at December 28, 1996. The majority of this increase was
due to additional goodwill and deferred loan costs as a result of the Pretzel
Contributions and the Offering.
Current liabilities decreased by $3,091,000, or 16.5% to $15,690,000 at
January 3, 1998 from $18,781,000 at December 28, 1996. This decrease is due to
the Company liquidating liabilities relating to payroll tax, interest, lease
settlements and store closures existing at December 28, 1996.
The Company's working capital increased by $16,022,000 to $13,133,000 at
January 3, 1998 from a negative $2,889,000 at December 28, 1996. The increase is
primarily due to the cash obtained in connection with the Offering on November
26, 1997.
The Company's cash flow from operating activities of $919,000 for the
year ended January 3, 1998, resulted primarily from store sales and franchising
and licensing revenues less costs and expenses incurred to generate the store
sales and franchising and licensing revenues.
The Company utilized $15,505,000 of cash from investing activities
during the year ended January 3, 1998, primarily for the Pretzel Contributions
and for capital expenditures relating to store remodels and renovations.
Cash flow from financing activities of $24,164,000 was generated during
the year ended January 3, 1998, primarily from the issuance of $108,250,000 in
new long term debt, the proceeds of which were used in part to repay long-term
debt, accrued interest, debt financing costs and a cash dividend to MFH.
The specialty cookie and pretzel businesses do not require the maintenance
of significant receivables or inventories, however, Mrs. Fields continually
invests in its business by upgrading and remodeling stores and adding new
stores, carts, and kiosks as opportunities arise. Investments in these long-term
assets, which are key to generating current sales, reduce the Company's working
capital. It is not unusual for Mrs. Fields to have a negative working capital
balance, particularly during the first 11 months of the year. During fiscal
years 1996 and 1997, Mrs. Fields expended $3,524,000 and $4,678,000,
respectively for capital assets and expects to expend approximately $7,500,000
in 1998. Management anticipates that these expenditures will be funded with cash
generated from operations and short-term borrowings under its credit facility as
needed.
<PAGE>
Inflation
The impact of inflation on the earnings of the business has not been
significant in recent years. Most of Mrs. Fields' leases contain escalation
clauses (however, such leases are accounted for on a straight-line basis as
required by generally accepted accounting principles which minimizes
fluctuations in operating income) and many of Mrs. Fields' employees are paid
hourly wages at the Federal minimum wage level. Minimum wage increases will
negatively impact Mrs. Fields' payroll costs in the short term, but management
believes such impact can be offset in the long term through operational
efficiency gains and, if necessary, through product price increases.
Seasonality
The following table presents certain unaudited historical quarterly
financial data for Mrs. Fields for fiscal years 1997, 1996 and 1995,
respectively:
<TABLE>
<CAPTION>
First Second Third Fourth Total
Quarter Quarter Quarter Quarter Year
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total store sales
1997 $27,642 $26,198 $29,920(2) $40,227 (2) $123,987
1996 $29,361 $28,640 $29,598 $36,331 $123,930
1995 $36,819 $34,723 $34,053 $39,942 $145,537
% of total store sales
1997 22.2% 21.1% 24.1%(2) 32.6%(2) 100.0%
1996 23.7% 23.1% 23.9% 29.3% 100.0%
1995 25.3% 23.9% 23.4% 27.4% 100.0%
Total store cash
contribution (1)
1997 $4,857 $4,694 $6,699 $12,778(2 $29,028
1996 $4,355 $4,484 $6,830(2) $ 9,937 $25,606
1995 $5,349 $5,692 $5,839 $11,285 $28,165
% of total store contribution
1997 16.7% 16.2% 23.1%(2) 44.0%(2) 100.0%
1996 17.0% 17.5% 26.7% 38.8% 100.0%
1995 19.0% 20.2% 20.7% 40.1% 100.0%
</TABLE>
- -------------
(1) Total store contribution before store depreciation and amortization.
(2) Includes the Pretzel Contributions.
Mrs. Fields sales and store contribution are highly seasonal given the
significant impact of mall business. Mrs. Fields sales tend to mirror customer
traffic flow trends in malls which increase significantly during the fourth
quarter (primarily between Thanksgiving and the end of the calendar year).
Holiday gift purchases are also a significant factor in increased sales in the
fourth quarter.
The seasonality effect on store contribution is even more significant
than on sales. The impact on store contribution is more significant due to the
fixed nature of certain store level costs (occupancy costs, store manager
salaries, etc.). Once these fixed costs are covered by store sales, the flow
through of sales to store contribution becomes greater. Accordingly, the fourth
quarter is a key determinant to overall profitability for the year.
<PAGE>
BUSINESS
General
Mrs. Fields is the largest retailer of baked on-premises cookies and
the second largest retailer of baked on-premises pretzels in the United States.
Mrs. Fields is one of the most widely recognized and respected brand names in
the premium cookie industry, with a 94% brand awareness among customers. The
Company has recently developed a significant presence in the rapidly growing,
health-oriented pretzel segment as a result of the acquisitions of the pretzel
businesses of Hot Sam and H&M (the largest Pretzel Time franchisee) and a 60%
majority interest in Pretzel Time. As of January 3, 1998, the Company's retail
network consisted of 1,034 locations, of which 711 were cookie stores and 323
were pretzel stores. Of the total 1,034 stores, 481 were Company-owned and 553
were franchised or licensed. The Company's stores average approximately 600
square feet in size and are located predominantly in high-end shopping malls. In
addition, the Company operates kiosks and carts at airports, universities,
stadiums, hospitals and office building lobbies. The Company's objective is to
increase sales and profitability by focusing on its higher-profitability stores
in prime locations (?core stores?). As a result, by the end of fiscal 1999, the
Company plans to close or franchise approximately 64 Company-owned cookie stores
and 38 Company-owned pretzel stores that do not meet certain financial and
geographical criteria. For the fiscal year ended January 3, 1998, the Company
generated pro forma net revenue and adjusted EBITDA of $142.5 million and $23.1
million, respectively.
The Cookie Business
The Company operates and franchises 711 retail cookie stores: 556 under
the Mrs. Fields brand and 155 under the Original Cookie brand. Management
believes that Mrs. Fields cookies are positioned in the premium quality, baked
on-premises segment of the approximately $12 billion (according to a recent
study by KPMG Peat Marwick LLP) U.S. cookie industry. The Company offers over 50
different types of cookies, brownies and muffins, which are baked continuously
and served fresh throughout the day. Baked products are made using only high
quality ingredients, and all dough is centrally manufactured and frozen to
maintain product quality and consistency. All products pass strict quality
assurance and control steps at both the manufacturing plants and the stores. In
addition, the Company continually creates and tests new products to attract new
customers and satisfy current customers. Product development is currently
focused on sugar-free dough and reduced-fat cookies and brownies.
MFI, one of the predecessors of the Company, was founded in 1977 by
Debbi Fields and, following its initial success, embarked on an aggressive
national expansion program in the early 1980s. By the late 1980s, however, MFI
experienced financial difficulty as a result of excessive debt levels, certain
poor real estate locations, and a recessionary retailing environment. In
connection with a financial restructuring by its lenders, a new management team
was put into place in mid-1994 under the leadership of Larry A. Hodges, who has
extensive experience in the food and retailing industries. Mr. Hodges introduced
a new strategic plan for the Company, which involved the following key elements:
(1) identifying non-core stores to close or franchise, (2) introducing
Company-wide operating procedures to improve store operating margins, (3)
developing a marketing strategy and promotional calendar to turn around
comparable store sales and (4) improving employee morale through selective new
senior hires, increased training and various incentive plans. The savings from
the improved store operations were reinvested in marketing and other measures
designed to improve comparable store sales.
Mrs. Fields' Original Cookies, Inc. was formed in September 1996 in
connection with the acquisitions of MFI, Original Cookie and Hot Sam by MFH, a
subsidiary of Capricorn. At January 3, 1998, Capricorn had invested more than
$28 million in the Company through MFH. Capricorn retained Mr. Hodges as Chief
Executive Officer of Mrs. Fields. Management believes that Mrs. Fields has a
more well-recognized brand name than Original Cookie and that Mrs. Fields stores
have, during fiscal 1997, achieved higher average revenue per core store
($350,000 versus $301,000) than Original Cookie stores. As a result, the Company
intends to continue converting its core and to-be-franchised Original Cookie
stores to the Mrs. Fields brand, which it believes will result in an increase in
net sales, comparable store sales and store contribution for the Company's
cookie business.
The Pretzel Business
The Company operates and franchises 323 retail pretzel stores (221
under the Pretzel Time name and 102 under the Hot Sam name), which offer ?sweet
dough? soft pretzels and ?Bavarian? style pretzels with a variety of toppings.
Pretzel Time's primary product is an all natural, hand-rolled soft pretzel,
freshly baked from scratch at each store location. Pretzel Time stores prepare
pretzels with a variety of flavors and specialty toppings, including cheddar
cheese, cream cheese and pizza sauce. The stores also offer soft drinks and
freshly squeezed lemonade. The Hot Sam pretzel stores specialize in the Bavarian
style pretzel. This product has declined in popularity in recent years as sweet
dough pretzel sales have grown dramatically. In addition, Pretzel Time stores
have, during fiscal 1997, achieved higher average revenue per core store
($275,000 versus $241,000) than Hot Sam stores. As a result, the Company intends
to continue converting its core and to-be-franchised Hot Sam stores to Pretzel
Time stores, which it believes will result in an increase in net sales,
comparable store sales and store contribution for the Company's pretzel
business.
Management believes that the retail pretzel business has similar
operating characteristics to the retail cookie business that will permit some
<PAGE>
co-branding of the Company's products. In addition, the retail pretzel business
has grown more quickly than the retail cookie business in recent years. Hot Sam
was acquired by the Company in connection with the acquisition of Original
Cookie. In order to expand its presence in the retail pretzel industry, the
Company recently acquired the business of H&M and 60% of the common stock of
Pretzel Time. Pretzel Time is a franchisor of 221 hand-rolled soft pretzel
retail outlets, which are located in shopping malls as well as at airports,
sports arenas, amusement parks and resort areas throughout the United States and
Canada. Prior to the Pretzel Acquisitions, H&M operated 79 of the franchised
stores of Pretzel Time and was the exclusive franchisee and developing agent for
Pretzel Time stores in 16 Western and Midwestern states, four provinces in
Canada and Mexico.
Business Strategy
The Company's objective is to increase sales and profitability at its
core and franchised stores in prime locations by implementing the key elements
of its business strategy. Management believes that the Company's recent
operating results reflect the successful implementation of its business
strategy. Comparable core store sales have increased for fiscal 1997 as compared
to fiscal 1996. In addition, franchising and licensing revenues have increased
by 44.9% for fiscal 1997 over fiscal 1996. The key elements of the Company's
business strategy are as follows:
Enhance Quality of Company-Owned Store Base. Since current management
assumed responsibility in 1994, the Company has focused on closing and
franchising Company-owned stores that do not meet certain financial and
geographical criteria. From June 1994 through December 1997, the
Company closed 120 Mrs. Fields brand stores and franchised an
additional 144 stores. The Company has targeted 102 additional stores
across all product concepts to be either closed or franchised by the
end of fiscal 1999. Such measures are expected to result in enhanced
operating margins, as unprofitable stores are closed and certain other
stores are converted into franchises, thereby increasing royalty
payments and eliminating general and administrative costs associated
with such stores.
Improve Productivity of Core Stores. The Company is embarking on a
program to improve the performance of its core stores by (i) expanding
product offerings to include breakfast items, such as muffins,
croissants and bagels, and low-fat cookies, brownies and muffins, (ii)
raising the average ticket through increased bundling of product
offerings, (iii) promoting catering services by individual stores to
corporate customers, (iv) decreasing store expenses by reducing waste
in the cookie baking process and controlling the cost of ingredients
and supplies, (v) improving merchandising by enhancing product
presentation and refining product mix and (vi) increasing training and
various incentive programs for management and sales staff.
Capitalize on the Strong ?Mrs. Fields? Brand Name. Management believes
that the Mrs. Fields brand is the most widely recognized and respected
brand name in the retail premium cookie industry, with a 94% brand
awareness among consumers, and that Mrs. Fields brand stores have,
during fiscal 1997, achieved higher average revenue per core store than
Original Cookie stores. As a result, the Company intends to continue
converting its core and to-be-franchised Original Cookie stores to Mrs.
Fields brand stores, which it believes will result in an increase in
net sales, comparable store sales and store contribution for the
Company's cookie business. Original Cookie stores represent 52% of all
Company-owned cookie stores. In addition, the Company intends to
further capitalize on the Mrs. Fields brand name by (i) further
developing and expanding new channels of distribution for the Company's
products, including kiosks and carts in malls, airports, convention
centers, office buildings, street fronts and sports complexes, (ii)
increasing the emphasis on the mail order business and (iii) developing
and capitalizing on licensing opportunities such as co-branding the
Mrs. Fields concept with prominent names in the retailing and food
service industry, expanding licensing agreements with the Company's
existing licensees, entering into new licensing agreements with food
service operators (such as the Company's existing arrangements with
ARAMark, Host Marriott and United Airlines), and developing product
line extensions, such as frozen cookie dough and in-store bakery
products to be sold in supermarkets and other convenient locations.
Capitalize on the Strong ?Pretzel Time? Brand Name. Through the
acquisition of its 60% controlling interest in Pretzel Time, the
Company has obtained the use of the ?Pretzel Time? brand name, one of
the leading brand names in the pretzel retailing segment. Management
believes that there are significant opportunities to improve its
existing Hot Sam store operations by continuing to convert its core and
to-be-franchised Hot Sam stores to Pretzel Time stores. Pretzel Time
stores have, during fiscal 1997, achieved higher average revenue per
core store and store contribution than Hot Sam stores. Hot Sam stores
represent 56% of all Company-owned pretzel stores. Management believes
that the conversion to the Pretzel Time name will result in an increase
in net sales, comparable store sales and store contribution for the
Company's pretzel business. In addition, the Company believes there are
significant new Pretzel Time franchising opportunities.
Develop New Company-Owned and Franchised Stores. The Company plans to
build and franchise new stores, as well as carts and kiosks, in
existing and new markets. The Company has identified over 100 mall and
non-traditional locations, such as amusement parks and other
entertainment centers, that it believes would be ideal for cookie and
pretzel stores. During 1998, the Company intends to focus primarily on
franchising approximately 38 and 14 new cookie and pretzel stores,
<PAGE>
respectively. After 1998, the Company intends to add approximately 15
new Company-owned cookie and 10 new Company-owned pretzel stores per
year and to franchise approximately 25 new cookie and 25 new pretzel
stores per year. In addition to pursuing new store development
opportunities within the United States, the Company plans to grow
internationally by expanding its franchise operations. As of January 3,
1998, there were 81 franchised Mrs. Fields brand stores open
internationally and approximately 200 Mrs. Fields brand stores
committed for development by franchisees over the next several years in
Latin America, Canada and Asia.
Realize Purchasing and Overhead Cost Savings. As a result of the
Pretzel Contributions, the Company expects to realize significant cost
savings from the elimination of duplicative administrative functions,
the consolidation of management information systems and the reduction
of the cost of food and other supplies as a result of its enhanced
purchasing power with vendors. Management believes that incremental
pre-tax cost savings would have totaled approximately $1.1 million for
the fiscal year ended January 3, 1998.
Pursue Further Strategic Acquisitions of Related Businesses. The
Company intends to selectively pursue strategic acquisitions in order
to expand its geographic presence and achieve operating efficiencies.
The Company's management has demonstrated its ability to identify and
integrate new businesses through its acquisitions of the cookie and
pretzel businesses of Original Cookie and Hot Sam, respectively, in
September 1996. Among other acquisitions that it has been considering,
the Company has recently been in discussions concerning the possible
acquisition by the Company of GACC or some of its owned or franchised
stores. No agreement with respect to such a transaction has been
concluded, and there can be no assurance that such an agreement will be
concluded.
Product Offerings
The Company's product offerings consist primarily of (i) fresh baked
cookies, brownies, muffins, and other baked goods and (ii) fresh baked sweet
dough and ?Bavarian? style pretzels. During fiscal year 1997, pro forma for the
Pretzel Contributions, the Company's revenue mix consisted of the following:
Cookies and Brownies.................................. 58%
Pretzels.............................................. 20%
Beverages............................................. 19%
Other................................................. 3%
Cookies. The primary products of the Company's cookie stores are a
variety of cookies, which are baked in view of customers throughout the day.
Secondary product lines include several varieties of brownies, muffins, other
baked goods, gourmet coffees and other beverages. Mrs. Fields stores and
Original Cookie stores also sell decorated cookies which are extra-large cookies
decorated with customer-selected slogans purchased as gifts for special
occasions, such as birthdays, Valentine's day, Father's day and Easter. The
Company plans to emphasize baking and marketing decorated cookies to enhance
sales in Mrs. Fields and Original Cookie brand stores.
Baked products are made using only pure, high quality, vanilla,
chocolate, raisins, nuts and other ingredients. To maintain product quality and
consistency at both Company-owned and franchised stores, Mrs. Fields and
Original Cookie stores use centrally manufactured frozen dough, which is
manufactured by outside suppliers according to proprietary formulas of the
Company. All products must pass strict quality assurance and control steps at
both the manufacturing plants and the stores.
Pretzels. Through its Hot Sam and Pretzel Time stores, the Company
offers a wide variety of fresh-baked pretzels. Pretzels have become a popular
snack due to consumers' attraction to salted snacks and the increased demand for
snacks that are low in fat and cholesterol.
Hot Sam is the largest U.S. retailer of fresh-baked ?Bavarian? style
pretzels, which are traditional soft pretzels. Pretzel Time stores offer all
natural, hand-rolled sweet dough pretzels prepared with a variety of flavors and
special toppings, including cheddar cheese, cream cheese and pizza sauce. In
addition, Pretzel Time stores offer specialty pretzels and related products,
such as cinnamon pretzels and cinnamon twists, as well as several recently
introduced pretzel products, such as pretzel dogs, chocolate chip pretzels and
caramel crunch pretzels.
Product Development. The Company maintains a product development
department which continually creates and tests new products to attract new
customers and revitalize the interest of current customers. Once a new product
is identified, the Company develops prototypes to determine the initial formula.
For Mrs. Fields products, the formula is then scaled up for test production runs
at one or more approved facilities. Once the product has been successfully
produced, ingredient specifications, formulas, manufacturing processes, finished
product specifications, shelf life, storage and distribution procedures are
established. The new product is either immediately launched throughout the
system, as in the case of seasonal items or simple line extensions, or test
marketed in a limited number of stores. After a trial period to evaluate both
consumer response and store operations' ability to handle the new product, it is
fully commercialized, modified or discontinued. The Company continually reviews
<PAGE>
its product mix in an effort to maximize daytime offerings and profitability.
For example, new muffin flavors, bagels, croissants and a revitalized coffee
program were introduced to enhance morning offerings, as cookies begin selling
primarily after mid-day.
In the cookie business, product development efforts are currently
focused on a fresh-baked, sugar-free cookie dough and other products, such as
low-fat brownies, reduced-fat cookies and seasonal items that are designed to
capitalize on consumer trends and draw interest to the Company's store
locations. In the pretzel business, the Company has been testing
?made-from-scratch? hand rolled pretzels, which serve as a platform for a
variety of other products, such as jalapeno, cinnamon raisin and garlic pretzels
with a sweet dough base, meat and cheese filled pretzel pockets and
pretzelwiches (pretzel bun sandwiches).
Store Operations
Store Base. As of January 3, 1998, the Company's store portfolio consisted
of 481 Company-owned stores, 306 domestic franchised locations, 81 international
franchised locations and 166 licensed locations. By concept, the stores are
distributed as follows:
<TABLE>
<CAPTION>
Domestic International
Owned(1) Franchised Franchised Licensed Total
<S> <C> <C> <C> <C> <C>
Mrs. Fields........................................... 144 165 81 166 556
Original Cookie(2).................................... 155 - - - 155
--- --- --- --- ---
Cookie Subtotal.............................. 299 165 81 166 711
--- --- --- --- ---
Pretzel Time.......................................... 80 141 - - 221
Hot Sam(3)............................................ 102 - - - 102
--- --- --- --- ---
Pretzel Subtotal............................. 182 141 - - 323
--- --- --- --- ---
Totals.................................. 481 306 81 166 1,034
=== === === === =====
</TABLE>
- ---------------
(1) Includes a total of 102 stores, consisting of 21 Mrs. Fields stores, 43
Original Cookie stores, 12 Pretzel Time stores and 26 Hot Sam stores, that
the Company intends to close or franchise by the end of 1999.
(2) The Company intends to convert Original Cookie brand stores to Mrs. Fields
brand stores.
(3) Includes 10 stores previously converted from Hot Sam to Pretzel Oven. The
Company intends to convert all such stores to the Pretzel Time concept.
<PAGE>
Configuration. The Company has developed a number of retail
configurations which have wide application and adaptability to a variety of
retail environments. In addition to the stores that have been designed for prime
mall locations, the Company has developed other formats intended to extend its
presence within and beyond mall locations. The introduction of frozen dough
technology has led to a number of new store configurations, expanded product
offerings in smaller outlets and non-traditional formats.
Cookie Stores. All stores are uniformly designed in accordance with the
Mrs. Fields or Original Cookie prototype, making extensive use of glass, painted
wood, brass, mirrors, lighting and point-of-sale displays intended to create an
upscale, open and inviting look. Stores also attractively and efficiently
display their fresh-baked products using custom-made showcases. Store size
ranges from 350 to 800 square feet, and the typical Company-owned store is about
600 square feet with a minimum of about 15 linear feet of counter space.
Locational possibilities for new stores include high traffic regional malls,
central downtown shopping districts and recreational shopping environments.
The Company and its franchisees and licensees also operate cookie
kiosks and carts in certain malls on a year-round basis. Kiosks have 100 to 200
square feet of retail space, supported by off-site storage and preparation
space. Carts have 40 square feet. Because of their small size, carts and kiosks
do not have baking equipment, and are supplied cookie products by a
fully-equipped store usually located in the same mall. The Company plans to add
baking equipment to carts and kiosks in malls, airports, convention centers,
office buildings, street fronts and sports complexes, giving these outlets
greater flexibility in the products they can offer. All designs contain retail
display, small freezers and cash registers. The Company sees significant
expansion opportunities from the use of carts, which create incremental revenue
at a relatively low cost.
<PAGE>
All of the retail store configurations are executed to include the same
high-quality marketing, merchandising and design features which customers have
come to expect from the Company. The store designs are bright with high-profile
trademark identity. All products are baked throughout the day on the premises
with ovens located in full view of the customer to support the ?fresh-baked?
image.
Pretzel Stores. Hot Sam stores are uniformly designed in accordance
with the Hot Sam brand, making extensive use of tile, stained wood, lighting and
point-of-sale displays intended to create an upscale, open and inviting look.
Stores also attractively and efficiently display their products using
custom-made showcases. The typical Company-owned pretzel store is about 500
square feet.
Pretzel Time outlets have an average size of 700 square feet in both
kiosks and store locations. Pretzel Time stores are designed to enable customers
to enjoy watching the pretzels being rolled, twisted and baked, which
underscores freshness and lends to the concept's growing appeal.
Location and Leasing. Locational possibilities include any high
pedestrian traffic areas, including second locations within malls, airport
concourses, office building lobbies, hospitals, universities, stadiums, and
supermarket foyers. Taking the impulse nature of its business into
consideration, the Company tries to locate its outlets in areas of high
pedestrian traffic, with easy proximity to pedestrian traffic flow and at a
distance from other food providers of any kind.
The majority of the Company's stores are located in shopping malls, with
the vast majority of these malls falling into the ?A? and ?B? classifications,
or the better-quality malls in the country. As of January 3, 1998, the Company,
including franchise locations, has a presence in 90% of the top 150 (as measured
in sales per foot) "A" and "B" malls in the country. Malls in ?A? and ?B?
classifications generally have the following characteristics:
- Size greater than 700,000 square feet
- Sales per square foot greater than $300
- Population density greater than 150,000 people within a
- five-mile radius
- Median family income greater than $50,000
- Generally supported by national fashion anchor tenants
- Located to minimize competition from other malls
Marketing and Advertising. The Company's in-house marketing department
and an outside promotional agency market products emphasizing product sampling,
local store marketing and brand name identification. The Company advertises
primarily at the store level, rather than through mass media, using the aroma of
fresh-baked cookies and the attractive arrangement of finished products to
create a store ambiance that is conducive to sales. The Company cultivates local
customer loyalty by offering regular 20% discounts to employees in malls where
stores are located and occasional other discounts. The Company historically has
spent relatively little on paid advertising, relying mainly on in-store signage,
promotions and the public relations of Debbi Fields, who makes store visits and
local media appearances throughout the country and internationally for the
Company. In addition to posters and display of products, the Company promotes
products by offering special packaging and selling other promotional items. A
recent promotion for the Company's 20th anniversary featured a tie-in with the
popular Peanuts characters from the syndicated comic strip, a sweepstakes, and
gifts with purchases. The Company is currently working on developing catered
corporate accounts for both Company-owned and franchised stores and will be
building awareness of products geared toward corporate accounts at the store
level for the local market area and through catalogue sales. The Company also
promotes its products as gifts, particularly at holiday time.
<PAGE>
Mail Order Business. The Company's mail order division markets a
variety of fresh-baked and other gift items through its mail order gift
catalogue using toll free telephone numbers, including ?1-800-COOKIES.? The mail
order division had $3.8 million in revenues in fiscal year 1997. The Company
believes that there is significant potential in the mail order business and is
developing this division by targeting both corporate customers and individuals
with a history of purchases at Mrs. Fields stores. Sales from the mail order
division for fiscal year 1997 have increased approximately 32.1% over sales for
fiscal year 1996.
Customer Profile. The Company believes that its products are best
targeted to a demographic profile which is relatively young, with upper-middle
income levels. At the time of a May 1994 study, 66% of Mrs. Fields' customers
were female and 34% were male, the mean age of a customer was 35.1 years of age,
and 57% of customers had a household income of $50,000 or more. The Company
believes that this demographic profile remains valid.
Seasonality. The Company's sales and profitability in both the cookie
business and the pretzel business are subject to seasonal fluctuation and are
traditionally higher during the Thanksgiving and Christmas holiday season and
other gift-giving holidays due to increased mall traffic and holiday gift
purchases.
Supplies and Distribution
Ingredients and Supplies. The Company relies primarily on outside
suppliers and distributors for the ingredients used in its products and other
items used in its stores. Mrs. Fields stores receive frozen products, made
according to proprietary recipes of the Company, from the Company's primary
supplier, Van Den Bergh Foods Company (?VDB?). VDB uses stringent quality
controls in testing ingredients and manufacturing, and products are not released
for distribution unless they pass all quality control steps, including an
evaluation of the finished baked product. VDB's contract for making frozen
products for the Company is renewable every three years. Hot Sam buys frozen
pretzel dough from J&J Foods, Inc. Pretzel Time stores buy a proprietary dry mix
from selected distributors and mix and bake pretzels at individual stores.
Pretzel Time franchisees buy from various distributors.
Most supplies other than dough (such as beverages and paper products)
are ordered from distributors by either the Company or the franchisee and are
directly shipped to the store. The Company sells exclusively Coca Cola soft
drinks in Mrs. Fields, Original Cookie and Hot Sam stores under an agreement
with Coca-Cola USA Fountain, and recently entered into an agreement with
Coca-Cola USA Fountain to sell on an exclusive basis in its Pretzel Time stores.
Distribution. Blueline Distribution (?Blueline?) handles distribution
of perishable and non-perishable items to Mrs. Fields and Original Cookie stores
weekly. Blueline owns and maintains all of the inventory, but is authorized to
purchase inventory items only from authorized vendors at prices that have been
negotiated by Mrs. Fields. Hot Sam distributes perishable and non-perishable
items weekly to stores using seven different regional distribution companies.
Pretzel Time franchisees use a variety of distributors. The Company ships
equipment related items, including smallwares equipment and oven parts, directly
from a public warehouse in Cleveland, Ohio.
Management Information Systems
The Company has made a substantial investment in developing its
point-of-sale (?POS?) system, which gathers information transmitted daily to
corporate headquarters from most of the Mrs. Fields brand core stores. The POS
system tracks sales from the point of purchase through a central mid-range
computer to store, district and corporate management, allowing management to
track performance data and react quickly to developments at the store level.
Information transmitted from the Company-owned stores on daily sales permits the
Company, among other things, to monitor performance across the network of
stores. Most Company-owned Mrs. Fields stores are equipped with a Sharp A570 or
Sharp 3110 POS register and an IBM computer, enabling store managers to track
and report daily customer traffic counts, sales, average ticket, inventory
levels and labor costs. The Company is upgrading its back-office system to a
Windows 95 environment and is currently upgrading all Mrs. Fields stores to
Pentium 133 machines. The Company plans to install its upgraded back-office
system, along with the POS registers and Pentium 133 machines, in its core
Original Cookie and Hot Sam stores by late 1998.
<PAGE>
Management has assessed the Year 2000 issue and has determined that all
financial software, corporate networks, the AS400 system and all other corporate
systems are Year 2000 compliant. The systems used for collecting sales data from
retail locations are not Year 2000 compliant. It has been determined that the
sales collection system will be replaced. This project is currently underway
with initial roll-out into retail locations beginning in August 1998 with
completion to all locations by August 1999. The estimated cost of the project,
which is being completed with the assistance of outside consultants, is
$300,000.
The Company believes that it can improve operating efficiencies by
introducing its improved system into all acquired Company-owned stores. There
can be no assurance that the Company will successfully integrate this system or
that a fully integrated system will be achieved within budget. Therefore, there
can be no assurance that the financial condition and results of operations will
not be adversely affected by the attempts to integrate the POS system.
Store Management
Management Structure. The Company monitors all Company-owned stores
with a regionally-based staff of district sales managers. District sales
managers are responsible for monitoring all cookie and pretzel stores in their
territory. Until recently, franchisees had been monitored by a separate staff of
regionally-based franchise operations consultants. The Company has consolidated
the franchise operations consultants with the district sales managers. As a
result each district sales manager is responsible for overseeing approximately
30 Company-owned or franchised cookie and pretzel stores within his or her
region. Each district sales manager reports to one of the three regional
vice-presidents of store operations. The field staff is also responsible for
introducing new products and processes to the stores, ensuring proper
implementation and quality control.
Management Incentives. Each store has an on-site management team
consisting of a manager and an assistant manager. The store manager is
responsible for hiring, training and motivating store personnel. Each manager of
a Company-owned store is eligible for salary increases and bonuses based upon
the performance of his or her store, including sales, profits and store
appearance. The Company believes that its incentive and other programs for
management have achieved a strong retention rate for managers. 72% of the
Company's district sales managers have been with the Company for at least four
years (67% for over five years), and 51% of the Company's store managers have
been with the Company for at least four years (40% for over five years).
Training. The Company believes store managers are a critical component
in creating an effective retail environment, and accordingly has developed
ongoing programs to improve the quality and effectiveness of its store managers
and to increase retention rates. New store managers are required to attend a
two-week training program at the Company's Salt Lake City training facility and
ongoing training courses in new products, standards, and procedures are
available throughout the year to all Company personnel.
Franchise Operations
In accordance with the Company's business strategy, the Company has
been selling, and expects to continue to sell, selected Company-owned stores to
franchisees to reduce costs, increase profitability and provide for liquidity
and development of additional stores in the future. The Company also is actively
seeking to franchise new Mrs. Fields stores.
Cookie Business. Each franchisee pays the Company an initial licensing
fee of $25,000 per Mrs. Fields store location and is responsible for funding the
building-out of the new store and purchasing initial dough inventory and
supplies, at a total cost of approximately $200,000 (including the initial
franchise fee), although the cost of opening a new store can vary based on
individual operating and location costs. The Company also charges franchisees a
fee to handle equipment purchases and to provide other assistance in helping the
franchisee to set up operations. After a store is set up, a franchisee pays
royalty fees to the Company of 6% of the franchised store's annual gross sales,
and an advertising fee of 1% of annual gross sales. The Company does not
currently anticipate franchising Original Cookie stores.
The Mrs. Fields franchising program has received national prominence
and recognition. The March 1996 issue of Income Opportunities rated Mrs. Fields
29th in its top 200 franchisor rankings. Entrepreneur magazine in its 1996
Franchise 500 edition ranked Mrs. Fields number one in the specialty baked
products category and 44th in its top 500 rankings of franchisors. Additionally,
Mrs. Fields has consistently been ranked first in the retail cookie category for
franchising opportunities by national publications such as Working Woman,
Success and Business Start-Ups.
<PAGE>
Franchisees come from a wide variety of business backgrounds and bring
with them different operating styles and business objectives. Among the
Company's franchisees are full-time store operators, passive investors, retired
professionals and people seeking a second source of income. The majority of Mrs.
Fields franchisees own one store. As of January 3, 1998, the five largest Mrs.
Fields franchisees operated 30 stores, and the largest Mrs. Fields franchisee
operated twelve stores.
Pretzel Business. The Company does not franchise Hot Sam stores. The
Company is a franchisee of 80 Pretzel Time stores, with rights to sub-franchise,
if desired. Each franchisee pays Pretzel Time an initial licensing fee of
$25,000 per new Pretzel Time store location and will be responsible for funding
the building-out of the new store and supplies, at a total cost of approximately
$190,000 to $240,000 (including the initial franchise fee), although the cost of
opening a new store can vary based on individual operating and location costs.
Pretzel Time also charges franchisees a fee to handle equipment purchases and to
provide other assistance in helping the franchisee to set up operations. After a
store is set up, a franchisee pays royalty fees to Pretzel Time of 7% of the
franchised store's annual gross sales, and a marketing fee of 1% of annual gross
sales.
Franchisee Recruiting and Training. Mrs. Fields has been successful in
recruiting franchisees and completing franchise transactions and believes it
will continue to realize significant cash flow from franchising by (i)
emphasizing the use of proprietary dough that minimizes product quality issues
and ensures a consistent product across all outlets, (ii) frequent quality,
service and cleanliness evaluations of franchised stores by operations support
staff and (iii) initial and continuing training of franchisees to improve their
financial and retail sales skills.
The Company believes its franchisees are a critical component in
creating an effective retail environment, and accordingly makes its ongoing
programs available to franchisees to improve their quality and effectiveness.
Franchisees are required to attend a two-week training program at the Company's
Salt Lake City training facility and ongoing training courses in new products,
standards, and procedures are available throughout the year to all franchisee
personnel.
Licensing
In the past few years, the Company has utilized a ?branding? strategy
which has capitalized on the highly-recognized Mrs. Fields brand to build
traffic, expand sales, improve market share, and to increase profits through
cultivating alternative channels of distribution. The following is a
comprehensive list of segments, with examples of current licensees within the
Company's system:
Concept Licensing. The Company has developed a licensing program for
non-mall retail outlets that enables the Company to enter difficult-to-reach
markets and facilitate brand exposure through ?presence? and ?prestige?
marketing. The Company's licensees duplicate the Mrs. Fields store concept and
purchase dough from the Company's various distributors. Several of these
licensees are contract management companies that manage and operate food service
in host locations. The Company's licensees and their respective distribution
channels include Host Marriott (airports and travel plazas), ARAMark (stadiums
and convention centers) and Holiday Inn Worldwide (hotels).
Retail Licensing. The Company plans to capitalize on its brand
awareness and the perception of quality among consumers to expand the product
line to include products sold in other retail environments, including
refrigerated dough, dry-mix and non-food products, and other applications
outside the original scope of the Company's retail cookie store concept. A
current example is Legacy Brands, which has the exclusive North American rights
to retail frozen dough and offers Mrs. Fields Cookies throughout the supermarket
industry. Another licensee is YES! Entertainment, which has a license to market
the Mrs. Fields Baking Oven for children sold in most toy stores and through
mass merchandisers.
Supply Licensing. The Company currently has an agreement with United
Airlines under which its mail order division sells cookies to United Airlines
and allows United Airlines to promote the Mrs. Fields brand and products to its
first-class customers. The Company is pursuing similar relationships to compete
with other manufacturers' brands selling in this channel of business.
Competition
The Company competes for both leasing opportunities and customers with
other cookie and pretzel retailers, as well as other confectionery, sweet snack
and specialty food retailers, including cinnamon rolls, yogurt, ice cream, baked
goods and candy shops. The specialty retail food and snack industry is highly
competitive with respect to price, service, location and food quality, and there
are many well-established competitors with greater resources than those of the
Company. The Company competes with these retailers on the basis of price,
quality, location and service. The Company faces competition from a wide variety
of sources, including such companies as GACC, Cinnabon, Inc., TCBY Yogurt Inc.,
Auntie Anne's Soft Pretzels, PretzelMaker and Baskin-Robbins 31 Flavors.
<PAGE>
Properties
As of January 3, 1998, the Company leased 763 retail stores, of which
282 were subleased to franchisees under terms which cover all obligations of the
Company thereunder. Under its franchise agreements, the Company has certain
rights to gain control of a retail site in the event of default under the lease
or the franchise agreement. Most of the Company's operating leases provide for
the payment of lease rents plus real estate taxes, utilities, insurance, common
area charges and certain other expenses, as well as contingent rents which
generally range from 8% to 10% of net retail store sales in excess of stipulated
amounts. See ?Risk Factors-Dependence on Real Estate Leases; Continuing
Obligations on Leases.?
The Company currently leases approximately 20,000 square feet of office
space in Salt Lake City, Utah for its corporate headquarters. The Company owns
substantially all of the equipment used in Company-owned retail outlets and its
corporate headquarters. The Company has recently signed a new lease for an
additional 31,000 square feet of office space. The Company intends to relocate
its corporate offices to the new location during the second quarter of 1998.
Product development, training and mail order operations will continue to operate
in the existing office space.
Employees
As of January 3, 1998, the Company had approximately 4,007 employees in
Company-owned stores, of whom approximately 767 were store managers and
assistant store managers, 45 were full-time sales assistants and 3,195 were
part-time sales assistants. The typical Company store employs five to thirteen
employees. During the period from November through February, the Company may
hire as many as 580 additional part-time employees to handle additional mall
traffic. Most employees are paid on an hourly basis, except store managers. The
Company's employees are not unionized. The Company has never experienced any
significant work stoppages and believes that its employee relations are good.
Many of the Company's employees are paid hourly rates based upon the
federal minimum wage. The federal minimum wage increased from $4.75 to $5.15 on
September 1, 1997. As of January 3, 1998, 2,167 of the Company's 4,007 employees
in Company-owned stores earned the federal minimum wage. The September 1, 1997
minimum wage increase is expected to negatively impact the Company's labor
costs, increasing wages by approximately $316,000 annually, but management
believes this impact can be negated in the long-term through increased
efficiencies in its operations and, as necessary, through retail price
increases.
Trademarks
The Company is the holder of numerous trademarks that have been
federally registered in the United States and in substantially all other
countries located throughout the world. The Company is a party to disputes with
respect to trademarks none of which, in the opinion of management of the
Company, is material to the Company's business, financial condition or results
of operations.
Legal Proceedings; Government Regulation
In the ordinary course of business, the Company is involved in routine
litigation, including franchise disputes and trademark disputes. Except as
described below, the Company is not a party to any legal proceedings which, in
the opinion of management of the Company, after consultation with legal counsel,
is material to the Company's business, financial condition or results of
operations.
The Company has recently been in discussions concerning the possible
acquisition by the Company of GACC or some of its owned or franchised stores. No
agreement with respect to such a transaction has been concluded, and there can
be no assurance that such an agreement will be concluded.
In connection with those discussions, on or about September 12, 1997,
nine franchisees of GACC filed an action in the Superior Court of New Jersey,
Mercer County, against the Company, Capricorn and other defendants, challenging
a possible acquisition of GACC by the Company. Goldberg, et al. v. Great
American Cookie Company, et al., Docket No. MER-L-3502-97 (Super Ct. Mercer
County). The complaint asserts that the proposed sale violates Illinois,
Indiana, Maryland, New Jersey and Virginia franchise law, violates North
Carolina, South Carolina and Texas unfair trade practices acts, breaches the
plaintiffs' franchise contracts and tortiously interferes with the plaintiffs'
actual and prospective contractual relationships. Management believes that it
has good and meritorious defenses to the action. Currently there are ongoing
negotiations between the parties. The Plaintiffs have given the defendants until
February 2, 1998 to file an answer.
The Company's stores and products are subject to regulation by numerous
governmental authorities, including, without limitation, federal, state and
local laws and regulations governing health, sanitation, environmental
protection, safety and hiring and employment practices.
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding the
executive officers and directors of Mrs. Fields as of January 3, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Title
- ---- --- -----
Larry A. Hodges....................... 48 Director, President and Chief Executive Officer
L. Tim Pierce......................... 46 Senior Vice President, Chief Financial Officer and Secretary
Pat W. Knotts......................... 43 Senior Vice President of Operations
Julie Byerlein........................ 39 Senior Vice President of Marketing and Licensing
Garry Remington....................... 45 Senior Vice President of Real Estate
Michael R. Ward....................... 39 Vice President of Administration and Legal Department
Herbert S. Winokur, Jr................ 54 Chairman of the Board of Directors
Richard Ferry......................... 59 Director
Debbi Fields.......................... 41 Director
Nat Gregory........................... 50 Director
Walker Lewis.......................... 53 Director
Peter Mullin.......................... 56 Director
Gilbert Osnos......................... 67 Director
</TABLE>
Mr. Hodges has been President and Chief Executive Officer of MFI and Mrs.
Fields since March 1994, and a Director since April 1993. From 1992 to 1994, Mr.
Hodges was the Chief Executive Officer of Food Barn Stores, Inc. (Kansas City,
Missouri). Earlier Mr. Hodges was a consultant to various manufacturers and
retailers. For 25 years, Mr. Hodges was with American Stores Company where he
served as President of two of its subsidiaries ranging in annual sales from $600
million to $2.3 billion. Mr. Hodges has over 32 years of experience in the
retail field serving as president of four supermarket chains and consultant and
director to large food companies. Mr. Hodges is a director of Ameristar Casinos,
Inc., Coinstar, Inc. and Pretzel Time, Inc.
Mr. Pierce has been Senior Vice President of MFI and Mrs. Fields since
December 1991, and Chief Financial Officer since August 1993. He was appointed
Corporate Secretary in April 1995. Since joining MFI in 1988 and prior to
becoming Senior Vice President, Mr. Pierce had served as Vice President of
Finance. He was also an Audit Manager and a Senior Audit Manager with Price
Waterhouse in Salt Lake City, Utah, and New York, New York. Mr. Pierce is a
certified public accountant and has also served on the Board of Directors of
Mountain America Credit Union and currently serves as a Director of Pretzel
Time, Inc.
Mr. Knotts has been Senior Vice President of Mrs. Fields since October
1996. Mr. Knotts' responsibilities include all aspects of store operations and
related support functions. Between January 1992 and October 1996, Mr. Knotts
served as Executive Vice President of Operations for Original Cookie and Hot
Sam, where he was responsible for store operations, marketing, purchasing,
construction and store design. Mr. Knotts also held the position of Regional
Vice President of Stores for Silo Inc., a $1 billion consumer electronics and
major appliance chain.
Ms. Byerlein has been Senior Vice President of Mrs. Fields since May 1997.
Ms. Byerlein's responsibilities include all aspects of marketing, including
development and implementation, product assortment and merchandising, brand
championship and new business development. From 1989 to 1997, Ms. Byerlein was
with Chef America, Inc., manufacturer of Hot Pockets brand sandwiches, first as
Marketing Director and then as Vice President of Marketing.
Mr. Remington has been Senior Vice President of Real Estate of Mrs. Fields
since July 1997. Mr. Remington's responsibilities include all aspects of real
estate, store construction, remodels and lease negotiations. Between October
1996 and July 1997, Mr. Remington served as Vice President of Real Estate for
Sbarro, Inc. From 1994 to 1996, Mr. Remington held the position of Senior Vice
President of Leasing for the Woolworth Corporation, with responsibilities for
Footlocker, Champ Sports, Northern Reflections, Afterthoughts, and seven other
divisions, and from 1992 to 1994, Mr. Remington was Vice President and Director
of Leasing for the Woolworth Corporation, which he joined in 1972.
Mr. Ward has been Vice President of Administration for Mrs. Fields since
September 1996. Mr. Ward's responsibilities include management of the Human
Resources Department, Benefits and the Legal Department. Between 1991 and 1996,
Mr. Ward's responsibilities were overseeing the Legal Department and the Human
Resources Department for MFI. He is admitted to practice law in the State of
Utah.
<PAGE>
Mr. Winokur has been Chairman of the Board of Directors of Mrs. Fields
since its inception in September 1996. Mr. Winokur is the Manager of Capricorn
Holdings, L.L.C. (?Capricorn Holdings?), the General Partner of Capricorn. Mrs.
Fields is owned by MFH, a portfolio company of Capricorn which owns the majority
of MFH's stock. Mr. Winokur is also the Managing General Partner of Capricorn
Investors, L.P. (?Capricorn I?). Capricorn and Capricorn I are private
investment partnerships, organized by Mr. Winokur in 1994 and 1987,
respectively, that focus on investments in businesses that require financial
and/or operating restructuring or recapitalization. Mr. Winokur is also a
Managing Partner of Capricorn Management, G.P., which provides advisory and
management services to Capricorn, and is a director of Enron Corp., Nac Re
Corp., WMF Corp., and DynCorp.
Mr. Ferry has been a Director of Mrs. Fields since its inception in
September 1996. Mr. Ferry is co-founder and Chairman of Korn/Ferry
International, the world's leading executive search firm. Mr. Ferry is on the
Board of Directors of Avery Dennison, Dole Food Company and Pacific Life
Insurance Company.
Debbi Fields has been a Director of Mrs. Fields since its inception in
September 1996. Debbi Fields founded a predecessor to Mrs. Fields in 1977 and
served as President and Chief Executive Officer until 1993. She currently serves
on the Board of several non-profit organizations and lectures throughout the
United States to Fortune 500 companies. Debbi Fields is a director of Outback
Steakhouse, Inc.
Mr. Gregory has been a Director of Mrs. Fields since its inception in
September 1996. Since 1993, Mr. Gregory has served as Chairman and Chief
Executive Officer of NATCO, an international supplier of oilfield production
equipment, which is a portfolio company of Capricorn I. Prior to that he served
as Executive Vice President of Smith Barney from 1991 to 1993. Mr. Gregory is a
member and managing director of Capricorn Holdings, L.L.C., the General Partner
of Capricorn, and a director of Marine Drilling Companies, Inc.
Mr. Lewis has been a Director of Mrs. Fields since its inception in
September 1996. Mr. Lewis has been Chairman of Devon Value Advisers since
January 1997. Prior to that, for 20 years, Mr. Lewis served as Chairman of
Strategic Planning Associates, specializing in shareholder value strategies. Mr.
Lewis was a Senior Advisor at Dillon Read & Co., Inc. (?Dillon Read?) from
1995-1997 and his company, Devon Value Advisors, continues to act as a
consultant to Dillon Read. During 1994, he was a Managing Director of Kidder,
Peabody & Co., Inc. From 1992 to 1994, he was President of Avon North America
and Executive Vice President of Avon Products, Inc. Mr. Lewis has served on the
Board of Directors of Owens Corning (since 1993), American Management Systems,
Incorporated (since 1995), Jostens, Inc. (since 1997), Marakon Associates (since
1995), and was on the Board of Directors of Unilab Corporation from 1994 to
1997.
Mr. Mullin has been a Director of Mrs. Fields since its inception in
September 1996. Mr. Mullin founded Mullin Consulting, Inc. in Los Angeles in
1969, and serves as its Chairman and Chief Executive Officer. He also co-founded
Strategic Compensation Associates and serves as Chairman of the firm's Executive
Committee.
Mr. Osnos has been a Director of Mrs. Fields since its inception in
September 1996. Mr. Osnos has served since 1992 as Chairman of Osnos & Company,
which provides interim management to companies, and Mr. Osnos served as interim
chief executive officer of County Seat Stores Inc. in 1996. He is also a founder
and past Chairman of the Turnaround Management Association, which he has been a
member of since prior to 1992. Prior to September 1996, Mr. Osnos was on the
Board of Directors of MFI beginning in 1993. Mr. Osnos serves on the Board of
Directors of Furrs/Bishop's, Incorporated. Since the fall of 1997, Mr. Osnos has
also been a director of American Specialty Retail Group, Inc.
<PAGE>
Executive Compensation
The following table sets forth information with regard to compensation for
services rendered in all capacities to the Company by the Chief Executive
Officer, the four most highly compensated executive officers other than the CEO
who were serving as executive officers at the end of the last completed fiscal
year and two additional individuals for whom disclosure would have been
provided, but for the fact that the individual was not serving as an executive
officer at the end of the last completed fiscal year. Information set forth in
the table reflects compensation earned by such individuals for services with the
Company or its subsidiaries.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
------------------------------------------
Annual Compensation Awards Payouts
----------------------------------- -------------------- --------------------
Securities
Other Restricted Underlying
Name and Annual Stock Options/ LTIP All Other
Principal Position Salary Bonus Compensation Award(s) SARs Payouts Compensation
Year
($) ($) ($) ($) (#) ($) ($)
----------- ---------- ------------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry Hodges 1997 $300,000 $185,412 $1,875 - - - -
President and CEO 1996 262,834 - 1,656 - - - -
1995 247,313 200,000 1,250 - - - -
L. Tim Pierce 1997 175,000 103,607 1,111 - - - -
Senior Vice President 1996 167,723 - 1,107 - - - 33,000(1)
and CFO 1995 164,180 52,000 1,494 - - - 33,000(1)
Pat Knotts 1997 162,500 27,321 - - - - -
Senior Vice President 1996 172490 267,212 (2) - - - - 23,920(3)
Operations 1995 157635 - - - - - 2,912(4)
Michael Ward 1997 109,904 56,393 537 - - - -
Vice President Legal 1996 83,020 - 526 - - - -
and 1995 83,095 8,650 442 - - - -
Administration
Julie Byerlein(5) 1997 121,375 - - - - - -
Senior Vice President 1996 - - - - - - -
Marketing and Licensing 1995 - - - - - - -
Keith Gerson(6) 1997 116,252 28,250 - - - -
Senior Vice President 1996 112,905 - 681 - - - -
Franchising 1995 117,883 16,426 974 - - - -
Bill Miko(6) 1997 106,777 13,661 - - - - -
Vice President 1996 98,168 16,570 - - - - -
Operations 1995 97,464 - - - - - -
</TABLE>
(1) Represents forgiveness of a loan made by the Company in 1993.
(2) Represents payments under retention and employment agreements from Original
Cookie/Hot Sam.
(3) Represents payment of relocation expenses of $20,920 and a grant of $3,000
under the Original Cookie 401(k) plan.
(4) Represents a grant under the Original Cookie 401(k) plan.
(5) Started with the Company in May 1997.
(6) Keith Gerson and Bill Miko resigned from the Company in 1997.
Option Grants and Exercises
Subject to definitive documentation, the Company's Board of Directors
approved a nonqualified stock option plan, to be effective September 18, 1996.
It is currently expected that an option plan will be established providing for
the issuance of up to 15% of the capital stock of MFH to officers, other
employees and consultants of the Company. The number, type of award and terms
and conditions, including any vesting conditions, have not been determined. As
of January 3, 1998, no options had been granted under any option plan.
<PAGE>
Board Compensation
Board members, other than officers of the Company and Mr. Winokur, Mr.
Gregory and Ms. Fields, are compensated for services rendered annually as
follows: (i) $12,000 cash and (ii) options on $30,000 of common stock of the
Company. The Board of Directors of Mrs. Fields meets regularly on a quarterly
basis and more often required.
Board Committees
Three functioning committees of the Board have been organized including (i)
Executive Committee, (ii) Compensation Committee and (iii) Audit Committee.
Following is a brief description of each of these committees.
Executive Committee. The Executive Committee is composed of Messrs. Winokur
(Chairman), Gregory and Hodges. The purpose of this committee is to act on the
behalf of the entire Board of Directors between Board meetings.
Compensation Committee. The Compensation Committee is composed of
Messrs. Gregory (Chairman), Mullin and Lewis. The purpose of this committee is
to ensure that the Company has a broad plan of executive compensation that is
competitive and motivating to the degree that it will attract, hold and inspire
performance of managerial and other key personnel of a quality and nature that
will enhance the growth and profitability of the Company.
Audit Committee. The Audit Committee is comprised of Messrs. Ferry
(Chairman) and Osnos. The purpose of the Audit Committee is to provide oversight
and review of the Company's accounting and financial reporting process in
consultation with the Company's independent and internal auditors.
Indemnification and Compensation
The Company's By-Laws authorize the Company to indemnify its present
and former directors and officers and to pay or reimburse expenses for such
individuals in advance of the final disposition of a proceeding upon receipt of
an undertaking by or on behalf of such individuals to repay such amounts if so
required.
Employment Agreements
All of the executive officers are parties to employment agreements with
the Company. Each employment agreement provides for a period of employment of
two years (or three years, in the case of Larry Hodges) from the date of the
agreement, subject to termination provisions and to automatic extension of the
agreement. Each employment agreement permits the employee to participate in any
incentive compensation plan adopted by the Company to replace the Fiscal 1994
Incentive Compensation Plan of MFI, benefit plans and an equity-based plan or
arrangement. If the Company terminates employment for cause or if the employee
terminates employment without good reason, the Company has no further obligation
to pay the employee. If the Company terminates employment without cause, or the
employee terminates employment with good reason, the employee can receive in
severance pay the amount equal to the product of his or her then current
semi-monthly base salary by the greater of the number of semi-monthly periods
from the notice of termination or twenty-four or thirty-six semi-monthly
periods, plus a portion of any discretionary bonus that would otherwise have
been payable. The employment agreement prohibits the employee, for a year from
the date of termination of employment under the agreement, from becoming an
employee, owner (except for investments of not more than 3% of the equity of a
company listed or traded on a national securities exchange or an
over-the-counter securities market), officer, agent or director of a firm or
person that directly competes with the Company in a line or lines of business of
the Company that accounts for 10% or more of the Company's gross sales, revenues
or earnings before taxes. The employment agreements have customary provisions
for vacation, fringe benefits, payment of expenses and automobile allowances.
The employees who have such employment agreements, and their base salaries, are:
Larry Hodges, President and Chief Executive Officer, $300,000, L. Tim Pierce,
Senior Vice President, Chief Financial Officer and Secretary, $175,000, Pat
Knotts, Senior Vice President of Operations, $175,000, Michael Ward, Vice
President of Administration and Assistant Secretary, $125,000, Julie Byerlein,
Senior Vice President of Marketing, $175,000, and Garry Remington, Senior Vice
President of Real Estate, $175,000.
<PAGE>
OWNERSHIP OF CAPITAL STOCK
As of the date of this Prospectus, all of the capital stock of the
Company is owned by MFH, whose address is 462 West Bearcat Drive, Salt Lake
City, Utah 84115. More than 95% of the outstanding capital stock of MFH is owned
by Capricorn, whose address is 30 East Elm Street, Greenwich, Connecticut 06830.
Capricorn's ownership interest in MFH is subject to reduction for stock options
and stock in MFH to be issued by the Company to its management and directors as
described under ?Management-Option Grants and Exercises? and "-Board
Compensation."
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with Debbi Fields and Affiliates. In November 1996, the
Company entered into a consulting agreement (the ?Consulting Agreement?) with
Debbi Fields, a director of the Company, under which Debbi Fields travels and
performs public relations and advertising activities on behalf of the Company
for at least 50 days a year for a fee of $250,000 per year, with an option to
perform 20 additional days a year for additional pay of $5,000 per day. The
compensation increases by 10% a year beginning on January 1, 1999. The
Consulting Agreement expires on December 31, 1999. The Company may terminate the
Consulting Agreement for cause and Debbi Fields may terminate the Consulting
Agreement at any time. Under the Consulting Agreement, Debbi Fields may not
disclose any confidential information of the Company, such as recipes and trade
secrets, and may not, without the prior written consent of the Company, compete
with the Company.
In addition, the Company has a license agreement with FSG Holdings,
Inc., a Delaware corporation, under which Debbi Fields has a nonexclusive
license to use certain trademarks, names, service marks and logos of the Company
in connection with book and television series projects. Debbi Fields is required
to pay 50 percent of any gross revenues in excess of $200,000 that she receives
from the book and television series projects to the Company as a license fee.
The Company leases certain office space to an entity which is owned in
part by Debbi Fields. Billings to the entity for the period from inception
(September 18, 1996) to December 28, 1996 and the fiscal year ended January 3,
1998 totaled approximately $60,000 and $274,000, respectively, of which
approximately $29,000 and $23,000 is included in accounts receivable as of
December 28, 1996 and January 3, 1998, respectively.
Arrangements with Walker Lewis. Mr. Lewis, a director of the Company, acts
as a consultant and an advisor to Dillon Read. In early 1997, the Company paid
to Dillon Read a fee of approximately $707,000 in connection with the
restructuring of the Company in September 1996. In addition, Mr. Lewis' company,
Devon Value Advisers, has an agreement to provide advisory acquisition and
consulting services to the Company for a fee of $250,000, plus expenses.
Arrangements with Peter Mullin. Mr. Mullin, a director of the Company, is
acting as a consultant in connection with certain of the Company's benefit plans
for employees and directors. To date, Mr. Mullin has not received any
compensation in connection with the consulting work and the terms of such
compensation had not been determined as of January 3, 1998.
Korn/Ferry Agreement. The Company has paid fees of approximately
$47,000 and $157,000 during the period ended December 28, 1996 and the year
ended January 3, 1998, respectively, to Korn/Ferry International, an executive
search firm of which Richard Ferry, a director of the Company, is the Chairman,
in connection with the hiring of employees for the Company.
Arrangements with MFH. The Company and MFH expect to enter into a Tax
Sharing Agreement as defined in and permitted by the Indenture. See ?Description
of Senior
Notes-Certain Covenants.?
As of December 28, 1996 and January 3, 1998, the Company had
receivables of approximately $39,000 and $89,000 due from MFH and payables of
$137,000 and $194,000 due to MFH, respectively. The receivables stem primarily
from goods sold and an allocation of payroll and other operating expenses. The
Company believes that the terms of the sale and allocations are essentially
equivalent to the terms that would have been obtained from an unaffiliated third
party in a similar transaction.
At the time of the offering of the Old Senior Notes, MFH, which is
majority owned by Capricorn, was the holder of a $4,643,000 principal amount
subordinated note of the Company. The Company accrued interest of $130,000 in
fiscal year 1996 and $441,000 through November 26, 1997. All accrued interest
was paid in fiscal year 1997. The principal amount of this note was converted
into common equity of the Company in connection with the Refinancing. Messrs.
Winokur and Gregory, directors of the Company, are, respectively, the manager
and managing director of Capricorn Holdings, the General Partner of Capricorn.
Arrangements with MIDIAL. At the time of the offering of the Old Senior
Notes, a subsidiary of MIDIAL was the holder of $27,000,000 in aggregate
principal amount of senior notes of the Company and $8.4 million in aggregate
principal amount of subordinated notes of the Company as to which the Company
had accrued or paid interest of $683,000 in 1996 and of $3,177,000 through
November 26, 1997. In connection with the Refinancing, the Company repaid all
such notes and related interest. Mr. de Carbonnel, a former director of the
Company, serves as Chairman and Chief Executive Officer of MIDIAL. See ?The
Transactions-The Refinancing.?
<PAGE>
DESCRIPTION OF SENIOR NOTES
General
The New Senior Notes offered hereby will be issued pursuant to an
Indenture (the ?Indenture?), dated as of November 26, 1997, between the Company,
MFB, and The Bank of New York, as trustee (the ?Trustee?). The terms of the
Senior Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
?Trust Indenture Act?). The New Senior Notes are subject to all such terms, and
Holders of New Senior Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of the material
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. Copies of the Indenture and the form of Senior Notes
are filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. The definitions of certain terms used in the following summary are
set forth below under "-Certain Definitions." Wherever particular provisions of
the Indenture are referred to in this summary, such provisions are incorporated
by reference as a part of the statements made and such statements are qualified
in their entirety by such reference.
The Senior Notes are general unsecured obligations of the Company, rank
senior in right of payment to all subordinated indebtedness of the Company and
rank pari passu in right of payment with all existing and future senior
indebtedness of the Company. As of January 3, 1998, the Company (excluding its
subsidiaries) had approximately $0.2 million in indebtedness other than the
Senior Notes. The Senior Notes are unconditionally guaranteed on a senior basis
by the Guarantors. The Guarantees are general unsecured obligations of the
Guarantors, rank senior in right of payment to all subordinated indebtedness of
the Guarantors and rank pari passu in right of payment with all existing and
future senior indebtedness of the Guarantors. As of January 3, 1998, the
aggregate amount of indebtedness of the Company's subsidiaries was approximately
$0.9 million and the aggregate liquidation preference of mandatorily redeemable
preferred stock of the Company's subsidiaries was approximately $1.5 million,
all of which was issued by subsidiaries other than the Guarantors and
effectively rank senior in right of payment to the Senior Notes. Although the
Indenture limits the ability of the Company and its subsidiaries to incur
additional indebtedness and issue preferred stock, the Company is permitted to
incur additional indebtedness and issue preferred stock, including secured
indebtedness, under certain circumstances, which will effectively rank senior to
the Senior Notes with respect to the assets securing such Indebtedness. See
?Risk Factors-Effective Subordination? and "-Certain Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock."
Principal, Maturity and Interest
The Senior Notes are limited in aggregate principal amount to $200.0
million, of which $100.0 million have been issued, and will mature on December
1, 2004. Interest on the New Senior Notes will accrue at the rate of 101/8% per
annum and will be payable semi-annually in arrears on June 1 and December 1,
commencing on June 1, 1998, to holders of record of the New Senior Notes on the
immediately preceding May 15 and November 15. Interest on the New Senior Notes
will accrue from the most recent date to which interest has been paid on the Old
Senior Notes or, if no interest has been paid on the Old Senior Notes, from
November 26, 1997. Old Senior Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
whose Old Senior Notes are accepted for exchange will not receive any payment in
respect of interest on such Old Senior Notes otherwise payable on any interest
payment date the record date for which occurs on or after the consummation of
the Exchange Offer. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest on
the New Senior Notes will be payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest may be made by check mailed to the
holders of the Senior Notes at their respective addresses set forth in the
register of Holders of New Senior Notes; provided that all payments of
principal, premium, if any, and interest with respect to New Senior Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The New Senior Notes will be issued in
denominations of $1,000 and integral multiples thereof. For each Old Senior Note
accepted for exchange, the Holder of such Old Senior Note will receive a New
Senior Notes having a principal amount equal to that of the surrendered Old
Senior Note.
<PAGE>
Old Senior Notes and New Senior Notes will be treated as a single class
of securities under the Indenture.
Guarantees
The Company's payment obligations under the Senior Notes are
unconditionally guaranteed on a senior unsecured basis (the ?Guarantees?) by MFB
and will be jointly and severally, unconditionally guaranteed by any additional
Guarantors. The obligations of each Guarantor under its Guarantee will be
limited so as not to constitute a fraudulent conveyance under applicable law.
See, however, ?Risk Factors-Fraudulent Conveyance Considerations.? MFB is
currently, under the Old Guarantee, and will continue to be, under the New
Guarantee, the sole Guarantor of the Senior Notes, until there are any such
additional Guarantors.
The Indenture provides that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee under the Indenture, (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists, (iii) such Guarantor, or any
Person formed by or surviving any such consolidation or merger, would have
Consolidated Net Worth (immediately after giving effect to such transaction),
equal to or greater than the Consolidated Net Worth of such Guarantor
immediately preceding the transaction, and (iv) the Company would be permitted
by virtue of the Company's pro forma Fixed Charge Coverage Ratio, immediately
after giving effect to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant described above under the caption "-Certain Covenants-Incurrence of
Indebtedness and Issuance of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in accordance with
the applicable provisions of the Indenture. See ?Repurchase at the Option of
Holders-Asset Sales.?
Optional Redemption
The Senior Notes are not redeemable at the Company's option prior to
December 1, 2001. Thereafter, the Senior Notes are subject to redemption at any
time at the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, in cash at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on December 1 of the years indicated below:
Year Percentage
2001........................................... 103.375%
2002........................................... 101.688%
2003 and thereafter............................ 100.000%
Notwithstanding the foregoing, during the first 48 months beginning
November 26, 1997, the Company may on any one or more occasions redeem up to an
aggregate of 35% of the aggregate principal amount of Senior Notes ever issued
under the Indenture at a redemption price equal to 110.125% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings; provided that at least 65% of the aggregate principal amount of
Senior Notes ever issued under the Indenture remains outstanding immediately
after the occurrence of any such redemption; and provided further that such
redemption shall occur within 60 days of the date of the closing of any such
Public Equity Offering.
<PAGE>
Selection and Notice
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate; provided that no Senior Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Senior Notes to be redeemed at its registered address. Notices of redemption may
not be conditional. If any Senior Note is to be redeemed in part only, the
notice of redemption that relates to such Senior Note shall state the portion of
the principal amount thereof to be redeemed. A new Senior Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original Senior Note. Senior Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest ceases to accrue on Senior Notes or portions of
them called for redemption.
Mandatory Redemption
Except as set forth below under the caption ??Repurchase at the Option
of Holders,? the Company is not required to make mandatory redemption or sinking
fund payments with respect to the Senior Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such holder's Senior Notes
pursuant to the offer described below (the ?Change of Control Offer?) at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon to the date of repurchase (the ?Change
of Control Payment?). Within 60 days following any Change of Control, the
Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Senior Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the ?Change of Control Payment Date?), pursuant to the procedures
required by the Indenture and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior Notes
as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (iii) deliver or cause to be delivered
to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each holder of Senior Notes so tendered the Change of Control Payment for such
Senior Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each holder a new Senior Note equal in
principal amount to any unpurchased portion of the Senior Notes surrendered, if
any, provided that each such new Senior Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Senior Notes to require that
the Company repurchase or redeem the Senior Notes in the event of a takeover,
recapitalization or similar transaction.
It is expected that future Indebtedness of the Company will contain
prohibitions of certain events that would constitute a Change of Control. In
addition, the exercise by the Holders of Senior Notes of their right to require
the Company to repurchase the Senior Notes could cause a default under such
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchases on the Company. Finally, the Company's
ability to pay cash to the holders of Senior Notes upon a repurchase may be
limited by the Company's then existing financial resources. See ?Risk
Factors-Inability to Purchase Senior Notes Upon Change of Control.?
<PAGE>
The Company will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Senior Notes validly tendered and not withdrawn under such Change
of Control Offer.
?Change of Control? means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any ?person? (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below); (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company; (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
?person? (as defined above), other than the Principals or their Related Parties,
becomes the ?beneficial owner? (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that a person shall be deemed to have
?beneficial ownership? of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company (measured by voting power rather than
number of shares); or (iv) the first day on which a majority of the members of
the Board of Directors of the Company are not Continuing Directors. For purposes
of this definition, any transfer of an equity interest of an entity that was
formed for the purpose of acquiring Voting Stock of the Company will be deemed
to be a transfer of such portion of such Voting Stock as corresponds to the
portion of such equity of such entity that has been so transferred.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of ?all or substantially
all? of the assets of the Company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
?substantially all,? there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Senior Notes to
require the Company to repurchase such Senior Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of the Company and its Subsidiaries taken as a whole to another Person or group
may be uncertain.
?Continuing Directors? means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
?Principals? means Herbert S. Winokur, Jr. and Capricorn Investors II, L.P.
?Related Party? with respect to any Principal means (a) any greater
than 50% owned Subsidiary, or spouse or immediate family member (in the case of
an individual) of such Principal or (b) trust, corporation, general partnership
or other entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding a greater than 50% controlling interest of which consist,
or a limited partnership, the general partner of which consists, of the
Principals and/or such other Persons referred to in the immediately preceding
clause (a).
Asset Sales
The Indenture will provide that the Company will not, and will not
permit any of its Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (in the case of
an Asset Sale or Asset Sales aggregating $10,000 or more, evidenced by an
officers' certificate delivered to the Trustee and, in the case of any Asset
Sale having a fair market value or resulting in net proceeds in excess of $5.0
million, evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Subsidiary is in the form
of cash, provided that the amount of (x) any liabilities (as shown on the
Company's or such Subsidiary's most recent balance sheet), of the Company or any
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Senior Notes or any guarantee thereof) that are
assumed by the transferee of any such assets pursuant to a customary novation
agreement that releases the Company or such Subsidiary from further liability
and (y) any securities, notes or other obligations received by the Company or
any such Subsidiary from such transferee that are immediately converted by the
Company or such Subsidiary into cash (to the extent of the cash received), shall
be deemed to be cash for purposes of this provision.
<PAGE>
Within 270 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (a) to repay
senior Indebtedness of the Company or any Guarantor or (b) to the making of a
Permitted Investment, the making of a capital expenditure in a Permitted
Business or the acquisition of long-term assets in a Permitted Business. Pending
the final application of any such Net Proceeds, the Company may temporarily
reduce Indebtedness under a Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute ?Excess Proceeds.? When
the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company will
be required to make an offer to all holders of Senior Notes (an ?Asset Sale
Offer?) to purchase the maximum principal amount of Senior Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon to the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate amount of Senior Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Senior Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior Notes
to be purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Restricted Payments
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the Company's or any of its Subsidiaries'
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or dividends or distributions payable to the Company or any Wholly Owned
Subsidiary of the Company that is a Guarantor); (ii) purchase, redeem or
otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company or
other Affiliate of the Company (other than any such Equity Interests owned by
the Company or any Wholly Owned Subsidiary of the Company); (iii) make any
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is subordinated to the Senior Notes,
except a payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as ?Restricted Payments?),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted Payment
had been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption
"-Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by the Company and its
Subsidiaries after the Issue Date (excluding Restricted Payments
permitted by clause (ii), (iii) or (iv) of the next succeeding
paragraph), is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the
Issue Date to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii)
100% of the aggregate net cash proceeds (other than any proceeds
referred to in the proviso to the first sentence of the definition of
?Investments?) received by the Company from the issue or sale since the
Issue Date of Equity Interests of the Company (other than Disqualified
Stock) or of Disqualified Stock or debt securities of the Company that
have been converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities) sold
to a Subsidiary of the Company and other than Disqualified Stock or
convertible debt securities that have been converted into Disqualified
Stock), plus (iii) to the extent that any Restricted Investment that
was made after the Issue Date is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (A) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (B) the initial amount of such Restricted Investment.
<PAGE>
The foregoing provisions will not prohibit: (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Subsidiary of the Company to the holders of any
Equity Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed, during any twelve-month period, an aggregate amount equal to the sum of
$250,000, plus the amount of cash proceeds received by the Company from any
reissuance of Equity Interests by the Company to members of management of the
Company or its Subsidiaries during such period, which aggregate amount shall in
no event exceed $500,000 in any such period, and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; (vi)
payments to MFH pursuant to the Tax Sharing Agreement; (vii) payments pursuant
to the Pretzel Time Employment Agreement and the Pretzel Time Management
Agreement; and (viii) the redemption or repurchase of preferred stock of Pretzel
Time outstanding on the Issue Date.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $2.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant ?Restricted
Payments? were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that the Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, ?incur?) any
Indebtedness (including Acquired Indebtedness) and that the Company will not
issue any Disqualified Stock and will not permit any of its Subsidiaries to
issue any shares of preferred stock; provided that the Company may incur
Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified
Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least (A) from the date of the Indenture to
December 31, 1999, 2.25 to 1 and (B) thereafter, 2.5 to 1, determined
on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period; and
(ii) the Weighted Average Life to Maturity of such
Indebtedness is equal to or greater than the remaining Weighted Average
Life to Maturity of the Senior Notes, provided that this clause (ii)
shall not apply in the case of Acquired Indebtedness.
The provisions of the first paragraph of this covenant will not apply
to the incurrence of any of the following items of Indebtedness (collectively,
?Permitted Indebtedness?):
<PAGE>
(i) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness other than the Senior Notes;
(ii) the incurrence by the Company on the Issue Date of Indebtedness
represented by the Senior Notes in an aggregate principal amount not
to exceed $100.0 million and the Guarantees thereof by the Guarantors;
(iii)the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for
the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in
the business of the Company or such Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(iv) the incurrence by the Company or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness that was
permitted by the Indenture to be incurred;
(v) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries, provided that (A) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations
with respect to the Senior Notes and (B)(1) any subsequent issuance or
transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than the Company or a Wholly Owned
Subsidiary and (2) any sale or other transfer of any such Indebtedness
to a Person that is not either the Company or a Wholly Owned
Subsidiary shall be deemed, in each case, to constitute an incurrence
of such Indebtedness by the Company or such Subsidiary, as the case
may be;
(vi) the incurrence by the Company of Hedging Obligations in the ordinary
course of business;
(vii)the incurrence of Indebtedness in connection with one or more standby
letters of credit, guarantees, performance or surety bonds or other
reimbursement obligations, in each case, issued in the ordinary course
of business and not in connection with the borrowing of money or the
obtaining of advances or credit (other than (A) advances or credit on
open account, includible in current liabilities, for goods and
services in the ordinary course of business and on terms and
conditions customary in a Permitted Business and (B) the extension of
credit represented by such letter of credit, guarantee, bond or other
obligation itself), provided that any draw under or call upon any of
the foregoing is repaid in full within 45 days, and provided further
that the aggregate amount of all Indebtedness incurred pursuant to
this clause (vii) shall not exceed $5.0 million at any time
outstanding;
(viii) the incurrence of Indebtedness arising from agreements of the
Company or a Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or
assumed in connection with the disposition of any business, assets or
Subsidiary (other than guarantees of Indebtedness incurred by any
Person acquiring all or a portion of such business, assets or
Subsidiary for the purpose of financing such acquisition), provided
that the maximum aggregate liability of all such Indebtedness shall at
no time exceed 50% of the gross proceeds actually received by the
Company or such Subsidiary in connection with such disposition;
(ix) the guarantee by the Company or any of the Guarantors of Indebtedness
of the Company or a Subsidiary of the Company that is a Guarantor that
was permitted to be incurred by another provision of this covenant;
(x) the incurrence by Pretzel Time of Indebtedness under a
working capital facility, provided that the aggregate principal amount
of all Indebtedness (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of Pretzel
Time thereunder) outstanding thereunder after giving effect to such
incurrence, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any other Indebtedness incurred
pursuant to this clause (x), does not exceed an amount equal to $1.0
million;
<PAGE>
(xi) the incurrence by the Company of additional Indebtedness (including
Indebtedness under a Credit Facility) in an aggregate principal amount
(or accreted value, as applicable), including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
other Indebtedness incurred pursuant to this clause (xi), not to
exceed $15.0 million at any time outstanding;
(xii)the incurrence by the Company or any of its subsidiaries of Acquired
Indebtedness in an aggregate amount not to exceed $5.0 million at any
time outstanding;
(xiii) the guarantee by the Company or any of its Subsidiaries (other than
MFB) of operating store lease obligations of the Company or any of its
Subsidiaries or any franchisee of the Company or any of its
Subsidiaries in the ordinary course of business and consistent with
past practice;
(xiv)the guarantee by any Subsidiary of the Company of Indebtedness of the
Company under any Credit Facility otherwise permitted to be incurred
under the Indenture;
(xv) the incurrence by the Company of Indebtedness in the form of notes
issued in connection with the repurchase, redemption, acquisition or
retirement of Equity Interests of the Company or any Subsidiary of the
Company in an amount not to exceed $500,000 at any time outstanding
and subordinated in right of payment to the Senior Notes; and
(xvi)the incurrence by the Company of Indebtedness or the guarantee by the
Company of Indebtedness incurred by franchisees in connection with the
cost of purchasing a franchise and the cost of equipment in connection
with the set-up of a franchise, provided that such Indebtedness or
guarantee does not exceed $3.0 million at any time outstanding.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xvii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
Liens
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (a)(i) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (A) on its Capital Stock
or (B) with respect to any other interest or participation in, or measured by,
its profits, or (ii) pay any indebtedness owed to the Company or any of its
Subsidiaries, (b) make loans or advances to the Company or any of its
Subsidiaries or (c) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (i) Existing Indebtedness as in effect on the Issue Date,
(ii) the Indenture and the Senior Notes, (iii) applicable law, (iv) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred, (v) by reason of customary non-assignment provisions
in leases entered into in the ordinary course of business and consistent with
past practices, (vi) purchase money obligations or Capital Lease Obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iv) above on the property so acquired, (vii)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced, (viii) customary restrictions imposed on the transfer of
copyrighted or patented materials and customary provisions in agreements that
restrict the assignees of such agreements or any rights thereunder or (ix)
restrictions with respect to a Subsidiary of the Company imposed pursuant to a
binding agreement relating to the sale or disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary.
<PAGE>
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia, (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, (iii) immediately
after such transaction no Default or Event of Default exists and (iv) except in
the case of a merger of the Company with or into a Wholly Owned Subsidiary of
the Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an ?Affiliate Transaction?),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (A) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (B) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing, provided that (u) payments to MFH
pursuant to the Tax Sharing Agreement, (v) any employment agreement entered into
by the Company or any of its Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Subsidiary, (w)
transactions between or among the Company and/or its Subsidiaries, (x)
Restricted Payments that are permitted by the provisions of the Indenture
described above under the caption "-Restricted Payments," (y) the payment of
reasonable fees, expense reimbursements and customary indemnification, advances
and other similar arrangements to directors and officers of the Company and its
Subsidiaries and (z) reasonable loans or advances to employees of the Company
and its Subsidiaries in the ordinary course of business of the Company or such
Subsidiary, in each case, shall not be deemed Affiliate Transactions.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned Subsidiaries
The Indenture provides that the Company (a) will not, and will not
permit any Wholly Owned Subsidiary of the Company to, transfer, convey, sell,
lease or otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary
of the Company to any Person (other than the Company or a Wholly Owned
Subsidiary of the Company), unless (i) such transfer, conveyance, sale, lease or
other disposition is of all the Capital Stock of such Wholly Owned Subsidiary
and (ii) the cash Net Proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant described above
under the caption ??Repurchase at the Option of Holders-Asset Sales,? and (b)
will not permit any Wholly Owned Subsidiary of the Company to issue any of its
Equity Interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Subsidiary of the Company.
<PAGE>
Additional Subsidiary Guarantees
The Indenture provides that if (i) the Company or any of its
Subsidiaries shall acquire or create another domestic wholly owned Subsidiary
after the date of the Indenture having assets (A) with a fair market value in
excess of $100,000 or (B) consisting of one or more stores or (ii) the Company
acquires all remaining common stock of Pretzel Time, then such newly acquired or
created Subsidiary or Pretzel Time, as the case may be, shall become a Guarantor
and execute a Supplemental Indenture and deliver an Opinion of Counsel, in
accordance with the terms of the Indenture.
Limitations on Issuances of Guarantees of Indebtedness
The Indenture provides that the Company will not permit any Subsidiary,
directly or indirectly, to guarantee, or pledge any assets to secure the payment
of (other than as a result of a Permitted Lien), any other Indebtedness of the
Company or any Subsidiary of the Company, unless such Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
the Guarantee of the payment of the Senior Notes by such Subsidiary, which
Guarantee shall be senior to or pari passu with such Subsidiary's guarantee of
or pledge to secure such other Indebtedness. Notwithstanding the foregoing, any
such Guarantee by a Subsidiary of the Senior Notes shall provide by its terms
that it shall be automatically and unconditionally released and discharged upon
any sale, exchange or transfer, to any Person not an Affiliate of the Company,
of all of the Company's stock in, or all or substantially all the assets of,
such Subsidiary, which sale, exchange or transfer is made in compliance with the
applicable provisions of the Indenture. The form of such Guarantee will be
attached as an exhibit to the Indenture.
Business Activities
The Indenture provides that the Company will not, and will not permit
any Subsidiary to, engage in any business other than a Permitted Business,
except to such extent as would not be material to the Company and its
Subsidiaries taken as a whole.
In addition, the Indenture provides that (a) the Company will not
engage in any Asset Sale involving MFB, (b) neither the Company nor MFB will
engage in any Asset Sale involving the ?Mrs. Fields? or ?Pretzel Time? brand
name and (c) for so long as MFB is a Subsidiary of the Company, MFB shall not
incur any Indebtedness (other than its Guarantee of the Senior Notes and any
guarantee of Indebtedness under a Credit Facility).
Payments for Consent
The Indenture provides that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Senior Notes for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of the Indenture or the Senior Notes unless such
consideration is offered to be paid or is paid to all holders of the Senior
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the ?Commission?), so
long as any Senior Notes are outstanding, the Company will furnish to the
holders of Senior Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
?Management's Discussion and Analysis of Financial Condition and Results of
Operations? and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company and the Guarantors have agreed that, for so long as any
Senior Notes remain outstanding, they will furnish to the holders of Senior
Notes and to securities analysts and prospective investors, upon their request,
the information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
<PAGE>
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Senior Notes; (iii) failure by the Company for 30 days after
notice to comply with any of its other agreements in the Indenture or the Senior
Notes; (iv) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the Issue
Date, which default (A) is caused by a failure to pay principal of or premium,
if any, or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a ?Payment
Default?) or (B) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $2.5 million or more; (v) failure by the Company or
any of its Subsidiaries to pay final judgments aggregating in excess of $2.5
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vi) certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries; and (vii) except as permitted by the
Indenture, any Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Senior Notes will become
due and payable without further action or notice. Holders of the Senior Notes
may not enforce the Indenture or the Senior Notes except as provided in the
Indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding Senior Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to December 1, 2001 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Senior Notes prior to December 1, 2001, then
the premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Senior
Notes.
The holders of a majority in aggregate principal amount of the Senior
Notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Senior Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
<PAGE>
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Senior Notes, the Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Senior Notes
by accepting a Senior Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Senior Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding Senior Notes (?Legal
Defeasance?) except for (i) the rights of Holders of outstanding Senior Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Senior Notes when such payments are due from the trust referred to
below, (ii) the Company's obligations with respect to the Senior Notes
concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Indenture (?Covenant Defeasance?)
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Senior Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
??Events of Default and Remedies? will no longer constitute an Event of Default
with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Senior Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Senior Notes
are being defeased to maturity or to a particular redemption date, (ii) in the
case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the Issue Date, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding Senior Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred, (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the holders of the outstanding Senior
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred, (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit, (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under, any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound, (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that, after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of Senior Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
<PAGE>
Transfer and Exchange
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Note for a period of 15 days before a selection
of Senior Notes to be redeemed.
The registered holder of a Senior Note will be treated as the owner of
it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture
or the Senior Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Senior Notes then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Senior Notes), and any
existing default or compliance with any provision of the Indenture or the Senior
Notes may be waived with the consent of the holders of a majority in principal
amount of the then outstanding Senior Notes (including consents obtained in
connection with a tender offer or exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Senior Notes held by a non-consenting Holder): (i)
reduce the principal amount of Senior Notes whose holders must consent to an
amendment, supplement or waiver; (ii) reduce the principal of or change the
fixed maturity of any Senior Note or alter the provisions with respect to the
redemption of the Senior Notes (other than provisions relating to the covenants
described above under the caption "-Repurchase at the Option of Holders"); (iii)
reduce the rate of or change the time for payment of interest on any Senior
Note; (iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Senior Notes (except a rescission of
acceleration of the Senior Notes by the Holders of at least a majority in
aggregate principal amount of the Senior Notes and a waiver of the payment
default that resulted from such acceleration); (v) make any Senior Note payable
in money other than that stated in the Senior Notes; (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of holders of Senior Notes to receive payments of principal of or premium, if
any, or interest on the Senior Notes; (vii) waive a redemption payment with
respect to any Senior Note (other than a payment required by one of the
covenants described above under the caption "-Repurchase at the Option of
Holders"); or (viii) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of
Senior Notes, the Company and the Trustee may amend or supplement the Indenture
or the Senior Notes to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Senior Notes in addition to or in place of certificated
Senior Notes, to provide for the assumption of the Company's obligations to
holders of Senior Notes in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the holders of
Senior Notes or that does not adversely affect the legal rights under the
Indenture of any such holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Senior Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
<PAGE>
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture
and Registration Rights Agreement without charge by writing to Mrs. Fields'
Original Cookies, Inc., 462 West Bearcat Drive, Salt Lake City, Utah, 84115,
Attention: Michael Ward.
Book-Entry, Delivery and Form
New Senior Notes exchanged for Old Senior Notes through the Book-Entry
Transfer Facility may be represented by one or more Global Notes (the "New
Global Notes"). One New Global Note shall be issued with respect to each $100
million aggregate principal amount at maturity of the New Global Notes. The New
Global Notes will be issued on the date of the closing of the Exchange Offer
with the Trustee, as custodian of The Depository Trust Company (the
"Depository"), pursuant to a FAST Balance Certificate Agreement between the
Trustee and the Depository and registered in the name of Cede & Co., as nominee
of the Depository (such nominee being referred to herein as the "Global
Holder").
New Senior Notes exchanged for Old Senior Notes which are in the form
of registered definitive certificates (the "Certificate Notes") will be issued
in the form of Certificated Notes. Such Certificate Notes may, unless the New
Global Note has previously been exchanged for Certificated Notes, be exchanged
for an interest in the New Global Note representing the principal amount of New
Senior Notes being transferred.
The Depository has advised the Company that a limited-purchase trust
company was created to hold securities for its participating organizations
(collectively, the ?Participants? or the ?Depository's Participants?) and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depository's system
is also available to the other entities such as banks, brokers, dealers and
trust companies (collectively, the ?Indirect Participants? or the ?Depository's
Indirect Participants?) that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depository only through the Depository's Participants or the Depository's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the New Global Notes, the Depository will credit
the accounts of Participants with portions of the New Global Notes; and (ii)
ownership of the New Senior Notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depository (with respect to the interests of the Depository's participants), the
Depository's Participants and the Depository's Indirect Participants. The laws
of some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer New
Senior Notes will be limited to such extent.
For so long as the Global Holder is the registered owner of any New
Senior Notes the Global Holder will be considered the sole owner of such New
Senior Notes outstanding under the Indenture. Except as provided below, owners
of beneficial interests in a New Global Note will not be entitled to have New
Senior Notes represented by such New Global Note registered in their names, will
not receive or be entitled to receive physical delivery of Certificated New
Senior Notes, and will not be considered the owners or holders thereof under the
Indenture for any purpose. As a result, the ability of a person having a
beneficial interest in New Senior Notes represented by a New Global Note to
pledge such interest to persons or entities that do not participate in the
Depository's system or to otherwise take actions in respect of such interest,
may be affected by the lack of physical certificate evidencing such interest.
Accordingly, each person owning a beneficial interest in a New Global Note must
rely on the procedures of the Depository and, if such person is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such person owns its interest, to exercise any rights of a holder
under such New Global Note of the Indenture.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of New Senior Notes by the Depository, or for maintaining, supervising or
reviewing any records of the Depository relating to such New Senior Notes.
<PAGE>
Payments in respect of the principal of, premium, if any, and interest
on any New Senior Notes registered in the name of a Global Holder on the
applicable record date will be payable by Trustee to or at the direction of such
Global Holder in its capacity as the registered holder under the Indenture.
Under the terms of the Indenture, the Company and the Trustees may treat the
persons in whose name the New Senior Notes, including the New Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Senior Notes (including principal,
premium, if any and interest), or to immediately credit the accounts of the
relevant Participants with such payment, in amounts proportionate to their
respective interests in the New Global Notes in principal amount of beneficial
interests in the relevant security as shown on the records of the Depository.
Payments by the Depository's Participants and the Depository's Indirect
Participants to the beneficial owners of New Senior Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depository's Participant or the Depository's Indirect Participants.
Certificated Securities
If (i) the Company notifies the Trustee in writing that the Depository
is no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the New
Senior Notes in definitive form under the Indenture, then, upon surrender by the
relevant Global Holder of its New Global Note, New Senior Notes in such form
will be issued to each person that such Global Holder and the Depository
identifies as the beneficial owner of the related New Senior Notes. In addition,
subject to certain conditions, any person having a beneficial interest in the
New Global Note may, upon request to the Trustee, exchange such beneficial
interest for Certificated New Senior Notes. Upon any such issuance, the Trustee
is required to register such New Senior Notes in the name of, and cause the same
to be delivered to, such person or persons (or the nominee of any thereof). Such
New Senior Notes would be issued in fully registered forms.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the New Senior Notes
represented by the New Global Notes (including principal, premium, if any, and
interest) be made by wire transfer of immediately-available, same-day funds to
the accounts specified by the Holder of interest in such New Global Note. With
respect to Certificated New Senior Notes, the Company will make all payments of
principal, premium, if any, and interest, by wire transfer of
immediately-available funds to the accounts specified by the holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. The Company expects that secondary trading in the
Certificated New Senior Notes will also be settled in immediately-available
funds.
Exchange Offer; Registration Rights
The Company, the Guarantor and the Initial Purchasers entered into a
Registration Rights Agreement on November 26, 1997. Pursuant to the Registration
Rights Agreement, the Company and the Guarantor agreed to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the New Senior Notes within 60 days.
Upon the effectiveness of the Exchange Offer Registration Statement, the Company
will offer to the holders of Transfer Restricted Securities pursuant to the
Exchange Offer who are able to make certain representations the opportunity to
exchange their Transfer Restricted Securities for New Senior Notes. If (i) the
Company and the Guarantor are not required to file the Exchange Offer
Registration Statement or permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission policy or (ii)
any Holder of Transfer Restricted Securities notifies the Company prior to the
20th day following consummation of the Exchange Offer that (A) it is prohibited
by law or Commission policy from participating in the Exchange Offer or (B) that
it may not resell the New Senior Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns New Senior Notes acquired
directly from the Company or an affiliate of the Company, the Company and the
Guarantor will file with the Commission a Shelf Registration Statement to cover
resales of the Senior Notes by the Holders thereof who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement. The Company and the Guarantor will use their best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission. For purposes of the foregoing,
?Transfer Restricted Securities? means each Senior Note until (i) the date on
which such Senior Note has been exchanged by a person other than a broker-dealer
for a New Senior Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of an Old Senior Note for a New Senior Note,
the date on which such Senior Note is sold to a purchaser who receives from such
<PAGE>
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Exchange Offer Registration Statement, (iii) the date on which
such Senior Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Senior Note is distributed to the public pursuant to Rule 144
under the Securities Act.
The Registration Rights Agreement provides that (i) the Company and the
Guarantor will file an Exchange Offer Registration Statement with the Commission
on or prior to 60 days after the Issue Date, (ii) the Company and the Guarantor
will use their best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission on or prior to 120 days after the Issue
Date, (iii) unless the Exchange Offer would not be permitted by applicable law
or Commission policy, the Company will commence the Exchange Offer and use its
best efforts to issue on or prior to 30 business days after the date on which
the Exchange Offer Registration Statement was declared effective by the
Commission, New Senior Notes in exchange for all Old Senior Notes tendered prior
thereto in the Exchange Offer and (iv) if obligated to file the Shelf
Registration Statement, the Company and the Guarantors will use their best
efforts to file the Shelf Registration Statement with the Commission on or prior
to 60 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 120 days
after such obligation arises. If (a) the Company and the Guarantor fail to file
any of the Registration Statements required by the Registration Rights Agreement
on or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the ?Effectiveness Target Date?), or (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a ?Registration Default?),
then the Company and the Guarantors will pay Liquidated Damages to each holder
of Old Senior Notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
$.05 per week per $1,000 principal amount of Senior Notes held by such holder.
The amount of the Liquidated Damages will increase by an additional $.05 per
week per $1,000 principal amount of Old Senior Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.20 per week per $1,000 principal
amount of Old Senior Notes. All accrued Liquidated Damages will be paid by the
Company on each Damages Payment Date (which correspond to Interest Payment Dates
on the Senior Notes) to the Global Holder by wire transfer of immediately
available funds or by federal funds check and to holders of Certificated Old
Senior Notes by wire transfer to the accounts specified by them or by mailing
checks to their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Old Senior Notes will be required to make certain
representations to the Company (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in order to have
their Senior Notes included in the Shelf Registration Statement and benefit from
the provisions regarding Liquidated Damages set forth above.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Accounting Firm" means any of Arthur Andersen LLP, Coopers & Lybrand
L.L.P., Deloitte & Touche LLP, Ernst & Young LLP, KPMG Peat Marwick LLP and
Price Waterhouse LLP or any of their successor firms.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, excluding,
however, Indebtedness incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Subsidiary of such specified
Person, and (ii) Indebtedness secured by a Lien encumbering any asset acquired
by such specified Person.
<PAGE>
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, ?control?
(including, with correlative meanings, the terms ?controlling,? ?controlled by?
and ?under common control with?), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
of any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption ??Repurchase at the Option of
Holders-Change of Control? and/or the provisions described above under the
caption ??Certain Covenants-Merger, Consolidation, or Sale of Assets? and not by
the provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (A) that have a fair market
value in excess of $1.0 million or (B) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, (i) a transfer of assets by the Company
to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or
to another Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a
Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary,
(iii) a Restricted Payment that is permitted by the covenant described above
under the caption "-Certain Covenants-Restricted Payments," (iv) arrangements
providing for the receipt by the Company of franchise and royalty fees but not
otherwise involving the sale of assets of the Company or any of its Subsidiaries
(other than inventory in the ordinary course of business) and (v) a disposition
of any Non-Core Stores will not be deemed to be Asset Sales.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (iii) marketable direct
obligations issued by any State of the United States or any local government or
other political subdivision thereof rated (at the time of the acquisition of
such security) at least ?AA? by S&P or the equivalent thereof by Moody's and
having maturities of not more than one year from the acquisition of such
security, (iv) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any domestic commercial bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of ?B? or better
or with any registered broker-dealer whose commercial paper is rated at least
?A-1? by S&P or the equivalent thereof by Moody's, (v) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iv) above entered into with any financial
institution meeting the qualifications specified in clause (iv) above, (vi)
commercial paper rated at least ?A-1? by S&P or the equivalent thereof by
Moody's and, in each case, maturing within six months after the date of
acquisition, and (vii) investments in money market funds all of whose assets
consist of securities described in clauses (ii) through (vi) above.
"Commission" means the Securities and Exchange Commission.
<PAGE>
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent and in the same proportion that the
net income of such Subsidiary was included in calculating Consolidated Net
Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Subsidiary thereof that is a
Guarantor, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Credit Facility" means, with respect to the Company, one or more debt
facilities or commercial paper facilities with banks or other institutional
lenders (including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith) providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit up to a
maximum aggregate amount of not more than $15.0 million, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
<PAGE>
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Senior Notes mature, provided that a
class of Capital Stock shall not be Disqualified Stock solely as a result of any
maturity or redemption that is conditioned upon, and subject to, compliance with
the covenant described under the caption "-Certain Covenants-Restricted
Payments."
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (including preferred stock of Pretzel Time outstanding on the Issue
Date but excluding any Indebtedness of the Company or any of its Subsidiaries
under any Credit Facility existing on the Issue Date) in existence on the Issue
Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated
interest expense of such Person and its Subsidiaries that was capitalized during
such period, (iii) any interest expense on Indebtedness of another Person that
is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on
assets of such Person or one of its Subsidiaries (whether or not such guarantee
or Lien is called upon), and (iv) the product of (A) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or any
of its Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests of the Company, times (B) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the ?Calculation Date?),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date, and (iv) the financial information of the Company with
respect to any portion of the four fiscal quarters prior to the Issue Date may
be adjusted to eliminate certain historical expenses that are not expected to
recur after the consummation of the Pretzel Contributions so long as such
adjustments are not deemed to be contrary to the requirements of Regulation S-X
under the Securities Act by an Accounting Firm. In calculating the Fixed Charge
Coverage Ratio for any period, to the extent that the proceeds from the
incurrence of any Indebtedness are to be used to fund the acquisition of Equity
Interests or assets in a Permitted Business, the Company may include any pro
forma adjustments permitted by Regulation S-X under the Securities Act in its
calculation of the amount of Consolidated Cash Flow that relate solely to such
acquisition, so long as such pro forma adjustments are not deemed to be contrary
to the requirements of Rule 11-02 of Regulation S-X under the Securities Act in
writing by an Accounting Firm.
<PAGE>
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means (i) MFB and (ii) any other Subsidiary that executes a
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest or foreign currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accreted value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP,
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common stock of the Company shall
not be deemed to be an Investment. If the Company or any Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption ??Certain
Covenants-Restricted Payments.?
"Issue Date" means November 26, 1997.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction),
provided that the definition of ?Lien? shall not include any option, call or
similar right relating to treasury shares of the Company to the extent that such
option, call or right is granted (i) under any employee stock option plan,
employee stock ownership plan or similar plan or arrangement of the Company or
its Subsidiaries or (ii) in connection with the issuance of Indebtedness
permitted to be incurred pursuant to the covenant described under the caption
??Certain Covenants-Incurrence of Indebtedness and Issuance of Preferred Stock.?
<PAGE>
"MFB" means The Mrs. Fields' Brand, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company.
"MFH" means Mrs. Fields' Holding Company, Inc., a Delaware corporation and
the corporate parent of the Company.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (A) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (B) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale but only as and when
received), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the permanent repayment of, or permanent reduction in availability or
commitment under, Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for adjustment in respect of
the sale price of such asset or assets established in accordance with GAAP.
"Non-Core Stores" means the stores listed in Exhibit B to the Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the same or a similar line of business as
the Company and its Subsidiaries were engaged in on the Issue Date, including,
without limitation, the specialty retail snack-food business.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company that is a Guarantor and that is engaged
in a Permitted Business, (b) any Investment in Cash Equivalents, (c) any
Investment by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of
the Company and a Guarantor that is engaged in a Permitted Business or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Wholly Owned Subsidiary of the Company that is a Guarantor and that is
engaged in a Permitted Business, (d) any Restricted Investment made as a result
of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "-Repurchase at the Option of Holders-Asset Sales," (e) any acquisition
of assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company, (f) any Investments in accounts and notes
receivable acquired in the ordinary course of business, (g) any Investments in
notes of employees, officers, directors and their transferees and Affiliates
issued to the Company representing payment of the exercise price of options to
purchase common stock of the Company, (h) any Investments by the Company in
Hedging Obligations otherwise permitted to be incurred under the Indenture, (i)
any Investments existing on the Issue Date (including, without limitation, a
$500,000 loan to Martin E. Lisiewski outstanding as of the Issue Date) and ( j)
any purchase of any and all remaining common stock of PTI.
"Permitted Liens" means (i) Liens securing Indebtedness under a Credit
Facility that was permitted by the terms of the Indenture to be incurred, (ii)
Liens in favor of the Company, (iii) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Subsidiary of the Company, provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company, (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition and do not extend to
any assets of the Company other than the property so acquired, (v) Liens to
secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business, (vi) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clauses (iii) and (x) of the second paragraph of the
covenant entitled ?Incurrence of Indebtedness and Issuance of Preferred Stock,?
provided that, in the case of Indebtedness permitted by such clause (iii),
covering only the assets acquired with such Indebtedness, (vii) Liens existing
on the Issue Date, (viii) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor, and (ix) Liens incurred in
<PAGE>
the ordinary course of business of the Company or any Subsidiary of the Company
that (A) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (B) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries, provided that (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded ( plus the amount of
reasonable expenses incurred in connection therewith), (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Senior Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Senior Notes on terms at least
as favorable to the holders of Senior Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, and (iv) such Indebtedness is incurred either by
the Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Pretzel Time" means Pretzel Time, Inc., a Pennsylvania corporation.
"Pretzel Time Employment Agreement" means that certain Employment
Agreement, dated as of September 2, 1997, between Pretzel Time and Martin E.
Lisiewski.
"Pretzel Time Management Agreement" means that certain Management
Agreement, dated as of September 2, 1997, between the Company and Pretzel Time.
"Public Equity Offering" means a public offering registered under the
Securities Act (except for any registration pursuant to Form S-8) of common
stock of (i) the Company or (ii) MFH to the extent that the net proceeds thereof
are contributed to the Company as a capital contribution, provided that the
aggregate proceeds from any such public offering shall in no event be less than
$20.0 million.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc.
"Significant Subsidiary" means any Subsidiary that would be a ?significant
subsidiary? as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issue
Date.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (A) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (B)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
<PAGE>
"Tax Sharing Agreement" means any tax allocation agreement between the
Company or any of its Subsidiaries with the Company or any direct or indirect
shareholder of the Company with respect to consolidated or combined tax returns
including the Company or any of its Subsidiaries, but, in each case, only to the
extent that amounts payable from time to time by the Company or any such
Subsidiary under any such agreement do not exceed the corresponding tax payments
that the Company or such Subsidiary would have been required to make to any
relevant taxing authority had the Company or such Subsidiary not joined in such
consolidated or combined returns, but instead had filed returns including only
the Company and its Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Senior Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Senior Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Senior Notes received in
exchange for Old Senior Notes where such Old Senior Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, for a period of 120 days after the consummation of the Exchange
Offer, it will make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale. In addition, until
_________, all dealers effecting transactions in the New Senior Notes may be
required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Senior
Notes by broker-dealers. New Senior Notes received by broker-dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Senior Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or though brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Senior Notes. Any broker-dealer
that resells New Senior Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Senior Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
New Senior Notes and any commission or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 120 days after the consummation of the Exchange Offer,
the Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal or Agent's Message. The Company has
agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the Holders of the Notes in an amount up to $50,000)
other than commissions or concessions of any brokers or dealers and will
indemnify the Holders of the Notes (including any broker-dealer) against certain
liabilities, including liabilities under the Securities Act.
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain U.S. Federal income tax
consequences associated with the exchange of the Old Senior Notes for the New
Senior Notes pursuant to the Exchange Offer. The summary is based upon current
laws, regulations, rulings and judicial decisions all of which are subject to
change, possibly with retroactive effect. the discussion below does not address
all aspects of U.S. Federal income taxation that may be relevant to particular
Holders of Old Senior Notes or New Senior Notes. In addition, the discussion
does not address any aspect of state, local or foreign taxation.
The exchange of the Old Senior Notes for the New Senior Notes pursuant
to the Exchange Offer should not be treated as an "exchange" for U.S. Federal
income tax purposes because the New Senior Notes should not be considered to
differ materially in kind or extent from the New Senior Notes. Rather, the New
Senior Notes received by a Holder should be treated as a continuation of the Old
Senior Notes in the hands of such Holder. As a result there should be no U.S.
Federal income tax consequences to Holders exchanging the Old Senior Notes for
the New Senior Notes pursuant to the Exchange Offer, and any exchanging Holder
of Old Senior Notes should have the same tax basis and holding period in the New
Senior Notes as such Holder had in the Old Senior Notes immediately prior to the
Exchange.
PROSPECTIVE HOLDERS OF THE NEW SENIOR NOTES ARE URGED TO CONSULT THEIR
TAX ADVISORS CONCERNING THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH
HOLDERS' OLD SENIOR NOTES FOR THE NEW SENIOR NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
LEGAL MATTERS
The validity of the New Senior Notes and the New Guarantee offered
hereby will be passed upon for the Company and MFB by Skadden, Arps, Slate,
Meagher & Flom LLP. A partner in Skadden, Arps, Slate, Meagher & Flom LLP is an
investor in Capricorn.
EXPERTS
The historical financial statements and schedule of Mrs. Fields'
Original Cookies, Inc. and subsidiaries as of December 28, 1996 and January 3,
1998 and for the period from inception (September 18, 1996) to December 28, 1996
and for the year ended January 3, 1998; the historical financial statements of
Mrs. Fields Inc. and subsidiaries as of September 17, 1996 and for the period
from December 31, 1995 to September 17, 1996; the historical financial
statements of The Original Cookie Company, Incorporated and the Carved-out
Portion of Hot Sam Company, Inc. (combined) as of December 30, 1995 and
September 17, 1996 and for years ended December 31, 1994 and December 30, 1995
and for the period ended September 17, 1996; the historical financial statements
of H&M Concepts Ltd. Co. and subsidiaries as of December 29, 1996 and for the
year then ended; and the historical financial statements of Pretzel Time, Inc.
as of December 31, 1995 and December 29, 1996 and for the years then ended,
included in this Prospectus and elsewhere in this registration statement, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The historical financial statements of Mrs. Fields Inc. and
subsidiaries as of December 30, 1995 and for the years ended December 30, 1995
and December 31, 1994 included in this Prospectus, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their report appearing herein,
and is included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
On November 26, 1997, Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields")
sold $100,000,000 of Series A Senior Notes due 2004 (the "Offering"). The
proceeds of the Offering were used to: (i) pay $63,407,000 aggregate principal
amount of existing indebtedness of Mrs. Fields and its subsidiaries, including
The Mrs. Fields' Brand, Inc. ("MFB"), which became a wholly owned subsidiary of
Mrs. Fields concurrent with completion of the Offering, together with interest
thereon of $2,995,000; (ii) pay all of the $12,250,000 aggregate principal
amount of H&M debt, together with interest thereon of $444,000; (iii) pay a
dividend of $1,065,000 and the return of a $1,500,000 advance to MFH; and (iv)
pay fees and expenses of the Offering totaling $6,431,000. As part of the
Refinancing, MFH converted to common equity of Mrs. Fields a $4,643,000 note
payable, and contributed to Mrs. Fields all of the common stock of MFB after the
conversion of $3,935,000 of preferred stock of MFB, including accrued but unpaid
dividends, into common equity.
Concurrent with the consummation of the Offering, Mrs. Fields received a
contribution from MFH of the businesses acquired in the Pretzel Acquisitions
(the "Pretzel Contributions"). MFH contributed to Mrs. Fields the net assets of
H&M, MFH's 56% interest in Pretzel Time common stock, a $500,000 note receivable
from the Pretzel Time founder and minority stockholder, and certain related
rights. Mrs. Fields purchased an additional 4% of the shares of common stock of
Pretzel Time from the founder and minority stockholder, for $300,000 in cash on
January 2, 1998.
The unaudited pro forma condensed consolidated statement of operations is
based upon the historical financial statements of Mrs. Fields, H&M and Pretzel
Time, and should be read in conjunction with the audited and unaudited financial
statements, including the notes thereto, of these entities included elsewhere in
this registration statement. The unaudited pro forma condensed consolidated
statement of operations has been prepared using the purchase method of
accounting for the Pretzel Acquisitions. The unaudited pro forma condensed
consolidated statement of operations assumes that the Offering, the Pretzel
Acquisitions, the Pretzel Contributions and the Refinancing occurred as of
December 29, 1996 (the first day of the most recently completed fiscal year).
The Pretzel Contributions have been accounted for utilizing MFH's predecessor
basis. All of the entities presented operate using 52/53-week years ending near
December 31. In the opinion of management of Mrs. Fields, all adjustments
necessary to present fairly the unaudited pro forma condensed consolidated
statement of operations have been made.
The unaudited pro forma condensed consolidated statement of operations is
included in this registration statement for illustrative purposes only. Such
information does not purport to be indicative of the results which would
actually have been effected on the date and for the period indicated, nor is it
indicative of actual or future operating results that may occur. See also "Risk
Factors" included elsewhere in this registration statement.
P-1
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
(Unaudited)
Pretzel Pro Forma
H&M Time Adjustments Pro Forma
Mrs. Fields (See Note 1) (See Note 2) (See Note 3) Consolidated
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
CORE OPERATING STORES:
NET STORE SALES $104,316 $ 8,278 $ - $ - $112,594
--------- --------- ---------- ----------- ---------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 50,858 5,477 - - 56,335
Food cost of sales 22,677 1,146 - - 23,823
Depreciation and amortization 3,896 595 - (111) (a) 4,380
--------- --------- ---------- ---------- ---------
77,431 7,218 - (111) 84,538
--------- --------- ---------- ---------- ---------
INCOME FROM CORE OPERATING STORES 26,885 1,060 - 111 28,056
--------- --------- ---------- ---------- ---------
STORES IN THE PROCESS OF BEING CLOSED
OR FRANCHISED:
NET STORE SALES 19,671 1,050 302 - 21,023
--------- ---------- ---------- ---------- ---------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 15,974 643 275 - 16,892
Food cost of sales 5,450 220 63 - 5,733
Depreciation and amortization 45 95 - - 140
--------- ---------- ---------- ---------- ---------
21,469 958 338 - 22,765
--------- ---------- ---------- ---------- ---------
INCOME (LOSS) FROM STORES IN THE PROCESS
OF BEING CLOSED OR FRANCHISED (1,798) 92 (36) - (1,742)
---------- ---------- ---------- ---------- ---------
FRANCHISING REVENUE, NET 3,418 2,142 - - 5,560
---------- ---------- ---------- ---------- ---------
LICENSING REVENUE, NET 2,184 - - - 2,184
---------- ---------- ---------- ---------- ---------
OTHER REVENUE, NET 918 36 181 - 1,135
---------- ---------- ---------- ---------- ---------
GENERAL AND ADMINISTRATIVE EXPENSES (16,730) (1,326) (1,617) 750 (b) (18,923)
---------- ---------- ---------- ----------- ---------
DEPRECIATION AND AMORTIZATION OF INTANGIBLES (6,462) (118) - (636) (c) (7,216)
---------- ---------- ---------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS 8,415 (138) 552 225 9,054
INTEREST EXPENSE, NET (7,584) (370) (120) (3,510) (d) (11,584)
OTHER EXPENSE (368) - (9) - (377)
---------- ---------- ---------- ----------- ---------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 463 (508) 423 (3,285) (2,907)
PROVISION FOR INCOME TAXES (655) - (95) 95 (e) (655)
---------- ---------- ---------- ----------- --------
INCOME (LOSS) BEFORE PREFERRED STOCK
DIVIDENDS OF SUBSDIARIES AND
MINORITY INTEREST (192) (508) 328 (3,190) (3,562)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
SUBSIDIARIES (644) - - - (644)
---------- --------- ---------- ----------- -------
MINORITY INTEREST (138) - - 155 (f) 17
---------- --------- ---------- ----------- -------
INCOME (LOSS) FROM CONTINUING
OPERATIONS $ (974) $ (508) $ 328 $(3,035) $(4,189)
========== ========= ========== =========== ========
OTHER DATA (See Note 4):
CASH FLOWS FROM OPERATING ACTIVITIES 919 (94) 805 - $ 1,630
========== ========= ========== =========== =========
CASH FLOWS FROM INVESTING ACTIVITIES (15,505) (32) (24) - $(15,561)
========== ========= ========== =========== =========
CASH FLOWS FROM FINANCING ACTIVITIES 24,164 (489) 14 - $ 23,689
========== ========= ========== =========== =========
EBITDA $ 18,818 $ 492 $ 730 $ 750 $ 20,790
========= ========= ========= ========== ========
Adjusted EBITDA $ 20,711 $ 728 $ 874 $ 750 $ 23,063
========= ========= ========= ========== ========
</TABLE>
See accompanying notes to pro forma condensed
consolidated statement of operations.
P-2
<PAGE>
MRS. FIELDS
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Note 1: H&M Contribution
MFH, through its wholly owned subsidiary, MFPC, acquired the net assets and
certain debt of H&M on July 25, 1997, and concurrent with the completion of
the Offering contributed these net assets of H&M and related debt to Mrs.
Fields. The purchase price of $13,750,000 paid by MFH was allocated based
on the estimated fair values of the net assets acquired, as presented
below:
<TABLE>
<CAPTION>
<S> <C>
Fair value of net assets acquired $ 4,132,000
Goodwill acquired 9,618,000
------------
Total purchase price $13,750,000
============
</TABLE>
Note 2: Pretzel Time Contribution
MFH acquired 56.0% of the common stock of Pretzel Time, a $500,000 note
receivable from Pretzel Time's founder and contract rights on September 2,
1997. Concurrent with the completion of the Offering, MFH contributed its
56.0% interest to Mrs. Fields.
MFH paid $4,200,000 in cash to acquire 56.0% of the common stock of Pretzel
Time and made a $500,000, 5-year maturity loan, with an interest rate of
10.5%, to a minority stockholder and founder of Pretzel Time. Of the
$4,200,000 paid by MFH, $750,000 was paid to Pretzel Time to be used for
working capital purposes. Pretzel Time's accumulated deficit of $347,000 at
the date of acquisition was eliminated and goodwill of $5,882,000 was
recorded.
Note 3: Unaudited Pro Forma Combined Statement of Operations Adjustments
(a) Adjustment to reflect a reduction in depreciation expense as a result of
reducing H&M's property and equipment to fair market value in connection
with the acquisition. The average estimated depreciable lives for these
assets is 7 years.
(b) Adjustment to reflect the impact of the reduction in salaries and payroll
expenses related to employees of H&M and Pretzel Time terminated or to be
terminated as a condition of the acquisitions.
(c) Adjustment to reflect amortization of goodwill, which goodwill totaling
$15,845,000, was recorded in connection with the purchase of the net assets
of H&M and the majority ownership of Pretzel Time. Goodwill is being
amortized over a 15-year period.
(d) Adjustment to reflect additional interest expense that would have been
incurred on the $100,000,000 Series A Senior Notes. Adjustment also
reflects a reduction in interest expense related to: (i) the retirement of
$64,098,000 of Mrs. Fields debt with interest rates ranging from 8.78% to
10.0%; (ii) the retirement of $12,250,000 of H&M debt with interest rates
ranging from 8.0% to 16.0%; (iii) the conversion of $4,643,000 of a Mrs.
Fields note payable to equity with an interest rate of 9.78%; (iv) the
additional amortization related to approximately $5,976,000 of deferred
loan costs assumed to be amortized over a 7-year period; and (v) net of
interest income on a $500,000 loan to a minority stockholder and founder of
Pretzel Time with an interest rate of 10.5%.
(e) Adjustment to reflect the reduction in provision for income taxes due to
the results of consolidation of the entities and a pro forma loss before
provision for income taxes for the year ended January 3, 1998.
(f) Adjustment to reflect the recording of the 40.0% minority interest in
Pretzel Time's income from continuing operations.
MRS. FIELDS
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (continued)
(Unaudited)
<TABLE>
<CAPTION>
Note 4: Pro Forma Consolidated EBITDA for the Year Ended January 3, 1998
MRS. PRETZEL PRO FORMA
FIELDS H&M TIME ADJUSTMENTS TOTAL
<S> <C> <C> <C> <C> <C>
Income (loss) from operations...................... $ 8,415 $ (198) $ 612 $ 225 $ 9,054
Add:
Depreciation and amortization...................... 10,403 690 118 525 11,736
------- ------- -------- ---------- -------
EBITDA......................................... 18,818 492 730 750 20,790
Add:
Nonrecurring headquarters facilities and related
expenses (a) .................................... - 236 144 - 380
Costs associated with the sale of existing stores to
franchisees..................................... 900 - - - 900
Indirect costs (including management bonuses) of the 455 - - - 455
Offering (b)..............................
Provision for store closures....................... 538 - 538
------- ------- -------- ---------- -------
Adjusted EBITDA............................... $20,711 $ 728 $ 874 $ 750 $23,063
======= ======= ======== ========== =======
</TABLE>
(a) Certain costs that management expects not to recur as a result of the
Pretzel Acquisitions. These nonrecurring costs relate to the elimination of
certain headquarters facilities in Pennsylvania and Idaho and resulting
reductions in rent, systems costs and other general and administrative
expenses.
(b) Certain indirect costs that management expects not to recur as a result of
the Offering. Amount represents internal costs of the Offering that were
not deferred.
<PAGE>
<TABLE>
<CAPTION>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<S> <C>
Page
Mrs. Fields' Original Cookies, Inc. and subsidiaries
Report of Independent Public Accountants.................................................................... F-2
Consolidated Balance Sheets as of December 28, 1996 and January 3, 1998..................................... F-3
Consolidated Statements of Operations for the period from inception (September 18, 1996) to December
28, 1996 and for the year ended January 3, 1998.......................................................... F-5
Consolidated Statements of Stockholder's Equity for the period from inception (September 18, 1996) to
December 28, 1996 and for the year ended January 3, 1998................................................. F-6
Consolidated Statements of Cash Flows for the period from inception (September 18, 1996) to
December 28, 1996 and for the year ended January 3, 1998................................................. F-7
Notes to Consolidated Financial Statements.................................................................. F-9
Mrs. Fields Inc. and subsidiaries
Report of Independent Public Accountants (Arthur Andersen LLP).............................................. F-28
Report of Independent Public Accountants (Deloitte & Touche LLP)............................................ F-29
Consolidated Balance Sheets as of December 30, 1995 and September 17, 1996.................................. F-30
Consolidated Statements of Operations for the years ended December 31, 1994 and December 30, 1995
and for the period ended September 17, 1996.............................................................. F-32
Consolidated Statements of Stockholders' Deficit for the years ended December 31, 1994 and December
30, 1995 and for the period ended September 17, 1996..................................................... F-33
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and December 30, 1995
and for the period ended September 17, 1996.............................................................. F-34
Notes to Consolidated Financial Statements.................................................................. F-37
The Original Cookie Company, Incorporated and the Carved-out Portion of Hot Sam Company,
Inc. (Combined)
Report of Independent Public Accountants.................................................................... F-45
Combined Balance Sheets as of December 30, 1995 and September 17, 1996...................................... F-46
Combined Statements of Operations for the years ended December 31, 1994 and December 30, 1995
and for the period ended September 17, 1996.............................................................. F-48
Combined Statements of Stockholders' Equity for the years ended December 31, 1994 and December
30, 1995 and for the period ended September 17, 1996..................................................... F-49
Combined Statements of Cash Flows for the years ended December 31, 1994 and December 30, 1995
and for the period ended September 17, 1996.............................................................. F-50
Notes to Combined Financial Statements...................................................................... F-51
H&M Concepts Ltd. Co. and subsidiaries
Report of Independent Public Accountants.................................................................... F-56
Consolidated Balance Sheets as of December 29, 1996 and June 29, 1997 (unaudited)........................... F-57
Consolidated Statements of Operations for the year ended December 29, 1996 and the 26 weeks ended
June 30, 1996 (unaudited) and June 29, 1997 (unaudited).................................................. F-59
Consolidated Statements of Members' Capital for the year ended December 29, 1996 and the 26 weeks
ended June 29, 1997 (unaudited)......................................................................... F-60
Consolidated Statements of Cash Flows for the year ended December 29, 1996 and the 26 weeks ended
June 30, 1996 (unaudited) and June 29, 1997 (unaudited)................................................. F-61
Notes to Consolidated Financial Statements................................................................. F-63
Pretzel Time, Inc.
Report of Independent Public Accountants................................................................... F-70
Balance Sheets as of December 31, 1995, December 29, 1996 and June 15, 1997 (unaudited).................... F-71
Statements of Operations for the years ended December 31, 1995 and December 29, 1996 and for the
24 weeks ended June 16, 1996 (unaudited) and June 15, 1997 (unaudited).................................. F-72
Statements of Stockholders' Deficit for the years ended December 31, 1995 and December 29, 1996
and for the 24 weeks ended June 15, 1997 (unaudited).................................................... F-73
Statements of Cash Flows for the years ended December 31, 1995 and December 29, 1996 and for the
24 weeks ended June 16, 1996 (unaudited) and June 15, 1997 (unaudited).................................. F-74
Notes to Financial Statements.............................................................................. F-76
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields' Original Cookies, Inc.:
We have audited the accompanying consolidated balance sheets of Mrs. Fields'
Original Cookies, Inc. (a Delaware corporation) and subsidiaries as of December
28, 1996 and January 3, 1998, and the related consolidated statements of
operations, stockholder's equity and cash flows for the period from inception
(September 18, 1996) to December 28, 1996 and for the year ended January 3,
1998. 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 Mrs. Fields'
Original Cookies, Inc. and subsidiaries as of December 28, 1996 and January 3,
1998, and the results of their operations and their cash flows for the period
from inception (September 18, 1996) to December 28, 1996 and for the year ended
January 3, 1998 in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 17, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
Page 1 of 2
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
December 28, January 3,
1996 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,709 $ 16,287
Accounts receivable, net of allowance for doubtful accounts of $68 and $32,
respectively 1,686 2,194
Amounts due from franchisees and affiliates, net of allowance for doubtful
accounts of $320 and $582, respectively 1,038 1,552
Inventories 3,043 3,100
Prepaid rent and other 1,324 2,925
Deferred income tax assets, current portion 2,092 2,765
-------- --------
Total current assets 15,892 28,823
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements 16,704 21,099
Equipment and fixtures 10,427 14,100
Land 128 128
-------- --------
27,259 35,327
Less accumulated depreciation and amortization (1,054) (6,125)
-------- --------
Net property and equipment 26,205 29,202
-------- --------
DEFERRED INCOME TAX ASSETS, net of current portion 917 734
-------- --------
INTANGIBLES, net of accumulated amortization of $1,290 and $6,419, respectively 66,332 83,694
-------- --------
DEFERRED LOAN COSTS, net of accumulated amortization of $70 - 5,906
-------- --------
OTHER ASSETS 709 1,325
-------- --------
$110,055 $149,684
======== ========
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Page 2 of 2
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
December 28, January 3,
1996 1998
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,450 $ 472
Current portion of capital lease obligations - 142
Accounts payable 6,201 3,805
Accrued liabilities 3,202 2,826
Store closure reserve, current portion 2,450 3,664
Accrued salaries, wages and benefits 1,811 1,891
Accrued interest payable 1,668 1,082
Sales taxes payable 676 937
Deferred credits 323 871
--------- ----------
Total current liabilities 18,781 15,690
LONG-TERM DEBT, net of current portion 65,113 100,284
STORE CLOSURE RESERVE, net of current portion 2,305 1,802
CAPITAL LEASE OBLIGATIONS, net of current portion - 183
ACCRUED LIABILITIES, net of current portion 2,207 -
DEFERRED CREDITS, net of current portion 1,091 -
--------- --------
Total liabilities 89,497 117,959
--------- --------
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of PTI (a majority owned
subsidiary), aggregate liquidation preference of $1,465 - 902
--------- --------
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of MFB (a wholly owned
subsidiary), aggregate liquidation preference of $3,597 3,597 -
--------- ---------
MINORITY INTEREST - 58
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized and 400 shares
outstanding - -
Additional paid-in capital 15,000 30,843
Retained earnings (Accumulated deficit) 1,961 (78)
-------- --------
Total stockholder's equity 16,961 30,765
-------- --------
$110,055 $149,684
======== ========
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Inception
(September 18, Year Ended
1996) to January 3,
December 28, 1996 1998
----------------- ----------
<S> <C> <C>
CORE OPERATING STORES
---------------------
NET STORE SALES $ 30,811 $104,316
-------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 13,415 50,858
Food cost of sales 7,419 22,677
Depreciation and amortization 1,008 3,896
--------- --------
Total operating costs and expenses 21,842 77,431
-------- --------
Income from core operating stores 8,969 26,885
--------- --------
STORES IN THE PROCESS OF BEING CLOSED OR FRANCHISED
NET STORE SALES 9,079 19,671
--------- ---------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs 6,077 15,974
Food cost of sales 2,443 5,450
Depreciation and amortization 46 45
--------- ---------
Total operating costs and expenses 8,566 21,469
--------- ---------
Income (loss) from stores in the process of being closed or franchised 513 (1,798)
--------- ---------
FRANCHISING AND LICENSING REVENUE, NET 1,385 5,602
-------- ---------
OTHER REVENUE, NET 107 918
--------- ---------
GENERAL AND ADMINISTRATIVE EXPENSES (4,035) (16,730)
-------- ---------
DEPRECIATION AND AMORTIZATION OF INTANGIBLES (1,290) (6,462)
-------- ---------
Income from operations 5,649 8,415
INTEREST EXPENSE, NET (1,793) (7,584)
OTHER EXPENSE - (368)
-------- ---------
Income before provision for income taxes 3,856 463
PROVISION FOR INCOME TAXES (1,798) (655)
-------- ---------
Income (loss) before preferred stock accretion and dividends of
subsidiairies and minority interest 2,058 (192)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF SUBSIDIARIES (97) (644)
MINORITY INTEREST - (138)
-------- ---------
Net income (loss) $ 1,961 $ (974)
======== ========
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(dollars in thousands)
Retained
Additional Earnings
Common Stock Paid-in (Accumulated
Shares Amount Capital Deficit) Total
<S> <C> <C> <C> <C> <C>
BALANCE, September 18, 1996 - $ - $ - $ - $ -
Issuance of common stock for cash 400 - 15,000 - 15,000
Net income - - - 1,961 1,961
----- ----- -------- ------- --------
BALANCE, December 28, 1996 400 - 15,000 1,961 16,961
Parent contribution of
investment in PTI - - 4,200 - 4,200
Parent contribution of note
receivable due from PTI's
minority stockholder and
founder - - 500 - 500
Parent contribution of
investment in MFB - - 6,500 - 6,500
Conversion to equity of note
payable to parent - - 4,643 - 4,643
Dividend paid to parent - - - (1,065) (1,065)
Net loss - - - (974) (974)
----- ----- ------- ------- -------
BALANCE, January 3, 1998 400 $ - $30,843 $ (78) $30,765
===== ===== ======= ======== =======
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Page 1 of 4
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Inception
(September 18,
1996) to Year Ended
December 28, January 3,
1996 1998
-------------- -------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,058 $ (974)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities, net of effects from acquisitions:
Depreciation and amortization 2,344 10,403
Loss on sale of assets - 368
Deferred income taxes 1,511 210
In-kind interest expense on note payable to stockholder
97 338
Preferred stock accretion and dividends of subsidiaries - 644
Minority interest - 234
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable (294) (353)
Amounts due from franchisees and affiliates (339) (514)
Inventories (159) 136
Prepaid rent and other (31) (895)
Other assets 39 427
Accounts payable and accrued liabilities 239 (6,651)
Store closure reserve (305) (1,666)
Accrued salaries, wages and benefits 212 80
Accrued interest payable 1,668 (586)
Sales taxes payable 542 261
Deferred credits 27 (543)
--------- ---------
Net cash provided by operating activities 7,609 919
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions (including $1,158 of acquisitions expenses) (19,508) (10,949)
Purchase of property and equipment, net of effects from acquisitions
(1,638) (4,678)
Proceeds from the sale of assets 15 122
-------- ---------
Net cash used in investing activities (21,131) (15,505)
-------- ----------
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Page 2 of 4
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Inception
(September 18,
1996) to Year Ended
December 28, January 3,
1996 1998
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt $ - $ 108,250
Reduction of long-term debt (1,769) (77,009)
Payment of debt financing costs - (5,976)
Cash advance from MFH - 1,500
Repayment of cash advance to MFH - (1,500)
Payment of cash dividend to MFH - (1,065)
Principal payments on capital lease obligations - (36)
Proceeds from the issuance of common stock 15,000 -
Proceeds from the issuance of mandatorily redeemable cumulative preferred
stock of subsidiary 3,500 -
Proceeds from the issuance of note payable to Harvard 3,500 -
--------- ---------
Net cash provided by financing activities 20,231 24,164
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,709 9,578
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD - 6,709
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 6,709 $ 16,287
======== =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cashpaid for interest was approximately $28 and $8,416 for the period ended
December 28, 1996 and for the year ended January 3, 1998, respectively.
Cashpaid for income taxes was approximately $0 and $217 for the period ended
December 28, 1996 and for the year ended January 3, 1998, respectively.
F-8
<PAGE>
Page 3 of 4
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On September 18, 1996, the Company acquired certain assets and assumed certain
liabilities of Mrs. Fields Inc., Mrs. Fields Development Corporation, Mrs.
Fields Cookies, The Original Cookie Company, Incorporated and Hot Sam Company,
Inc. In conjunction with the acquisitions, net liabilities were assumed as
follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $ 93,494
Net cash paid (19,508)
Notes payable issued (65,735)
-------
Net liabilities assumed $ 8,251
========
</TABLE>
Subsequent to accounting for these acquisitions, the Company recorded certain
accruals in accordance with purchase accounting (see Note 1). The Company
accrued approximately $3,135 for legal, accounting and finder fees,
approximately $7,510 for estimated obligations incident to certain store
closures and other litigation and lease costs, and $655 for severance and
related costs. In connection with these accruals, the Company recorded
$6,780 of goodwill and established deferred income tax assets of $4,520.
In October 1996, the Company received property in payment of $128 in accounts
receivable due from a customer.
On March 18, 1997, a certain convertible subordinated note issued in connection
with the previously described business combination was not repaid as scheduled.
The noteholder exercised its option to receive an additional note of $1,000 due
to the delayed payment. The Company recorded the note and additional goodwill as
a subsequent component of the business combination accounting.
During the period ended December 28, 1996 and for the year ended January 3,
1998, MFB increased its mandatorily redeemable cumulative preferred stock
liquidation preference by approximately $97 and $338, respectively, in lieu of
paying cash dividends. On November 26, 1997, in connection with the Refinancing,
MFH converted to common equity of the Company $4,643 aggregate principal amount
of convertible subordinated notes and contributed to the Company all of the
common equity of MFB after converting its preferred stock interests totaling
$3,935 to common equity (see Note 6).
On July 25, 1997, certain assets were acquired and certain liabilities were
assumed of H & M Concepts Ltd. Co. by MFPC as follows (see Note 1):
Fair value of assets acquired $15,780
Net cash paid (5,750)
Notes payable issued (8,000)
-------
Net liabilities assumed $ 2,030
=======
In connection with the purchase accounting for this acquisition, MFPC accrued
$1,000 for estimated obligations incident to certain store closures and recorded
a corresponding amount to goodwill and deferred tax assets (see Note 5).
F-9
<PAGE>
Page 4 of 4
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
On September 2, 1997, 56 percent of the shares of common stock of Pretzel Time,
Inc. ("PTI") were acquired by MFH as follows (see Note 1):
Fair value of assets acquired $ 8,311
Net cash paid (4,200)
-------
Net liabilities assumed $ 4,111
=======
In connection with the purchase accounting for this acquisition, MFH accrued
$500 for estimated obligations incident to certain store closures and recorded a
corresponding amount to goodwill and deferred tax assets (see Note 5).
On November 26, 1997, in connection with the Refinancing, MFH contributed all of
the assets and liabilities of MFPC, MFH's 56 percent of the shares of common
stock of PTI and the $500 note receivable due from PTI's founder and minority
stockholder to the Company. Additionally, on November 26, 1997, MFH contributed
all of the common stock of MFB to the Company.
During the period from acquisition (September 2, 1997) to January 3, 1998, PTI
increased its mandatorily redeemable cumulative preferred stock liquidation
preference by approximately $68 in lieu of paying cash dividends. In addition,
for the same period, PTI's mandatorily redeemable cumulative preferred stock was
increased by approximately $238 for the accretion required over time to amortize
the original issue discount.
F-10
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Mrs. Fields' Original Cookies, Inc. (the "Company"), a Delaware corporation, is
a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc. ("MFH" or the
"Parent"). MFH is a majority owned subsidiary of Capricorn Investors II, L.P.
("Capricorn"). The Company has five wholly owned subsidiaries; namely, The Mrs.
Fields' Brand, Inc. ("MFB"), Mrs. Fields' Cookies Australia, Mrs. Fields'
Cookies (Canada) Ltd., H & M Canada, and Fairfield Foods, Inc. and four
partially owned subsidiaries, the largest of which is Pretzel Time, Inc. ("PTI")
of which the Company owns 60 percent of the common stock as of January 3, 1998.
The Company primarily operates retail stores which sell freshly baked cookies,
brownies, pretzels and other food products through four specialty retail chains.
As of January 3, 1998, the Company owned and operated 144 "Mrs. Fields Cookies"
stores, 155 "Original Cookie Company" stores, 102 "Hot Sam Pretzels" stores and
80 "Pretzel Time" stores, all of which are located in the United States.
Additionally, the Company has franchised or licensed 472 stores in the United
States and 81 stores in 10 other countries. As of January 3, 1998, the Company
operated 379 core operating stores and operated 102 stores which are in the
process of being sold or franchised. All of the stores in the process of being
closed or franchised are expected to be closed or franchised by the end of
fiscal year 1999. The accompanying consolidated statements of operations present
the income or loss from operations for both of these categories of stores.
The Company's business follows seasonal trends and is also affected by climate
and weather conditions. The Company experiences its highest revenues in the
fourth quarter. Because the Company's stores are heavily concentrated in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls.
Business Combinations
- ---------------------
MFI and Affiliates and OCC and Affiliates
The Company began operations on September 18, 1996, following the completion of
two simultaneous but separate asset purchase transactions wherein the Company
(i) acquired certain assets and assumed certain liabilities of Mrs. Fields Inc.,
Mrs. Fields Development Corporation and Mrs. Fields Cookies in accordance with
two Asset Purchase Agreements dated August 7, 1996, among these parties and
Capricorn, and (ii) acquired certain assets and assumed certain liabilities of
The Original Cookie Company, Incorporated and Hot Sam Company, Inc. in
accordance with an Asset Purchase Agreement dated August 7, 1996, as amended by
the First Amendment dated as of September 17, 1996, among these parties and
Capricorn.
The combined purchase price for the acquired net assets was approximately
$85,243,000. The Company paid net cash of $19,508,000 and issued approximately
$65,735,000 in senior and subordinated notes to the selling shareholders. The
acquisitions were accounted for as purchases. The total purchase price was
allocated to the net assets acquired, based on their estimated fair values. The
organization of the Company and the acquisitions resulted in the recording of
intangible assets of approximately $60,842,000 principally made up of goodwill,
trademarks and organization costs. Goodwill and trademarks are amortized using
the straight-line method over 15 years. Organization costs are amortized using
the straight-line method over five years.
F-11
<PAGE>
(1) DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS (continued)
------------------------------------------------------------
Subsequent to allocating the total purchase price, the Company recorded certain
other accruals required in accordance with purchase accounting. The Company
accrued approximately $3,135,000 for legal, accounting and finder fees,
approximately $7,510,000 for estimated obligations incident to certain store
closures and other litigation and lease costs, and $655,000 for severance and
related costs. In connection with these accruals, the Company recorded an
additional $6,780,000 of goodwill and established deferred income tax assets
totaling $4,520,000.
H & M Concepts Ltd. Co.
On July 25, 1997, Mrs. Fields' Pretzel Concepts, Inc. ("MFPC"), a wholly owned
subsidiary of MFH, acquired substantially all of the assets and assumed certain
liabilities of H & M Concepts Ltd. Co. and subsidiaries ("H & M"). H & M owned
and operated stores which engage in retail sales of pretzels, toppings and
beverages under a franchise agreement with Pretzel Time, Inc. ("PTI"). The
aggregate consideration of $13,750,000 consisted of (i) $5,750,000 of cash,
financed through an advance from MFH of $1,500,000 and a $4,250,000 bank loan to
MFPC, (ii) a $4,000,000 principal amount bridge note of MFPC and (iii) a
$4,000,000 principal amount subordinated note of MFH retained by the sellers
(all such debt collectively referred to as the "H & M Debt"). The acquisition
was accounted for using the purchase method of accounting (based on the
estimated faire values of the net assets acquired) and resulted in recording
approximately $9,618,000 of goodwill that is being amortized using the
straight-line method over 15 years.
Effective November 26, 1997, MFH contributed all of the assets and liabilities
of MFPC to the Company and, in consideration thereof, the Company assumed the H
& M Debt, including all accrued but unpaid interest. MFPC and the Company merged
on the same date with the Company being the surviving entity. The contribution
was accounted for in a manner similar to that of pooling-of-interests
accounting. There was no step-up in the book basis of MFPC's assets or
liabilities. MFPC's results of operations have been included in the consolidated
results of the Company for the period from July 25, 1997 to January 3, 1998.
Pretzel Time, Inc.
On September 2, 1997, MFH acquired 56 percent of the shares of common stock of
PTI for an aggregate cash purchase price of $4,200,000, $750,000 of which was
paid to PTI and is being used for working capital purposes, and the balance of
which was paid to the selling shareholders. In connection with the acquisition,
MFH extended a $500,000 loan to the founder of PTI who continued to own 44
percent of the shares of common stock of PTI. The note bears interest at an
annual rate of 10 percent (see Note 8). PTI is a franchisor of hand rolled soft
pretzel outlets located in North America. The outlets are primarily located in
shopping malls. The acquisition was accounted for using the purchase method of
accounting (based on the estimated fair values of the net assets acquired) and
resulted in recording approximately $5,882,000 of goodwill that is being
amortized using the straight-line method over 15 years.
Effective November 26, 1997, MFH contributed its 56 percent of the shares of
common stock of PTI to the Company. MFH also contributed to the Company the
$500,000 note due from PTI's founder and minority stockholder. The contribution
was accounted for in a manner similar to that of pooling-of-interests
accounting. There was no step-up in the book basis of PTI's assets or
liabilities. The Company has included 56 percent of PTI's results of operations
with the Company's consolidated results of operations from September 2, 1997 to
January 2, 1998.
On January 2, 1998, the Company purchased an additional 4 percent of the shares
of common stock of PTI from the founder for $300,000 in cash. The purchase was
accounted for using the purchase method of accounting (based on the estimated
fair values of the net assets acquired) and resulted in recording approximately
$311,000 of goodwill. Beginning with January 2, 1998, the Company is including
60 percent of PTI's results of operations in the Company's consolidated results
of operations.
F-12
<PAGE>
(1) DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS (continued)
------------------------------------------------------------
The Mrs. Fields' Brand, Inc.
Prior to November 26, 1997, MFH owned 50.1 percent of the shares of the common
stock of MFB. MFB holds legal title to certain trademarks for the "Mrs. Fields"
name and logo and licenses the use of these trademarks to third parties for the
establishment and operation of Mrs. Fields cookie and bakery operations and
other merchandising activities. In connection with these licensing activities,
MFB authorizes third-party licensees to use certain business formats, systems,
methods, procedures, designs, layouts, specifications, trade names and
trademarks in the United States and other countries.
On November 26, 1997, MFH acquired the remaining 49.9 percent of the shares of
the common stock of MFB from Harvard Private Capital Holdings, Inc. ("HPCH") for
approximately $2,565,000. The consideration consisted of $1,065,000 in cash and
$1,500,000 in shares of common stock of MFH. In aggregate, the shares issued to
HPCH were valued at $1,500,000 after being appropriately discounted for lack of
controlling interest and marketability. The acquisition was accounted for using
the purchase method of accounting (based on the estimated fair values of the net
assets acquired) and resulted in recording approximately $2,565,000 of
intangible assets (primarily goodwill) that is being amortized using the
straight-line method over 15 years.
Effective November 26, 1997, MFH contributed all of the common stock of MFB to
the Company. As a result of such capital contribution, MFB became a wholly owned
subsidiary of the Company. The contribution was accounted for in a manner
similar to that of pooling-of-interests accounting. There was no step-up in the
book basis of MFB's assets or liabilities. The Company has included 50.1 percent
of MFB's results of operations with the Company's consolidated results of
operations for the period from inception (September 18, 1996) to December 28,
1996 and for the period from December 29, 1996 to November 25, 1997. The Company
has included 100 percent of MFB's results of operations with the Company's
consolidated results of operations for the period from November 26, 1997 to
January 3, 1998.
1-800-Cookies
On October 10, 1997, the Company acquired substantially all of the net assets of
R&R Bourbon Street, Inc. dba 1-800-Cookies for $653,000 in cash. The acquisition
was accounted for using the purchase method of accounting (based on the
estimated fair value of the net aseets acquired) and resulted in recording
approximately $600,000 of goodwill and $53,000 of other assets. The goodwill is
being amortized using the straight-line method over 15 years.
Pro Forma Acquisition Information (Unaudited)
The unaudited pro forma acquisition information for the period from inception
(September 18, 1996) to December 28, 1996 and for the year ended January 3, 1998
presents the results of operations as if the H&M and PTI acquisitions and the
Series A Senior Note Offering and Refinancing had occurred at the date of
inception (September 18, 1996). The results of operations give effect to certain
adjustments, including amortization of intangible assets and increased interest
expense on acquisition debt. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisitions and Refinancing been made at the inception of the
Company or of the results which may occur in the future.
F-13
<PAGE>
(1) DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS (continued)
------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma Unaudited Information
-------------------------------
Inception
(September 18,
1996) to Year Ended
December 28, January 3,
1996 1998
-------------- ---------
<S> <C> <C>
Total revenues (including store
sales, franchising, licensing
and other) $48,090,000 $142,496,000
Income from operations 6,718,000 9,054,000
Net income (loss) 1,029,000 (4,189,000)
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting Periods
- ------------------
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned and majority owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Sources of Supply
- -----------------
The Company currently buys a significant amount of its food products from four
suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
- ----------------
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. As of January 3, 1998,
the Company had demand deposits at various banks in excess of the $100,000 limit
for insurance by the Federal Deposit Insurance Corporation.
Inventories
- -----------
Inventories consist of food, beverages and supplies and are stated at the lower
of cost (first-in, first-out method) or market value.
F-14
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------------------
Property and Equipment
- ----------------------
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment and fixtures are depreciated over three to seven years
using the straight-line method. Leasehold improvements are amortized over the
life of the lease term, or the estimated life of the improvements, whichever is
shorter, using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are recorded in current operations.
Intangible Assets
- -----------------
Intangible assets consist primarily of goodwill and trademarks and are amortized
using the straight-line method over 15 years. Other intangible assets such as
organization costs and covenants not to compete are amortized using the
straight-line method over three to five years.
Deferred Loan Costs
- -------------------
Deferred loan costs totaling $5,976,000 resulted from the sale of $100,000,000
in Series A Senior Notes on November 26, 1997, and are being amortized as
interest expense over the seven-year life of the Senior Notes (see Note 4).
Other Assets
- ------------
Other assets consist primarily of lease deposits and a $500,000 note receivable
from the founder and minority stockholder of PTI (see Note 1).
Long-Lived Assets
- -----------------
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"("SFAS No.
121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment
when events or changes in circumstances indicate that the book value of an asset
may not be recoverable. The Company evaluates, at each balance sheet date,
whether events and circumstances have occurred that indicate possible
impairment. In accordance with SFAS No. 121, the Company uses an estimate of
future undiscounted net cash flows of the related asset over the remaining life
in measuring whether the assets are recoverable. As of January 3, 1998, the
Company has reserved for any of its long-lived assets that are considered to be
impaired.
Store Closure Reserve
- ---------------------
The Company accrues an estimate for the costs associated with closing a
nonperforming store in the period the determination is made to close the store.
The majority of the costs accrued relate to estimated lease termination costs
and estimated costs of related impaired property and equipment.
Revenue Recognition
- -------------------
The Company recognizes product sales as the product is delivered or shipped to
the customer. Franchising and licensing revenues are recognized on an accrual
basis as earned.
F-15
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------------------
Leases
- ------
The Company has various operating lease commitments on both Company-owned and
franchised store locations and equipment. Expenses of operating leases with
escalating payment terms, including leases underlying subleases with
franchisees, are recognized on a straight-line basis over the lives of the
related leases.
Income Taxes
- ------------
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Foreign Currency Translation
- ----------------------------
The balance sheet accounts of the Company's foreign subsidiaries are translated
into U.S. dollars using the applicable balance sheet date exchange rates, while
revenues and expenses are translated using the average exchange rates for the
periods presented.
Translation gains or losses are insignificant for the periods presented.
Fair Value of Financial Instruments
- -----------------------------------
The book value of the Company's financial instruments approximates fair value.
The estimated fair values have been determined using appropriate market
information and valuation methodologies.
Recent Accounting Pronouncement
- -------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." Under current reporting requirements, extraordinary and non-recurring
gains and losses are excluded from income from current operations. SFAS No. 130
requires an "all-inclusive" approach which specifies that all revenues,
expenses, gains and losses recognized during the period be reported in income,
regardless of whether they are considered to be results of operations of the
period. SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. The Company does not expect that this statement will have a significant
impact on its financial statement presentation.
Reclassifications
- -----------------
Certain reclassifications have been made in the prior period's consolidated
financial statements to conform with the current year presentation.
F-16
<PAGE>
(3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
--------------------------------------------
Long-Term Debt
- --------------
<TABLE>
<CAPTION>
Long-term debt consists of the following:
December 28, January 3,
1996 1998
<S> <C> <C>
Series A senior unsecured notes, interest at 10 1/8 percent payable
semi-annually in arrears on June 1 and December 1, commencing June
1, 1998, due December 1, 2004 $ - $100,000,000
Notes payable to individuals or corporations with interest terms ranging from
non-interest bearing to 15 percent, due at various
dates from 1998 through 2012, requiring monthly payments - 756,000
Senior notes, interest at six-month LIBOR rate (5.75 percent at December 28,
1996) plus an interest margin (3 percent at December 28, 1996) payable
semi-annually, secured by essentially all assets
of the Company, repaid in November 1997 41,966,000 -
Senior notes, interest at 10 percent payable semi-annually, secured by
essentially all assets of MFB, principal due quarterly in varying
installments, repaid in November 1997 10,000,000 -
Convertible subordinated notes, interest at an escalating rate (9.75 percent
at December 28, 1996) payable semi-annually, secured
by essentially all assets of the Company, repaid in November 1997 7,357,000 -
Convertible subordinated note to stockholder, interest at an escalating rate
(9.75 percent at December 28, 1996) payable semi-annually, secured by
essentially all assets of the Company, converted to
equity in November 1997 4,643,000 -
Senior subordinated note to MFB minority stockholder, interest at 10 percent
compounded quarterly beginning December 15, 1996, secured by
essentially all assets of MFB, repaid in November 1997 3,597,000 -
------------ ------------
67,563,000 100,756,000
Less current portion (2,450,000) (472,000)
------------ ------------
$65,113,000 $100,284,000
=========== ============
</TABLE>
In connection with the business combinations discussed in Note 1, the Company
issued approximately $65,735,000 in senior and subordinated notes. Concurrent
with the combinations, $4,643,000 of convertible subordinated notes that were
originally issued as part of the business combinations were issued to MFH.
F-17
<PAGE>
(3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (continued)
-------------------------------------------------------
On November 26, 1997, the Company refinanced its existing debt (the
"Refinancing") by issuing $100,000,000 Series A Senior Notes (the "Senior
Notes") due December 1, 2004. Interest on the Senior Notes accrues at the rate
of 10 1/8 percent per annum and is payable semi-annually in arrears on June 1
and December 1, commencing on June 1, 1998. The Senior Notes are general
unsecured obligations of the Company, rank senior in right of payment to all
subordinated indebtedness of the Company and will rank pari passu in right of
payment with all existing and future senior indebtedness of the Company. In
connection with the Refinancing, the Company recorded deferred loan costs
totaling approximately $5,976,000 that are being amortized over seven years.
The Senior Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 1, 2001 in cash at redemption prices
defined in the Indenture, plus accrued and unpaid interest. In addition, at any
time prior to December 1, 2001, the Company may redeem up to an aggregate of 35
percent of the principal amount at a redemption price equal to 110.125 percent
of the principal amount thereof, plus accrued and unpaid interest.
The Senior Notes contain certain covenants that will limit, among other things,
the ability of the Company and its subsidiaries to: (i) pay dividends, redeem
capital stock or make certain other restricted payments or investments and (ii)
incur additional indebtedness or issue preferred equity interests.
The Senior Notes were issued pursuant to a private transaction that was not
subject to the registration requirements of the Securities Act of 1933 (the
"Securities Act"). The Company has agreed to: (i) file a registration statement
(the "Exchange Offer Registration Statement") on or prior to 60 days after the
date of issuance of the Senior Notes with respect to an offer to exchange the
Senior Notes for a new issue of debt securities of the Company registered under
the Securities Act, with terms substantially identical to those of the Senior
Notes and (ii) to use its best efforts to cause the Exchange Offer Registration
Statement to be declared effective by the Securities and Exchange Commission on
or prior to 120 days after the date of issuance of the Senior Notes.
Pursuant to the Refinancing, the Company repaid approximately $79,096,000
aggregate principal amount of indebtedness and accrued but unpaid interest of
the Company. Such indebtedness consisted of (i) approximately $66,402,000
principal amount of indebtedness and accrued but unpaid interest of the Company
incurred in connection with the MFI and affiliates and OCC and affiliates
business combinations, (ii) approximately $12,374,000 principal amount of
indebtedness and accrued but unpaid interest of the H & M Debt, and (iii)
$320,000 of prepayment penalties associated with retiring the existing debt.
As part of the Refinancing, MFH converted to common equity of the Company
$4,643,000 aggregate principal amount of convertible subordinated notes and
contributed to the Company all of the common equity of MFB after converting its
preferred stock interests totaling $3,935,000 to common equity (see Notes 1 and
6). Also as part of the Refinancing, the Company paid a dividend to MFH in the
amount of approximately $1,065,000 and returned a $1,500,000 advance to MFH,
which was a portion of the cash, provided by MFH in connection with the
acquisitions of H & M and PTI.
The aggregate amount of principal maturates of debt at January 3, 1998 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
1998 $ 472,000
1999 168,000
2000 105,000
2001 11,000
2002 -
Thereafter 100,000,000
------------
$100,756,000
</TABLE>
F-18
<PAGE>
(3) LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (continued)
--------------------------------------------------------
On December 29, 1997, the Company amended its revolving credit agreement (the
"Agreement") with a commercial bank (the "Bank") which provides for a maximum
commitment of up to $3,000,000 secured by essentially all of the assets of the
Company. The Agreement was extended through February 28, 1998, at which date all
outstanding principal and interest are due. Borrowings under the Agreement bear
interest, at the Company's option, at either the Bank's prime rate plus one
fourth of one percent or the one-month LIBOR rate plus three percent, with
interest payable monthly in arrears. As of January 3, 1998, the Company had no
outstanding borrowings under the Agreement.
Capital Lease Obligations
- -------------------------
Future minimum lease payments for equipment held under capital lease
arrangements as of January 3, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
1998 $163,000
1999 123,000
2000 46,000
2001 41,000
--------
Total future minimum lease payments 373,000
Less amount representing interest (48,000)
--------
Present value of future minimum lease payments 325,000
Less current portion (142,000)
--------
$183,000
========
</TABLE>
Total assets held under capital lease arrangements were approximately $376,000
with accumulated amortization of approximately $59,000 as of January 3, 1998.
(4) INCOME TAXES
-----------
The components of the provision (benefit) for income taxes for the period ended
December 28, 1996 and for the year ended January 3, 1998 are as follows:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
<S> <C> <C>
Current:
Federal $ 207,000 $ 70,000
State 75,000 228,000
Foreign 5,000 57,000
Deferred:
Federal 1,210,000 (327,000)
State 301,000 (51,000)
Change in valuation allowance - 678,000
---------- -----------
Total provision for income taxes $1,798,000 $ 655,000
========== ===========
</TABLE>
F-19
<PAGE>
(4) INCOME TAXES (continued)
-----------------------
The differences between income taxes at the statutory federal income tax rate
and income taxes reported in the consolidated statements of operations are as
follows for the period ended December 28, 1996 and for the year ended January 3,
1998:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
<S> <C> <C>
Federal statutory income tax rate 34.0% 34.0%
Permanent tax differences - 64.8
Net operating losses utilized - (3.9)
State income taxes, net of federal benefit 5.3 5.3
State franchise minimum taxes - 44.0
Other 4.1 (2.7)
----- -----
43.4% 141.5%
==== ======
</TABLE>
<TABLE>
<CAPTION>
The significant components of the Company's deferred income tax assets and
liabilities at December 28, 1996 and January 3, 1998 are as follows:
December 28, January 3,
1996 1998
<S> <C> <C>
Deferred income tax assets:
Store closure reserve $ 1,868,000 $ 2,202,000
Transaction cost accrual 789,000 565,000
Net operating loss carryforward 660,000 4,875,000
Legal reserve 470,000 302,000
Lease accrual 403,000 92,000
Other reserves - 81,000
Accrued expenses 334,000 230,000
Alternative minimum tax credit carryforward 207,000 207,000
------------ ------------
Total deferred income tax assets 4,731,000 8,554,000
Valuation allowance - (678,000)
------------------ ------------
Deferred income tax assets net of valuation allowance 4,731,000 7,876,000
----------- -----------
Deferred income tax liabilities:
Accumulated depreciation and amortization (1,366,000) (2,259,000)
"Non-core" store fixed assets (343,000) (1,757,000)
Other (13,000) (361,000)
--------------- -------------
Total deferred income tax liabilities (1,722,000) (4,377,000)
------------- ------------
Net deferred income tax assets $ 3,009,000 $ 3,499,000
=========== ===========
</TABLE>
Management has provided a valuation allowance on a portion of the deferred
income tax assets arising from the Company's net operating loss carryforwards.
As of January 3, 1998, the Company had net operating loss carryforwards for tax
reporting purposes totaling $12,414,000. Of these net operating loss
carryforwards, $1,814,000 expire in 2011 and $10,600,000 expire in 2012.
F-20
<PAGE>
(5) STORE CLOSURE RESERVE
---------------------
As of the consummation date of the MFI and affiliates and OCC and affiliates
business combinations discussed in Note 1, the Company's management began to
assess and formulate a plan to close various Company-owned stores (referred to
herein as "stores in the process of being closed or franchised") that did not
meet certain financial and geographical criteria. The Company initially recorded
an estimated reserve totaling approximately $5,060,000 in accordance with
purchase accounting. During the period from inception to December 28, 1996, the
Company closed 17 stores and as of December 28, 1996, the remaining reserve for
stores to be closed totaled approximately $4,755,000.
During the year ended January 3, 1998, management finalized its plan and
increased its estimate of the cost to close the previously identified stores by
approximately $1,357,000 and adjusted goodwill by a comparable amount. The
reserve was also increased by approximately $538,000 for certain core operating
stores that have been closed or targeted for closure due primarily to leases not
being renewed by the lessor and secondarily to unfavorable operating results.
This portion of the store closure reserve was expensed in the Company's
consolidated statement of operations for the year ended January 3, 1998. The
Company has also recorded reserves of approximately $1,500,000 for stores
acquired in the H & M and PTI acquisitions that management intends to close.
These reserves were recorded as part of the purchase accounting associated with
the acquisition of H & M and PTI (see Note 1). During the year ended January 3,
1998, the Company closed 80 stores and as of January 3, 1998, the remaining
reserve totaled approximately $5,466,000 for the expected costs to close the
remaining stores in fiscal years 1998 and 1999.
Management has identified approximately 52 existing stores for sale to
franchisees. Management believes that the net proceeds from the sale of stores
to franchisees will exceed the total carrying value of the stores as of January
3, 1998.
The Company's management reviews the historic and projected operating
performance of its stores on a periodic basis to identify underperforming stores
for impairment of property investment or targeted closing. The Company's policy
is to expense any net property investment for underperforming stores identified
to have permanent impairment of investment. Additionally, when a store is
identified for targeted closing, the Company's policy is to provide for the
costs of closing the store, which are predominantly estimated lease settlement
costs.
(6) MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCKS OF SUBSIDIARIES
------------------------------------------------------------------
In connection with the MFI and affiliates and OCC and affiliates business
combinations discussed in Note 1, MFB issued 100 shares of mandatorily
redeemable cumulative preferred stock (the "MFB Preferred Stock") which had an
initial liquidation preference of $35,000 per share and a cumulative annual
dividend rate of 10 percent compounded quarterly. During the period ended
December 28, 1996 and the year ended January 3, 1998, MFB elected to add the
dividends to the liquidation preference. As part of the Refinancing, MFH
converted the $3,500,000 face amount of the MFB Preferred Stock together with
accrued but unpaid dividends of approximately $435,000 to common equity and the
related preferred stock certificate was cancelled.
During fiscal year 1996, holders of 14.75 shares of PTI common stock converted
their common stock into 144.5 shares of newly authorized and issued mandatorily
redeemable cumulative preferred stock (the "PTI Preferred Stock"). The PTI
Preferred Stock is nonvoting and the preferred stockholders are entitled to
cumulative preferred dividends of 10 percent per annum for three years, accrued
and payable upon redemption. The PTI Preferred Stock must be redeemed at $10,000
per share, plus unpaid and accumulated dividends, on September 1, 1999. The
excess of the redemption price over the carrying value is being accreted over
the period from issuance to September 1, 1999, using the effective interest
method and is being charged to retained earnings of PTI.
F-21
<PAGE>
(6) MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCKS OF SUBSIDIARIES
(continued)
- --------------------------------------------------------------------------------
During the period from September 2, 1997 to January 3, 1998, PTI repurchased
17.5 shares of the PTI Preferred Stock for an aggregate of $175,000 or $10,000
per share plus accrued dividends totaling approximately $20,200. During the same
period, PTI elected to add the dividends to the liquidation preference. As of
January 3, 1998, there are 127 shares of PTI Preferred Stock issued and
outstanding with an aggregate liquidation preference of approximately $1,465,000
or $11,535 per share.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
Legal Matters
- -------------
The Company has recently been in discussions concerning the possible acquisition
by the Company of Great American Cookie Company, Inc. ("GACC") or some of its
owned or franchised stores. No agreement with respect to such a transaction has
been concluded, and there can be no assurance that such an agreement will be
concluded. In connection with those discussions, in September 1997, nine
franchisees of GACC filed an action in the Superior Court of New Jersey, Mercer
County, against the Company, Capricorn and other defendants, challenging a
possible acquisition of GACC by the Company. The complaint asserts that the
proposed sale violates Illinois, Indiana, Maryland, New Jersey and Virginia
franchise law, violates North Carolina, South Carolina and Texas unfair trade
practices acts, breaches the plaintiffs' franchise contracts and tortiously
interferes with the plaintiffs' actual and prospective contractual
relationships. Management believes that it has good and meritorious defenses to
the action and intends to defend the case vigorously.
The Company is also the subject of certain other legal actions, which it
considers routine to its business activities. As of January 3, 1998, management,
after consultation with legal counsel, believes that the potential liability to
the Company under such actions is adequately accrued for or will not materially
affect the Company's consolidated financial position or results of operations.
Operating Leases
- ----------------
The Company leases retail store facilities, office space and equipment under
long-term noncancellable operating lease agreements with remaining terms of one
to 10 years. As of January 3, 1998, the future minimum lease payments due under
these operating leases, which include required lease payments for those stores
that have been subleased, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
1998 $ 30,605,000
1999 26,968,000
2000 21,948,000
2001 18,283,000
2002 15,673,000
Thereafter 24,374,000
--------------
$137,851,000
==============
</TABLE>
F-22
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES (continued)
-----------------------------------------
Certain of the leases provide for contingent rentals based on gross revenues.
Total rental expense, including contingent rentals and net of sublease rentals
received, under the above operating leases for the period ended December 28,
1996 and the year ended January 3, 1998 was approximately $6,102,000 and
$22,330,000, respectively. As part of the Company's franchising program, certain
leases have been subleased to franchisees. The future minimum sublease payments
due to the Company under these leases as of January 3, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
1998 $ 9,959,000
1999 9,067,000
2000 7,506,000
2001 6,497,000
2002 6,190,000
Thereafter 10,481,000
------------
$49,700,000
============
</TABLE>
Subsequent to year-end, the Company entered into an operating lease agreement
for corporate office facilities totaling 31,000 square feet. The lease is
scheduled to commence on May 1, 1998 and will expire April 30, 2008. The lease
includes escalating monthly rental payments totaling $6,900,000 over the life of
the lease, or approximately $57,500 per month on a straight-line basis. These
commitments are not included in the preceding commitment presentation.
Contractual Arrangements
- ------------------------
The Company has entered into a supply agreement to buy frozen dough products
through 1998. The agreement stipulates minimum annual purchase commitments of
not less than 16,730,000 pounds of the products during fiscal year 1998. The
terms of the agreement include certain volume incentives and penalties. The
Company and the supplier may terminate the supply agreement if the other party
defaults on any of the performance covenants.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at January 3, 1998 were approximately $550,000. Under the terms
of the agreement, the Company is required to assume any franchisee obligations
which are in default as defined. As of January 3, 1998, the Company has assumed
obligations totaling approximately $203,000 which are included in accrued
liabilities.
The Company recorded deferred credits of approximately $1,204,000 as of
September 18, 1996 associated with the assumption of a long-term marketing and
supply agreement with a supplier in connection with the MFI and affiliates and
OCC and affiliates business combination discussed in Note 1. Under terms of the
agreement, the Company is obligated to purchase a minimum amount of product from
the supplier. This agreement was amended in January 1997 and an additional
$600,000 of deferred credits were recorded. The amended agreement and expires on
the later of December 31, 2001 or when the Company has met its revised purchase
commitment. In conjunction with this amendment, certain minimum commitments from
the previous agreement were carried forward and others were forgiven. The
Company recognized approximately $64,000 and $1,393,000 as a reduction to food
cost of sales during the period ended December 28, 1996 and the year ended
January 3, 1998, respectively, related to this arrangement.
F-23
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES (continued)
-----------------------------------------
In November 1997, PTI entered into a long-term marketing and supply agreement
with a supplier. Under terms of the agreement, the Company is obligated to
purchase a minimum amount of product from the supplier. The termination date of
this agreement will be the later of December 31, 2002 or when PTI has met its
purchase commitment.
In November 1996, the Company entered into a consulting agreement (the
"Consulting Agreement") with Debbi Fields, a director of the Company, under
which Debbi Fields travels and performs public relations and advertising
activities on behalf of the Company for at least 50 days a year for a fee of
$250,000 per year, with an option to perform 20 additional days a year for
additional pay of $5,000. The compensation increases by 10 percent a year
beginning on January 1, 1999. The Consulting Agreement expires on December 31,
1999. The Company may terminate the Consulting Agreement for cause and Debbi
Fields may terminate the Consulting Agreement at any time. Under the Consulting
Agreement, Debbi Fields may not disclose any confidential information of the
Company, such as recipes and trade secrets, and may not, without the prior
written consent of the Company, compete with the Company.
In addition, the Company has a license agreement with FSG Holdings, Inc., a
Delaware corporation, under which Debbi Fields has a nonexclusive license to use
certain trademarks, names, service marks and logos of the Company in connection
with book and television series projects. Debbi Fields is required to pay 50
percent of any gross revenues in excess of $200,000 that she receives from the
book and television series projects to the Company as a license fee.
In connection with the acquisition of H&M, certain franchise agreements and an
area development agreement with PTI were assigned to the Company. The franchise
agreements provide for the franchise by the Company of the PTI stores previously
franchised by H&M and the payment by the Company to PTI of an annual franchise
royalty equal to 7 percent of the annual sales by such stores, plus an
advertising fee of 1 percent of weekly sales. The franchise agreements also
provide for the conversion within three years of the Company's Hot Sam and
Pretzel Oven stores to Pretzel Time franchises on a royalty-free basis for the
first five years following the date of conversion. The area development
agreement provides for the grant by PTI to the Company of area development
rights to open additional Pretzel Time stores in a territory covering 16 states,
predominantly in the western United States, four western Canadian provinces and
in Mexico. The additional stores may be opened by the Company as the franchisee
of or by third parties as franchisees. Under the area development agreement, the
Company is obligated to pay to PTI a $5,000 franchise fee per new location
within the territory. PTI is obligated under the area development agreement to
pay to the Company an annual royalty of up to 2 percent with respect to Pretzel
Time franchises opened by parties other than the Company within the territory.
The Company has entered into employment agreements with six key officers with
terms of two to three years. The agreements are for an aggregate annual base
salary of $1,125,000. If the Company terminates employment without cause, or the
employee terminates employment with good reason, the employee can receive in
severance pay the amount equal to the product of his or her then current
semi-monthly base salary by the greater of the number of semi-monthly periods
from the notice of termination or twenty-four to thirty-six semi-monthly
periods, plus a portion of any discretionary bonus that would otherwise have
been payable. The agreements have customary provisions for other benefits and
also include noncompetition clauses.
(8) RELATED-PARTY TRANSACTIONS
--------------------------
As of December 28, 1996 and January 3, 1998, the Company had receivables due
from franchisees, primarily related to prepaid rent which the Company had paid
in behalf of franchisees, totaling approximately $1,107,000 and $1,494,000,
respectively. Such amounts are included in amounts due from franchisees and
affiliates and are net of allowance for doubtful accounts totaling $320,000 and
$582,000, respectively.
F-24
<PAGE>
As of December 28, 1996 and January 3, 1998, the Company had receivables of
approximately $39,000 and $89,000 due from MFH and payables of $137,000 and
$194,000 due to MFH, respectively. Additionally, as of January 3, 1998, the
Company had a receivable totaling approximately $140,000 due from UVEST LLC of
which the Company owns a minority interest. The net amounts are included in
amounts due from franchisees and affiliates as of December 28, 1996 and January
3, 1998.
F-25
<PAGE>
(8) RELATED-PARTY TRANSACTIONS (continued)
--------------------------------------
During the period ended December 28, 1996 and the year ended January 3, 1998,
the Company accrued approximately $130,000 and $441,000, respectively, of
interest expense due MFH related to the convertible subordinated notes MFH
purchased. As part of the Refinancing, MFH converted all of the $4,643,000
convertible subordinated notes to equity and the notes were cancelled (see Note
3).
The Company leases certain office space to an entity which is owned in part by a
director of the Company. Billings to the entity during the period ended December
28, 1996 and the year ended January 3, 1998 totaled approximately $60,000 and
$274,000, respectively, of which approximately $29,000 and $23,000 is included
in amounts due from franchisees and affiliates as of December 28, 1996 and
January 3, 1998, respectively.
The Company paid fees to Korn/Ferry International ("KFI") totaling approximately
$47,000 and $157,000 during the period ended December 28, 1996 and the year
ended January 3, 1998, respectively. KFI is an executive search firm of which
one of the Company's directors is the Chairman.
A director of the Company is a consultant to the Company in connection with
certain of the Company's benefit plans for employees and directors. To date, the
director has not received any compensation in connection with the consulting
work and the terms of such compensation have not been determined as of January
3, 1998.
A director of the Company is a consultant and an advisor to Dillon Read & Co.,
Inc. ("Dillon Read"). In early 1997, the Company paid to Dillon Read a fee of
approximately $707,000 in connection with the genesis of the Company in
September 1996. In addition, the director's company has an agreement with
Capricorn (which Capricorn has the right to cancel under certain circumstances)
to provide certain advisory and consulting services to the Company for a fee of
$250,000, plus expenses.
As of January 3, 1998, the Company has a loan due from the founder and minority
stockholder of PTI totaling $500,000. The note bears interest at an annual rate
of 10 percent and is payable in monthly installments of principal and interest
beginning January 1998 by setoff of, and to the extent of, the founder's bonus
payments and dividends received by the founder in his PTI stock; provided that
in any calendar year no more than $100,000 may be so offset.
The Company and MFH expect to enter into a tax-sharing arrangement but as of the
date of these financial statements no such agreement was in place.
(9) STOCK-BASED COMPENSATION PLAN
-----------------------------
Subject to definitive documentation, the Company's Board of Directors approved a
nonqualified stock option plan (the "Option Plan"), to be effective September
18, 1996. The Option Plan is expected to provide for the issuance of up to 15
percent of the common equity of the Company to officers, other employees and
consultants of the Company. The Board of Directors will determine the number,
type of award and terms and conditions, including any vesting conditions. As of
January 3, 1998, no options had been granted under the Option Plan.
The Company applies APB Opinion No. 25 ("APB No. 25") and related
interpretations in accounting for its stock-based compensation plans as they
relate to employees and directors. Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), was issued
during 1995 and requires that financial statements include certain disclosures
about stock-based employee compensation arrangements regardless of the method
used to account for them. For the period ended December 28, 1996 and the year
ended January 3, 1998, there would have been no difference in net income between
accounting for the Option Plan under APB No. 25 and SFAS No. 123.
F-26
<PAGE>
(10) EMPLOYEE BENEFIT PLAN
---------------------
The Company sponsors the Mrs. Fields' Original Cookies, Inc. 401(k) Retirement
Savings Plan (the "Plan") for all eligible employees. Under the terms of the
Plan, employees may make contributions to the Plan, a portion of which is
matched by contributions from the Company. The total Company contributions to
the Plan for the period ended December 28, 1996 and the year ended January 3,
1998 were approximately $6,800 and $97,900, respectively.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields Inc.:
We have audited the accompanying consolidated balance sheet of Mrs. Fields
Inc. (a Delaware corporation) and subsidiaries as of September 17, 1996, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the period from December 31, 1995 to September 17, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mrs. Fields
Inc. and subsidiaries as of September 17, 1996, and the results of their
operations and their cash flows for the period from December 31, 1995 to
September 17, 1996 in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
June 27, 1997
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Mrs. Fields Inc.:
We have audited the accompanying consolidated balance sheet of Mrs. Fields Inc.
and subsidiaries as of December 30, 1995, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
ended December 30, 1995 and December 31, 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Mrs. Fields Inc. and subsidiaries
as of December 30, 1995, and the results of their operations and their cash
flows for the years ended December 30, 1995 and December 31, 1994 in conformity
with generally accepted accounting principles.
/s/DELIOTTE & TOUVHE LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 9, 1996
F-29
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................... $ 2,770 $ 1,883
Accounts receivable, net of allowance for doubtful accounts of
$251 and $269, respectively.......................................... 3,650 1,611
Inventories............................................................. 1,563 1,296
Prepaid rent............................................................ -- 420
Other prepaid expenses.................................................. 369 1,042
-------- --------
Total current assets.......................................... 8,352 6,252
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................................. 25,140 23,223
Equipment and fixtures.................................................. 19,335 18,422
-------- --------
44,475 41,645
Less accumulated depreciation and amortization.......................... (30,435) (29,409)
-------- --------
Net property and equipment.................................... 14,040 12,236
-------- --------
DEPOSITS . 641 656
-------- --------
Total assets.................................................. $ 23,033 $ 19,144
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-30
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of notes payable................................................ $ 1,277 $ 18,352
Current portion of premium on restructured debt................................. 2,088 2,872
Accounts payable................................................................ 3,519 3,708
Accrued liabilities............................................................. 1,462 1,329
Store closure reserve........................................................... 2,260 1,270
Deferred credits................................................................ 860 425
------ ------
Total current liabilities............................................. 11,466 27,956
NOTES PAYABLE, net of current portion................................................ 15,536 --
PREMIUM ON RESTRUCTURED DEBT, net of current portion................................. 2,325 ------
STORE CLOSURE RESERVE, net of current portion........................................ 250 294
UNEARNED REVENUES, net of current portion............................................ 1,473 1,212
------- ------
Total liabilities..................................................... 31,050 29,462
------- ------
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7 and 8)
MINORITY INTEREST IN MAJORITY OWNED SUBSIDIARY:
20,000,000 cumulative preferred stock; involuntary liquidation preference
of $23,153 and $24,834, respectively, including $3,153 and $4,834,
respectively, of unrecorded dividends in arrears............................. 20,000 20,000
------- ------
STOCKHOLDERS' DEFICIT:
Cumulative preferred stock, $.001 par value; 21,885,000 shares authorized
and issued, involuntary liquidation preference of $28,342 and $32,085,
respectively, including $6,457 and $10,200, respectively, of unrecorded
dividends in arrears......................................................... 22 22
Common stock, $.001 par value; 200,000,000 shares authorized and
outstanding.................................................................. 200 200
Additional paid-in capital...................................................... 83,863 83,863
Accumulated deficit............................................................. (112,067) (114,371)
Cumulative translation adjustment............................................... (35) (32)
-- --
Total stockholders' deficit........................................... (28,017) (30,318)
--------- ---------
Total liabilities and stockholders' deficit........................... $ 23,033 $ 19,144
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-31
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
Years Ended Period Ended
December 31, December 30, September 17,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Net store sales............................................ $ 87,863 $ 59,956 $ 29,674
Net franchising............................................ 1,171 1,870 1,793
Net licensing.............................................. 3,993 2,031 892
Net other . 2,077 2,092 1,101
------ ------ -----
Total revenues................................... 95,104 65,949 33,460
------- ------- ------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.......................... 55,527 36,965 17,782
Food cost of sales......................................... 20,474 13,373 6,525
General and administrative................................. 16,379 12,612 7,984
Depreciation and amortization.............................. 4,415 3,525 1,911
Provision for store closure costs.......................... -- 3,000 1,000
------- ------- -----
Total operating costs and expenses............... 96,795 69,475 35,202
------- ------- ------
Loss from operations............................. (1,691) (3,526) (1,742)
INTEREST EXPENSE (2,155) (51) (80)
(LOSS) GAIN ON SALE OF ASSETS................................... (1,283) 1,450 (277)
------- ------ -----
Loss before provision for income taxes........... (5,129) (2,127) (2,099)
PROVISION FOR INCOME TAXES...................................... (191) (241) (205)
------- ----- -----
Net loss......................................... $(5,320) $(2,368) $ (2,304)
======== ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(dollars and shares in thousands)
Cumulative
Preferred Additional Cumulative
Stock Common Stock Paid-in Accumulated Translation Treasury Stock
Shares Amount Shares Amount Capital Deficit Adjustment Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994..................... -- $-- 150,000 $150 $39,761 $(104,379) $714 1,292 $(2,891 (66,645)
Amended and Restated Restructuring Agreement:.
Issuance of common stock to lenders...... -- -- 50,0000 50 (2,941) -- -- (1,292) 2,891 --
Issuance of preferred stock to lenders... 21,885 22 -- -- 21,863 -- -- -- -- 21,885
Reduction of premium on restructured debt -- -- -- -- 25,180 -- -- -- -- 25,180
Foreign currency translation adjustment.... -- -- -- -- -- -- 308 -- -- 308
Sales and liquidations of investments in
foreign subsidiaries ........................ -- -- -- -- -- -- (827) -- -- (827)
Net loss................................... -- -- -- -- -- (5,320) -- -- -- (5,320)
------ --- ------- ---- ------- -------- ---- ---- ---- -------
BALANCE, December 31, 1994................... 21,885 22 200,000 200 83,863 (109,699) 195 -- -- (25,419)
Foreign currency translation adjustment.... -- -- -- -- -- -- (230) -- -- (230)
Net loss................................... -- -- -- -- -- (2,368) -- -- -- (2,368)
------ --- ------- ---- ------- -------- ---- ---- ---- -------
BALANCE, December 30, 1995................... 21,885 22 200,000 200 83,863 (112,067) (35) -- -- (28,017)
Foreign currency translation adjustment.... -- -- -- -- -- -- 3 -- -- 3
Net loss................................... -- -- -- -- -- (2,304) -- -- -- (2,304)
------ --- ------- ---- ------- ---- ---- ---- ---- -------
BALANCE, September 17, 1996.................. 21,885 $ 22 200,000 $200 $83,863 $(114,371) $(32) -- $-- (30,318)
====== ==== ======= ==== ======= ========= ====== ==== =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-33
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Increase (Decrease) in Cash and Cash Equivalents
Years Ended Period Ended
December 31, December 30, September 17,
1994 1995 1996
----------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $ (5,320) $ (2,368) $ (2,304)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................... 4,415 3,525 1,911
Amortization of premium on restructured debt..................... -- -- (1,541)
In-kind expense on note payable.................................. 2,129 (1,610) 1,598
Provision for store closure costs................................ -- 3,000 1,000
Net loss (gain) on asset sales, disposals and store closures..... 1,283 (1,450) 277
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable..................... (1,778) (163) 2,039
Decrease in inventories........................................ 650 853 267
Increase in prepaid rent....................................... -- -- (420)
Decrease (Increase) in other prepaid expenses.................. 1,789 (337) (673)
Increase in deposits........................................... -- -- (15)
Decrease in accounts payable and accrued liabilities........... (1,026) (5,821) (194)
Decrease in store closure reserve.............................. -- -- (1,696)
Decrease in deferred credits................................... (414) (107) (696)
----- ----- -----
Net cash provided by (used in) operating activities............ 1,728 (4,478) (447)
------ ------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................................... (4,895) (4,146) (1,054)
Proceeds from the sale of assets...................................... 2,865 6,672 669
------ ------ ---
Net cash (used in) provided by investing activities............ (2,030) 2,526 (385)
------- ------ -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable................................... (37) (145) (58)
Payments for debt restructuring....................................... (695) (40) --
----- ----- --
Net cash used in financing activities.......................... (732) (185) (58)
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-34
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(dollars in thousands)
Increase (Decrease) in Cash and Cash Equivalents
Years Ended Period Ended
December 31, December 30, September 17,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
EFFECT OF FOREIGN EXCHANGE RATES....................................... $ 35 $ -- $ 3
------ ------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............................. (999) (2,137) (887)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE PERIOD.......................................................... 5,906 4,907 2,770
------ ------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD......................... $4,907 $ 2,770 $ 1,883
====== ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest was approximately $26, $1,661 and $24 for the years
ended December 31, 1994 and December 30, 1995 and for the period ended
September 17, 1996, respectively.
Cash paid for income taxes was approximately $106, $128 and $39 for the
years ended December 31, 1994 and December 30, 1995 and for the period ended
September 17, 1996, respectively.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the years ended December 31, 1994 and December 30, 1995 and for the
period ended September 17, 1996, the Company, in accordance with the Amended and
Restated Restructuring Agreement, entered into the following noncash financing
activities:
During 1994, the Company's lenders canceled approximately $56,900 of
existing long-term notes payable in exchange for $15,000 of new Series
A secured notes, 50,000,000 shares of newly issued common stock and
approximately 1,292,000 shares of common stock previously held as
treasury stock, and 21,885,000 shares of cumulative preferred stock of
Mrs. Fields Inc. and 20,000,000 shares of cumulative preferred stock
of a majority-owned subsidiary of the Company. In connection with this
transaction, the Company also credited additional paid-in capital for
approximately $25,200 upon the reduction of premium on restructured
debt.
Prior to June 30, 1994 (the effective date of the Amended and
Restated Restructuring Agreement), the Company converted accrued
interest payable incurred through June 30, 1994 into approximately
$3,400 of senior and subordinated interest deferral notes. In
addition, the Company amortized approximately $1,300 of its premium on
restructured debt as a reduction to interest expense during the period
from January 1, 1994 to June 30, 1994.
The Company converted accrued interest payable incurred from January
1, 1995 through March 31, 1995 and from July 1, 1994 through December
31, 1994 into approximately $520 and $1,000 of Series A interest
deferral notes, respectively. In addition, the Company amortized
approximately $2,100 and $1,000 of its premium on restructured debt as
a reduction to interest expense during the year ended December 30,
1995 and from July 1, 1994 through December 31, 1994, respectively.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-35
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(dollars in thousands)
The Company converted accrued interest payable from December 31, 1995 through
September 17, 1996 into $1,598 of 15 percent interest bearing Series A interest
deferral notes.
During the years ended December 31, 1994 and December 30, 1995 and for the
period ended September 17, 1996, the Company also entered into the following
noncash investing and financing activities:
In accordance with the Company's franchise financing arrangement, the Company
assumed long-term debt of franchisees which was in default totaling
approximately $274, $132 and $0 during the years ended December 31, 1994 and
December 30, 1995 and the period ended September 17, 1996, respectively.
In connection with its sale of several cookie stores, the Company accepted notes
receivable in the approximate amount of $392 and $305 during the years ended
December 31, 1994 and December 30, 1995, respectively. In addition, during the
years ended December 31, 1994 and December 30, 1995 and the period ended
September 17, 1996, the Company charged off approximately $956, $1,960 and $651
of assets against accrued expenses.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-36
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Mrs. Fields Inc. ("MFI"), a Delaware corporation, was incorporated on May 2,
1986 and is a holding company for its wholly owned subsidiaries Mrs. Fields
Cookies Australia, Mrs. Fields Cookies, Ltd. (Canada) plus other inactive
subsidiaries (collectively termed "Mrs. Fields International") and its majority
owned subsidiary, Mrs. Fields Development Corporation ("MFD") and MFD's wholly
owned subsidiary, Mrs. Fields Cookies ("MFC"). Collectively, these entities are
referred to herein as the "Company".
Nature of Operations
The most significant part of the Company's operations are its retail stores
which sell freshly baked cookies, brownies and other food products. As of
September 17, 1996, the Company operates 147 "Mrs. Fields Cookies" stores all of
which are located in the United States. Additionally, the Company has franchised
approximately 163 stores in the United States and approximately 55 stores in
nine other countries.
Additionally, the Company holds legal title to certain trademarks for the
"Mrs. Fields" name and logo, and licenses the use of these trademarks to third
parties for the establishment and operation of Mrs. Fields cookie and bakery
operations and other merchandising activities. In connection with these
licensing activities, the Company authorizes third-party licensees to use
certain business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company usually experiences its highest
revenues in the fourth calendar quarter. Because the Company's stores are
heavily concentrated in shopping malls, the Company's sales performance is
somewhat dependent on the performance of those malls. The results for the period
ended September 17, 1996 presented in the accompanying consolidated financial
statements may not be indicative of results that would have been achieved for an
entire calendar year.
Effective September 18, 1996, the Company sold substantially all of its net
assets to Mrs. Fields' Original Cookies, Inc. and The Mrs. Fields' Brand, Inc.
(see Note 11). Subsequently, the Company has been solely involved in liquidating
remaining assets and collecting certain outstanding notes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
The consolidated financial statements include the accounts of MFI, Mrs.
Fields International, MFD and MFC. All significant intercompany balances and
transactions have been eliminated in consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
three suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
F-37
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of December
30, 1995 and September 17, 1996 and at various times during the periods then
ended, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventory consisted of the following at December 30, 1995 and
September 17, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1996
Food and beverages.......... $ 910,000 $ 792,000
Smallwares.................. 653,000 504,000
---------- ----------
$1,563,000 $1,296,000
</TABLE>
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment and fixtures are depreciated over three to seven years
using the straight-line method. Leasehold improvements are amortized over the
life of the lease term, or the estimated life of the improvements, whichever is
shorter, using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are included in the determination of net
income or loss.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment
when events or changes in circumstances indicate that the book value of an asset
may not be recoverable. The Company evaluates, at each balance sheet date,
whether events and circumstances have occurred that indicate possible
impairment. In accordance with SFAS No. 121, the Company uses an estimate of
future undiscounted net cash flows of the related asset over the remaining life
in measuring whether the assets are recoverable. As of September 17, 1996, the
Company has reserved for any of its long-lived assets that are considered to be
impaired.
Revenue Recognition
The Company recognizes franchising and licensing revenues on an accrual
basis as those revenues are earned. Product sales are recognized as the product
is delivered or shipped to the customer.
F-38
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Leases
The Company has various operating lease commitments on both Company-owned
and franchised store locations and equipment. Operating leases with escalating
payment terms, including leases underlying subleases with franchisees, are
expensed on a straight-line basis over the life of the related lease.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for
expected future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred income tax
assets or liabilities are determined based upon the difference between the
financial and income tax bases of assets and liabilities using enacted tax rates
expected to apply when differences are expected to be settled or realized.
Fair Value of Financial Instruments
The notes payable and cumulative preferred stock (see Note 6) are presented
in the accompanying consolidated balance sheet at a total of $60,237,000 as of
September 17, 1996. All such obligations were subsequently settled in two sales
transactions (see Note 11) for $41,800,000.
Cumulative Foreign Currency Translation Adjustment
The assets and liabilities of foreign operations are translated into United
States dollars using exchange rates in effect at the end of the accounting
period. Revenues and expenses are translated using the average exchange rate
during the period. Differences in exchange rates arising from foreign currency
translation are recorded as a separate component of stockholders' deficit. In
connection with a sale or liquidation of an investment in a foreign subsidiary,
the accumulated translation adjustment attributable to that subsidiary is
transferred from stockholders' deficit and is reported as a gain or loss.
3. NOTES PAYABLE
On June 30, 1994, the Company entered into the Amended and Restated
Restructuring Agreement (the "Restructuring Agreement") with its lenders of
long-term debt (the "Lenders"). In connection with the Restructuring Agreement,
the Lenders exchanged approximately $56,900,000 of existing long-term notes
payable for $15,000,000 of new Series A secured notes, 51,292,000 shares of the
Company's common stock, 21,885,000 shares of cumulative preferred stock of MFI
and 20,000,000 shares of cumulative preferred stock of MFD.
After the issuances of common stock, the Lenders' total ownership interest
in the Company's common stock was approximately 85 percent. Because the total
estimated future cash payments (including interest and principal) required as of
June 30, 1994 under the terms of the new Series A secured notes was less than
the principal amount plus the previous carrying amount of the unamortized
premium on restructured debt by approximately $25,200,000, the Company reduced
the premium on restructured debt by that amount. The remaining unamortized
premium on restructured debt will be amortized over the life of the Series A
secured notes to produce an effective interest rate of zero percent.
F-39
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Notes payable consist of the following as of December 30, 1995 and
September 17, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1996
Series A secured notes, interest at 13 percent, payable quarterly, secured by
all common stock and essentially all assets of the Company, principal due in
varying installments through March 31, 1998....................................... $15,000,000 $15,000,000
Series A interest deferral notes, interest at 13 percent, payable quarterly, secured
by all common stock and essentially all assets of the Company, principal due
March 31, 1998.................................................................... 1,511,000 1,511,000
Series A interest deferral notes, interest at 15 percent, secured by all common
stock and essentially all assets of the Company, principal and interest
originally due August 15, 1996, subsequently extended through September 20,
1996.............................................................................. -- 1,598,000
Other................................................................................ 302,000 243,000
Premium on restructured debt......................................................... 4,413,000 2,872,000
---------- -----------
21,226,000 21,224,000
Less current portion................................................................. (3,365,000) (21,224,000)
---------- ------------
$17,861,000 $ --
=========== ============
</TABLE>
The Series A secured notes and the Series A interest deferral notes were
paid by the Company on September 20, 1996 in connection with the receipt of
proceeds from two simultaneous but separate asset sale transactions (see Note
11). As a result, all of the Series A notes referred to above are reflected as
current liabilities in the accompanying September 17, 1996 consolidated balance
sheet.
4. INCOME TAXES
The components of the provision (benefit) for income taxes for the years ended
December 31, 1994 and December 30, 1995 and for the period ended September 17,
1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................................. $ -- $ -- $ --
State................................................................... 191,000 241,000 205,000
Deferred:
Federal................................................................. -- -- (1,125,000)
State................................................................... -- -- (109,000)
Change in valuation allowance........................................... -- -- 1,234,000
- ---- --- ---------
Total provision for income taxes.............................. $191,000 $241,000 $ 205,000
======== ======== =========
</TABLE>
The Company incurred financial reporting losses for the years ended
December 31, 1994 and December 30, 1995 and for the period ended September 17,
1996 for which no benefits have been recorded in the accompanying consolidated
statements of operations due to appropriate valuation allowances being provided.
The provisions for income taxes are solely related to minimum state income tax
requirements.
Current deferred income tax assets relate to temporary differences between
financial statement and income tax recognition of bad debts, unearned revenues,
and the store closure reserve. Long-term deferred income tax
F-40
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
assets relate to temporary differences between financial statement and income
tax recognition of depreciation and write-downs of certain property and
equipment, net operating losses and other income tax credit carryforwards.
Management has provided a valuation allowance equal to the amount of the
deferred income tax assets arising from the Company's net operating loss
carryforwards. As of September 17, 1996, the Company had net operating loss
carryforwards for tax reporting purposes totaling approximately $90,900,000.
These net operating loss carryforwards expire as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
2001............................. $ 214,000
2002............................. 4,600,000
2003............................. 19,993,000
2004............................. 7,693,000
2005............................. 9,143,000
Thereafter (through 2011)........ 49,257,000
-----------
$90,900,000
===========
</TABLE>
Subsequent to the sale of substantially all of its assets (see note 1), the
Company utilized certain of its net operating loss carryforwards to offset the
related gain. The remainder of the net operating loss carryforwards may not be
used.
5. STORE CLOSURE RESERVE
As of December 30, 1995, the Company had a store closure reserve of
approximately $2,510,000 for the anticipated costs to franchise or close 26
stores during 1996. During the period from December 31, 1995 to September 17,
1996, the Company closed 12 stores and provided for additional store closure
expenses totaling $1,000,000. As of September 17, 1996, the remaining store
closure reserve totaled approximately $1,564,000, of which approximately
$1,270,000 is current and approximately $294,000 is long-term. In management's
opinion, the store closure reserve is adequate for stores identified to be
closed.
The Company's management reviews the historic and projected operating
performance of its stores on an annual basis to identify underperforming stores
for impairment of property investment or targeted closing. The Company's policy
is to write-off any net property investment for underperforming stores
identified to have permanent impairment of investment. When a store is
identified for targeted closing, the Company's policy is to provide for the
costs of closing the store, which are predominantly estimated lease settlement
costs.
6. CUMULATIVE PREFERRED STOCK
In connection with the Restructuring Agreement, the Company issued
21,885,000 and 20,000,000 shares of cumulative preferred stock of MFI and MFD,
respectively. The MFD preferred stock is reflected as "minority interest in
majority owned subsidiary" in the accompanying consolidated balance sheet. The
MFI and MFD cumulative preferred stocks have dividend rates of 18 percent and 10
percent, respectively, which accumulate on a semi-annual basis. The dividends
are computed based upon the liquidation preference rates which are defined in
the Restructuring Agreement as $1.00 per share plus any unrecorded dividends in
arrears for each issue and are payable only as declared by the Board of
Directors. As of September 17, 1996, the Board of Directors had not declared
dividends for either series of preferred stock. Accordingly, dividends in
arrears on the MFI and MFD preferred stocks which have not been recorded in the
accompanying consolidated financial statements as of September 17, 1996 totaled
$10,200,000 and $4,834,000, respectively.
F-41
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In the event of liquidation or dissolution of the Company, the holders of
the cumulative preferred stocks of MFI and MFD will be entitled to receive from
the assets of the Company available for distribution prior to any distribution
to common stockholders an amount per share equal to the sum of (i) $1.00 for
each outstanding preferred share and (ii) an amount equal to all unpaid
dividends on such preferred shares through the distribution date. As of
September 17, 1996, the distribution preference for the MFI and MFD preferred
stockholders totaled $32,085,000 and $24,834,000, respectively. Also, if a
change in control of the Company occurs, preferred stockholders shall have the
right to convert all (but not less than all) of their preferred shares into
notes payable in an amount equal to the liquidation preference value of their
preferred shares. The Company also has the right at any time to redeem shares of
the MFI and MFD preferred stocks at a price of $1.00 per share plus all accrued
but unpaid dividends through the date of redemption.
Subsequent to period end, the Company completed two sales transactions (see
Note 11) wherein all of the cumulative preferred stock was redeemed at a
discount.
7. OPTION AGREEMENT
As part of the Restructuring Agreement, the Lenders granted two directors
an option to acquire common stock from the Lenders which, if the option was
exercised as of September 17, 1996, would constitute approximately 51 percent of
the Company's issued common stock. The option is exercisable through September
30, 1999 in whole, but not in part, at a price approximating the amount of debt
forgiven by the Lenders plus interest at nine percent from the date of the grant
of the option. In the event the option is exercised, the directors are also
required to offer other minority stockholders the same price per share for their
common stock.
In connection with the two sales transactions described in Note 11, the two
directors waived their options to acquire common stock from the Lenders.
8. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. As of September 17, 1996, management, after
consultation with legal counsel, believes that the potential liability to the
Company under such actions is adequately accrued or insured for, or will not
materially affect the Company's consolidated financial position or results of
operations.
Operating Leases
The Company leases retail store facilities, office space and equipment
under long-term noncancelable operating lease agreements with remaining terms of
one to 10 years. The future minimum lease payments due under these operating
leases, which include required lease payments for those stores that have been
subleased, as of September 17, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
1997..................... $12,395,000
1998..................... 10,684,000
1999..................... 8,376,000
2000..................... 5,737,000
2001..................... 3,757,000
Thereafter............... 4,855,000
----------
$45,804,000
==========
</TABLE>
F-42
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Certain of the leases provide for contingent rentals based on gross
revenues. Total rental expense including contingent rentals and net of sublease
rentals received, under the above operating leases for the years ended December
31, 1994 and December 30, 1995 and for the period ended September 17, 1996 was
approximately $18,611,000, $13,697,000 and $7,405,000, respectively. As part of
the Company's franchising program, certain leases have been subleased to
franchisees. The future minimum sublease payments due to the Company under these
leases as of September 17, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
1997................. $ 3,741,000
1998................. 3,119,000
1999................. 2,512,000
2000................. 1,776,000
2001................. 1,038,000
Thereafter........... 374,000
-----------
$12,560,000
===========
</TABLE>
Contractual Arrangements
The Company has entered into a supply agreement to buy frozen dough
products through 1998. The agreement stipulates minimum annual purchase
commitments for 1997 and 1998. The Company and the supplier may terminate the
supply agreement if the other party defaults on any of the performance
covenants.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at December 30, 1995 and September 17, 1996 were approximately
$1,084,000 and $707,400, respectively. Under the terms of the agreement, the
Company is required to assume any franchisee borrowings which are in default as
defined. As of December 30, 1995 and September 17, 1996, the Company has assumed
loans totaling approximately $132,000 and $240,000, respectively, which are
included in notes payable.
As of December 30, 1995, the Company had recorded deferred credits of
approximately $1,486,000 under a long-term marketing and supply agreement with a
supplier. Under the terms of the agreement, the Company was obligated to
purchase a minimum amount of product from the supplier. In April 1996, the
Company and the supplier renegotiated the agreement whereby the supplier would
reduce the unearned portion to $504,000 and advance the Company $800,000 in
exchange for an extension of the termination date and a modification of the
purchase commitment. The termination date of the renegotiated agreement will be
the later of March 31, 2001 or when the Company has met its purchase commitment.
The Company reduced food costs by approximately $1,082,000 during the period
ended September 17, 1996 related to this arrangement and its renegotiation. The
remaining balance of approximately $1,204,000 is included in deferred credits as
of September 17, 1996.
9. RELATED-PARTY TRANSACTIONS
Under the terms of a licensing agreement with an entity which is owned in
part by a former director of the Company, the Company is required to pay an
annual software maintenance fee. During the years ended December 31, 1994 and
December 30, 1995 and for the period ended September 17, 1996, the Company paid
maintenance fees of approximately $100,000, $100,000 and $17,000, respectively,
which are included in general and administrative expenses.
F-43
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company leases certain office space to an entity which is owned in part
by a former director of the Company. Billings to the entity during the years
ended December 31, 1994 and December 30, 1995 and for the period ended September
17, 1996 totaled approximately $198,000, $152,000 and $136,000, respectively, of
which approximately $30,000, $21,000 and $9,000, respectively, are included in
accounts receivable as of December 31, 1994, December 30, 1995 and September 17,
1996.
10. EMPLOYEE BENEFIT PLAN
The Company sponsors the Mrs. Fields 401(k) Plan (the "Plan") for all
eligible employees. Under the terms of the Plan, employees can make
contributions to the Plan, a portion of which is matched by contributions from
the Company. The total Company contributions to the Plan for the years ended
December 31, 1994 and December 30, 1995 and for the period ended September 17,
1996 were approximately $38,000, $42,000 and $23,000, respectively.
11. SUBSEQUENT EVENT
On September 17, 1996, the Company completed two simultaneous but separate
asset sale transactions wherein the Company (i) sold certain assets and
relinquished certain liabilities of the Company in accordance with an Asset
Purchase Agreement dated August 7, 1996, among the Company, Mrs. Fields'
Original Cookies, Inc. and Capricorn Investors II, L.P., and (ii) sold certain
assets of the Company in accordance with an Asset Purchase Agreement dated
August 7, 1996, as amended by the First Amendment dated as of September 17,
1996, among the Company, The Mrs. Fields' Brand, Inc. and Capricorn Investors
II, L.P.
The combined sales price for the net assets sold was approximately $41,800,000.
The Company received approximately $12,157,000 in cash and approximately
$29,643,000 in senior and subordinated notes.
The proceeds from these net asset sales were used in part to repay the Series A
notes and the Series A interest deferral notes on September 20, 1996
(see Note 3).
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Original Cookie Company, Incorporated
and Hot Sam Company, Inc.:
We have audited the accompanying combined balance sheets of The Original
Cookie Company, Incorporated and the carved-out portion of Hot Sam Company,
Inc., both Delaware corporations (subsidiaries of Chocamerican, Inc.) as of
December 30, 1995 and September 17, 1996, and the related combined statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1994 and December 30, 1995, and for the period December 31, 1995 to September
17, 1996. These combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The
Original Cookie Company, Incorporated and the carved-out portion of Hot Sam
Company, Inc. as of December 30, 1995 and September 17, 1996, and the results of
their operations and their cash flows for the years ended December 31, 1994 and
December 30, 1995, and for the period December 31, 1995 to September 17, 1996 in
conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Cleveland, Ohio
July 11, 1997
F-45
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED BALANCE SHEETS
DECEMBER 30, 1995 AND SEPTEMBER 17, 1996
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
December 30, September 17,
1995 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 3,613 $ 655
Accounts receivable....................................................... 61 340
Inventories............................................................... 1,663 1,728
Prepaids and other........................................................ 1,951 984
------- ------
Total current assets............................................ 7,288 3,707
------- ------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................................... 37,387 31,329
Furniture and fixtures.................................................... 8,540 7,719
Buildings and improvements................................................ 608 639
Land...................................................................... 69 69
------ ------
46,604 39,756
Accumulated depreciation and amortization................................. (26,682) (22,687)
------ ------
Net property and equipment...................................... 19,922 17,069
------ ------
OTHER ASSETS, net . 196 256
------ ------
COST IN EXCESS OF FAIR VALUE OF NET ASSETS OF PURCHASED
BUSINESS, net of accumulated amortization of $8,208 and $9,092,
respectively................................................................ 38,876 37,992
------- ------
$ 66,282 $59,024
======== ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-46
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED BALANCE SHEETS (continued)
DECEMBER 30, 1995 AND SEPTEMBER 17, 1996
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 30, September 17,
1995 1996
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................................ $ 1,286 $ 1,696
Accrued payroll and related expenses.................................... 2,592 2,208
Accrued liabilities..................................................... 3,113 3,443
Related-party payable................................................... 169 --
------ ------
Total current liabilities..................................... 7,160 7,347
------ ------
LONG-TERM LIABILITIES:
Deferred lease credit................................................... 1,764 1,653
Store closure reserve................................................... 1,384 1,002
Related-party notes payable............................................. 32,357 30,977
Other................................................................... 1,029 1,102
------ ------
Total long-term liabilities................................... 36,534 34,734
------ ------
COMMITMENTS (NOTE 9)
STOCKHOLDERS' EQUITY:
Common stock 10,000 10,000
Additional paid-in capital.............................................. 15,873 15,873
Accumulated deficit..................................................... (3,285) (8,930)
------- -------
Total stockholders' equity.................................... 22,588 16,943
------- ------
Total liabilities and stockholders' equity.................... $ 66,282 $59,024
======= =======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-47
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 30, 1995 AND
FOR THE PERIOD DECEMBER 31, 1995 TO SEPTEMBER 17, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
Years Ended 1995 to
December 31, December 30, September 17,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
NET SALES....................................................... $ 89,648 $ 85,581 $ 54,366
--------- --------- --------
COST AND EXPENSES:
Cost of goods sold......................................... 22,946 19,996 12,728
Selling and occupancy expenses............................. 47,483 47,032 31,935
General and administrative expenses........................ 9,583 8,425 5,538
Severance and related expenses............................. -------- -- 2,000
Depreciation and amortization.............................. 7,423 6,902 4,937
Provision for store closure costs.......................... 2,963 791 --
-------- ------- -------
Total costs and expenses......................... 90,398 83,146 57,138
-------- ------- -------
(LOSS) INCOME FROM OPERATIONS................................... (750) 2,435 (2,772)
INTEREST EXPENSE, net........................................... (4,381) (4,268) (2,828)
OTHER EXPENSE -- -- (45)
- -------- ------- ---------
LOSS BEFORE INCOME TAXES........................................ (5,131) (1,833) (5,645)
PROVISION FOR INCOME TAXES...................................... 224 263 --
--------- ------- ---------
NET LOSS........................................................ $ (5,355) $ (2,096) $ (5,645)
======== ======== =========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F=48
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 30, 1995
AND FOR THE PERIOD DECEMBER 31, 1995 TO SEPTEMBER 17, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-in Earnings Stockholders'
Stock Capital (Deficit) Equity
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994................................... $10,000 $15,873 $ 4,166 $ 30,039
Net loss.............................................. -- -- (5,355) (5,355)
- ------ ------ ------- -------
BALANCE, DECEMBER 31, 1994................................. 10,000 15,873 (1,189) 24,684
Net loss.............................................. -- -- (2,096) (2,096)
- ------ ------- ------- -------
BALANCE, DECEMBER 30, 1995................................. 10,000 15,873 (3,285) 22,588
Net loss.............................................. -- -- (5,645) (5,645)
- ------ ------- ------- -------
BALANCE, SEPTEMBER 17, 1996................................ $10,000 $15,873 $(8,930) $ 16,943
======= ======= ======= ========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-49
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 30, 1995
AND FOR THE PERIOD DECEMBER 31, 1995 TO SEPTEMBER 17, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
December 31,
Years Ended 1995 to
December 31, December 30, September 17,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................... $ (5,355) $ (2,096) $(5,645)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities--
Depreciation and amortization.................................. 7,423 6,902 4,937
Changes in assets and liabilities--
Decrease (increase) in accounts receivable................ 206 (61) (279)
Decrease (increase) in related-party
receivables/payables................................... 428 18 (169)
Decrease (increase) in inventories........................ 215 461 (65)
Decrease in prepaids and other............................ 105 695 967
(Increase) decrease in other assets....................... (108) 64 (60)
(Decrease) increase in accounts payable................... (660) (476) 410
Increase (decrease) in accrued payroll and related
expenses............................................... 323 (331) (384)
Increase (decrease) in accrued liabilities................ 460 (1,196) 330
Increase in other long-term liabilities................... 229 231 73
Increase (decrease) in deferred lease credit.............. 48 38 (111)
Increase (decrease) in store closure reserve.............. 385 202 (382)
------ ------- -------
Net cash provided by (used in) operating activities....... 3,699 4,451 (378)
------ ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net......................... (3,779) (568) (1,200)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayment to) related party................. 3,134 (4,599) (1,380)
------ ------- -------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) during the period........................ 3,054 (716) (2,958)
Balance, beginning of the period................................. 1,275 4,329 3,613
------ ------- ------
Balance, end of the period....................................... $ 4,329 $ 3,613 $ 655
======= ======= ======
SUPPLEMENTAL CASH FLOW INFORMATION:
State and local income taxes paid................................ $ 389 $ 234 $ 82
======= ======= ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-50
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 30, 1995 AND SEPTEMBER 17, 1996
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS:
The Original Cookie Company, Incorporated ("OCCI") and Hot Sam Company,
Inc. ("HSCI") (collectively, the "Companies") are wholly owned subsidiaries of
Chocamerican, Inc., which is a wholly owned subsidiary of Midial S.A., a French
company (collectively, the "Parent"). The Companies operated specialty retailing
outlets providing prepared goods. OCCI operated approximately 240 stores in over
35 states, offering a variety of fresh baked cookies and brownies and beverages.
HSCI operated approximately 190 stores in over 30 states providing a variety of
fresh baked pretzels and pretzel sticks, toppings and beverages.
On September 17, 1996, all of the operations of the Companies including
certain assets and liabilities were sold to a nonrelated party (the "Buyer") who
assumed responsibility for all retail locations as of that date. Except for
approximately $2,000,000 of payments to employees for severance and related
costs which is included in the operating results for the period December 31,
1995 to September 17, 1996, these combined financial statements do not reflect
any effect of such sale.
The Companies traditionally experienced their highest revenues in the
fourth calendar quarter. Because the Companies stores were heavily concentrated
in shopping malls, the Companies' sales performance was somewhat dependent on
the performance of those malls. Because of such seasonality and the extra
payroll costs noted above, the results for the period December 31, 1995 to
September 17, 1996 are not necessarily indicative of results that would have
been achieved for an entire calendar year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year
The Companies' fiscal year ends on the Saturday closest to December 31,
which results in a 52 or 53-week year.
Basis of Presentation
The combined financial statements include the accounts of OCCI and HSCI
except that these statements do not reflect the results of the operations and
the related assets and liabilities of a group of retail food locations owned and
operated by HSCI primarily under the name of Corn Dog. The Corn Dog operations
were sold to a nonrelated entity in April 1996 and the accompanying combined
financial statements exclude these operations and net assets, as well as the
results of the sale. All significant intercompany balances and transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-51
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
DECEMBER 30, 1995 AND SEPTEMBER 17, 1996
Inventories
The Companies' inventories were stated at the lower of cost (first-in,
first-out method) or market value. Inventories consisted of the following at
December 30, 1995 and September 17, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1996
Food and beverages......... $1,170,000 $1,215,000
Small wares................ 493,000 513,000
---------- ----------
$1,663,000 $1,728,000
========== ==========
</TABLE>
Property and Equipment
The Companies' policy is to provide depreciation using the straight-line
method over a period which is sufficient to amortize the cost of the asset
during its useful life.
The estimated useful lives for depreciation purposes are:
Leasehold improvements......... 5 to 10 years
Furniture and fixtures......... 3 to 10 years
Buildings and improvements..... 10 to 50 years
Intangible Assets
Cost in excess of fair value of net assets of purchased business which was
recorded as part of the acquisition of the Companies by the Parent was amortized
on a straight-line basis over 40 years. Management evaluated the expected cash
flows of such assets periodically and determined no adjustments were
appropriate. Subsequent to September 17, 1996, the Companies expensed all such
intangibles in connection with recording the effects of the sales of the
operations.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Companies consider all
temporary cash investments purchased with an original maturity of three months
or less to be cash equivalents.
Leases
The Companies have various operating lease commitments on their retail
store locations. Operating leases with escalating payment terms are expensed on
a straight-line basis over the life of the related lease.
Asset Impairment
The Companies adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" for the period December 31, 1995 to September 17,
1996. SFAS No. 121 requires the Companies to evaluate the recoverability of
long-lived assets based on expected future cash flows. Prior to the adoption of
SFAS No. 121, the Companies accounted for long-lived operating assets as
discussed both above and in Note 6. The adoption of this standard did not have a
material impact on the Companies' financial position or results of operations.
F-52
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
DECEMBER 30, 1995 AND SEPTEMBER 17, 1996
Revenue Recognition
Revenues from product sales were recognized at the point of sale to the
customer.
Income Taxes
The Companies recognize deferred income tax assets or liabilities for
expected future income tax consequences of events that have been recognized in
the financial statements or income tax returns. Under this method, deferred
income tax assets or liabilities are determined based upon the difference
between the financial and income tax bases of assets and liabilities using
enacted tax rates expected to apply when differences are expected to be settled
or realized.
3. STOCKHOLDERS' EQUITY:
The Companies common stock at December 31, 1994, December 30, 1995 and
September 17, 1996 is comprised of the following:
OCCI has common stock with a par value $1 per share, 10,000,000 shares
authorized, issued and outstanding.
HSCI has common stock with a par value $1 per share, 10 shares authorized,
issued and outstanding.
4. RELATED-PARTY NOTES PAYABLE:
In addition to debt incurred as part of the purchase by the Parent, the
Companies' cash requirements were provided for by the Parent. These amounts were
evidenced by notes, bearing interest rates ranging from 8% to 12%, and consisted
of $32,357,000 as of December 30, 1995 and $30,977,000 as of September 17, 1996.
The notes were paid in part by the Companies subsequent to September 17, 1996 in
connection with the receipt of proceeds from the sale of certain assets and
liabilities to the Buyer.
5. INCOME TAXES:
The Companies have been included in the consolidated income tax returns of
a subsidiary of the Parent which was in a cumulative loss carryforward position
during all of the periods presented in the accompanying combined financial
statements.
The Companies incurred financial reporting losses for the years ended
December 31, 1994 and December 30, 1995 and the period December 31, 1995 to
September 17, 1996 for which no benefits have been recorded in the accompanying
combined statements of operations due to appropriate valuation allowances being
provided. The provisions for income taxes are solely related to minimum state
income tax requirements.
Deferred income tax assets relate to temporary differences between
financial statement and income tax recognition of depreciation, store closure
reserve and other accrued liabilities. Management has provided a valuation
allowance equal to the amount of the deferred income tax assets.
6. STORE CLOSURE RESERVE:
The Companies annually reviewed the historic and projected operating
performance of their stores and identified underperforming stores for impairment
of property investment and/or targeted closing The Companies' policy was to
write-off any net property investment for underperforming stores identified to
have permanent impairment of investment. Additionally, when a store was
identified for targeted closing, the Companies' policy was to provide for the
costs of
F-53
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
DECEMBER 30, 1995 AND SEPTEMBER 17, 1996
closing the store, which are predominantly estimated lease settlement costs
and/or estimated lease payments after the date of the store closing.
An analysis of the activity in the store closure reserve is as follows for the
years ended December 31, 1994 and December 30, 1995, and for the period December
31, 1995 to September 17, 1996:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1994 1995 1996
---- ---- ----
BEGINNING BALANCE....................................... $ 397,000 $1,182,000 $1,384,000
PROVISION............................................... 2,963,000 791,000 --
PAYMENTS AND OTHER DEDUCTIONS........................... (2,178,000) (589,000) (382,000)
----------- ---------- ----------
ENDING BALANCE.......................................... $1,182,000 $1,384,000 $1,002,000
=========== ========== ==========
</TABLE>
7. EMPLOYEE BENEFIT PLANS:
The Companies' employees participate in a defined contribution saving plan
which was funded by voluntary employee contributions and by contributions from
the Companies. The Companies' expense for the years ended December 31, 1994 and
December 30, 1995 was $149,000 and $143,000, respectively, and for the period
December 31, 1995 to September 17, 1996 was $106,000.
The Companies do not provide for any other postretirement benefits.
8. RELATED-PARTY TRANSACTIONS:
The Parent provides certain services to the Companies, such as human
resources, accounting and legal, among others. Charges to the Companies for such
administrative services totaled $530,000 for the year ended December 31, 1994,
$520,000 for the year ended December 30, 1995 and $175,000 for the period
December 31, 1995 to September 17, 1996. In management's opinion, these charges
approximate the fair market value of such services.
9. COMMITMENTS:
Operating Leases
The Companies leased all of their retail store locations. These leases
typically had initial terms of up to 10 years. Certain leases provided for
contingent rentals based on store sales. Generally, the Companies were required
to pay taxes and normal expenses of operating the premises under retail store
leases. Total rental expense was approximately $15,013,000 for the year ended
December 31, 1994 and $15,038,000 for the year ended December 30, 1995. Total
rental expense for the period ended September 17, 1996 was approximately
$11,165,000.
F-54
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
DECEMBER 30, 1995 AND SEPTEMBER 17, 1996
The minimum rentals under operating leases subsequent to September 17, 1996
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal Year
Remaining 1996................. $ 5,346,000
1997........................... 15,886,000
1998........................... 13,763,000
1999........................... 11,691,000
2000........................... 9,712,000
Thereafter..................... 20,190,000
----------
$76,588,000
==========
</TABLE>
Effective September 17, 1996, the Buyer assumed responsibility for all open
store leases but the Companies remain contingently liable under certain of these
leases. However, management is not aware of any actual or threatened claims
under these leases.
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of H & M Concepts Ltd. Co.:
We have audited the accompanying consolidated balance sheet of H & M
Concepts Ltd. Co. (an Idaho limited liability company) and subsidiaries as of
December 29, 1996, and the related consolidated statements of operations,
members' capital and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 H & M Concepts Ltd. Co. and
subsidiaries as of December 29, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
June 13, 1997
F-56
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
December 29, June 29,
1996 1997
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash....................................................................... $ 1,073 $ 558
Accounts receivable........................................................ 131 65
Inventories................................................................ 176 187
Prepaid expenses and other................................................. 51 6
-------- -------
Total current assets............................................. 1,431 816
-------- -------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements..................................................... 5,920 5,920
Equipment and fixtures..................................................... 3,306 3,333
------- -------
9,226 9,253
Less accumulated depreciation and amortization............................. (3,200) (3,787)
-------- -------
Net property and equipment....................................... 6,026 5,466
-------- -------
INTANGIBLES, net of accumulated amortization of $40 and $51,
respectively................................................................. 162 151
-------- -------
OTHER ASSETS 213 229
-------- -------
Total assets..................................................... $ 7,832 $ 6,662
======== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-57
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(dollars in thousands)
LIABILITIES AND MEMBERS' CAPITAL
<TABLE>
<CAPTION>
December 29, June 29,
1996 1997
---- ----
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of notes payable.............................................. $ 2,239 $ 2,290
Capitalized lease obligations................................................. 244 131
Accounts payable.............................................................. 416 345
Accrued interest.............................................................. 413 213
Accrued payroll............................................................... 395 343
Reserve for nonperforming stores.............................................. 306 306
Other accrued liabilities..................................................... 329 247
------- -------
Total current liabilities........................................... 4,342 3,875
NOTES PAYABLE, net of current portion.............................................. 164 45
CONVERTIBLE SUBORDINATED SERIES A NOTES............................................ 1,720 1,720
MINORITY INTEREST . 87 77
------- -------
Total liabilities................................................... 6,313 5,717
------- -------
COMMITMENTS AND CONTINGENCIES (Notes 5, 7, 8 and 10)
MEMBERS' CAPITAL:
Members' capital contributions................................................ 4,494 4,494
Accumulated deficit........................................................... (2,976) (3,544)
Cumulative translation adjustment............................................. 1 (5)
------- -------
Total members' capital.............................................. 1,519 945
------- -------
Total liabilities and members' capital.............................. $ 7,832 $ 6,662
======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-58
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
26 Weeks 26 Weeks
Year Ended Ended Ended
December 29, June 30, June 29,
1996 1996 1997
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
REVENUES:
Net store sales.............................................. $ 18,092 $ 8,468 $ 8,152
Other........................................................ 94 8 18
- ------ -- --
18,186 8,476 8,170
------ ------ ------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs............................ 11,434 5,649 5,414
Food cost of sales........................................... 2,565 1,180 1,144
General and administrative................................... 2,133 979 1,073
Depreciation and amortization................................ 1,211 630 597
Provision for store closure costs............................ 306 160 --
------ ------ ------
Total operating costs and expenses................. 17,649 8,598 8,228
------ ------ ------
Income (loss) from operations...................... 537 (122) (58)
INTEREST EXPENSE (822) (473) (290)
OTHER EXPENSE (223) -- --
------ ------ ------
Loss before minority interest...................... (508) (595) (348)
MINORITY INTEREST (2) (1) --
------ ------ ------
Net loss........................................... $ (510) $ (596) $ (348)
====== ====== ======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-59
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
(dollars in thousands)
<TABLE>
<CAPTION>
Members' Cumulative
Capital Accumulated Translation
Contributions Deficit Adjustment Total
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995................................. $ (196) $ (2,291) $ (8) $(2,495)
Capital contributions................................. 4,690 -- -- 4,690
Member distributions.................................. -- (175) -- (175)
Foreign currency translation adjustment............... -- -- 9 9
Net loss.............................................. -- (510) -- (510)
------- -------- --- -----
BALANCE, December 29, 1996................................. 4,494 (2,976) 1 1,519
Member distributions (unaudited)...................... -- (220) -- (220)
Foreign currency translation adjustment (unaudited)... -- -- (6) (6)
Net loss (unaudited).................................. -- (348) -- (348)
------- -------- --- -----
BALANCE, June 29, 1997 (unaudited)......................... $ 4,494 $(3,544) $ (5) $ 945
======= ======== ==== =====
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-60
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
26 Weeks 26 Weeks
Year Ended Ended Ended
December 29, June 30, June 29,
1996 1996 1997
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................... $ (510) $ (596) $ (348)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization................................... 1,211 630 597
Minority interest............................................... 2 1 --
Loss on sale of assets.......................................... 223 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable................... (61) 18 66
Increase in inventories...................................... (19) (11) (11)
(Increase) decrease in prepaid expenses and other............ (51) (26) 45
Increase in other assets..................................... (20) (32) (7)
Increase (decrease) in accounts payable and accrued
liabilities................................................ 340 (158) (406)
- ----- ------ -----
Net cash provided by (used in) operating activities.......... 1,115 (174) (64)
- ----- ------ ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................................... (172) (118) (27)
Lease buyout (32) (32) --
Proceeds from the sale of assets....................................... 55 -- --
- ----- ------ --
Net cash used in investing activities........................ (149) (150) (27)
- ----- ------ ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable and capitalized lease
obligations.......................................................... (1,078) (593) (431)
Proceeds from the issuance of notes payable............................ 613 500 250
Distributions to members............................................... (175) -- (220)
Net investments by minority interests.................................. 85 95 (10)
Equity earnings in excess of distributions of unconsolidated
investment........................................................... (5) (8) (8)
- ----- ----- ---
Net cash used in financing activities........................ (560) (6) (419)
- ----- ----- -----
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-61
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(dollars in thousands)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
26 Weeks 26 Weeks
Year Ended Ended Ended
December 29, June 30, June 29,
1996 1996 1997
---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C>
EFFECT OF FOREIGN EXCHANGE RATES.................................. $ 9 $ 3 $ (5)
------ ----- ------
NET INCREASE (DECREASE) IN CASH................................... 415 (327) (515)
CASH AT BEGINNING OF THE PERIOD................................... 658 658 1,073
------ ----- ------
CASH AT END OF THE PERIOD......................................... $1,073 $ 331 $ 558
====== ===== ======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest was approximately $773,000, $464,000 and $486,000 for the
year ended December 29, 1996 and for the 26 weeks ended June 30, 1996
and June 29, 1997, respectively.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Certain note holders converted $4,690,000 of notes payable to ownership
interests effective April 1, 1996 (see Note 4).
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-62
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Including notes related to unaudited periods)
1. ORGANIZATION AND NATURE OF OPERATIONS
H & M Concepts Ltd. Co. ("H&M") was formed as a limited liability company
under the laws of the State of Idaho on October 1, 1993. H&M has a wholly owned
subsidiary, H&M Concepts of Idaho, Inc., and a majority owned subsidiary,
LV-H&M, L.L.C. (collectively, the "Company"). The Company owns and operates
stores which engage in retail sales of pretzels, toppings and beverages under a
franchise agreement with Pretzel Time, Inc., a Pennsylvania corporation. The
Company has first right of refusal territorial franchise rights and agency
rights to Alaska, Arizona, California, Hawaii, Idaho, Illinois, Indiana, Iowa,
Michigan, Minnesota, Montana, Nebraska, Nevada, North Dakota, Oregon, South
Dakota, Utah, Washington and Wisconsin; the provinces of Alberta, British
Columbia, Manitoba, and Saskatchewan, Canada; and Mexico. Additionally, the
Company has limited franchise rights to Texas. Currently, the Company has stores
in Arizona, California, Idaho, Illinois, Indiana, Iowa, Michigan, Minnesota,
Nebraska, Nevada, Oregon, South Dakota, Texas, Utah, Washington, Wisconsin, and
Alberta, Canada. As of December 29, 1996, H&M operated 85 stores.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company usually experiences its highest
revenues in the fourth calendar quarter. Because the Company's stores are
heavily concentrated in shopping malls, the Company's sales performance is
somewhat dependent on the performance of those malls.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Periods
The Company's fiscal year ends on the Sunday closest to December 31, which
results in a 52- or 53-week year.
Unaudited Information
The accompanying consolidated financial statements as of June 29, 1997 and
for the 26 weeks ended June 30, 1996 and June 29, 1997 are unaudited and have
been prepared on a substantially equivalent basis with that of the annual
financial statements. In the opinion of management, the unaudited information
contains all adjustments (consisting of normal recurring adjustments) necessary
to present fairly the Company's financial position and results of operations as
of December 29, 1996 and for such periods.
Principles of Consolidation
The consolidated financial statements include the accounts of H&M, H&M
Concepts of Idaho, Inc., and LV-H&M, L.L.C. All significant intercompany
balances and transactions have been eliminated in consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
three suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-63
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Including notes related to unaudited periods)
Concentration of Credit Risk
As of December 29, 1996 and June 29, 1997, the Company had demand deposits
totaling approximately $862,000 and $267,000 (unaudited), respectively, with one
bank. These balances exceed the $100,000 limit for insurance by the Federal
Deposit Insurance Corporation.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventories consisted primarily of flour and beverages at December
29, 1996 and June 29, 1997.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment and fixtures are depreciated over four to seven years
using the straight-line method. Leasehold improvements are amortized over the
life of the lease term, or the estimated life of the improvements, whichever is
shorter, using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are included in the determination of net
income or loss.
Intangible Assets
Intangible assets consist primarily of developing agency rights purchased
from Pretzel Time, Inc. These rights are amortized using the straight-line
method over 15 years.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"("SFAS No.
121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment
when events or changes in circumstances indicate that the book value of an asset
may not be recoverable. The Company evaluates, at each balance sheet date,
whether events and circumstances have occurred that indicate possible
impairment. In accordance with SFAS No. 121, the Company uses an estimate of
future undiscounted net cash flows of the related asset over the remaining life
in measuring whether the assets are recoverable. As of December 29, 1996 and
June 29, 1997, the Company has reserved for any of its long-lived assets that
are considered to be impaired.
Foreign Currency Translation
The balance sheet accounts of the Company's foreign subsidiary are
translated into U.S. dollars using the balance sheet date exchange rate, while
revenues and expenses are translated using the average exchange rate for the
period. The resulting translation gains or losses are recorded as a separate
component of members' equity.
F-64
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Including notes related to unaudited periods)
Revenue Recognition
Product sales are recognized as the product is delivered or shipped to the
customer.
Fair Value of Financial Instruments
The book value of the Company's financial instruments approximates fair
value. The estimated fair values have been determined using appropriate market
information and valuation methodologies.
Income Taxes
The Company is treated as a partnership for federal and state income tax
purposes. Consequently, federal and state income taxes are not payable by, or
provided for by the Company. Members are taxed individually on their shares of
the Company's earnings. The Company's net income or loss is allocated among the
members in accordance with the operating agreement of the Company.
3. INVESTMENT
The Company owns a 30 percent investment in UVEST LLC ("UVEST"), a Utah
limited liability company, which operates two Pretzel Time, Inc. franchised
stores. NVEST Limited ("NVEST") holds the other 70 percent interest in UVEST.
The Company's investment is accounted for using the equity method. UVEST's
unaudited revenues for the year ended December 29, 1996 and the 26 weeks ended
June 29, 1997 were approximately $503,000 and $214,000, respectively. UVEST's
unaudited net income for the year ended December 29, 1996 and the 26 weeks ended
June 29, 1997 were approximately $116,000 and $38,000, respectively. The
carrying amount of this investment at December 29, 1996 and June 29, 1997 was
approximately $44,000 and $53,000 (unaudited), respectively, and is included in
other assets in the accompanying consolidated balance sheets. Additionally, the
Company was due approximately $20,000 (unaudited) from UVEST as of June 29,
1997.
Under the terms of the UVEST operating agreement, the Company acts as the
managing member and manages the two operating stores. The Company receives no
additional compensation for these services from UVEST or NVEST. The members
share all gains and losses in proportion to their ownership. However, NVEST is
guaranteed cash distributions of approximately $149,000 on an annual basis until
its initial investment of approximately $522,000 together with a 15 percent
return thereon is paid in full. The Company's 30 percent share of annual
distributions is subordinated to such minimum guaranteed payments. Any shortage
advanced from the Company's share of distributions to meet said minimum guaranty
will be repaid to the Company from future profits prior to excess distributions
being paid to NVEST. UVEST distributed approximately $149,000 and $29,000 to
NVEST and the Company, respectively, during the year ended December 29, 1996.
Additionally, UVEST made distributions of $67,000 (unaudited) and $2,000
(unaudited) to NVEST and the Company, respectively, during the 26 weeks ended
June 29, 1997. On a cumulative basis since inception (November 1, 1994), UVEST
has distributed $400,000 to NVEST.
F-65
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Including notes related to unaudited periods)
4. NOTES PAYABLE AND CONVERTIBLE SUBORDINATED SERIES A NOTES
Notes payable and convertible subordinated series A notes consist of the
following as of December 29, 1996 and June 29, 1997:
<TABLE>
<CAPTION>
December 29, June 29,
1996 1997
(unaudited)
<S> <C> <C>
Notes payable to various individuals, principal amounts due at various
dates ranging from on demand to May 1, 2000, interest at 15 percent
payable monthly, secured by assignment of certain store profits and
leases....................................................................... $ 1,372 $1,455
Note payable to a bank, payable in monthly installments of $25,000 plus
interest at prime plus 2.5 percent (10.75 percent at December 29, 1996),
secured by securities pledged by the majority member......................... 1,025 875
Note payable to a bank due in monthly installments of $300, plus interest at
7.9 percent, secured by a vehicle............................................ 6 5
Convertible subordinated series A notes (see terms below)....................... 1,720 1,720
------- -------
4,123 4,055
Less current portion............................................................ (2,239) (2,290)
------- -------
$ 1,884 $1,765
======= =======
</TABLE>
Three of the notes payable to individuals are to members of the Company.
The majority member has a $100,000 note that is due on demand. The managing
member has an $85,000 note due on demand and a $217,000 note due March 1, 1999.
Another member has a $50,000 note that is due upon 90-day written demand.
Additionally, the Company borrowed $100,000 from an officer of the Company which
is due within 30 days of its demand. All notes to members and officers bear
interest at 15 percent and include terms similar to all other notes payable to
individuals.
During 1994, the Company issued $4,130,000 of Convertible Subordinated
Series A Notes (the "Convertible Notes") pursuant to a private placement
memorandum dated October 4, 1993. The proceeds were used to fund the
construction of new stores. The Convertible Notes bear interest at an annual
rate of 7.5 percent and interest payments are payable quarterly on the fifteenth
day of the month following the end of each calendar quarter. The Convertible
Notes mature on December 31, 1998 and are unsecured general obligations of the
Company.
The Convertible Notes are convertible (i) up to 50 percent of value into
membership interest in the Company at the rate of $15,000 for each 1/10th of 1
percent interest, and 50 percent into 15 percent Nonconvertible Series A Notes
(the "Nonconvertible Notes") due December 31, 1998, or (ii) up to 100 percent
into Nonconvertible Notes, and collect additional interest of 7.5 percent on the
Convertible Notes from the date of issue. The Company has accrued the additional
7.5 percent of interest since the date of issue assuming such conversion would
take place. Additionally, the Convertible Notes are redeemable on at least 30
and not more than 60 days notice, at the option of the Company, as a whole or in
part, at any time after December 31, 1996.
As of December 29, 1996, no conversion rights had been exercised under the
terms of this arrangement. However, during the 26 weeks ended June 29, 1997,
$700,000 of the Convertible Notes were converted to Nonconvertible Notes.
Subsequent to June 29, 1997, $200,000 of the Convertible Notes were converted to
Nonconvertible Notes.
F-66
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Including notes related to unaudited periods)
Under the terms of a separate private placement memorandum dated March 24,
1996, the Company is offering 40 Units of 1.01 percent membership interest and
one percent profits interest in Company stores in the Company at a conversion
rate of $100,000 principal of face value Convertible Notes (accrued interest is
waived) per unit for an aggregate offering of $4,000,000. The purpose of this
offering (the "Secondary Offering"), which is limited to holders of the
previously issued Convertible Notes, is to convert outstanding debt to equity
and otherwise restructure the Company.
On April 1, 1996, $2,410,000 of the Convertible Notes were converted to
membership interests under the terms of the Secondary Offering. In addition, the
majority and managing members of the Company converted $2,280,000 of notes to
equity under essentially the same terms as specified in the Secondary Offering.
The aggregate amount of principal maturities of notes payable and
convertible subordinated notes at December 29, 1996 are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Ending
1997....................... $2,239
1998....................... 1,860
1999....................... 24
------
$4,123
======
</TABLE>
5. ROYALTIES
Under the terms of the Franchise Agreement and the Developing Agent's
Agreement with Pretzel Time, Inc. ("PTI"), the Company is required to pay PTI a
continuing royalty of 8 percent of all gross revenues. PTI is required to return
to the Company, as a developing agent, a sum equal to two-sevenths (2/7) of the
franchise royalty, net of advertising fees, from all franchises operating within
the Company's franchise territory.
6. RESERVE FOR NONPERFORMING STORES
During the year ended December 29, 1996, the Company recorded a reserve
totaling $306,000 for the estimated costs to close or sell approximately 11
existing stores during 1997. During the year ended December 29, 1996, the
Company closed two stores. As of December 29, 1996 and June 29, 1997, the
reserve is $306,000 in the accompanying consolidated balance sheets. In
management's opinion, this reserve is adequate for the stores which have been
identified to be closed or sold.
The Company's management reviews the historic and projected operating
performance of its stores on an annual basis to identify nonperforming stores
for impairment of property investment and/or targeted closing. The Company's
policy is to write-off any net property investment for nonperforming stores
identified to have permanent impairment of investment. Additionally, when a
store is identified for targeted closing, the Company's policy is to provide for
the costs of closing the store, which are predominantly estimated lease
settlement costs.
7. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. As of June 29, 1997, management, after
consultation with legal counsel, believes that the potential liability to the
F-67
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Including notes related to unaudited periods)
Company under such actions is adequately accrued for or will not materially
affect the Company's consolidated financial position or results of operations.
Operating Leases
The Company leases retail store facilities, office space and equipment
under long-term cancelable and noncancelable operating lease agreements with
remaining terms of one to ten years. The future minimum lease payments due under
these operating leases as of December 29, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Ending
1997................................... $ 2,604
1998................................... 2,674
1999................................... 2,621
2000................................... 2,408
2001................................... 2,303
Thereafter............................. 5,079
-------
$17,689
=======
</TABLE>
Certain of the leases provide for contingent rentals based on gross
revenues. Total rental expense under the above operating leases for the year
ended December 29, 1996 and the 26 weeks ended June 30, 1996 and June 29, 1997
was approximately $2,454,000, $1,212,000 (unaudited) and $1,214,000 (unaudited),
respectively.
Capital Leases
Total obligations under capital leases at December 29, 1996 and June 29,
1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 29, June 29,
1996 1997
---- ----
(unaudited)
<S> <C> <C>
Total net minimum lease payments........................................ $ 274 $ 147
Less amount representing interest....................................... (30) (16)
----- -----
Present value of net minimum lease payments (all current)............... $ 244 $ 131
===== =====
</TABLE>
The net book value of assets held under capital lease arrangements was
approximately $314,000 and $266,000 (unaudited) as of December 29, 1996 and June
29, 1997, respectively.
F-68
<PAGE>
H & M CONCEPTS LTD. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Including notes related to unaudited periods)
8. FRANCHISE RIGHTS
Under the terms of the franchise agreement with PTI, in order to maintain
the Company's franchise rights in its exclusive territories, the Company was
obligated to open the following minimum number of franchised stores from the
date of inception of the franchise agreement (June 7, 1993) through 1997:
<TABLE>
<CAPTION>
<S> <C>
Year Ending Units
----------- -----
1993...................... 26
1994...................... 30
1995...................... 30
1996...................... 30
1997...................... 28
-----
144
=====
</TABLE>
The Company did not meet the minimum requirements for store openings
through June 29, 1997. The Company is not in default of the franchise agreement
but has lost its rights to be the sole franchisee in the previously exclusive
territories. However, the Company has the first right of refusal on any location
within its once exclusive territory.
The term of the franchise agreement is 20 years with the option to renew
for unlimited additional terms of 20 years each at no cost to the Company.
9. RELATED-PARTY TRANSACTIONS
During the year ended December 29, 1996, the Company paid royalty fees
typically due PTI up to $23,000 per month directly to its majority member. The
majority member had previously loaned PTI a certain amount of funds, which PTI
was in default of the repayment terms. On November 12, 1994, the loan was
renegotiated and secured by PTI's royalty rights. In addition, PTI agreed that
the Company could pay up to $23,000 of monthly royalty fees directly to the
majority member until the obligation was paid in full. During the 26 weeks ended
June 29, 1997, PTI repaid the full amount of the remaining obligation to the
majority member.
During 1996, the managing member became a stockholder in another company
which owns a Pretzel Time store. The Company will manage this store in return
for 28 percent of the net profits.
10. SUBSEQUENT EVENT
On July 25, 1997, the Company sold substantially all of its assets and
certain liabilities to Mrs. Fields' Pretzel Concepts, Inc. for cash and seller
notes. The proceeds from the sale were used to repay notes payable and
convertible subordinated Series A notes, retire certain liabilities not included
in the sale and return members' capital. Once all remaining liabilities are
settled, it is the intent of the members to distribute any remaining cash to the
members and to dissolve the Company.
F-69
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pretzel Time, Inc.:
We have audited the accompanying balance sheets of Pretzel Time, Inc. (a
Pennsylvania corporation) as of December 31, 1995 and December 29, 1996, and the
related statements of operations, stockholders' deficit and cash flows for the
years then ended (as restated, see Note 17). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pretzel Time, Inc. as of
December 31, 1995 and December 29, 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Baltimore, Maryland
June 20, 1997
F-70
<PAGE>
PRETZEL TIME, INC.
BALANCE SHEETS
(dollars in thousands, except redemption and par value amounts)
ASSETS
<TABLE>
<CAPTION>
December 31, December 29, June 15,
1995 1996 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash............................................................. $ 90 $ 95 $ 141
Accounts receivable, net of allowance for doubtful accounts of
$83, $67 and $105, respectively............................... 260 370 120
Inventories...................................................... 190 37 10
Prepaid expenses and other....................................... 29 6 16
Current portion of notes receivable.............................. 109 87 121
Deferred tax asset............................................... -- 110 26
------- ------- -------
Total Current Assets................................... 678 705 434
PROPERTY AND EQUIPMENT, net........................................... 1,839 639 587
OTHER ASSETS, net . 378 212 173
NOTES RECEIVABLE, net of current portion.............................. 222 364 311
------- ------- -------
Total Assets........................................... $ 3,117 $ 1,920 $ 1,505
======= ======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt.................................. $ 917 $ 1,206 $ 860
Current portion of capital lease obligations....................... 173 152 112
Accounts payable................................................... 924 273 275
Accrued expenses................................................... 517 263 216
Deferred revenue................................................... 22 94 179
------- ------ ------
Total Current Liabilities................................ 2,553 1,988 1,642
------- ------ ------
LONG-TERM DEBT, net of current portion.................................. 1,173 696 608
-------- ------ ------
CAPITAL LEASE OBLIGATIONS, net of current portion....................... 504 205 79
-------- ------ ------
MINORITY INTEREST . 43 -- --
-------- ------ ------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7, 9 and 14)
MANDATORILY REDEEMABLE PREFERRED STOCK
Preferred stock, $10,000 redemption value; 500 shares authorized, 144.5
shares issued and outstanding, as of December 29, 1996,
and June 15, 1997............................................... -- 382 666
-------- ------- ------
STOCKHOLDERS' DEFICIT:
Common stock, $10 par value; 1,000 shares authorized; 100 shares
issued and 94.75, 87 and 87 outstanding, respectively........... 1 1 1
Additional paid-in capital......................................... 230 128 128
Accumulated deficit................................................ (1,387) (1,480) (1,619)
-------- ------- -------
Total Stockholders' Deficit.............................. (1,156) (1,351) 1,490)
-------- ------- -------
Total Liabilities and Stockholders' Deficit.............. $ 3,117 $ 1,920 $ 1,505
======== ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-71
<PAGE>
PRETZEL TIME, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
24 Weeks 24 Weeks
Year Ended Ended Ended
December 31, December 29, June 16, June 15,
1995 1996 1996 1997
----- ----- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Royalty income....................................... $ 3,738 $ 4,172 $ 1,664 $ 1,773
Company store sales.................................. 2,968 990 791 196
------ ---- ---- ---
Total Revenues............................. 6,706 5,162 2,455 1,969
------ ------ ------ -----
COST OF REVENUES:
Company stores....................................... 1,298 779 641 145
Developing agent fees and other...................... 823 881 346 353
---- ---- ---- ---
Total Cost of Revenues..................... 2,121 1,660 987 498
------ ------ ---- ---
Gross Margin............................... 4,585 3,502 1,468 1,471
------ ------ ------ -----
OPERATING EXPENSES:
Salaries and payroll taxes........................... 796 1,043 399 452
Rent................................................. 1,043 390 233 121
Depreciation and amortization........................ 145 151 76 66
Other general and administrative..................... 1,687 818 401 408
------ ---- ---- ---
Total Operating Expenses................... 3,671 2,402 1,109 1,047
------ ------ ------ -----
Operating Income........................... 914 1,100 359 424
INTEREST EXPENSE (220) (130) (103) (65)
OTHER (EXPENSE) INCOME, net............................... (146) 29 (8) (102)
MINORITY INTEREST IN LOSS OF
SUBSIDIARIES 50 -- -- --
---- ---- ---- --
Income from Continuing Operations Before
Provision for Income Taxes........................ 598 999 248 257
PROVISION FOR INCOME TAXES................................ (225) (295) (93) (112)
----- ----- ---- -----
Income from Continuing Operations.................... 373 704 155 145
LOSS FROM DISCONTINUED OPERATIONS, net
of income tax benefit of $225, $208, $93 and $-0-,
respectively........................................... (1,177) (313) (216) --
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS, net of income tax benefit of $197
in 1996................................................ -- (296) -- --
- --- ------ ---- --
Net (Loss) Income.......................... (804) 95 (61) 145
MANDATORILY REDEEMABLE PREFERRED
STOCK DIVIDENDS........................................ -- (48) -- (72)
- --- ----- --- ----
Net (Loss) Income Attributable to
Common Stockholders..................... $ (804) $ 47 $ (61) $ 73
====== ====- ===== ====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-72
<PAGE>
PRETZEL TIME, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Deficit
<S> <C> <C> <C> <C>
BALANCE, December 25, 1994..................................... $ 1 $-- $ (583) $ (582)
Stock issued at $76,666 per share......................... -- 230 -- 230
Net loss.................................................. -- -- (804) (804)
- ---- --- ----- -----
BALANCE, December 31, 1995..................................... 1 230 (1,387) (1,156)
Conversion of 14.75 shares of common stock into 144.5
shares of mandatorily redeemable preferred stock....... -- (195) -- (195)
Issuance of common stock for services, at the equivalent
of $13,214 per share................................... -- 93 -- 93
Accretion of mandatory redemption value of preferred
stock.................................................. -- -- (140) (140)
Mandatorily redeemable preferred stock dividends.......... -- -- (48) (48)
Net income................................................ -- -- 95 95
- ---- --- --- --
BALANCE, December 29, 1996..................................... 1 128 (1,480) (1,351)
Accretion of mandatory redemption value of preferred
stock (unaudited)...................................... -- -- (212) (212)
Mandatorily redeemable preferred stock dividends
(unaudited)............................................ -- -- (72) (72)
Net income (unaudited).................................... -- -- 145 145
- ---- --- ---- ---
BALANCE, June 15, 1997 (unaudited)............................. $ 1 $ 128 $ (1,619) $ (1,490)
=== =====- ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-73
<PAGE>
PRETZEL TIME, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
24 Weeks 24 Weeks
Year Ended Ended Ended
December 31, December 29, June 16, June 15,
1995 1996 1996 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income.................................... $ (804) $ 95 $ (61) $ 145
Adjustments to reconcile net (loss) income to net
cash flows provided by operating activities, net
of effects of sales of net assets of subsidiaries:
Deferred income taxes........................... -- (110) -- 84
Issuance of common stock for services........... -- 93 -- --
Loss on disposal of discontinued operations..... -- 494 -- --
Minority interest in net loss of subsidiaries... (50) -- -- --
Loss on sale of assets.......................... 174 100 18 28
Depreciation and amortization (including $69,
$69, $47 and $-0-, respectively, related to
discontinued operations)..................... 274 220 133 66
Changes in assets and liabilities--
Decrease (increase) in accounts receivable...... 251 (41) (132) 250
Decrease in notes receivable.................... 13 101 187 19
(Increase) decrease in inventory................ (39) 138 60 27
Decrease (increase) in prepaid expenses and
other........................................ 209 105 (32) (10)
(Increase) decrease in other assets............. (42) 41 (15) 8
Increase (decrease) in accounts payable......... 471 (566) 82 6
Increase (decrease) in accrued expenses......... 303 30 (75) (28)
(Decrease) increase in deferred revenue......... (9) 72 28 85
--- --- --- --
Net Cash Provided by Operating
Activities.............................. 751 772 193 680
---- ---- ---- ---
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................. (774) (208) (45) (12)
Proceeds from sale of assets......................... 448 27 -- --
Increase in other assets............................. (14) -- -- --
----- ---- ---- --
Net Cash Used in Investing Activities...... (340) (181) (45) (12)
----- ----- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt............. 233 815 -- --
Principal repayments on long-term debt............... (637) (1,141) (99) (456)
Principal repayments on capital lease obligations.... (204) (260) (82) (166)
Issuance of treasury stock........................... 100 -- -- --
----- ---- ---- --
Net Cash Used in Financing Activities...... (508) (586) (181) (622)
----- ----- ----- -----
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-74
<PAGE>
PRETZEL TIME, INC.
STATEMENTS OF CASH FLOWS (continued)
(dollars in thousands)
<TABLE>
<CAPTION>
24 Weeks 24 Weeks
Year Ended Ended Ended
December 31, December 29, June 16, June 15,
1995 1996 1996 1997
(Unaudited)(Unaudited)
<S> <C> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH............................ $ (97) $ 5 $ (33) $ 46
CASH, beginning of period.................................. 187 90 90 95
----- ---- ----- -----
CASH, end of period........................................ $ 90 $ 95 $ 57 $ 141
===== ==== ===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
AND NONCASH ACTIVITIES:
Cash Flow Information--
Interest paid--................................... $ 220 $ 194 $ 120 $ 65
</TABLE>
Noncash Investing and Financing Activities--
During the year ended December 31, 1995, the Company issued one share
of treasury stock to an individual as a loan commitment fee. A value of
$100,000 was assigned. Additionally, the Company issued three shares of
treasury stock as compensation. The value assigned to these services was
$30,000.
During the year ended December 31, 1995, the Company applied
approximately $295,000 of royalty income receivables against a note payable.
During the year ended December 31, 1995, the Company executed various
capital lease agreements totaling approximately $469,000 in the acquisition of
property and equipment.
During the year ended December 31, 1995, the Company financed the sale
of several stores by issuing notes receivable. These notes totaled
approximately $244,000.
During the year ended December 31, 1995, the Company converted
accounts payable relating to rent, insurance premiums and professional
services to notes payable of approximately $609,000.
During the year ended December 29, 1996, the Company acquired property
and equipment of approximately $109,000 in satisfaction of a note receivable.
During the year ended December 29, 1996, the Company converted
accounts payable relating to rent and professional services to notes
payable of approximately $307,000.
During the year ended December 29, 1996, the Company executed various
capital lease agreements totaling approximately $395,000 in the acquisition of
property and equipment.
During the 24 weeks ended June 16, 1996, the Company converted
accounts payable and accrued expenses relating to rent and professional
services to notes payable of approximately $338,000.
During the 24 weeks ended June 16, 1996, the Company received, from a
store that closed, certain equipment that was subsequently sold to a
subsidiary for approximately $53,000.
During the 24 weeks ended June 16, 1997, the Company converted
accounts payable and accrued expenses relating to rent to notes payable of
approximately $34,000.
The accompanying notes to financial
statements are an integral part of these statements.
F-75
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, DECEMBER 29,1996, JUNE 16, 1996, AND JUNE 15, 1997
(Including notes related to the unaudited periods)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
Pretzel Time, Inc. (the "Company") was incorporated on April 1, 1991, under
the laws and regulations of the Commonwealth of Pennsylvania. The Company
operates as a franchisor and operator of hand rolled soft pretzel outlets
located in North America. The outlets are primarily located in shopping malls.
The Company's primary sources of revenue are from franchise royalties,
advertising fees, franchise fees (20-year initial term of franchise license,
with 5-year extension options), sale of developing agent territory rights and
Company-owned store sales.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the fourth calendar quarter. Because the Company's stores are heavily
concentrated in shopping malls, the Company's sales performance is somewhat
dependent on the performance of those malls. The results for the 24-week periods
presented in the accompanying financial statements may not be indicative of
results that would have been achieved for an entire calendar year.
During the year ended December 29, 1996, the Company merged all of its
subsidiaries into Pretzel Time, Inc. The Company then sold its Texas and
Virginia stores for $420,000, the consideration for which was primarily in the
form of promissory notes issued to the Company.
As of December 29, 1996, the Company has an accumulated deficit of
approximately $1,480,000 with debt obligations due in 1997 of approximately
$1,206,000 and accounts payable of approximately $158,000 that are past due.
Management believes that operating cash flows for 1997 will be sufficient to
satisfy these obligations and meet the Company's short-term operating needs
through the end of 1997.
Accounting Periods
The Company uses a 52/53 week year for financial reporting purposes. Fiscal
year 1996 began on January 1, 1996, and ended on December 29, 1996, and included
52 weeks. Fiscal year 1995 began on December 26, 1994, and ended on December 31,
1995, and included 53 weeks. The 24 weeks ended June 15, 1997, began on December
30, 1996, and the 24 weeks ended June 16, 1996, began on January 1, 1996.
Escrow Cash
The Company receives cash from potential franchisees and holds these funds
in escrow until a location is confirmed. As of December 31, 1995, December 29,
1996, and June 15, 1997, the Company held in escrow approximately $-0-, $26,000
and $80,000, respectively.
Inventories
Inventories consist primarily of food and supplies and are stated at the
lower of cost or market value. Cost is determined using the first-in, first-out
(FIFO) method. At December 31, 1995, inventory also consisted of certain
equipment that was being held for resale.
F-76
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are recorded using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
<S> <C>
Life
Buildings........................ 20 years
Leasehold improvements........... 3-10 years
Machinery and equipment.......... 5-7 years
Furniture and fixtures........... 7-10 years
Vehicles......................... 5 years
</TABLE>
Other Assets
Other assets principally consist of intangible assets including prepaid
developing agent fees, organization costs and store start-up costs. Prepaid
developing agent fees were incurred by the Company to secure certain territory
rights that prohibit the collection of developing agent fees in these markets.
Prepaid developing agent fees, organization costs and store start-up costs are
being amortized over a five-year period.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS
No.121"). SFAS No. 121 requires that long-lived assets be reviewed for
impairment when events or changes in circumstances indicate that the book value
of an asset may not be recoverable. The Company evaluates, at each balance sheet
date, whether events and circumstances have occurred that indicate possible
impairment. In accordance with SFAS No. 121, the Company uses an estimate of
future undiscounted net cash flows of the related assets over the remaining life
in measuring whether the assets are recoverable. As of June 15, 1997, the
Company has reserved for any of its long-lived assets that are considered to be
impaired.
Revenue Recognition
Revenue from the sale of individual franchises is recognized when
substantially all significant services to be provided by the Company have been
performed.
Royalty income principally includes royalty fees, advertising fees and
franchise fees. Royalties are recognized as revenue when such amounts are
earned, rather than when such amounts are received. Advertising fees are
recognized as earned and are used to offset advertising and promotional costs.
These amounts are shown at gross in the accompanying statements of operations.
The Company licenses exclusive rights to develop franchises in specific
geographic areas throughout the world. Developing agent fees are recognized as
revenue when contractual obligations have been satisfied. Developing agents earn
a 2% royalty on all net sales within their contracted area, exclusive of
Company-owned stores.
Advertising Costs
Advertising costs are expensed as incurred.
F-77
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses in the financial statements and in the disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
Interim Financial Statements
The financial statements as of and for the 24 weeks ended June 15, 1997,
and for the 24 weeks ended June 16, 1996, are unaudited, but in the opinion of
management, such financial statements have been presented on the same basis as
the audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 29, June 15,
1995 1996 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Buildings................................................. $ -- $ 190 $ 190
Leasehold improvements.................................... 802 174 173
Machinery and equipment................................... 1,100 365 337
Furniture and fixtures.................................... 47 37 38
Vehicles.................................................. 142 30 30
------- ----- -----
2,091 796 768
Less: Accumulated depreciation and amortization........... (252) (157) (181)
------- ----- -----
Property and equipment, net............................... $ 1,839 $ 639 $ 587
======= ===== =====
</TABLE>
Depreciation expense of approximately $133,000, $84,000, $42,000, and
$35,000 was recorded in cost of revenues and operating expenses for the years
ended December 31, 1995 and December 29, 1996, and for the 24 weeks ended June
16, 1996 (unaudited) and June 15, 1997 (unaudited), respectively. Additionally,
depreciation expense of approximately $69,000, $69,000, $47,000 and $-0- was
recorded in loss on discontinued operations for each of the years ended December
31, 1995 and December 29, 1996, and for the 24 weeks ended June 16, 1996
(unaudited) and June 15, 1997 (unaudited), respectively.
F-78
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
3. OTHER ASSETS:
Other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 29, June 15,
1995 1996 1997
----- ----- ----
(Unaudited)
<S> <C> <C> <C>
Deposits.................................................. $ 82 $ 49 $ 41
Organization costs........................................ 30 16 16
Store start-up costs...................................... 29 18 18
Goodwill.................................................. 49 -- --
Prepaid developing agent fees............................. 300 300 300
----- ----- -----
490 383 375
Less: Accumulated amortization (112) (171) (202)
----- ----- -----
Other assets, net......................................... $ 378 $ 212 $ 173
===== ===== =====
</TABLE>
During 1996, organization costs of approximately $15,000 were written off
in connection with the merger described in Note 1. Certain store start-up costs
of approximately $11,000 were also written off in 1996.
F-79
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
4. NOTES RECEIVABLE:
Notes receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 29, June 15,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Note receivable from a corporation, secured by a store location in Santa Fe, New
Mexico, requiring monthly interest payments of $158 through April 1997 and
six monthly principal and interest payments
from November 1997 through April 1998................................... $ 85 $ 6 $ 25
10% note receivable from an individual secured by leasehold
improvements and equipment requiring monthly installments of $800, including
principal and interest in 1997, monthly installments of $1,000, including
principal and interest in 1998 and monthly installments of $1,200, including
principal and interest in 1999, with
the remaining balance and accrued interest due in December 1999......... 91 101 101
12% note receivable from a corporation, secured by a store located in
Huntsville, Alabama, requiring weekly installments of $407 through
maturity in November 2001............................................... 89 78 73
10% unsecured note receivable from a corporation requiring monthly
installments of $2,167, including principal and interest through
maturity in January 2000................................................ -- 67 59
10% unsecured note receivable due from a university requiring
monthly installments of $483, including principal and interest, due
in August 1997.......................................................... -- 4 2
9.25% note receivable due from a corporation, secured by a store
located in The Woodlands, Texas, requiring monthly installments of $2,748,
including principal and interest through July 1998, with the
remaining balance and any accrued interest due in August 1998........... -- 51 36
10% note receivable due from a corporation, secured by all leasehold
improvements, personal property, equipment and inventory at the
stores, requiring monthly installments of $3,189, including principal
and interest through maturity in December 2001.......................... -- 144 136
7.5% note receivable from a stockholder of the Company, secured by
stores located in Colorado and Wyoming, requiring monthly
installments of $4,849, including principal and interest through
October 1997............................................................ 100 -- --
Unsecured note receivable from a corporation, with no stated interest,
matured January 1996.................................................... 6 -- --
Unsecured note receivable from a corporation, with no stated interest,
matured January 1996.................................................... 50 -- --
----- ----- -----
Total Notes Receivable............................................. 421 451 432
Less: Reserve for uncollectable amounts.................................... (90) -- --
----- ----- -----
Notes Receivable, net.............................................. 331 451 432
Less: Current portion (109) (87) (121)
----- ----- -----
Notes Receivable, net of current portion........................... $ 222 $ 364 $ 311
===== ===== =====
</TABLE>
F-80
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
Subsequent maturities of notes receivable are as follows at December 29,
1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Amount
---- ------
1997........................ $ 87
1998........................ 87
1999........................ 168
2000........................ 53
2001........................ 56
-----
Total............... $ 451
=====
</TABLE>
5. LONG-TERM DEBT:
The Company has several notes payable to both individuals and corporations
with varying interest rates and maturity dates. Certain of these notes are
secured by various assets and interests of the Company.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 29, June 15,
1995 1995 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Non-interest bearing notes payable to either individuals or
corporations, with and without stated repayment terms.................. $ 411 $ 312 $ 301
Notes payable to individuals or corporations with interest rates ranging
from 6.0% to 9.5%, due at various dates through 2012, requiring
monthly payments....................................................... 468 774 631
Notes payable to individuals and corporations with 10% interest rates,
due at various dates through 2001...................................... 509 432 334
Notes payable to individuals or corporations with interest rates ranging
from 11% to 15%, becoming due at various dates through 1998,
requiring monthly payments............................................. 702 384 202
------- ------ -----
2,090 1,902 1,468
Less: Current portion (917) (1,206) (860)
------- ------ -----
Long-term debt, net of current portion.............................. $ 1,173 $ 696 $ 608
======= ====== =====
</TABLE>
Subsequent maturities of long-term debt are as follows at December 29, 1996
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Amount
---- ------
1997............................ $1,206
1998............................ 368
1999............................ 124
2000............................ 61
2001............................ 16
Thereafter...................... 127
------
Total................. $1,902
======
</TABLE>
F-81
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
6. CAPITAL LEASE OBLIGATIONS:
The Company leases vehicles and a substantial portion of the equipment used
in the operation of its stores under capital leases. These leases have terms
ranging from two to four years.
As of December 29, 1996, future minimum lease payments related to capital
leases were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Amount
1997.................................................... $ 200
1998.................................................... 158
1999.................................................... 75
-----
433
Less: Amount representing interest...................... (76)
-----
Present value of future minimum lease payments.......... 357
Less: Current portion................................... (152)
-----
Capital lease obligations, net of current portion....... $ 205
=====
</TABLE>
7. MANDATORILY REDEEMABLE PREFERRED STOCK:
During the year ended December 29, 1996, holders of 14.75 shares of common
stock converted their common stock into 144.5 shares of newly authorized and
issued preferred stock.
The preferred stock is nonvoting and the preferred stockholders are
entitled to cumulative preferred dividends of 10% for three years, accrued and
payable upon redemption. The preferred stock must be redeemed at $10,000 per
share, plus unpaid and accumulated dividends, on September 1, 1999. The excess
of the redemption price over the carrying value is being accreted over the
period from issuance to September 1, 1999, using the effective interest method
and is being charged to accumulated deficit. In the event of a liquidation or
sale of the Company, the preferred stockholders are entitled to receive payment
of $10,000 per share, plus accumulated dividends.
8. STOCKHOLDERS' DEFICIT:
As of December 31, 1995, December 29, 1996 and June 15, 1997, the Company
holds approximately 5, 13 and 13 shares, respectively, of common stock in
treasury which are available for future issuance. All amounts attributable to
treasury stock have been recorded as a reduction to additional paid-in capital
in the accompanying balance sheets.
9. COMMITMENTS:
Operating Leases
The Company leases its corporate office space and approximately 174
franchised store operating facilities under the terms of operating leases
ranging from three to ten years. Generally, all leases for store operations
contain contingent rental fees based on sales volume and provide for common area
assessments for maintenance, taxes, utilities and security. The Company expenses
the leases on a straight-line basis over the terms of the leases.
F-82
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
Of the 174 store leases noted above, the Company has executed 170 sublease
agreements with the franchisee with terms substantially identical to those
contained in the primary lease.
During the years ended December 31, 1995 and December 29, 1996, net rental
expense of approximately $83,000 and $124,000, respectively, was recorded in
loss from discontinued operations.
Rent expense under noncancelable operating lease agreements was as follows
for the years ended December 31, 1995 and December 29, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Gross rent expense..................... $ 6,902 $ 6,965
Less: Sublease rent.................... (5,776) (6,451)
------- -------
Net rental expense..................... $ 1,126 $ 514
======= =======
</TABLE>
<TABLE>
<CAPTION>
Future minimum annual rentals and minimum annual sublease rentals under
operating lease arrangements at December 29, 1996, are as follows (in
thousands):
<S> <C> <C> <C>
Gross Net
Year Rentals Subleases Rentals
---- ------- --------- -------
1997........................ $ 6,553 $ 6,440 $ 113
1998........................ 6,515 6,441 74
1999........................ 6,139 6,111 28
2000........................ 5,206 5,206 --
2001........................ 4,815 4,815 --
Thereafter.................. 8,674 8,674 --
</TABLE>
10. RELATED-PARTY TRANSACTIONS:
A member of the Board of Directors of Pretzel Time, Inc. is also president
of a leasing company from which the Company leases equipment under capital lease
obligations. The outstanding balance on those capital lease obligations was
approximately $535,000 and $323,000, respectively, as of December 31, 1995 and
December 29, 1996, and the Company made payments of approximately $204,000 and
$253,000, respectively, under those capital lease obligations for the years then
ended.
F-83
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
11. INCOME TAXES:
The (benefit) provision for income taxes was comprised of the following (in
thousands):
<TABLE>
<CAPTION>
24 Weeks
Ended
June 15,
Year Ended 1997
December 31, December 31,
1995 1996
---- ----
<S> <C> <C> <C>
Federal:
Current $-- $ -- $ 25
Deferred.............................................. -- (97) 74
State: Current -- -- 3
Deferred.............................................. -- (13) 10
---- ----- ----
(Benefit) provision for income taxes............. $-- $(110) $112
==== ====== ====
</TABLE>
The difference between the recorded income tax provision and the "expected"
tax provision based on the statutory federal income tax rate for the years ended
December 31, 1995 and December 29, 1996, and the 24 weeks ended June 16, 1996
(unaudited) and June 15, 1997 (unaudited), is as follows (in thousands):
<TABLE>
<CAPTION>
24 Weeks 24 Weeks
Year Ended Ended Ended
December 31, December 29, June 16, June 15,
1995 1996 1996 1997
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Computed Federal tax (benefit) provision at statutory
rate................................................ $ (279) $ 32 $ (24) $ 87
State income taxes, net of Federal income tax effect... (32) 4 (2) 12
Valuation allowance adjustments........................ 137 (137) -- --
Nondeductible expenses................................. 44 21 18 13
Nondeductible loss on subsidiaries..................... 85 -- -- --
Other.................................................. 45 (30) 8 --
---- ----- --- ----
(Benefit) provision for income taxes.............. $ -- $(110) $-- $112
==== ====== ==== =====
</TABLE>
As of December 31, 1995, December 29, 1996, and June 15, 1997, the Company
had net operating loss carryforwards of approximately $356,000, $225,000 and
$-0-, respectively, for federal income tax purposes. These net operating loss
carryforwards begin to expire in 2008. The Company has recorded valuation
allowances against these operating loss carryforwards of approximately $137,000,
$-0- and $-0- to reflect management's estimate of the realizable portion of the
existing deferred tax assets for the years ended December 31, 1995 and December
29, 1996 and the 24 weeks ended June 15, 1997, respectively.
F-84
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
Total deferred tax assets and deferred tax liabilities as of December 31,
1995, December 29, 1996, and June 15, 1997, and the sources of the differences
between financial accounting and tax bases of the Company's assets and
liabilities which give rise to the deferred tax assets and deferred tax
liabilities and the tax effects of each are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Deferred Tax Assets:
Operating loss carryforwards............................... $137 $ 87 $ --
Accrued expenses and reserves.............................. 65 81 84
---- --- --
202 168 84
Less: Valuation allowance.................................. (137) -- --
----- ---- ---
Deferred tax asset.................................... 65 168 84
Deferred Tax Liability:
Depreciation............................................... 65 58 58
----- --- --
Deferred tax asset, net............................... $ -- $110 $26
===== ==== ===
</TABLE>
12. EMPLOYEE BENEFIT PLAN:
During fiscal year 1996, the Company adopted a Simplified Employee Pension
Plan with a Salary Reduction Offer Plan (the "Plan") to replace its existing
401(k) profit sharing plan. Under the Plan, employees may elect to defer up to
15% of their salary, subject to the limits provided for within the Internal
Revenue Code and Regulations. The Company may make a discretionary contribution
to the Plan. The Company did not contribute to the Plan for the years ended
December 31, 1995 and December 29, 1996.
13. CONCENTRATION OF CREDIT RISK:
As of December 29, 1996, 228 franchise and Company-owned locations were in
operation. One franchisee operates 85 of these locations. Failure of this
franchisee to meet its obligations to the Company could have a significant
adverse impact on its operations.
14. CONTINGENCIES:
The Company is party to several legal proceedings which are considered by
management to be routine and incidental to its business. In the opinion of
management, after consulting with legal counsel, the ultimate disposition of
these lawsuits will not have a material adverse effect on the Company's
financial position or results of operations.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the balance sheets for cash, accounts
payable and accrued expenses approximate fair value because of the short-term
maturity of those instruments.
Fair value of the Company's long-term debt is estimated using discounted
cash flow analyses, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements.
F-85
<PAGE>
PRETZEL TIME, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
DECEMBER 31, 1995, DECEMBER 29, 1996, JUNE 16, 1996 AND JUNE 15, 1997
(Including notes related to the unaudited periods)
The aggregate carrying amounts and fair values of the Company's long-term
debt as of December 31, 1995 and December 29, 1996, were approximately
$2,100,000 and $1,900,000 and $2,130,000 and $1,700,000, respectively.
16. DISCONTINUATION OF THE MANUFACTURING OPERATIONS:
In September 1994, the Company created a new business segment to
manufacture frozen pretzel products. In November 1994, the Company signed a
lease on a manufacturing plant for frozen products which required payments of
$16,750 per month through December 29, 1996, with a commitment to purchase the
building at that time for approximately $1,600,000. Significant obligations were
also entered into during 1994 for the purchase of machinery and equipment and
leasehold improvements for approximately $1,100,000.
On March 1, 1996, the Company decided to cease its manufacturing operations
and dispose of the machinery and equipment. In connection with the disposal, the
Company negotiated various settlements with the respective lessors in
satisfaction of their future lease obligations. Assets which were owned were
sold to outside parties. During the year ended December 29, 1996, the
manufacturing operations and disposal thereof generated a loss of approximately
$609,000, net of income tax benefits of approximately $405,000. Based on the
measurement date, this total loss is reported as loss on disposal of
discontinued operations and loss from discontinued operations in the
accompanying statements of operations.
17. RESTATEMENT ADJUSTMENTS:
During 1996, certain adjustments were identified that affected the 1995
financial statement amounts previously reported on by other auditors. These
adjustments resulted in a decrease in net income of approximately $268,000 and
an increase in the accumulated deficit of approximately $225,000.
During 1997, the Company identified an error in the previously issued 1996
financial statements. Correction of this error resulted in a decrease in net
income for the year ended December 29, 1996, and an increase in the accumulated
deficit as of December 29, 1996, of approximately $32,000. Income from
continuing operations before provision for income taxes was reported as
approximately $1,051,000 versus $999,000, as restated. Income from continuing
operations was reported as approximately $736,000 versus $704,000, as restated.
18. SUBSEQUENT EVENT:
Subsequent to year-end, the Company entered into discussions with another
multi-unit retailer to sell approximately 56.0% of its outstanding common stock.
Negotiations are continuing, with an expected closing no later than September
30, 1997.
F-86
<PAGE>
No dealer, sales representative, or other person has been $100,000,000
authorized to give any information or to make any
representations other than those contained in this
Prospectus and, if given or made, such information or
representations must not be relied upon as having been
authorized by the Company or the Initial Purchasers. This
Prospectus does not constitute an offer to sell or a MRS. FIELDS'
solicitation of an offer to buy any securities other than ORIGINAL COOKIES,
the securities to which it relates, nor does it constitute INC.
an offer to sell or the solicitation of an offer to buy such
securities in any jurisdiction in which such offer or
solicitation is not authorized, or in which the person
making such offer or solicitation is not qualified to do so,
or to any person to whom it is unlawful to make such an 10 1/8% Series B
offer or solicitation. Neither the delivery of this Senior Notes Due
Prospectus nor any sale made hereunder shall, under any 2004
circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof
or that information contained herein is correct as of any
time subsequent to its date.
----------------
TABLE OF CONTENTS
Page _______________________
Available Information...............................5
Prospectus Summary..................................6
Summary Historical and Pro Forma PROSPECTUS
Financial Data.....................................16 _______________________
Risk Factors.......................................18
The Transactions...................................26
Use of Proceeds....................................28
Capitalization.....................................30
The Exchange Offer.................................32
Selected Historical Financial Data.................39
Management's Discussion and Analysis of Financial
Condition and Results of Operations................41
Business...........................................51
Management.........................................46
Ownership of Capital Stock.........................66
Certain Relationships and Related Transactions.....67 January __, 1998
Description of Senior Notes .......................69
Plan of Distribution...............................92
Certain United States Federal Tax Considerations...96
Legal Matters......................................96
Experts............................................96
Unaudited Pro Forma Condensed Consolidated Statement of
Operations.....................................P-1
Index to Historical Financial Statements..........F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE CORPORATION.
As authorized by Section 145 of the General Corporation Law of the State of
Delaware, each director and officer of the Company may be indemnified by the
Company against expenses (including attorney's fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred in connection with
the defense or settlement of any threatened, pending or completed legal
proceedings in which he is involved by reason of the fact that he is or was a
director or officer of the Company if he acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe that his conduct was unlawful. If the legal
proceeding, however, is by or in the right of the Company, the director or
officer may not be indemnified 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 Company unless a court determines otherwise.
The Company's by-laws authorize the Company to indemnify its present and
former directors and officers and to pay or reimburse expenses for individuals
in advance of the final disposition of a proceeding upon receipt of an
undertaking by or on behalf of such individuals to repay such amounts if so
required.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
1.1 Purchase Agreement, dated as of November 20, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields Brand, Inc., Jefferies & Company, Inc. and
BT Alex. Brown Incorporated
2.1* Agreement and Plan of Merger, dated as of November 26, 1997, by and between
Mrs. Fields' Original Cookies, Inc. and Mrs. Fields' Pretzel Concepts, Inc.
2.2* Capital Contribution and Assumption Agreement, dated as of November 26,
1997, by and between Mrs. Fields' Holding Company, Inc. and Mrs. Fields'
Original Cookies, Inc.
2.3* Capital Contribution Agreement, dated as of November 26, 1997, by and
between Mrs. Fields' Original Cookies, Inc. and The Mrs. Fields' Brand,
Inc.
2.4* Capital Contribution Agreement, dated as of November 26, 1997, by and
between Mrs. Fields' Holding Company, Inc. and The Mrs. Fields' Brand, Inc.
2.5* Capital Contribution Agreement, dated as of November 26, 1997, by and
between Mrs. Fields' Holding Company, Inc. and Mrs. Fields' Original
Cookies, Inc.
3.1 Restated Certificate of Incorporation of Mrs. Fields' Original Cookies,
Inc.
3.2 Restated Certificate of Incorporation of The Mrs. Fields' Brand, Inc.
3.3 Certificate of Designations of the Mrs. Fields' Brand, Inc., dated as of
September 18, 1996
3.4 By-Laws of Mrs. Fields' Original Cookies, Inc.
3.5 By-Laws of The Mrs. Fields' Brand, Inc.
4.1 Indenture, dated as of November 26, 1997, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields' Brand, Inc., and The Bank of New York, as
Trustee
4.2 Form of Certificate of Senior Note (included as Exhibit A to Exhibit 4.1)
4.3 Registration Rights Agreement, dated as of November 26, among Mrs. Fields'
Original Cookies, Inc., The Mrs. Fields Brand, Inc., Jefferies & Company,
Inc. and BT Alex. Brown Incorporated
5.1* Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP to as to
legality of the New Senior Notes to be issued by Mrs. Fields' Original
Cookies, Inc. and the New Guarantee to be issued by The Mrs. Fields' Brand,
Inc.
10.1 Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields
Development Corporation, The Mrs. Fields' Brand, Inc. and Capricorn II,
L.P.
10.6 The Escrow Agreement, dated as of September 18, 1996, among The Bank of New
York (Trustee), The Mrs. Fields' Brand, Inc., The Prudential Insurance
Company of America, Principal Mutual Life Insurance Company, Pruco Life
Insurance Company and Contrarian Capital Advisors, L.L.C. (as agent)
<PAGE>
EXHIBIT (cont.)
10.7 Senior Note Agreement, dated as of September 18, 1996, among The Mrs.
Fields' Brand, Inc., The Prudential Insurance Company of America, Principal
Mutual Life Insurance Company, Pruco Life Insurance Company and Contrarian
Capital Advisors, L.L.C. (as agent)
10.10License Agreement, dated as of September 18, 1996, between The Mrs.
Fields' Brand, Inc., and Mrs. Fields' Original Cookies, Inc.
10.11Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields,
Inc., Mrs. Fields' Original Cookies, Inc., and Capricorn Investors II, L.P.
10.13Copyright Security Agreement, dated as of September 18, 1996, among Mrs.
Fields' Original Cookies, Inc., Mrs. Fields Cookies Australia, Fairfield
Cookies, Inc., and The Bank of New York (collateral agent)
10.14Escrow Agreement, dated as of September 18, 1996, among Chocamerican,
Inc., The Prudential Insurance Company of America, Principal Mutual Life
Insurance Company, Pruco Life Insurance Company, Contrarian Capital
Advisors (as agent), Mrs. Fields, Inc., Mrs. Fields' Original Cookies,
Inc., and The Bank of New York
10.15Security Agreement, dated as of September 18, 1996, among Mrs. Fields'
Original Cookies, Inc. and The Bank of New York (collateral agent)
10.16Stockholders' Agreement, dated as of August 7, 1996, among Mrs. Fields'
Original Cookies, Inc., Mrs. Fields' Holding Company, Inc., and
Chocamerican, Inc.
10.17Trademark Security Agreement, dated as of September 18, 1996, among Mrs.
Fields' Original Cookies, Inc. Mrs. Fields Cookies Australia, Fairfield
Foods, Inc., and The Bank of New York (collateral agent)
10.18Amendment to Collateral Security Agreement, dated as of January 31, 1997,
among Mrs. Fields' Original Cookies, Inc., Mrs. Fields' Other Names, Inc.
and The Bank of New York (collateral agent) 10.19 Amendment to Copyright
Security Agreement, dated as of January 31, 1997, among Mrs. Fields'
Original Cookies, Inc., Mrs. Fields Cookies Australia, Fairfield Cookies,
Inc., and The Bank of New York (collateral agent)
10.20First Amendment to Loan Agreement, dated as of January 31, 1997, between
Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank (lender)
10.21$3,000,000 Revolving Note, dated as of January 31, 1997, between Mrs.
Fields' Original Cookies, Inc. and LaSalle National Bank
10.22Amendment to Stock Pledge Agreement, dated as of January 31, 1997, between
Mrs. Fields' Original Cookies, Inc., and The Bank of New York
10.23Subordination and Intercreditor Agreement, dated as of January 31, 1997,
among LaSalle National Bank, Chocamerican, Inc., The Prudential Insurance
Company of America, Principal Mutual Life Insurance Company, Pruco Life
Insurance Company, Contrarian Capital Advisors, Mrs. Fields, Inc., and Mrs.
Fields' Holding Company, Inc.
10.24Amendment to Trademark Security Agreement, dated as of January 31, 1997,
among Mrs. Fields' Original Cookies, Inc., Mrs. Fields Cookies Australia,
Fairfield Cookies, Inc., Mrs. Fields' Other Names, Inc., and The Bank of
New York
10.25Amendment and Restated Collateral Agency Agreement, dated as of January
31, 1997, among Chocamerican, Inc., The Prudential Insurance Company of
America, Principal Mutual Life Insurance Company, Pruco Life Insurance
Company, Contrarian Capital Advisors, L.L.C., Mrs. Fields, Inc. Mrs.
Fields' Holding Company, Inc., LaSalle National Bank and Mrs. Fields'
Original Cookies, Inc.
10.26Supply Distribution Agreement, dated as of September 26, 1996, between
Blueline Distributing, a division of Little Caesar Enterprises, Inc. and
Mrs. Fields, Inc.
10.27Amended and Restated Marketing Agreement, dated as of January 9, 1997,
between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA Fountain
10.28Employment Agreement, dated as of October 1, 1997, between Michael R. Ward
and Mrs. Fields' Original Cookies, Inc.
10.29Employment Agreement, dated as of October 1, 1997, between Pat Knotts and
Mrs. Fields' Original Cookies, Inc.
10.30Employment Agreement, dated as of October 1, 1997, between L. Time Pierce
and Mrs. Fields' Original Cookies, Inc.
10.31Employment Agreement, dated as of July 1, 1996, between Lawrence Hodges
and Mrs. Fields' Original Cookies, Inc.
<PAGE>
EXHIBIT (cont.)
10.32Lease Agreement, dated as of February 23, 1993, between The Equitable Life
Assurance Society of the United States and Mrs. Fields Cookies
10.33Lease Agreement, dated as of October 10, 1995, between The Equitable Life
Assurance Society of the United States and Mrs. Fields Cookies
10.34Letter of Agreement, dated as of October 1, 1992, between United Airlines,
Inc. and Mrs. Fields Development Corporation
10.35Lease Agreement, dated as of January 18, 1998, between 2855 E. Cottonwood
Parkway, L.C. and Mrs. Fields' Original Cookies, Inc.
10.37Amendment to Supply Agreement, dated as of June 19, 1995 between Van Den
Bergh Foods Company and Mrs. Fields, Inc.
10.38Stockholders' Agreement, dated as of September 19, 1997, among The Mrs.
Fields' Brand, Inc., and its stockholders
10.39Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Pretzel Time, Inc. and Martin E. Lisiewski
10.40License Agreement, dated as of March 1, 1992, between Mrs. Fields
Development Corporation and Marriott Corporation
10.41License Agreement, dated as of October 28, 1993 between Mrs. Fields
Development Corporation and Marriott Management Services, Corp.
10.43Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc. Pretzel Time, Inc., and Martin E. Lisiewski
10.44Franchise Agreement Addendum 2 and Area Development Agreement Addendum 2,
dated as of September 2, 1997, between Pretzel Time, Inc. and Mrs. Fields'
Original Cookies, Inc.
10.45Management Agreement, dated as of September 2, 1997, between Mrs. Fields'
Original Cookies, Inc. and Pretzel Time, Inc.
10.46Stock Purchase Agreement, dated as of September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski
10.47Shareholder Agreement, dated as of September 2, 1997, among Mrs. Fields'
Holding Company, Inc., Martin E. Lisiewski and Pretzel Time, Inc.
10.48Employment Agreement, dated as of September 2, 1997, between Pretzel Time,
Inc. and Martin E. Lisiewski
10.49Area Development Agreement, dated as of September 2, 1997, between Pretzel
Time, Inc. and Mrs. Fields' Original Cookies, Inc.
10.50$500,000 Promissory Note, dated as of September 2, 1997, between martin E.
Lisiewski and Mrs. Fields' Holding Company, Inc.
10.51Exchange Agreement, dated September 2, 1997, between Mrs. Fields' Holding
Company, Inc. and Martin E. Lisiewski
10.52Registration Rights Agreement, dated September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski
10.53Franchise Development Agreement, dated September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc.
10.54Asset Purchase Agreement, dated July 23, 1997, among Mrs. Fields' Pretzel
Concepts, Inc., H&M Concepts, Inc., and The Managing Members of H&M
Concepts Ltd., Co.
10.55Exhibit A to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc.
10.56 Uniform Franchise Offering Circular of Pretzel Time, Inc.
10.57Exhibit B to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc., and Mrs. Fields' Original Cookies, Inc.
10.62Assignment of Assets and Assumption of Liabilities Agreement, dated July
25, 1997, between H&M Concepts Ltd., Co., and Mrs. Fields' Pretzel
Concepts, Inc.
<PAGE>
EXHIBIT (cont.)
10.64First Amendment to Operating Agreement for UVEST, LLC, dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST Limited
10.65First Amendment to Operating Agreement for LV-H&M, L.L.C., Dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean Jensen
10.69Lease Agreement, dated March 2, 1995, between Price Development Company,
Limited Partnership and Mrs. Fields Cookies
10.70Consulting Agreement, dated November 26, 1996, between Debra J. Fields and
Mrs. Fields' Original Cookies, Inc.
10.71Employment Agreement, dated May 7, 1997, between Julie Byerlein and Mrs.
Fields' Original Cookies, Inc.
10.72* Stock Pledge Agreement, dated as of September 18, 1996, between Mrs.
Fields' Original Cookies, Inc. and The Bank of New York (collateral agent)
11.1 Statement re computation of per share earnings
12.1 Computation of ratio of earnings to fixed charges of Mrs. Fields' Original
Cookies, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.3*Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1)
24.1 Power of Attorney of certain officers and directors of the Company
(included on signature pages hereto)
24.2 Power of Attorney of certain officers and directors of the Guarantor
(included on signature pages hereto)
25.1 Form T-1 Statement of Eligibility of The Bank of New York to act as trustee
under the Indenture
25.2 Form T-1 Statement of Eligibility of The Bank of New York to act as trustee
under the Guarantees
27.1 Financial Data Schedule (for SEC use only)
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3 Schedule II - Valuation and Qualifying Accounts
- --------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
Each of the undersigned Registrants hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, as
amended, each filing of a Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
each undersigned Registrant pursuant to the foregoing provisions, or otherwise,
each 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 each
undersigned Registrant of expenses incurred or paid by a director, officer of
controlling person of each Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, each Registrant will, unless
in the opinion of its counsel the matter has been settled by the 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.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired or involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, Mrs.
Fields' Original Cookies, Inc. certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-4 and has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Salt Lake City, State of Utah, on the
29 day of January, 1998.
Mrs. Fields' Original Cookies, Inc.
By:/s/Larry A. Hodges
Larry A. Hodges
President/CEO
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Mrs. Fields' Original
Cookies, Inc. and each of us, do hereby constitute and appoint Michael R. Ward
or L. Tim Pierce, our true and lawful attorney and agent, with power of
substitution, to do any and all acts and things in our name and behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our names in the capacities indicated above, which said attorney and
agent may deem necessary or advisable to enable said corporation to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission (the "Commission"), in
connection with this Registration Statement on Form S-4, and any and all
amendments to said Registration Statement and all instruments necessary or
incidental in connection therewith, including specifically, but without
limitation, power and authority to sign for us or any of us in our names, in the
capacities indicated below, any and all amendments hereto, and to file the same
with the Commission. Said attorney shall have full power and authority to do and
perform in the name and on behalf of each of the undersigned, in any and all
capacities, every act whatsoever requisite or necessary to be done in the
premises as fully and to all intents and purposes as each of the undersigned
might or could do in person, hereby ratifying and approving the acts of said
attorneys and each of them.
Signature Title Date
/s/Larry A. Hodges President, Chief Executive Officer January 29, 1998
(Larry A. Hodges) and Director (Chief Executive Officer)
/s/L. Tim Pierce Senior Vice President, Chief Financial January 29, 1998
(L. Tim Pierce) Officer and Secretary
(Chief Financial officer)
/s/Herbet S. Winokur Chairman of the Board of Directors January 29, 1998
(Herbert S. Winokur)
/s/Richard M. Ferry Director January 29, 1998
(Richard M. Ferry)
/s/Debbi Fields Director January 29, 1998
(Debbi Fields)
/s/Nathaniel A. Gregory Director January 29, 1998
(Nathaniel A. Gregory)
/s/Walker Lewis Director January 29, 1998
(Walker Lewis)
/s/Peter W. Mullin Director January 29, 1998
(Peter W. Mullin)
/s/Gilbert C. Osnos Director January 29, 1998
(Gilbert C. Osnos)
<PAGE>
EXHIBIT INDEX
EXHIBIT
1.1 Purchase Agreement, dated as of November 20, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields Brand, Inc., Jefferies & Company, Inc. and
BT Alex. Brown Incorporated
2.1* Agreement and Plan of Merger, dated as of November 26, 1997, by and between
Mrs. Fields' Original Cookies, Inc. and Mrs. Fields' Pretzel Concepts, Inc.
2.2* Capital Contribution and Assumption Agreement, dated as of November 26,
1997, by and between Mrs. Fields' Holding Company, Inc. and Mrs. Fields'
Original Cookies, Inc.
2.3* Capital Contribution Agreement, dated as of November 26, 1997, by and
between Mrs. Fields' Original Cookies, Inc. and The Mrs. Fields' Brand,
Inc.
2.4* Capital Contribution Agreement, dated as of November 26, 1997, by and
between Mrs. Fields' Holding Company, Inc. and The Mrs. Fields' Brand, Inc.
2.5* Capital Contribution Agreement, dated as of November 26, 1997, by and
between Mrs. Fields' Holding Company, Inc. and Mrs. Fields' Original
Cookies, Inc.
3.1 Restated Certificate of Incorporation of Mrs. Fields' Original Cookies,
Inc.
3.2 Restated Certificate of Incorporation of The Mrs. Fields' Brand, Inc.
3.3 Certificate of Designations of the Mrs. Fields' Brand, Inc., dated as of
September 18, 1996
3.4 By-Laws of Mrs. Fields' Original Cookies, Inc.
3.5 By-Laws of The Mrs. Fields' Brand, Inc.
4.1 Indenture, dated as of November 26, 1997, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields' Brand, Inc., and The Bank of New York, as
Trustee
4.2 Form of Certificate of Senior Note (included as Exhibit A to Exhibit 4.1)
4.3 Registration Rights Agreement, dated as of November 26, among Mrs. Fields'
Original Cookies, Inc., The Mrs. Fields Brand, Inc., Jefferies & Company,
Inc. and BT Alex. Brown Incorporated
5.1* Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP to as to
legality of the New Senior Notes to be issued by Mrs. Fields' Original
Cookies, Inc. and the New Guarantee to be issued by The Mrs. Fields' Brand,
Inc.
10.1 Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields
Development Corporation, The Mrs. Fields' Brand, Inc. and Capricorn II,
L.P.
10.6 The Escrow Agreement, dated as of September 18, 1996, among The Bank of New
York (Trustee), The Mrs. Fields' Brand, Inc., The Prudential Insurance
Company of America, Principal Mutual Life Insurance Company, Pruco Life
Insurance Company and Contrarian Capital Advisors, L.L.C. (as agent)
10.7 Senior Note Agreement, dated as of September 18, 1996, among The Mrs.
Fields' Brand, Inc., The Prudential Insurance Company of America, Principal
Mutual Life Insurance Company, Pruco Life Insurance Company and Contrarian
Capital Advisors, L.L.C. (as agent)
10.10License Agreement, dated as of September 18, 1996, between The Mrs.
Fields' Brand, Inc., and Mrs. Fields' Original Cookies, Inc.
10.11Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields,
Inc., Mrs. Fields' Original Cookies, Inc., and Capricorn Investors II, L.P.
10.13Copyright Security Agreement, dated as of September 18, 1996, among Mrs.
Fields' Original Cookies, Inc., Mrs. Fields Cookies Australia, Fairfield
Cookies, Inc., and The Bank of New York (collateral agent)
10.14Escrow Agreement, dated as of September 18, 1996, among Chocamerican,
Inc., The Prudential Insurance Company of America, Principal Mutual Life
Insurance Company, Pruco Life Insurance Company, Contrarian Capital
Advisors (as agent), Mrs. Fields, Inc., Mrs. Fields' Original Cookies,
Inc., and The Bank of New York
10.15Security Agreement, dated as of September 18, 1996, among Mrs. Fields'
Original Cookies, Inc. and The Bank of New York (collateral agent)
10.16Stockholders' Agreement, dated as of August 7, 1996, among Mrs. Fields'
Original Cookies, Inc., Mrs. Fields' Holding Company, Inc., and
Chocamerican, Inc.
10.17Trademark Security Agreement, dated as of September 18, 1996, among Mrs.
Fields' Original Cookies, Inc. Mrs. Fields Cookies Australia, Fairfield
Foods, Inc., and The Bank of New York (collateral agent)
10.18Amendment to Collateral Security Agreement, dated as of January 31, 1997,
among Mrs. Fields' Original Cookies, Inc., Mrs. Fields' Other Names, Inc.
and The Bank of New York (collateral agent)
10.19Amendment to Copyright Security Agreement, dated as of January 31, 1997,
among Mrs. Fields' Original Cookies, Inc., Mrs. Fields Cookies Australia,
Fairfield Cookies, Inc., and The Bank of New York (collateral agent)
10.20First Amendment to Loan Agreement, dated as of January 31, 1997, between
Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank (lender)
10.21$3,000,000 Revolving Note, dated as of January 31, 1997, between Mrs.
Fields' Original Cookies, Inc. and LaSalle National Bank
<PAGE>
EXHIBIT (cont.)
10.22Amendment to Stock Pledge Agreement, dated as of January 31, 1997, between
Mrs. Fields' Original Cookies, Inc., and The Bank of New York
10.23Subordination and Intercreditor Agreement, dated as of January 31, 1997,
among LaSalle National Bank, Chocamerican, Inc., The Prudential Insurance
Company of America, Principal Mutual Life Insurance Company, Pruco Life
Insurance Company, Contrarian Capital Advisors, Mrs. Fields, Inc., and Mrs.
Fields' Holding Company, Inc.
10.24Amendment to Trademark Security Agreement, dated as of January 31, 1997,
among Mrs. Fields' Original Cookies, Inc., Mrs. Fields Cookies Australia,
Fairfield Cookies, Inc., Mrs. Fields' Other Names, Inc., and The Bank of
New York
10.25Amendment and Restated Collateral Agency Agreement, dated as of January 31,
1997, among Chocamerican, Inc., The Prudential Insurance Company of
America, Principal Mutual Life Insurance Company, Pruco Life Insurance
Company, Contrarian Capital Advisors, L.L.C., Mrs. Fields, Inc. Mrs.
Fields' Holding Company, Inc., LaSalle National Bank and Mrs. Fields'
Original Cookies, Inc.
10.26Supply Distribution Agreement, dated as of September 26, 1996, between
Blueline Distributing, a division of Little Caesar Enterprises, Inc. and
Mrs. Fields, Inc.
10.27Amended and Restated Marketing Agreement, dated as of January 9, 1997,
between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA Fountain
10.28Employment Agreement, dated as of October 1, 1997, between Michael R. Ward
and Mrs. Fields' Original Cookies, Inc.
10.29Employment Agreement, dated as of October 1, 1997, between Pat Knotts and
Mrs. Fields' Original Cookies, Inc.
10.30Employment Agreement, dated as of October 1, 1997, between L. Time Pierce
and Mrs. Fields' Original Cookies, Inc.
10.31Employment Agreement, dated as of July 1, 1996, between Lawrence Hodges
and Mrs. Fields' Original Cookies, Inc.
10.32Lease Agreement, dated as of February 23, 1993, between The Equitable Life
Assurance Society of the United States and Mrs. Fields Cookies
10.33Lease Agreement, dated as of October 10, 1995, between The Equitable Life
Assurance Society of the United States and Mrs. Fields Cookies
10.34Letter of Agreement, dated as of October 1, 1992, between United Airlines,
Inc. and Mrs. Fields Development Corporation
10.35Lease Agreement, dated as of January 18, 1998, between 2855 E. Cottonwood
Parkway, L.C. and Mrs. Fields' Original Cookies, Inc.
10.37Amendment to Supply Agreement, dated as of June 19, 1995 between Van Den
Bergh Foods Company and Mrs. Fields, Inc.
10.38Stockholders' Agreement, dated as of September 19, 1997, among The Mrs.
Fields' Brand, Inc., and its stockholders
10.39Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Pretzel Time, Inc. and Martin E. Lisiewski
10.40 License
Agreement, dated as of March 1, 1992, between Mrs. Fields Development
Corporation and Marriott Corporation
10.41License Agreement, dated as of October 28, 1993 between Mrs. Fields
Development Corporation and Marriott Management Services, Corp.
10.43Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc. Pretzel Time, Inc., and Martin E. Lisiewski
10.44Franchise Agreement Addendum 2 and Area Development Agreement Addendum 2,
dated as of September 2, 1997, between Pretzel Time, Inc. and Mrs. Fields'
Original Cookies, Inc.
10.45Management Agreement, dated as of September 2, 1997, between Mrs. Fields'
Original Cookies, Inc. and Pretzel Time, Inc.
10.46Stock Purchase Agreement, dated as of September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski
10.47Shareholder Agreement, dated as of September 2, 1997, among Mrs. Fields'
Holding Company, Inc., Martin E. Lisiewski and Pretzel Time, Inc.
10.48Employment Agreement, dated as of September 2, 1997, between Pretzel Time,
Inc. and Martin E. Lisiewski
10.49Area Development Agreement, dated as of September 2, 1997, between Pretzel
Time, Inc. and Mrs. Fields' Original Cookies, Inc.
10.50$500,000 Promissory Note, dated as of September 2, 1997, between martin E.
Lisiewski and Mrs. Fields' Holding Company, Inc.
10.51Exchange Agreement, dated September 2, 1997, between Mrs. Fields' Holding
Company, Inc. and Martin E. Lisiewski
<PAGE>
EXHIBIT (cont.)
10.52Registration Rights Agreement, dated September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski
10.53Franchise Development Agreement, dated September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc.
10.54Asset Purchase Agreement, dated July 23, 1997, among Mrs. Fields' Pretzel
Concepts, Inc., H&M Concepts, Inc., and The Managing Members of H&M
Concepts Ltd., Co.
10.55Exhibit A to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc.
10.56 Uniform Franchise Offering Circular of Pretzel Time, Inc.
10.57Exhibit B to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc., and Mrs. Fields' Original Cookies, Inc.
10.62Assignment of Assets and Assumption of Liabilities Agreement, dated July
25, 1997, between H&M Concepts Ltd., Co., and Mrs. Fields' Pretzel
Concepts, Inc.
10.64First Amendment to Operating Agreement for UVEST, LLC, dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST Limited
10.65First Amendment to Operating Agreement for LV-H&M, L.L.C., Dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean Jensen
10.69Lease Agreement, dated March 2, 1995, between Price Development Company,
Limited Partnership and Mrs. Fields Cookies
10.70Consulting Agreement, dated November 26, 1996, between Debra J. Fields and
Mrs. Fields' Original Cookies, Inc.
10.71Employment Agreement, dated May 7, 1997, between Julie Byerlein and Mrs.
Fields' Original Cookies, Inc.
10.72* Stock Pledge Agreement, dated as of September 18, 1996, between Mrs.
Fields' Original Cookies, Inc. and The Bank of New York (collateral agent)
11.1 Statement re computation of per share earnings
12.1 Computation of ratio of earnings to fixed charges of Mrs. Fields' Original
Cookies, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
23.3*Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1)
24.1 Power of Attorney of certain officers and directors of the Company
(included on signature pages hereto)
24.2 Power of Attorney of certain officers and directors of the Guarantor
(included on signature pages hereto)
25.1 Form T-1 Statement of Eligibility of The Bank of New York to act as trustee
under the Indenture
25.2 Form T-1 Statement of Eligibility of The Bank of New York to act as trustee
under the Guarantees
27.1 Financial Data Schedule (for SEC use only)
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3 Schedule II - Valuation and Qualifying Accounts
- --------
* To be filed by amendment.
MRS. FIELDS' ORIGINAL COOKIES, INC.
MRS. FIELDS' BRANDS, INC.
$100,000,000
Aggregate Principal Amount of
10?% Senior Notes due 2004
------------------------------------
PURCHASE AGREEMENT
DATED AS OF NOVEMBER 20, 1997
------------------------------------
JEFFERIES & COMPANY, INC. BT ALEX. BROWN INCORPORATED
<PAGE>
$100,000,000
Aggregate Principal Amount of
10?% Senior Notes due 2004
of
MRS. FIELDS' ORIGINAL COOKIES, INC.
PURCHASE AGREEMENT
November 20, 1997
JEFFERIES & COMPANY, INC.
BT ALEX. BROWN INCORPORATED
c/o Jefferies & Company, Inc.
11100 Santa Monica Boulevard
Los Angeles, California 90025
Ladies and Gentlemen:
Mrs. Fields' Original Cookies, Inc., a Delaware corporation (the ?Company?),
proposes to issue and sell to Jefferies & Company, Inc. (?Jefferies?) and BT
Alex. Brown Incorporated (?BT?) (each, an ?Initial Purchaser,? and,
collectively, the ?Initial Purchasers?) an aggregate of $100,000,000 in
principal amount of its 10?% Senior Notes due 2004 (the ?Senior Notes?), subject
to the terms and conditions set forth herein. The Senior Notes are to be issued
pursuant to the provisions of an indenture (the ?Indenture?), to be dated as of
the Closing Date (as defined), among the Company, the Guarantor (as defined) and
The Bank of New York, as trustee (the ?Trustee?). The Senior Notes and the
Exchange Notes (as defined) issuable in exchange therefor are collectively
referred to herein as the ?Notes.? The Notes will be guaranteed (the ?Guarantee?
and, together with any future guarantees of the Notes, the ?Guarantees?) by Mrs.
Fields' Brands, Inc., a Delaware corporation (the ?Guarantor,? and, together
with any future guarantors of the Notes, the ?Guarantors?). Capitalized terms
used but not defined herein shall have the meanings given to such terms in the
Indenture.
Concurrent with the offering of the Senior Notes (the ?Offering?), the
Company will (i) acquire substantially all of the assets of H&M Concepts Ltd.,
Co., an Idaho limited liability company, and its subsidiaries (together, ?H&M?)
through a merger with Mrs. Fields' Pretzel Concepts, Inc., a subsidiary of MFH
(as defined), and 56% of the common stock of Pretzel Time Inc., a Pennsylvania
corporation (?Pretzel Time?), from Mrs. Fields Holdings, Inc., a Delaware
corporation (?MFH?), and assume certain liabilities, obligations and rights in
connection therewith (the ?Pretzel Contributions?), and (ii) refinance certain
existing indebtedness of the Company and its subsidiaries and make certain
payments as described in the Offering Circular (as defined) (collectively, the
?Refinancing?). The Pretzel Contributions and the Refinancing are collectively
referred to herein as the ?Transactions.? The net proceeds from the Offering
will be used by the Company to fund, and the Offering is conditioned upon
consummation of, the Transactions. Unless the context otherwise requires, for
purposes of this Agreement, Pretzel Time shall be deemed to be a subsidiary of
the Company, and the assets of H&M shall be deemed to be assets of the Company.
The Guarantor and Pretzel Time are herein collectively referred to as the
?Material Subsidiaries.?
<PAGE>
1. Offering Circular. The Senior Notes will be offered and sold to the
Initial Purchasers pursuant to one or more exemptions from the registration
requirements under the Securities Act of 1933, as amended (the ?Securities
Act?). The Company and the Guarantor have prepared a preliminary offering
memorandum, dated November 6, 1997 (the ?Preliminary Offering Circular?) and a
final offering memorandum, dated November 20, 1997 (the ?Offering Circular?),
relating to the Senior Notes and the Guarantees.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Senior Notes (and all securities
issued in exchange therefor, in substitution thereof or upon conversion thereof)
shall bear the following legend:
?THIS SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
?SECURITIES ACT?), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A ?QUALIFIED INSTITUTIONAL BUYER? (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT)(A ?QIB?), (B) IT IS ACQUIRING
THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION
S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL ?ACCREDITED
INVESTOR? (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION
D UNDER THE SECURITIES ACT (AN ?ACCREDITED INVESTOR?), (2) AGREES THAT
IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A
UNDER THE SECURITIES ACT, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO
AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH
CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT
OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE TERMS ?OFFSHORE TRANSACTION? AND ?UNITED
STATES? HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING
THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING.?
<PAGE>
2. Agreements to Sell and Purchase. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree,
severally and not jointly, to purchase from the Company, the principal amounts
of Senior Notes set forth opposite the name of such Initial Purchaser on
Schedule A hereto at a purchase price equal to 97% of the principal amount
thereof (the ?Purchase Price?). In addition, Jefferies and BT shall receive an
advisory fee from the Company in an aggregate amount of $550,000, of which
Jefferies will receive $150,000 and BT will receive $400,000 (the ?Advisory
Fee?).
3. Terms of Offering. The Initial Purchasers have advised the Company
that the Initial Purchasers will make offers (the ?Exempt Resales?) of the
Senior Notes purchased hereunder on the terms set forth in the Offering
Circular, as amended or supplemented, solely to (i) persons whom the Initial
Purchasers reasonably believe to be ?qualified institutional buyers? as defined
in Rule 144A under the Securities Act (?QIBs?) and (ii) not more than ten other
institutional ?accredited investors,? as defined in Rule 501(a)(1),(2),(3) or
(7) of Regulation D under the Securities Act, that make certain representations
and agreements to the Company (each, an ?Accredited Institution?)(such persons
specified in clauses (i) and (ii) being referred to herein as the ?Eligible
Purchasers?). The Initial Purchasers will offer the Senior Notes to Eligible
Purchasers initially at a price equal to 100% of the principal amount thereof.
Such price may be changed at any time without notice.
Holders (including subsequent transferees) of the Senior Notes will
have the registration rights set forth in the registration rights agreement (the
?Registration Rights Agreement?), to be dated the Closing Date, in substantially
the form of Exhibit A hereto, for so long as such Senior Notes constitute
?Transfer Restricted Securities? (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, the Company and the
Guarantor will agree to file with the Securities and Exchange Commission (the
?Commission?) under the circumstances set forth therein, (i) a registration
statement under the Securities Act (the ?Exchange Offer Registration Statement?)
relating to the Company's 10?% Senior Notes due 2004, having terms identical to
those of the Senior Notes (the ?Exchange Notes?), and guarantees of the Exchange
Notes to be offered in exchange for the Senior Notes (such offer to exchange
being referred to as the ?Exchange Offer?) and the Guarantees thereof and (ii)
if applicable, a shelf registration statement pursuant to Rule 415 under the
Securities Act (the ?Shelf Registration Statement? and, together with the
Exchange Offer Registration Statement, the ?Registration Statements?) relating
to the resale by certain holders of the Senior Notes, and to use their best
efforts to cause such Registration Statements to be declared and remain
effective and usable for the periods specified in the Registration Rights
Agreement and to consummate the Exchange Offer. This Agreement, the Indenture,
the Senior Notes, the Guarantees and the Registration Rights Agreement are
hereinafter sometimes referred to collectively as the ?Operative Documents.?
<PAGE>
4. Delivery and Payment.
(a) Delivery of, and payment of the Purchase Price for, the Senior
Notes and payment by the Company of the Advisory Fee shall be made at the
offices of Latham & Watkins at 885 Third Avenue, New York, New York 10022, or
such other location as may be mutually acceptable. Such delivery and payments
shall be made at 9:00 a.m. New York City time, on November 26, 1997 or at such
other time as shall be agreed upon by the Initial Purchasers and the Company.
The time and date of such delivery and the payments are herein called the
?Closing Date.?
(b) Senior Notes sold by the Initial Purchasers to QIBs will be
represented by one or more Senior Notes in definitive global form, registered in
the name of Cede & Co., as nominee of The Depository Trust Company (?DTC?),
having an aggregate principal amount corresponding to the aggregate principal
amount of the Senior Notes sold to such QIBs (collectively, the ?Global Note?).
Senior Notes sold by the Initial Purchasers to Accredited Institutions will be
represented by one or more Senior Notes in definitive form, registered in the
name of such Accredited Institutions, having an aggregate principal amount
corresponding to the aggregate principal amount of the Senior Notes sold to such
Accredited Institutions (collectively, the ?Accredited Institution Note?). The
Global Note and the Accredited Institution Note shall be delivered by the
Company to the Initial Purchasers (or as the Initial Purchasers direct), in each
case with any transfer taxes thereon duly paid by the Company, against payment
by the Initial Purchasers of the Purchase Price thereof by wire transfer in
same-day funds to the order of the Company. The Global Note and the Accredited
Institution Note shall be made available to the Initial Purchasers for
inspection not later than 9:30 a.m., New York City time, on the business day
immediately preceding the Closing Date.
5. Agreements of the Company and the Guarantor. Each of the Company and
the Guarantor hereby agrees with the Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if requested by the
Initial Purchasers, confirm such advice in writing, (i) of the issuance by any
state securities commission of any stop order suspending the qualification or
exemption from qualification of any Senior Notes for offering or sale in any
jurisdiction designated by the Initial Purchasers pursuant to Section 5(e)
hereof, or the initiation of any proceeding by any state securities commission
or any other federal or state regulatory authority for such purpose and (ii) of
the happening of any event during the period referred to in Section 5(c) hereof
that makes any statement of a material fact made in the Preliminary Offering
Circular or the Offering Circular untrue or that requires any additions to or
changes in the Preliminary Offering Circular or the Offering Circular in order
to make the statements therein not misleading. The Company shall use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of any Senior Notes under any state securities or
Blue Sky laws and, if at any time any state securities commission or other
federal or state regulatory authority shall issue an order suspending the
qualification or exemption of any Senior Notes under any state securities or
Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time.
(b) At any time prior to the completion of Exempt Resales by the
Initial Purchasers, to furnish the Initial Purchasers as many copies of the
Preliminary Offering Circular and the Offering Circular, and any amendments or
supplements thereto, as the Initial Purchasers may reasonably request. Subject
to the Initial Purchasers' compliance with their representations and warranties
and agreements set forth in Section 7 hereof, the Company consents to the use of
the Preliminary Offering Circular and the Offering Circular, and any amendments
and supplements thereto required pursuant hereto, by the Initial Purchasers in
connection with Exempt Resales.
<PAGE>
(c) At any time prior to the completion of Exempt Resales by the
Initial Purchasers and in connection with market-making activities of the
Initial Purchasers for so long as any Senior Notes are outstanding, (i) not to
make any amendment or supplement to the Offering Circular of which the Initial
Purchasers shall not previously have been advised or to which the Initial
Purchasers shall reasonably object (within five business days after receiving a
copy thereof) after being so advised and (ii) to prepare promptly upon the
Initial Purchasers' reasonable request, any amendment or supplement to the
Offering Circular which may be necessary or advisable in connection with such
Exempt Resales or such market-making activities.
(d) If, during the period referred to in Section 5(c) hereof, any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel to the Initial Purchasers, it becomes necessary to amend or supplement
the Offering Circular in order to make the statements therein, in the light of
the circumstances when such Offering Circular is delivered to an Eligible
Purchaser, not misleading, or if, in the opinion of counsel to the Initial
Purchasers, it is necessary to amend or supplement the Offering Circular to
comply with any applicable law, forthwith to prepare an appropriate amendment or
supplement to such Offering Circular so that the statements therein, as so
amended or supplemented, will not, in the light of the circumstances when it is
so delivered, be misleading, or so that such Offering Circular will comply with
applicable law, and to furnish to the Initial Purchasers and such other persons
as the Initial Purchasers may designate such number of copies thereof as the
Initial Purchasers may reasonably request.
(e) Prior to the sale of all Senior Notes pursuant to Exempt Resales as
contemplated hereby, to cooperate with the Initial Purchasers and counsel to the
Initial Purchasers in connection with the registration or qualification of the
Senior Notes for offer and sale to the Initial Purchasers and pursuant to Exempt
Resales under the securities or Blue Sky laws of such jurisdictions as the
Initial Purchasers may reasonably request and to continue such qualification in
effect so long as required for Exempt Resales and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided that neither the Company nor the
Guarantor shall be required in connection therewith to register or qualify as a
foreign corporation in any jurisdiction in which it is not now so qualified or
to take any action that would subject it to general consent to service of
process or taxation in any jurisdiction in which it is not now so subject.
(f) So long as the Notes are outstanding, to furnish to the Initial
Purchasers as soon as available copies of all reports or other communications
furnished by the Company or any of the Guarantors to the holders of Notes or
furnished to or filed with the Commission or any national securities exchange on
which any class of securities of the Company or any of the Guarantors is listed
and such other publicly available information concerning the Company and/or its
subsidiaries as the Initial Purchasers may reasonably request.
<PAGE>
(g) So long as any of the Senior Notes remain outstanding and during
any period in which the Company and the Guarantors are not subject to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the ?Exchange
Act?), to make available to any holder of Senior Notes in connection with any
sale thereof and any prospective purchaser of such Senior Notes from such
holder, the information (?Rule 144A Information?)
required by Rule 144A(d)(4) under the Securities Act.
(h) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the obligations of the Company and the
Guarantor under this Agreement, including (i) the fees, disbursements and
expenses of counsel to the Company and the Guarantor and accountants of the
Company and the Guarantor in connection with the sale and delivery of the Senior
Notes to the Initial Purchasers and pursuant to Exempt Resales, and all other
fees or expenses in connection with the preparation, printing, filing and
distribution of the Preliminary Offering Circular, the Offering Circular and all
amendments and supplements to any of the foregoing (including financial
statements) specified in Section 5(b) and 5(c) hereof prior to or during the
period specified in Section 5(c) hereof, including the mailing and delivery of
copies thereof to the Initial Purchasers in the quantities specified herein,
(ii) all costs and expenses related to the transfer and delivery of the Senior
Notes to the Initial Purchasers and pursuant to Exempt Resales, including any
transfer or other taxes payable thereon, (iii) all costs of printing or
producing this Agreement, the other Operative Documents and any other agreements
or documents in connection with the offering, purchase, sale or delivery of the
Senior Notes, (iv) all expenses in connection with the registration or
qualification of the Senior Notes and the Guarantees for offer and sale under
the securities or Blue Sky laws of the several states and all costs of printing
or producing any preliminary and supplemental Blue Sky memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel for
the Initial Purchasers in connection with such registration or qualification and
memoranda relating thereto), (v) the cost of printing certificates representing
the Senior Notes and the Guarantees, (vi) all expenses and listing fees in
connection with the application for quotation of the Senior Notes in the
National Association of Securities Dealers, Inc. (?NASD?) Automated Quotation
System - PORTAL (?PORTAL?), (vii) the fees and expenses of the Trustee and the
Trustee's counsel in connection with the Indenture, the Notes and the
Guarantees, (viii) the costs and charges of any transfer agent, registrar and/or
depositary (including DTC), (ix) any fees charged by rating agencies for the
rating of the Notes, (x) all costs and expenses of the Exchange Offer and any
Registration Statement, as set forth in the Registration Rights Agreement, (xi)
all out-of-pocket expenses incurred by Jefferies in connection with its services
rendered and to be rendered under the letter agreement, dated October 21, 1997,
between the Company and Jefferies (including, without limitation, the fees and
disbursements of Jefferies' counsel, travel and lodging expenses, word
processing charges, messenger and duplicating services, facsimile expenses and
other customary expenditures) up to a maximum amount of $450,000, and (xii) all
other costs and expenses incident to the performance of the obligations of the
Company and the Guarantor hereunder for which provision is not otherwise made in
this Section.
(i) To use its best efforts to effect the inclusion of the Senior Notes
in PORTAL and to maintain the listing of the Senior Notes on PORTAL for so long
as the Senior Notes are outstanding.
<PAGE>
(j) To obtain the approval of DTC for ?book-entry? transfer of the
Notes, and to comply with all of its agreements set forth in the representation
letters of the Company and the Guarantors to DTC relating to the approval of the
Notes by DTC for ?book-entry? transfer.
(k) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of the Company or the
Guarantor or any warrants, rights or options to purchase or otherwise acquire
debt securities of the Company or the Guarantor substantially similar to the
Senior Notes and the Guarantees (other than (i) the Senior Notes and the
Guarantee and (ii) commercial paper issued in the ordinary course of business),
without the prior written consent of the Initial Purchasers.
(l) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Securities Act) that
would be integrated with the sale of the Senior Notes to the Initial Purchasers
or pursuant to Exempt Resales in a manner that would require the registration of
any such sale of the Senior Notes under the Securities Act.
(m) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by it prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Senior Notes and the Guarantee.
6. Representations, Warranties and Agreements of the Company and the
Guarantor. As of the date hereof, each of the Company and the Guarantor, jointly
and severally, represents and warrants to, and agrees with, the Initial
Purchasers that:
(a) The Preliminary Offering Circular did not, as of the date thereof,
and the Offering Circular does not, as of the date thereof, and will not, as of
the Closing Date, and any supplement or amendment to the Offering Circular, as
of the date thereof and as of the Closing Date, will not, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Circular or the
Offering Circular (or any supplement or amendment thereto) based upon
information relating to the Initial Purchasers furnished to the Company in
writing by the Initial Purchasers expressly for use therein (the ?Initial
Purchasers' Information?). The parties hereto acknowledge and agree that the
Initial Purchasers' Information consists solely of the statements with respect
to stabilization set forth in the fifth full paragraph on page ii and the
statements set forth under the caption ?Plan of Distribution? in the Preliminary
Offering Circular and the Offering Circular. No stop order preventing the use of
the Preliminary Offering Circular or the Offering Circular, or any amendment or
supplement thereto, or any order asserting that any of the transactions
contemplated by this Agreement are subject to the registration requirements of
the Securities Act, has been issued.
<PAGE>
(b) Each of the Company and Material Subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Preliminary Offering
Circular and the Offering Circular and to own, lease and operate its properties,
and each is duly qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the nature of its
business or its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not (i) have a material
adverse effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, or (ii) draw
into question the validity of this Agreement or the other Operative Documents (a
?Material Adverse Effect?).
(c) All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights.
(d) The entities listed on Schedule B hereto are the only subsidiaries,
direct or indirect, of the Company. All of the outstanding shares of capital
stock of each of the Company?s Material Subsidiaries have been duly authorized
and validly issued and are fully paid and non-assessable, and are owned by the
Company, directly or indirectly through one or more subsidiaries (other than 44%
of the shares of common stock of Pretzel Time), free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature (each, a
?Lien?). No subsidiary listed on Schedule B hereto, other than the Material
Subsidiaries, is a ?significant subsidiary? of the Company (as such term is
defined in Rule 1-02 of Regulation S-X under the Securities Act).
(e) The Company and its subsidiaries do not have any ownership interest
in any joint venture.
(f) This Agreement has been duly authorized, executed and delivered by
the Company and the Guarantor.
(g) The Indenture has been duly authorized by the Company and the
Guarantor and, when the Indenture has been duly executed and delivered by the
Company and the Guarantor, the Indenture will be a valid and binding agreement
of the Company and the Guarantor, enforceable against the Company and the
Guarantor in accordance with its terms except as (i) the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting creditors?
rights generally and (ii) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability.
<PAGE>
(h) The Senior Notes have been duly authorized and, when the Senior
Notes have been issued, executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Senior Notes will
be entitled to the benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable in accordance with their terms, except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors? rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the Senior
Notes will conform as to legal matters to the description thereof contained in
the Offering Circular.
(i) The Exchange Notes have been duly authorized by the Company. When
the Exchange Notes are issued, executed and authenticated in accordance with the
terms of the Exchange Offer and the Indenture, the Exchange Notes will be
entitled to the benefits of the Indenture and will be the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability.
(j) The Guarantee to be endorsed on the Senior Notes by the Guarantor
has been duly authorized by the Guarantor and, when the Senior Notes have been
issued, executed and authenticated in accordance with the Indenture and
delivered to and paid for by the Initial Purchasers in accordance with the terms
of this Agreement, the Guarantee of the Guarantor endorsed thereon will be
entitled to the benefits of the Indenture and will be the valid and binding
obligation of the Guarantor, enforceable against the Guarantor in accordance
with its terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. On the Closing Date,
the Guarantees to be endorsed on the Senior Notes will conform as to legal
matters to the description thereof contained in the Offering Circular.
(k) The Guarantee to be endorsed on the Exchange Notes by the Guarantor
has been duly authorized by the Guarantor and, when the Exchange Notes have been
issued, executed and authenticated in accordance with the terms of the Exchange
Offer and the Indenture, the Guarantee of the Guarantor endorsed thereon will be
entitled to the benefits of the Indenture and will be the valid and binding
obligation of the Guarantor, enforceable against the Guarantor in accordance
with its terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. When the Exchange
Notes are issued, authenticated and delivered, the Guarantees to be endorsed on
the Exchange Notes will conform as to legal matters to the description thereof
in the Offering Circular.
<PAGE>
(l) The Registration Rights Agreement has been duly authorized by the
Company and the Guarantor and, when the Registration Rights Agreement has been
duly executed and delivered by the Company and the Guarantor, the Registration
Rights Agreement will be a valid and binding agreement of the Company and the
Guarantor, enforceable against the Company and the Guarantor in accordance with
its terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. On the Closing Date,
the Registration Rights Agreement will conform as to legal matters to the
description thereof in the Offering Circular.
(m) Neither the Company nor any of its Material Subsidiaries is in
violation of its respective charter or bylaws or in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its Material Subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its Material Subsidiaries or their respective property is bound.
(n) The execution, delivery and performance of this Agreement and the
other Operative Documents by the Company and the Guarantor, compliance by the
Company and the Guarantor with all provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will not (i)
require any consent, approval, authorization or other order of, or qualification
with, any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (ii) conflict with
or constitute a breach of any of the terms or provisions of, or a default under,
the charter or bylaws of the Company or any of its Material Subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its Material Subsidiaries is a party or by which the Company
or any of its Material Subsidiaries or their respective property is bound, or
(iii) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency having
jurisdiction over the Company, any of its Material Subsidiaries or their
respective property.
(o) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is or could be a
party or to which any of their respective property is or could be subject, which
might result, singly or in the aggregate, in a Material Adverse Effect.
(p) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants (?Environmental Laws?) or any provisions of
the Employee Retirement Income Security Act of 1974, as amended (?ERISA?), or
the rules and regulations promulgated thereunder, except for such violations
which, singly or in the aggregate, would not have a Material Adverse Effect.
<PAGE>
(q) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a Material Adverse Effect.
(r) Each of the Company and its subsidiaries has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
(each, an ?Authorization?) of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
its subsidiaries is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its subsidiaries;
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(t) All leases to which the Company and its subsidiaries is a party are
valid, subsisting and enforceable leases, and no default has occurred or is
continuing thereunder which could, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect or materially and adversely affect
the offering of the Senior Notes, and the Company and its subsidiaries enjoy
peaceful and undisturbed possession to which any of them is a party as lessee
(with such exceptions as do not materially interfere with the use made by the
Company or such subsidiary).
(u) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names (?intellectual property?) currently employed by
them in connection with the business now operated by them, except where the
failure to own or possess or otherwise be able to acquire such intellectual
property would not, singly or in the aggregate, have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of such intellectual property which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
<PAGE>
(w) Except as disclosed in the Offering Circular, no relationship,
direct or indirect, exists between or among the Company or any of its
subsidiaries, on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company or any of its subsidiaries, on the other
hand, which would be required by the Securities Act to be described in the
Offering Circular if the Offering Circular were a prospectus included in a
registration statement on Form S-1 filed with the Commission.
(y) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management?s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management?s general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(aa) All indebtedness of the Company and the Guarantor that will be
repaid with the proceeds of the issuance and sale of the Senior Notes was
incurred, and the indebtedness represented by the Senior Notes and the Guarantee
is being incurred, for proper purposes and in good faith, and each of the
Company and the Guarantor was at the time of the incurrence of such indebtedness
that will be repaid with the proceeds of the issuance and sale of the Senior
Notes, and will be on the Closing Date (after giving effect to the application
of the proceeds from the issuance of the Senior Notes), solvent, and had at the
time of the incurrence of such indebtedness that will be repaid with the
proceeds of the issuance and sale of the Senior Notes, and will have on the
Closing Date (after giving effect to the application of the proceeds from the
issuance of the Senior Notes), sufficient capital for carrying on their
respective business and were at the time of the incurrence of such indebtedness
that will be repaid with the proceeds of the issuance and sale of the Senior
Notes, and will be on the Closing Date (after giving effect to the application
of the proceeds from the issuance of the Senior Notes), able to pay their
respective debts as they mature.
<PAGE>
(ac) The accountants, Arthur Andersen L.L.P. and Deloitte & Touche LLP,
that have certified the financial statements and supporting schedules included
in the Preliminary Offering Circular and the Offering Circular are independent
public accountants with respect to the Company and the Guarantor, as required by
the Securities Act and the Exchange Act. The historical financial statements,
together with related schedules and notes, set forth in the Preliminary Offering
Circular and the Offering Circular comply as to form in all material respects
with the requirements applicable to registration statements on Form S-1 under
the Securities Act.
(ad) The historical financial statements, together with related
schedules and notes forming part of the Offering Circular (and any amendment or
supplement thereto), present fairly the consolidated financial position, results
of operations and changes in financial position of the Company and its
subsidiaries on the basis stated in the Offering Circular at the respective
dates or for the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed therein; and the other financial information set
forth in the Offering Circular (and any amendment or supplement thereto) are, in
all material respects, accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company.
(ae) The pro forma financial statements included in the Preliminary
Offering Circular and the Offering Circular have been prepared on a basis
consistent with the historical financial statements of the Company and its
subsidiaries and give effect to assumptions used in the preparation thereof on a
reasonable basis and in good faith and present fairly the historical and
proposed transactions contemplated by the Preliminary Offering Circular and the
Offering Circular; and such pro forma financial statements comply as to form in
all material respects with the requirements applicable to pro forma financial
statements included in registration statements on Form S-1 under the Securities
Act. The other pro forma financial information included in the Offering Circular
are, in all material respects, accurately presented and prepared on a basis
consistent with the pro forma financial statements.
(af) The Company is not and, after giving effect to the offering and
sale of the Senior Notes and the application of the net proceeds thereof as
described in the Offering Circular, will not be, an ?investment company,? as
such term is defined in the Investment Company Act of 1940, as amended (the
?Investment Company Act?).
(ag) Other than the Registration Rights Agreement, there are no
contracts, agreements or understandings between the Company or the Guarantor and
any person granting such person the right to require the Company or the
Guarantor to file a registration statement under the Securities Act with respect
to any securities of the Company or the Guarantor or to require the Company or
the Guarantor to include such securities with the Notes and Guarantees
registered pursuant to any Registration Statement.
(ah) Neither the Company nor any of its subsidiaries nor any agent
thereof acting on the behalf of them has taken, and none of them will take, any
action that might cause this Agreement or the issuance or sale of the Senior
Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part
220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of
the Board of Governors of the Federal Reserve System.
<PAGE>
(ai) Since the respective dates as of which information is given in the
Offering Circular other than as set forth in the Offering Circular (exclusive of
any amendments or supplements thereto subsequent to the date of this Agreement),
(i) there has not occurred any material adverse change or any development
involving a prospective material adverse change in the condition, financial or
otherwise, or the earnings, business, management or operations of the Company
and its subsidiaries, taken as a whole, (ii) there has not been any material
adverse change or any development involving a prospective material adverse
change in the capital stock or in the long-term debt of the Company or any of
its subsidiaries and (iii) neither the Company nor any of its subsidiaries has
incurred any material liability or obligation, direct or contingent.
(aj) Each of the Preliminary Offering Circular and the Offering
Circular, as of its date, contains all the information specified in, and meeting
the requirements of, Rule 144A(d)(4) under the Securities Act.
(ak) When the Senior Notes and the Guarantee are issued and delivered
pursuant to this Agreement, neither the Senior Notes nor the Guarantee will be
of the same class (within the meaning of Rule 144A under the Securities Act) as
any security of the Company or the Guarantor that is listed on a national
securities exchange registered under Section 6 of the Exchange Act or that is
quoted in a United States automated inter-dealer quotation system.
(al) No form of general solicitation or general advertising (as defined
in Regulation D under the Securities Act) was used by the Company, the Guarantor
or any of their respective representatives (other than the Initial Purchasers,
as to whom the Company and the Guarantor make no representation) in connection
with the offer and sale of the Senior Notes contemplated hereby, including, but
not limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as the
Senior Notes have been issued and sold by the Company within the six-month
period immediately prior to the date hereof.
(am) Prior to the effectiveness of any Registration Statement, the
Indenture is not required to be qualified under the TIA.
(an) No registration under the Securities Act of the Senior Notes or
the Guarantee is required for the sale of the Senior Notes and the Guarantee to
the Initial Purchasers as contemplated hereby or for the Exempt Resales assuming
the accuracy of the Initial Purchasers' representations and warranties and
agreements set forth in Section 7 hereof.
(ap) Each certificate signed by any officer of the Company or the
Guarantor and delivered to the Initial Purchasers or counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by the Company or
the Guarantor to the Initial Purchasers as to the matters covered thereby.
<PAGE>
The Company and the Guarantor acknowledge that the Initial Purchasers
and, for purposes of the opinions to be delivered to the Initial Purchasers
pursuant to Section 9 hereof, counsel to the Company and the Guarantor and
counsel to the Initial Purchasers will rely upon the accuracy and truth of the
foregoing representations and hereby consent to such reliance.
7. Initial Purchasers' Representations and Warranties. Each of the
Initial Purchasers, severally and not jointly, represents and warrants to the
Company and the Guarantor, and agrees that:
(a) Such Initial Purchaser is either a QIB or an Accredited
Institution, in either case, with such knowledge and experience in financial and
business matters as is necessary in order to evaluate the merits and risks of an
investment in the Senior Notes.
(b) Such Initial Purchaser (i) is not acquiring the Senior Notes with a
view to any distribution thereof or with any present intention of offering or
selling any of the Senior Notes in a transaction that would violate the
Securities Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (ii) will be reoffering and reselling the
Senior Notes only to (A) QIBs in reliance on the exemption from the registration
requirements of the Securities Act provided by Rule 144A and (B) not more than
ten Accredited Institutions that execute and deliver a letter containing certain
representations and agreements in the form attached as Annex A to the Offering
Circular.
(c) Such Initial Purchaser agrees that no form of general solicitation
or general advertising (within the meaning of Regulation D under the Securities
Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Senior Notes
pursuant hereto, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
<PAGE>
(d) Such Initial Purchaser agrees that, in connection with Exempt
Resales, such Initial Purchaser will solicit offers to buy the Senior Notes only
from, and will offer to sell the Senior Notes only to, Eligible Purchasers. Each
Initial Purchaser further agrees that it will offer to sell the Senior Notes
only to, and will solicit offers to buy the Senior Notes only from (i) Eligible
Purchasers that the Initial Purchaser reasonably believes are QIBs, and (ii)
Accredited Institutions who make the representations contained in, and execute
and return to the Initial Purchasers, a certificate in the form of Annex A
attached to the Offering Circular, in each case, that agree that (A) the Senior
Notes purchased by them may be resold, pledged or otherwise transferred within
the time period referred to under Rule 144(k) (taking into account the
provisions of Rule 144(d) under the Securities Act, if applicable) under the
Securities Act, as in effect on the date of the transfer of such Senior Notes,
only (1) to the Company or any of its subsidiaries, (2) to a person whom the
seller reasonably believes is a QIB purchasing for its own account or for the
account of a QIB in a transaction meeting the requirements of Rule 144A under
the Securities Act, (3) in an offshore transaction (as defined in Rule 902 under
the Securities Act) meeting the requirements of Rule 904 of the Securities Act,
(4) in a transaction meeting the requirements of Rule 144 under the Securities
Act, (5) to an Accredited Institution that, prior to such transfer, furnishes
the Trustee a signed letter containing certain representations and agreements
relating to the registration of transfer of such Senior Note (the form of which
can be obtained from the Trustee) and, if such transfer is in respect of an
aggregate principal amount of Senior Notes less than $250,000, an opinion of
counsel acceptable to the Company that such transfer is in compliance with the
Securities Act, (6) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
acceptable to the Company) or (7) pursuant to an effective registration
statement and, in each case, in accordance with the applicable securities laws
of any state of the United States or any other applicable jurisdiction and (B)
they will deliver to each person to whom such Senior Notes or an interest
therein is transferred a notice substantially to the effect of the foregoing.
The Initial Purchasers acknowledge that the Company and the Guarantor
and, for purposes of the opinions to be delivered to each Initial Purchaser
pursuant to Section 9 hereof, counsel to the Company and the Guarantor and
counsel to the Initial Purchasers will rely upon the accuracy and truth of the
foregoing representations and the Initial Purchasers hereby consent to such
reliance.
<PAGE>
8. Indemnification.
(a) The Company and the Guarantor agree, jointly and severally, to
indemnify and hold harmless each Initial Purchaser, its directors, its officers
and each person, if any, who controls such Initial Purchaser within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Offering Circular (or any amendment or supplement
thereto), the Preliminary Offering Circular or any Rule 144A Information
provided by the Company or the Guarantor to any holder or prospective purchaser
of Senior Notes pursuant to Section 5(h) hereof or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
the Initial Purchasers' Information.
(b) Each Initial Purchaser agrees, severally and not jointly, to
indemnify and hold harmless the Company and the Guarantor, and their respective
directors and officers and each person, if any, who controls (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) the
Company or the Guarantor, to the same extent as the foregoing indemnity from the
Company and the Guarantor to the Initial Purchasers but only with reference to
Initial Purchasers' Information.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) hereof
(the ?indemnified party?), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the ?indemnifying party?) in
writing, and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that, in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b) hereof, the Initial Purchasers
shall not be required to assume the defense of such action pursuant to this
Section 8(c), but may employ separate counsel and participate in the defense
thereof; however, the fees and expenses of such counsel, except as provided
below, shall be at the expense of the Initial Purchasers). Any indemnified party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed to assume the
defense of such action or employ counsel reasonably satisfactory to the
indemnified party within a reasonable period of time after notice of the
institution of such action or (iii) the named parties to any such action
(including any impleaded parties) include both the indemnified party and the
indemnifying party, and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred (upon written request and presentation of
reasonably satisfactory invoices). Such firm shall be designated in writing by
Jefferies & Company, Inc., in the case of the parties indemnified pursuant to
<PAGE>
Section 8(a) hereof, and by the Company, in the case of parties indemnified
pursuant to Section 8(b) hereof. The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have received written
notice of such settlement and shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantor, on the one hand, and the Initial Purchasers, on the
other hand, from the offering of the Senior Notes or (ii) if the allocation
provided by clause 8(d)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(d)(i) above but also the relative fault of the Company and the
Guarantor, on the one hand, and the Initial Purchasers, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Guarantor, on the one hand, and the Initial Purchasers, on the other hand, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Senior Notes (before deducting expenses) received by the
Company, and the total discounts and commissions received by the Initial
Purchasers bear to the total price to investors of the Senior Notes, in each
case as set forth in the table on the cover page of the Offering Circular. The
relative fault of the Company and the Guarantor, on the one hand, and the
Initial Purchasers, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Guarantor, on the one hand, or the
Initial Purchasers, on the other hand.
<PAGE>
The Company and the Guarantor and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to this Section
8(d) were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purposes) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses incurred
by such indemnified party in connection with investigating or defending any
matter, including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Initial Purchaser shall be required to contribute any amount in
excess of the amount by which the total price of the Senior Notes purchased by
it were sold to investors in Exempt Resales exceeds the amount of any damages
which such Initial Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) hereof of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The Initial
Purchasers' obligations to contribute pursuant to this Section 8(d) are several
in proportion to the respective principal amount of Senior Notes purchased by
each of the Initial Purchasers hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
9. Conditions of Initial Purchasers' Obligations. The obligations of
the Initial Purchasers to purchase the Senior Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and the
Guarantor contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing Date.
(b) On or after the date hereof, (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall any notice have been given
of any potential or intended downgrading, suspension or withdrawal of, or of any
review (or of any potential or intended review) for a possible change that does
not indicate the direction of the possible change in, any rating of the Company
or the Guarantor or any securities of the Company or the Guarantor (including,
without limitation, the placing of any of the foregoing ratings on credit watch
with negative or developing implications or under review with an uncertain
direction) by Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, Inc., or Moody's Investors Service, Inc., (ii) there shall not have
occurred any change, nor shall notice have been given of any potential or
intended change, in the outlook for any rating of the Company or the Guarantor
by any such rating organization and (iii) no such rating organization shall have
given notice that it has assigned (or is considering assigning) a lower rating
to the Notes than that on which the Notes were marketed.
<PAGE>
(c) Since the respective dates as of which information is given in the
Offering Circular other than as set forth in the Offering Circular (exclusive of
any amendments or supplements thereto subsequent to the date of this Agreement),
(i) there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(c)(i),
9(c)(ii) or 9(c)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Senior Notes on the terms and in
the manner contemplated in the Offering Circular.
(d) The Initial Purchasers shall have received on the Closing Date a
certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of the Company, confirming the matters set forth in Sections
9(a), 9(b) and 9(c) hereof.
(e) The Initial Purchasers shall have received on the Closing Date an
opinion (in form and substance reasonably satisfactory to the Initial Purchasers
and counsel for the Initial Purchasers), dated the Closing Date, of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel for the Company and the Guarantor, as
to the matters set forth in Exhibit B hereto and such additional matters or
modifications as to which the parties hereto mutually agree.
(f) The Initial Purchasers shall have received on the Closing Date an
opinion (in form and substance reasonably satisfactory to the Initial Purchasers
and counsel for the Initial Purchasers), dated the Closing Date, of Michael
Ward, Esq., general counsel for the Company and the Guarantor, as to the matters
set forth in Exhibit C hereto and such additional matters and modifications as
to which the parties hereto mutually agree.
(g) The Initial Purchasers shall have received on the Closing Date an
opinion (in form and substance reasonably satisfactory to the Initial Purchasers
and counsel for the Initial Purchasers), dated the Closing Date, of special
Pennsylvania counsel for the Company and the Guarantor, as to the matters set
forth in Exhibit D hereto.
(h) The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of Latham & Watkins, counsel for the Initial
Purchasers, in form and substance reasonably satisfactory to the Initial
Purchasers.
(i) The Initial Purchasers shall have received, at the time this
Agreement is executed and at the Closing Date, letters dated the date hereof or
the Closing Date, as the case may be, in form and substance satisfactory to the
Initial Purchasers from each of Arthur Andersen L.L.P. and Deloitte & Touche
LLP, independent public accountants, containing the information and statements
of the type ordinarily included in accountants' ?comfort letters? to the Initial
Purchasers with respect to the financial statements and certain financial
information contained in the Offering Circular.
<PAGE>
(h) Concurrent with the issue and sale of the Senior Notes, the
Transactions shall be consummated on terms that conform in all material respects
to the description thereof in the Offering Circular, and the Initial Purchasers
shall have received true and correct copies of all documents pertaining thereto
and evidence satisfactory to the Initial Purchasers of the consummation thereof.
(i) The Senior Notes shall have been approved by the NASD for trading
and duly listed in PORTAL.
(j) The Initial Purchasers shall have received a counterpart, conformed
as executed, of the Indenture which shall have been entered into by the Company,
the Guarantor and the Trustee.
(k) The Company and the Guarantor shall have executed the Registration
Rights Agreement and the Initial Purchasers shall have received an original copy
thereof, duly executed by the Company and the Guarantor.
(l) The Company shall not have failed at or prior to the Closing Date
to perform or comply with any of the agreements herein contained and required to
be performed or complied with by the Company at or prior to the Closing Date.
10. Effectiveness of Agreement and Termination. This Agreement shall
become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time prior to the Closing Date
by the Initial Purchasers by written notice to the Company if any of the
following has occurred: (i) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions or
in the financial markets of the United States that, in the Initial Purchasers'
judgment, is material and adverse and, in the Initial Purchasers' judgment,
makes it impracticable to market the Senior Notes on the terms and in the manner
contemplated in the Offering Circular, (ii) the suspension or material
limitation of trading in securities or other instruments on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market or
limitation on prices for securities or other instruments on any such exchange or
the Nasdaq National Market, (iii) the declaration of a banking moratorium by
either federal or New York State authorities or (iv) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the opinion of the Initial Purchasers has a material
adverse effect on the financial markets in the United States.
<PAGE>
If on the Closing Date any one or more of the Initial Purchasers shall
fail or refuse to purchase the Senior Notes which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of the Senior
Notes which such defaulting Initial Purchaser or Initial Purchasers, as the case
may be, agreed but failed or refused to purchase is not more than one-tenth of
the aggregate principal amount of the Senior Notes to be purchased on such date
by all Initial Purchasers, each non-defaulting Initial Purchaser shall be
obligated severally, in the proportion which the principal amount of the Senior
Notes set forth opposite its name in Schedule A bears to the aggregate principal
amount of the Senior Notes which all the non-defaulting Initial Purchasers, as
the case may be, have agreed to purchase, or in such other proportion as you may
specify, to purchase the Senior Notes which such defaulting Initial Purchaser or
Initial Purchasers, as the case may be, agreed but failed or refused to purchase
on such date; provided that in no event shall the aggregate principal amount of
the Senior Notes which any Initial Purchaser has agreed to purchase pursuant to
Section 2 hereof be increased pursuant to this Section 10 by an amount in excess
of one-ninth of such principal amount of the Senior Notes without the written
consent of such Initial Purchaser. If on the Closing Date any Initial Purchaser
or Initial Purchasers shall fail or refuse to purchase the Senior Notes and the
aggregate principal amount of the Senior Notes with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of the
Senior Notes to be purchased by all Initial Purchasers and arrangements
satisfactory to the Initial Purchasers and the Company for purchase of such
Senior Notes are not made within 48 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Initial
Purchaser and the Company. In any such case which does not result in termination
of this Agreement, either you or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Offering Circular or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Initial Purchaser from liability in respect of any
default of any such Initial Purchaser under this Agreement.
11. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company or the Guarantor,
to Mrs. Fields' Original Cookies, Inc., 462 West Bearcat Drive, Salt Lake City,
Utah 84115, and (ii) if to the Initial Purchasers, to Jefferies & Company, Inc.,
11100 Santa Monica Boulevard, Los Angeles, California 90025, Attention:
Syndicate Department, or in any case to such other address as the person to be
notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Guarantor and the Initial
Purchasers set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Senior Notes, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Initial Purchaser, the officers
or directors of any Initial Purchaser, any person controlling any Initial
Purchaser, the Company, the Guarantor, the officers or directors of the Company
or the Guarantor, or any person controlling the Company or the Guarantor, (ii)
acceptance of the Senior Notes and payment for them hereunder and (iii)
termination of this Agreement.
<PAGE>
If for any reason the Senior Notes are not delivered by or on behalf of
the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10 hereof), the Company and the Guarantor,
jointly and severally, agree to reimburse the Initial Purchasers for all
out-of-pocket expenses (including the fees and disbursements of counsel)
incurred by them. Notwithstanding any termination of this Agreement, the Company
shall be liable for all expenses which it has agreed to pay pursuant to Section
5(i) hereof. The Company and the Guarantor also agree, jointly and severally, to
reimburse each Initial Purchaser and its officers, directors and each person, if
any, who controls such Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act for any and all fees and
expenses (including, without limitation, the fees and expenses of counsel)
incurred by it in connection with enforcing its rights under this Agreement
(including, without limitation, its rights under this Section 8).
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Guarantor,
the Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, the directors of the Company and the
Guarantor and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term ?successors and assigns? shall
not include a purchaser of any of the Senior Notes from the Initial Purchasers
merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
internal laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
<PAGE>
19
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Guarantor and the Initial Purchasers.
Very truly yours,
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:
Name:
Title:
MRS. FIELDS' BRAND, INC.
By:
Name:
Title:
<PAGE>
20
Agreed and accepted as of the date first above written:
JEFFERIES & COMPANY, INC.
By: ___________________________________
Name:
Title:
BT ALEX. BROWN INCORPORATED
By: ___________________________________
Name:
Title:
<PAGE>
<TABLE>
<CAPTION>
S-2
SCHEDULE A
<S> <C>
Principal Amount of
Initial Purchasers Notes
- ----------------------------------------------------------------- ---------------------------------
Jefferies & Company, Inc..................................... $70,000,000
BT Alex. Brown Incorporated.................................. $30,000,000
---------------------------------
Total $ 100,000,000
</TABLE>
<PAGE>
SCHEDULE B
Subsidiaries of the Company
Airport Cookies, Inc.
Fairfield Foods, Inc.
Mrs. Fields Cookies (Canada) Ltd.
Mrs. Fields Cookies Australia
Mrs. Fields Limited
Mrs. Fields Other Names, Inc.
Pretzel Time, Inc.
<PAGE>
A-1
EXHIBIT A
Form of Registration Rights Agreement
<PAGE>
B-2
EXHIBIT B
Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
(i) Each of the Company and the Guarantor has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Preliminary Offering Circular and the
Offering Circular and to own, lease and operate its properties.
(ii) Each of the Company and the Guarantor is duly qualified and is in
good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect.
(iii) The Senior Notes have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and delivered
to and paid for by the Initial Purchasers in accordance with the terms of this
Agreement, will be entitled to the benefits of the Indenture and will be valid
and binding obligations of the Company, enforceable in accordance with their
terms except as (A) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors? rights generally and (B) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(iv) The Guarantees have been duly authorized and, when the Senior
Notes are executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers in accordance
with the terms of this Agreement, the Guarantees endorsed thereon will be
entitled to the benefits of the Indenture and will be valid and binding
obligations of the Guarantor, enforceable in accordance with their terms except
as (A) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (B) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(v) The Indenture has been duly authorized, executed and delivered by
the Company and each Guarantor and is a valid and binding agreement of the
Company and each Guarantor, enforceable against the Company and each Guarantor
in accordance with its terms except as (A) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (B) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.
<PAGE>
(vi) This Agreement has been duly authorized, executed and delivered by
the Company and the Guarantor.
(vii) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and the Guarantor and is a valid and
binding agreement of the Company and each Guarantor, enforceable against the
Company and each Guarantor in accordance with its terms, except as (A) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (B) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(viii) The Exchange Notes have been duly authorized.
(ix) The guarantees of the Exchange Notes have been duly authorized.
(x) The statements under the captions ?Certain Relationships and
Related Transactions,? ?Description of Senior Notes? and ?Certain Federal Income
Tax Considerations? in the Offering Circular, insofar as such statements
constitute a summary of the legal matters, documents or proceedings referred to
therein, fairly present in all material respects such legal matters, documents
and proceedings.
(xi) The execution, delivery and performance of this Agreement and the
other Operative Documents by the Company and each of the Guarantor, compliance
by the Company and each of the Guarantor with all provisions hereof and thereof
and the consummation of the transactions contemplated hereby and thereby will
not (A) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as may
be required under the securities or Blue Sky laws of the various states), (B)
conflict with or constitute a breach of any of the terms or provisions of, or a
default under, the charter or bylaws of the Company or any of its subsidiaries
or any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or their respective property is bound, or
(C) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency having
jurisdiction over the Company, any of its subsidiaries or their respective
property.
(xii) The Company is not and, after giving effect to the offering and
sale of the Senior Notes and the application of the net proceeds thereof as
described in the Offering Circular, will not be, an ?investment company? as such
term is defined in the Investment Company Act.
(xiii) The Indenture complies as to form in all material respects with
the requirements of the TIA, and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder. It is not necessary in
connection with the offer, sale and delivery of the Senior Notes to the Initial
Purchasers in the manner contemplated by this Agreement or in connection with
the Exempt Resales to qualify the Indenture under the TIA.
(xiv) No registration under the Securities Act of the Senior Notes is
required for the sale of the Senior Notes to the Initial Purchasers as
contemplated by this Agreement or for the Exempt Resales assuming that (A) each
Initial Purchaser is a QIB or an Accredited Institution, (B) the accuracy of,
and compliance with, the Initial Purchasers' representations and agreements
contained in Section 7 of this Agreement, (C) the accuracy of, and compliance
with, the representations and agreements of the Company and the Guarantor set
forth in Sections 5(h), 5(l), 5(m), 6(aj), 5(ak) and 6(al) hereof.
<PAGE>
(xv) Such counsel has no reason to believe that, as of the date of the
Offering Circular or as of the Closing Date, the Offering Circular, as amended
or supplemented, if applicable (except for the financial statements and other
financial data included therein, as to which such counsel need not express any
belief) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
The opinion of Skadden, Arps, Slate, Meagher & Flom LLP shall be
rendered to the Initial Purchasers at the request of the Company and the
Guarantor and shall so state therein. In giving such opinion with respect to the
matters covered by (xv) hereof, Skadden, Arps, Slate, Meagher & Flom LLP may
state that their opinion and belief are based upon their participation in the
preparation of the Offering Circular and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification except as specified.
<PAGE>
C-1
EXHIBIT C
Form of Opinion of In-House Counsel to the Company
(i) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, free and clear of
any Lien.
(ii) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws and, to the best of such counsel's knowledge
after due inquiry, neither the Company nor any of its subsidiaries is in default
in the performance of any obligation, agreement, covenant or condition contained
in any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or their respective property is bound.
(iii) After due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is or could be a party or to which any of their respective
property is or could be subject, which might result, singly or in the aggregate,
in a Material Adverse Effect.
(iv) To the best of such counsel's knowledge after due inquiry, there
are no contracts, agreements or understandings between the Company or the
Guarantor and any person granting such person the right to require the Company
or the Guarantor to file a registration statement under the Securities Act with
respect to any securities of the Company or the Guarantor or to require the
Company or the Guarantor to include such securities with the Notes and
Guarantees registered pursuant to any Registration Statement.
<PAGE>
D-1
EXHIBIT D
Form of Opinion of Pennsylvania Counsel
A. Pretzel Time has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
and has the corporate power and authority to carry on its business as described
in the Preliminary Offering Circular and the Offering Circular and to own, lease
and operate its properties.
B. Pretzel Time is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect.
C. All the outstanding shares of capital stock of Pretzel Time have
been duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights, and are owned by the Company,
free and clear of any Lien.
RESTATED CERTIFICATE OF INCORPORATION
OF
COOKIE ACQUISITION, INC.
(Pursuant to Sections 241 and 245 of the
Delaware General Corporation Law)
Cookie Acquisition, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), does hereby certify
as follows:
1. The Corporation's present name is Cookie Acquisition, Inc.
3. The date of filing of its original Certificate of Incorporation
with the Secretary of State was February 13, 1996.
5. The text of the Certificate of Incorporation, as heretofore
amended and supplemented, is hereby amended and restated to read in full as set
forth below in this paragraph 3:
7. FIRST: The name of the Corporation is Mrs. Fields' Original
Cookies, Inc. (hereinafter the "Corporation").
9. SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Prentice-Hall Corporation System, Inc..
11. THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a
12. corporation may be organized under the General
13. Corporation Law of the State of Delaware as set forth in Title 8
of the Delaware Code (the "GCL").
15. FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is 1,000 shares of Common Stock, each
having a par value of $.01.
<PAGE>
18. FIFTH: The name and mailing address of the Sole Incorporator is as
follows:
19. Deborah M. Reusch P.O. Box 636 Wilmington, DE 19899
SIXTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
(3) The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided in, the By-Laws
of the Corporation. Election of directors need not be by written ballot
unless the By-Laws so provide.
(4) No director shall be personally liable to the Corporation
or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal or
modification of this Article SIXTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such
repeal or modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of Incorporation, and
any By-Laws adopted by the stockholders; provided, however, that no
By-Laws hereafter adopted by the stockholders shall invalidate any
prior act of the directors which would have been valid if such By-Laws
had not been adopted.
SEVENTH: Meetings of stockholders may be held within or
without the State of Delaware, as the By-Laws may provide. The books of the
Corporation may be kept (subject to any provision contained in the GCL) outside
the State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
1. This Restated Certificate of Incorporation was duly adopted
in accordance with Sections 241 and 245 of the Delware General Corporation Law.
3. I, THE UNDERSIGNED, being the Sole Incorporator
hereinbefore named, for the purpose of forming a corporation pursuant to the
GCL, do make this Certificate, hereby declaring and certifying that this is my
act and deed and the facts herein stated are true, and accordingly have hereunto
set my hand this 7th day of August, 1996.
6. /s/ Deborah M. Reusch
7. Deborah M. Reusch
8. Sole Incorporator
RESTATED CERTIFICATE OF INCORPORATION
OF
THE MRS. FIELDS' BRAND, INC.
(Pursuant to Sections 241 and 245 of the
Delaware General Corporation Law)
The Mrs. Fields' Brand, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify as follows:
1. The Corporation's present name is The Mrs. Fields' Brand, Inc.
3. The date of filing of its original Certificate of Incorporation with
the Secretary of State was July 31, 1996.
5. The text of the Certificate of Incorporation, as heretofore amended
and supplemented, is hereby amended and restated to read in full as
set forth below in this paragraph 3:
7. FIRST: The name of the Corporation is The Mrs. Fields' Brand, Inc.
(hereinafter the "Corporation").
9. SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, in the City of Wilmington,
County of New Castle. The name of its registered agent at that address
is The Prentice-Hall Corporation System, Inc..
11. THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a 12. corporation may be organized under the
General 13. Corporation Law of the State of Delaware as set forth in
Title 8 of the Delaware Code (the "GCL").
15. FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 1,200 shares, of which 1,000 shares
shall be Common Stock, par value $.01 per share, and 200 shares shall
be Preferred Stock, par value $.01 per share (the "Preferred Stock").
17. The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more
classes or series, and to fix for each such class or series such
voting powers, full or limited, or no voting powers, and such
distinctive designations, preferences and relative, participating,
optional or other special rights and such qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions adopted by the Board of Directors providing
for the issuance of such class or series and as may be permitted by
the GCL, including, without limitation, the authority to provide that
any such class or series may be (i) subject to redemption at such time
or times and at such price or prices; (ii) entitled to receive
dividends (which may be cumulative or non-cumulative) at such rates,
on such conditions, and at such times, and payable in preference to,
or in such relation to, the dividends payable on any other class or
classes or any other series; (iii) entitled to such rights upon the
dissolution of, or upon any distribution of the assets of, the
Corporation; or (iv) convertible into, or exchangeable for, shares of
any other class or classes of stock, or of any other series of the
same or any other class or classes of stock, of the Corporation at
such price or prices or at such rates of exchange and with such
adjustments; all as may be stated in such resolution or resolutions.
<PAGE>
19. FIFTH: The name and mailing address of the Sole Incorporator is as
------ follows:
20. Deborah M. Reusch P.O. Box 636 Wilmington, DE 19899
SIXTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
(3) The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided in, the By-Laws
of the Corporation. Election of directors need not be by written ballot
unless the By-Laws so provide.
(4) No director shall be personally liable to the Corporation
or any of its
stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal or
modification of this Article SIXTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such
repeal or modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of Incorporation, and
any By-Laws adopted by the stockholders; provided, however, that no
By-Laws hereafter adopted by the stockholders shall invalidate any
prior act of the directors which would have been valid if such By-Laws
had not been adopted.
SEVENTH: Meetings of stockholders may be held within or
without the State of Delaware, as the By-Laws may provide. The books of the
Corporation may be kept (subject to any provision contained in the GCL) outside
the State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
1. This Restated Certificate of Incorporation was duly adopted
in accordance with Sections 241 and 245 of the Delware General Corporation Law.
3. I, THE UNDERSIGNED, being the Sole Incorporator
hereinbefore named, for the purpose of forming a corporation pursuant to the
GCL, do make this Certificate, hereby declaring and certifying that this is my
act and deed and the facts herein stated are true, and accordingly have hereunto
set my hand this 7th day of August, 1996.
6. /s/ Deborah M. Reusch
7. Deborah M. Reusch
8. Sole Incorporator
Certificate of Designations
OF THE
Series A
10% CUMULATIVE
ACCRUING PREFERRED STOCK
OF
THE MRS. FIELDS' BRAND, INC.
-------------------------------------------
Pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware
-------------------------------------------
THE MRS. FIELDS' BRAND, INC. (the "Company"), a company organized and existing
under and by virtue of the provisions of the General Corporation Law of the
State of Delaware (the "DGCL"), certifies as follows:
FIRST: The Company was incorporated in the State of Delaware on July 31, 1996;
SECOND: The Restated Certificate of Incorporation of the
Company (the "Certificate of Incorporation") filed with the Secretary of the
State of Delaware on August 7, 1996, authorizes the issuance of 200 shares of
preferred stock, par value $.01 per share, and, further, authorizes the Board of
Directors of the Company (the "Board of Directors"), by resolution or
resolutions, at any time and from time to time, to divide and establish any or
all of the unissued shares of preferred stock into one or more classes or
series, and without limiting the generality of the foregoing, to fix and
determine the designation of each such class or series, the number of shares
which shall constitute such class or series and certain relative rights and
preferences of the shares of each class or series so established.
THIRD: The Board of Directors pursuant to authority conferred
upon the Board of Directors under the Certificate of Incorporation and by
written consent on September 17, 1996 did duly adopt the following resolutions
authorizing the issuance of a series of the Company's preferred stock, par value
$.01 per share, and setting forth the terms and provisions of said preferred
stock:
RESOLVED, that the Board of Directors, pursuant to authority vested in
it by the provisions of the Certificate of Incorporation, hereby
authorizes the creation and issuance of a series of the Company's
preferred stock, par value $.01 per share, which shall consist of up to
100 shares of the 200 shares of preferred stock that the Company now
has authority to issue, and hereby fixes the powers, designation,
dividend rate, redemption provisions, voting powers, rights on
liquidation or dissolution, and other preferences and relative
participating, optional or other rights, and the qualifications,
limitations or restrictions thereof (in addition to those set forth in
said Certificate of Incorporation) as follows:
<PAGE>
1. Designation. The preferred stock of the Company created and
authorized for issuance hereby shall be designated as "Series A 10% Cumulative
Accruing Preferred Stock" (the "Preferred Stock"). The Preferred Stock will
consist of 100 shares of such Preferred Stock.
3. Priority. The Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up or dissolution, whether
voluntary or involuntary, whether now or hereafter issued, rank (i) on a parity
with any other series of preferred stock established hereafter by the Board of
Directors, the terms of which shall specifically provide that such series shall
rank on parity with the Preferred Stock with respect to dividend rights and
rights on liquidation, winding up or dissolution, (all of such series of
preferred stock to which the Preferred Stock ranks on a parity are at all times
collectively referred to as "Parity Securities"), (ii) junior to any series of
preferred stock established by the Board of Directors, the terms of which shall
specifically provide that such series shall rank senior to the Preferred Stock
with respect to dividend rights and rights on liquidation, winding up or
dissolution (all of such series of preferred stock to which the Preferred Stock
ranks junior are at times collectively referred to herein as the "Senior
Securities"), and (iii) senior to the Company's Common Stock, $.01 par value per
share (the "Common Stock"), and, subject to clauses (i) and (ii) hereof, any
other equity securities of the Company, with respect to dividend rights and
rights on liquidation, winding up or dissolution (all of such equity securities
of the Company to which the Preferred Stock ranks senior, including the Common
Stock, are at times collectively referred to herein as the "Junior Securities").
Notwithstanding the foregoing, the Company shall not establish, create,
authorize or issue any shares of Parity Securities (other than additional series
of Preferred Stock) or Senior Securities without the prior written consent of a
majority of the holders of the Preferred Stock.
5. Dividends.
(a) Holders of shares of Preferred Stock shall be entitled to receive, out
of funds legally available for the payment of dividends ("Legally Available
Funds"), cumulative dividends for each share of Preferred Stock in an amount
equal to the annual rate of 10%(or $3,500 per share per year) accruable on a
daily basis from September 19, 1996 (the "Issuance Date"). All accrued but
unpaid dividends shall be compounded quarterly on each March 15, June 15,
September 15 and December 15, commencing on December 15, 1996, at a rate equal
to an annual rate of 10%. The Board of Directors shall declare and pay such
accrued dividends at such time as contemplated by section 5 hereof (a "Dividend
Payment Date") to the extent permitted by law and the Company's debt instruments
and related agreements from time to time outstanding (the "Debt Instruments")
subject to the provisions of section 3(c) hereof. Such dividends shall be paid
to the holders of record at the close of business on the date specified by the
Board of Directors of the Company at the time such dividend is declared;
provided, however, that such declaration date shall not be more than 60 days nor
less than 10 days prior to the respective Dividend Payment Date.
(c) All dividends paid with respect to shares of the Preferred Stock
pursuant to section 3(a) shall be paid pro rata to the holders entitled thereto.
(e) Notwithstanding anything contained herein to the contrary, no cash
dividends on shares of Preferred Stock shall be declared by the Board of
Directors or paid or set apart for payment by the Company at such time as the
terms and provisions of the Notes specifically prohibit such declaration,
payment or setting apart for payment or provide that such declaration, payment
or setting apart for payment would (or, with notice or lapse of time or both,
would) constitute a breach thereof or a default thereunder.
<PAGE>
(g) If at any time the Company shall have failed to pay all dividends which
have accrued on any outstanding shares of Senior Securities or any Parity
Securities at the times such dividends are payable, unless otherwise provided in
the terms of the Senior Securities or the Parity Securities, no cash or stock
dividend shall be declared by the Board of Directors or paid or set apart for
payment by the Company on shares of Preferred Stock unless prior to or
concurrently with such declaration, payment or setting apart for payment, all
accrued and unpaid dividends on all outstanding shares of such Senior Securities
and Parity Securities shall have been declared, paid or set apart for payment,
without interest; provided, however, that in the event such failure to pay
accrued dividends is with respect only to the outstanding shares of Preferred
Stock and any outstanding shares of any Parity Securities, cash or stock
dividends may be declared, paid or set apart for payment, without interest, pro
rata on shares of Preferred Stock and shares of such other series of Preferred
Stock so that the amounts of any dividends declared, paid or set apart for
payment (whether in cash or additional securities) on shares of Preferred Stock
and shares of such other series of preferred stock shall in all cases bear to
each other the same ratio that, at the time of such declaration, payment or
setting apart for payment, the amounts of all accrued but unpaid dividends on
shares of the Preferred Stock and shares of Parity Securities bear to each
other. Any dividend not paid pursuant to section 3(a) hereof or this section
3(d) shall be fully cumulative and shall accrue (whether or not declared),
without interest, as set forth in section 3(a) hereof, even if such dividend is
not paid pursuant to section 3(c).
(i) Holders of shares of Preferred Stock shall be entitled to receive the
dividends provided for in section 3(a) hereof in preference to and in priority
over any dividends upon any of the Junior Securities.
7. Liquidation Preference.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, the holders of shares of Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Company available for distribution to its stockholders an amount in cash equal
to $35,000 for each share outstanding, plus an amount in cash equal to all
accrued but unpaid dividends thereon to the date fixed for liquidation, before
any payment shall be made or any assets distributed to the holders of any of the
Junior Securities; provided, however, that the holders of outstanding shares of
Preferred Stock shall not be entitled to receive such liquidation payment until
the liquidation payments on all outstanding shares of Senior Securities shall
have been paid in full. No full preferential payment on account of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, shall be made to the holders of any class of Parity Securities
unless there shall likewise be paid at the same time to holders of Preferred
Stock the full amounts to which such holders are entitled with respect to such
distribution. If the assets of the Company are not sufficient to pay in full the
liquidation payments payable to the holders of outstanding shares of Preferred
Stock and outstanding shares of Parity Securities, then the holders of all such
shares shall share ratably in such distribution of assets in accordance with the
full respective preferential amounts that would be payable on such shares of
Preferred Stock and such shares of Parity Securities if all amounts payable
thereon were paid in full.
<PAGE>
(c) For the purposes of this section 4, (x) the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company or (y) the consolidation or merger of the Company with one or more other
companies or entities shall not be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary.
1. Redemption.
(a) Mandatory Redemption. (i) To the extent permitted by law and subject to
the prior or simultaneous prepayment in full of the Debt Instruments, as a
mandatory redemption for the retirement of the shares of Preferred Stock, the
Company shall redeem, out of Legally Available Funds (if such shares remain
outstanding) on September 18, 2003 (the "Mandatory Redemption Date"), all
remaining shares of Preferred Stock then outstanding, at the redemption price of
$35,000 for each share outstanding, plus an amount in cash equal to all accrued
but unpaid dividends thereon to the Mandatory Redemption Date. Immediately prior
to authorizing or making such redemption with respect to the Preferred Stock,
the Company, by resolution of its Board of Directors shall, to the extent of any
Legally Available Funds, declare a dividend on the Preferred Stock payable on
the Mandatory Redemption Date in an amount equal to any accrued and unpaid
dividends on the Preferred Stock as of such date and, if the Company does not
have sufficient Legally Available Funds to declare and pay all dividends accrued
at the time of such redemption, any remaining accrued and unpaid dividends shall
be added to the redemption price. If the Company shall fail to discharge its
obligation to redeem all of the outstanding shares of Preferred Stock required
to be redeemed pursuant to this section 5(a) (the "Mandatory Redemption
Obligation"), the Mandatory Redemption Obligation shall be discharged as soon as
the Company is able to discharge such Mandatory Redemption Obligation. If and so
long as the Mandatory Redemption Obligation shall not be fully discharged, (x)
dividends on the Preferred Stock shall continue to accrue and be added to the
dividend payable pursuant to the second preceding sentence and (y) the Company
shall not declare or pay any dividend or make any distribution on its securities
not otherwise permitted by this certificate.
(a) Optional Redemption. To the extent permitted by law and
subject to the prior or simultaneous prepayment in full of the Debt Instruments,
the Preferred Stock shall be redeemable at any time, or from time to time, in
whole or in part, out of Legally Available Funds, at the option of the Company,
(an "Optional Redemption Date"). Optional redemptions shall be made, upon giving
notice as provided in section 5(c) hereof, at the redemption price of $35,000
for each share outstanding, plus an amount in cash equal to all accrued but
unpaid dividends thereon to the Optional Redemption Date. Immediately prior to
authorizing or making any such redemption with respect to the Preferred Stock,
and as a condition precedent to the Company so redeeming at its option, in whole
or in part, shares of the Preferred Stock, the Company, by resolution of its
Board of Directors shall, to the extent of any Legally Available Funds, declare
a dividend on the Preferred Stock payable on the Optional Redemption Date in an
amount equal to any accrued and unpaid dividends on the Preferred Stock as of
such date and if the Company does not have sufficient Legally Available Funds to
declare and pay all dividends accrued to the Optional Redemption Date, any
remaining accrued and unpaid dividends shall be added to the redemption price.
<PAGE>
(c) Notice of Redemption. For the purposes of this section 5(c), a
Mandatory Redemption Date and an Optional Redemption Date are hereinafter
collectively referred to as a "Redemption Date"). In the event the Company shall
redeem shares of Preferred Stock pursuant to section 5(a) or 5(b) hereof, a
notice of such redemption shall be given by first-class mail, postage prepaid,
mailed prior to the Redemption Date, to each holder of record of the shares to
be redeemed, at such holder's address as the same appears on the stock books of
the Company. Notice having been mailed as aforesaid, on and after the Redemption
Date, unless the Company shall be in default in providing money for the payment
of the redemption price (including an amount equal to any accrued and unpaid
dividends up to and including the Redemption Date), (x) dividends on the shares
of the Preferred Stock so called for redemption shall cease to accrue, (y) said
shares shall be deemed no longer outstanding, and (z) all rights of the holders
thereof as stockholders of the Company (except the right to receive from the
Company the monies payable upon redemption, without interest thereon, upon
surrender of the certificates evidencing such shares) shall cease.
(e) Upon surrender of the certificates for any such shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors shall so
require), such shares shall be redeemed by the Company at the applicable
redemption price aforesaid. If fewer than all the outstanding shares of
Preferred Stock are to be redeemed, shares to be redeemed shall be selected by
the Company from outstanding shares of Preferred Stock not previously called for
redemption by lot or pro rata or by any other equitable method determined by the
Board of Directors in its sole discretion. If fewer than all the shares
represented by any certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
(g) The election by the Company to redeem shares of Preferred Stock
pursuant to this section 5 hereof shall become irrevocable only on the relevant
Optional Redemption Date.
2. Voting Rights. Except as required by law, holders of
Preferred Stock shall have no voting rights.
4. Limitation and Rights Upon Insolvency. Notwithstanding any
other provision of this Certificate of Designations, the Company shall not be
required to pay any dividend on, or to pay any amount in respect of any
redemption of, the Preferred Stock at a time when immediately after making such
payment the Company is or would be rendered insolvent (as defined by applicable
law), provided that the obligation of the Company to make any such payment shall
not be extinguished in the event the foregoing limitation applies.
6. Limitations under the Notes. Notwithstanding any other
provision of this Certificate of Designations, the Company shall not be required
to pay any dividend on, or to pay any amount in respect of any redemption of,
the Preferred Stock if upon, or after, making such payment the Company would, or
with the passage of time, or the giving of notice, or both, would be in default
under the terms of the Debt Instruments, provided that the obligation of the
Company to make any such payment shall not be extinguished in the event the
foregoing limitation applies.
<PAGE>
8. Shares to Be Retired. Any share of Preferred Stock redeemed
or otherwise acquired by the Company shall be retired and cancelled and shall
upon cancellation be restored to the status of authorized but unissued shares of
preferred stock, subject to reissuance by the Board of Directors as Preferred
Stock or shares of preferred stock of one or more other series.
10. Record Holders. The Company may deem and treat the record
holder of any shares of Preferred Stock as the true and lawful owner thereof for
all purposes, and the Company shall not be affected by any notice to the
contrary.
12. Notice. Except as may otherwise be provided for herein,
all notices referred to herein shall be in writing, and all notices hereunder
shall be deemed to have been given upon, the earlier of receipt of such notice
or three Business Days after the mailing of such notice if sent by registered
mail (unless first-class mail shall be specifically permitted for such notice
under the terms of this Certificate of Designations) with postage prepaid,
addressed: if to the Company, to its offices at 462 West Bearcat Drive, Salt
Lake City, Utah 84115 (Attention: President) or to an agent of the Company
designated as permitted by the Certificate of Incorporation or, if to any holder
of the Preferred Stock, to such holder at the address of such holder of the
Preferred Stock as listed in the stock record books of the Company; or to such
other address as the Company or holder, as the case may be, shall have
designated by notice similarly given. "Business Day" shall mean the a date that
is not a Saturday, Sunday or legal holiday or which banks in the State of New
York are permitted to be closed.
<PAGE>
13. 0087328.09-01S7a
IN WITNESS WHEREOF, this Certificate of Designations has been
duly executed this 18th day of September, 1996.
THE MRS. FIELDS' BRAND, INC.
By:/s/ Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
BY-LAWS
OF
MRS. FIELDS' ORIGINAL COOKIES, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New
Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the election
of directors or for any other purpose shall be held at such time and place,
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting. Written notice of the Annual Meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 3. Special Meetings. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Chairman, if there
be one, or (ii) the President, (iii) any Vice President, if there be one, (iv)
the Secretary or (v) any Assistant Secretary, if there be one, and shall be
called by any such officer at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning a majority of
the capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Written notice of a Special Meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
<PAGE>
Section 4. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting.
Section 5. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Section 6. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock 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 voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
<PAGE>
Section 7. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 8. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 7 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
<PAGE>
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of
Directors shall consist of not less than one nor more than fifteen members and
as of the Closing Date (as defined in the Asset Purchase Agreement dated as of
August 7, 1996 among the Corporation, Capricorn Investors II, L.P., Mrs. Fields
Inc. and two of its subsidiaries) shall consist of not less than six nor more
than nine members, the exact number of which shall initially be fixed by the
Incorporator and thereafter from time to time by the Board of Directors. Except
as provided in Section 2 of this Article, directors shall be elected by a
plurality of the votes cast at Annual Meetings of Stockholders, and each
director so elected shall hold office until the next Annual Meeting and until
his successor is duly elected and qualified, or until his earlier resignation or
removal. Any director may resign at any time upon notice to the Corporation.
Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and qualified, or until their earlier resignation or removal.
Section 3. Duties and Powers. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman, if there be one, the President, or any directors. Notice
thereof stating the place, date, hour and agenda of the meeting shall be given
to each director by telecopy not less than five business days prior to the
meeting; provided that, in the event the Chairman determines that such notice is
not practicable, such notice may be given not later than forty-eight (48) hours
before the date of the meeting. This Section 4 cannot be amended without the
consent of each director then in office.
Section 5. Quorum. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
<PAGE>
Section 6. Actions of Board. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 9. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
<PAGE>
Section 10. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
<PAGE>
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these By-Laws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors, need such officers be directors of
the Corporation.
Section 2. Election. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
<PAGE>
Section 4. Chairman of the Board of Directors. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.
Section 5. President. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-Laws
or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or
in his absence or in the event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
<PAGE>
Section 7. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 11. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
<PAGE>
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
<PAGE>
ARTICLE VI
NOTICES
Section 1. Notices. Subject to Section 4 of Article III
hereof, whenever written notice is required by law, the Certificate of
Incorporation or these By-Laws, to be given to any director, member of a
committee or stockholder, such notice may be given by mail, addressed to such
director, member of a committee or stockholder, at his address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Written notice may also be given personally or by telegram,
telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
<PAGE>
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other Than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall 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 or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan 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 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 contendere 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, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall 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 or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan 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; except 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 to the Corporation
unless and only to the extent that the Court of Chancery or 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 indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
<PAGE>
Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (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 or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner 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, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to any court of competent jurisdiction in the
State of Delaware for indemnification to the extent otherwise permissible under
Sections 1 and 2 of this Article VIII. The basis of such indemnification by a
court shall be a determination by such court that indemnification of the
director or officer is proper in the circumstances because he has met the
applicable standards of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be. Neither a contrary determination in the specific case
under Section 3 of this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or create a presumption that
the director or officer seeking indemnification has not met any applicable
standard of conduct. Notice of any application for indemnification pursuant to
this Section 5 shall be given to the Corporation promptly upon the filing of
such application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
<PAGE>
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be deemed
to preclude the indemnification of any person who is not specified in Sections 1
or 2 of this Article VIII but whom the Corporation has the power or obligation
to indemnify under the provisions of the General Corporation Law of the State of
Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VIII, 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 or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest 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 VIII.
<PAGE>
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
<PAGE>
ARTICLE IX
AMENDMENTS
Section 1. Amendments. Subject to Section 4 of Article III
hereof, these By-Laws may be altered, amended or repealed, in whole or in part,
or new By-Laws may be adopted by the stockholders or by the Board of Directors,
provided, however, that notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such meeting of stockholders or
Board of Directors as the case may be. Subject to Section 4 of Article III
hereof, all such amendments must be approved by either the holders of a majority
of the outstanding capital stock entitled to vote thereon or by a majority of
the entire Board of Directors then in office.
<PAGE>
Section 2. Entire Board of Directors. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
BY-LAWS
OF
THE MRS. FIELDS' BRAND, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation shall be
in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meetings the stockholders shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting. Written notice of the Annual Meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 3. Special Meetings. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Chairman, if there
be one, or (ii) the President, (iii) any Vice President, if there be one, (iv)
the Secretary or (v) any Assistant Secretary, if there be one, and shall be
called by any such officer at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning a majority of
the capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed meeting.
Written notice of a Special Meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting.
<PAGE>
Section 5. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Section 6. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock 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 voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Section 7. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 8. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 7 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
<PAGE>
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of
Directors shall consist of not less than one nor more than fifteen members, the
exact number of which shall initially be fixed by the Incorporator and
thereafter from time to time by the Board of Directors. Except as provided in
Section 2 of this Article, directors shall be elected by a plurality of the
votes cast at Annual Meetings of Stockholders, and each director so elected
shall hold office until the next Annual Meeting and until his successor is duly
elected and qualified, or until his earlier resignation or removal. Any director
may resign at any time upon notice to the Corporation.
Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and qualified, or until their earlier resignation or removal.
Section 3. Duties and Powers. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman, if there be one, the President, or any directors. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
Section 5. Quorum. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Actions of Board. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
<PAGE>
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 9. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
<PAGE>
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these By-Laws. The officers of the
Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board of Directors, need such officers be directors of
the Corporation.
Section 2. Election. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.
<PAGE>
Section 5. President. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-Laws
or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or
in his absence or in the event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
<PAGE>
Section 8. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 11. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
<PAGE>
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
<PAGE>
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
<PAGE>
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other Than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall 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 or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan 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 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 contendere 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, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall 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 or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan 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; except 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 to the Corporation
unless and only to the extent that the Court of Chancery or 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 indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (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 or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
<PAGE>
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner 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, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to any court of competent jurisdiction in the
State of Delaware for indemnification to the extent otherwise permissible under
Sections 1 and 2 of this Article VIII. The basis of such indemnification by a
court shall be a determination by such court that indemnification of the
director or officer is proper in the circumstances because he has met the
applicable standards of conduct set forth in Sections 1 or 2 of this Article
VIII, as the case may be. Neither a contrary determination in the specific case
under Section 3 of this Article VIII nor the absence of any determination
thereunder shall be a defense to such application or create a presumption that
the director or officer seeking indemnification has not met any applicable
standard of conduct. Notice of any application for indemnification pursuant to
this Section 5 shall be given to the Corporation promptly upon the filing of
such application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
<PAGE>
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, it
being the policy of the Corporation that indemnification of the persons
specified in Sections 1 and 2 of this Article VIII shall be made to the fullest
extent permitted by law. The provisions of this Article VIII shall not be deemed
to preclude the indemnification of any person who is not specified in Sections 1
or 2 of this Article VIII but whom the Corporation has the power or obligation
to indemnify under the provisions of the General Corporation Law of the State of
Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article VIII, 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 or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest 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 VIII.
<PAGE>
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These By-Laws may be altered, amended or repealed, in
whole or in part, or new
<PAGE>
0081858.02-42S1a
By-Laws may be adopted by the stockholders or by the Board of Directors,
provided, however, that notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such meeting of stockholders or
Board of Directors as the case may be. All such amendments must be approved by
either the holders of a majority of the outstanding capital stock entitled to
vote thereon or by a majority of the entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
MRS. FIELDS' ORIGINAL COOKIES, INC.
Issuer
THE MRS. FIELDS' BRAND, INC.
Guarantor
SERIES A AND SERIES B
101/8% SENIOR NOTES DUE 2004
INDENTURE
Dated as of November 26, 1997
THE BANK OF NEW YORK
Trustee
<PAGE>
i
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE..........................1
Section 1.01. Definitions...................................................1
Section 1.02. Other Definitions............................................14
Section 1.03...............................................................14
Section 1.04. Rules of Construction........................................14
ARTICLE 2. THE NOTES..........................................................15
Section 2.01. Form and Dating..............................................15
Section 2.02. Execution and Authentication.................................16
Section 2.03. Registrar and Paying Agent...................................16
Section 2.04. Paying Agent to Hold Money in Trust..........................16
Section 2.05. Holder Lists.................................................17
Section 2.06. Transfer and Exchange........................................17
Section 2.07. Replacement Notes............................................27
Section 2.08. Outstanding Notes............................................28
Section 2.09. Treasury Notes...............................................28
Section 2.10. Temporary Notes..............................................28
Section 2.11. Cancellation.................................................28
Section 2.12. Defaulted Interest...........................................29
ARTICLE 3. REDEMPTION AND PREPAYMENT..........................................29
Section 3.01. Notices to Trustee...........................................29
Section 3.02. Selection of Notes to Be Redeemed............................29
Section 3.03. Notice of Redemption.........................................29
Section 3.04 Effect of Notice of Redemption................................30
Section 3.05. Deposit of Redemption Price..................................30
Section 3.06. Notes Redeemed in Part.......................................31
Section 3.07. Optional Redemption..........................................31
Section 3.08 Mandatory Redemption..........................................31
Section 3.09 Offer to Purchase by Application of Excess Proceeds...........32
<PAGE>
ARTICLE 4. COVENANTS..........................................................33
Section 4.01. Payment of Notes.............................................33
Section 4.02. Maintenance of Office or Agency..............................34
Section 4.03. Reports......................................................34
Section 4.04. Compliance Certificate.......................................34
Section 4.05. Taxes........................................................35
Section 4.06. Stay, Extension and Usury Laws...............................35
Section 4.07. Restricted Payments..........................................35
Section 4.08. Dividend and Other Payment Restrictions Affecting Subs.......37
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock...38
Section 4.10. Asset Sales..................................................40
Section 4.11. Transactions with Affiliates................................41
Section 4.12. Liens........................................................41
Section 4.13. Line of Business.............................................42
Section 4.14. Corporate Existence..........................................42
Section 4.15. Offer to Repurchase Upon Change of Control...................42
Section 4.16. Limitation on Issuances and Sales of Capital Stock of
Wholly Owned Subsidiaries....................................44
Section 4.17. Limitation on Issuances of Guarantees of Indebtedness........45
Section 4.18. Payments for Consent.........................................45
Section 4.19. Additional Note Guarantees...................................45
ARTICLE 5. SUCCESSORS.........................................................45
Section 5.01 Merger, Consolidation, or Sale of Assets......................45
Section 5.02. Successor Corporation Substituted............................46
ARTICLE 6. DEFAULTS AND REMEDIES..............................................46
Section 6.01. Events of Default............................................46
Section 6.02. Acceleration.................................................48
Section 6.03. Other Remedies...............................................48
Section 6.04 Waiver of Past Defaults.......................................49
Section 6.05. Control by Majority..........................................49
Section 6.06. Limitation on Suits..........................................49
Section 6.07. Rights of Holders of Notes to Receive Payment................49
Section 6.08. Collection Suit by Trustee...................................50
Section 6.09. Trustee May File Proofs of Claim.............................50
Section 6.10. Priorities...................................................50
Section 6.11. Undertaking for Costs........................................51
<PAGE>
ARTICLE 7. TRUSTEE............................................................51
Section 7.01. Duties of Trustee............................................51
Section 7.02. Rights of Trustee............................................52
Section 7.03. Individual Rights of Trustee.................................53
Section 7.04. Trustee's Disclaimer.........................................53
Section 7.05. Notice of Defaults...........................................53
Section 7.06. Reports by Trustee to Holders of the Notes...................53
Section 7.07. Compensation and Indemnity...................................54
Section 7.08 Replacement of Trustee........................................54
Section 7.09. Successor Trustee by Merger, etc.............................55
Section 7.10. Eligibility; Disqualification................................55
Section 7.11. Preferential Collection of Claims Against Company............56
Section 7.12. Trustee's Application for Instructions from the Company......56
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE...........................56
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.....56
Section 8.02. Legal Defeasance and Discharge...............................56
Section 8.03. Covenant Defeasance..........................................57
Section 8.04 Conditions to Legal or Covenant Defeasance....................57
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions........................58
Section 8.06. Repayment to Company.........................................59
Section 8.07. Reinstatement................................................59
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER...................................59
Section 9.01. Without Consent of Holders of Notes..........................59
Section 9.02. With Consent of Holders of Notes.............................60
Section 9.03. Compliance with Trust Indenture Act..........................61
Section 9.04. Revocation and Effect of Consents............................62
Section 9.05. Notation on or Exchange of Notes.............................62
Section 9.06. Trustee to Sign Amendments, etc..............................62
<PAGE>
ARTICLE 10. NOTE GUARANTEES...................................................62
Section 10.01. Guarantee...................................................62
Section 10.02. Limitation on Guarantor Liability...........................63
Section 10.03. Execution and Delivery of Note Guarantee....................63
Section 10.04. Guarantors May Consolidate, etc., on Certain Terms..........64
Section 10.05. Releases Following Sale of Assets...........................65
ARTICLE 11. MISCELLANEOUS.....................................................65
Section 11.01. Trust Indenture Act Controls................................65
Section 11.02. Notices.....................................................65
Section 11.03. Communication by Holders of Notes with Other
Holders of Notes............................................66
Section 11.04. Certificate and Opinion as to Conditions Precedent..........66
Section 11.05. Statements Required in Certificate or Opinion...............67
Section 11.06. Rules by Trustee and Agents.................................67
Section 11.07. No Personal Liability of Directors, Officers,
Employees and Stockholders..................................67
Section 11.08. Governing Law...............................................67
Section 11.09. No Adverse Interpretation of Other Agreements...............68
Section 11.10. Successors..................................................68
Section 11.11. Severability................................................68
Section 11.12. Counterpart Originals.......................................68
Section 11.13. Table of Contents, Headings, etc............................68
EXHIBITS
Exhibit A ........FORM OF NOTE Exhibit B .......FORM OF CERTIFICATE OF TRANSFER
Exhibit C.........FORM OF CERTIFICATE OF EXCHANGE Exhibit D .......FORM OF
CERTIFICATE OF ACQUIRING IAI Exhibit E.........FORM OF GUARANTEE Exhibit
F.........FORM OF SUPPLEMENTAL INDENTURE Exhibit G.........LIST OF NON-CORE
STORES
<PAGE>
INDENTURE dated as of November 26, 1997 between Mrs. Fields' Original
Cookies, Inc., a Delaware corporation (the "Company"), The Mrs. Fields' Brand,
Inc. (a "Guarantor"), and The Bank of New York, a New York banking corporation
as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit
of each other and for the equal and ratable benefit of the Holders of the 101/8%
Series A Notes due 2004 (the "Series A Notes") and the 101/8% Series B Notes due
2004 (the "Series B Notes" and, together with the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Accounting Firm" means any of Arthur Andersen LLP, Coopers &
Lybrand L.L.P., Deloitte & Touche LLP, Ernst & Young LLP, KPMG Peat Marwick LLP
and Price Waterhouse LLP or any of their successor firms.
"Acquired Indebtedness" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified Person,
excluding, however, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any assets acquired by such specified Person.
"Additional Notes" means up to $100.0 million in aggregate
principal amount of Notes (other than the Initial Notes) issued under this
Indenture in accordance with Sections 2.02 and 4.09 hereof.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided, however, that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of inventory in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by Section 4.15
hereof and/or provisions described in Section 5.02 hereof and not by the
provisions of Section 4.10 hereof, and (ii) the issue or sale by the Company or
any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a singe
transaction or a series of related transactions (A) that have a fair market
value in excess of $1.0 million or (B) for net proceeds in excess of $1.0
million. Not withstanding the foregoing, (i) a transfer of assets by the Company
to a Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or
to another Wholly Owned Subsidiary, (ii) an issuance of Equity Interests by a
Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary,
(iii) a Restricted Payment that is permitted by Section 4.07 hereof (iv)
arrangements providing for the receipt by the Company of franchise and royalty
fees but not otherwise involving the sale of assets of the Company or any of its
Subsidiaries (other than inventory in the ordinary course of business) and (v) a
disposition of any Non-Core Stores will not be deemed to be Asset Sales.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary that apply to such transfer or exchange.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the Board of Directors of the
Company, or any authorized committee of the Board of Directors.
<PAGE>
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability in respect of a
capital lease that would at such time be required to be capitalized on a balance
sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than six months from the date of acquisition, (iii) marketable direct
obligations issued by any State of the United States or any local government or
other political subdivision thereof rated (at the time of the acquisition of
such security) at least "AA" by S&P or the equivalent thereof by Moody's and
having the maturities of not more than one year from the acquisition of such
security, (iv) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any domestic commercial bank having capital and
surplus in excess of $500,000,000 and a Keefe Bank Watch Rating of "B" or better
or with any registered broker-dealer whose commercial paper is rated at least
"A-1" by S&P or the equivalent thereof by Moody's, (v) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iv) above entered into with any financial
institution meeting the qualifications specified in clause (iv) above, (vi)
commercial paper rated at least "A-1" by S&P or the equivalent thereof by
Moody's and, in each case, maturing within six months after the date of
acquisition, and (vii) investments in money market funds all of whose assets
consist of securities described in clauses (ii) through (vi) above.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the Principals or their Related
Parties; (ii) the adoption of a plan relating to the liquidation or dissolution
of the Company; (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals or their Related Parties,
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company (measured by voting power rather than
number of shares); or (iv) the first day on which a majority of the members of
the Board of Directors of the Company are not Continuing Directors. For purposes
of this definition, any transfer of an equity interest of an entity that was
formed for the purpose of acquiring Voting Stock of the Company will be deemed
to be a transfer of such portion of such Voting Stock as corresponds to the
portion of such equity of such entity that has been so transferred.
"Company" means Mrs. Fields' Original Cookies, Inc., a Delaware
corporation, and any and all
successors thereto.
<PAGE>
"Consolidated Cash Flow" means, with respect to any Person for
any period, the Consolidated Net Income of such Person for such period plus (i)
an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale (to the extent such losses were deducted in
computing such Consolidated Net Income), plus (ii) provision for taxes based on
income or profits of such Person and its Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), to the
extent that any such expense was deducted in computing such Consolidated Net
Income, plus (iv) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve for
cash expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Subsidiaries for such
period to the extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income, minus (v)
non-cash items increasing such Consolidated Net Income for such period, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization and other non-cash charges of, a
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent and in the same proportion
that the net income of such Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person and its
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (i) the Net Income (but not loss) of any Person that is
not a Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or distributions
paid in cash to the referent Person or a Wholly Owned Subsidiary thereof that is
a Guarantor, (ii) the Net Income of any Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions by
that Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as
of any date, the sum of (i) the consolidated equity of the common stockholders
of such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
<PAGE>
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 11.02 hereof or such other address
as to which the Trustee may give notice to the Company.
"Credit Facility" means, with respect to the Company, one or
more debt facilities or commercial paper facilities with banks or other
institutional lenders (including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith)
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit up to a maximum aggregate amount of not more than $15.0 million, in
each case, as amended, restated, modified, renewed, refunded, replaced or
refinanced in whole or in part from time to time.
"Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
"Default" means any event that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof, in
the form of Exhibit A hereto except that such Note shall not bear the Global
Note Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section 2.03
hereof as the Depositary with respect to the Notes, and any and all successors
thereto appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the Notes mature, provided
that a class of Capital Stock shall not be Disqualified Stock solely as a result
of any maturity or redemption that is conditioned upon, and subject to,
compliance with Section 4.07.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant to
Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
<PAGE>
"Existing Indebtedness" means Indebtedness of the Company and
its Subsidiaries (including preferred stock of Pretzel Time outstanding on the
Issue Date but excluding any Indebtedness of the Company or any of its
Subsidiaries under any Credit Facility existing on the Issue Date) in existence
on the Issue Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, commissions, discounts and other fees and
charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the
consolidated interest expense of such Person and its Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is guaranteed by such Person or one of its Subsidiaries or
secured by a Lien on assets of such Person or one of its Subsidiaries (whether
or not such guarantee or Lien is called upon), and (iv) the product of (A) all
dividend payments, whether or not in cash, on any series of preferred stock of
such Person or any of its Subsidiaries, other than dividend payments on Equity
Interests payable solely in Equity Interests of the Company, times (B) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the Company or any of its Subsidiaries incurs, assumes, guarantees or redeems
any Indebtedness (other than revolving credit borrowings) or issues preferred
stock subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date, and (iv) the financial information
of the Company with respect to any portion of the four fiscal quarters prior to
the Issue Date may be adjusted to eliminate certain historical expenses that are
not expected to recur after the consummation of the Pretzel Contributions so
long as such adjustments are not deemed to be contrary to the requirements of
Regulation S-X under the Securities Act by an Accounting Firm. In calculating
the Fixed Charge Coverage Ratio for any period, to the extent that the proceeds
from the incurrence of any Indebtedness are to be used to fund the acquisition
of Equity Interests or assets in a Permitted Business, the Company may include
any pro forma adjustments permitted by Regulation S-X under the Securities Act
in its calculation of the amount of Consolidated Cash Flow that relate solely to
such acquisition, so long as such pro forma adjustments are not deemed to be
contrary to the requirements of Rule 11-02 of Regulation S-X under the
Securities Act in writing by an Accounting Firm.
<PAGE>
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the Issue Date.
"Global Note" means a global note in the form of Exhibit A
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"Guarantee" means the Guarantee, substantially in the form
attached as Exhibit E hereto, of the Guarantors.
"guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"Guarantors" means (i) MFB and (ii) any other Subsidiary that
executes a Guarantee in accordance with the provisions of this Indenture, and
its respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or foreign currency exchange rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall be
(i) the accreted value thereof, in the case of any Indebtedness that does not
require current payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Notes" means $100.0 million in aggregate principal
amount of Notes issued under this Indenture on the date hereof.
"Institutional Accredited Investor" means an institution that
is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including Affiliates) in the forms
of direct or indirect loans (including guarantees of Indebtedness or other
obligations), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP, provided that an acquisition of assets, Equity Interests or other
securities by the Company for consideration consisting of common stock of the
Company shall not be deemed to be an Investment. If the Company or any
Subsidiary of the Company sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of in an amount determined as
provided in Section 4.07 hereof.
<PAGE>
"Issue Date" means November 26, 1997.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction), provided that the definition of "Lien" shall not include any
option, call or similar right relating to treasury shares of the Company to the
extent that such option, call or right is granted (i) under any employee stock
option plan, employee stock ownership plan or similar plan or arrangement of the
Company or its Subsidiaries or (ii) in connection with the issuance of
Indebtedness permitted to be incurred pursuant to Section 4.09 hereof.
"Liquidated Damages" means all liquidated damages then owing
pursuant to the Registration Rights Agreement.
"MFB"means The Mrs. Fields' Brand, Inc., a Delaware corporation
and a wholly owned subsidiary of the Company.
"MFH"means Mrs. Fields' Holding Company, Inc., a Delaware
corporation and the corporate parent of the Company.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (A) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions),
or (B) the disposition of any securities by such Person or any of its
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but not
loss), together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by
the Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale but only as and when
received), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the permanent repayment of, or permanent reduction in availability or
commitment under, Indebtedness secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for adjustment in respect of
the sale price of such asset or assets established in accordance with GAAP.
"Non-Core Stores" means the stores listed on Exhibit G to this
Indenture.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Note Custodian" means the Trustee, as custodian with respect to
the Notes in global form, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
<PAGE>
"Officer" means, with respect to any Person, the Chairman of
the Board, the Chief Executive Officer, the President, the Chief Operating
Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
the Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf
of the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who
is reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, a Person who
has an account with the Depositary.
"Permitted Business" means the same or a similar line of
business as the Company and its Subsidiaries were engaged in on the Issue Date,
including, without limitation, the specialty retail snack-food business.
"Permitted Investments" means (a) any Investment in the
Company or in a Wholly Owner Subsidiary of the Company that is a Guarantor and
that is engaged in a Permitted Business, (b) any Investment in Cash Equivalents,
(c) any Investment by the Company or any Subsidiary of the Company in a Person,
if as a result of such Investment (i) such Person becomes a Wholly Owned
Subsidiary of the Company and a Guarantor that is engaged in a Permitted
Business or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Subsidiary of the Company that is
a Guarantor and that is engaged in a Permitted Business, (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof,
(e) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Company, (f) any Investments in
accounts and notes receivable acquired in the ordinary course of business, (g)
any Investments in notes of employees, officers, directors and their transferees
and Affiliates issued to the Company representing payment of the exercise price
of options to purchase common stock of the Company, (h) any Investments by the
Company in Hedging Obligations otherwise permitted to be incurred under the
Indenture, (i) any Investments existing on the Issue Date (including, without
limitation, a $500,000 loan to Martin E. Lisiewski outstanding as of the Issue
Date) and (j) any purchase of any and all remaining common stock of Pretzel
Time.
"Permitted Liens" means (i) Liens securing Indebtedness under
a Credit Facility that was permitted by the terms of the Indenture to be
incurred, (ii) Liens in favor of the Company, (iii) Liens on property of a
Person existing at the time such Person is merged into or consolidated with the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do not
extend to any assets other than those of the Person merged into or consolidated
with the Company, (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition and do
not extend to any assets of the Company other than the property so acquired, (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business, (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clauses (iii) and (x) of Section 4.09(b)
hereof, provided that, in the case of Indebtedness permitted by such clause
(iii), covering only the assets acquired with such Indebtedness, (vii) Liens
existing on the Issue Date, (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor, and (ix) Liens
incurred in the ordinary course of business of the Company or any Subsidiary of
the Company that (A) are not incurred in connection with the borrowing of money
or the obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (B) do not in the aggregate materially detract from the
value of the property or materially impair the use thereof in the operation of
business by the Company or such Subsidiary.
<PAGE>
"Permitted Refinancing Indebtedness" means any Indebtedness of
the Company or any of its Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Subsidiaries, provided
that (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith), (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, and (iv) such Indebtedness is incurred either by the
Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Pretzel Contributions" means the contribution from MFH to the
Company of the pretzel business formerly owned by H&M Concepts Ltd. Co., an
Idaho liability company, and its subsidiaries, and the common stock of Pretzel
Time.
"Pretzel Time" means Pretzel Time, Inc., a Pennsylvania
corporation.
"Pretzel Time Employment Agreement" means that certain Employment
Agreement, dated as of September 2, 1997, between Pretzel Time and
Martin E. Lisiewski.
"Pretzel Time Management Agreement" means that certain
Management Agreement, dated as of September 2, 1997, between the Company and
Pretzel Time.
"Principals" means Herbert S. Winokur, Jr. and Capricorn
Investors II, L.P.
"Private Placement Legend" means the legend set forth in
Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except
where otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means a public offering registered
under the Securities Act (except for any registration pursuant to Form S-8) of
common stock of (i) the Company or (ii) MFH to the extent that the net proceeds
thereof are contributed to the Company as a capital contribution, provided that
the aggregate proceeds from any such public offering shall in no event be less
than $20.0 million.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of November 26, 1997, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time and, with respect to any Additional
Notes, one or more registration rights agreements between the Company and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Company to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.
"Related Party" with respect to any Principal means (a) any
greater than 50% owned Subsidiary, or spouse or immediate family member (in the
case of an individual) of such Principal or (b) trust, corporation, general
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding a greater than 50% controlling interest of which
consist, or a limited partnership, the general partner of which consists, of the
Principals and/or such other Persons referred to in the immediately preceding
clause (a).
"Responsible Officer" means, when used with respect to the
Trustee, any officer within the Corporate Trust Administration of the Trustee
(or any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
<PAGE>
"Restricted Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Restricted Definitive Note" means a Definitive Note bearing
the Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the
Private Placement Legend.
"Restricted Investment" means any Investment other than a
Permitted Investment.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date.
"Stated Maturity" means with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (A) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (B) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means any tax allocation agreement
between the Company or any of its Subsidiaries with the Company or any direct or
indirect shareholder of the Company with respect to consolidated or combined tax
returns including the Company or any of its Subsidiaries, but, in each case,
only to the extent that amounts payable from time to time by the Company or any
such Subsidiary under any such agreement do not exceed the corresponding tax
payments that the Company or such Subsidiary would have been required to make to
any relevant taxing authority had the Company or such Subsidiary not joined in
such consolidated or combined returns, but instead had filed returns including
only the Company and its Subsidiaries.
<PAGE>
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss.
77aaa-77bbbb) as in effect on the
date on which this Indenture is qualified under the TIA.
"Trustee" means the party named as such above until a
successor replaces it in accordance with the applicable provisions of this
Indenture and thereafter means the successor serving hereunder.
"Unrestricted Global Note" means a permanent Global Note in
the form of Exhibit A attached hereto that bears the Global Note Legend and that
has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive
Notes that do not bear and are not required to bear the Private Placement
Legend.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under
the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"....................................................4.11
"Asset Sale"...............................................................4.10
"Asset Sale Offer".........................................................3.09
"Authentication Order".....................................................2.02
"Change of Control Offer"..................................................4.15
"Change of Control Payment"................................................4.15
"Change of Control Payment Date" ..........................................4.15
"Covenant Defeasance"......................................................8.03
"Event of Default".........................................................6.01
"Excess Proceeds"..........................................................4.10
"incur"....................................................................4.09
"Legal Defeasance" ........................................................8.02
"Offer Amount".............................................................3.09
"Offer Period".............................................................3.09
"Paying Agent".............................................................2.03
"Payment Default"..........................................................6.01
"Permitted Indebtedness"...................................................4.09
"Purchase Date"............................................................3.09
"Registrar"................................................................2.03
"Restricted Payments"......................................................4.07
SECTION 1.03.
<PAGE>
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the Notes and the Guarantees means the Company and
the Guarantors, respectively, and any successor obligor upon the Notes
and the Guarantees, respectively.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular; and
(5) provisions apply to successive events and
transactions.
<PAGE>
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication. The Notes shall
be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this Indenture and the
Company, the Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
However, to the extent any provision of any Note conflicts with the express
provisions of this Indenture, the provisions of this Indenture shall govern and
be controlling.
(b) Global Notes. Notes issued in global form shall be substantially
in the form of Exhibit A attached hereto (including the Global Note Legend
thereon and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the Note
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.
(c) Notes Sold or Transferred to Institutional Accredited Investors.
Notes sold or transferred to Institutional Accredited Investors shall be issued
only in the form of a Restricted Definitive Note.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal may be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
<PAGE>
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed
by one Officer (an "Authentication Order"), authenticate Notes for original
issue up to the aggregate principal amount stated in paragraph 4 of the Notes.
The aggregate principal amount of Notes outstanding at any time may not exceed
such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may
be presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee in writing of any default by the Company in
making any such payment. While any such default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. The Company
at any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or a Subsidiary) shall have no further liability for the money. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a
separate trust fund for the benefit of the Holders all money held by it as
Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Company, the Trustee shall serve as Paying Agent for the Notes.
<PAGE>
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times as
the Trustee may request in writing, a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes.
A Global Note may not be transferred as a whole except by
the Depositary to a nominee of the Depositary, by a nominee of the Depositary to
the Depositary or to another nominee of the Depositary, or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary. All Global Notes will be exchanged by the Company for Definitive
Notes if (i) the Company delivers to the Trustee written notice from the
Depositary that it is unwilling or unable to continue to act as Depositary or
that it is no longer a clearing agency registered under the Exchange Act and, in
either case, a successor Depositary is not appointed by the Company within 120
days after the date of such notice from the Depositary or (ii) the Company in
its sole discretion determines that the Global Notes (in whole but not in part)
should be exchanged for Definitive Notes and delivers a written notice to such
effect to the Trustee. Upon the occurrence of either of the preceding events in
(i) or (ii) above, Definitive Notes shall be issued in such names as the
Depositary shall instruct the Trustee in writing. Global Notes also may be
exchanged or replaced, in whole or in part, as provided in Sections 2.07 and
2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu
of, a Global Note or any portion thereof, pursuant to this Section 2.06 or
Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a); however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b),(c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend. Beneficial
interests in any Unrestricted Global Note may be transferred to Persons who
take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers described
in this Section 2.06(b)(i).
<PAGE>
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant
account to be credited with such increase or (B) (1) a written order from a
Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to cause
to be issued a Definitive Note in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given by the
Depositary to the Registrar containing information regarding the Person in
whose name such Definitive Note shall be registered to effect the transfer
or exchange referred to in (1) above. Upon consummation of an Exchange
Offer by the Company in accordance with Section 2.06(f) hereof, the
requirements of this Section 2.06(b)(ii) shall be deemed to have been
satisfied upon receipt by the Registrar of the instructions contained in
the Letter of Transmittal delivered by the Holder of such beneficial
interests in the Restricted Global Notes. Upon satisfaction of all of the
requirements for transfer or exchange of beneficial interests in Global
Notes contained in this Indenture and the Notes or otherwise applicable
under the Securities Act, the Trustee shall adjust the principal amount of
the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note
may be transferred to a Person who takes delivery thereof in the
form of a beneficial interest in another Restricted Global Note if
the transfer complies with the requirements of Section 2.06(b)(ii)
above and the Registrar receives a certificate in the form of
Exhibit B hereto, including the certifications in item (1)
thereof.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the
Unrestricted Global Note. A beneficial interest in any Restricted
Global Note may be exchanged by any Holder thereof for a
beneficial interest in an Unrestricted Global Note or transferred
to a Person who takes delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii)
above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a beneficial interest in an Unrestricted Global Note, a certificate
from such Holder in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof; or
(2) if the Holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest to
a Person who shall take delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note, a certificate from such Holder
in the form of Exhibit B hereto, including the certifications in item
(4) thereof;
<PAGE>
and, in each such case set forth in this subparagraph (D), an Opinion
of Counsel in form reasonably acceptable to the Registrar to the effect
that such exchange or transfer is in compliance with the Securities Act
and that the restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B)
or (D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any Holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the Holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such Holder in the
form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than
those listed in subparagraphs (B) through (D) above, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by
item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (3)(c) thereof,
<PAGE>
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Company shall execute and the Trustee shall
authenticate and make available for delivery to the Person designated
in the instructions a Definitive Note in the appropriate principal
amount. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.06(c)
shall be registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial interest
shall instruct the Registrar through instructions from the Depositary
and the Participant or Indirect Participant. The Trustee shall make
available for delivery such Definitive Notes to the Persons in whose
names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest in a Restricted Global Note pursuant
to this Section 2.06(c)(i) shall bear the Private Placement Legend and
shall be subject to all restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A Holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not
(1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest
for a Definitive Note that does not bear the Private Placement Legend,
a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (1)(b) thereof; or
(2) if the Holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial interest to
a Person who shall take delivery thereof in the form of a Definitive
Note that does not bear the Private Placement Legend, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), an Opinion
of Counsel in form reasonably acceptable to the Registrar to the effect
that such exchange or transfer is in compliance with the Securities Act
and that the restrictions on transfer contained herein and in the
Private Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
<PAGE>
(iii) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any Holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Company shall
execute and the Trustee shall authenticate and make available for delivery
to the Person designated in the instructions a Definitive Note in the
appropriate principal amount. Any Definitive Note issued in exchange for a
beneficial interest pursuant to this Section 2.06(c)(iii) shall be
registered in such name or names and in such authorized denomination or
denominations as the Holder of such beneficial interest shall instruct the
Registrar through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall make available for delivery such
Definitive Notes to the Persons in whose names such Notes are so
registered. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall not bear the Private
Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted
Global Note, a certificate from such Holder in the form of Exhibit
C hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with
Rule 903 or Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
(F) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or
cause to be increased the aggregate principal amount of, in the case of
clause (A) above, the appropriate Restricted Global Note and in the
case of clause (B) above, the Global Note. In no event, shall an
Institutional Accredited Investor hold an interest in a Restricted
Global Note.
<PAGE>
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note
(including an Institutional Accredited Investor) may exchange such Note for
a beneficial interest in an Unrestricted Global Note or transfer such
Restricted Definitive Note to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Notes or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the
form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto, including
the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Definitive Notes to a Person who takes delivery thereof in
the form of a beneficial interest in an Unrestricted Global Note at any
time. Upon receipt of a request for such an exchange or transfer, the
Trustee shall cancel the applicable Unrestricted Definitive Note and
increase or cause to be increased the aggregate principal amount of one of
the Unrestricted Global Notes.
<PAGE>
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such
Holder's compliance with the provisions of this Section 2.06(e), the Registrar
shall register the transfer or exchange of Definitive Notes. Prior to such
registration of transfer or exchange, the requesting Holder shall present or
surrender to the Registrar the Definitive Notes duly endorsed or accompanied by
a written instruction of transfer in form satisfactory to the Registrar duly
executed by such Holder or by his attorney, duly authorized in writing. In
addition, the requesting Holder shall provide any additional certifications,
documents and information, as applicable, required pursuant to the following
provisions of this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name
of Persons who take delivery thereof in the form of a Restricted Definitive
Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2)
thereof; and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities
Act, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a
Person participating in the distribution of the Exchange Notes or
(3) a Person who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of Exhibit C hereto, including
the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take delivery
thereof in the form of an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof;
<PAGE>
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Company to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A
Holder of Unrestricted Definitive Notes may transfer such Notes to a Person
who takes delivery thereof in the form of an Unrestricted Definitive Note.
Upon receipt of a request to register such a transfer, the Registrar shall
register the Unrestricted Definitive Notes pursuant to the instructions
from the Holder thereof.
(f) Exchange Offer.
Upon the occurrence of the Exchange Offer in accordance with
the Registration Rights Agreement, the Company shall issue and, upon receipt of
an Authentication Order in accordance with Section 2.02, the Trustee shall
authenticate (i) one or more Unrestricted Global Notes in an aggregate principal
amount equal to the principal amount of the beneficial interests in the
Restricted Global Notes tendered for acceptance by Persons that certify in the
applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they
are not participating in a distribution of the Exchange Notes and (z) they are
not affiliates (as defined in Rule 144) of the Company, and accepted for
exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate
principal amount equal to the principal amount of the Restricted Definitive
Notes accepted for exchange in the Exchange Offer. Concurrently with the
issuance of such Notes, the Trustee shall cause the aggregate principal amount
of the applicable Restricted Global Notes to be reduced accordingly, and the
Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends.
The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
<PAGE>
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2)
AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (C) IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000,
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS
IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING
THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this
Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement Legend.
<PAGE>
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE
SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF
THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT
IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL
NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO
SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF
THE COMPANY."
(h) Cancellation and/or Adjustment of Global Notes.
At such time as all beneficial interests in a particular
Global Note have been exchanged for Definitive Notes or a particular Global Note
has been redeemed, repurchased or cancelled in whole and not in part, each such
Global Note shall be returned to or retained and cancelled by the Trustee in
accordance with Section 2.11 hereof. At any time prior to such cancellation, if
any beneficial interest in a Global Note is exchanged for or transferred to a
Person who will take delivery thereof in the form of a beneficial interest in
another Global Note or for Definitive Notes, the principal amount of Notes
represented by such Global Note shall be reduced accordingly and an endorsement
shall be made on such Global Note by the Trustee or by the Depositary at the
direction of the Trustee to reflect such reduction; and if the beneficial
interest is being exchanged for or transferred to a Person who will take
delivery thereof in the form of a beneficial interest in another Global Note,
such other Global Note shall be increased accordingly and an endorsement shall
be made on such Global Note by the Trustee or by the Depositary at the direction
of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a Holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any registration
of transfer or exchange of Global Notes or Definitive Notes shall be the
valid obligations of the Company, evidencing the same debt, and entitled to
the same benefits under this Indenture, as the Global Notes or Definitive
Notes surrendered upon such registration of transfer or exchange.
<PAGE>
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business on
the day of selection, (B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part or (c) to register the transfer
of or to exchange a Note between a record date and the next succeeding
Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of any
Note, the Trustee, any Agent and the Company may deem and treat the Person
in whose name any Note is registered as the absolute owner of such Note for
the purpose of receiving payment of principal of and interest on such Notes
and for all other purposes, and none of the Trustee, any Agent or the
Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive Notes
in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
SECTION 2.07. REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate a replacement Note
if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Company may charge for its expenses in replacing a
Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation, those reductions in the interest in a Global Note
effected by the Trustee in accordance with the provisions hereof, and those
described in this Section as not outstanding. Except as set forth in Section
2.09 hereof, a Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Note; however, Notes held by the Company or a
Subsidiary of the Company shall not be deemed to be outstanding for purposes of
Section 3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or
an Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
<PAGE>
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES
Until certificates representing Notes are ready for delivery,
the Company may prepare and the Trustee, upon receipt of an Authentication
Order, shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of certificated Notes but may have variations that the
Company considers appropriate for temporary Notes and as shall be reasonably
acceptable to the Trustee. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment and
not previously received by the Trustee. The Trustee and no one else shall cancel
all Notes surrendered for registration of transfer, exchange, payment,
replacement or cancellation and shall return such canceled Notes to the Company
(subject to the record retention requirement of the Exchange Act). The Company
may not issue new Notes to replace Notes that it has paid or that have been
delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 30 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
<PAGE>
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED
If less than all of the Notes are to be redeemed or purchased
in an offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Note selected for
partial redemption, the principal amount thereof to be redeemed. Notes and
portions of Notes selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Notes of a Holder are to be redeemed, the
entire outstanding amount of Notes held by such Holder, even if not a multiple
of $1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed (including
CUSIP numbers) and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
<PAGE>
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE
On or prior to 12:00 noon (New York time) at least one
Business Day prior to the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price of
and accrued interest on all Notes to be redeemed on that date. The Trustee or
the Paying Agent shall promptly return to the Company any money deposited with
the Trustee or the Paying Agent by the Company in excess of the amounts
necessary to pay the redemption price of, and accrued interest on, all Notes to
be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon the Company's written request, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
<PAGE>
(a) Except as set forth in clause (b) of this Section 3.07, the
Company shall not have the option to redeem the Notes pursuant to this Section
3.07 prior to December 1, 2001. Thereafter, the Company shall have the option to
redeem the Notes at anytime, upon not less than 30 nor more than 60 days'
notice, in cash, in whole or in part, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on December 1 of the
years indicated below:
Year Percentage
2001...................................................................103.375%
2002...................................................................101.688%
2003 and thereafter....................................................100.000%
(b).....Notwithstanding the provisions of clause (a) of this Section
3.07, at any time prior to November 20, 2001, the Company may on any one or more
occasions redeem up to an aggregate of 35% of the aggregate principal amount of
Notes ever issued under this Indenture at a redemption price equal to 110.125%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings; provided that at least 65% in aggregate
principal amount of the Notes ever issued under this Indenture remains
outstanding immediately after the occurrence of such redemption; and provided
further that such redemption shall occur within 60 days of the date of any such
closing of such Public Equity Offering.
(c).....Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08......MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption payments with
respect to the Notes.
SECTION 3.09......OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the
Company shall be required to commence an offer to all Holders to purchase Notes
(an "Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued and unpaid
interest shall be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest shall be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company
shall send, by first class mail, a notice to the Trustee and each of the
Holders, with a copy to the Trustee. The notice shall contain all instructions
and materials necessary to enable such Holders to tender Notes pursuant to the
Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice,
which shall govern the terms of the Asset Sale Offer, shall state:
(a).....that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset
Sale Offer shall remain open;
(b).....the Offer Amount, the purchase price and the Purchase
Date;
(c).....that any Note not tendered or accepted for payment shall
continue to accrete or accrue interest;
(d).....that, unless the Company defaults in making such payment,
any Note accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Purchase Date;
(e).....that Holders electing to have a Note purchased pursuant
to an Asset Sale Offer may only elect to have all of such Note
purchased and may not elect to have only a portion of such Note
purchased;
<PAGE>
(f).....that Holders electing to have a Note purchased pursuant
to any Asset Sale Offer shall be required to surrender the Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, or transfer by book-entry transfer, to the
Company, a depositary, if appointed by the Company, or a Paying Agent
at the address specified in the notice at least three days before the
Purchase Date;
(g).....that Holders shall be entitled to withdraw their election
if the Company, the depositary or the Paying Agent, as the case may
be, receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is withdrawing
his election to have such Note purchased;
(h).....that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the Company shall
select the Notes to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only
Notes in denominations of $1,000, or integral multiples thereof, shall
be purchased); and
(i).....that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered (or transferred by book-entry
transfer).
On or before the Purchase Date, the Company shall, to the
extent lawful, accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant to the Asset
Sale Offer, or if less than the Offer Amount has been tendered, all Notes
tendered, and shall deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of this Section 3.09. The Company, the Depositary or
the Paying Agent, as the case may be, shall promptly (but in any case not later
than five days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, and the Company shall promptly issue a new
Note, and the Trustee, upon written request from the Company shall authenticate
and make available for delivery such new Note to such Holder, in a principal
amount equal to any unpurchased portion of the Note surrendered. Any Note not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Asset Sale Offer
on the Purchase Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
<PAGE>
ARTICLE 4.
COVENANTS
SECTION 4.01......PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due. The
Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
SECTION 4.02......MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York, an office or agency (which may be an office of the Trustee or
an affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in accordance with
Section 2.03.
SECTION 4.03......REPORTS.
(a).....Whether or not required by the rules and regulations of the
SEC, so long as any Notes are outstanding, the Company shall furnish to the
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
the Company were required to file such forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Company were required to
file such reports, in each case, within the time periods specified in the SEC's
rules and regulations. In addition, whether or not required by the rules and
regulations of the SEC, the Company shall file a copy of all such information
and reports with the SEC for public availability within the time periods
specified in the SEC's rules and regulations (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. The Company shall at all times comply with
TIA ss. 314(a).
<PAGE>
(b).....For so long as any Notes remain outstanding, the Company and
the Guarantors shall furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.04......COMPLIANCE CERTIFICATE.
(a).....The Company and each Guarantor (to the extent that such
Guarantor is so required under the TIA) shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action the Company is taking or proposes to take with respect thereto) and
that to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
(b).....So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c).....The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SECTION 4.05......TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.06......STAY, EXTENSION AND USURY LAWS.
The Company and each of the Guarantors covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and the Company and each of the Guarantors (to the extent that it may lawfully
do so) hereby expressly waives all benefit or advantage of any such law, and
covenants that it shall not, by resort to any such law, hinder, delay or impede
the execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
<PAGE>
SECTION 4.07......RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's or any of its Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Wholly Owned Subsidiary
of the Company that is a Guarantor); (ii) purchase, redeem or otherwise acquire
or retire for value (including without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company or
any direct or indirect parent of the Company or other Affiliate of the Company
(other than any such Equity Interests owned by the Company or any Wholly Owned
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Notes, except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a).....no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b).....the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in Section 4.09(i) hereof; and
(c).....such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Subsidiaries after the
Issue Date (excluding Restricted Payments permitted by clause (ii), (iii) or
(iv) of the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the
Issue Date to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds (other
than any proceeds referred to in the proviso to the first sentence of the
definition of "Investments") received by the Company from the issue or sale
since the Issue Date of Equity Interests of the Company (other than Disqualified
Stock) or of Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or convertible debt securities that
have been converted into Disqualified Stock), plus (ii) to the extent that any
Restricted Investment that was made after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (A) the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted Investment.
<PAGE>
The foregoing provisions will not prohibit: (i) the payment of
any dividend within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Subsidiary of the Company to the holders of any
Equity Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed, during any twelve-month period, an aggregate amount equal to the sum of
$250,000, plus the amount of cash proceeds received by the Company from any
reissuance of Equity Interests by the Company to members of management of the
Company or its Subsidiaries during such period, which aggregate amount shall in
no event exceed $500,000 in any such period, and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction; (vi)
payments to MFH pursuant to the Tax Sharing Agreement; (vii) payments pursuant
to the Pretzel Time Employment Agreement and the Pretzel Time Management
Agreement; and (viii) the redemption or repurchase of preferred stock of Pretzel
Time outstanding on the Issue Date.
The amount of all Restricted Payments (other than cash) shall
be the fair market value on the date of the Restricted Payment of the asset(s)
or securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $2.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, together with a copy of any fairness opinion or appraisal required by
this Indenture.
SECTION 4.08......DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
<PAGE>
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary to (a)(i) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (A) on its Capital Stock or (B) with respect
to any other interest or participation in, or measured by, its profits or (ii)
pay any indebtedness owed to the Company or any of its Subsidiaries, (b) make
loans or advances to the Company or any of its Subsidiaries or (c) transfer any
of its properties or assets to the Company or any of its Subsidiaries, except
for such encumbrances or restrictions existing under or by reasons of (i)
Existing Indebtedness as in effect on the Issue Date, (ii) this Indenture and
the Notes, (iii) applicable law, (iv) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of this Indenture to
be incurred, (v) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (vi) purchase money obligations or Capital Lease Obligations for
property acquired in the ordinary course of business that impose restrictions of
the nature described in clause (iv) above on the property so acquired, (vii)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced; (viii) customary restrictions imposed on the transfer of
copyrighted or patented materials and customary provisions in agreements that
restrict the assignees of such agreements or any rights thereunder or (ix)
restrictions with respect to a Subsidiary of the Company imposed pursuant to a
binding agreement relating to the sale or disposition of all or substantially
all of the Capital Stock or assets or such Subsidiary.
SECTION 4.09......INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired
Indebtedness) and the Company shall not issue any Disqualified Stock and shall
not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Indebtedness) or issue shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least (A) from the Issue Date to December 31, 1999, 2.25 to 1 and
(B) thereafter, 2.5 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued,
as the case may be, at the beginning of such four-quarter period; and
<PAGE>
(ii) the Weighted Average Life to Maturity of such Indebtedness is
equal to or greater than the remaining Weighted Average Life to Maturity of
the Notes, provided that this clause (ii) shall not apply in the case of
Acquired Indebtedness.
The provisions of the first paragraph of this Section 4.09
shall not apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Indebtedness"):
(i) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness other than the Notes;
(ii) the incurrence by the Company on the date hereof of Indebtedness
represented by the Notes in an aggregate principal amount not to exceed
$100.0 million and the Guarantees thereof by the Guarantors;
(iii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(iv) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was
permitted by the Indenture to be incurred;
(v) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries, provided that (A) if the Company is the obligor
on such Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the Notes
and (B)(1) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Subsidiary and (2) any sale or other transfer of
any such Indebtedness to a Person that is not either the Company or a
Wholly Owned Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Subsidiary, as the
case may be;
(vi) the incurrence by the Company of Hedging Obligations in the
ordinary course of business;
(vii) the incurrence of Indebtedness in connection with one or more
standby letters of credit, guarantees, performance or surety bonds or other
reimbursement obligations, in each case, issued in the ordinary course of
business and not in connection with the borrowing of money or the obtaining
of advances or credit (other than (A) advances or credit on open account,
includible in current liabilities, for goods and services in the ordinary
course of business and on terms and conditions customary in a Permitted
Business and (B) the extension of credit represented by such letter of
credit, guarantee, bond or other obligations itself), provided that any
draw under or call upon any of the foregoing is repaid in full within 45
days, and provided further that the aggregate amount of all Indebtedness
incurred pursuant to this clause (vii) shall not exceed $5.0 million at any
time outstanding;
<PAGE>
(viii) the incurrence of Indebtedness arising from agreements of the
Company or a Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or Subsidiary
(other than guarantees of Indebtedness incurred by any Person acquiring all
or a portion of such business, assets or Subsidiary for the purpose of
financing such acquisition), provided that the maximum aggregate liability
of all such Indebtedness shall at no time exceed 50% of the gross proceeds
actually received by the Company or such Subsidiary in connection with such
disposition;
(ix) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Subsidiary of the Company that is a
Guarantor that was permitted to be incurred by another provision of this
covenant;
(x) the incurrence by Pretzel Time of Indebtedness under a working
capital facility, provided that the aggregate principal amount of all
Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of Pretzel Time thereunder)
outstanding thereunder after giving effect to such incurrence, including
all Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any other Indebtedness incurred pursuant to this clause (x), does
not exceed an amount equal to $1.0 million;
(xi) the incurrence by the Company of additional Indebtedness
(including Indebtedness under a Credit Facility) in an aggregate principal
amount (or accreted value, as applicable), including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (xi), not to exceed $15.0
million at any time outstanding;
(xii) the incurrence by the Company or any of its subsidiaries of
Acquired Indebtedness in an aggregate amount not to exceed $5.0 million at
any time outstanding;
(xiii) the guarantee by the Company or any of its Subsidiaries (other
than MFB) of operating store lease obligations of the Company or any of its
Subsidiaries or any franchisee of the Company or any of its Subsidiaries in
the ordinary course of business and consistent with past practice;
(xiv) the guarantee by any Subsidiary of the Company of Indebtedness of
the Company under any Credit Facility otherwise permitted to be incurred
under the Indenture;
(xv) the incurrence by the Company of Indebtedness in the form of notes
issued in connection with the repurchase, redemption, acquisition or
retirement of Equity Interests of the Company or any Subsidiary of the
Company in an amount not to exceed $500,000 at any time outstanding and
subordinated in right of payment to the Notes; and
(xvi) the incurrence by the Company of Indebtedness or the guarantee by
the Company of Indebtedness incurred by franchisees in connection with the
cost of purchasing a franchise and the cost of equipment in connection with
the set-up of a franchise, provided that such Indebtedness or guarantee
does not exceed $3.0 million at any time outstanding.
For purposes of determining compliance with this Section 4.09,
in the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness described in clauses (i) through (xvi)
above or is entitled to be incurred pursuant to the first paragraph of this
Section 4.09, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this Section 4.09 and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. Accrual of interest and
the accretion of accreted value shall not be deemed to be an incurrence of
Indebtedness for purposes of this Section 4.09.
<PAGE>
SECTION 4.10......ASSET SALES
The Company shall not, and shall not permit any of its
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (in the case of an Asset Sale or
Asset Sales aggregating $10,000 or more, evidenced by an Officers' Certificate
delivered to the Trustee and, in the case of any Asset Sale having a fair market
value or resulting in net proceeds in excess of $5.0 million, evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Subsidiary is in the form of cash, provided that
the amount of (x) any liabilities (as shown on the Company's or such
Subsidiary's most recent balance sheet) of the Company or any Subsidiary (other
than contingent liabilities and liabilities that are by their terms subordinated
to the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Subsidiary from further liability and (y) any securities, notes or other
obligations received by the Company or any such Subsidiary from such transferee
that are immediately converted by the Company or such Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 270 days after the receipt of any Net Proceeds from an
Asset Sale, the Company may apply such Net Proceeds, at its option, (a) to repay
senior Indebtedness of the Company or any Guarantor or (b) to the making of a
Permitted Investment, the making of a capital expenditure in a Permitted
Business or the acquisition of long-term assets in a Permitted Business. Pending
the final application of any such Net Proceeds, the Company may temporarily
reduce Indebtedness under a Credit Facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by this Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph shall be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an Asset Sale Offer to purchase the maximum
principal amount of Notes that may be purchased out of the Excess Proceeds, at
an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of purchase in accordance with the procedures set forth in this
Indenture. To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
<PAGE>
SECTION 4.11......TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Subsidiaries to make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (a) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Subsidiary with an unrelated Person and (b)
the Company delivers to the Trustee (i) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (a) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (ii) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided, however, that (u)
payments to MFH pursuant to the Tax Sharing Agreement, (v) any employment
agreement entered into by the Company or any of its Subsidiaries in the ordinary
course of business and consistent with the past practice of the Company or such
Subsidiary, (w) transactions between or among the Company and/or its
Subsidiaries, (x) Restricted Payments that are permitted under Section 4.07
hereof, (y) the payment of reasonable fees, expense reimbursements and customary
indemnification, advances and other similar arrangements to directors and
officers of the Company and its Subsidiaries and (z) reasonable loans or
advances to employees of the Company and its Subsidiaries in the ordinary course
of business of the Company or such Subsidiary, in each case, shall not be deemed
Affiliate Transactions.
SECTION 4.12......LIENS.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired, or any income or
profits therefrom or assign or convey any right to receive income therefrom,
except Permitted Liens.
SECTION 4.13......LINE OF BUSINESS.
The Company shall not, and shall not permit any of its
Subsidiaries to, engage in any business other than a Permitted Business, except
to such extent as would not be material to the Company and its Subsidiaries
taken as a whole. In addition, (a) the Company shall not engage in any Asset
Sale involving MFB, (b) neither the Company nor MFB will engage in any Asset
Sale involving the "Mrs. Fields" or "Pretzel Time" brand name and (c) for so
long as MFB is a Subsidiary of the Company, MFB shall not incur any Indebtedness
(other than its Guarantee of the Notes and any guarantee of Indebtedness under a
Credit Facility).
<PAGE>
SECTION 4.14......CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to
be done all things necessary to preserve and keep in full force and effect (i)
its corporate existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Subsidiary and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any of its Subsidiaries, if
the Board of Directors shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.15......OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a).....Upon the occurrence of a Change of Control, the Company shall
make an offer (a "Change of Control Offer") to each Holder to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of each Holder's
Notes at a purchase price equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of repurchase (the "Change of Control Payment"). Within 60 days
following any Change of Control, the Company shall mail a notice to each Holder
describing the transaction or transactions that constitute the Change of Control
stating: (i) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Notes tendered will be accepted for payment; (ii) the
purchase price and the purchase date, which shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"); (iii) that any Note not tendered will continue to accrue
interest; (iv) that, unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control Payment
Date; (v) that Holders electing to have any Notes purchased pursuant to a Change
of Control Offer will be required to surrender the Notes, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment Date;
(vi) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the second Business Day
preceding the Change of Control Payment Date, a facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes delivered
for purchase, and a statement that such Holder is withdrawing his election to
have the Notes purchased; and (vii) that Holders whose Notes are being purchased
only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof. The Company
shall comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes in
connection with a Change of Control.
<PAGE>
(b).....On the Change of Control Payment Date, the Company shall, to
the extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (iii) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and make available for delivery (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered by such Holder, if any;
provided that each such new Note shall be in a principal amount of $1,000 or an
integral multiple thereof. The Company shall publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of this Indenture are applicable. The
Company shall not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in Section
4.15 above and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
SECTION 4.16. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES.
The Company (a) shall not, and shall not permit any Wholly
Owned Subsidiary of the Company to, transfer, convey, sell, lease or otherwise
dispose of any Capital Stock of any Wholly Owned Subsidiary of the Company to
any Person (other than the Company or a Wholly Owned Subsidiary of the Company),
unless (i) such transfer, conveyance, sale, lease or other disposition is of all
the Capital Stock of such Wholly Owned Subsidiary and (ii) the cash Net Proceeds
from such transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 hereof; and (b) shall not permit any Wholly Owned
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Subsidiary of
the Company.
SECTION 4.17......LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS.
The Company shall not permit any Subsidiary, directly or
indirectly, to guarantee or pledge any assets to secure the payment of (other
than as a result of a Permitted Lien), any other Indebtedness of the Company or
any Subsidiary of the Company, unless such Subsidiary simultaneously executes
and delivers a supplemental indenture to this Indenture providing for the
Guarantee of the payment of the Notes by such Subsidiary, which Guarantee shall
be senior to or pari passu with such Subsidiary's guarantee of or pledge to
secure such other Indebtedness. Notwithstanding the foregoing, any such
Guarantee by a Subsidiary of the Notes shall provide by its terms that it shall
be automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's stock in, or all or substantially all the assets of, such
Subsidiary, which sale, exchange or transfer is made in compliance with the
applicable provisions of this Indenture. The form of such Guarantee is attached
as Exhibit E hereto.
<PAGE>
SECTION 4.18......PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.19......ADDITIONAL SUBSIDIARY GUARANTEES
.........If (i) the Company or any of its Subsidiaries shall acquire or
create another domestic wholly owned Subsidiary after the Issue Date having
assets (A) with a fair market value in excess of $100,000 or (B) consisting of
one or more stores, or (ii) the Company acquires all remaining common stock of
Pretzel Time, then such newly acquired or created Subsidiary or Pretzel Time, as
the case may be, shall become a Guarantor by executing a Supplemental Indenture
in the form attached hereto as Exhibit F and deliver an Opinion of Counsel to
the Trustee to the effect that such Supplemental Indenture has been duly
authorized, executed and delivered by such Subsidiary and constitutes a valid
and binding obligation of such Subsidiary, enforceable against such Subsidiary
in accordance with its terms (subject to customary exceptions).
ARTICLE 5.
SUCCESSORS
SECTION 5.01......MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving corporation) or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia, (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and this Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee, (iii) immediately after such
transaction, no Default or Event of Default exists, and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) shall have Consolidated Net Worth (immediately after the transaction)
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) shall, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09 hereof; provided that this
Section 5.01 shall not apply to any merger or consolidation of (x) Mrs. Fields'
Pretzel Concepts, Inc. into or with the Company or (y) Mrs. Fields' Other Names,
Inc. into or with MFB, in each case, on the Issue Date.
<PAGE>
SECTION 5.02......SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale of all of the Company's assets that meets the requirements of Section
5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01......EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a).....the Company defaults in the payment when due of interest on,
or Liquidated Damages, if any, with respect to, the Notes and such default
continues for a period of 30 days;
(b).....the Company defaults in the payment when due of principal of
or premium, if any, on the Notes when the same becomes due and payable at
maturity, upon redemption (including in connection with an offer to purchase) or
otherwise;
(c).....the Company fails to observe or perform any covenant,
representation, warranty or other agreement in this Indenture or the Notes for
30 days after notice to the Company by the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes then outstanding voting as a
single class;
(d).....a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries), whether such Indebtedness or guarantee now exists, or is created
after the Issue Date, which default (i) is caused by a failure to pay principal
of or premium, if any, or interest on such Indebtedness prior to the expiration
of the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (ii) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $2.5 million or more;
<PAGE>
(c).....a final judgment or final judgments for the payment of money
are entered by a court or courts of competent jurisdiction against the Company
or any of its Subsidiaries and such judgment or judgments remain undischarged
for a period (during which execution shall not be effectively stayed) of 60
days, provided that the aggregate of all such undischarged judgments exceeds
$2.5 million;
(d).....the Company or any of its Subsidiaries pursuant to or
within the meaning of Bankruptcy
Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii)consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due;
or
(e).....a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Subsidiaries in an involuntary case;
(ii) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of the
property of the Company or any of its Subsidiaries; or
(iii)orders the liquidation of the Company or any of its
Subsidiaries; and the order or decree remains unstayed
and in effect for 60 consecutive days; or
(f).....except as permitted by this Indenture, any Guarantee
shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect
or any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under such Guarantor's
Guarantee.
<PAGE>
SECTION 6.02......ACCELERATION.
If any Event of Default (other than an Event of Default
specified in clause (g) or (h) of Section 6.01 hereof with respect to the
Company, any Significant Subsidiary or any group of Significant Subsidiaries
that, taken as a whole, would constitute a Significant Subsidiary) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the Notes to be due and payable
immediately. Upon any such declaration, the Notes shall become due and payable
immediately. Notwithstanding the foregoing, if an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof occurs with respect to the Company, any
of its Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary, all outstanding Notes shall be
due and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.
If an Event of Default occurs by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to Section 3.07
hereof, then, upon acceleration of the Notes, an equivalent premium shall also
become and be immediately due and payable, to the extent permitted by law,
anything in this Indenture or in the Notes to the contrary notwithstanding. If
an Event of Default occurs prior to December 1, 2001 by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding the prohibition on redemption of the Notes prior to
such date, then, upon acceleration of the Notes, an additional premium shall
also become and be immediately due and payable, to the extent permitted by law,
in an amount, for each of the years beginning on December 1 of the years set
forth below, as set forth below (expressed as percentages of principal amount to
the date of payment that would otherwise be due but for the provisions of this
sentence):
Year Percentage
1997..................................................................110.125%
1998..................................................................108.438%
1999..................................................................106.750%
2000..................................................................105.063%
2001..................................................................103.375%
<PAGE>
SECTION 6.03......OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of a Note in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
SECTION 6.04......WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal
amount of the then outstanding Notes by written notice to the Trustee may on
behalf of the Holders of all of the Notes waive an existing Default or Event of
Default and its consequences hereunder, except a continuing Default or Event of
Default in the payment of the principal of, premium and Liquidated Damages, if
any, or interest on, the Notes (including in connection with an offer to
purchase) (provided, however, that the Holders of a majority in aggregate
principal amount of the then outstanding Notes may rescind an acceleration and
its consequences, including any related payment default that resulted from such
acceleration). Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05......CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee or exercising any
trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06......LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
<PAGE>
SECTION 6.07......RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal, premium and
Liquidated Damages, if any, and interest on the Note, on or after the respective
due dates expressed in the Note (including in connection with an offer to
purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08......COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b)
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09......TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Holders of the Notes allowed in any judicial proceedings relative to the
Company (or any other obligor upon the Notes), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
<PAGE>
SECTION 6.10......PRIORITIES.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the
Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium andLiquidated Damages, if any, and
interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal,
premium and Liquidated Damages, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11......UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as a Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01......DUTIES OF TRUSTEE.
(a).....If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(b).....Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against
the Trustee; and
<PAGE>
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c).....The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d).....Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e).....No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f)......The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02......RIGHTS OF TRUSTEE.
(a).....The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b).....Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c).....The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d).....The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e).....Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
<PAGE>
(f).....The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g).....The Trustee shall not be deemed to have notice of any Default
or Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the Trustee,
and such notice references the Securities and this Indenture.
SECTION 7.03......INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04......TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05......NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to Holders of Notes a
notice of the Default or Event of Default within 90 days after it occurs. Except
in the case of a Default or Event of Default in payment of principal of,
premium, if any, or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06......REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the Issue Date, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA ss. 313(a) (but if no event described in
TIA ss. 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA ss.
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA ss. 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with the SEC and each
stock exchange on which the Notes are listed in accordance with TIA ss. 313(d).
The Company shall promptly notify the Trustee when the Notes are listed on any
stock exchange or delisted therefrom.
<PAGE>
SECTION 7.07......COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements, advances and
expenses incurred or made by it in addition to the compensation for its
services. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or in connection
with the acceptance or administration of its duties under this Indenture,
including the costs and expenses of enforcing this Indenture against the Company
(including this Section 7.07) and defending itself against any claim (whether
asserted by the Company or any Holder or any other person) or liability in
connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall notify the
Company promptly of any claim for which it may seek indemnity. Failure by the
Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The Company need not
pay for any settlement made without its consent, which consent shall not be
unreasonably withheld.
The obligations of the Company under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section,
the Trustee shall have a Lien prior to the Notes on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses
and the compensation for the services (including the fees and expenses of its
agents and counsel) are intended to constitute expenses of administration under
any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss.
313(b)(2) to the extent applicable.
<PAGE>
SECTION 7.08......REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the Company. The
Holders of Notes of a majority in principal amount of the then outstanding Notes
may remove the Trustee by so notifying the Trustee and the Company in writing.
The Company may remove the Trustee if:
(a).....the Trustee fails to comply with Section 7.10
hereof;
(b).....the Trustee is adjudged a bankrupt or an insolvent
or an order for relief is entered with respect to the
Trustee under any Bankruptcy Law;
(c).....a Custodian or public officer takes charge of the
Trustee or its property; or
(d).....the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 30 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company, or the Holders of Notes of at least 10% in principal amount of the then
outstanding Notes may petition, at the expense of the Company, any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note
who has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09......SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
<PAGE>
SECTION 7.10......ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11......PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
SECTION 7.12......TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY.
Any application by the Trustee for written instructions from
the Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the date
on and/or after which such action shall be taken or such omission shall be
effective. The Trustee shall not be liable for any action taken by, or omission
of, the Trustee in accordance with a proposal included in such application on or
after the date specified in such application (which date shall not be less than
three Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
<PAGE>
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01......OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Notes upon compliance with the conditions set forth below in this Article Eight.
SECTION 8.02......LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to
have been discharged from its obligations with respect to all outstanding Notes
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest and Liquidated Damages, if any,
on such Notes when such payments are due, (b) the Company's obligations with
respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article Eight. Subject to
compliance with this Article Eight, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 hereof.
SECTION 8.03......COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, be released
from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09,
4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof with
respect to the outstanding Notes on and after the date the conditions set forth
in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the
Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby. In addition, upon the Company's exercise
under Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default.
<PAGE>
SECTION 8.04......CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a).....the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
Liquidated Damages, if any, and interest on the outstanding Notes on the stated
date for payment thereof or on the applicable redemption date, as the case may
be, and the Company must specify whether the Notes are being defeased to
maturity or to a particular redemption date;
(b).....in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(c).....in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d).....no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which will be used to defease the Notes pursuant to this Article Eight
concurrently with such incurrence) or insofar as Sections 6.01(g) or 6.01(h)
hereof are concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e).....such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
<PAGE>
(f).....the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that on the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g).....the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; and
(h).....the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon the request of the Company any money or non-callable Government
Securities held by it as provided in Section 8.04 hereof which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
<PAGE>
SECTION 8.06......REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of, premium,
if any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07......REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee
or Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company
makes any payment of principal of, premium, if any, or interest on any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
<PAGE>
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01......WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company
and the Trustee may amend or supplement this Indenture, the Guarantees or the
Notes without the consent of any Holder of a Note:
(a).....to cure any ambiguity, defect or inconsistency;
(b).....to provide for uncertificated Notes in addition to
or in place of certificated Notes or to alter the provisions of
Article 2 hereof (including the related definitions) in a manner
that does not materially adversely affect any Holder;
(c).....to provide for the assumption of the Company's or a
Guarantor's obligations to the Holders of the Notes by a
successor to the Company or a Guarantor pursuant to Article 5 or
Article 10 hereof;
(d).....to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that does not
adversely affect the legal rights hereunder of any Holder of the
Note; or
(e).....to comply with requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the
TIA.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Guarantors in the execution of any amended or supplemental Indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
Indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.
SECTION 9.02......WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company and
the Trustee may amend or supplement this Indenture and the Notes may be amended
or supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes (including Additional Notes, if any) then
outstanding voting as a single class (including, without limitation, consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of this Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including Additional Notes, if any) voting as a single class
(including consents obtained in connection with a tender offer or exchange offer
for, or purchase of, the Notes). Section 2.08 hereof shall determine which Notes
are considered to be "outstanding" for purposes of this Section 9.02.
<PAGE>
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes (including
Additional Notes, if any) then outstanding voting as a single class may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected, an
amendment or waiver under this Section 9.02 may not (with respect to any Notes
held by a non-consenting Holder):
(a).....reduce the principal amount of Notes whose Holders
must consent to an amendment, supplement or waiver;
(b).....reduce the principal of or change the fixed maturity
of any Note or alter or waive any of the provisions with respect
to the redemption of the Notes except as provided above with
respect to Sections 3.09, 4.10 and 4.15 hereof;
(c).....reduce the rate of or change the time for payment of
interest, including default interest, on any Note;
(d).....waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest on the Notes
(except a rescission of acceleration of the Notes by the Holders
of at least a majority in aggregate principal amount of the then
outstanding Notes (including Additional Notes, if any) and a
waiver of the payment default that resulted from such
acceleration);
(e) ....make any Note payable in money other than that
stated in the Notes;
(f).....make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of
Notes to receive payments of principal of or premium, if any, or
interest on the Notes;
(g).....make any change in Section 6.04 or 6.07 hereof or in
the foregoing amendment and
waiver provisions; or
(h).....waive a redemption payment with respect to any Note
(other than a payment required by Section 4.10 or 4.15 hereof).
<PAGE>
SECTION 9.03......COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in a amended or supplemental Indenture that complies with the
TIA as then in effect.
SECTION 9.04......REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05......NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter authenticated. The
Company in exchange for all Notes may issue and the Trustee shall, upon receipt
of an Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
SECTION 9.06......TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 11.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
<PAGE>
ARTICLE 10.
GUARANTEES
SECTION 10.01.....GUARANTEE.
Subject to this Article 10, each of the Guarantors hereby,
jointly and severally, unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, irrespective of the validity and enforceability of this Indenture,
the Notes or the obligations of the Company hereunder or thereunder, that: (a)
the principal of and interest on the Notes will be promptly paid in full when
due, whether at maturity, by acceleration, redemption or otherwise, and interest
on the overdue principal of and interest on the Notes, if any, if lawful, and
all other obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and (b) in case of any extension of time of
payment or renewal of any Notes or any of such other obligations, that same will
be promptly paid in full when due or performed in accordance with the terms of
the extension or renewal, whether at stated maturity, by acceleration or
otherwise. Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Guarantors shall be jointly
and severally obligated to pay the same immediately. Each Guarantor agrees that
this is a guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a guarantor.
Each Guarantor hereby waives diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice and
all demands whatsoever and covenant that this Guarantee shall not be discharged
except by complete performance of the obligations contained in the Notes and
this Indenture.
If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Guarantors, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.
Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.
Each Guarantor further agrees that, as between the Guarantors, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of this Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6 hereof, such obligations (whether or
not due and payable) shall forthwith become due and payable by the Guarantors
for the purpose of this Guarantee. The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as the exercise of such right
does not impair the rights of the Holders under the Guarantee.
<PAGE>
SECTION 10.02.....LIMITATION ON GUARANTOR LIABILITY.
Each Guarantor, and by its acceptance of Notes, each Holder,
hereby confirms that it is the intention of all such parties that the Guarantee
of such Guarantor not constitute a fraudulent transfer or conveyance for
purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any similar federal or state law to the extent
applicable to any Guarantee. To effectuate the foregoing intention, the Trustee,
the Holders and the Guarantors hereby irrevocably agree that the obligations of
such Guarantor under its Guarantee and this Article 10 shall be limited to the
maximum amount as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Guarantor that are relevant under such
laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under this Article 10, result
in the obligations of such Guarantor under its Guarantee not constituting a
fraudulent transfer or conveyance.
SECTION 10.03.....EXECUTION AND DELIVERY OF GUARANTEE.
To evidence its Guarantee set forth in Section 10.01, each
Guarantor hereby agrees that a notation of such Guarantee substantially in the
form included in Exhibit E shall be endorsed by an Officer of such Guarantor on
each Note authenticated and made available for delivery by the Trustee and that
this Indenture shall be executed on behalf of such Guarantor by its President or
one of its Vice Presidents.
Each Guarantor hereby agrees that its Guarantee set forth in
Section 10.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Guarantee.
If an Officer whose signature is on this Indenture or on the
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Guarantee is endorsed, the Guarantee shall be valid
nevertheless.
The delivery of any Note after the authentication thereof by
the Trustee, hereunder, shall constitute due delivery of the Guarantee set forth
in this Indenture on behalf of the Guarantors.
In the event that the Company creates or acquires any new
Subsidiaries subsequent to the Issue Date, if required by Section 4.24 hereof,
the Company shall cause such Subsidiaries to execute supplemental indentures to
this Indenture and Guarantees in accordance with Section 4.24 hereof and this
Article 10, to the extent applicable.
<PAGE>
SECTION 10.04.....GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
No Guarantor may consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person) another corporation,
Person or entity whether or not affiliated with such Guarantor unless:
(a) subject to Section 10.05 hereof, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee, under
the Notes, the Indenture and the Guarantee on the terms set forth herein or
therein;
(b) immediately after giving effect to such transaction, no
Default or Event of Default exists;
(c) such Guarantor, or any Person formed by or surviving any
such consolidation or merger, would have Consolidated Net Worth (immediately
after giving effect to such transaction), equal to or greater than the
Consolidated Net Worth or such Guarantor immediately preceding the transaction;
and
(d) the Company would be permitted by virtue of the Company's
pro forma Fixed Charge Coverage Ratio, immediately after giving effect to such
transaction, to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof.
In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor Person, by supplemental indenture,
executed and delivered to the Trustee and satisfactory in form to the Trustee,
of the Guarantee endorsed upon the Notes and the due and punctual performance of
all of the covenants and conditions of this Indenture to be performed by the
Guarantor, such successor Person shall succeed to and be substituted for the
Guarantor with the same effect as if it had been named herein as a Guarantor.
Such successor Person thereupon may cause to be signed any or all of the
Guarantees to be endorsed upon all of the Notes issuable hereunder which
theretofore shall not have been signed by the Company and delivered to the
Trustee. All the Guarantees so issued shall in all respects have the same legal
rank and benefit under this Indenture as the Guarantees theretofore and
thereafter issued in accordance with the terms of this Indenture as though all
of such Guarantees had been issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and
notwithstanding clauses (a) and (b) above, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of a Guarantor
with or into the Company or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Company or another Guarantor.
<PAGE>
SECTION 10.05.....RELEASES FOLLOWING SALE OF ASSETS.
In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the Capital Stock of any Guarantor, then such
Guarantor (in the event of a sale or other disposition, by way of merger,
consolidation or otherwise, of all of the Capital Stock of such Guarantor) or
the corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor) will be
released and relieved of any obligations under its Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in accordance with
the applicable provisions of this Indenture, including without limitation
Section 4.10 hereof. Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the applicable provisions
of this Indenture, including without limitation Section 4.10 hereof, the Trustee
shall execute any documents reasonably required in order to evidence the release
of any Guarantor from its obligations under its Guarantee.
Any Guarantor not released from its obligations under its
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under this Indenture
as provided in this Article 10.
ARTICLE 11.
MISCELLANEOUS
SECTION 11.01.....TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA ss. 318(c), the imposed duties shall
control.
<PAGE>
SECTION 11.02.....NOTICES.
Any notice or communication by the Company, any Guarantor or
the Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address
If to the Company and/or any Guarantor:
Mrs. Fields' Original Cookies, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Telecopier No.: (801) 463-2223
Attention: Michael Ward
If to the Trustee:
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Administrator
The Company, any Guarantor or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first class mail certified or registered, return receipt requested, or by
overnight air courier guaranteeing next day delivery to its address shown on the
register kept by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA ss. 313(c), to the extent required by the
TIA. Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03.....COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA ss. 312(c).
<PAGE>
SECTION 11.04.....CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 11.05.....STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 11.06.....RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 11.07.....NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
<PAGE>
No past, present or future director, officer, employee,
incorporator or stockholder of the Company or any Guarantor, as such, shall have
any liability for any obligations of the Company or such Guarantor under the
Notes, the Guarantees, this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes.
SECTION 11.08.....GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.09.....NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its Subsidiaries or of any
other Person. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 11.10.....SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors.
SECTION 11.11.....SEVERABILITY.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 11.12.....COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 11.13.....TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part of this Indenture and shall
in no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
<PAGE>
SIGNATURES
Dated as of November 26, 1997
MRS. FIELDS' ORIGINAL COOKIES, INC.
BY:
Name: Larry Hodges
Title: Chief Executive Officer
THE MRS. FIELDS' BRAND, INC.
BY:
Name: Larry Hodges
Title: Chief Executive Officer
Attest:
- -------------------------
Name:
Title:
THE BANK OF NEW YORK, AS TRUSTEE
BY:
Name:
Title:
<PAGE>
A-11
EXHIBIT A
(Face of Note)
CUSIP/CINS .........
101/8%[Series A] [Series B] Notes due 2004
No. -----
Mrs. Fields' Original Cookies, Inc.
promises to pay to ........
or registered assigns,
the principal sum of ......
Dollars on December 1, 2004.
Interest Payment Dates: June 1, and December 1
Record Dates: May 15 and November 15
MRS. FIELDS' ORIGINAL COOKIES, INC.
BY:
Name: Larry Hodges
Title: Chief Executive Officer
(SEAL)
This is one of the Global Notes referred to in the within-mentioned Indenture:
Dated:
The Bank of New York,
as Trustee
By: ..................
Authorized Signatory
<PAGE>
(Back of Note)
101/8% [Series A] [Series B] Notes due 2004
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.
THIS SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT
WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR
ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (C)
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT, AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION"
AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.
Capitalized terms used herein shall have the meanings assigned
to them in the Indenture referred to below unless otherwise indicated.
1........INTEREST. Mrs. Fields' Original Cookies, Inc., a
Delaware corporation (the "Company"), promises to pay interest on the principal
amount of this Note at 101/8% per annum from November 26, 1997 until maturity
and shall pay the Liquidated Damages, if any, payable pursuant to the
Registration Rights Agreement referred to below. The Company will pay interest
and Liquidated Damages, if any, semi-annually on June 1 and December 1 of each
year, 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 to which interest has been paid or, if no interest has been
paid, from the date of issuance; provided that if there is no existing Default
in the payment of interest, and if this Note is authenticated between a record
date referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment Date;
provided, further, that the first Interest Payment Date shall be June 1, 1998.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal and premium, if any,
from time to time on demand at a rate that is 1% per annum in excess of the rate
then in effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages, if any, (without regard to any applicable grace periods)
from time to time on demand at the same rate to the extent lawful. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
<PAGE>
2........METHOD OF PAYMENT. The Company will pay interest on
the Notes (except defaulted interest) and Liquidated Damages, if any, to the
Persons who are registered Holders of Notes at the close of business on the May
15 or November 15 next preceding the Interest Payment Date, even if such Notes
are cancelled after such record date and on or before such Interest Payment
Date, except as provided in Section 2.12 of the Indenture with respect to
defaulted interest. The Notes will be payable as to principal, premium and
Liquidated Damages, if any, and interest at the office or agency of the Company
maintained for such purpose within or without the City and State of New York,
or, at the option of the Company, payment of interest and Liquidated Damages, if
any, may be made by check mailed to the Holders at their addresses set forth in
the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest, premium and Liquidated Damages, if any, on, all Global Notes and all
other Notes the Holders of which shall have provided wire transfer instructions
to the Company or the Paying Agent. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3........PAYING AGENT AND REGISTRAR. Initially, The Bank of
New York, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4........INDENTURE. The Company issued the Notes under an
Indenture dated as of November 26, 1997 (the "Indenture") between the Company,
the Guarantors and the Trustee. The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes
are subject to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. To the extent any provision of this Note
conflicts with the express provisions of the Indenture, the provisions of the
Indenture shall govern and be controlling. The Notes are obligations of the
Company limited to $200.0 million in aggregate principal amount.
5........OPTIONAL REDEMPTION.
(a).....Except as set forth in subparagraph (b) of this
Paragraph 5, the Company shall not have the option to redeem the Notes pursuant
to this Paragraph 5 prior to December 1, 2001. Thereafter, the Company shall
have the option to redeem the Notes, in whole or in part at any time, upon not
less than 30 nor more than 60 days' notice, in cash, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
December 1 of the years indicated below:
Year Percentage
2001........................................................ 103.375%
2002........................................................ 101.688%
2003 and thereafter......................................... 100.000%
(b)......Notwithstanding the provisions of subparagraph (a) of
this Paragraph 5, at any time prior to November 20, 2001, the Company may on any
one or more occasions redeem up to an aggregate of 35% of the aggregate
principal amount of Notes ever issued under this Indenture at a redemption price
equal to 110.125% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the redemption date, with
the net cash proceeds of one or more Public Equity Offerings; provided that at
least 65% in aggregate principal amount of the Notes ever issued under this
Indenture remains outstanding immediately after the occurrence of such
redemption; and provided further that such redemption shall occur within 60 days
of the date of the closing of any such Public Equity Offering.
<PAGE>
6........MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption payments with respect to the Notes.
7........REPURCHASE AT OPTION OF HOLDER.
(a)......If there is a Change of Control, the Company shall be
required to make an offer (a "Change of Control Offer") to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at
a purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of repurchase (the "Change of Control Payment"). Within 60 days following any
Change of Control, the Company shall mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and setting
forth the procedures governing the Change of Control Offer as required by the
Indenture.
(b)......If the Company or a Subsidiary consummates any Asset
Sales, within five days of each date on which the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company shall commence an offer to all
Holders of Notes (as "Asset Sale Offer") pursuant to the Indenture to purchase
the maximum principal amount of Notes that may be purchased out of the Excess
Proceeds at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of repurchase, in accordance with the procedures set forth
in the Indenture. To the extent that the aggregate amount of Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use such remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on
a pro rata basis. Holders of Notes that are the subject of an offer to purchase
will receive an Asset Sale Offer from the Company prior to any related purchase
date and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.
8........NOTICE OF REDEMPTION. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9........DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by the Indenture. The Company need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
<PAGE>
10.......PERSONS DEEMED OWNERS. The registered Holder of a
Note may be treated as its owner for all purposes.
11.......AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the then
outstanding Notes voting as a single class (including, without limitation,
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes), and any existing default or compliance with any provision of
the Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes voting as a single
class (including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes). Without the consent
of any Holder of a Note, the Indenture, the Guarantees or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the Commission in order to effect
or maintain the qualification of the Indenture under the Trust Indenture Act.
12.......DEFAULTS AND REMEDIES. Events of Default include: (i)
default for 30 days in the payment when due of interest on, or Liquidated
Damages, if any, with respect to the Notes; (ii) default in payment when due of
principal of or premium, if any, on the Notes, (iii) failure by the Company for
30 days to comply with any of its other agreements in the Indenture or the
Notes; (iv) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for moony borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or guarantee exists as of the date of the Indenture or
is created after the date of the Indenture, which default (A) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (B) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $2.5 million or more; (v) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $2.5 million, which judgments are not paid, discharged or stayed for a
period of 60 days; (vi) certain events of bankruptcy or insolvency with respect
to the Company or any of its Subsidiaries; and (vii) except as permitted by the
Indenture, any Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Guarantee.
<PAGE>
If any Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes. The Company is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
13.......TRUSTEE DEALINGS WITH COMPANY. The Trustee, 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 its Affiliates, as if it were not the Trustee.
14.......NO RECOURSE AGAINST OTHERS. A director, officer,
employee, incorporator or stockholder, of the Company, as such, shall not have
any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15.......AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an
authenticating agent.
16.......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), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
17.......ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL
NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to
Holders of Notes under the Indenture, Holders of Restricted Global Notes and
Restricted Definitive Notes shall have all the rights set forth in the A/B
Exchange Registration Rights Agreement dated as of November 26, 1997, between
the Company and the parties named on the signature pages thereof (the
"Registration Rights Agreement").
18.......CUSIP NUMBERS. Pursuant to a recommendation
promulgated by the Committee on Uniform Security Identification Procedures, the
Company has caused CUSIP numbers to be printed on the Notes and the Trustee may
use CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
<PAGE>
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture and/or the Registration Rights
Agreement. Requests may be made to:
Mrs. Fields' Original Cookies, Inc.
462 West Bearcat Drive
Salt Lake City, Utah, 84115
Attention: Treasurer
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- ------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------
- -------------------------------------------------------------------
- -------------------------------------------------------------------
- -------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint....
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
Date: ......... ........ Your Signature:
-------------
(Sign exactly as your name appears on the
Note)
Signature Guarantee.1
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.10 or 4.15 of the Indenture, check the box below:
[GRAPHIC OMITTED] Section 4.10 [GRAPHIC OMITTED] Section 4.15
If you want to elect to have only part of the Note purchased
by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state
the amount you elect to have purchased: $________
Date: ......... ........ Your Signature:
-------------
(Sign exactly as your name appears on the
Note)
Tax Identification No:
SIGNATURE GUARANTEE.2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<S> <C> <C> <C> <C>
Principal Amount
Amount of decrease in Amount of increase in of
Principal Amount Principal Amount this Global Note Signature of
of of following authorized officer
this Global Note this Global Note such decrease of Trustee or Note
Date of Exchange (or increase) Custodian
</TABLE>
<PAGE>
B-4
B-1
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Mrs. Fields' Original Cookies, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Re: 101/8% Notes due 2004 of Mrs. Fields' Original Cookies, Inc.
Reference is hereby made to the Indenture, dated as of
November 26, 1997 (the "Indenture"), between Mrs. Fields' Original Cookies,
Inc., as issuer (the "Company"), and The Bank of New York, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
______________, (the "Transferor") owns and proposes to
transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in
the principal amount of $___________ in such Note[s] or interests (the
"Transfer"), to __________ (the "Transferee"), as further specified in Annex A
hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. Check if Transferee will take delivery of a beneficial interest in the
Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is being
effected pursuant to and in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the
Transferor hereby further certifies that the beneficial interest or Definitive
Note is being transferred to a Person that the Transferor reasonably believed
and believes is purchasing the beneficial interest or Definitive Note for its
own account, or for one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A and such Transfer is in compliance with
any applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.
2. Check if Transferee will take delivery of a Definitive Note pursuant
to Regulation S. The Transfer is being effected pursuant to and in accordance
with Rule 903 or Rule 904 under the Securities Act and, accordingly, the
Transferor hereby further certifies that (i) the Transfer is not being made to a
person in the United States and (x) at the time the buy order was originated,
the Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believes that the Transferee was
outside the United States or (y) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act, (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a U.S.
Person or for the account or benefit of a U.S. Person (other than an Initial
Purchaser). Upon consummation of the proposed transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on Transfer enumerated in the Private
Placement Legend printed on the Definitive Note and in the Indenture and the
Securities Act.
<PAGE>
3. Check and complete if Transferee will take delivery of a beneficial
interest in a Definitive Note pursuant to any provision of the Securities Act
other than Rule 144A or Regulation S. The Transfer is being effected in
compliance with the transfer restrictions applicable to beneficial interests in
Restricted Global Notes and Restricted Definitive Notes and pursuant to and in
accordance with the Securities Act and any applicable blue sky securities laws
of any state of the United States, and accordingly the Transferor hereby further
certifies that (check one):
(a)..... such Transfer is being effected pursuant to and
in accordance with Rule 144 under the Securities Act;
or
(b)...... such Transfer is being effected to the Company or
a subsidiary thereof;
or
(c)...... such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in
compliance with the prospectus delivery requirements of the Securities
Act;
or
(d)...... such Transfer is being effected to an
Institutional Accredited Investor and pursuant to an exemption from
the registration requirements of the Securities Act other than Rule
144A, Rule 144 or Rule 904, and the Transferor hereby further
certifies that it has not engaged in any general solicitation within
the meaning of Regulation D under the Securities Act and the Transfer
complies with the transfer restrictions applicable to Restricted
Definitive Notes and the requirements of the exemption claimed, which
certification is supported by (1) a certificate executed by the
Transferee in the form of Exhibit C to the Indenture and (2) if such
Transfer is in respect of a principal amount of Notes at the time of
transfer of less than $250,000, has attached to this certification),
to the effect that such Transfer is in compliance with the Securities
Act. Upon consummation of the proposed transfer in accordance with the
terms of the Indenture, the transferred Definitive Note will be
subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Definitive Notes and in the Indenture
and the Securities Act.
4. Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a)...... Check if Transfer is pursuant to Rule 144. (i)
The Transfer is being effected pursuant to and in accordance with Rule
144 under the Securities Act and in compliance with the transfer
restrictions contained in the Indenture and any applicable blue sky
securities laws of any state of the United States and (ii) the
restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend
printed on the Restricted Global Notes, on Restricted Definitive Notes
and in the Indenture.
<PAGE>
(b)...... Check if Transfer is Pursuant to Regulation S.
(i) The Transfer is being effected pursuant to and in accordance with
Rule 903 or Rule 904 under the Securities Act and in compliance with
the transfer restrictions contained in the Indenture and any
applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and
the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will no longer be
subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.
(c)...... Check if Transfer is Pursuant to Other Exemption.
(i) The Transfer is being effected pursuant to and in compliance with
an exemption from the registration requirements of the Securities Act
other than Rule 144, Rule 903 or Rule 904 and in compliance with the
transfer restrictions contained in the Indenture and any applicable
blue sky securities laws of any State of the United States and (ii)
the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will not be subject
to the restrictions on transfer enumerated in the Private Placement
Legend printed on the Restricted Global Notes or Restricted Definitive
Notes and in the Indenture.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
........................... ........................... [Insert Name of
Transferor]
........................... By: ___
- -----------------------------------
Name:
Title:
Dated:
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) a beneficial interest in the:
Global Note (CUSIP ), or
(b) a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE OF (a), (b) or (c)]
(a) a beneficial interest in the:
(i) Global Note (CUSIP ), or
(ii) Unrestricted Global Note (CUSIP; or
(b) a Restricted Definitive Note; or
(c) an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
<PAGE>
C-3
C-1
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Mrs. Fields' Original Cookies, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Re: 101/8% Notes due 2004 of Mrs. Fields' Original Cookies, Inc.
(CUSIP______________)
Reference is hereby made to the Indenture, dated as of
November 26, 1997 (the "Indenture"), between Mrs. Fields' Original Cookies,
Inc., as issuer (the "Company"), and The Bank of New York, as trustee.
Capitalized terms used but not defined herein shall have the meanings given to
them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial
Interests in an Unrestricted Global Note
(a) Check if Exchange is from beneficial interest in a
Restricted Global Note to beneficial interest in an Unrestricted
Global Note. In connection with the Exchange of the Owner's beneficial
interest in a Restricted Global Note for a beneficial interest in an
Unrestricted Global Note in an equal principal amount, the Owner
hereby certifies (i) the beneficial interest is being acquired for the
Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to
the Global Notes and pursuant to and in accordance with the United
States Securities Act of 1933, as amended (the "Securities Act"),
(iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest in
an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
<PAGE>
(b) Check if Exchange is from beneficial interest in a
Restricted Global Note to Unrestricted Definitive Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in
compliance with the transfer restrictions applicable to the Restricted
Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and
the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is
being acquired in compliance with any applicable blue sky securities
laws of any state of the United States.
(c) Check if Exchange is from Restricted Definitive Note
to beneficial interest in an Unrestricted Global Note. In connection
with the Owner's Exchange of a Restricted Definitive Note for a
beneficial interest in an Unrestricted Global Note, the Owner hereby
certifies (i) the beneficial interest is being acquired for the
Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to
Restricted Definitive Notes and pursuant to and in accordance with the
Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order
to maintain compliance with the Securities Act and (iv) the beneficial
interest is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
(d) Check if Exchange is from Restricted Definitive Note
to Unrestricted Definitive Note. In connection with the Owner's
Exchange of a Restricted Definitive Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Unrestricted
Definitive Note is being acquired for the Owner's own account without
transfer, (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the
restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Unrestricted Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of
any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes for Restricted Definitive Notes or Beneficial
Interests in Restricted Global Notes
<PAGE>
(a) Check if Exchange is from beneficial interest in a
Restricted Global Note to Restricted Definitive Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a Restricted Definitive Note with an equal principal
amount, the Owner hereby certifies that the Restricted Definitive Note
is being acquired for the Owner's own account without transfer. Upon
consummation of the proposed Exchange in accordance with the terms of
the Indenture, the Restricted Definitive Note issued will continue to
be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the
Indenture and the Securities Act.
(b) Check if Exchange is from Restricted Definitive Note
to beneficial interest in a Restricted Global Note. In connection with
the Exchange of the Owner's Restricted Definitive Note for a
beneficial interest in the Global Note, with an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer and (ii)
such Exchange has been effected in compliance with the transfer
restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any
applicable blue sky securities laws of any state of the United States.
Upon consummation of the proposed Exchange in accordance with the
terms of the Indenture, the beneficial interest issued will be subject
to the restrictions on transfer enumerated in the Private Placement
Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
<PAGE>
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company.
......... -----------------------------------
[Insert Name of Owner]
......... By: _______________________________
Name:
Title:
Dated: ________________, ____
<PAGE>
D-3
D-1
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Mrs. Fields' Original Cookies, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Re: 101/8% Notes due 2004 of Mrs. Fields' Original Cookies, Inc.
Reference is hereby made to the Indenture, dated as of November 26, 1997
(the "Indenture"), between Mrs. Fields' Original Cookies, Inc., as issuer
(the "Company"), and The Bank of New York, as trustee. Capitalized terms
used but not defined herein shall have the meanings given to them in the
Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of a Definitive Note, we confirm that:
1. We understand that the Senior Notes are not being and will
not be registered under the Securities Act of 1933, as amended (the "Securities
Act"), and are being sold to us in a transaction that is exempt from the
registration requirements of the Securities Act.
2. We acknowledge that (a) neither the Company, nor the
Initial Purchasers (as defined in the Offering Circular, dated November 20,
1997, relating to the Senior Notes (the "Offering Circular")) nor any persons
acting on behalf of the Company or the Initial Purchasers have made any
representation to us with respect to the Company or the offer or sale of any
Senior Notes and (b) any information we desire concerning the Company and the
Senior Notes or any other matter relevant to our decision to purchase the Senior
Notes (including a copy of the Offering Circular) is or has been made available
to us.
3. We have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Senior Notes, and we are (or any account for which we are
purchasing under paragraph 4 below is) an institutional "accredited investor"
(within the meaning of Rule 501 (a)(1), (2), (3) or (7) of Regulation D under
the Securities Act) able to bear the economic risk of investment in the Senior
Notes.
4. We are acquiring the Senior Notes for our own account (or
for accounts as to which we exercise sole investment discretion and have
authority to make, and do make, the statements contained in this letter) and not
with a view to any distribution of the Senior Notes in a transaction that would
violate the Securities Act or the securities laws of any State of the United
States or any other applicable jurisdiction, subject, nevertheless, to the
understanding that the disposition of our property will at all times be and
remain within our control.
5. We understand that the Senior Notes will be in registered
form only and that any certificates delivered to us in respect of the Senior
Notes will bear a legend to the following effect:
<PAGE>
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF
OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) (A "QIB"), (B) IT IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (A)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT WILL
NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES
ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED
FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY)
OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION" AND "UNITED STATES" HAVE THE MEANING GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING."
6. We agree that in the event that at some future time we wish
to dispose of any of the Senior Notes, we will not do so unless such disposition
is made in accordance with any applicable securities laws of any state of the
United States and: (a) the Senior Notes are sold in compliance with Rule 114(k)
under the Securities Act; (b) the Senior Notes are sold in compliance with Rule
144A under the Securities Act; (c) the Senior Notes are sold in compliance with
Rule 904 of Regulation S under the Securities Act; (d) the Senior Notes are sold
pursuant to an effective registration statement under the Securities Act; (e)
the Senior Notes are sold to the Company or an affiliate (as defined in Rule 501
(b) of Regulation D) of the Company; or (f) the Senior Notes are disposed of in
any other transaction that does not require registration under the Securities
Act, and prior to such disposition we have furnished to the Company or its
designee an opinion of counsel experienced in securities law matters to such
effect or such other documentation as the Company or its designee may reasonably
request.
<PAGE>
7. We acknowledge that the registrar for the Senior Notes will
not be required to accept for registration of transfer any Senior Notes acquired
by us, except upon presentation of evidence satisfactory to the Company that the
restrictions on transfer set forth above have been compiled with. We understand
that Jefferies & Company, Inc. and BT Alex. Brown Incorporated, as the Initial
Purchasers, the Company and other persons will rely upon the truth and accuracy
of the statements set forth herein, and we agree that if any such statements are
no longer true or accurate we will promptly so notify the Company and Initial
Purchasers.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
----------------------------
(Name of Purchaser)
By: _______________________________
Name:
Title:
Address:
<PAGE>
F-4
E-1
EXHIBIT E
FORM OF NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any
successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of November 26, 1997 (the
"Indenture") among Mrs. Fields' Original Cookies, Inc., the Guarantors listed on
Schedule I thereto and The Bank of New York, as trustee (the "Trustee"), (a) the
due and punctual payment of the principal of, premium, if any, and interest on
the Notes (as defined in the Indenture), whether at maturity, by acceleration,
redemption or otherwise, the due and punctual payment of interest on overdue
principal and premium, and, to the extent permitted by law, interest, and the
due and punctual performance of all other obligations of the Company to the
Holders or the Trustee all in accordance with the terms of the Indenture and (b)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. The obligations of the Guarantors
to the Holders of Notes and to the Trustee pursuant to the Guarantee and the
Indenture are expressly set forth in Article 10 of the Indenture and reference
is hereby made to the Indenture for the precise terms of the Guarantee. Each
Holder of a Note, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee, on behalf of such
Holder, to take such action as may be necessary or appropriate to effectuate the
subordination as provided in the Indenture and (c) appoints the Trustee
attorney-in-fact of such Holder for such purpose; provided, however, that the
Indebtedness evidenced by this Guarantee shall cease to be so subordinated and
subject in right of payment upon any defeasance of this Note in accordance with
the provisions of the Indenture.
[Name of Guarantor(s)]
By: ________________________________
Name:
Title:
<PAGE>
F-1
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of ________________, among __________________ (the "Guaranteeing
Subsidiary"), a subsidiary of Mrs. Fields' Original Cookies, Inc. (or its
permitted successor), a Delaware corporation (the "Company"), the Company, the
other Guarantors (as defined in the Indenture referred to herein) and The Bank
of New York, as trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to
the Trustee an indenture (the "Indenture"), dated as of November 26, 1997
providing for the issuance of an aggregate principal amount of up to $200.0
million of 101/8% Notes due 2004 (the "Notes");
WHEREAS, the Indenture provides that under certain
circumstances the Guaranteeing Subsidiary shall execute and deliver to the
Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary
shall unconditionally guarantee all of the Company's Obligations under the Notes
and the Indenture on the terms and conditions set forth herein (the
"Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as
follows:
(a) Along with all Guarantors named in the Indenture, to
jointly and severally Guarantee to each Holder of a
Note authenticated and delivered by the Trustee and
to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of
the Indenture, the Notes or the obligations of the
Company hereunder or thereunder, that:
<PAGE>
(i) the principal of and interest on the Notes
will be promptly paid in full when due,
whether at maturity, by acceleration,
redemption or otherwise, and interest on the
overdue principal of and interest on the
Notes, if any, if lawful, and all other
obligations of the Company to the Holders or
the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in
accordance with the terms hereof and
thereof; and
(ii) in case of any extension of time of payment
or renewal of any Notes or any of such other
obligations, that same will be promptly paid
in full when due or performed in accordance
with the terms of the extension or renewal,
whether at stated maturity, by acceleration
or otherwise. Failing payment when due of
any amount so guaranteed or any performance
so guaranteed for whatever reason, the
Guarantors shall be jointly and severally
obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional,
irrespective of the validity, regularity or
enforceability of the Notes or the Indenture, the
absence of any action to enforce the same, any waiver
or consent by any Holder of the Notes with respect to
any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce
the same or any other circumstance which might
otherwise constitute a legal or equitable discharge
or defense of a guarantor.
(c) The following is hereby waived: diligence
presentment, demand of payment, filing of claims with
a court in the event of insolvency or bankruptcy of
the Company, any right to require a proceeding first
against the Company, protest, notice and all demands
whatsoever.
(d) This Guarantee shall not be discharged except by
complete performance of the obligations contained in
the Notes and the Indenture.
(e) If any Holder or the Trustee is required by any court
or otherwise to return to the Company, the
Guarantors, or any Custodian, Trustee, liquidator or
other similar official acting in relation to either
the Company or the Guarantors, any amount paid by
either to the Trustee or such Holder, this Guarantee,
to the extent theretofore discharged, shall be
reinstated in full force and effect.
<PAGE>
(f) The Guaranteeing Subsidiary shall not be entitled to
any right of subrogation in relation to the Holders
in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 of the Indenture
for the purposes of this Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed
hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article
6 of the Indenture, such obligations (whether or not
due and payable) shall forthwith become due and payable
by the Guarantors for the purpose of this Guarantee.
(h) The Guarantors shall have the right to seek
contribution from any non-paying Guarantor so long as
the exercise of such right does not impair the rights
of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after
giving effect to any maximum amount and any other
contingent and fixed liabilities that are relevant
under any applicable Bankruptcy or fraudulent
conveyance laws, and after giving effect to any
collections from, rights to receive contribution from
or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other
Guarantor under Article 10 of the Indenture shall
result in the obligations of such Guarantor under its
Guarantee not constituting a fraudulent transfer or
conveyance.
<PAGE>
3 EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees
that the Guarantees shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain
Terms.
(a) The Guaranteeing Subsidiary may not consolidate with or merge
with or into (whether or not such Guarantor is the surviving
Person) another corporation, Person or entity whether or not
affiliated with such Guarantor unless:
(i) subject to Section 10.05 of the Indenture, the Person
formed by or surviving any such consolidation or
merger (if other than a Guarantor or the Company)
unconditionally assumes all the obligations of such
Guarantor, pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the
Guarantee on the terms set forth herein or therein;
and
(ii) immediately after giving effect to such transaction,
no Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor
corporation, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to
the Trustee, of the Guarantee endorsed upon the Notes
and the due and punctual performance of all of the
covenants and conditions of the Indenture to be
performed by the Guarantor, such successor corporation
shall succeed to and be substituted for the Guarantor
with the same effect as if it had been named herein as
a Guarantor. Such successor corporation thereupon may
cause to be signed any or all of the Guarantees to be
endorsed upon all of the Notes issuable hereunder which
theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Guarantees so
issued shall in all respects have the same legal rank
and benefit under the Indenture as the Guarantees
theretofore and thereafter issued in accordance with
the terms of the Indenture as though all of such
Guarantees had been issued at the date of the execution
hereof.
(c) Except as set forth in Articles 4 and 5 of the Indenture,
and notwithstanding clauses (a) and (b) above, nothing contained in the
Indenture or in any of the Notes shall prevent any consolidation or merger of a
Guarantor with or into the Company or another Guarantor, or shall prevent any
sale or conveyance of the property of a Guarantor as an entirety or
substantially as an entirety to the Company or another Guarantor.
<PAGE>
5. Releases.
(a) In the event of a sale or other disposition of all of
the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other
disposition of all to the capital stock of any
Guarantor, then such Guarantor (in the event of a sale
or other disposition, by way of merger, consolidation
or otherwise, of all of the capital stock of such
Guarantor) or the corporation acquiring the property
(in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) will
be released and relieved of any obligations under its
Guarantee; provided that the Net Proceeds of such sale
or other disposition are applied in accordance with the
applicable provisions of the Indenture, including
without limitation Section 4.10 of the Indenture. Upon
delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect
that such sale or other disposition was made by the
Company in accordance with the provisions of the
Indenture, including without limitation Section 4.10 of
the Indenture, the Trustee shall execute any documents
reasonably required in order to evidence the release of
any Guarantor from its obligations under its Guarantee.
(b) Any Guarantor not released from its obligations under its
Guarantee shall remain liable for the full amount of principal
of and interest on the Notes and for the other obligations of
any Guarantor under the Indenture as provided in Article 10 of
the Indenture.
6. NO RECOURSE AGAINST OTHERS. No past, present or future
director, officer, employee, incorporator, stockholder or agent of the
Guaranteeing Subsidiary, as such, shall have any liability for any obligations
of the Company or any Guaranteeing Subsidiary under the Notes, any Guarantees,
the Indenture or this Supplemental Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
the Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF
NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
8. COUNTERPARTS The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
9. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
10. THE TRUSTEE. The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Subsidiary and the
Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture
to be duly executed and attested, all as of the date first above written.
Dated: _______________, ____
[GUARANTEEING SUBSIDIARY]
By: _________________________________
Name:
Title:
MRS. FIELDS' ORIGINAL COOKIES, INC.
By: _________________________________
Name:
Title:
THE MRS. FIELDS' BRAND, INC.
By: ______________________________
Name:
Title
THE BANK OF NEW YORK,
AS TRUSTEE
By: ______________________________
Name:
Title:
<PAGE>
Schedule I
SCHEDULE OF GUARANTORS
The following schedule lists each Guarantor under the
Indenture as of the Issue Date:
The Mrs. Fields' Brand, Inc.
<PAGE>
|
EXHIBIT G
Non-Core Stores
1 Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
2 Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC.
MRS. FIELDS' BRANDS, INC.
$100,000,000
Aggregate Principal Amount of
____% Senior Notes due 2004
------------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF NOVEMBER __, 1997
------------------------------------
JEFFERIES & COMPANY, INC. BT ALEX. BROWN INCORPORATED
<PAGE>
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of November __, 1997, by and among Mrs. Fields' Original
Cookies, Inc., a Delaware corporation (the "Company"), and Mrs. Fields' Brands,
Inc., a Delaware corporation (the "Guarantor") and Jefferies & Company, Inc. and
BT Alex. Brown Incorporated (each, an "Initial Purchaser" and, collectively, the
"Initial Purchasers"), each of whom has agreed to purchase the Company's __%
Senior Notes due 2004 (the "Senior Notes") pursuant to the Purchase Agreement
(as defined).
This Agreement is made pursuant to the Purchase Agreement, dated, as of
________, 1997 (the "Purchase Agreement"), by and among the Company, the
Guarantor and the Initial Purchasers. In order to induce the Initial Purchasers
to purchase the Senior Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this Agreement
is a condition to the obligations of the Initial Purchasers set forth in Section
3 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Advice: As defined in Section 6(d) hereof.
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Broker-Dealer Transfer Restricted Securities: New Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Senior Notes
that such Broker-Dealer acquired for its own account as a result of
market-making activities or other trading activities (other than Senior Notes
acquired directly from the Company or any of its affiliates).
Certificated Securities: As defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Securities Act of the Exchange Offer Registration
Statement relating to the New Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of New Notes in the same aggregate principal
amount as the aggregate principal amount of Senior Notes tendered by Holders
thereof pursuant to the Exchange Offer.
controlling person: As defined in Section 8(a) hereof.
Damages Payment Date: With respect to the Senior Notes, each Interest
Payment Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
<PAGE>
Exchange Offer: The registration by the Company under the Securities
Act of the New Notes pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such outstanding
Transfer Restricted Securities for New Notes in an aggregate principal amount
equal to the aggregate principal amount of the Transfer Restricted Securities
tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Senior Notes to certain "qualified institutional buyers," as
such term is defined in Rule 144A under the Securities Act, and to persons
permitted to purchase the Senior Notes in offshore transactions in reliance upon
Regulation S under the Securities Act.
Global Note Holder: As defined in the Indenture.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of the Closing Date, among the
Company, the Guarantor and _______________, as trustee (the "Trustee"), pursuant
to which the Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
Liquidated Damages: As defined in Section 5 hereof.
NASD: The National Association of Securities Dealers, Inc.
New Notes: The Company's ____% Senior Notes due 2004, identical in all
material respects to the Senior Notes, which are to be issued pursuant to the
Indenture (i) in the Exchange Offer or (ii) upon the request of any Holder of
Senior Notes covered by a Shelf Registration Statement, in exchange for such
Senior Notes.
Notes: The Senior Notes and the New Notes.
Person: An individual, partnership, corporation, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
<PAGE>
Registration Statement: Any registration statement of the Company and
the Guarantor relating to (a) an offering of New Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case, (i) which is filed
pursuant to the provisions of this Agreement and (ii) including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
Securities Act: The Securities Act of 1933, as amended.
Shelf Registration Statement: As defined in Section 4(a) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb), as
in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Securities Act, (b) the date on
which such Note has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Note is disposed of by a Broker-Dealer
pursuant to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including delivery of the Prospectus contained therein)
or (d) the date on which such Note is distributed to the public pursuant to Rule
144 under the Securities Act.
underwriters: As defined in Section 11 hereof.
Underwritten Registration or Underwritten Offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) hereof have been
complied with), the Company and the Guarantor shall (i) cause to be filed with
the Commission as soon as practicable after the Closing Date, but in no event
later than 60 days after the Closing Date, the Exchange Offer Registration
Statement, (ii) use their best efforts to cause such Exchange Offer Registration
Statement to become effective at the earliest possible time, but in no event
later than 120 days after the Closing Date, (iii) in connection with the
foregoing, (A) file all pre-effective amendments to such Exchange Offer
Registration Statement as may be necessary in order to cause such Exchange Offer
Registration Statement to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Securities Act and (C) cause all necessary filings, if
any, in connection with the registration and qualification of the New Notes to
be made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting
registration of the New Notes to be offered in exchange for the Senior Notes
that are Transfer Restricted Securities and to permit sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers as contemplated by
Section 3(c) hereof.
(b) The Company and the Guarantor shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided that in no event shall such
period be less than 20 Business Days. The Company and the Guarantor shall cause
the Exchange Offer to comply with all applicable federal and state securities
laws. No securities other than the Notes shall be included in the Exchange Offer
Registration Statement. The Company and the Guarantor shall use their respective
best efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter.
<PAGE>
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Senior Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Senior Notes (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with its initial sale of each New Note received by such Broker-Dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers that the Commission
may require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Notes held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy after the date of this Agreement.
The Company and the Guarantor shall use their respective best efforts
to keep the Exchange Offer Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section 6(c) hereof to
the extent necessary to ensure that it is available for sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers, and to ensure that
such Registration Statement conforms with the requirements of this Agreement,
the Securities Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of one year from the date on which the
Exchange Offer is Consummated.
The Company and the Guarantor shall promptly provide sufficient copies
of the latest version of such Prospectus to such Restricted Broker-Dealers
promptly upon request, and in no event later than one day after such request, at
any time during such one-year period in order to facilitate such sales.
<PAGE>
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement with respect to the New Notes because the
Exchange Offer is not permitted by applicable law (after the procedures set
forth in Section 6(a)(i) hereof have been complied with) or (ii) if any Holder
of Transfer Restricted Securities shall notify the Company within 20 Business
Days following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the New Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the Prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder or (C) such Holder is a Broker-Dealer and holds
Senior Notes acquired directly from the Company or one of its affiliates, then
the Company and the Guarantor shall (x) cause to be filed on or prior to 30 days
after the date on which the Company determines that it is not required to file
the Exchange Offer Registration Statement pursuant to clause (i) above or 30
days after the date on which the Company receives the notice specified in clause
(ii) above a shelf registration statement pursuant to Rule 415 under the
Securities Act, which may be an amendment to the Exchange Offer Registration
Statement (in either event, the "Shelf Registration Statement"), relating to all
Transfer Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof, and shall (y) use their
respective best efforts to cause such Shelf Registration Statement to become
effective on or prior to 90 days after the date on which the Company becomes
obligated to file such Shelf Registration Statement. If, after the Company has
filed an Exchange Offer Registration Statement which satisfies the requirements
of Section 3(a) above, the Company is required to file and make effective a
Shelf Registration Statement solely because the Exchange Offer shall not be
permitted under applicable federal law, then the filing of the Exchange Offer
Registration Statement shall be deemed to satisfy the requirements of clause (x)
above. Such an event shall have no effect on the requirements of clause (y)
above. The Company and the Guarantor shall use their respective best efforts to
keep the Shelf Registration Statement discussed in this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Securities Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years (as extended pursuant to Section
6(c)(i) hereof) following the date on which such Shelf Registration Statement
first becomes effective under the Securities Act.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in item 507 of Regulation S-K under the Securities Act for
use in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to Liquidated Damages pursuant to Section 5 hereof
unless and until such Holder shall have used its best efforts to provide all
such information. Each Holder as to which any Shelf Registration Statement is
being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 Business Days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then the Company and the Guarantor hereby jointly and
severally agree to pay liquidated damages ("Liquidated Damages") to each Holder
of Transfer Restricted Securities with respect to the first 90-day period
immediately following the occurrence of such Registration Default, in an amount
equal to $.05 per week per $1,000 principal amount of Transfer Restricted
Securities held by such Holder for each week or portion thereof that the
Registration Default continues. The amount of the Liquidated Damages shall
increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal amount of Transfer
Restricted Securities. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the accrual of
Liquidated Damages payable with respect to the Transfer Restricted Securities as
a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid to the Global Note Holder
by wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by mailing checks to their registered
addresses on each Damages Payment Date. All obligations of the Company and the
Guarantor set forth in the preceding paragraph that are outstanding with respect
to any Transfer Restricted Security at the time such security ceases to be a
Transfer Restricted Security shall survive until such time as all such
obligations with respect to such security shall have been satisfied in full.
<PAGE>
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantor shall comply with all applicable
provisions of Section 6(c) hereof, shall use their respective best efforts to
effect such exchange and to permit the sale of Broker-Dealer Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof, and shall comply with all of the following provisions:
(i) If, following the date hereof, there has been published a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, such that in the reasonable opinion of counsel to the
Company there is a substantial question as to whether the Exchange
Offer is permitted by applicable federal law, the Company and the
Guarantor hereby agree to seek a no-action letter or other favorable
decision from the Commission allowing the Company and the Guarantor to
Consummate an Exchange Offer for such Senior Notes. The Company and the
Guarantor hereby agree to pursue the issuance of such a decision to the
Commission staff level. In connection with the foregoing, the Company
and the Guarantor hereby agree to take all such other actions as are
requested by the Commission or otherwise required in connection with
the issuance of such decision, including, without limitation, (A)
participating in telephonic conferences with the Commission, (B)
delivering to the Commission staff an analysis prepared by counsel to
the Company setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursuing a resolution (which need not be favorable)
by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation of the Exchange Offer, a written
representation to the Company and the Guarantor (which may be contained
in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate
of the Company, (B) it is not engaged in, and does not intend to engage
in, and has no arrangement or understanding with any person to
participate in, a distribution of the New Notes to be issued in the
Exchange Offer and (C) it is acquiring the New Notes in its ordinary
course of business. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to
participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on
the date of this Agreement rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and
Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling dated
July 2, 1993, and similar no-action letters (including, if applicable,
any no-action letter obtained pursuant to clause (i) above), and (2)
must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction
and that such a secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K if the resales are of New Notes obtained by such Holder in exchange
for Senior Notes acquired by such Holder directly from the Company or
an affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantor shall provide a
supplemental letter to the Commission (A) stating that the Company and
the Guarantor are registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley and Co., Inc.
(available June 5, 1991) and, if applicable, any no-action letter
obtained pursuant to clause (i) above, (B) including a representation
that neither the Company nor any Guarantor has entered into any
arrangement or understanding with any Person to distribute the New
Notes to be received in the Exchange Offer and that, to the best of the
Company's and each Guarantor's information and belief, each Holder
participating in the Exchange Offer is acquiring the New Notes in its
ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the New Notes
received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantor shall comply with all the
provisions of Section 6(c) hereof and shall use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantor will prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Securities Act,
which form shall be available for the sale of the Transfer Restricted Securities
in accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof.
<PAGE>
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus, to the extent
that the same are required to be available to permit sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers), the Company and
the Guarantor shall:
(i) use their respective best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 hereof,
as applicable. Upon the occurrence of any event that would cause any
such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective
and usable for resale of Transfer Restricted Securities during the
period required hereby, the Company and the Guarantor shall file
promptly an appropriate amendment to such Registration Statement, (1)
in the case of clause (A), correcting any such misstatement or
omission, and (2) in the case of clauses (A) and (B), use their
respective best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable
thereafter.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, or such shorter
period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold; cause the
Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Securities Act in a timely manner; and comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission for
amendments to the Registration Statement or amendments or supplements
to the Prospectus or for additional information relating thereto, (C)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Securities Act or
of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or
sale in any jurisdiction, or the initiation of any proceeding for any
of the preceding purposes, (D) of the existence of any fact or the
happening of any event that makes any statement of a material fact made
in the Registration Statement, the Prospectus, any amendment or
supplement thereto or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in
the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes
in the Prospectus in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. If at
any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws,
the Company and the Guarantor shall use their respective best efforts
to obtain the withdrawal or lifting of such order at the earliest
possible time;
(iv) furnish to the Initial Purchasers, each selling Holder
named in any Registration Statement or Prospectus and each of the
underwriter(s) in connection with such sale, if any, before filing with
the Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review and comment
of such Holders and underwriter(s) in connection with such sale, if
any, for a period of at least five Business Days, and the Company will
not file any such Registration Statement or Prospectus or any amendment
or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which the
selling Holders of the Transfer Restricted Securities covered by such
Registration Statement or the underwriter(s) in connection with such
sale, if any, shall reasonably object within five Business Days after
the receipt thereof. A selling Holder or underwriter, if any, shall be
deemed to have reasonably objected to such filing if such Registration
Statement, amendment, Prospectus or supplement, as applicable, as
proposed to be filed, contains a material misstatement or omission or
fails to comply with the applicable requirements of the Securities Act;
<PAGE>
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s) in connection with such sale, if any, make the Company's
and the Guarantor' representatives available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as such
selling Holders or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any managing underwriter participating in any
disposition pursuant to such Registration Statement and any attorney or
accountant retained by such selling Holders or any of such
underwriter(s), all financial and other records, pertinent corporate
documents and properties of the Company and the Guarantor and cause the
Company's and the Guarantor' officers, directors and employees to
supply all information reasonably requested by any such Holder,
underwriter, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the
underwriter(s) in connection with such sale, if any, promptly include
in any Registration Statement or Prospectus, pursuant to a supplement
or post-effective amendment if necessary, such information as such
selling Holders and underwriter(s), if any, may reasonably request to
have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Transfer Restricted
Securities, information with respect to the principal amount of
Transfer Restricted Securities being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the offering
of the Transfer Restricted Securities to be sold in such offering; and
make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be included in such Prospectus supplement or
post-effective amendment;
(viii) furnish to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without charge, at
least one copy of the Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(ix) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company
and the Guarantor hereby consent to the use (in accordance with law) of
the Prospectus and any amendment or supplement thereto by each of the
selling Holders and each of the underwriter(s), if any, in connection
with the offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto;
(x) enter into such agreements (including an underwriting
agreement) and make such representations and warranties and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement
as may be reasonably requested by any Holder of Transfer Restricted
Securities or underwriter in connection with any sale or resale
pursuant to any Registration Statement contemplated by this Agreement,
and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an Underwritten
Registration, the Company and the Guarantor shall:
<PAGE>
(A) furnish (or in the case of paragraphs (2) and
(3), use its best efforts to furnish) to each selling Holder
and each underwriter, if any, upon the effectiveness of the
Shelf Registration Statement and to each Restricted
Broker-Dealer upon Consummation of the Exchange Offer:
(1) a certificate, dated the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement, as
the case may be, signed on behalf of the Company and
each Guarantor by (x) the President or any Vice
President and (y) a principal financial or accounting
officer of the Company and such Guarantor,
confirming, as of the date thereof, the matters set
forth in paragraphs ___ through ___ of Section ___ of
the Purchase Agreement and such other similar matters
as the Holders, underwriter(s) and/or Restricted
Broker Dealers may reasonably request;
(2) an opinion, dated the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement, as
the case may be, of counsel for the Company and the
Guarantor covering matters similar to those set forth
in paragraph ___ of Section ___ of the Purchase
Agreement and such other matter as the Holders,
underwriters and/or Restricted Broker Dealers may
reasonably request, and in any event including a
statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company and the Guarantor,
representatives of the independent public accountants
for the Company and the Guarantor and have considered
the matters required to be stated therein and the
statements contained therein, although such counsel
has not independently verified the accuracy,
completeness or fairness of such statements; and that
such counsel advises that, on the basis of the
foregoing (relying as to materiality to a large
extent upon facts provided to such counsel by
officers and other representatives of the Company and
the Guarantor and without independent check or
verification), no facts came to such counsel's
attention that caused such counsel to believe that
the applicable Registration Statement, at the time
such Registration Statement or any post-effective
amendment thereto became effective and, in the case
of the Exchange Offer Registration Statement, as of
the date of Consummation of the Exchange Offer,
contained an untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, or that the Prospectus
contained in such Registration Statement as of its
date and, in the case of the opinion dated the date
of Consummation of the Exchange Offer, as of the date
of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact
necessary in order to make the statements therein, in
the light of the circumstances under which they were
made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel
assumes no responsibility for, and has not
independently verified, the accuracy, completeness or
fairness of the financial statements, notes and
schedules and other financial data included in any
Registration Statement contemplated by this Agreement
or the related Prospectus; and
(3) a customary comfort letter, dated as of
the date of effectiveness of the Shelf Registration
Statement or the date of Consummation of the Exchange
Offer, as the case may be, from the Company's
independent accountants, in the customary form and
covering matters of the type customarily covered in
comfort letters to underwriters in connection with
primary underwritten offerings, and affirming the
matters set forth in the comfort letters delivered
pursuant to Section ___ of the Purchase Agreement,
without exception;
<PAGE>
(B) set forth in full or incorporate by reference in
the underwriting agreement, if any, in connection with any
sale or resale pursuant to any Shelf Registration Statement
the indemnification provisions and procedures of Section 9
hereof with respect to all parties to be indemnified pursuant
to said Section; and
(C) deliver such other documents and certificates as
may be reasonably requested by the selling Holders, the
underwriter(s), if any, and Restricted Broker Dealers, if any,
to evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement
or other agreement entered into by the Company and the
Guarantor pursuant to this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at
any time the representations and warranties of the Company and the
Guarantor contemplated in (A)(1) above cease to be true and correct,
the Company and the Guarantor shall so advise the underwriter(s), if
any, the selling Holders and each Restricted Broker-Dealer promptly and
if requested by such Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration
and qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such jurisdictions as the selling
Holders or underwriter(s), if any, may request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided that neither the Company
nor any Guarantor shall be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any action that
would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xii) issue, upon the request of any Holder of Senior Notes
covered by any Shelf Registration Statement contemplated by this
Agreement, New Notes having an aggregate principal amount equal to the
aggregate principal amount of Senior Notes surrendered to the Company
by such Holder in exchange therefor or being sold by such Holder; such
New Notes to be registered in the name of such Holder or in the name of
the purchaser(s) of such Notes, as the case may be; in return, the
Senior Notes held by such Holder shall be surrendered to the Company
for cancellation;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names as
the Holders or the underwriter(s), if any, may request at least two
Business Days prior to such sale of Transfer Restricted Securities;
(xiv) use their respective best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to consummate
the disposition of such Transfer Restricted Securities, subject to the
proviso contained in clause (xi) above;
(xv) subject to Section 6(c)(i) hereof, if any fact or event
contemplated by Section 6(c)(iii)(D) hereof shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of Transfer
Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
<PAGE>
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration
Statement covering such Transfer Restricted Securities and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with The
Depository Trust Company;
(xvii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter")
that is required to be retained in accordance with the rules and
regulations of the NASD, and use their respective best efforts to cause
such Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the
Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
(xviii) otherwise use their respective best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Securities Act);
(xix) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate with
the Trustee and the Holders of Notes to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use its best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner; and
(xx) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of
Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(i) hereof or any notice from the Company of the existence of any
fact of the kind described in Section 6(c)(iii)(D) hereof, such Holder will
forthwith discontinue disposition of Transfer Restricted Securities pursuant to
the applicable Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 6(c)(xv)
hereof, or until it is advised in writing by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus (the
"Advice"). If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of either such
notice. In the event the Company shall give any such notice, the time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 6(c)(i) or Section 6(c)(iii)(D) hereof to and including the date when
each selling Holder covered by such Registration Statement shall have received
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xv) hereof or shall have received the Advice.
<PAGE>
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantor'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including,
without limitation,: (i) all registration and filing fees and expenses
(including filings made by any Initial Purchaser or Holder with the NASD (and,
if applicable, the fees and expenses of any "qualified independent underwriter")
and its counsel that may be required by the rules and regulations of the NASD);
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the New Notes to be issued in the Exchange Offer and printing
of Prospectuses), messenger and delivery services and telephone; (iv) all fees
and disbursements of counsel for the Company, the Guarantor and the Holders of
Transfer Restricted Securities; (v) all application and filing fees in
connection with listing the Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and (vi) all fees and
disbursements of independent certified public accountants of the Company and the
Guarantor (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its and the Guarantor' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantor.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantor
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantor, jointly and severally, agree to
indemnify and hold harmless (i) each Holder and (ii) each person, if any, who
controls (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) any Holder (any of the persons referred to in this clause
(ii) being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including, without limitation, and
as incurred, reimbursement of all reasonable costs of investigating, preparing,
pursuing or defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Holder) directly or
indirectly caused by, related to, based upon, arising out of or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto), or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by an untrue statement or omission
or alleged untrue statement or omission that is made in reliance upon and in
conformity with information relating to any of the Holders furnished in writing
to the Company by any of the Holders expressly for use therein.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company or the Guarantor, such Indemnified Holder (or the Indemnified Holder
controlled by such controlling person) shall promptly notify the Company and the
Guarantor in writing (provided that the failure to give such notice shall not
relieve the Company or the Guarantor of their obligations pursuant to this
Agreement). Such Indemnified Holder shall have the right to employ its own
counsel in any such action and the fees and expenses of such counsel shall be
paid, as incurred, by the Company and the Guarantor (regardless of whether it is
ultimately determined that an Indemnified Holder is not entitled to
indemnification hereunder). The Company and the Guarantor shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) at any time for such Indemnified Holders, which firm shall be
designated by the Holders. The Company and the Guarantor shall be liable for any
settlement of any such action or proceeding effected with the Company's prior
written consent, which consent shall not be withheld unreasonably, and the
Company and the Guarantor agree to indemnify and hold harmless each Indemnified
Holder from and against any loss, claim, damage, liability or expense by reason
of any settlement of any action effected with the written consent of the
Company. Neither the Company nor any Guarantor shall, without the prior written
consent of each Indemnified Holder, settle or compromise or consent to the entry
of judgment in or otherwise seek to terminate any pending or threatened action,
claim, litigation or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any Indemnified Holder is a
party thereto), unless such settlement, compromise, consent or termination
includes an unconditional release of each Indemnified Holder from all liability
arising out of such action, claim, litigation or proceeding.
<PAGE>
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company and the Guarantor, and
their respective directors, officers, and any person controlling (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
the Company, and the respective officers, directors, partners, employees,
representatives and agents of each such person, to the same extent as the
foregoing indemnity from the Company and the Guarantor to each of the
Indemnified Holders, but only with respect to claims and actions based on
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company, any Guarantor or its directors
or officers or any such controlling person in respect of which indemnity may be
sought against a Holder of Transfer Restricted Securities, such Holder shall
have the rights and duties given the Company and the Guarantor, and the Company,
such Guarantor, such directors or officers or such controlling person shall have
the rights and duties given to each Holder by the preceding paragraph. In no
event shall any Holder be liable or responsible for any amount in excess of the
amount by which the total received by such Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages which such Holder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or 8(b) hereof (other
than by reason of exceptions provided in those Sections) in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantor, on the one hand, and the Holders, on the other hand,
from their sale of Transfer Restricted Securities or if such allocation is not
permitted by applicable law, the relative fault of the Company and the
Guarantor, on the one hand, and of the Indemnified Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company and the Guarantor,
on the one hand, and of the Indemnified Holder, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or such Guarantor
or by the Indemnified Holder and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in the second paragraph of Section 8(a)
hereof, any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
<PAGE>
The Company, the Guarantor and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 8(c) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no Holder or its related Indemnified Holders shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the total received by such Holder with respect to the sale of its
Transfer Restricted Securities pursuant to a Registration Statement exceeds the
sum of (A) the amount paid by such Holder for such Transfer Restricted
Securities plus (B) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Senior Notes held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company and each Guarantor hereby agrees with each Holder, for so
long as any Transfer Restricted Securities remain outstanding and during any
period in which the Company or such Guarantor is not subject to Section 13 or
15(d) of the Exchange Act, to make available, upon request of any Holder of
Transfer Restricted Securities, to any Holder or beneficial owner of Transfer
Restricted Securities in connection with any sale thereof and any prospective
purchaser of such Transfer Restricted Securities designated by such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering. Such investment bankers and managers are referred to herein as
the "underwriters."
<PAGE>
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to exercise
all rights provided herein, in the Indenture, the Purchase Agreement or granted
by law, including recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. The Company and the
Guarantor agree that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by them of the provisions of this Agreement
and hereby agree to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
will, on or after the date hereof, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Neither the Company
nor any Guarantor has previously entered into any agreement granting any
registration rights with respect to its securities to any Person. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's and the
Guarantor' securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. Neither the Company nor any
Guarantor will take any action, or voluntarily permit any change to occur, with
respect to the Notes that would materially and adversely affect the ability of
the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 12(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities. Notwithstanding the foregoing, a waiver or consent to
departure from the provisions hereof that relates exclusively to the rights of
Holders whose securities are being tendered pursuant to the Exchange Offer and
that does not affect directly or indirectly the rights of other Holders whose
securities are not being tendered pursuant to such Exchange Offer may be given
by the Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities subject to such Exchange Offer.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the Registrar
under the Indenture, with a copy to the Registrar under the Indenture; and
(ii) if to the Company or the Guarantor:
Mrs. Fields' Original Cookies, Inc.
362 West Bearcat Drive
Salt Lake City, Utah 84115
Telecopier No.: (801) 463-2223
Attention: Chief Financial Officer
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 735-2000
Attention: Randall H. Doud, Esq.
All such notices and communications shall be deemed to have been duly
given: (i) at the time delivered by hand, if personally delivered; (ii) five
Business Days after being deposited in the mail, postage prepaid, if mailed;
(iii) when receipt acknowledged, if telecopied; and (iv) on the next business
day, if timely delivered to an air courier guaranteeing overnight delivery.
<PAGE>
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including, without limitation, and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
<PAGE>
H:\Active\Cookie\Reg.02
20
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
<PAGE>
H:\Active\Cookie\Reg.02
MRS. FIELDS' ORIGINAL COOKIES, INC.
By: _______________________________
Name: Larry Hodges
Title: President and Chief Executive Officer
MRS. FIELDS' BRANDS, INC.
By: _______________________________
Name: Larry Hodges
Title: President and Chief Executive Officer
JEFFERIES & COMPANY, INC.
By: _______________________________
Name:
Title:
BT ALEX. BROWN INCORPORATED
By: _______________________________
Name:
Title:
Asset Purchase Agreement
LICENSING ASSETS PURCHASE AGREEMENT
Dated as of August 7, 1996
among
MRS. FIELDS DEVELOPMENT CORPORATION,
THE MRS. FIELDS' BRAND, INC.
and
CAPRICORN INVESTORS II, L.P.
<PAGE>
LICENSING ASSETS PURCHASE AGREEMENT
LICENSING ASSETS PURCHASE AGREEMENT dated as of August 7,
1996, among MRS. FIELDS DEVELOPMENT CORPORATION, a Delaware corporation (the
"Seller"), THE MRS. FIELDS' BRAND, INC., a Delaware corporation (the "Buyer"),
and CAPRICORN INVESTORS II, L.P., a Delaware limited partnership ("Capricorn").
WHEREAS, the parties desire that the Buyer purchase from the Seller,
and that the Seller sell to the Buyer, the Licensing Assets (as defined in
Section 1(a)), and that the Buyer assume the Assumed Liabilities (as defined in
Section 1(b)), upon the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
(a) Purchase, Sale and Assumption. Purchase and Sale. On the terms and
subject to the conditions of this Agreement, the Seller agrees to sell,
transfer, assign and deliver to the Buyer, and the Buyer agrees to, and
Capricorn agrees to cause the Buyer to, accept and purchase from the
Seller, at the Closing (as defined in Section 2(a)) (i) the "Mrs. Fields"
trade name and related trademarks and the licensing assets, contract rights
and general intangibles specified on Schedule 1(a) and (ii) an undivided
interest with Mrs. Fields' Original Cookies, Inc., a Delaware corporation
(the "Store Company"), in all recipes, techniques, processes, methods of
production and commercialization, training methods and know-how owned by
the Seller (such assets being herein called, collectively, the "Licensing
Assets", and the business and operations of the Seller relating thereto,
collectively, the "Licensing Business").
(b) Assumed Liabilities. On the terms and subject to the conditions of
this Agreement, the Buyer agrees to assume, at and effective from the
Closing, the Assumed Liabilities. The term "Assumed Liabilities" means,
collectively, all liabilities and obligations of the Seller arising out of
or related to the Licensing Business or the Licensing Assets including, but
not limited to, liabilities and obligations that:
(i) arise out of or relate to any contract or agreement in the
Licensing Business (including those listed on Schedule 1(a)); and
(ii) arise out of or relate to any event occurring after the Closing
or the operation of the Licensing Business or the use or ownership of any
of the Licensing Assets after the Closing; provided, however, that no
liabilities which constitute either "Assumed Liabilities" under the MFI
Asset Purchase Agreement (as defined in Section 3) or "Excluded
Liabilities" under the MFI Asset Purchase Agreement which are not related
to the Licensing Assets shall constitute Assumed Liabilities for purposes
of this Agreement.
(a) Purchase Price. The purchase price for the Licensing Assets (the
"Purchase Price") shall be the aggregate cash and note amounts payable by
the Buyer pursuant to, and as set forth in, Section 2(b)(ii). No separate
amount shall be payable by the Seller in respect of the assumption by the
Buyer of the Assumed Liabilities and no such assumption shall reduce the
Purchase Price payable hereunder.
<PAGE>
(b) Allocation of Purchase Price. Prior to the Closing Date, the
Buyer and the Seller shall negotiate, draft and execute a schedule
(the "Allocation Schedule") allocating the Purchase Price (including,
for purposes of this Section 1(d), any other consideration paid to the
Seller, including the Assumed Liabilities) among the Licensing Assets.
The Allocation Schedule shall be reasonable and shall be prepared in
accordance with Section 1060 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations thereunder. The Seller and
the Buyer agree that promptly upon receiving the Allocation Schedule
it shall return an executed copy thereof to the other. The Seller and
the Buyer agree to file Internal Revenue Service Form 8594, and all
federal, state, local and foreign Tax Returns (as defined in Section
4(e)), in accordance with the Allocation Schedule. The Seller and the
Buyer agree to provide the other promptly with any other information
required to complete Form 8594.
(i) Nonassignable Assets. To the extent that any contract,
permit, license or other asset included in the Licensing Assets is not capable
of being assigned, transferred or sublicensed without the consent or waiver of a
third party (whether or not a governmental authority), or if such assignment,
transfer or sublicense would constitute a breach thereof or a violation of
applicable law, this Agreement (and any related documents delivered at the
Closing) shall not constitute an actual or attempted assignment, transfer or
sublicense thereof unless and until such consent or waiver of such third party
has been duly obtained or such assignment, transfer or sublicense has otherwise
become lawful (any contract, permit, license or other asset not assigned,
transferred or sublicensed as a result of this Section 1(e)(i) is hereinafter
referred to as an "Unassigned Asset").
(ii) To the extent that the consents and waivers referred to in
Section 1(e)(i) are not obtained prior to the Closing, or until the
impracticalities of transfer referred to therein are resolved, and in
each case subject to Section 8(a), (x) the Seller shall, subject to
Section 8(a), use its best efforts to (A) provide or cause to be
provided to the Buyer the benefits of any Unassigned Asset, (B)
cooperate in any arrangement, reasonable and lawful as to both the
Seller and the Buyer, designed to provide such benefits to the Buyer
and (C) enforce for the account and at the expense of the Buyer any
rights of the Seller arising from such Unassigned Asset, including the
right to elect to terminate in accordance with the terms thereof on
the advice of the Buyer, and (y) the Buyer shall use its best efforts
to perform the obligations of the Seller arising under such Unassigned
Asset or shall promptly reimburse the Seller for the expense thereof.
2. Closing; Transactions to be Effected.
(a) Closing. The closing (the "Closing") of the purchase and
sale of the Licensing Assets and the assumption by the Buyer of the Assumed
Liabilities shall be held at the offices of Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York, at 10:00 a.m. on September 4, 1996,
or if the condition to Closing set forth in Section 3 of this Agreement shall
not have been satisfied by such date, as soon as practicable after such
condition shall have been satisfied. The date on which the Closing shall occur
is hereinafter referred to as the "Closing Date".
<PAGE>
(b) Transactions to be Effected. At the Closing, on the terms and
subject to the conditions of this Agreement:
(i) the Seller shall deliver to the Buyer (A) such
appropriately executed and authenticated instruments of
sale, assignment, transfer and conveyance to the Buyer
of the Licensing Assets as the Buyer or its counsel may
reasonably request, such instruments to be reasonably
satisfactory in form to the Buyer and its counsel, and
(B) copies of the License Buyer Note Agreement (as
defined in Section 2(b)(ii)) as executed by the Seller
or its designees and the License Agreement (as defined
in Section 3) as executed by the Buyer and the Store
Company; and
(ii) the Buyer shall deliver to the Seller (A) by wire
transfer to one or more bank accounts designated in
writing by the Seller at least two business days prior
to the Closing Date, immediately available funds in an
amount equal to $7,000,000, (B) notes of the Buyer (the
"License Buyer Notes"), registered in the name of the
Seller or its designees, which Buyer Notes shall
consist of two series of senior secured notes (with
respective aggregate principal amounts equal to
$1,000,000 (the "License Company Series 1 Notes") and
$9,000,000 (the "License Company Series 2 Notes" and,
together with the License Company Series 1 Notes, the
"License Company Notes"), all of which notes shall have
the terms set forth in the form of Note Agreement (the
"License Buyer Note Agreement") attached hereto as
Exhibit A, (C) such instruments of assumption with
respect to the Assumed Liabilities, appropriately
executed and authenticated by the Buyer, as the Seller
or its counsel may reasonably request, such instruments
to be reasonably satisfactory in form to the Seller and
its counsel, and (D) copies of the License Buyer Note
Agreement and the Security Documents (as such term is
defined in the License Buyer Note Agreement), in each
case as executed by the Buyer (together with the
License Company Notes, collectively, the "Other
Agreements"), and, in the case of Blocked Account
Letter Agreements (as such term is defined in the
License Buyer Note Agreement), as executed by the
respective banks with which the Collection Accounts (as
such term is defined in the License Buyer Note
Agreement) are held.
3. Conditions to Closing. The respective obligations of the
parties hereto are subject to the satisfaction (or waiver by the Buyer and the
Seller) as of the Closing of the conditions precedent under the Asset Purchase
Agreement, dated as of the date hereof, by and among Mrs. Fields Inc., a
Delaware corporation ("MFI"), the other sellers identified therein, the Store
Company and Capricorn (the "MFI Asset Purchase Agreement") and the closing
thereunder having occurred simultaneously with the Closing hereunder, and the
License Agreement contemplated thereunder (the "License Agreement") having been
executed and delivered by the Buyer and the Store Company.
4. Representations and Warranties of the Seller. The Seller
hereby represents and warrants to the Buyer as follows:
<PAGE>
(a) Organization and Standing of the Seller. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Seller has full corporate power and authority and
possesses all governmental franchises, licenses, permits, authorizations and
approvals necessary to enable it to use its corporate name and to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, would not have a material adverse effect on the assets, financial
condition or results of operations of the Licensing Business. The Seller is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of its business or the ownership, leasing or holding of its properties
makes such qualification necessary, except such jurisdictions where the failure
so to qualify would not have a material adverse effect on the assets, financial
condition or results of operations of the Licensing Business.
(b) Authority; No Conflict. The Seller has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate acts and other proceedings
required to be taken by the Seller (including without limitation any and all
stockholder or debtholder approvals) to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and properly taken. This Agreement has been
duly executed and delivered by the Seller and constitutes a valid and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms. MFI gave valid notice to Randall K. Fields and Debra J. Fields
(collectively, the "Founders") under the Stock Option Agreement dated as of
January 1, 1993 (as supplemented by the letter of waiver dated June 30, 1994
signed by the Founders) (collectively, the "Founders Agreement") among MFI, the
Founders, The Prudential Insurance Company of America, Principal Mutual Life
Insurance Company, Pruco Life Insurance Company, Zions First National Bank and
IDS Certificate Company in respect of the proposed transactions contemplated by
this Agreement and the MFI Asset Purchase Agreement and the transactions
contemplated hereby and thereby on or about May 17, 1996 and the Closing will be
in compliance with the Founders Agreement. The execution and delivery of this
Agreement and the License Buyer Note Agreement do not, and the consummation of
the transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof will not, conflict with, or result in any violation of or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation, or
result in the creation of any Lien (as defined in Section 4(f)) upon any of the
Licensing Assets under, any provision of (i) any relevant corporation law
statute, (ii) the Certificate or Articles of Incorporation or By-laws of the
Seller, (iii) except as disclosed on the Schedules hereto, any material note,
bond, mortgage, indenture, deed of trust, license, lease, contract, commitment,
or agreement to which the Seller or its sole subsidiary, Mrs. Fields Cookies, a
California corporation (the "Subsidiary"), is a party or by which any of the
Licensing Assets is bound or (iv) any judgment, order or decree, or material
statute, law, ordinance, rule or regulation applicable to the Seller or the
Subsidiary or any of the Licensing Assets, other than, in the case of clause
(iii) above, any such conflicts, violations, defaults, rights or liens, claims,
encumbrances, security interests, options, charges or restrictions that
individually or in the aggregate would not have a material adverse effect on the
assets, financial condition or results of operations of the Licensing Business.
No material consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required to be obtained or made by or with respect to the Seller,
the Subsidiary or their respective affiliates in connection with the execution
and delivery of this Agreement and the License Buyer Note Agreement or the
consummation by the Seller of the transactions contemplated hereby and thereby,
other than (A) compliance with and filings under the HSR Act and (B) those that
may be required solely by reason of the Buyer's (as opposed to any other third
party's) participation in the transactions contemplated hereby.
<PAGE>
(c) Equity Interests. No capital stock of or other equity
interests in any corporation, partnership or other entity is included in the
Licensing Assets.
(d) Undisclosed Liabilities. To the knowledge of the Seller,
neither the Seller nor the Subsidiary has any material liabilities or
obligations of any nature (whether accrued, absolute, contingent, unasserted or
otherwise) constituting Assumed Liabilities, except (1) as disclosed, reflected,
reserved against or contemplated in the pro forma balance sheet of the Buyer
attached as Schedule 6(e), (2) for items disclosed in the Schedules hereto, or
(3) for liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the date of such balance sheet other than in
violation of this Agreement.
(e) Taxes. (i) Except as set forth on Schedule 4(e), MFI has,
in respect of the Licensing Business, filed all material Tax Returns which are
required to be filed (all such returns being true, correct and complete in all
material respects) and has paid all Taxes shown to be due on such Tax Returns,
and all monies required to be withheld by the Seller from employees of the
Licensing Business for income Taxes and social security and other payroll Taxes
have been collected or withheld, and either paid to the respective taxing
authorities, set aside in accounts for such purpose, or accrued, reserved
against and entered upon the books of the Licensing Business.
(f) (ii) Except as set forth on Schedule 4(e), there are no
ongoing audits or examinations of any of the Tax Returns of the Seller or the
Subsidiary and neither the Seller nor the Subsidiary has been notified by any
governmental authority that any such audit is contemplated or pending. Except as
set forth on Schedule 4(e), no governmental authority is now asserting or
threatening to assert against either of the Seller or the Subsidiary any
deficiency or claim for additional Taxes. Except as set forth on Schedule 4(e),
no extension of time with respect to any date on which a Tax Return was or is to
be filed by either of the Seller or the Subsidiary is in force, and no waiver
agreement by either of the Seller or the Subsidiary is in force for the
extension of time for the assessment or payment of any Taxes. There are no liens
for Taxes upon any of the Licensing Assets other than Liens for Taxes not yet
due or payable.
(g) (iii) For purposes of this Agreement, "Taxes" shall mean
federal, state, local or foreign income, gross receipts, property, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative or
add-on minimum, ad valorem, transfer or excise tax, or any other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, imposed by any governmental
authority. For purposes of this Agreement, "Tax Returns" shall mean all federal,
state, local and foreign tax returns, declarations, statements, reports,
schedules, forms and information returns and any amended Tax Returns relating to
Taxes.
<PAGE>
(h) Title to Licensing Assets. The Seller has good and
marketable title to the Licensing Assets, free and clear of all mortgages,
liens, claims, security interests, easements, rights of way, pledges,
restrictions, charges or encumbrances of any nature whatsoever (collectively,
"Liens"), except (i) such as are disclosed on the Schedules hereto and (ii)
mechanics', carriers', workmen's, repairmen's or other like Liens arising or
incurred in the ordinary course of business, Liens arising under original
purchase price conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business, Liens for Taxes which
are not due and payable or which may thereafter be paid without penalty and
other Liens, if any, which do not, individually or in the aggregate, materially
impair the continued use and operation, consistent with past practice, of the
Licensing Asset to which they relate (the Liens described in clauses (i) and
(ii) above are hereinafter referred to collectively as "Permitted Liens").
Subject to Section 1(e), at the Closing, the Buyer shall acquire the Licensing
Assets free and clear of all Liens other than Permitted Liens.
(i) Condition of Assets. Except as set forth on Schedule 4(g),
no tangible personal assets are included in the Licensing Assets.
(j) Trademarks, etc. Schedule 4(h) sets forth a true and
complete list of all material patents, trademarks (registered or unregistered),
trade names (registered or unregistered), service marks (registered or
unregistered), registered copyrights and material unregistered copyrights and
computer software applications, other than off-the-shelf applications, together
with all applications therefor, owned or used by or licensed to the Seller and
the Subsidiary and all license agreements related thereto that are Licensing
Assets to which the Seller or the Subsidiary is a party (collectively
"Intellectual Property") and with respect to trademarks, contains a list of all
jurisdictions in which such trademarks are registered or applied for and all
registration and application numbers. Except as disclosed on Schedule 4(h) or as
set forth in the License Agreement, the Seller or the Subsidiary owns or has the
valid right to use, without payment to any other party, the Intellectual
Property used in or necessary for the conduct of their businesses and the
consummation of the transactions contemplated hereby will not alter or impair
any such rights. All material Intellectual Property owned by the Seller or the
Subsidiary is valid and all registrations related thereto have been duly
maintained. Except as disclosed on Schedule 4(h), all Intellectual Property
owned by the Seller or the Subsidiary is free and clear of all Liens. Except as
disclosed on Schedule 4(h), to the Seller's knowledge, no claims or other
proceedings are pending or threatened by any person or entity with respect to
the ownership, validity, enforceability or use of any Intellectual Property.
Except as disclosed on Schedule 4(h), to the Seller's knowledge, (i) the conduct
of its business does not infringe upon the rights of any third party and (ii) no
third party is infringing upon any Intellectual Property owned by the Seller or
the Subsidiary.
(k) Contracts. Except as described in Schedule 4(i), there is
no material contract, license or other agreement constituting or relating to the
Licensing Assets. Except as disclosed on Schedule 4(i), each contract, license
or other agreement of the Seller described on Schedule 4(i) (collectively, the
"Contracts") is valid, binding and in full force and effect. Except as disclosed
on Schedule 4(i), the Seller has performed all material obligations required to
be performed by it to date under the Contracts and it is not (with or without
the lapse of time or the giving of notice, or both) in breach or default in any
material respect thereunder and, to the Seller's knowledge, no other party to
any of the Contracts is (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder.
<PAGE>
(l) Litigation; Decrees. Schedule 4(j) sets forth a list of
all lawsuits, claims, proceedings or investigations pending, or, to the Seller's
knowledge, threatened, as of the date of this Agreement, by or against or
affecting the Licensing Assets, which (i) relate to or involve more than $25,000
(other than claims which are, or would be but for retentions, deductibles, the
nonpayment of premiums or other defenses by carriers relating to alleged acts or
omissions of the insureds, covered by the insurance policies set forth on
Schedule 4(k)), (ii) seek any injunctive relief, or (iii) relate to the
transactions contemplated by this Agreement. Except as disclosed on Schedule
4(j), neither the Seller nor the Subsidiary is in default under any material
judgment, order or decree of any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, applicable
to the Licensing Business or any of the Licensing Assets.
(m) Insurance. The insurance policies currently maintained
with respect to the Licensing Business and the Licensing Assets are listed on
Schedule 4(k). All such policies are in full force and effect. The Seller has
heretofore made available to the Buyer true and complete copies of all such
policies.
(n) Absence of Changes or Events. Except as disclosed on
Schedule 4(l), since June 30, 1996, there has not been any material adverse
change in the assets, financial condition or results of operations of the
Licensing Business other than changes relating to the economy in general or the
Licensing Business's industry in general and not specifically related to the
Licensing Business. Since June 30, 1996, the Seller has conducted the Licensing
Business in the ordinary course and in substantially the same manner as
presently conducted and has made all reasonable efforts consistent with past
practice to preserve its relationships with customers, suppliers and others with
whom it deals, and the Seller has not taken any action that, if taken after the
date hereof, would constitute a material breach of any of the covenants set
forth in Section 5(b).
(i) Compliance with Applicable Laws; Environ-mental Matters.
Except as set forth in Schedule 4(m), to the knowledge of the Seller, the Seller
and the Subsidiary is in compliance with all statutes, laws, ordinances, rules,
orders and regulations of any governmental authority or instrumentality,
domestic or foreign, applicable to the Licensing Business except where
noncompliance would not have a material adverse effect on the assets, financial
condition or results of operations of the Licensing Business. Except as set
forth in Schedule 4(m), the Seller has not received any written communication
from a governmental authority that alleges that the Seller or the Subsidiary is
not in compliance, in respect of the Licensing Business, in all material
respects, with material federal, state, local or foreign laws, ordinances, rules
and regulations.
<PAGE>
(ii) Except as set forth in Schedule 4(m), to the knowledge of
the Seller, none of the operations or properties of the Seller and the
Subsidiary is the subject of any federal, state or foreign investigation, in
respect of the Licensing Business, evaluating whether any remedial action is
needed to respond to a release of any Hazardous Substance (as defined below)
into the environment, and neither the Seller nor the Subsidiary has received any
written communication from a governmental authority that alleges that the Seller
or the Subsidiary is not in compliance, and the Seller and the Subsidiary are in
compliance, in all material respects, with all federal, state, local or foreign
laws, ordinances, codes, rules and regulations relating to the environment
("Environmental Laws") in respect of the Licensing Business, except where
noncompliance would not have a material adverse effect on the assets, financial
condition or results of operations of the Licensing Business. The Seller and the
Subsidiary have filed all material notices required in respect of the Licensing
Business to be filed by them under any Environmental Law indicating past or
present treatment, storage or disposal of a Hazardous Substance or reporting a
spill or release of a Hazardous Substance into the environment. Neither the
Seller nor the Subsidiary has any material contingent liabilities in respect of
the Licensing Business in connection with any Hazardous Substance that
individually or in the aggregate would have a material adverse effect on the
assets, financial condition or results of operations of the Licensing Business.
"Hazardous Substance" includes: (i) any hazardous, toxic or dangerous waste,
substance or material defined as such in (or for the purposes of) the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, and any so-called superfund or superlien law, or any other
Environmental Law, including Environmental Laws relating to or imposing
liability or standards of conduct concerning any hazardous or toxic waste,
substance or material in effect on the date of this Agreement, (ii) asbestos or
polychlorinated biphenyls, and (iii) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any federal, state,
foreign or local governmental authority pursuant to any Environmental Law or any
health and safety or similar law, code, ordinance, rule or regulation, order or
decree, and which could reasonably pose a hazard to the health and safety of
workers at or users of any properties included in the Licensing Assets or cause
damage to the environment.
(o) Employee and Labor Relations. Except as set forth on
Schedule 4(n), (i) there is no labor strike, dispute, or work stoppage or
lockout actually pending, or, to the Seller's knowledge, threatened, against or
affecting the Licensing Business and during the past two years there has not
been any such action; (ii) to the Seller's knowledge, no union organizational
campaign is in progress with respect to the employees of the Licensing Business
and no question concerning representation exists respecting such employees;
(iii) the Seller and the Subsidiary is in compliance in all material respects
with all laws applicable to the Licensing Business respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice; (iv) there is no unfair labor
practice charge or complaint against the Seller or the Subsidiary in connection
with the Licensing Business pending, or, to the Seller's knowledge, threatened,
before the National Labor Relations Board; (v) there is no pending, or, to the
Seller's knowledge, threatened, grievance that, if adversely decided, would have
a material adverse effect on the assets, financial condition or results of
operations of the Licensing Business; and (vi) no charges with respect to or
relating to the Licensing Business are pending before the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices that, if adversely decided, would
have a material adverse affect on the assets, financial condition or results of
operations of the Licensing Business.
<PAGE>
(p) Licenses; Permits. Except as disclosed on Schedule 4(o),
all material licenses, permits or authorizations issued or granted to the Seller
by local, state or federal governmental authorities or agencies and applicable
to the Licensing Business are validly held by the Seller or the Subsidiary, the
Seller and the Subsidiary have complied with all requirements in connection
therewith and the same will not be subject to suspension, modification or
revocation as a result of this Agreement or the consummation of the transactions
contemplated hereby.
(q) Inventory. No inventory is included in the Licensing
Business. 5. Covenants of the Seller. The Seller covenants and
agrees as follows: (a) Access. Prior to the Closing the Seller
will give the Buyer and its
representatives, employees, counsel and accountants reasonable access, during
normal business hours and upon reasonable notice, to the personnel, properties,
books and records of the Seller and the Subsidiary; provided, however, that such
access does not unreasonably disrupt the normal operations of the Seller or the
Subsidiary.
(b) Conduct of the Seller. Except with the prior written
consent of the Buyer or as otherwise expressly permitted by this Agreement, the
Seller shall not take any action, at any time on or after the date hereof and at
or prior to the Closing, that would, or that could reasonably be expected to,
result in (i) any of the representations and warranties of the Seller set forth
in this Agreement that are qualified as to materiality becoming untrue, (ii) any
of such representations and warranties that are not so qualified becoming untrue
in any material respect or (iii) the condition to the purchase and sale of the
Licensing Assets set forth in Section 3 not being satisfied.
(c) Preservation of the Licensing Business and the Related
Business. The Seller will carry on the Licensing Business diligently and in the
ordinary course, substantially in the same manner as heretofore conducted, and
keep its operations substantially intact, including its present relationships
with suppliers and customers and others having business relations with it;
provided, however, that the Seller may remove cash from the Licensing Business
consistent with its obligations under the MFI Asset Purchase Agreement. Except
with the written consent of the Buyer, the Seller shall not amend in any
material respect or terminate any of the contracts, licenses or other agreements
identified in Schedule 4(i) or enter into any new contract, license or other
agreement relating to the Licensing Business other than in the ordinary course.
(d) Confidentiality. The Seller will keep confidential, and
cause its affiliates and instruct its and their affiliates' officers, directors,
employees and advisors to keep confidential, all information concerning the
transactions contemplated by this Agreement (including as to the parties hereto)
and all nonpublic information relating to the Licensing Business, except as
required by law or administrative process and except for information which
becomes public other than as a result of a breach of this Section 5(d).
Notwithstanding the foregoing, affiliates of the Seller who become parties to
the License Buyer Note Agreement and holders of License Buyer Notes shall be
deemed to have complied with this Section 5(d) if they comply with Section 11.12
of the License Buyer Note Agreement.
<PAGE>
(e) Insurance. The Seller shall keep, or cause to be kept, all
insurance policies set forth on Schedule 4(k), or replacements therefor with
reputable firms and providing no lesser coverage (in amount or scope), in full
force and effect through the close of business on the Closing Date.
(f) Other Transactions. Prior to the Closing, none of the
Seller, the Subsidiary nor any other affiliate of the Seller shall, directly or
indirectly, encourage, solicit, initiate or participate in discussions or
negotiations with any corporation, partnership, person, or other entity or group
(other than the Buyer and its representatives) concerning any merger, sale of
securities, sale of substantial assets or similar transaction involving the
Seller and the Subsidiary. In the event that any Seller or the Subsidiary
receives an offer relating to any such transaction, the Seller will promptly
notify the Buyer of such proposal.
6. Representations and Warranties of the Buyer and Capricorn.
The Buyer and Capricorn jointly and severally hereby represent and warrant to
the Seller as follows:
(a) Authority. The Buyer is a corporation and Capricorn is a
limited partnership, duly organized, validly existing and in good standing under
the laws of the State of Delaware. The Buyer has all requisite corporate, and
Capricorn has all requisite partnership, power and authority to enter into this
Agreement and the Other Agreements and to consummate the transactions
contemplated hereby and thereby. All corporate or partnership acts and other
proceedings required to be taken by the Buyer or Capricorn to authorize the
execution, delivery and performance of this Agreement and the Other Agreements
and the consummation of the transactions contemplated hereby and thereby have
been duly and properly taken. This Agreement has been duly executed and
delivered by the Buyer and Capricorn and constitutes a valid and binding
obligation of the Buyer and Capricorn, enforceable against the Buyer and
Capricorn in accordance with its terms. When executed and delivered at the
Closing, the Other Agreements will be duly executed and delivered by the Buyer
and will constitute its valid and binding obligation, enforceable against it in
accordance with their terms. The execution and delivery of this Agreement and
the Other Agreements do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the terms hereof and thereof
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation, or result in the
creation of any Lien upon any of the properties or assets of the Buyer or
Capricorn under, any provision of (i) the Delaware General Corporation Law or
the Revised Uniform Limited Partnership Act of the State of Delaware, (ii) the
Certificate of Incorporation and By-Laws of the Buyer or the Partnership
Agreement of Capricorn, (iii) any material note, bond, mortgage, indenture, deed
of trust, license, lease, contract, commitment or agreement to which the Buyer
or Capricorn is a party or by which any of its properties are bound, or (iv) any
judgment, order, or decree, or material statute, law, ordinance, rule or
regulation applicable to the Buyer or Capricorn or their respective properties
or assets, other than, in the case of clause (iii) above, any such conflicts,
violations, defaults, rights or Liens that individually or in the aggregate
would not have a material adverse effect on the assets, financial condition or
results of operations of the Buyer or Capricorn. No material consent, approval,
license, permit, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is required to
be obtained or made by or with respect to the Buyer or Capricorn in connection
with the execution and delivery of this Agreement and the Other Agreements or
the consummation by the Buyer or Capricorn of the transactions contemplated
hereby and thereby, other than compliance with and filings under the HSR Act.
<PAGE>
(b) Actions and Proceedings, etc. There are no (i) outstanding
judgments, orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against the Buyer or Capricorn which have a
material adverse effect on the ability of the Buyer or Capricorn to consummate
the transactions contemplated hereby or (ii) actions, suits, claims or legal,
administrative or arbitration proceedings or investigations pending or, to the
best knowledge of the Buyer or Capricorn, threatened against the Buyer or
Capricorn, which are likely to have a material adverse effect on the ability of
the Buyer or Capricorn to consummate the transactions contemplated hereby.
(c) Availability of Funds. The Buyer and Capricorn have no
current reason to believe that the financing necessary to consummate the
transactions contemplated by this Agreement will not be available on a timely
basis for the transactions contemplated by this Agreement. The Buyer estimates
that it will require approximately $7,000,000 in financing for purposes of
payment by the Buyer of the cash portion of the Purchase Price. Capricorn hereby
commits to provide or obtain all such financing within 30 days following the
execution and delivery of this Agreement.
(d) Status of Buyer. The Buyer was formed on July 31, 1996.
The Buyer has engaged in no business other than in connection with its
organization and the negotiation of this Agreement and the Other Agreements
(collectively, the "Transaction Documents") and has no material liabilities or
obligations of any nature (whether accrued, absolute, contingent, unasserted or
otherwise), except those set forth in the Transaction Documents and obligations
to pay fees and expenses incurred in connection therewith which as of the date
of this Agreement are estimated not to exceed $300,000. True and correct copies
of the Buyer's Certificate of Incorporation and By-Laws, in the forms they will
be in effect on the Closing Date, have been furnished to the Seller.
(e) Pro Forma Balance Sheet of Buyer. Attached as Schedule
6(e) is an unaudited pro forma balance sheet of the Buyer which has been
presented as if the transactions contemplated by this Agreement are consummated
as of August 31, 1996 based on the assumptions that (i) various actual and
estimated information received from the Seller accurately reflects the assets
and liabilities to be transferred to the Buyer at the closing under this
Agreement and (ii) transaction costs payable by the Buyer in connection with
such transactions equals $300,000.
7. Covenants of the Buyer and Capricorn. The Buyer and
Capricorn jointly and severally covenant and agree as follows:
(a) No Additional Representations. The Buyer and Capricorn
acknowledge that none of the Seller, the Subsidiary or any other person has made
any representation or warranty, expressed or implied, as to the accuracy or
completeness of any information regarding the Seller, the Subsidiary, the
Licensing Business, the Licensing Assets or Assumed Liabilities, except as
expressly set forth in this Agreement, the Schedules hereto or any certificate
delivered by the Seller at the Closing, and none of the Seller, the Subsidiary
or any other person will have or be subject to any liability to the Buyer or any
other person resulting from the distribution to the Buyer, or the Buyer's use
of, any such information, except as expressly set forth in this Agreement.
<PAGE>
(b) Confidentiality. Except as contemplated by this Agreement,
the Buyer and Capricorn will keep confidential, and cause its affiliates and
instruct its and its affiliates' officers, directors, employees and advisors to
keep confidential, all nonpublic information relating to the Seller or the
Licensing Business, except as required by law or administrative process and
except for information which becomes public other than as a result of a breach
of this Section 7(b); provided, however, that the obligations of the Buyer and
Capricorn under this Section 7(b) shall terminate, with respect to information
concerning the Licensing Business (but not with respect to other information)
upon any occurrence of the Closing.
(c) Conduct of the Buyer. Except with the prior written
consent of the Seller, the Buyer shall not take any action, at any time on or
after the date hereof and at or prior to the Closing, that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of the Buyer set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or (iii) any
of the conditions to the purchase and sale of the Licensing Assets set forth in
Section 3 not being satisfied.
8. Mutual Covenants. Each of the Seller, the Buyer and
Capricorn covenants and agrees as follows:
(a) Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to cause the Closing to occur
and to obtain the consents and waivers referred to in Section 1(e)(i). The Buyer
acknowledges that certain consents to the transactions contemplated by this
Agreement may be required from third parties and that such consents have not
been obtained. The Buyer agrees that the Seller shall not have any liability
whatsoever to the Buyer arising out of or relating to the failure to obtain any
consents that may be required in connection with the transactions contemplated
by this Agreement or because of the termination of any contract as a result
thereof. The Buyer further agrees that no representation, warranty or covenant
of the Seller contained herein shall be breached or deemed breached as a result
of (i) the failure to obtain any such consent or as a result of any such
termination or (ii) any lawsuit, action, claim, proceeding or investigation
commenced or threatened by or on behalf of any persons arising out of or
relating to the failure to obtain any such consent or any such termination. The
Seller and the Buyer shall use their best efforts to, and shall cooperate with
each other to obtain as soon as practicable, the consent, approval or waiver, in
form reasonably satisfactory to the Seller and the Buyer, from any person whose
consent, approval or waiver is necessary to assign or transfer any Licensing
Asset to the Buyer. It is understood and agreed that such best efforts and
cooperation shall not include any requirement of the Seller or the Buyer or any
of their respective affiliates to expend money, commence or defend any
litigation or offer or grant any accommodation (financial or otherwise) to any
third party. The covenants contained in this Section 8(a) shall continue after
the Closing Date.
<PAGE>
(b) Cooperation. The Buyer and the Seller shall cooperate with
each other for a period of 90 days after the Closing to ensure the orderly
transition of the Licensing Assets from the Seller to the Buyer and to minimize
any disruption to the respective businesses of the Seller and the Buyer that
might result from the transactions contemplated hereby.
(c) Publicity. The Seller and the Buyer agree that, from the
date hereof through the Closing Date, no public release or announcement
concerning the transactions contemplated hereby shall be issued by either party
without the prior consent of the other party, and, to the extent practical, of
each person named therein (which consent shall not be unreasonably withheld),
except as such release or announcement may be required by any franchising or
other law or the rules or regulations of any United States or foreign securities
exchange, in which case the party required to make the release or announcement
shall allow the other party reasonable time to comment on such release or
announcement in advance of such issuance.
(d) Antitrust Notification. The Seller and the Buyer (and
their respective ultimate parent entities) will as promptly as practicable, but
in no event later than five business days following the execution and delivery
of this Agreement, file with the United States Federal Trade Commission (the
"FTC") and the United States Department of Justice (the "DOJ") the notification
and report form, if any, required for the transactions contemplated hereby and
any supplemental information requested in connection therewith pursuant to the
HSR Act. Any such notification and report form and supplemental information will
be in substantial compliance with the requirements of the HSR Act. The Seller,
the Buyer and Capricorn shall furnish to the other such necessary information
and reasonable assistance as the other may request in connection with its
preparation of any filing or submission which is necessary under the HSR Act.
The Seller and the Buyer shall keep each other apprised of the status of any
communications with, and inquiries or requests for additional information from,
the FTC and the DOJ and shall comply promptly with any such inquiry or request.
The Seller, the Buyer and Capricorn will use their best efforts to obtain any
clearance required under the HSR Act for the purchase and sale of the Licensing
Assets; provided, however, that such best efforts obligation shall not require
the Buyer to restructure any of the transactions contemplated by, or to divest
any of the assets to be acquired pursuant to, either this Agreement, the MFI
Asset Purchase Agreement or the OCC/HSC Agreement.
(i) Records. On the Closing Date, the Seller shall deliver or
cause to be delivered to the Buyer all original agreements, documents, books,
records and files (collectively, "Records"), in the possession of the Seller
relating to the Licensing Business of the Seller and the Subsidiary, subject to
the following exceptions:
(A) the Buyer recognizes that certain Records may
contain incidental information relating to the Seller and the
Subsidiary and that the Seller may retain such Records and shall
provide copies of the relevant portions thereof to the Buyer;
(B) the Seller may retain all Records relating to the
sale of the Licensing Assets, including bids received from other
parties and analyses relating to the Licensing Business;
<PAGE>
(C) the Seller and the Subsidiary may retain any Tax
Returns. The Buyer shall be provided with copies of such Tax Returns
only to the extent that they relate to the Licensing Business or the
Licensing Assets or the Buyer's obligations under this Agreement. The
Seller shall not dispose of or destroy such records without first
offering to turn over possession thereof to the Buyer (at the Buyer's
expense) by written notice to the Buyer at least 30 days prior to the
proposed date of such disposition or destruction; and
(D) the Seller and the Subsidiary shall retain their
respective corporate record books and stock records containing their
certificates of incorporation, bylaws, minutes of the meetings of the
board(s) of directors and stockholders, and similar corporate
governance documents.
(ii) After the Closing, upon reasonable written notice, the
Buyer and the Seller agree to furnish or cause to be furnished to each other and
their representatives, employees, counsel and accountants access, during normal
business hours, to such information (including Records pertinent to the
Licensing Business) and assistance relating to the Licensing Business as is
reasonably necessary for financial reporting and accounting matters, the
preparation and filing of any Tax Returns or the defense of any Tax claim or
assessment; provided, however, that such access does not unreasonably disrupt
the normal operations of the Seller, the Buyer or the Licensing Business.
(e) Supplemental Disclosure. Prior to the Closing, each party
shall supplement or amend its Schedules provided in connection with its
representations and warranties in this Agreement to include any information
hereafter obtained which would have been required to be set forth or described
in any such Schedule had it been existing or known as of the date of this
Agreement or which is necessary to complete or correct such Schedule.
Notwithstanding the foregoing, for purposes of determining the accuracy of such
representations and warranties for purposes of Sections 10(b)(i) and 10(c)(i),
such Schedules shall be deemed to include, respectively, (x) only that
information contained therein on the date of this Agreement or (y) all
information contained in such Schedules as so supplemented or amended.
9. Further Assurances. From time to time, as and when
requested by either party hereto, the other party shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and shall
take, or cause to be taken all such further or other actions, as such other
party may reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
(i) Indemnification. Tax Indemnification. The Seller agrees to
indemnify the Buyer, its affiliates and each of their respective officers,
directors, employees and agents and hold them harmless from any loss, liability,
claim, damage or expense (including reasonable legal fees and expenses)
(collectively, "Loss") suffered or incurred by any such indemnified party
arising from Taxes applicable to the Licensing Business or the Licensing Assets,
in each case attributable to taxable years or periods ending at the time of or
prior to the Closing. The Buyer shall be liable for and shall pay and shall
indemnify the Seller, its affiliates and each of their respective officers,
directors, employees and agents from all Taxes applicable to the Licensing
Business or the Licensing Assets that are attributable to taxable years or
periods beginning immediately after the Closing or, with respect to any Straddle
Period, the portion of such Straddle Period beginning immediately after the
Closing. For purposes of this Section 10(a), any Straddle Period shall be
treated on a "closing of the books" basis as two partial periods, one ending at
the time of the Closing and the other beginning immediately after the Closing;
provided, however, that Taxes (such as property Taxes) imposed on a periodic
basis shall be allocated pro rata on a daily basis in accordance with the
principles under Section 164(d) of the Code. "Straddle Period" means any taxable
year or period beginning before and ending after the Closing.
<PAGE>
(ii) Notwithstanding paragraph (i), any sales Tax, use Tax,
real property transfer or gains Tax, documentary stamp Tax or similar Tax
attributable to the sale or transfer of the Licensing Business or the Licensing
Assets shall be paid by the Seller. The Buyer and the Seller agree timely to
sign and deliver such certificates or forms as may be necessary or appropriate
to establish an exemption from (or otherwise reduce), or file Tax Returns with
respect to, such Taxes.
(iii) The Seller or the Buyer, as the case may be, shall
provide prompt reimbursement for any Tax paid by one party all or a portion of
which is the responsibility of the other party in accordance with the terms of
this Section 10(a); provided, however, that any claim for reimbursement asserted
against the Seller shall be limited to an offset of the unpaid portion, if any,
of the License Company Series 1 Notes as provided in Section 10(g). Within a
reasonable time prior to the payment of any said Tax, the party paying such Tax
shall give notice to the other party of the Tax payable and the portion which is
the liability of each party, although failure to do so will not relieve the
other party from its liability hereunder except to the extent the indemnifying
party is materially adversely affected thereby.
(iv) The Buyer (or the Seller, as the case may be) shall
promptly notify the Seller (or the Buyer, as the case may be) in writing, upon
receipt by the Buyer (or the Seller, as the case may be) or any of its (or
their) affiliates of notice of any pending or threatened federal, state, local
or foreign Tax audits, examinations or assessments which may materially affect
the Tax liabilities for which the Seller (or the Buyer, as the case may be)
would be required to indemnify the Buyer (or the Seller, as the case may be)
pursuant to paragraph (i) of this Section 10(a), although failure to do so will
not relieve the Seller (or the Buyer, as the case may be) from their liability
hereunder, except to the extent the Seller (or the Buyer, as the case may be)
are materially adversely affected thereby. The Seller shall have the right to
control any Tax audit or administrative or court proceeding relating to taxable
periods ending at the time of or before the Closing, and to employ counsel of
its choice at its expense; provided, however, that the Buyer shall be entitled
to participate at its own expense in (but shall have no right to control) any
Tax Audit or administrative or court proceeding relating to taxable periods
ending at the time of or before the Closing to the extent that its interest
could be materially adversely affected. In the case of the Straddle Period, the
Seller shall be entitled to participate at its expense in any Tax audit or
administrative or court proceeding relating in whole or in part to Taxes
attributable to the portion of such Straddle Period ending at the time of the
Closing and, with the written consent of the Buyer, and at the Seller's sole
expense, may assume the entire control of such audit or proceeding. Neither the
Buyer nor any of its affiliates may settle any Tax claim for any taxable year or
period ending at or before the time of the Closing or for any Straddle Period
which may be the subject of indemnification by the Seller under paragraph (i) of
this Section 10(a) without the prior written consent of the Seller, which
consent may not be unreasonably withheld.
(v) After the Closing, each of the Seller and the Buyer shall
(and shall cause their respective affiliates to):
<PAGE>
(1) assist the other party in preparing any Tax
Returns which such other party is responsible for preparing and filing;
(2) cooperate fully in preparing for any audits of,
or disputes with taxing authorities regarding, any Tax Returns relating
to the Licensing Business or the Licensing Assets;
(3) make available to the other and to any taxing
authority as reasonably requested all information, records, and
documents relating to Taxes relating to the Licensing Business or the
Licensing Assets;
(4) provide timely notice to the other in writing of
any pending or threatened Tax audits or assessments relating to the
Licensing Business or the Licensing Assets for taxable periods for
which the other may have a liability under this Section 10(a); and
(5) furnish the other with copies of all
correspondence received from any taxing authority in connection with
any Tax audit or information request with respect to any such taxable
period.
(i) The Seller shall have no right of contribution against any
subsidiaries of MFI the stock of which is acquired pursuant to the MFI Asset
Purchase Agreement in respect of any indemnification obligation under this
Section 10(a).
(b) Other Indemnification by the Seller. The Seller agrees to
indemnify the Buyer, its affiliates and each of their respective officers,
directors, employees and agents and hold them harmless from any Loss suffered or
incurred by any such indemnified party (other than any relating to Taxes for
which the exclusive indemnification provisions are set forth in Section 10(a))
to the extent arising from:
(i) any breach of any representation or warranty of the Seller
contained in this Agreement or in any Schedule, certificate, instrument
or other document delivered pursuant hereto or thereto (respectively,
the "Related Documents") (regardless of whether such breach is related
to any Assumed Liability); that, for purposes of determining the
occurrence of a breach of any representation or warranty of the Seller
in connection with any claim made for indemnification under this
Section 10(b), as well as for determining the amount of any Losses
arising therefrom, (A) the "material adverse change" and the "material
adverse effect" qualifiers shall be disregarded except in the third
line of Section 4(l) and the seventh line of Section 4(m)(i) and (B)
the "material" qualifier shall be disregarded in Section 4(d), in the
15th line of Section 4(f), in the 15th line of Section 4(l), in the
13th line of Section 4(m)(i) (immediately preceding the word
"federal"), and in the 25th line of Section 4(m)(ii); or
<PAGE>
(ii) any breach of any covenant of the Seller contained in
this Agreement requiring performance after the Closing Date; provided,
however, that the Seller shall not have any liability to the Buyer
under clauses (i) and (ii) above unless the aggregate of all Losses
relating thereto for which the Seller would, but for this proviso, be
liable exceeds on a cumulative basis an amount equal to $33,333, and
then only to the extent of any such excess; provided further, however,
that the Seller shall not have any liability under clauses (i) and (ii)
above for any individual items where the Loss relating thereto is less
than $6,000, but individual items where the Loss relating thereto is
less than $6,000 and more than $1,000 shall be aggregated solely for
purposes of the first proviso to this Section 10(b); provided further,
however, that the Seller shall not have any liability under clause (i)
above for any breach of a representation or warranty of the Seller
contained in this Agreement or in any of the Related Documents
delivered pursuant hereto or thereto if the Buyer or Capricorn had
actual knowledge of such breach at the time of the Closing (it being
agreed that the burden of proof of such actual knowledge shall be on
the Seller); provided further, however, that the Seller shall not have
any liability under this Section 10(b) to the extent the liability or
obligation arises as a result of any action taken or omitted to be
taken by the Buyer or any of its affiliates; and provided further,
however, that the aggregate amount required to be paid by the Seller
pursuant to Section 10 (other than due to a breach of the Seller's
covenant with respect to confidentiality set forth in Section 5(d))
shall not exceed $1,000,000, it being agreed and understood that the
limitation to apply to amounts required to be paid under Section
10(b)(ii) due to a breach of the aforesaid confidentiality covenant
shall be the maximum aggregate purchase price received by the Seller
pursuant to this Agreement.
(c) Indemnification by the Buyer. The Buyer shall indemnify
the Seller, its affiliates and each of their respective officers, directors,
employees and agents against and hold them harmless from any Loss suffered or
incurred by any such indemnified party (other than any relating to Taxes for
which the exclusive indemnification provisions are set forth in paragraph (a) of
this Section 10) to the extent arising from:
(i) any breach of any representation or warranty of
the Buyer contained in this Agreement or in any Related Document
delivered pursuant hereto or thereto or in connection herewith;
(ii) any breach of any covenant of the Buyer
contained in this Agreement requiring performance after the Closing
Date; or
(iii) any Assumed Liabilities or any guarantees of any Assumed Liabilities;
provided, however, that the indemnification baskets and cap from Section 10(b)
(except for any liabilities under clause (iii) above which liabilities shall not
be subject to such limitations) shall apply to the Buyer's indemnification
obligations under this Section 10(c) and the Buyer shall not have any liability
under clause (i) above for any breach of a representation or warranty of the
Buyer contained in this Agreement or in any Related Document delivered pursuant
hereto or thereto if the Seller had actual knowledge of such breach at the time
of the Closing (it being agreed that the burden of proof of such actual
knowledge shall be on the Buyer).
<PAGE>
(a) Losses Net of Insurance, etc. The amount of any loss,
liability, claim, damage, expense or Tax for which indemnification is provided
under this Section 10 shall be net of any amounts recovered or recoverable by
the indemnified party under insurance policies with respect to such loss,
liability, claim, damage, expense or Tax and shall be (i) increased to take
account of any net Tax cost incurred by the indemnified party arising from the
receipt of indemnity payments hereunder (grossed up for such increase) and (ii)
reduced to take account of any net Tax benefit realized by the indemnified party
arising from the incurrence or payment of any such loss, liability, claim,
damage, expense or Tax. In computing the amount of any such Tax cost or Tax
benefit, the indemnified party shall be deemed to recognize all other items of
income, gain, loss, deduction or credit before recognizing any item arising from
the receipt of any indemnity payment hereunder or the incurrence or payment of
any indemnified loss, liability, claim, damage, expense or Tax. Any indemnity
payment under this Agreement shall be treated as an adjustment to the Purchase
Price, for Tax purposes, unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliates causes any such payment not to be treated as an
adjustment to the Purchase Price, for United States federal income Tax purposes.
(b) Termination of Indemnification. The obligations to
indemnify and hold harmless a party hereto, (i) pursuant to Section 10(a), shall
terminate at the time the applicable statutes of limitations with respect to the
Tax liabilities in question expire (giving effect to any extension thereof);
(ii) pursuant to Sections 10(b)(i) and (ii) and 10(c)(i) and (ii), shall
terminate on the date that is 18 months after the Closing Date; and (iii)
pursuant to Section 10(c)(iii) shall survive indefinitely; provided, however,
that such obligations to indemnify and hold harmless shall not terminate with
respect to any item as to which the person to be indemnified or the related
party hereto shall have, before the expiration of the applicable period,
previously made a claim by delivering a notice to the indemnifying party stating
in reasonable detail the basis of such claim and, in the case of a claim arising
from a third party claim, suit, action or proceeding, stating that the claim has
actually been asserted and including a copy of such claim if in writing or the
pleadings relating to such suit, action or proceeding.
(c) Procedures Relating to Indemnification (Other than under
Section 10(a)). In order for a party (the "indemnified party") to be entitled to
any indemnification provided for under this Agreement (other than under Section
10(a)) in respect of, arising out of or involving a claim or demand made by any
person, firm, governmental authority or corporation against the indemnified
party (a "Third Party Claim"), such indemnified party must notify the
indemnifying party in writing, and in reasonable detail, of the Third Party
Claim within 10 business days after receipt by such indemnified party of written
notice of the Third Party Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the indemnifying party shall have been actually prejudiced as a
result of such failure. Thereafter, the indemnified party shall deliver to the
indemnifying party, within five business days after the indemnified party's
receipt thereof, copies of all notices and documents (including court papers)
received by the indemnified party relating to the Third Party Claim.
(d) If a Third Party Claim is made against an indemnified
party, the indemnifying party will be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with counsel
selected by the indemnifying party and reasonably satisfactory to the
indemnified party. Should the indemnifying party so elect to assume the defense
of a Third Party Claim, the indemnifying party will not be liable to the
indemnified party for legal expenses subsequently incurred by the indemnified
party in connection with the defense thereof. If the indemnifying party assumes
such defense, the indemnified party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party, it being understood that the
indemnifying party shall control such defense. The indemnifying party shall be
liable for the fees and expenses of counsel employed by the indemnified party
for any period during which the indemnifying party has not assumed the defense
thereof (other than during any period in which the indemnified party shall have
failed to give notice of the Third Party Claim as provided above). If the
indemnifying party chooses to defend or prosecute any Third Party Claim, all the
parties hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Whether or not the indemnifying
party shall have assumed the defense of a Third Party Claim, the indemnified
party shall not admit any liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the indemnifying party's prior written
consent (which consent shall not be unreasonably withheld).
<PAGE>
(e) Certain Set-off Rights. All payments, if any, required to
be made by the Seller under Section 10 shall be made solely by (i) a dollar for
dollar reduction of the amount, if any, then remaining payable under the License
Company Series 1 Notes, applied first to accrued and unpaid interest and then to
principal, or (ii) in the event the License Company Series 1 Notes have been
prepaid and the escrow arrangements have been established pursuant to the terms
thereof, a claim by the Buyer under such escrow arrangements.
(f) Waiver of Other Remedies. (i) The Buyer acknowledges and
agrees that, from and after the Closing, its sole and exclusive remedy with
respect to any and all claims relating to the subject matter of this Agreement
(other than claims of fraud) shall be pursuant to the indemnification provisions
set forth in this Section 10. In furtherance of the foregoing, the Buyer hereby
waives, from and after the Closing, to the fullest extent permitted under
applicable law, any and all rights, claims and causes of action (other than
claims of, or causes of action arising from, fraud) it may have against the
Seller or any of its affiliates, creditors or stockholders relating to the
subject matter of this Agreement arising under or based upon any federal, state
or local statute, law, ordinance, rule or regulation.
(g) (ii) The Seller acknowledges and agrees that, from and
after the Closing, its sole and exclusive remedy with respect to any and all
claims relating to the subject matter of this Agreement (other than claims of
fraud) shall be pursuant to the indemnification provisions set forth in this
Section 10. In furtherance of the foregoing, the Seller hereby waives, from and
after the Closing, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action (other than claims of, or causes of
action arising from, fraud) it may have against the Buyer or any of its
affiliates, creditors or stockholders relating to the subject matter of this
Agreement arising under or based upon any federal, state or local statute, law,
ordinance, rule or regulation.
2. Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by the Buyer or the Seller
(other than by operation of law in connection with a merger, a sale of
substantially all the assets, or a liquidation of the Buyer or the Seller)
without the prior written consent of the other parties hereto (which consent
shall not be unreasonably withheld); provided, however, that the Buyer may
assign its right to purchase the Licensing Assets hereunder to a subsidiary or
affiliate of the Buyer without the prior written consent of the Seller and,
following the Closing Date, may freely dispose of the Licensing Business and
that the Seller may assign its rights hereunder to its lenders; provided
further, however, that no assignment shall limit or affect the assignor's
obligations hereunder; and provided further, however, that the License Buyer
Notes shall be transferable in accordance with their terms, subject to
applicable laws and regulations and subject to the requirement that the License
Buyer Notes not be transferred or distributed in respect of MFI's common stock
or otherwise in a manner which could subject the Buyer to reporting under the
U.S. federal or U.K. securities laws. In connection with seeking any such
consent, a party proposing to so assign or transfer its rights and obligations
shall give to the party whose consent is sought reasonable details of the
proposed assignment or transfer, including the proposed method of making
adequate provision for such party's obligations hereunder.
<PAGE>
3. No Third-Party Beneficiaries. Except as provided for
indemnified parties in Section 10 and except for the waivers of other remedies
by the Seller and the Buyer in Section 10(h), this Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any person or entity,
other than the parties hereto and such assigns, any legal or equitable rights
hereunder.
(a) Termination. Anything contained herein to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(i) by mutual written consent of the Seller and the Buyer;
(ii) by the Seller if the conditions set forth in Section 3 hereof shall
have become incapable of fulfillment, and shall not have been waived by the
Seller; (iii) by the Buyer if the conditions set forth in Section 3 hereof shall
have become incapable of fulfillment, and shall not have been waived by the
Buyer; or (iv) by either party hereto, if the Closing does not occur on or prior
to October 30, 1996.
(a) In the event of termination by the Seller or the Buyer
pursuant to this Section 13, written notice thereof shall forthwith be given to
the other parties and the transactions contemplated by this Agreement shall be
terminated, without further action by either party. If the transactions
contemplated by this Agreement are terminated as provided herein:
(i) the Buyer shall return all documents and other
material received from the Seller or the Subsidiary relating to the
transactions contemplated hereby, whether so obtained before or after
the execution hereof, to the Seller; and
(ii) all confidential information received by the
Buyer with respect to the Licensing Business shall be kept
confidential.
(b) If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 13, this
Agreement shall become void and of no further force and effect, except for the
provisions of (i) Section 15 hereof relating to certain expenses, (ii) Section
8(c) hereof relating to publicity, (iii) Section 22 hereof relating to finder's
fees and broker's fees and (iv) this Section 13. Nothing in this Section 13
shall be deemed to release either party from any liability for any breach by
such party of the terms and provisions of this Agreement or to impair the right
of either party to compel specific performance by the other party of its
obligations under this Agreement.
2. Survival of Representations. The representations and
warranties in this Agreement and in any other document delivered in connection
herewith shall survive the Closing solely for purposes of Sections 10(b) and
10(c) of this Agreement and shall terminate at the close of business 18 months
following the Closing Date.
3. Expenses. Whether or not the transactions contemplated
hereby are consummated, except as otherwise expressly provided in this
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
costs and expenses.
<PAGE>
(a) Arbitration. Subject to the provisions of Section 24, any
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the transactions contemplated hereby, including, without
limitation, the interpretation hereof and any breach, termination or invalidity
hereof, shall be settled exclusively and finally (i) through good faith
negotiation of the parties for a period not in excess of 30 days and (ii) in the
event such negotiations do not yield a settlement within such 30-day period, by
arbitration (irrespective of the magnitude thereof, the amount in controversy or
whether such matter would otherwise be considered justiciable or ripe by a court
or arbitral tribunal).
(b) The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association (the
"Arbitration Rules"), except as those rules conflict with the provisions of this
Section 16, in which event the provisions of this Section 16 shall control.
(c) The arbitral tribunal shall consist of three arbitrators
chosen in accordance with the Arbitration Rules. The arbitration shall be
conducted in New York City. Any submission of a matter for arbitration shall
include joint written instructions of the parties requiring the arbitral
tribunal to render a decision resolving the matters submitted within 60 days
following the submission thereof.
(d) Any decision or award of the arbitral tribunal shall be
final and binding upon the parties to the arbitration proceeding. The parties
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having jurisdiction
thereof.
(e) All out-of-pocket costs and expenses incurred by any party
in connection with the resolution of any disagreement, dispute, controversy or
claim pursuant to this Section 16, including, but not limited to, reasonable
attorney's fees and disbursements, shall be borne by the party incurring the
same; provided, however, that the arbitral tribunal shall have the discretion to
declare any party as the "prevailing party" with respect to one or more of the
issues that were the subject of the arbitration and to require the other parties
to the arbitration to reimburse such "prevailing party" for some or all of its
costs and expenses incurred in connection with such proceeding.
(f) The costs of the arbitral tribunal shall be divided evenly
between any parties thereto affiliated with the Seller, on the one hand, and any
parties thereto affiliated with the Buyer, on the other hand, unless there is a
"prevailing party", in which case the arbitral tribunal may allocate more or all
of such costs to the party thereto that is not the "prevailing party".
(g) This Section 16 shall not prohibit or limit in any way any
party from seeking or obtaining preliminary or interim injunctive or other
equitable relief from a court for a breach or alleged breach of any of the
covenants and agreements of another party contained in this Agreement.
<PAGE>
4. Amendments. No amendment to this Agreement shall be
effective unless it shall be in writing and signed by all parties hereto.
5. Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent prepaid telex, cable or telecopy, or sent, postage prepaid, by
registered, certified or express mail, or reputable overnight courier service
and shall be deemed given when so delivered by hand, telexed, cabled or
telecopied, or if mailed, three days after mailing (one business day in the case
of express mail or overnight courier service), as follows:
(i) if to Capricorn or the Buyer,
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(ii) if to the Seller:
Mrs. Fields Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Attention: Larry A. Hodges,President
Telecopy: (801) 463-2183
with a copy to:
Stoel Rives LLP
201 South Main Street
Suite 1100
Salt Lake City, Utah 84111
Attention: Kent W. Larsen
Telecopy: (801) 578-6999
<PAGE>
1. Interpretation. The headings contained in this Agreement,
in any Exhibit or Schedule hereto and in the table of contents and index of
defined terms to this Agreement, are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. The phrase
"to the Seller's knowledge" or similar phrases means the actual knowledge, as of
the time the relevant statement is made, of any officer or director of any of
the Seller. For purposes of the representations, warranties and covenants
hereunder, references to "the date of this Agreement," "the date hereof" or
other similar phrases shall be deemed to be references to August 13, 1996.
2. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
3. Entire Agreement. This Agreement contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
4. Fees. Each party hereto hereby represents and warrants that
no broker or finder has acted for it in connection with this Agreement or the
transactions contemplated hereby or may be entitled to any brokerage fee,
finder's fee or commission in respect thereof.
5. Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
(a) Consent to Jurisdiction. Each of the Seller, Capricorn and
the Buyer irrevocably submits to the exclusive jurisdiction of (i) the Supreme
Court of the State of New York, New York County and (ii) the United States
District Court for the Southern District of New York, solely for the purposes of
seeking specific performance or enforcing an arbitral award arising out of this
Agreement or any transaction contemplated hereby. Each of the Seller, Capricorn
and the Buyer agrees to commence any such action, suit or proceeding relating
thereto either in the United States District Court for the Southern District of
New York or, if, for jurisdictional reasons, such suit, action or other
proceeding may not be brought in such court, in the Supreme Court of the State
of New York, New York County. Each of the Seller, Capricorn and the Buyer
further agrees that service of any process, summons, notice or document by U.S.
registered mail to such party's respective address set forth above shall be
effective service of process for any action, suit or proceeding in New York with
respect to any matters to which it has submitted to jurisdiction as set forth
above in this Section 24(a). Each of the Seller, Capricorn and the Buyer
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding described above in (i) the Supreme Court of the
State of New York, New York County or (ii) the United States District Court for
the Southern District of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
<PAGE>
(b) Should any litigation be commenced in connection with the
matters described in the preceding Section 24(a), the party prevailing shall be
entitled, in addition to such other relief as may be granted, to a reasonable
sum for such party's attorneys' fees and expenses determined by the court in
such litigation or in a separate action brought for that purpose.
6. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
<PAGE>
7. IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first written above.
MRS. FIELDS DEVELOPMENT CORPORATION
By:/s/Larry A. Hodges
Name: Larry A. Hodges
Title:President/CEO
THE MRS. FIELDS' BRAND, INC.
By:/s/ Herbert S. Winokur
Name:Herbert S. Winokur
Title:Manager
CAPRICORN INVESTORS II, LP.
By CAPRICORN HOLDINGS, L.L.C.,
General Partner
By:/s/ Herbert S. Winokur
Name: Herbert S. Winokur, Jr.
Title: Manager
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
INDEX OF DEFINED TERMS
<S> <C>
Defined Term Page
Allocation Schedule 3
Assumed Liabilities 2
Buyer 1
Capricorn 1
Closing 5
Closing Date 6
Code 4
Contracts 17
DOJ 35
Environmental Laws 20
Founders 10
Founders Agreement 10
FTC 35
Hazardous Substance 21
Indemnified Party 50
Intellectual Property 16
License Agreement 8
License Buyer Note Agreement 7
License Buyer Notes 7
License Company Notes 7
License Company Series 1 Notes 7
License Company Series 2 Notes 7
Licensing Assets 2
Licensing Business 2
Liens 14
Loss 39
MFI 8
MFI Asset Purchase Agreement 8
Mrs. Fields 2
Other Agreements 7
Permitted Liens 15
Purchase Price 3
Records 36
Related Documents 44
Seller 1
Store Company 2
Straddle Period 40
Subsidiary 11
Tax Returns 14
Taxes 14
Third Party Claim 50
To the Seller's knowledge 61
Transaction Documents 30
Unassigned Asset 5
</TABLE>
<PAGE>
TABLE OF CONTENTS
Page
1. Purchase, Sale and Assumption 1
2. Closing; Transactions to be Effected 5
3. Conditions to Closing 8
4. Representations and Warranties of the Seller 8
5. Covenants of the Seller 23
6. Representations and Warranties of the Buyer and Capricorn 26
7. Covenants of the Buyer and Capricorn 31
8. Mutual Covenants 32
9. Further Assurances 38
10. Indemnification 39
11. Assignment 53
12. No Third-Party Beneficiaries 55
13. Termination 55
14. Survival of Representations 57
15. Expenses 57
16. Arbitration 57
17. Amendments 60
18. Notices 60
19. Interpretation 61
20. Counterparts 61
21. Entire Agreement 62
<PAGE>
Page
22. Fees 62
23. Severability 62
24. Consent to Jurisdiction 62
25. Governing Law 64
Appendix A Index of Defined Terms
Exhibit A Form of License Buyer Note Agreement (including forms of the
License Buyer Notes)
Schedules
1(a) Licensing Assets
4(e) Tax Returns
4(g) Condition of Assets
4(h) Trademarks, etc.
4(i) Contracts
4(j) Litigation
4(k) Insurance
4(l) Material Events
4(m) Compliance with Applicable Laws;
Environmental Matters
4(n) Employee and Labor Relations
4(o) Material Licenses and Permits
6(e) Pro Forma Balance Sheet
EXHIBIT C TO SENIOR NOTE AGREEMENT
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of September 18, 1996, by and
among (i) The Prudential Insurance Company of America, a New Jersey mutual
insurance company ("Prudential"), Principal Mutual Life Insurance Company, an
Iowa corporation ("Principal"), Pruco Life Insurance Company, an Arizona
corporation ("Pruco"), Contrarian Capital Advisors, L.L.C., a Delaware limited
liability company, as agent ("Contrarian") (together with any subsequent holders
of the series of Notes to which this Agreement applies at the time amounts are
deposited pursuant to Section 3, the "Noteholders"), (ii) The Mrs. Fields'
Brand, Inc., a Delaware corporation (the "Borrower"), and (iii) The Bank of New
York, a New York banking corporation (the "Escrow Agent").
W I T N E S S E T H
WHEREAS, pursuant to a Licensing Assets Purchase Agreement,
dated as of August 7, 1996 (the "Asset Purchase Agreement"), among the Borrower,
Mrs. Fields Development Corporation, a Delaware corporation ("MFD"), and
Capricorn, the Borrower is as of the date of this Agreement purchasing certain
assets specified therein;
WHEREAS, the Noteholders have entered into a Senior Note
Agreement dated as of September 18, 1996 (the "Note Agreement") by and among the
Noteholders and the Borrower pursuant to which the Borrower is as of the date of
this Agreement issuing two series of Notes as partial consideration for the
assets to be acquired pursuant to the Asset Purchase Agreement; and
WHEREAS, the Series 1 Notes will be subject to set-off rights
for general indemnification claims under the Asset Purchase Agreement and the
escrow arrangements provided herein in the event any such Notes shall be
prepaid.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and intending to be legally bound, the parties hereto agree as
follows:
1. Definitions. Capitalized terms used herein but not otherwise defined
shall have the meanings ascribed thereto in the Note Agreement.
3. Appointment of Escrow Agent. Each Noteholder and the Borrower hereby
appoint the Escrow Agent to act as escrow agent hereunder, and the Escrow Agent
hereby accepts such appointment for the purpose of receiving and disbursing the
escrow funds and accrued interest thereon in accordance with the terms and
conditions set forth herein.
5. Deposit of Funds; Designation of Escrow Amounts. In the event the
Borrower makes mandatory or voluntary prepayments (each, a "Prepayment") of
principal (pursuant to Section 5.2 or Section 5.3 of the Note Agreement) on the
Series 1 Notes during a period of time when the Borrower's set-off rights with
respect to such Series 1 Notes remain in effect pursuant to Section 5.5 of the
Note Agreement, the amount of principal being so prepaid on such Series 1 Notes
(the "Prepayment Amount"), shall be deposited by the Borrower with the Escrow
Agent in Escrow Accounts as described in Section 4 below. The Prepayment Amount
shall be maintained by the Escrow Agent in accordance with the provisions of
Section 6 hereof, and will be disbursed by the Escrow Agent pursuant to the
provisions of Section 8 hereof.
<PAGE>
7. Segregation and Maintenance of Escrow Account. The Escrow Agent shall
establish and maintain a separate account (the "Escrow Account") for the Series
1 Notes. In the event the Borrower makes a Prepayment, the Borrower shall
provide the Escrow Agent with a certificate identifying (i) the identity of the
Noteholders to which such Prepayment Amount relates and (ii) the percentage of
the aggregate amount of Series 1 Notes held by each such Noteholder (the
"Percentage Interest") of record as of the date of such Prepayment. Once
established, the Escrow Account shall thereafter be (i) credited with (A) any
additional Prepayment Amount, (B) the Escrow Account's interest income, and (ii)
debited with (A) any disbursements of Escrow Funds (as defined below) in
accordance with Section 8(a) and (B) any disbursements of Escrow Funds in
accordance with Section 8(b). The Escrow Agent shall maintain a ledger
containing the Percentage Interest of each Noteholder in each Prepayment Amount
and the aggregate Percentage Interest of each Noteholder in the Escrow Account.
9. Note Series Representatives. Prudential or a successor designated by
Prudential shall have the authority to act on behalf of the holders of the
Series 1 Notes (the "Note Series Representative").
11. Investment of Prepayment Amount. The Prepayment Amount in the Escrow
Account during the term of this Agreement and the interest thereon
(collectively, the "Escrow Funds") shall be continuously invested and reinvested
by the Escrow Agent in such investments as the Note Series Representative shall
from time to time direct in writing, in its complete discretion, provided,
however, that the Escrow Funds shall be invested only in Permitted Investments
(as hereinafter defined). "Permitted Investments" shall mean any of the
following investments with a maturity of not more than one month: (i) direct
obligations of or obligations guaranteed by the United States of America; (ii)
commercial paper rated A-1 by Standard & Poor's Corporation or Prime-1 by
Moody's Investors Service, Inc., or better; (iii) certificates of deposit issued
by United States commercial banks having capital and surplus of at least
$500,000,000; and (iv) investments in institutional money market funds investing
principally in obligations permitted by clauses (i) through (iii) of this
definition. The registered owner, if any, of any securities or other investments
in which the Escrow Funds are from time to time invested shall be the Escrow
Agent or its nominee. The Escrow Agent shall not be responsible for any loss
incurred as a result of any investments made in accordance with the terms
hereof. Temporarily uninvested funds held hereunder shall not earn or accrue
interest.
13. Income Taxes. The parties hereto agree that the Escrow Account
established by this Agreement shall be treated for income tax purposes as a
"grantor trust" under subpart E of part I of subchapter J of the Internal
Revenue Code of 1986, as amended (the "Code"), and that each Noteholder (or the
tax group of which such Noteholder is a member) shall report for Federal, state
and local income tax purposes its Percentage Interest of all income or other tax
items derived from the investment of the Escrow Funds. The Escrow Agent shall
provide to each Noteholder as and when requested in writing by such Noteholder
the information necessary for such Noteholder to determine such liability. Prior
to the filing by such Noteholder (or the tax group of which such Noteholder is a
member) of any income tax return that includes income reportable pursuant to the
preceding sentence, such Noteholder shall deliver a written request and
instructions for payment to the Escrow Agent, and the Escrow Agent shall
promptly pay to such Noteholder from the relevant Escrow Account an amount equal
to the aggregate Federal, state and local income tax that the Escrow Account
would have paid if it were a corporation subject to the tax imposed on
corporations at the maximum effective Federal, state and local income tax rate
then in effect for such fiscal year (which rate shall be determined taking into
account the deductibility of state and local income taxes for Federal income tax
purposes).
15. Escrow Payment. The Escrow Agent shall release funds from the Escrow
Account on the next business day, or as soon thereafter as the investments have
matured and funds are available for distribution:
<PAGE>
16. (a) To the applicable Noteholders upon the termination of the set-off
rights provided in Section 5.5 of the Note Agreement and Section 10(a) and 10(b)
of the Asset Purchase Agreement on the date which is 18 months following the
date of the Closing; provided, however, that the Escrow Agent shall not release
to the Noteholders funds in an amount equal to the amount claimed by the
Borrower pursuant to such provisions in a notice (a "Claim Notice") delivered to
the Escrow Agent before such time, which notice shall specify the amount claimed
and the basis for such claim.
(b) To the applicable Noteholders or the Borrower, as
the case may be, upon the Note Series Representative
and the Borrower duly executing and delivering to the
Escrow Agent a Certificate Authorizing Release in the
form attached hereto as Exhibit A authorizing release
of funds to the Noteholders of record and/or to the
Borrower, as the case may be, at such times and in
such amounts as appropriate to reflect the resolution
of a claim for which the Escrow Agent had received a
Claim Notice.
(c) To the applicable Noteholders within 20 business
days following March 31, June 30, September 30 or
December 31 in any year in which an Escrow Account
holds funds in an amount equal to the net investment
income earned by such Escrow Account during the
fiscal quarter then ended and not previously
disbursed.
Each Noteholder shall be entitled to receive its Percentage Interest in the
Escrow Funds contained in the Escrow Account upon any disbursement of funds to
Noteholders from the Escrow Account under this Section 8.
1. Termination. This Agreement shall terminate and be of no further
force and effect upon the date that the Borrower's set-off rights with respect
to the Series 1 Notes shall no longer be in effect pursuant to Section 5.5 of
the Note Agreement and there shall be no disputed amount related to a Claim
Notice issued as described above in Section 8(a).
3. Compensation of Escrow Agent. The Escrow Agent shall also be
entitled to reimbursement from the Borrower for all expenses paid or incurred by
it in the administration of its duties hereunder, including, but not limited to,
all of its counsel's, advisor's and agent's fees and disbursements. Compensation
and expenses of the Escrow Agent shall be paid by the Borrower upon demand
thereto by the Escrow Agent.
5. Exculpation and Indemnification of Escrow Agent. It is understood and
agreed that
the Escrow Agent shall:
(a) be under no duty to accept information from any person
other than the Borrower or the Note Series Representatives and then only to the
extent and in the manner provided in this Agreement;
(c) be protected in acting upon any written notice, opinion,
request, certificate, approval, consent or other document believed by it to be
genuine and to be signed by the proper party or parties;
<PAGE>
(e) be deemed conclusively to have given and delivered any
notice required to be given or delivered hereunder if the same is in writing,
signed by any one of its authorized officers and (i) mailed, by registered or
certified mail, postage prepaid, or (ii) hand delivered, in a sealed wrapper,
addressed as follows,
If to the Borrower:
The Mrs. Fields' Brand, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attn: Herbert S. Winokur, Jr.
Telephone: (203) 861-6600
Fax: (203) 861-6671
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: Randall Doud
Telephone: (212) 735-2524
Fax: (212) 735-2000
If to Prudential:
The Prudential Insurance Company of America
c/o Prudential Financial Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Fax: (201) 802-7045
If to Principal:
Investment Securities Department
The Principal Financial Group
711 High Street
Des Moines, Iowa 50392-0800
Attn: Mark P. Denkinger
Telephone: (515) 248-8016
Fax: (515) 248-2490
If to Pruco:
Pruco Life Insurance Company
c/o Prudential Financial Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Fax: (201) 802-7045
If to Contrarian:
Contrarian Capital Advisors, L.L.C.
411 West Putnam Avenue, Suite 225
Greenwich, Connecticut 06830
Attn: Janice Stanton
Telephone: (203) 862-8204
Fax: (203) 629-1977
<PAGE>
(a) be indemnified and held harmless jointly and severally by
the parties hereto (other than itself) against any claim made against it by
reason of its acting or failing to act in connection with any of the
transactions contemplated hereby and against any loss, liability or expense,
including the expense of defending itself against any claim of liability it may
sustain in carrying out the terms of this Agreement, except such claims which
are occasioned by its bad faith, gross negligence, willful misconduct or fraud;
provided, however, that promptly after the receipt by the Escrow Agent of notice
of any demand or claim or the commencement of any action, suit or proceeding,
the Escrow Agent shall, if an indemnification claim in respect thereof is to be
made by the Escrow Agent against any of the parties hereto (other than itself),
notify such other party thereof in writing, but failure to so notify shall not
affect the Escrow Agent's rights hereunder, and provided, further, that the
indemnitors hereunder shall be entitled, jointly or severally and at their own
expense, to participate in and/or assume the defense of any such action, suit or
proceeding and, specifically and without limiting the foregoing, the Escrow
Agent shall in no event have any liability in connection with its investment or
reinvestment, in good faith and in accordance with the terms hereof, of any
Escrow Funds held by it hereunder, including without limitation any liability
for any delay not resulting from gross negligence or bad faith in such
investment or reinvestment, or for any loss of income incident to any such
delay.
(c) have no liability or duty to inquire into the terms and
conditions of any agreements to which the Escrow Agent is not a party, its
duties under this Agreement being understood to be purely ministerial and not
fiduciary in nature;
(e) be permitted to consult with counsel of its choice,
including in-house counsel, and shall not be liable for any action taken,
suffered or omitted by it in good faith in accordance with the written advice of
such counsel, provided, however, that nothing contained in this Section 11(f),
nor any action taken by the Escrow Agent, or of any counsel, shall relieve the
Escrow Agent from liability for any claims which are occasioned by its bad
faith, gross negligence, willful misconduct or fraud, all as provided in Section
11(d) above;
(g) not be bound by any modification, amendment, termination,
cancellation, rescission or supersession of this Agreement, unless the same
shall be in writing and signed by all of the parties hereto;
(i) have no liability for any act or omission done pursuant to
the instructions contained or expressly provided for herein, or written
instructions given by the Note Series Representative and/or the Borrower, as the
case may be, pursuant hereto;
(k) not have any interest in the Escrow Funds deposited
hereunder but is serving as escrow holder only and has only possession thereof;
(m) in the event of ambiguity in the provisions governing the
Escrow Funds or uncertainty on the part of the Escrow Agent as to how to
proceed, such that the Escrow Agent, in its sole and absolute judgment, deems it
necessary for its protection so to do, be entitled to refrain from taking any
action other than to retain custody of the Escrow Funds deposited hereunder
until it shall have received joint written instructions signed by the Note
Series Representative and the Borrower, or to deposit the Escrow Funds with a
court of competent jurisdiction and thereunder to have no further duties or
responsibilities in connection therewith.
(n) be deemed to make no representation as to the validity,
value, genuineness or collectability of any security or other document or
instrument held by or delivered to it;
(p) not be called upon to advise any party as to selling or
retaining, or taking or refraining from taking any action with respect to, any
securities or other property deposited hereunder;
<PAGE>
(r) have the right, at any time, to resign hereunder by giving
written notice of its resignation to the Noteholders and the Borrower, at their
addresses set forth above, in which case:
(i) all property in the Escrow Account shall
be delivered by it to such person as may be
designated in writing by the Note Series
Representative and the Borrower, whereupon the Escrow
Agent's obligations hereunder shall cease and
terminate;
(i) if after 30 days from the date of its
written notice of intent to resign no such person has
been designated by such date the Escrow Agent's sole
responsibility thereafter shall be to keep all
property then held by it in the Escrow Account and to
deliver the same to a person designated in writing by
the Note Series Representative and the Borrower, or,
if no such person shall have been so designated, in
accordance with the directions of a final order or
judgment of a court of competent jurisdiction, and
the provisions of Sections 11(f), 11(j) and 11(k)
hereof shall remain in effect; and
(a) be reimbursed, as provided in Section 10 hereof, upon its
request for all reasonable expenses, disbursements and advances incurred or made
by it, its counsel or its agents in accordance with any provisions of this
Agreement, except any such expenses, disbursements or advances as may be
attributable to its bad faith, gross negligence, willful misconduct or fraud.
1. Escrow Agent's Lien on Escrow Funds.
2. The Noteholders and the Borrower hereby grant to the Escrow
Agent a lien on the Escrow Funds such that, in the event that any and all
charges payable under this Agreement shall not be timely paid to it, the Escrow
Agent shall have the right to pay itself from the Escrow Funds the full amount
owed to it, provided that written notice of the Escrow Agent's intent to proceed
under this Section 12 be given to the Noteholders at least five business days in
advance of such action.
1. Notices. All requests, notices or other communications hereunder
shall be in writing, shall be deemed to have been given (i) upon receipt if
delivered by facsimile transmission (with original hard copy to follow by
overnight courier) or by hand in a sealed wrapper, (ii) one day after having
been delivered to an overnight courier or (iii) three days after having been
deposited in the mail as registered or certified mail, return receipt requested,
postage prepaid (a) to the addresses of the Noteholders and the Borrower set
forth in Section 11(c) and (b) to the address of the Escrow Agent as follows:
The Bank of New York
101 Barclay Street
New York, New York 10286
21st Floor
Attn: Tim Shea
Telephone: (212) 815-5287
Fax: (212) 815-5915
2. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4. 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.
<PAGE>
6. Assignment. This Agreement shall be binding on and shall inure to
the benefit of the parties hereto and, in the case of the Noteholders, to their
permitted transferees of the Notes pursuant to the provisions of the Note
Agreement.
7. Choice of Law and Jurisdiction.
9. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. The parties to this Agreement
hereby agree that jurisdiction over such parties and over the subject matter of
any action or proceeding arising under this Agreement may be exercised by a
competent Court of the State of New York or by a United States Court sitting in
New York City.
11. Amendment and Waiver.
13. This Agreement may be modified only by a written amendment
signed by all the parties hereto, and no waiver of any provision hereof shall be
effective unless expressed in a writing signed by the party to be charged.
15. Use of The Bank of New York Name. No printed or other material in
any language, including prospectuses, notices, reports, and promotional material
which mentions The Bank of New York by name or the rights, powers, or duties of
the Escrow Agent under this Agreement shall be issued by any of the other
parties hereto, or on such party's behalf, without the prior written consent of
The Bank of New York; provided, that nothing herein shall prevent the holder of
any Note from delivering copies of any financial statements and other documents
delivered to such holder, and disclosing any other information disclosed to such
holder, by or on behalf of the Borrower or any Subsidiary in connection with or
pursuant to the Asset Purchase Agreement or the Note Agreement to (i) such
holder's directors, officers, employees, agents and professional consultants,
(ii) any other holder of any Note, (iii) any Person to which such holder offers
to sell such Note or any part thereof, (iv) any Person to which such holder
sells or offers to sell a participation in all or any part of such Note, (v) any
federal or state regulatory authority having jurisdiction over such holder, (vi)
the National Association of Insurance Commissioners or any similar organization
or (vii) any other Person to which such delivery or disclosure may be necessary
or appropriate (A) in compliance with any law, rule, regulation or order
applicable to such holder, (B) in response to any subpoena or other legal
process, (C) in connection with any litigation to which such holder is a party,
provided that such holder uses its best efforts to notify the Borrower that such
information has been requested from it, or (D) in order to implement or
facilitate the exercise of remedies by such holder in its capacity as such or to
protect such holder's rights or interests as a holder of such Note.
17. Miscellaneous. Nothing in this Agreement is intended to or shall
confer upon anyone other than the parties hereto any legal or equitable right,
remedy or claim.
19. Severability. If any provision of this Agreement on the application
of any such provision to any person or circumstance shall be held invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
<PAGE>
THE BANK OF NEW YORK
By: /s/ Bryon Merino
Name: Bryon Merino
Title:Assistsant Treasurer
THE MRS FIELDS' BRAND, INC.
By:/s/ Herbert S. Winkur
Name:Herbert S. Winokur
Title: President
<PAGE>
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:/s/ Stephen R. Haekel
Name:Stephen R. Haekel
Its:Vice President
<PAGE>
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By:/s/ Warren Shank
Name:Warren Shank
Its:Counsel
PRUCO LIFE INSURANCE COMPANY
By:/s/ Joseph Y. Alouf
Name:Joseph Y. Alouf
Its:Asst. Vice President
CONTRARIAN CAPITAL ADVISORS, L.L.C., AS AGENT FOR THE ENTITIES
LISTED BELOW:
OPPENHEIMER & CO., INC.
OPPENHEIMER HORIZON
PARTNERS, L.P.
OPPENHEIMER INSTITUTIONAL
HORIZON PARTNERS, L.P.
OPPENHEIMER INSTITUTIONAL
HORIZON FUND II, LTD.
THE & TRUST
By:/s/ Janice M. Stanton
Name:Janice M. Stanton
Its:Partner
<PAGE>
EXHIBIT A
Form of
Certificate Authorizing Release
THE UNDERSIGNED HEREBY CERTIFY THAT:
<PAGE>
1. We are duly authorized to execute this Certificate Authorizing Release.
3. You are hereby authorized to release $__________ to the Borrower as
follows:
4. [wire instructions]
1. You are hereby authorized to release the amounts set forth next to each
of the following Noteholders as follows:
3. $___________ [Noteholder]
5. [wire instructions]
$___________ [Noteholder]
[wire instructions]
* * * *
The foregoing certifications are made and delivered as of this
____ day of __________, _____ pursuant to Section 8 of the Escrow Agreement
dated as of September 18, 1996 (the "Escrow Agreement"), by and among the
Borrower, the Noteholders and The Bank of New York, as Escrow Agent. Capitalized
terms used herein shall have the meanings set forth in the Escrow Agreement.
<PAGE>
Borrower:
THE MRS. FIELDS' BRAND, INC.
By:______________________
Name:
Title:
Note Series Representative:
[ ]
By:______________________
Name:
Title:]
<PAGE>
SCHEDULE I
Escrow Agent Fees
[To be inserted]
EXHIBIT A TO LICENSING
ASSETS PURCHASE AGREEMENT
SENIOR NOTE AGREEMENT
among
THE MRS. FIELDS' BRAND, INC.,
as Borrower,
and
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY,
PRUCO LIFE INSURANCE COMPANY,
and
CONTRARIAN CAPITAL ADVISORS, L.L.C.
(AS AGENT),
as Lenders
Dated as of September 18, 1996
<PAGE>
TABLE OF CONTENTS
RECITAL 1
AGREEMENT 1
ARTICLE 1 DEFINITIONS 1
Section 1.1 Definitions 1
Section 1.2 Other Definitional Provisions 11
ARTICLE 2 AUTHORIZATION OF ISSUANCE OF SECURITIES 11
Section 2.1 Authorization of the Notes 11
ARTICLE 3 CONDITIONS PRECEDENT TO EFFECTIVENESS 12
Section 3.1 Lenders' Conditions to Effectiveness 12
Section 3.2 The Borrower's Condition to Effectiveness 13
ARTICLE 4 ISSUANCE OF NOTES: CLOSING 13
Section 4.1 Issuance of Notes 13
Section 4.2 Closing 14
ARTICLE 5 NOTES 15
Section 5.1 Interest on Notes 15
Section 5.2 Mandatory Prepayments 15
Section 5.3 Optional Prepayment 15
Section 5.4 Repayment at Maturity 16
Section 5.5 Certain Amounts Owed under the License Purchase Agreement16
ARTICLE 6 ADDITIONAL TERMS OF THE NOTES 17
Section 6.1 Security 17
Section 6.2 Receipt of Payment 17
Section 6.3 Sharing of Payments, etc. 17
Section 6.4 Accounting 18
Section 6.5 Access 18
Section 6.6 Notes Deemed Outstanding 19
ARTICLE 7 REPRESENTATIONS AND WARRANTIES 19
Section 7.1 Existence and Authority 19
Section 7.2 Regulation G, etc. 20
Section 7.3 Status Under Certain Federal Statutes 20
Section 7.4 Offering of Securities 20
Section 7.5 Pro Forma Balance Sheet of the Borrower; No Violations 21
ARTICLE 8 AFFIRMATIVE COVENANTS 21
Section 8.1 Financial Statements 21
Section 8.2 Corporate Existence, etc. 26
Section 8.3 Payment of Taxes and Claims 26
Section 8.4 Compliance with Laws, etc. 27
Section 8.5 Maintenance of Properties; Insurance 27
Section 8.6 Affiliate Transactions, Keeping of Books, Bank Accounts 28
Section 8.7 Compliance with Affiliate Transactions 28
Section 8.8 Security Interest in Newly Acquired Property 28
Section 8.9 Environmental Reporting Requirements 29
Section 8.10 Environmental Reports, Remedial Action, Indemnity 30
Section 8.11 Preparation of Financial Statements 31
Section 8.12 Intellectual Property 31
Section 8.13 Collection Accounts 32
ARTICLE 9 NEGATIVE COVENANTS 32
Section 9.1 Restricted Payments and Restrictions on Investments 32
Section 9.2 Liens 33
Section 9.3 Indebtedness 34
Section 9.4 Loans, Advances, Investments and Contingent Liabilities 35
Section 9.5 Issuance of Capital Stock 37
Section 9.6 Merger and Sale of Assets 37
Section 9.7 Sale and Leaseback Transactions 38
Section 9.8 Certain Contracts 38
Section 9.9 Agreements by Subsidiaries 39
Section 9.10 Compliance with ERISA 39
Section 9.11 Transactions with Affiliates 41
Section 9.12 Vendor Payments 41
Section 9.13 Operating Cash Flow 41
Section 9.14 Capital Expenditure 42
Section 9.15 Transfer of Intellectual Property 43
Section 9.16 Compliance with Environmental Laws 43
Section 9.17 Amendments and Modifications to Operative Documents 43
Section 9.18 Changes in Business 43
Section 9.19 Amendment of Certificate of Incorporation 43
Section 9.20 Amendment of License Agreement 44
Section 9.21 Change in Fiscal Year 44
Section 9.22 General and Administrative Expenses; Annual Budget 44
Section 9.23 Management Services 44
ARTICLE 10 EVENTS OF DEFAULT 44
Section 10.1 Events of Default 44
Section 10.2 Remedies 47
Section 10.3 Other Remedies 47
ARTICLE 11 MISCELLANEOUS 48
Section 11.1 Performance Due Other Than on a Business Day 48
Section 11.2 Successors and Assigns 48
Section 11.3 Governing Law 48
Section 11.4 Notices 49
Section 11.5 Severability 50
Section 11.6 Counterparts 51
Section 11.7 Further Assurances 51
Section 11.8 Entire Agreement 51
Section 11.9 Consent to Amendments 51
Section 11.10 Form, Registration, Transfer and Exchange of Notes; Lost Notes 52
Section 11.11 Persons Deemed Owners; Participation 53
Section 11.12 Confidentiality 53
Section 11.13 Satisfaction Requirement 54
Section 11.14 Solicitation of Noteholders 54
Section 11.15 Indemnification 55
Section 11.16 Fees and Expenses 56
<PAGE>
INDEX TO EXHIBITS AND SCHEDULES
Exhibits
<PAGE>
Exhibit A-1 Form of Series 1 Senior Notes
Exhibit A-2 Form of Series 2 Senior Notes
Exhibit B-1 Form of Collateral Agency Agreement
Exhibit B-2 Form of Security Agreement
Exhibit B-3 Form of Stock Pledge Agreement
Exhibit B-4 Form of Blocked Account Letter Agreement
Exhibit C Form of Escrow Agreement
Exhibit D Form of Officer's Certificate as to Total Cash, Operating
Cash Flow and Capital Expenditures
Exhibit E Form of Confidentiality Agreement
<PAGE>
Schedules
Schedule 3.1(a) Notes payable to Prudential
Schedule 3.1(b) Notes payable to Principal
Schedule 3.1(c) Notes payable to Pruco
Schedule 3.1(d) Notes payable to Contrarian
Schedule 3.1(e) Opinion of Counsel
Schedule 6.2 Payment Instructions
Schedule 7.5 Pro Forma Balance Sheet
Schedule 8.11 Accounting Practices
Schedule 8.13 Collection Accounts
Schedule 9.4(vii) Permitted Financial Institutions
<PAGE>
SENIOR NOTE AGREEMENT
SENIOR NOTE AGREEMENT dated as of September 18, 1996 (this
"Agreement") by and among THE MRS. FIELDS' BRAND, INC., a Delaware corporation
(the "Borrower"), as borrower, and The Prudential Insurance Company of America,
a New Jersey mutual insurance company ("Prudential"), Principal Mutual Life
Insurance Company, an Iowa corporation ("Principal"), Pruco Life Insurance
Company, an Arizona corporation ("Pruco"), and Contrarian Capital Advisors,
L.L.C., a Delaware limited liability company, (as agent) ("Contrarian"), as
lenders.
RECITAL
Pursuant to a Licensing Assets Purchase Agreement, dated as of
August 7, 1996 (the "License Purchase Agreement"), among the Borrower, Mrs.
Fields Development Corporation, a Delaware corporation ("MFD"), and Capricorn
Investors II, L.P., a Delaware limited partnership ("Capricorn"), the Borrower
is as of the date of this Agreement purchasing certain assets specified therein
and issuing as partial consideration therefor the Notes (as hereinafter
defined).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, representations, warranties and agreements contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
<PAGE>
1 ARTICLE DEFINITIONS
1.1 Section Definitions . As used in this Agreement, the
following terms have the following respective meanings:
1.3 "Affiliate" means, with respect to any Person, (a) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, 5% or more of the voting or nonvoting
stock of such Person, and (b) each Person that controls, is controlled by or is
under common control with such Person. For the purpose of this definition,
"control" of a Person shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of its management or policies, whether
through the ownership of voting securities, by contract or otherwise.
1.5 "Bankruptcy Code" means title 11 of the United States Code
entitled "Bankruptcy", as amended from time to time, and any successor statute
thereto.
1.7 "Blocked Account Letter Agreement" means any Blocked
Account Letter Agreement among the Collateral Agent, the Borrower and any bank
which maintains a Collection Account, substantially in the form of Exhibit B-4
hereto.
"Board of Directors" means the Board of Directors of the
Borrower, as the same may be constituted from time to time.
"Business Day" means any day other than a Saturday, Sunday, or
day on which commercial banks in New York are required or authorized to be
closed.
"Capital Expenditures" means all payments for or Indebtedness
incurred in connection with fixed assets or improvements or for replacements,
substitutions or additions thereto, that are required to be capitalized under
GAAP.
"Capital Lease" means, with respect to any Person, any lease
of any property (whether real, personal or mixed) by such Person as lessee that,
in accordance with GAAP, either would be required to be classified and accounted
for as a capital lease on a balance sheet of such Person or otherwise be
disclosed as such in a note to such balance sheet, other than, in the case of
the Borrower or any Subsidiary, any such lease under which the Borrower or such
Subsidiary is the lessor.
"Capital Lease Obligation" means, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder that, in accordance
with GAAP, would appear on a balance sheet of such lessee in respect of such
Capital Lease or otherwise be disclosed in a note to such balance sheet.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" means all assets of the Borrower and the
Subsidiaries and all capital stock of the Subsidiaries, in each case upon which
a Lien is granted to the Collateral Agent on behalf of the Lenders pursuant to
the Security Documents.
"Collateral Agency Agreement" means the Collateral Agency
Agreement, dated as of the date of this Agreement, among the Collateral Agent,
the Borrower and the Lenders, substantially in the form of Exhibit B-1 hereto.
"Collateral Agent" means The Bank of New York, as trustee and
collateral agent for the Lenders under the Collateral Agency Agreement, and as
escrow agent and secured party under the Stock Pledge Agreement, or any duly
appointed successor of Bank of New York in such capacities.
"Collateral Agent's Account" means a bank account in the name
of the Collateral Agent maintained at The Bank of New York or any other bank
account specified by the Collateral Agent as the Collateral Agent's Account.
"Collection Accounts" means the various bank accounts
identified on Schedule 8.13, together with any additional bank accounts as to
which the Borrower provides written notice to the Collateral Agent and provides
a Blocked Account Letter Agreement from the bank at which such bank account is
established.
"Common Stock" means the shares of common stock, $1.00 par value,
of the Borrower.
"Contaminant" means those substances or materials which are
regulated by or form the basis of liability, now or hereafter, under any
Environmental Laws, including without limitation, petroleum or any fraction or
byproduct thereof, asbestos, polychlorinated biphenyls, radioactive substances,
or any other substances or materials which have in the past or could in the
future constitute a health, safety or environmental hazard to any Person or
property.
"Environmental Laws" means any and all applicable federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, concessions, grants, franchises, licenses,
agreements or government restrictions (including without limitation, any
judicial or administrative order, consent decree or judgment), relating to the
regulation and protection of human health, safety, the environment or natural
resources (including without limitation, ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic
species, and vegetation), or the Release of any materials into the environment,
including, without limitation, those related to hazardous substances or wastes,
air emissions and discharges to waste water or public treatment systems.
Environmental Laws include but are not limited to the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. ss. 9601 et seq.); the Hazardous Material Transportation Act, as amended
(49 U.S.C.ss. 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide
Act, as amended (7 U.S.C. ss. 136 et seq.); the Resource Conservation and
Recovery Act, as amended (42 U.S.C. ss. 6901 et seq.); the Toxic Substance
Control Act, as amended (15 U.S.C. ss. 2601 et seq.); the Clean Air Act, as
amended (42 U.S.C. ss. 7401 et seq.); the Federal Water Pollution Control Act,
as amended (33 U.S.C. ss. 1251 et seq.); the Occupational Safety and Health Act,
as amended (29 U.S.C. ss. 651 et seq.); and the Safe Drinking Water Act, as
amended (42 U.S.C. ss. 300 et seq.), and their state and local counterparts or
equivalents and any transfer of ownership notification or approval statutes such
as the New Jersey Environmental Cleanup Responsibility Act (N.J. Stat. Ann. ss.
13:lK-6 et seq.).
<PAGE>
"Environmental Liabilities and Cost" means, as to any Person,
all liabilities, obligations, responsibilities, Remedial Actions, losses,
damages, punitive damages, consequential damages, treble damages, costs and
expenses (including, without limitation, all fees, disbursements and expenses of
counsel, experts and consultants and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
claim or demand by any other Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute, including,
without limitation, arising under any Environmental Law, Permit, order or
agreement with any Governmental Authority or other Person, and which relate to
any environmental, health or safety condition, or a Release or threatened
Release, and result from the past, present or future operations of such Person.
"Environmental Lien" means any Lien in favor of any
Governmental Authority for Environmental Liabilities and Costs.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
or any successor ----- statute.
"ERISA Affiliate" means, with respect to any Person, any trade
or business (whether or not incorporated) under common control or treated as a
single employer with such Person within the meaning of Section 414(b), (c), (m)
or (o) of the Code.
"Escrow Agreement" means the Escrow Agreement, dated as of the
date of this Agreement, among The Bank of New York, as escrow agent, the
Borrower and the Lenders substantially in the form of Exhibit C hereto.
"Event of Default" means any one of the events described in
Section 10.1 hereof.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any agency, department, court
or other entity thereof exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
"Guaranteed Indebtedness" means, as to any Person, any
obligation of such Person guaranteeing any Indebtedness, lease, dividend, or
other obligation ("primary obligations") of any other Person (the "primary
obligor") in any manner, including, without limitation, any obligation or
arrangement of such Person (a) to purchase or repurchase any such primary
obligation, (b) to advance or supply funds (i) for the purchase or payment of
any such primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet condition of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to make
payment of such primary obligation, or (d) to indemnify the owner of such
primary obligation against loss in respect thereof.
<PAGE>
"Indebtedness" means, as to any Person, (a) all indebtedness
of such Person for borrowed money or for the deferred purchase price of property
or services (including, without limitation, reimbursement and all other
obligations with respect to surety or appeal bonds, letters of credit and
bankers' acceptances, whether or not matured, but not including obligations to
trade creditors incurred in the ordinary course of business), (b) all
obligations of such Person evidenced by notes, bonds, debentures or similar
instruments, (c) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property, but not including obligations to trade creditors incurred in the
ordinary course of business), (d) all Capital Lease Obligations of such Person,
(e) all Guaranteed Indebtedness of such Person, (f) all Indebtedness referred to
in clause (a), (b), (c), (d) or (e) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness, (g) in the case of the
Borrower, the Obligations, and (h) all liabilities of such Person under Title IV
of ERISA (other than premiums owed to the PBGC); provided, however, that
intercompany indebtedness owed solely to the Borrower or any Subsidiary and
guarantees of obligations (other than Indebtedness) of the Borrower's
Subsidiaries shall be deemed not to constitute Indebtedness.
"Lenders" means, collectively, Prudential, Principal, Pruco,
Contrarian and any of their successors or transferees in each case for so long
as such Person holds Notes.
"License Agreement" means the License Agreement, dated as of
the date of this Agreement, between the Borrower and the Store Company, as
amended, supplemented or otherwise modified from time to time in accordance with
its terms and the terms of this Agreement.
"License Purchase Agreement" means the Licensing Assets
Purchase Agreement, dated as of August 7, 1996, among the Borrower, MFD and
Capricorn.
"Lien" means any mortgage, deed of trust, pledge, security
interest, lien, option, trust deed, hypothecation, collateral assignment, tax
lien, mechanic's lien, materialmen's lien, lis pendens, or charge or encumbrance
of any kind (including any conditional sale or other title retention agreement
and any financing lease having substantially the same economic effect as any of
the foregoing, and the filing of, or agreement to give, any financing statement
under the Uniform Commercial Code of New York or comparable law of any
jurisdiction) whether arising by contract, operation of law, or otherwise;
provided, however, that the licensing and/or franchising of intellectual
property or the issuance of options or letters of intent or reservation with
respect to such licensing or franchising shall not constitute a Lien under the
terms of this Agreement.
"Liquid Investments" means all assets of the Borrower and the
Subsidiaries of the types described in clauses (ii), (iii), (iv), (v), (vi) and
(vii) of Section 9.4 hereof.
"Majority Lenders" means the holders of at least a majority in
dollar amount of the aggregate unpaid principal amount of the Notes; provided
that for so long as the Notes are held by two or more Persons that are not
Affiliates of each other, the majority of holders of such Notes must include at
least two such holders who are not Affiliates of each other.
"Maturity Date" means, with respect to each Note, the Maturity
Date of such Note, as set forth ------------- therein.
"Multiemployer Plan" means any Plan which is a "multiemployer
plan" as such term is defined in section 4001(a)(3) of ERISA.
"Notes" means each of the Series 1 Notes and the Series 2 Notes.
"Obligations" means all obligations, indebtedness and
liabilities, now existing or hereafter arising, of the Borrower or any of its
Subsidiaries to any of the Lenders, or the Collateral Agent, in each case, under
this Agreement or any other Operative Document, whether such obligations,
indebtedness and liabilities are direct, indirect, related, unrelated, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several,
including, without limitation, all fees and other expenses (including attorneys'
fees and disbursements) incurred in connection with the enforcement or
collection thereof.
<PAGE>
"Operating Cash Flow" means, with respect to any fiscal period
of the Borrower, the operating income of the Borrower and the Subsidiaries
(before deducting any interest, taxes, depreciation or amortization) determined
on a consolidated basis in accordance with GAAP.
"Operative Documents" mean this Agreement, the Notes and the
Security Documents.
"PBGC" means The Pension Benefit Guaranty Corporation or any
other Governmental Authority succeeding to any of its functions.
"Permit" means any permit, approval, authorization, license,
variance or permission required by a Governmental Authority under any applicable
Environmental Laws.
"Person" means any individual, corporation, business trust,
association, company, partnership, joint venture, unincorporated organization,
governmental authority, or other entity.
"Plan" means an "employee pension benefit plan" (as defined in
section 3(2) of ERISA) which is or has been established or maintained, or to
which contributions are required to be made or have been made, by the Borrower
or any of the Subsidiaries.
"Release" means, as to any Person, any release, spill,
emission, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment or into or out of any
property owned or operated by such Person, including, without limitation, the
movement of Contaminants through or in the air, soil, surface water, ground
water or property.
"Remedial Action" means all actions required or voluntarily
undertaken to (a) clean up, remove, treat or in any other way address
Contaminants in the indoor or outdoor environment, (b) prevent the Release or
threat of Release or minimize the further Release of contaminants so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, or (c) perform pre-remedial studies and
investigations and post-remedial monitoring and care.
"Restricted Payment" means (a) any dividend or other
distribution on account of any shares of Common Stock or other capital stock of
the Borrower now or hereafter outstanding in excess of Tax Distributions, (b)
any redemption or retirement, purchase or other acquisition for value, direct or
indirect, of (i) any shares of Common Stock or other capital stock of the
Borrower now or hereafter outstanding, (ii) any warrants, rights or options to
acquire any such shares or (iii) any securities convertible into or exchangeable
for such shares and (c) any payment of principal or interest, repurchase,
redemption or defeasance of any Subordinated Indebtedness other than as
contemplated by this Agreement; provided, that "Restricted Payment" shall not be
deemed to include (x) any dividend or distribution payable in additional shares
of the capital stock on which such dividend or distribution is paid or (y) any
conversion, exercise or exchange of any security convertible into or exercisable
or exchangeable for shares of capital stock of the Borrower.
"Security Agreement" means the Security Agreement, dated as of
the date of this Agreement, in favor of the Collateral Agent, substantially in
the form of Exhibit B-2.
<PAGE>
"Security Documents" means the Collateral Agency Agreement,
the Stock Pledge Agreement, the Security Agreement and any Blocked Account
Letter Agreement from time to time in effect.
"Series 1 Notes" means the senior promissory notes of the
Borrower issued pursuant to this Agreement in the aggregate original principal
amount of $1,000,000 substantially in the form of Exhibit A-1 hereto, and any
notes which may be issued hereunder in substitution or exchange for any such
Notes.
"Series 2 Notes" means the senior promissory notes of the
Borrower issued pursuant to this Agreement in the aggregate original principal
amount of $9,000,000 substantially in the form of Exhibit A-2 hereto, and any
notes which may be issued hereunder in substitution or exchange for any such
Notes.
"Stock Pledge Agreement" means the Stock Pledge Agreement,
dated as of the date of this Agreement, by the Borrower in favor of the
Collateral Agent, substantially in the form of Exhibit B-3 hereto.
"Store Company" means Mrs. Fields' Original Cookies, Inc., a
Delaware corporation.
"Subordinated Indebtedness" means with respect to the Notes,
any other Indebtedness which by its express terms is subordinated to the Notes
and is acceptable to the Majority Lenders in all respects, including with
respect to the use of proceeds thereof.
"Subsidiary" means any corporation, partnership or other
business entity of which an aggregate of 50% or more of the outstanding shares
of capital stock, beneficial or partnership interests, participations or other
equivalents (regardless of how designated) having ordinary voting power to elect
a majority of the board of directors, managers, trustees or other controlling
persons, is, at the time, directly or indirectly, owned by the Borrower and/or
one or more Subsidiaries of the Borrower (irrespective of whether, at the time,
stock, interests or other equivalents of any other class or classes of such
entity shall have or might have voting power by reason of the happening of any
contingency).
"Tax Distributions" means, in the case of any fiscal year (or
portion thereof) in which the Borrower joins in the filing of U.S. consolidated
Federal income tax returns as part of an affiliated group of corporations, as
determined under section 1504(a) of the Code, or the filing of any combined or
unitary tax return for state or local tax purposes, the Borrower's share of the
affiliated, combined or unitary group's Federal, state and local tax liability
(including any estimated tax payments) for such year (or portion thereof), as
determined in good faith by the common parent corporation and not disputed in
good faith by the Majority Lenders within 20 days after notice of the amount
thereof, together with sufficient information to support such determination, is
given to each Lender, to the extent not otherwise paid directly to the taxing
authorities by the Borrower.
"Total Cash" means, at any time, all amounts which the
Borrower and the Subsidiaries are required to report as the cash balances
(including any bank overdraft) on the Borrower's books and records in accordance
with GAAP, consistently applied, including, without limitation, all (i) cash,
(ii) cash equivalents, and (iii) Liquid Investments.
"Transactions" means the issuance of the Notes, the granting
of a security interest in the Collateral to the Lenders and the acquisition of
assets and assumption of liabilities by the Borrower pursuant to the License
Purchase Agreement.
1.1 Section Other Definitional Provisions . All definitions
contained in this Agreement are equally applicable to the singular and plural
forms of the terms defined. The words "hereof", "herein" and "hereunder" and
words of similar import referring to this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Unless otherwise
specified, all Article, Section, Exhibit and Schedule references pertain to
Articles, Sections, Exhibits and Schedules of this Agreement. All accounting
terms not specifically defined herein shall be construed in accordance with
GAAP, applied on a consistent basis. Terms used herein that are defined in the
Uniform Commercial Code as adopted by the State of New York, unless otherwise
defined herein, shall have the meanings specified in the Uniform Commercial Code
as adopted by the State of New York. All references herein to agreements or
promissory notes shall mean such agreements or notes as amended, restated,
supplemented or otherwise modified from time to time.
<PAGE>
2 ARTICLE AUTHORIZATION OF ISSUANCE OF SECURITIES
1.1 Section Authorization of the Notes . The Borrower has
authorized the issuance to the Lenders of the Notes, each to be dated the date
of this Agreement, to mature on their respective Maturity Dates, and to bear
interest at the respective rates specified therein.
2 ARTICLE CONDITIONS PRECEDENT TO EFFECTIVENESS
1.1 Section Lenders' Conditions to Effectiveness . The
provisions of this Agreement set forth in Section 4.1 shall not become effective
unless and until the Borrower shall have delivered the following documents, each
in the form attached hereto (in the case of documents the forms of which are
attached) and otherwise in form and substance satisfactory to each of the
Lenders and (unless otherwise indicated) each dated the date of this Agreement:
(a) to Prudential, the Notes payable to the order of
Prudential, duly executed by the Borrower in the respective principal amounts
set forth opposite such Lender's name on Schedule 3.1(a) hereto;
(c) to Principal, the Notes payable to the order of Principal,
duly executed by the Borrower in the respective principal amounts set forth
opposite such Lender's name on Schedule 3.1(b) hereto;
(e) to Pruco, the Notes payable to the order of Pruco, duly
executed by the Borrower in the respective principal amounts set forth opposite
such Lender's name on Schedule 3.1(c) hereto;
(g) to Contrarian, the Notes payable to the order of
Contrarian, duly executed by the Borrower in the respective principal amounts
set forth opposite such Lender's name on Schedule 3.1(d) hereto;
(i) a favorable opinion of counsel to the Borrower, addressed
to each of the Lenders, substantially in the form attached hereto as Schedule
3.1(e);
(k) copies of resolutions of the Board of Directors, certified
by the Secretary or Assistant Secretary of the Borrower as of the date of this
Agreement as having been duly adopted on or prior to such date and in full force
and effect on such date, authorizing (i) the execution, delivery and performance
of the Operative Documents, and (ii) specific officers to execute and deliver
this Agreement and the other Operative Documents;
(m) a certificate of the Secretary of State of Delaware, dated
as of a recent date prior to the date of this Agreement, with telegram updates
where available, showing that the Borrower is organized and in good standing
under the laws of Delaware;
(o) a copy of the certificate of incorporation of the Borrower
certified as of the date of this Agreement by the Secretary or Assistant
Secretary of the Borrower as true and correct as of the date of this Agreement,
and copies of the Borrower's by-laws, certified by the Secretary or Assistant
Secretary of the Borrower as true and correct, as of the date of this Agreement;
and
(q) certificates of the Secretary or an Assistant Secretary of
the Borrower as to the incumbency and signatures of the officers or
representatives of the Borrower executing any of the Operative Documents and any
other certificate or other document to be delivered pursuant thereto, together
with evidence of the incumbency of such Secretary or Assistant Secretary.
1.2 Section The Borrower's Condition to Effectiveness . The
provisions of this Agreement set forth in Section 4.1 shall not become effective
unless and until the conditions to the Borrower's obligations set forth in the
License Purchase Agreement shall have been satisfied or waived by the Borrower.
<PAGE>
1 ARTICLE ISSUANCE OF NOTES: CLOSING
1.1 Section Issuance of Notes . In consideration for the
rights and obligations under this Agreement and the other Operative Documents,
the Borrower hereby agrees to issue to each Lender (subject to the provisions of
Section 11.10) and, subject to the terms and conditions herein set forth, each
Lender agrees to accept from the Borrower:
(a) in the case of Prudential, the Notes in the form of one or
more Notes in respect of each series of Notes registered in such
Lender's name or that of its nominee or nominees, as such Lender shall
request, and in such denominations as such Lender shall request
(subject to the restrictions set forth in Section 11.10 hereof), in the
aggregate principal amount specified opposite such Lender's name in
Schedule 3.1(a) attached hereto;
(a) in the case of Principal, the Notes in the form of one or
more Notes in respect of each series of Notes registered in such
Lender's name or that of its nominee or nominees, as such Lender shall
request, and in such denominations as such Lender shall request
(subject to the restrictions set forth in Section 11.10 hereof), in the
aggregate principal amount specified opposite such Lender's name in
Schedule 3.1(b) attached hereto;
(a) in the case of Pruco, the Notes in the form of one or more
Notes in respect of each series of Notes registered in such Lender's
name or that of its nominee or nominees, as such Lender shall request,
and in such denominations as such Lender shall request (subject to the
restrictions set forth in Section 11.10 hereof), in the aggregate
principal amount specified opposite such Lender's name in Schedule
3.1(c) attached hereto; and
(a) in the case of Contrarian, the Notes in the form of one or
more Notes in respect of each series of Notes registered in such
Lender's name or that of its nominee or nominees, as such Lender shall
request, and in such denominations as such Lender shall request
(subject to the restrictions set forth in Section 11.10 hereof), in the
aggregate principal amount specified opposite such Lender's name in
Schedule 3.1(d) attached hereto.
1.1 Section Closing . The delivery of the Notes shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue,
New York, New York 10022 at a closing (the "Closing") on the date of this
Agreement. At the Closing, the Borrower will deliver to each Lender the Notes to
be issued to such Lender at the Closing as set forth opposite such Lender's name
in Schedules 3.1(a), 3.1(b), 3.1(c) and 3.1(d) upon satisfaction or waiver of
the conditions precedent set forth herein.
<PAGE>
1 ARTICLE NOTES
1.1 Section Interest on Notes . The Borrower shall pay
interest on the unpaid principal amount of each outstanding Note pursuant to the
terms of such Note.
(a) Section Mandatory Prepayments . The Borrower shall make
prepayments of principal for the Series 2 Notes equal to (i) $250,000 on
September 30, 1997, December 31, 1997, March 31, 1998, June 30, 1998, September
30, 1998 and December 31, 1998, (ii) $312,500 on March 31, 1999, June 30, 1999,
September 30, 1999 and December 31, 1999 and (iii) $375,000 on March 31, 2000
and on each June 30, September 30, December 31 and March 31 thereafter until the
earlier of maturity or repayment thereof in full. Any mandatory or voluntary
prepayments of the Notes shall be applied to reduce such prepayment obligations
in the inverse order of maturity for the Notes so affected.
(a) In the event that (i) the average daily amount of Total
Cash during the first fifteen Business Days in January of any year exceeds
$250,000, the Borrower, upon five Business Days' irrevocable prior written
notice given promptly following availability of sufficient financial information
to permit determination of whether such prepayment is required to be made, shall
apply an amount equal to 75% of such excess over $250,000 in prepayment of
principal of the Notes beginning with the Series 2 Notes.
(c) Any prepayments made pursuant to this Section 5.2 shall be
(i) made without premium and together with accrued but unpaid interest through
the date of prepayment on the amount being so prepaid, (ii) applied pro rata
among Notes of the same series, and (iii) subject to the escrow arrangements
specified in Section 5.5(b) hereof.
<PAGE>
(e)
1.2 Section Optional Prepayment . The Borrower shall have the
right, upon giving at least five Business Days' irrevocable prior written notice
to each affected Lender (which notice may be waived by each Lender on its own
behalf) specifying (i) the date of such prepayment, and (ii) the principal
amount of the outstanding Notes, and the Notes held by each such Lender being
prepaid, to voluntarily prepay the principal of the Notes then outstanding in
whole or in part, without premium or penalty Notice of prepayment having been
given as aforesaid, the principal amount of the outstanding Notes to the extent
specified in such notice, together with interest thereon to the prepayment date,
shall become due and payable on such prepayment date. Any prepayments made
pursuant to this Section 5.3 shall be (i) made without premium and together with
accrued but unpaid interest through the date of prepayment on the amount being
so prepaid, (ii) applied first to the Series 2 Notes, (iii) applied pro rata
among Notes of the same series, and (iv) subject to the escrow arrangements
specified in Section 5.5(b) hereof.
<PAGE>
1.3
1.1 Section Repayment at Maturity . On the Maturity Date of
each Note, the Borrower shall pay all remaining principal together with accrued
but unpaid interest due with respect to such Note.
(a) Section Certain Amounts Owed under the License Purchase
Agreement . Notwithstanding anything to the contrary contained herein, (i) all
payments, if any, required to be made by MFD under Section 10 of the License
Purchase Agreement shall be made by reducing, on a dollar for dollar basis (x)
first, all accrued and unpaid interest owed on the Series 1 Notes and (y)
second, all outstanding principal of the Series 1 Notes; provided, however, that
such right of reduction, or set-off, shall terminate on the date 18 months
following the date of this Agreement.
(c) In the event that voluntary prepayments of principal are
made on the Series 1 Notes during a period of time when the Borrower's set-off
rights with respect to such Notes shall remain in effect pursuant to this
Section 5.5, the amount of principal being so prepaid shall be deposited into
escrow with the Bank of New York, as escrow agent, pursuant to the Escrow
Agreement and shall be paid as provided in the Escrow Agreement either to the
Borrower in satisfaction of claims eligible for set-off or to the holders of
such Notes, as the case may be, at such times and amounts as appropriate to
reflect the termination or limitation as to amount of such set-off rights
pursuant to this Section 5.5.
(a) The Borrower's various rights of set-off under this
Section 5.5 are independent and the Borrower may in its sole discretion elect
whether to exercise its set-off right under Section 5.5(a) hereof, on the one
hand, or under Section 5.5(b) hereof, on the other hand.
1 ARTICLE ADDITIONAL TERMS OF THE NOTES
1.1 Section Security . The outstanding Notes and all other
Obligations of the Borrower arising under this Agreement and the other Operative
Documents shall be secured by all of the Collateral until the outstanding Notes
and all such other Obligations are paid in full.
1.1 Section Receipt of Payment . The Borrower shall make each
payment under any of the outstanding Notes not later than 1:00 P.M. (New York
City time) on the day when due in lawful money of the United States of America
by wire transfer of immediately available funds for credit to the account or
accounts specified by each Lender in Schedule 6.2 hereto, or such other account
or accounts in the United States as a Lender may designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. Each Lender agrees that, before disposing of any Note, it will
make a notation thereon (or on a schedule attached thereto) of all principal
payments previously made thereon and of the date through which interest thereon
has been paid. The Borrower agrees to afford the benefits of this Section 6.2 to
any transferee under Section 11.10 hereof of any of the outstanding Notes which
shall have made the same agreement in writing as the Lenders have made in this
Section 6.2. All payments made by the Borrower on the outstanding Notes (or any
series of outstanding Notes) shall be made ratably in proportion to the
respective outstanding principal amounts of such Notes (or such series of Notes)
held by each Lender in respect of which such payment is made or applied.
<PAGE>
1.1 Section Sharing of Payments, etc. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of Notes in excess of its ratable
share of payments based on the outstanding aggregate principal amounts of such
Lenders' Notes prior to such payment (after giving effect to any applicable
set-offs pursuant to Section 5.5) on account of Notes obtained by all Lenders,
such Lender shall forthwith purchase from each other Lender such participations
in such Notes as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each other Lender; provided, however, that if all or
any portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and each Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 6.3 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
1.1 Section Accounting . Each Lender may but shall not be
required to provide a quarterly accounting of transactions in respect of the
Notes owned by it to the Borrower. Each and every such accounting provided shall
(absent manifest error) be deemed final, binding and conclusive upon the
Borrower in all respects as to all matters reflected therein, unless the
Borrower, within 60 days after the date any such accounting is rendered and
delivered to the Borrower, shall notify such Lender in writing of any objection
which the Borrower may have to any such accounting, describing the basis for
such objection with specificity.
1.3 Section Access . Each Lender and any of their officers,
employees and, if authorized in writing by any Lender, any of their professional
consultants and/or agents shall have the right, exercisable as any Lender
reasonably determines to be appropriate, during normal business hours (or at
such other times as may reasonably be requested by any Lender), at its own
expense, to inspect the properties and facilities of the Borrower and each of
the Subsidiaries, and to inspect, audit and make copies of or extracts from all
of the Borrower's and each of the Subsidiaries' records, files and books of
account and to discuss the affairs, finances and accounts of any of such Persons
with the principal officers of the Borrower or its independent public
accountants (and by this provision the Borrower authorizes such accountants to
discuss with any director, officer, employee, agent or professional consultant
so designated the affairs, finances and accounts of the Borrower and its
Subsidiaries); provided, however, that such requests shall not unduly interrupt
the Borrower's ordinary business operations, and that expenses incurred by any
Lender in connection with any of the foregoing shall be borne by the Borrower
following the occurrence of an Event of Default. No inspection or investigation
by or on behalf of any Lender shall have any effect on, and such inspection or
investigation shall not be deemed a waiver in whole or in part of, any covenant
contained herein or any Event of Default hereunder and no Lender shall be deemed
to have any knowledge based solely thereon or on the existence of this provision
(it being understood, however, that the foregoing shall not be construed to
relieve any Lender of any actual knowledge which it may have, and that neither
the foregoing, nor any such actual knowledge, shall be construed to relieve the
Borrower or any Subsidiary from any obligation which it may have under this
Agreement or any Operative Document to provide notice to the Lenders).
1.5 Section Notes Deemed Outstanding . No Notes held by the
Borrower or any Subsidiary shall be deemed to be outstanding for any purpose
under this Agreement. The Borrower shall not, and shall not permit any
Subsidiary to, issue, sell, transfer, pledge, hypothecate, encumber or otherwise
dispose of any Notes, except pursuant to the terms of this Agreement.
<PAGE>
1 ARTICLE REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement, the
Borrower represents and warrants to the Lenders as of the date of this Agreement
as follows:
1.1 Section Existence and Authority . The Borrower is a
corporation duly organized and validly existing in good standing under the laws
of Delaware and has full power and authority to own its property, carry on its
business, and enter into and perform its obligations under the Operative
Documents. The Borrower has no Subsidiaries. The Operative Documents to which
the Borrower is a party have been duly authorized by all necessary corporate
action, executed, and delivered by the Borrower and constitute the legal, valid
and binding obligations of the Borrower, enforceable against the Borrower in
accordance with their terms and not subject to any defense based upon usury or
capacity of the Borrower, but subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting the
rights of creditors generally and to general principles of equity.
1.3 Section Regulation G, etc. The Borrower does not own or
has any present intention of acquiring any "margin stock" as defined in
Regulation G (12 CFR Part 207) of the Board of Governors of the Federal Reserve
System. Neither the Borrower nor any agent acting on its behalf has taken any
action which might cause this Agreement or the Notes to violate Regulation G,
Regulation J, Regulation T, Regulation U, Regulation X or any other regulation
of the Board of Governors of the Federal Reserve System or the Securities
Exchange Act of 1934, as amended, each as now in effect.
1.5 Section Status Under Certain Federal Statutes . The
Borrower is not (a) an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended, (b) a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or a "subsidiary company" of
a "holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended, (c) a "public utility" as such term is defined
in the Federal Power Act, as amended, (d) a "rail carrier or a person controlled
by or affiliated with a rail carrier", within the meaning of Title 49, U.S.C.,
or (e) a "carrier" to which 49 U.S.C. ss. 11301(b)(1) is applicable.
1.7 Section Offering of Securities . Neither the Borrower nor
any agent acting on its behalf has taken or will take any action which would
subject the issuance or sale of the Notes to the provisions of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act"), or to the provisions
of any securities or "blue sky" law of any applicable jurisdiction. In
connection with the foregoing, each Lender hereby represents and warrants to the
Borrower that the Notes to be issued to such Lender pursuant to this Agreement
are not being acquired by such Lender with a view to or for sale in connection
with any distribution thereof within the meaning of the Securities Act (it being
understood, however, that the disposition of such Lender's property shall at all
times be within such Lender's control).
1.9 Section Pro Forma Balance Sheet of the Borrower; No
Violations . Attached as Schedule 7.5 hereto is an unaudited pro forma balance
sheet of the Borrower which has been presented as if the transactions
contemplated by the License Purchase Agreement are consummated as of August 31,
1996 based on the assumptions that (i) various actual and estimated information
received from MFD accurately reflects the assets and liabilities to be
transferred to the Borrower at the closing under the License Purchase Agreement
and (ii) transaction costs payable by the Borrower in connection with such
transactions equal $300,000. The Borrower has engaged in no business and has no
material liabilities or obligations other than in connection with its
organization and the negotiation of this Agreement, the License Purchase
Agreement and related agreements. The Borrower has taken no action causing it to
be in breach of any agreement to which it is a party or immediately after the
Closing will succeed in interest or in violation of any law, in each case other
than any such defaults or violations to which the Borrower may have succeeded
under the License Purchase Agreement, including without limitation by reason of
any required governmental or third party consents or approvals to the transfer
of assets or liabilities thereunder not having been obtained.
<PAGE>
1 ARTICLE AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with the Lenders that the
Borrower will perform and observe the following affirmative covenants as long as
any of the Obligations are outstanding:
1.1 Section Financial Statements . The Borrower will deliver to each Lender:
(a) as soon as available and in any event not more than 60 and
not less than 30 days prior to the beginning of each calendar year, commencing
with calendar year 1997, projected consolidated balance sheet, and statements of
income and cash flows of the Borrower and the Subsidiaries for each month in
such calendar year, accompanied by a written statement of the assumptions used
in connection therewith, all in reasonable detail and in a form reasonably
satisfactory to the Majority Lenders;
(b) as soon as practicable and in any event not more than 30
days after the end of each month in each calendar year, a consolidated and
consolidating balance sheet of the Borrower and the Subsidiaries as at the end
of such month and the related consolidated and consolidating statement of income
and consolidated statement of cash flows of the Borrower and the Subsidiaries
for such month and the period from the beginning of the year through the end of
such month setting forth, in each case in comparative form, figures for the
corresponding periods in the preceding calendar year and figures for the
corresponding periods in the projected consolidated statements of income
previously furnished to the Lenders, as described in Section 8.1(a) above or
otherwise, all in reasonable detail and in a form reasonably acceptable to the
Majority Lenders and certified by the chief financial officer of the Borrower as
fairly presenting the consolidated and consolidating financial condition of the
Borrower and the Subsidiaries as at the date indicated and the consolidated and
consolidating results of their operations and consolidated cash flows for the
period indicated, in conformity with GAAP applied on a basis consistent with
prior periods (except as disclosed in the certificate of such chief financial
officer), subject to changes resulting from year-end adjustments;
(d) as soon as practicable and in any event not more than 90
days after the end of each calendar year, a consolidated and consolidating
balance sheet of the Borrower and the Subsidiaries as at the end of such year
and the related consolidated and consolidating statements of income and cash
flows of the Borrower and the Subsidiaries for such year, and setting forth, in
each case in comparative form, corresponding figures for the preceding calendar
year, all in reasonable detail and reasonably satisfactory in scope to the
Majority Lenders and (i) in the case of such consolidated financial statements,
accompanied by a report thereon of Deloitte & Touche or other independent public
accountants of recognized national standing selected by the Borrower and
acceptable to the Majority Lenders, which report shall state that such
consolidated financial statements present fairly the financial position of the
Borrower and the Subsidiaries as at the dates indicated and the consolidated
results of their operations and cash flows for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years (except as
otherwise specified in such report) and that the audit by such accountants in
connection with such consolidated financial statements has been made in
accordance with generally accepted auditing standards, and (ii) in the case of
such consolidating financial statements, certified by the chief financial
officer of the Borrower as presenting fairly the information contained therein
in conformity with GAAP applied on a basis consistent with prior periods (except
as otherwise specified in such report);
<PAGE>
(f) together with each delivery of financial statements of the
Borrower and the Subsidiaries pursuant to Sections 8.1(b) and (c) hereof, an
officer's certificate stating that the signer has reviewed the terms of this
Agreement and the Notes and the other Operative Documents and has made, or
caused to be made under his supervision, a review in reasonable detail of the
transactions and condition of the Borrower and the Subsidiaries during the
fiscal period covered by such financial statements and that such review has not
disclosed the existence during or at the end of such fiscal period, and that the
signer does not have knowledge of the existence as at the date of the officer's
certificate, of any condition or event which constitutes, or with the giving of
notice or lapse of time or both would constitute, an Event of Default or, if any
such event existed or exists, specifying the nature and period of existence
thereof and what action the Borrower has taken or is taking or proposes to take
with respect thereto;
(h) together with each delivery of financial statements of the
Borrower and the Subsidiaries pursuant to Section 8.1(c) hereof, a certificate
by the Borrower's independent public accountants stating (i) that their audit
examination has included a review of the terms of this Agreement and the Notes
and the other Operative Documents as they relate to accounting matters and that
such review is sufficient to enable them to make the statement referred to in
clause (iii) of this Section 8.1(e), (ii) whether, in the course of their audit
examination, there has been disclosed the existence during the calendar year
covered by such financial statements (and whether they have knowledge of the
existence as of the date of such accountants' certificate) of any condition or
event which constitutes, or with the giving of notice or lapse of time or both
would constitute, an Event of Default and if during their audit examination
there has been disclosed (or if they have knowledge of) such a condition or
event, specifying the nature and period of existence thereof (it being
understood, however, that such accountants shall not be liable to any Person by
reason of their failure to obtain knowledge of any such condition or event which
would not be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards), and (iii) that based on their annual
audit examination nothing came to their attention which causes them to believe
that the information contained in the officer's certificate delivered therewith
pursuant to Section 8.1(d) hereof is not correct or that the matters set forth
in such officer's certificate are not stated in accordance with the terms of
this Agreement;
(j) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or made
available generally by the Borrower and the Subsidiaries to its security holders
(other than the Borrower in the case of the Subsidiaries), of all regular and
periodic reports and all registration statements and prospectuses, if any, filed
by the Borrower or any of the Subsidiaries with any securities exchange or with
the Securities and Exchange Commission or with NASDAQ, and of all press releases
and other written statements made available generally by the Borrower or any of
the Subsidiaries to the public concerning material developments in the business
of the Borrower or any of the Subsidiaries;
(l) promptly upon receipt thereof by the Borrower or any
Subsidiary, copies of all reports submitted to the Borrower by independent
public accountants and consultants in connection with each annual, interim or
special audit of the Borrower or any of the Subsidiaries made by such
accountants and minutes of the proceedings of the audit committee of the Board
of Directors or of such committee of the board of directors of any Subsidiary;
<PAGE>
(n) promptly upon any officer of the Borrower obtaining
knowledge (i) that a condition or event exists that constitutes, or with the
giving of notice or lapse of time would constitute, an Event of Default, (ii)
that the holder of any Note has given any notice or taken any other action with
respect to a claimed Event of Default under this Agreement or any of the other
Operative Documents, (iii) of any condition or event which, individually or in
the aggregate, has or could reasonably be expected to have a material adverse
effect on the business, condition (financial or other), assets, properties or
operations of the Borrower and the Subsidiaries taken as a whole (other than
matters of a general economic or political nature which do not affect the
Borrower or the Subsidiaries uniquely), (iv) that any Person has given any
notice to the Borrower or any Subsidiary or taken any other action with respect
to a claimed event of default under any agreement or instrument to which the
Borrower or any Borrower is a party, (v) that any Person has given any notice of
cancellation to the Borrower or any Subsidiary relating to any contract
representing 5% or more of the Borrower's revenues during the most recently
completed fiscal year, or (vi) of the institution of any litigation involving
either claims against or potential liability of the Borrower or any Subsidiary
equal to or greater than $50,000 with respect to any single cause of action or
$100,000 in the aggregate, an officer's certificate specifying the nature and
period of existence of any such condition or event, or specifying the notice
given or action taken by such holder or Person and the nature of such claimed
event or condition that constitutes an Event of Default, and what action the
Borrower has taken, is taking or proposes to take with respect thereto;
(p) as soon as practicable and in any event within 15 days
after any officer of the Borrower obtains knowledge of the occurrence of any of
the following events which would result in a material liability to the Borrower:
(i) any event or condition which constitutes a "reportable event", as such term
is defined in section 4043 of ERISA, other than any such event for which the
PBGC has waived the requirement to notify it within 30 days, (ii) any
transaction which constitutes a "prohibited transaction", as such term is
defined in section 4975 of the Code and section 406 of ERISA, in connection with
any Plan or any trust created thereunder except to the extent that an
administrative or statutory exemption is available, (iii) any termination of any
Plan, or proceedings to terminate any Plan which are pending or threatened, or
(iv) any liability to or on account of a Plan under section 4062, 4063 or 4064
or ERISA which will or may be incurred by the Borrower, any Subsidiary or any
other Affiliate of the Borrower, a written notice specifying the nature thereof,
what action the Borrower has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the PBGC or the
Internal Revenue Service with respect thereto;
(r) as soon as practicable and in any event not later than
fifteen days after the last day of any calendar quarter beginning with December
31, 1996, a certificate of an authorized officer of the Borrower using the form
of officer's certificate attached as Exhibit D hereto certifying the amount of
Total Cash as of the last day of such quarter, and the amounts of Operating Cash
Flow generated and Capital Expenditures made during such quarter; and
(t) with reasonable promptness, such other information and
data with respect to the Borrower or any of the Subsidiaries as from time to
time may be reasonably requested by any Lender.
<PAGE>
1.3 Section Corporate Existence, etc. Except as otherwise
permitted pursuant to Section 9.6 hereof, the Borrower will at all times
preserve and keep in full force and effect its corporate existence and all
licenses, rights, franchises, permits, qualifications, consents and approvals
material to its business, and those of each of the Subsidiaries (provided that
the Subsidiaries shall be permitted to merge, consolidate, dissolve and
liquidate for so long as their assets are thereupon distributed to or otherwise
acquired by the Borrower or another Subsidiary) and will qualify, and cause each
of the Subsidiaries to qualify, to do business in any jurisdiction where the
failure to do so would, individually or in the aggregate, have or be reasonably
likely to have a material adverse effect on the business, condition (financial
or other), assets, properties or operations of the Borrower and the Subsidiaries
taken as a whole. Without limiting the foregoing, the Borrower will comply with
its obligations, and enforce the quality control standards under the License
Agreement and its other license agreements.
1.5 Section Payment of Taxes and Claims . The Borrower will,
and will cause each of the Subsidiaries to, pay all income taxes before the same
shall become delinquent, except where such income taxes are contested in good
faith by appropriate proceedings promptly instituted and diligently conducted,
if adequate reserves therefor have been established on the books of the Borrower
or the Subsidiaries in accordance with GAAP or except where the failure to pay
such income taxes involves amounts which, in the aggregate, are not significant
and such failure could not, individually or in the aggregate, have a material
adverse effect on the Borrower and the Subsidiaries taken as a whole. The
Borrower will, and will cause each of the Subsidiaries to, pay all other taxes,
assessments and other governmental charges imposed upon such Person or with
respect to its employees or any of its respective properties or assets or in
respect of any of its respective franchises, business, income or profits before
any penalty or interest accrues thereon, including, without limitation,
withholding taxes, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums which have become due and
payable and which by law have or may give rise to a Lien upon any of its
respective properties or assets; provided, however, that no such tax,
assessment, charge or claim need be paid (i) if it is being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if such accrual or other appropriate provision, if any, as shall be required
by GAAP shall have been made therefor or (ii) if such tax, assessment, claim or
charge involves amounts which, in the aggregate, are not significant and could
not, individually or in the aggregate, have a material adverse effect on the
Borrower and the Subsidiaries taken as a whole.
1.7 Section Compliance with Laws, etc. The Borrower will, and
will cause each of the Subsidiaries to, comply with the requirements of all
applicable laws, rules, regulations and orders of any Governmental Authority or
arbitrator, the noncompliance with which, individually or in the aggregate,
would or would be reasonably likely to materially adversely affect the business,
condition (financial or other), assets, properties or operations of the Borrower
and the Subsidiaries taken as a whole.
1.9 Section Maintenance of Properties; Insurance . The
Borrower will, to the extent reasonably prudent, maintain or cause to be
maintained in good repair, working order and condition all properties used or
useful in the business of the Borrower or any of the Subsidiaries and from time
to time, to the extent reasonably prudent, will make or cause to be made all
appropriate repairs, renewals, replacements or disposals thereof. Without
limiting the foregoing, the Borrower shall maintain such trademark and trade
name registrations which from time to time are material to its business. The
Borrower will, and will cause each Subsidiary to, maintain with financially
sound and reputable insurers, insurance with respect to such Person's respective
properties and business against loss or damage of the kinds customarily insured
against by corporations of established reputation engaged in the same or similar
business and similarly situated, of such types and in such amounts as are
customarily carried under similar circumstances by such other corporations and,
in any event, in compliance with any insurance requirements under any of the
Operative Documents and naming the Collateral Agent and the Lenders as an
additional insured, which shall provide that any amounts payable under the
Borrower's insurance policies shall be paid directly to the Borrower to be used
by the Borrower to repair and restore the property which was the subject of the
claim; provided that, for so long as an Event of Default has occurred and is
continuing any amounts payable under the Borrower's insurance policies shall be
paid directly to the Collateral Agent to be used by the Borrower to repair and
restore the property which was the subject of the claim. The Borrower will, and
will cause the Subsidiaries to, promptly defend any action, claim or demand
which may in any manner affect the Borrower's or any of the Subsidiaries' title
or interest in and to Collateral having a fair market value in excess of
$50,000.
<PAGE>
1.11 Section Affiliate Transactions, Keeping of Books, Bank
Accounts . The Borrower will, and will cause each of the Subsidiaries to, (a)
keep separate books of record and account, in which full and correct entries
shall be made of all transactions including any transactions between the
Borrower and any of the Subsidiaries or other Affiliates of the Borrower, all in
accordance with GAAP and (b) maintain bank accounts which are separate and
segregated from the bank accounts of any Affiliate of the Borrower.
1.13 Section Compliance with Affiliate Transactions . The
Borrower will, and will cause each of the Subsidiaries to, strictly enforce the
requirements of all provisions of, and diligently enforce, terminate or take
other appropriate action in the event of a default under, any contract relating
to a transaction with an Affiliate of the Borrower.
1.15 Section Security Interest in Newly Acquired Property . If
the Borrower or any of its Subsidiaries incorporated within the United States
shall at any time acquire any interest in property (personal or real, tangible
or intangible) not subject to Liens created under the Security Documents and
which does not constitute Collateral, promptly upon such acquisition the
Borrower or such Subsidiary shall execute, deliver and record a supplement to
the Security Documents, satisfactory in form and substance to the Majority
Lenders, subjecting such interests to the Lien created by the Security
Documents, and take such other actions as may be reasonably required by the
Majority Lenders to ensure that the security interest in such interest will be a
valid and effective security interest on terms comparable to the security
interest of the Lenders in the Collateral.
1.17 Section Environmental Reporting Requirements . The
Borrower shall, promptly (and in any event within 30 days) following an officer
or director of the Borrower learning of any of the following, advise the Lenders
in writing and reasonable detail of:
(a) any Remedial Action taken by the Borrower, its
Subsidiaries or any other Person in response to any Contaminant on or under any
real property owned, operated or leased by the Borrower or its Subsidiaries or
Affiliates, the existence of which could result in Environmental Liabilities and
Costs to the Borrower and its Subsidiaries in excess of $100,000;
(c) a Release or threatened Release which could reasonably be
expected to subject the Borrower and its Subsidiaries to Environmental
Liabilities and Costs of $100,000 or more;
(e) the receipt by the Borrower of notification that any real or personal
property of the Borrower or its Subsidiaries is subject to any Environmental
Lien;
(g) the receipt by the Borrower of any notice of violation of,
or knowledge by the Borrower that there exists a condition which may result in a
violation by the Borrower or its Subsidiaries of, any Environmental Law, except
for violations or conditions the consequences of which in the aggregate would
have no reasonable likelihood of subjecting the Borrower or its Subsidiaries to
Environmental Liabilities and Costs of $250,000 or more;
(i) any proposed acquisition of stock, assets or real estate,
or any proposed leasing of property, or any other action by the Borrower or its
Subsidiaries other than those the consequences of which in the aggregate have no
reasonable likelihood of subjecting the Borrower or its Subsidiaries to
Environmental Liabilities or Costs of $250,000 or more;
(k) any proposed Capital Expenditures of the Borrower or its
Subsidiaries intended or designed to implement any existing or additional
Remedial Action other than those which in the aggregate will not exceed
$250,000; and
<PAGE>
(m) any proposed action to be taken by the Borrower or its
Subsidiaries to commence operations that could reasonably be expected to subject
the Borrower or its Subsidiaries to additional laws, rules or regulations,
including laws, rules and regulations requiring additional or amended Permits,
except where compliance with these additional requirements would have no
reasonable likelihood of subjecting the Borrower or its Subsidiaries to
Environmental Liabilities and Costs in excess of $100,000.
(o) Section Environmental Reports, Remedial Action, Indemnity
. If Lenders at any time have a reasonable basis to believe that (i) there may
be a material violation of any Environmental Law by the Borrower or its
Subsidiaries or related to any real property owned, leased or operated by the
Borrower or its Subsidiaries or (ii) activities on real property adjacent to
such real property will have an adverse effect on real property owned, leased or
operated by the Borrower or its Subsidiaries which could subject the Borrower to
Environmental Liabilities and Costs in excess of $100,000, then the Borrower
agrees, upon request from the Lenders, to provide the Lenders, at the Borrower's
expense, with such reports, certificates, engineering studies or other written
material or data as the Lenders may reasonably require so as to reasonably
satisfy the Lenders that the Borrower and its Subsidiaries are in material
compliance with all applicable Environmental Laws.
(q) The Borrower and each of its Subsidiaries shall promptly
take any and all appropriate Remedial Action in response to the presence,
storage, use, disposal, transportation or discharge of any Contaminant on, under
or about any real property owned by the Borrower or any of its Subsidiaries and,
with respect to leased property or property operated but not owned, to the
extent failure to take Remedial Action could reasonably be expected to result in
Environmental Liabilities and Costs to the Borrower or its Subsidiaries of
$100,000 or more. In the event the Borrower or any of its Subsidiaries
undertakes any Remedial Action with respect to any Contaminant on, under or
about any real property owned, leased or operated by the Borrower or any of its
Subsidiaries, the Borrower or such Subsidiary shall conduct and complete such
Remedial Action in compliance with all applicable Environmental Laws, and in
accordance with the applicable and binding policies, orders and directives of
all federal, state and local Governmental Authorities except where the
Borrower's or such Subsidiary's liability for such presence, storage, use,
disposal, transportation or discharge of any Contaminant is being contested in
good faith by the Borrower or such Subsidiary and appropriate reserves therefor
have been established in accordance with GAAP.
(s) The Borrower shall indemnify, pay and hold each of the
Lenders harmless from and against any and all losses, costs (including
attorneys' fees), claims, liabilities, injuries, expenses and damages whatsoever
incurred by such Lender by reason of any violation of any applicable
Environmental Law for which the Borrower or any of its Subsidiaries is liable or
as a result of any real property being owned, leased or operated by the Borrower
or any of its Subsidiaries, or by reason of the imposition of any governmental
lien for the recovery of environmental cleanup or response costs expended by
reason of any such violation, or by reason of any breach of any representation,
warranty or affirmative or negative covenant in Sections 8.10, 8.11 or 9.15 of
this Agreement; provided, however, that the Borrower shall have no liability to
any of the Lenders for losses, costs (including attorneys' fees), claims,
liabilities, injuries, expenses and damages incurred by reason of any violation
by the party to be indemnified of any applicable Environmental Law as determined
by a court of competent jurisdiction.
1.19 Section Preparation of Financial Statements . The
Borrower will prepare the financial statements required to be delivered to the
Lenders pursuant to Section 8.1 hereof in a manner reasonably consistent with
past accounting practices as described in reasonable detail on Schedule 8.11
hereto, except as required by GAAP.
<PAGE>
1.21 Section Intellectual Property . The Borrower shall, and
shall cause each of the Subsidiaries to, do or cause to be done, all things
necessary to preserve and keep in full force and effect, its intellectual
property, except where the failure to so preserve any such intellectual property
(other than the Mrs. Fields trademark or trade name) would not and would not be
reasonably likely to materially adversely affect the business, condition
(financial or other), assets, properties or operations of the Borrower and the
Subsidiaries taken as a whole.
1.23 Section Collection Accounts. The Borrower shall deposit
and shall cause each of the Subsidiaries to deposit on the date of receipt
thereof or cause to be deposited directly all cash, checks, notes, drafts or
other similar items of payment, including, without limitation, those relating to
or constituting (w) net proceeds derived from the sale of any Collateral, (x)
payments made by the Borrower's account debtors in respect of accounts, (y)
payments received by the Borrower or any of the Subsidiaries from any licensees,
sublicensees or franchisees and (z) any other similar payments in one of the
Collection Accounts, in each case subject to the Blocked Account Letter
Agreements with the banks in which the Collection Accounts are maintained. Upon
the occurrence and during the continuation of an Event of Default, all amounts
deposited in the Collection Accounts may immediately be transferred to the
Collateral Agent's Account and may be applied by the Collateral Agent to the
outstanding balance of the Obligations in accordance with the Collateral Agency
Agreement.
1 ARTICLE NEGATIVE COVENANTS
The Borrower covenants and agrees with the Lenders that the
Borrower will perform and observe the following negative covenants as long as
any of the Obligations are outstanding:
1.1 Section Restricted Payments and Restrictions on
Investments . The Borrower will not, directly or indirectly, declare, order,
pay, make or set apart any sum or property for any Restricted Payment, or make
or become obligated to make any investment in any Person, through the direct or
indirect holding of securities or otherwise, except if no default or Event of
Default has occurred and is continuing for amounts paid by the Borrower in
respect of Common Stock, or options to acquire Common Stock, held by management
employees of the Borrower in an aggregate amount not in excess of $25,000 per
year and except as permitted pursuant to Section 9.4 hereof.
1.1 Section Liens . The Borrower will not, and will not permit
any Subsidiary to, create, assume or suffer to exist any Lien upon any of such
Person's respective property or assets having an aggregate fair market value in
excess of $25,000, whether now owned or hereafter acquired, except:
(a) Liens for taxes not yet due or which are being actively
contested in good faith by appropriate proceedings and for which adequate
reserves have been established in accordance with GAAP;
(c) other Liens incidental to the conduct of the Borrower's or
any Subsidiary's business or the ownership of its property and assets which were
not incurred in connection with the borrowing of money or the obtaining of
advances or credit, and which do not secure any appeal bond or judgment, and
which do not in the aggregate materially detract from the value of the
Borrower's or any Subsidiary's property or assets taken as a whole or materially
impair the use of such property or assets in the operation of the Borrower's or
any Subsidiary's business taken as a whole;
<PAGE>
(e) Liens existing on the property or assets of the Borrower
or any Subsidiary on the date of this Agreement and Liens in favor of the
Lenders pursuant to the Operative Documents;
(g) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law and created
or otherwise occurring in the ordinary course of the Borrower's business, but
only to the extent that the amounts secured by such Liens either (i) are not yet
past due, (ii) do not exceed an aggregate amount equal to $25,000, or (iii) are
being actively contested in good faith by appropriate proceedings and for which
adequate reserves have been established in accordance with GAAP;
(i) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of the Borrower's business (including,
without limitation, surety bonds) in connection with workers compensation,
unemployment insurance and other types of social security benefits or to secure
the performance of tenders, bids, leases, contracts (other than for the
repayment of borrowed money or other Indebtedness), statutory obligations and
other similar obligations; and
(k) Liens created pursuant to the filing of any financing
statement under the Uniform Commercial Code as in effect in any jurisdiction
with respect to a lease which is permitted under the terms of this Agreement;
(m) provided, however, that the Borrower will not, and will not permit any
Subsidiary to, create, assume or suffer to exist any Lien upon any of such
Person's intellectual property, except pursuant the License Agreement and except
that the Borrower or any of the Subsidiaries may license or franchise any of
such intellectual property.
1.3 Section Indebtedness . The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or suffer to exist any
Indebtedness of the Borrower or any Subsidiary, except:
(a) Indebtedness of the Borrower represented by the Notes;
(c) Indebtedness of the Borrower or any Subsidiary in respect of
appeal bonds, but not to exceed $50,000 in the aggregate;
(e) Indebtedness incurred in the ordinary course of the
Borrower's or any Subsidiary's business in connection with insurance, workers'
compensation and other types of social security benefits, or to guarantee
performance of tenders, bids, contracts (other than for the repayment of
borrowed money or other Indebtedness), statutory obligations or other similar
obligations;
(g) Subordinated Indebtedness; and
(i) Indebtedness of the Borrower to the Store Company as
contemplated by the License Agreement and Indebtedness of the Borrower to the
Store Company in respect of transaction costs relating to the transactions
contemplated by the License Purchase Agreement which are paid by the Store
Company on behalf of the Borrower and subject to reimbursement by the Borrower.
<PAGE>
1.5 Section Loans, Advances, Investments and Contingent
Liabilities . Except as permitted pursuant to Sections 8.2 and 9.6 hereof, the
Borrower will not, and will not permit any Subsidiary to, make or permit to
remain outstanding any loan or advance to, or extend credit to, or guarantee,
endorse or otherwise be or become contingently liable, directly or indirectly,
in connection with the obligations, stock or dividends of, or own, purchase or
otherwise acquire any assets, stock, obligations or securities of, or any other
interest in, or make any capital contribution to, any Person, or become a
general or limited partner in any partnership, or a participant in any joint
venture, except that the Borrower or any Subsidiary may:
(i) purchase or otherwise acquire and own personal
property or lease real or personal property to be used in the
ordinary course of its business;
(i) purchase or otherwise acquire and own marketable
direct obligations issued or unconditionally guaranteed by the
United States of America or any agency thereof and maturing
within one year from the date of acquisition thereof;
(i) purchase or otherwise acquire and own marketable
direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year after
the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable
from either Standard & Poor's Corporation or Moody's Investors
Service, Inc. and not listed (except with positive
implications) in Credit Watch or any successor publication
published by Standard & Poor's Corporation;
(i) make demand deposits in banks in the ordinary
course of business (not for investment purposes), and make
deposits or own certificates of deposit maturing within one
year from the date of acquisition thereof issued by commercial
banks having as at any date of determination combined capital
and surplus of not less than $100,000,000 (determined in
accordance with GAAP) and a long-term bank deposit rating of
P-1 or better by Moody's Investors Service, Inc. (or a
comparable rating if the rating system is changed);
(i) purchase or otherwise acquire and own commercial
paper maturing no more than 270 days from the date of
acquisition thereof and having as at any date of determination
one of the two highest ratings obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc.;
<PAGE>
(i) enter into written investment or repurchase
agreements having a term of one month or less and an aggregate
principal value not greater than $500,000 with any financial
institution owned by a holding company whose senior debt
obligations have a rating of at least "AA" by Standard &
Poor's Corporation or "Aa2" by Moody's Investors Service,
Inc., which investment agreements or repurchase agreements
require the Borrower or a Subsidiary (as the case may be) to
deliver, against the transfer of funds, securities that are
direct obligations of, or that are fully guaranteed as to
principal and interest by, the United States or any agency
thereof; provided that (A) in the case of certificated
securities, the Borrower or such Subsidiary (as the case may
be) or a third party acting as collateral agent therefor, has
possession of such securities, issued or registered in the
name of the Borrower or such Subsidiary, (B) in the case of
uncertificated securities, (x) such securities are pledged by
such bank to a member bank ("Member Bank") of the Federal
Reserve System, as agent for or trustee on behalf of the
Borrower or such Subsidiary (as the case may be), which Member
Bank has been duly authorized by the Borrower or such
Subsidiary (as the case may be) to act in such capacity and
(y) both such Member Bank and the appropriate Federal Reserve
Bank make an entry in their respective records that such
securities are so pledged, (C) the Borrower or such Subsidiary
(as the case may be) has a perfected first priority security
interest in such securities (whether in certificated or
uncertificated form) free and clear of liens and claims of
third parties and (D) such written investment agreements or
repurchase agreements provide the contractual right to
liquidate, without notice, the underlying securities upon the
commencement of voluntary or involuntary insolvency,
reorganization or receivership proceedings concerning, or a
moratorium affecting the obligations of, such bank;
(i) purchase or otherwise acquire ownership interests
in a fund sponsored by a financial institution listed on
Schedule 9.4(vii) hereto or approved in writing by the
Majority Lenders, provided that all or substantially all of
the assets of such fund are invested in Liquid Investments;
(i) endorse negotiable instruments for collection in the
ordinary course of business;
(i) make intercompany operating loans, advances and
guaranties among the Borrower and its Subsidiaries; provided,
that the aggregate outstanding amount of all such loans to
Subsidiaries as to which the Borrower and/or another
Subsidiary do not own 100% of the outstanding capital stock
may not at any time exceed $100,000; and
(i) acquire capital stock of a new Subsidiary in
connection with the formation thereof, provided that such
stock is pledged to the Lenders pursuant to the Stock Pledge
Agreement.
1.1 Section Issuance of Capital Stock . The Borrower will not
permit any Subsidiary to, without the consent of the Majority Lenders (such
consent not to be unreasonably withheld), issue any shares of capital stock
except for capital stock issued to the Borrower or other Subsidiaries, in each
case for so long as each of the following conditions are satisfied: (x) the
issued stock is subject to the Lien of, and matters related to such stock are in
compliance with the provisions of, the Stock Pledge Agreement, with the priority
of Lien specified therein and (y) such capital stock shall be fully paid and
non-assessable.
<PAGE>
1.3 Section Merger and Sale of Assets . The Borrower will not
merge or consolidate with any other Person (except a wholly-owned Subsidiary of
the Borrower may merge into the Borrower) and will not permit any Subsidiary to
merge or consolidate with any other Person (other than the Borrower or another
Subsidiary). The Borrower will not, and will not permit any Subsidiary to, sell,
lease or transfer or otherwise dispose of, or part with control of, any assets,
including, without limitation, any shares of stock of any Subsidiary or
Indebtedness owed by any Subsidiary, to any Person or Persons, other than (i)
any franchising and/or licensing arrangement with respect to any such assets,
(ii) dispositions of worn-out and obsolete equipment in the ordinary course of
business, and (iii) any dissolution or liquidation of a Subsidiary in compliance
with Section 8.2 hereof.
1.5 Section Sale and Leaseback Transactions . The Borrower
will not, and will not permit any Subsidiary to, enter into or become or be
liable as lessee or as guarantor with respect to any lease of any property, real
or personal, whether now owned or hereafter acquired by the Borrower or any
Subsidiary, which has been or is to be sold or transferred by the Borrower or
any Subsidiary to any Person other than the Borrower or any Subsidiary and
having a term (including all renewal terms, whether or not exercised) of more
than 36 months from the date of inception of such lease.
1.7 Section Certain Contracts . The Borrower will not, and
will not permit any Subsidiary to, enter into or be a party to:
(a) any contract for the purchase of materials, supplies or
other property or services if such contract (or any related document) requires
that payment for such materials, supplies or other property or services shall be
made regardless of whether or not delivery of such materials, supplies or other
property or services is ever made or tendered, other than contracts which in the
aggregate would not obligate the Borrower and the Subsidiaries to make payments
in excess of $100,000 in any calendar year;
(c) any contract to rent or lease (as lessee) any real or
personal property if such contract (or any related document) provides that the
obligation to make payments thereunder is absolute and unconditional under
conditions not customarily found in commercial leases then in general use or
requires that the lessee purchase or otherwise acquire securities or obligations
of the lessor; or
(e) any contract for the sale or use of materials, supplies or
other property, or the rendering of services, if such contract (or any related
document) requires that payment to the Borrower or any Subsidiary for such
materials, supplies or other property, or the use thereof, or payment for such
services, shall be subordinated to any Indebtedness (of the purchaser or user of
such materials, supplies or other property or the Person entitled to the benefit
of such services) owed or to be owed to any Person.
1.9 Section Agreements by Subsidiaries . The Borrower shall
not permit any of the Subsidiaries to enter into any agreement which restricts
the ability of any of the Subsidiaries to pay or declare any dividend
distribution or other distribution on account of or with respect to any shares
of capital stock or other equity interests in any of the Subsidiaries.
1.11 Section Compliance with ERISA . The Borrower will not,
and will not permit any Subsidiary or ERISA Affiliate of the Borrower to:
<PAGE>
(a) engage in any transaction in connection with which the
Borrower, any Subsidiary or any other ERISA Affiliate of the Borrower could be
subject to either a civil penalty assessed pursuant to section 502(i) of ERISA
or a tax imposed by section 4975 of the Code, terminate or withdraw from any
Plan (other than a Multiemployer Plan) in a manner, or take any other action
with respect to any such Plan (including, without limitation, a substantial
cessation of operations within the meaning of section 4062(e) of ERISA or an
amendment of a Plan within the meaning of section 4041(e) of ERISA), which could
result in any liability of the Borrower, any Subsidiary or any such ERISA
Affiliate to the PBGC, to a Plan or to a trustee appointed under section 4042(b)
or (c) of ERISA, incur any liability to the PBGC or a Plan on account of a
withdrawal from or a termination of a Plan under section 4063 or 4064 of ERISA,
incur any liability in respect of employees or former employees of the Borrower,
any Subsidiary or any such ERISA Affiliate for post-employment welfare benefits
(other than as required by law), fail to make full payment when due of all
amounts which, under the provisions of any Plan or applicable law, the Borrower,
any Subsidiary or any such ERISA Affiliate is required to pay as contributions
thereto, or permit to exist any accumulated funding deficiency, whether or not
waived, with respect to any Plan (other than a Multiemployer Plan), if, in any
such case, such penalty or tax or such liability, or the failure to make such
payment, or the existence of such deficiency, as the case may be, could
reasonably be expected to result in a liability of the Borrower, any Subsidiary
or any such ERISA Affiliate in excess of $500,000 in the aggregate;
(c) at any time permit the present value of all benefit
liabilities under all Plans subject to Title IV of ERISA maintained at such time
by the Borrower or any of the Subsidiaries or any such ERISA Affiliate (other
than Multiemployer Plans) to exceed the current value of the assets of all such
Plans allocable to such benefit liabilities by more than $500,000;
(e) permit the aggregate complete or partial withdrawal
liability under Title IV of ERISA with respect to Multiemployer Plans incurred
by the Borrower or the Subsidiaries or any such ERISA Affiliate to exceed
$500,000; or
(g) permit the sum of (i) the amount by which the present
value of all benefit liabilities referred to in Section 9.10(b) hereof exceeds
the current value of the assets referred to in such Section 9.10(b) and (ii) the
amount of the aggregate incurred withdrawal liability referred to in Section
9.10(c) hereof to exceed $500,000.
(i) For the purposes of Sections 9.10(c) and 9.10(d) hereof,
the amount of the withdrawal liability of the Borrower and the Subsidiaries and
such ERISA Affiliates at any date shall be the aggregate present value of the
amount claimed to have been incurred less any portion thereof as to which the
Borrower reasonably believes, after appropriate consideration of possible
adjustments arising under sections 4219 and 4221 of ERISA, it and the
Subsidiaries and such ERISA Affiliates will have no liability, provided that the
Borrower shall obtain prompt written advice from independent actuarial
consultants supporting such determination. The Borrower agrees that at the
request of any Lender it will (i) once in each calendar year request and obtain
a current statement of withdrawal liability from each Multiemployer Plan and
(ii) transmit a copy of such statement to each Lender, within 21 days after the
Borrower receives the same. As used in this Section 9.10, the term "accumulated
funding deficiency" has the meaning specified in section 302 of ERISA and
section 412 of the Code, the terms "present value" and "current value" have the
meanings specified in section 3 of ERISA and the term "benefit liabilities" has
the meaning specified in section 4001(a)(16) of ERISA.
<PAGE>
1.13 Section Transactions with Affiliates . The Borrower will
not, and will not permit any Subsidiary to, directly or indirectly, engage in
any transaction (including, without limitation, the purchase, sale, or exchange
of assets or the rendering of any service) with any (x) Affiliate of the
Borrower or (y) holder of the Notes or any Affiliate of any such holder (other
than a wholly-owned Subsidiary of the Borrower), except for transactions in the
ordinary course of business of the Borrower or any of the Subsidiaries, as the
case may be, and at arms' length and for fair value, and except for transactions
under the License Agreement and transaction costs relating to the transactions
contemplated by the License Purchase Agreement which are paid by the Store
Company on behalf of the Borrower and subject to reimbursement by the Borrower.
The Borrower agrees to provide each holder of the Notes with reasonably detailed
notice of each such Affiliate transaction involving consideration in excess of
$25,000 between the Borrower or any of its Subsidiaries, on the one hand, and
(x) any Affiliate of the Borrower (other than any wholly-owned Subsidiary of the
Borrower) or (y) any holder of the Notes, or any Affiliate of such holder, on
the other hand.
1.15 Section Vendor Payments . The Borrower will not, and will
not permit the Subsidiaries to, make payments to its or their vendors, as the
case may be, other than in accordance with the normal and customary payment
terms for such vendors.
1.17 Section Operating Cash Flow . The Borrower will not
permit Operating Cash Flow (a) for the fiscal quarter ending on the first date
set forth below, for the two consecutive fiscal quarters ending on the second
date set forth below, for the three consecutive fiscal quarters ending on the
third date set forth below, or for the four consecutive fiscal quarters ending
on the fourth, fifth, sixth, seventh or eighth dates set forth below, to be less
than the respective amounts set forth opposite such dates below or (b) for the
four consecutive fiscal quarters ending on March 31, 1999 or on any June 30,
September 30, December 31 or March 31 thereafter to be less than 102% of the
amount of Operating Cash Flow required pursuant to this Section 9.13 with
respect to the period ending on the last day of the immediately preceding fiscal
quarter:
<TABLE>
<CAPTION>
<S> <C>
Periods Ending on Amount of
the Following Dates: Operating Cash Flow
March 31, 1997 $ 206,000
June 30, 1997 $ 975,000
September 30, 1997 $ 1,181,000
December 31, 1997 $ 1,950,000
March 31, 1998 $ 2,100,000
June 30, 1998 $ 2,320,000
September 30, 1998 $ 2,340,000
December 31, 1998 $ 2,560,000
</TABLE>
<PAGE>
. The Borrower will not, and will not permit the Subsidiaries to, make Capital
Expenditures that, in the aggregate, exceed $15,000 for the period from the date
of this Agreement through December 31, 1996 and $50,000 for each fiscal year
ending December 31 thereafter, in each case increased by an amount not to exceed
$200,000 equal to 50% of the amount if any by which Operating Cash Flow for the
most recently ended period specified in Section 9.13 hereof exceeded an amount
equal to the minimum Operating Cash Flow indicated for such period times 125%;
provided, however, that (i) in the event that the Borrower and the Subsidiaries
expend less in connection with Capital Expenditures than the amount set forth
above with respect to any calendar year, the amount of Capital Expenditures
permitted to be made during the next succeeding calendar year shall be increased
by such unexpended amount and (ii) upon the occurrence and during the
continuation of an Event of Default, no Capital Expenditures shall be permitted
except such Capital Expenditures which the Borrower is contractually committed
to make at the time of the occurrence of such Event of Default.
1.1 Section Transfer of Intellectual Property . The Borrower
will not, and will not permit any Subsidiary to, sell, transfer, pledge,
hypothecate, grant a security interest, right, license or franchise in, grant a
Lien over, grant an option in respect of, or exchange, intellectual property or
any portion thereof, except pursuant to the Security Agreement and franchising
or licensing arrangements.
1.3 Section Compliance with Environmental Laws . The Borrower
will not, and will not permit any of its Subsidiaries or tenants to: (i) violate
any applicable Environmental Law other than those Environmental Laws the
noncompliance with which could not, individually or in the aggregate, have a
reasonable likelihood of subjecting the Borrower to Environmental Liabilities
and Costs of $250,000 or more; (ii) dispose of any Contaminant into, onto or
from (except in accordance with applicable laws) any real property owned, leased
or operated by the Borrower or any of its Subsidiaries; or (iii) except to the
extent being actively opposed in good faith by appropriate proceedings and for
which adequate reserves have been established in accordance with GAAP, permit
any Environmental Lien to be imposed or to remain on any real property owned by
the Borrower or any of its Subsidiaries.
1.5 Section Amendments and Modifications to Operative
Documents . The Borrower shall not enter into any amendment, modification or
supplement of, or any waiver or consent under, any Operative Document (other
than this Agreement and the Notes).
1.1 Section Changes in Business . The Borrower shall not, and
shall not permit the Subsidiaries to, (i) enter into any business which is
substantially different from that conducted by the Borrower and the Subsidiaries
or (ii) cease to conduct the business carried on by the Borrower and the
Subsidiaries, in each case as of the date of this Agreement and after giving
effect to the Transactions; provided that this Section shall not prohibit any
transaction otherwise permitted under Section 8.2 or 9.6 hereof.
1.3 Section Amendment of Certificate of Incorporation . The
Borrower will not amend or modify its certificate of incorporation or by-laws
other than to authorize the issuance of any additional classes or shares of
capital stock.
1.5 Section Amendment of License Agreement . The Borrower will
not enter into any amendment, modification or supplement of or to, or any waiver
or consent under, the License Agreement, and will at all times maintain the
License Agreement in full force and effect in accordance with its terms.
1.7 Section Change in Fiscal Year . The Borrower will not
change its fiscal year.
1.9 Section General and Administrative Expenses; Annual Budget
. The Borrower will not spend and will prevent the Subsidiaries from spending in
any calendar year an aggregate amount in excess of 30% of the revenues earned by
the Borrower and the Subsidiaries for such calendar year for all expenses
(including any and all amounts paid under the management services agreements
under the License Agreement), other than taxes, interest expense, depreciation
and amortization of good will, and $300,000 in expenses incurred by the Borrower
in connection with the transactions contemplated by the License Purchase
Agreement. The Borrower will not make and will prevent any Subsidiary from
making any expenditures in excess of the amounts provided for in the annual
budget contemplated by the License Agreement or as set forth in any successor
management services agreement.
1.11 Section Management Services . In the event that notice
shall be given by either party thereto to terminate the management services
agreements under the License Agreement, the Borrower shall, not later than 45
days prior to the effective date of such termination, enter into a new
management services agreement in form and substance reasonably satisfactory to
the Majority Lenders.
<PAGE>
1 ARTICLE EVENTS OF DEFAULT
1.1 Section Events of Default . Following the occurrence and
during the continuance thereof, each of the following shall be deemed an "Event
of Default":
(a) the Borrower shall fail to make any payment of principal
of, or interest on or any other amount owing in respect of the Notes or
any of the other Obligations when due and payable or declared due and
payable and, in the case of such interest or other amounts only, such
failure to pay continues for a period of five days;
(a) the Borrower shall fail or neglect to perform, observe or
comply with any of the provisions of Sections 8.5 (to the extent
relating to insurance), 8.6(b) or 8.7, or Article 9 of this Agreement,
Sections 5(g), 5(j) or 5(n) of the Security Agreement, or Section 7(a)
of the Stock Pledge Agreement;
(a) the Borrower shall fail or neglect to perform, observe, or
comply with any of the provisions of this Agreement or of any of the
other Operative Documents (other than those referred to in Sections
10.1(a) and 10.1(b) hereof, and the same shall remain unremedied for a
period ending on the first to occur of thirty days after (x) the
Collateral Agent or any Lender gives written notice to the Borrower of
such failure or (y) any executive officer of the Borrower or any
Subsidiary shall actually become aware thereof;
(a) a default shall occur under any other agreement, document
or instrument to which the Borrower or any Subsidiary is a party or by
which the Borrower, any such Subsidiary or the Borrower's or any such
Subsidiary's property is bound, and such default (i) involves the
failure to make any payment (whether of principal, interest or
otherwise) due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise and after giving effect to any
applicable grace or cure period) in respect of any Indebtedness for
borrowed money or Guaranteed Indebtedness with respect to borrowed
money of the Borrower or any such Subsidiary greater than $25,000, or
(ii) causes (or permits any holder of such Indebtedness or a trustee to
cause) such Indebtedness (other than Indebtedness under real property
leases) or a portion thereof in an aggregate amount exceeding $25,000,
or Indebtedness under real property leases or a portion thereof in an
aggregate amount exceeding $50,000 to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment;
(a) any representation or warranty in this Agreement or in any
other Operative Document or any statement made pursuant thereto or this
Agreement or delivered to any Lender by the Borrower or any Subsidiary
pursuant thereto or hereto shall be untrue or incorrect in any material
respect, as of the date when made or deemed made;
<PAGE>
(a) any of the assets of the Borrower or any Subsidiary, other
than assets which are not material to the business, operations, assets,
financial or other condition of the Borrower and the Subsidiaries taken
as a whole, shall be attached, seized, levied upon or subjected to a
writ or distress warrant, or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors
of any such Person and shall remain unstayed or undismissed for sixty
consecutive days; or the Borrower or any Subsidiary shall have
concealed, removed or permitted to be concealed or removed, any part of
its property, with intent to hinder, delay or defraud its creditors or
any of them or made or suffered a transfer of any of its property or
the incurring of an obligation which may be fraudulent under any
bankruptcy, fraudulent conveyance or other similar law;
(a) a case or proceeding shall have been commenced against the
Borrower or any Subsidiary in a court having competent jurisdiction
seeking a decree or order in respect of such Person (i) under the
Bankruptcy Code, or any other applicable federal, state or foreign
bankruptcy or other similar law, (ii) appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of
such Person or of any substantial part of its or their properties, or
(iii) ordering the winding-up or liquidation or dissolution of the
affairs of such Person and such case or proceeding shall remain
undismissed or unstayed for sixty (60) consecutive days or such court
shall enter a decree or order granting the relief sought in such case
or proceeding;
(a) the Borrower or any Subsidiary shall (i) file a petition
seeking relief under the Bankruptcy Code, or any other applicable
federal, state or foreign bankruptcy or other similar law, (ii) consent
to the institution of proceedings thereunder or to the filing of any
such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or
similar official) of such Person or of any substantial part of its
properties, (iii) fail generally to pay its debts as such debts become
due or admit in writing its inability to pay such debts generally as
they become due, (iv) have made an assignment for the benefit of
creditors or (v) take any corporate or other similar action to
authorize or approve any of the foregoing;
(a) any provision of any Operative Document, shall for any
reason cease to be valid or enforceable in accordance with its terms,
or any security interest created under any Operative Document shall
cease to be a valid and perfected first priority security interest or
Lien (except as otherwise stated therein) in any of the Collateral
purported to be covered thereby and such cessation shall not be
remedied within thirty days after the occurrence thereof, except for
such cessation which would not materially and adversely affect the
Lenders' rights and remedies under the Operative Documents or the
Lenders' security interest or Lien in the Collateral taken as a whole;
or
(a) a judgment in an amount in excess of $50,000 is rendered
against the Borrower or any Subsidiary and, within sixty days after the
entry thereof, such judgment is not discharged or execution thereof
stayed pending appeal, or within sixty days after the expiration of any
such stay, such judgment is not discharged.
<PAGE>
1.1 Section Remedies . If any Event of Default specified in
Section 10.1 hereof shall have occurred and be continuing, the Majority Lenders
may declare all Notes to be forthwith due and payable, whereupon all such Notes
shall become and be due and payable, without presentment, demand, protest or
further notice of any kind, all of which are expressly waived by the Borrower;
provided, however, that, upon the occurrence of an Event of Default specified in
Section 10.1(f), (g) or (h) hereof, such Notes shall automatically become due
and payable, without declaration, notice or demand by any Lender.
1.3 Section Other Remedies . If any Event of Default shall
occur and be continuing, any Lender may proceed to protect and enforce its
rights under this Agreement and any Note by exercising such remedies as are
available to such Lender in respect thereof under applicable law, either by suit
in equity or by action at law, or both, whether for specific performance of any
covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon any Lender is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereafter existing at law or in equity
or by statute or otherwise.
1 ARTICLE MISCELLANEOUS
1.1 Section Performance Due Other Than on a Business Day . If
any performance (including, without limitation, any payment) shall be due
hereunder on a day that is not a Business Day, then such shall, for all purposes
hereunder, be deemed due on the Business Day next following the day otherwise
due.
1.1 Section Successors and Assigns . This Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective heirs, legal representatives, successors, and assigns, including,
without limitation, any transferee of any of the Notes under Section 11.10
hereof, provided that the Borrower may not assign any rights or obligations
under this Agreement without the prior written consent of all of the Lenders.
This Agreement shall also inure to the benefit of the Collateral Agent and its
successors in such capacity.
1.3 Section Governing Law . THIS AGREEMENT AND THE NOTES SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK. COURTS WITHIN THE STATE OF NEW YORK SHALL, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, HAVE NON-EXCLUSIVE JURISDICTION OVER ANY AND ALL DISPUTES
ARISING UNDER OR PERTAINING TO THIS AGREEMENT AND THE NOTES; IN ANY AND ALL SUCH
DISPUTES, THE BORROWER, FOR ITSELF AND ON BEHALF OF EACH SUBSIDIARY, HEREBY
IRREVOCABLY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ALL UNITED STATES
FEDERAL AND NEW YORK STATE COURTS WITHIN THE STATE OF NEW YORK AND TO THE
SERVICE OF PROCESS OF ANY OF THE AFORESAID COURTS BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS
ADDRESS PROVIDED HEREIN; AND VENUE IN ANY SUCH DISPUTE SHALL, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, BE PROPER IN NEW YORK COUNTY OR THE SOUTHERN
DISTRICT OF NEW YORK.
<PAGE>
1.5 Section Notices . All notices and other communications
provided for in this Agreement shall be given or made by telecopy, first class
mail, overnight delivery, or personal delivery to the intended recipient at the
address specified herein or, as to any party, at such other address as shall be
designated by such party in a notice to each other party given in accordance
with this Section 11.4. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telecopy, subject to telephone confirmation of receipt and the provision
immediately thereafter of a copy by first class mail, overnight delivery, or
personal delivery or, in the case of a mailed notice, when duly deposited in the
U.S. mails, first class postage prepaid, in each case given or addressed as
follows:
If to the Borrower,
The Mrs. Fields' Brand, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attn: Herbert S. Winokur, Jr.
Telephone: (203) 861-6600
Fax: (203) 861-6671,
With a copy to
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: Randall Doud
Telephone: (212) 735-2524
Fax: (212) 735-2000
If to Prudential,
The Prudential Insurance Company of America
c/o Prudential Financial Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Fax: (201) 802-7045
If to Principal,
Investment Securities Department
The Principal Financial Group
711 High Street
Des Moines, Iowa 50392-0800
Attn: Mark P. Denkinger
Telephone: (515) 248-8016
Fax: (515) 248-2490
<PAGE>
If to Pruco,
Pruco Life Insurance Company
c/o Prudential Financial Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Fax: (201) 802-7045
If to Contrarian,
Contrarian Capital Advisors, L.L.C. (as agent)
411 West Putnam Avenue
Suite 225
Greenwich, Connecticut 06830
Attn: Ms. Janice Stanton
Telephone: (203) 862-8204
Fax: (203) 629-1977
1.1 Section Severability . In case any one or more of the
provisions contained in this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal, or unenforceable
provision had never been contained herein.
1.1 Section Counterparts . This Agreement may be executed and
delivered in any number of counterparts, and by different parties hereto on
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which counterparts taken together shall
constitute one and the same original instrument.
1.3 Section Further Assurances . Each party to this Agreement
agrees to execute, acknowledge, deliver, file, and record such further
certificates, instruments and documents, and to do all other acts and things as
may reasonably be necessary or advisable to carry out the intents and purposes
of this Agreement.
1.5 Section Entire Agreement . THIS AGREEMENT, THE OTHER
OPERATIVE DOCUMENTS, THE LICENSE PURCHASE AGREEMENT AND RELATED AGREEMENTS
EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY
AND ALL OTHER PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
ORAL AGREEMENTS AMONG THE PARTIES HERETO.
<PAGE>
1.7 Section Consent to Amendments . This Agreement or any of
the Notes may be amended or modified, and waivers or consents with respect to
any action prohibited herein or in any Note, or omissions to perform any act
required herein or in any Note may be granted only pursuant to a written
agreement or instrument among the Borrower and the Majority Lenders, except that
no amendment to, modification of or waiver with respect to this Agreement or any
of the Notes shall change the maturity of any Note of a particular class or
series, or change the principal of, or the rate or time of payment of interest
payable with respect to any Note of a particular class or series, or affect the
time, amount or allocation of any required prepayments of the Notes of a
particular class or series, or reduce the proportion of the principal amount of
the Notes of a particular class or series required with respect to any consent,
without the written consent of the holder or holders of all Notes of such class
or series at the time outstanding and the written consent of the Lenders holding
a majority in outstanding principal amount of all other classes or series of
Notes. Each holder of any Note at the time or thereafter outstanding shall be
bound by any amendment, modification, waiver or consent authorized by this
Section 11.9, whether or not such Note shall have been marked to indicate such
amendment, modification, waiver or consent, but any Notes issued thereafter may
bear a notation referring to any such amendment, modification, waiver or
consent. No course of dealing between the Borrower and the holder of any Note
nor any delay in exercising any rights hereunder or under any Note shall operate
as a waiver of any rights of any holder of such Note. As used herein, in the
Notes and in the other Operative Documents, the term "this Agreement" and
references thereto shall mean this Agreement as it may from time to time be
amended, restated, supplemented or otherwise modified.
1.9 Section Form, Registration, Transfer and Exchange of
Notes; Lost Notes . The Notes are issuable and transferable as registered notes
without coupons in denominations of at least $100,000, except as may be
necessary to reflect any principal amount not evenly divisible by $100,000, and
may be transferred only to accredited investors (within the meaning of
Regulation D under the Securities Act) or pursuant to any other exemption from
the registration requirements of the Securities Act on such terms and conditions
as may be determined by any holder in its sole and absolute discretion; provided
that such transfer shall not be effective unless and until the transferee has
entered into and delivered to the Borrower a confidentiality agreement
substantially in the form of Exhibit E hereto whereby the transferee agrees to
be bound as a Lender under this Section 11.10 and Section 11.12 hereof. The
Borrower shall keep at its principal office a register in which the Borrower
shall provide for the registration of Notes and of transfers of Notes. Upon
surrender for registration of transfer of any Note at the principal office of
the Borrower in accordance with the provisions hereof, the Borrower shall, at
its expense, execute and deliver one or more new Notes of like tenor and of a
like aggregate principal amount, registered in the name of such transferee or
transferees. At the option of the holder of any Note, such Note may be exchanged
for other Notes of like tenor and of any authorized denominations, of a like
aggregate principal amount, upon surrender of the Note to be exchanged at the
principal office of the Borrower. Whenever any Notes are so surrendered for
exchange, the Borrower shall, at its expense, execute and deliver the Notes
which the holder making the exchange is entitled to receive. Every Note
surrendered for registration of transfer or exchange shall be duly endorsed, or
be accompanied by a written instrument of transfer duly executed, by the holder
of such Note or such holder's attorney duly authorized in writing. Any Note or
Notes issued in exchange for any Note or upon transfer thereof shall carry the
rights to unpaid interest and interest to accrue which were carried by the Note
so exchanged or transferred, so that neither gain nor loss of interest shall
result from any such transfer or exchange. Upon receipt of written notice from
the holder of any Note of the loss, theft, destruction or mutilation of such
Note and, in the case of any such loss, theft or destruction, upon receipt of
such holder's unsecured indemnity agreement, or in the case of any such
mutilation upon surrender and cancellation of such Note, the Borrower will make
and deliver a new Note, or like tenor, in lieu of the lost, stolen, destroyed or
mutilated Note.
<PAGE>
1.11 Section Persons Deemed Owners; Participation . Prior to
due presentment for registration of transfer, the Borrower may treat the Person
in whose name any Note is registered as the owner and holder of such Note for
the purpose of receiving payment of principal of and interest on such Note and
for all other purposes whatsoever, whether or not such Note shall be overdue,
and the Borrower shall not be affected by notice to the contrary. Subject to the
preceding sentence, the holder of any Note may from time to time grant a
participation in all or any part of such Note to any Person on such terms and
conditions as may be determined by such holder in its sole and absolute
discretion.
1.13 Section Confidentiality . Each Lender agrees to use its
best efforts to hold in confidence and not disclose any information (other than
information (i) which was publicly known or otherwise known to such Lender at
the time of disclosure (except pursuant to disclosure in connection with this
Agreement or the Operative Documents), (ii) which subsequently becomes publicly
known through no act or omission by such Lender or (iii) which otherwise becomes
known to such Lender, other than through disclosure by the Borrower or any
Subsidiary) delivered or made available by or on behalf of the Borrower or any
Subsidiary to such Lender in connection with or pursuant to this Agreement which
is proprietary in nature and clearly marked, labeled or otherwise designated as
being confidential information; provided, that nothing herein shall prevent the
holder of any Note from delivering copies of any financial statements and other
documents delivered to such holder, and disclosing any other information
disclosed to such holder, by or on behalf of the Borrower or any Subsidiary in
connection with or pursuant to this Agreement to (i) such holder's directors,
officers, employees, agents and professional consultants, (ii) any other holder
of any Note, (iii) any Person to which such holder offers to sell such Note or
any part thereof, (iv) any Person to which such holder sells or offers to sell a
participation in all or any part of such Note, (v) any federal or state
regulatory authority having jurisdiction over such holder, (vi) the National
Association of Insurance Commissioners or any similar organization or (vii) any
other Person to which such delivery or disclosure may be necessary or
appropriate (A) in compliance with any law, rule, regulation or order applicable
to such holder, (B) in response to any subpoena or other legal process, (C) in
connection with any litigation to which such holder is a party, provided that
such Lender uses its best efforts to notify the Borrower that such information
has been requested from it, or (D) in order to implement or facilitate the
exercise of remedies by such holder in its capacity as such or to protect such
holder's rights or interests as a holder of such Note; provided, however, in the
case of clauses (iii) and (iv) above, that such Person shall have executed and
delivered to the Borrower a confidentiality agreement containing terms
substantially similar to those set forth in this Section 11.12.
1.15 Section Satisfaction Requirement . If any agreement,
certificate or other writing, or any action taken or to be taken, is by the
terms of this Agreement required to be satisfactory or acceptable to any Lender
or the Majority Lenders, the determination of such satisfaction or acceptability
shall be made in the sole and exclusive judgment (exercised in good faith) of
the Person or Persons making such determination.
<PAGE>
1.17 Section Solicitation of Noteholders . The Borrower will
not solicit, request or negotiate for or with respect to any proposed waiver or
amendment of any of the provisions of this Agreement or the Notes unless each
holder of the Notes (irrespective of the amount of Notes then owned by it) shall
be informed thereof by the Borrower and shall be afforded the opportunity of
considering the same and shall be supplied by the Borrower with sufficient
information to enable it to make an informed decision with respect thereto.
Executed or true and correct copies of any waiver sent or effected pursuant to
the provisions of this Section 11.14 shall be delivered by the Borrower to each
holder of outstanding Notes forthwith following the date on which the same shall
have been executed and delivered by the holder or holders of the requisite
percentage of outstanding Notes. The Borrower will not, directly or indirectly,
pay or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, to any holder of the Notes for any
consent by such holder in its capacity as a holder of Notes to any waiver or
amendment of any of the terms and provisions of this Agreement unless such
remuneration is currently paid, on the same terms, ratably to the holders of all
of the Notes of such class then outstanding.
1.19 Section Indemnification . The Borrower shall indemnify
and hold harmless each Lender from and against any and all suits, actions,
proceedings, claims, (including, without limitation, reasonable attorneys' fees
and disbursements, including those incurred upon any appeal) (collectively,
"Claims") which may be instituted or asserted against any Lender in its capacity
as Lender by, or incurred by any Lender in its capacity as Lender as a result of
any Claim by, any third party that is not a Lender or a party to any of the
Operative Documents (other than the Borrower in connection with this Agreement
or any Operative Document; provided, however, that the Borrower shall not be
liable to indemnify any Lender in respect of any Claim arising out of or in
connection with the issuance of the Notes hereunder or in connection with the
transactions contemplated by the License Purchase Agreement, including without
limitation any indemnification and setoff claims and related disputes which may
arise thereunder; provided further, however, that the Borrower shall not be
liable for such indemnification to such Lender to the extent that any such
Claim, damage, loss, liability or expense results from such Lender's gross
negligence or willful misconduct. The obligations of the Borrower under this
Section 11.15 shall survive the repayment of the Notes or the transfer of any
Note or portion thereof or interest therein with respect to such obligations in
connection with the period prior to such transfer.
1.21 Section Fees and Expenses . The Buyer shall, promptly
after receipt of an invoice with respect thereto, pay all out-of-pocket expenses
of the Lenders in connection with the perfection of security interests
contemplated by the Security Documents and the administration of this Agreement
and the Notes. If, at any time or times, any Lender shall employ counsel or
other advisors for advice or other representation or shall incur reasonable
legal or other costs and expenses in connection with:
1.22 (i) any amendment, modification or waiver, or consent with
respect to, any of the
Operative Documents;
(ii) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by any Lender, the Borrower or any other
Person) in any way relating to the Collateral, any of the Operative
Documents or any other agreements to be executed or delivered in
connection herewith (excluding the License Purchase Agreement) unless
the Borrower prevails in any of the foregoing, to the extent incurred
following the occurrence and during the continuance of an Event of
Default;
<PAGE>
(iii) any attempt to enforce any rights of any Lender against
the Borrower, unless the Borrower prevails in connection therewith, to
the extent incurred following the occurrence and during the continuance
of an Event of Default; or
(iv) any attempt to verify, protect, collect, sell, liquidate
or otherwise dispose of the Collateral, to the extent incurred
following the occurrence and during the continuance of an Event of
Default;
then, and in any such event, the attorneys', and other parties' fees arising
from such services, including those of any appellate proceedings, and all
expenses, costs, charges and other fees incurred by such counsel and others in
any way or respect arising in connection with or relating to any of the events
or actions described in this Section 11.16 shall be payable, on demand, by the
Borrower to such Lender and, in the case of any amounts payable hereunder to any
Lender, shall be additional obligations secured under this Agreement and the
other Operative Documents. Without limiting the generality of the foregoing,
such expenses, costs, charges and fees may include: paralegal fees, costs and
expenses; accountants and investment bankers fees, costs and expenses; court
costs and expenses; photocopying and duplicating expenses; court reporter fees,
costs and expenses; long distance telephone charges; air express charges;
telegram charges; secretarial overtime charges; and expenses for travel, lodging
and food paid or incurred in connection with the performance of such legal
services. The obligations of the Borrower under this Section 11.16 shall survive
the repayment of the Notes or the transfer of any Note or portion thereof or
interest therein. Notwithstanding the foregoing, the Borrower shall have no
obligation to pay the fees and expenses of any Lender in connection with the
preparation of, or matters or disputes arising under, the License Purchase
Agreement, including without limitation the preparation of this Agreement and
the issuance of Notes hereunder and any indemnification and setoff claims and
related disputes which may arise thereunder.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
<PAGE>
THE MRS. FIELDS' BRAND, INC.
By:/s/ Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:/s/Stephen R. Haekel
Name:Stephen R. Haekel
Its:Vice President
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By:/s/ Stephen G. Shrivanek
Name:Stephen G. Shrivanek
Its:Counsel
PRUCO LIFE INSURANCE COMPANY
By:/s/ Joseph Y. Alouf
Name:Joseph Y. Alouf
Its:Asst. Vice President
<PAGE>
CONTRARIAN CAPITAL ADVISORS,
L.L.C., AS AGENT FOR THE
ENTITIES LISTED BELOW:
OPPENHEIMER & CO., INC.
OPPENHEIMER HORIZON PARTNERS,
L.P.
OPPENHEIMER INSTITUTIONAL
HORIZON PARTNERS, L.P.
OPPENHEIMER INSTITUTIONAL
HORIZON FUND II, L.P.
THE & TRUST
By:/s/ Janice M. Stanton
Name:Janice M. Stanton
Its:Partner
<PAGE>
SCHEDULE 8.11
ACCOUNTING PRACTICES
<PAGE>
(1) Vendor rebates and advances:
(3) Will be deferred and amortized to income over the life of the
contract or the period of benefit.
(5) Current Status: Both MFI and OCC follow this policy.
(8) Vendor equipment placed at the company:
(10) If the equipment continues to be the property of the vendor, no
entries in the accounting records will be made. If the equipment is to be owned
by the company, an asset and corresponding liability will be established for the
property at the inception of the arrangement.
(11) Current Status: MFI currently follows the above policy; OCC does not
have any vendor-supplied equipment.
(1) Escalating lease payments:
(3) Escalations in rents will be charged to expense as they occur for
existing leases; for new leases and lease renewals, rent escalations will be
recorded to expense ratably over the life of the lease.
(4) Current Status: OCC follows the above policy; MFI records all rent
escalations as expense as they --------------- occur.
(1) Construction department costs:
(3) These costs will be expensed as incurred.
(4) Current Status: MFI follows the above policy; OCC capitalizes
construction department costs as project costs.
(1) Pre-opening costs:
(3) These costs will be expensed as incurred.
(4) Current Status: Both MFI and OCC follow this policy.
(1) Equipment and leaseholds upon expiration of lease:
<PAGE>
(2) If the lease is not renewed, any remaining asset balance will be
charged to expense. If the lease is renewed, any equipment balance will be
depreciated over its remaining useful life.
Current Status: Both MFI and OCC follow this policy.
(1) Depreciable lives:
(3) Property and equipment will be depreciated using the straight-line
method as follows:
(5) ! Equipment and fixtures 3-7 years
(6) ! Leasehold improvements 7 years
(8) Note: It is assumed that the average lease life for store leases is
at least seven years considering historical lease experience.
(9) Current Status: MFI follows the above
policy; OCC depreciates equipment over 3-10
years and leasehold improvements over 5-10
years or the life of the lease whichever is
less.
(1) Franchise fees and royalties:
(3) Franchise fees and royalties will be recorded on an accrual basis
with appropriate allowance established to cover estimated uncollected amounts.
(4) Current Status: MFI follows the above policy; OCC does not have
franchise fees or royalties.
(1) Cost below the EBITDA line:
(3) In connection with the merger of the companies, reserves have been
established for integration of the two companies as well as for closure of
stores. Costs of integration (relocation, professional fees, retention
arrangements, travel, etc.) and costs of closing any stores (lease buyouts,
equipment dispositions, fixed asset writeoffs, etc.) will be charged against the
reserve account as the costs are incurred. Closed and franchised store
operations will continue to be reflected in continuing operations above the
EBITDA line but segregated from core store operations.
(4) Current Status: N/A
(1) Franchisee bad debts:
(3) Franchisee bad debts will be charged against the franchising
reserve as accounts are deemed uncollectible.
(4) Current Status: MFI follows the above policy; OCC does not have any
franchisees.
(1) Payment of guarantees:
(3) In the event a franchisee store with a corporate guarantee is taken
back by the Company, the store will either be resold to another franchisee,
operated by the Company or closed. If the store is closed, the guarantee
obligation will be charged off to the appropriate reserve account; if the store
is resold, any gain or loss on resale (taking into account the guarantee) will
be reflected in the appropriate gain or loss account at the time the store is
sold. If the Company elects to operate the store, the store asset and the
related guarantee will be recorded at the guarantee amount. The asset will be
depreciated pursuant to the policy in (7) above. The guarantee liability will be
reduced as payments are made to the party holding the guarantee.
<PAGE>
(4) Current Status: MFI follows the above policy; OCC does not have any
franchisee guarantees.
(1) Capital expenditures:
(3) Capital expenditures will be recorded on a gross basis; not net of
asset sales or salvage value.
(4) Current Status: Both companies follow this policy.
<PAGE>
0078853.10-01S7a
SCHEDULE 9.4(vii)
PERMITTED FINANCIAL INSTITUTIONS
PAINE WEBBER
KIDDER PEABODY
BANK-ONE UTAH
FIRST SECURITY BANK
COMMONWEALTH BANK OF AUSTRALIA
HONG KONG AND SHANGHAI BANKING CORP.
LASALLE NATIONAL BANK
MERRILL LYNCH
BANK OF NOVA SCOTIA (SCOTIA BANK)
US BANK
BANK OF AMERICA
-------------------------------
LICENSE AGREEMENT
between
THE MRS. FIELDS' BRAND, INC.
and
MRS. FIELDS' ORIGINAL COOKIES, INC.
--------------------------------
Dated as of September 18, 1996
--------------------------------
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (this "Agreement") is made this September 18, 1996,
by and between THE MRS. FIELDS' BRAND, INC., a Delaware corporation
("Licensor"), and MRS. FIELDS' ORIGINAL COOKIES, INC., a Delaware corporation
("Licensee").
W I T N E S S E T H:
WHEREAS, pursuant to an Asset Purchase Agreement, dated as of August 7,
1996, among Mrs. Fields Inc., a Delaware corporation ("MFI"), certain of its
subsidiaries, Capricorn Investors II, L.P., a Delaware limited partnership
("Capricorn"), and Licensee, MFI and its subsidiaries have sold and Licensee has
purchased substantially all of the assets of MFI and its subsidiaries, including
an undivided interest in the Pre-Existing Trade Secrets (as defined herein) but
excluding certain other intellectual property owned by Mrs. Fields Development
Corporation, a Delaware corporation ("MFD");
WHEREAS, pursuant to a Licensing Assets Purchase Agreement, dated as of
August 7, 1996, among MFD, Licensor and Capricorn, MFD has sold and Licensor has
purchased certain intellectual property, including the Licensed Property (as
defined herein) and an undivided interest in the Pre-Existing Trade Secrets; and
WHEREAS, Licensor desires to grant to Licensee, and Licensee desires to
accept, a license to sell Licensed Products (as defined herein) under the
Licensed Property upon the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
<PAGE>
1. DEFINITIONS
1.1 "Base Franchise Cash Flow" means $1,160,000 for each of
the first three calendar quarters in 1997 and $2,320,000 for the last calendar
quarter in 1997, $1,260,000 for each of the first three calendar quarters in
1998 and $2,520,000 for the last calendar quarter in 1998 and $1,300,000 for
each of the first three calendar quarters in 1999 and the first three calendar
quarters of each year thereafter and $2,600,000 for the last calendar quarter in
1999 and the last calendar quarter of each year thereafter.
1.1 "Base Gross Revenue" means $20,000,000 for each of the
first three calendar quarters in 1997 and $40,000,000 for the last calendar
quarter in 1997 and $19,000,000 for each of the first three calendar quarters in
1998 and the first three calendar quarters of each year thereafter and
$38,000,000 for the last calendar quarter in 1998 and the last calendar quarter
of each year thereafter.
1.3 "Franchise Cash Flow" means royalties, fees and other
revenues received during a given calendar quarter by Licensee and its
subsidiaries, whether domestic or international, from franchisees and
sub-franchisees of Licensee and its subsidiaries during such quarter. Cash flow
attributable to any franchised OCC Store shall not be included in the
calculation of Franchise Cash Flow unless such OCC Store has been converted into
a Mrs. Fields Store through the use of Mrs. Fields signage, such inclusion to
commence on the first day of the first calendar month following such conversion.
1.5 "Gross Revenues" means the aggregate amount of all
revenues from sales of products from Mrs. Fields Stores owned by Licensee and
its subsidiaries, whether domestic or international, during a given calendar
quarter, whether for cash or credit, less customary and usual trade discounts,
sales taxes, returns, promotional giveaways, cash or other discounts and
uncollectible accounts associated with the products sold at Mrs. Fields Stores
owned by Licensee and its subsidiaries during such quarter. Gross Revenues do
not, in any event, include Franchise Cash Flow or revenues attributable to mail
order sales by the Licensee made in compliance with Section 2.1 hereof. In
addition, revenues attributable to any OCC Store shall not be included in the
calculation of Gross Revenue unless such OCC Store has been converted into a
Mrs. Fields Store through the use of Mrs. Fields signage, such inclusion to
commence on the first day of the first calendar month following such conversion.
1.7 "Licensed Images" means such likenesses of Debra Fields as
may be approved by Licensor from time to time, including without limitation the
image(s) reproduced on Exhibit A hereto.
1.9 "Licensed Names and Marks" means the names, trade names,
trademarks, service marks and logos listed and set forth on Exhibit B hereto, as
such names, trademarks, service marks and logos may be amended or changed from
time to time hereafter by Licensor.
1.11 "Licensed Products" means (i) fresh baked cookies,
brownies, muffins and croissants and any other fresh baked bakery products, and
(ii) any other items which Licensee and Licensor agree to designate as Licensed
Products.
1.13 "Licensed Property" means the Licensed Names and Marks
and the Licensed Images.
1.15 "Licensed Trade Secrets" means, as and when available,
all recipes, techniques, processes, methods of production and commercialization
and other know-how and/or improvements thereto acquired or reduced to practice
after the date hereof by Licensor or Licensee which are necessary or useful for
the formulation, composition, production and sale of Licensed Products.
1.17 "Licensee Confidential Information" means all
formulations, systems, programs, procedures, manuals, confidential reports and
communications, lists of customers and clients, marketing techniques and
arrangements, mailing lists, purchasing information, pricing policies, quoting
procedures, financial information, employee, customer, supplier and distributor
data, and all materials or information relating to the business or activities of
Licensee which are maintained by Licensee as confidential (including without
limitation Licensed Trade Secrets developed by Licensee) and which Licensor
receives, receives access to, or has received or received access to, in whole or
in part, directly or indirectly from Licensee. Information which is
independently developed by Licensor or which is or becomes part of the public
domain without breach of (i) this Agreement, (ii) any other agreement or
instrument to which Licensor is a party or a beneficiary or any other agreement
to keep the information confidential which is known to Licensor, or (iii) any
duty owed to Licensee by Licensor, shall not be considered Licensee Confidential
Information hereunder.
1.19 "Licensor Confidential Information" means all
formulations, systems, programs, procedures, manuals, confidential reports and
communications, lists of customers and clients, marketing techniques and
arrangements, mailing lists, purchasing information, pricing policies, quoting
procedures, financial information, employee, customer, supplier and distributor
data, all of the materials or information relating to the business or activities
of Licensor which are maintained by Licensor as confidential (including without
limitation Licensed Trade Secrets developed by Licensor) and which Licensee
receives, receives access to, or has received or received access to, in whole or
in part, directly or indirectly from Licensor. Information which is
independently developed by Licensee or which is or becomes part of the public
domain without breach of (i) this Agreement, (ii) any other agreement or
instrument to which Licensee is a party or a beneficiary or any other agreement
to keep the information confidential which is known to Licensee, or (iii) any
duty owed to Licensor by Licensee, shall not be considered Licensor Confidential
Information hereunder.
1.21 "Mrs. Fields Non-Traditional Outlets" means any in-store
bakery outlet located in a retail grocery, fast food, convenience or other
retail store or any other outlet or location (including carts and kiosks related
to such outlets or locations) selling or that in the future sells any Licensed
Products either directly or pursuant to a license agreement, in any such case
using the Licensed Property; provided, however, that the term "Mrs. Fields
Non-Traditional Outlets" shall not include Mrs. Fields Stores or any other
outlet, location, cart or kiosk if its primary product is fresh baked goods
other than pizzas, sandwiches, hamburgers, hot dogs, baked potatoes or other
comparable non-snack, non-dessert products.
1.23 "Mrs. Fields Store" means any retail snack, dessert and
beverage store or outlet, cart or kiosk selling or that in the future sells
Licensed Products under the Licensed Property as its primary products, including
but not limited to stores, outlets, carts and kiosks now or in the future owned
and operated by Licensee or its subsidiaries or existing or future franchisees
of Licensee or its subsidiaries. Notwithstanding the foregoing, any OCC Store
shall be treated as a Mrs. Fields Store for purposes of the grant of the license
under Section 2.1 hereof during the pendency of any test marketing of Licensed
Products in such OCC Store for a period of up to 90 days that is completed not
later than December 31, 1997 and from and after the time that such OCC Store is
converted to a Mrs. Fields Store through the use of Mrs. Fields signage.
1.25 "OCC Stores" means the retail snack, dessert and beverage
outlets bearing the Original Cookie Company name that Licensee may own,
franchise or license from time to time.
1.27 "Pre-Existing Licenses" means each of the licenses set
forth on Exhibit C hereto and all rights granted pursuant thereto without giving
effect to any amendment on or after the date hereof that expands the scope of
such license in a manner that would not be permitted to be made under this
Agreement if made under a new license.
1.29 "Pre-Existing Trade Secrets" means the recipes,
techniques, processes, methods of production and commercialization, training
methods and know-how pertaining to and necessary or useful to the production and
sale of Licensed Products in which each of Licensor and Licensee acquired an
undivided interest from MFD as of the date hereof.
1.31 "Related Products" means the items, articles or food
products described on Exhibit D hereto, as such may be amended or modified from
time to time hereafter by Licensor and Licensee, together with all
modifications, improvements and enhancements which are derived therefrom or
related thereto.
1.33 "Trade Secrets" means the Pre-Existing Trade Secrets and the Licensed
Trade Secrets.
2. GRANT OF LICENSE
1.1 Licensor hereby grants to Licensee and Licensee hereby
accepts from Licensor, upon the terms and conditions hereinafter specified, a
license (i) to use the Licensed Property in connection with the production,
marketing, sale, and distribution of Licensed Products by Mrs. Fields Stores or
by a mail order system operated by Licensee or its subsidiaries (A) in the
United States through Mrs. Fields Stores on an exclusive and perpetual basis,
(B) outside the United States through Mrs. Fields Stores on an exclusive basis
until the third anniversary of the date hereof, and thereafter on a
non-exclusive basis, and (C) in respect of the mail order system, on an
exclusive basis through the second anniversary of the date hereof, (ii) to use
the Licensed Names and Marks as part of its trade name for so long as it sells
or franchises Licensed Products, and (iii) to sublicense (including without
limitation by franchising) its rights hereunder as provided in Section 16.4
hereof. If requested to do so by Licensee prior to the second anniversary of the
date hereof, and on such second anniversary Licensee is then operating a mail
order system, Licensor will extend Licensee's exclusive license in respect of
the mail order system on then prevailing market terms (including as to scope and
term) for a license of such nature. The license pursuant to this Section 2.1 is
subject to rights previously granted by Licensor to third parties pursuant to
the Pre-Existing Licenses.
1.3 Each of Licensor and Licensee hereby grants to the other
and each of Licensor and Licensee hereby accepts from the other, upon the terms
and conditions hereinafter specified, a worldwide, nonexclusive, perpetual,
royalty free right to use and sublicense the Licensed Trade Secrets of the other
in connection with the production and sale of Licensed Products using the
Licensed Property, in each case as and to the extent such party is then
permitted under this Agreement to sell Licensed Products or license Licensed
Property.
1.5 Unless approved in writing by Licensor, Licensee may not
use the Licensed Property in connection with the marketing, sale and
distribution of Licensed Products through a mail order system operated by a
party other than Licensee or its subsidiaries.
1.7 Nothing herein shall be deemed to restrict Licensor's
ability to grant licenses to third parties to sell or offer for sale the
Licensed Products at or through Mrs. Fields Non-Traditional Outlets; provided,
however, that Licensor shall not, for so long as Licensee shall have an
exclusive license under this Agreement relating to a mail order system, directly
or through licensees other than Licensee, market, sell or distribute Licensed
Products using the Licensed Property through a mail order system.
1.9 Each of Licensor and Licensee agrees that it will not
engage in any activity that violates any franchise or other law.
1.11 From time to time during the term hereof, Licensee may,
at its sole discretion, construct, equip and operate, or franchise, additional
Mrs. Fields Stores. Within 30 days prior to the opening or franchising of any
such additional Mrs. Fields Store, Licensee shall provide Licensor notice of
such opening or franchising.
1.13 From time to time during the term hereof, and at its sole
discretion, Licensee may cease, or cause to cease, the operating of any Mrs.
Fields Store, and shall notify Licensor within 30 days following any cessation
of the operation of any Mrs. Fields Store (however caused).
2. ROYALTIES
1.1 Licensee shall pay Licensor a royalty for each calendar
quarter beginning with the quarter ended March 31, 1997 equal to the sum of (a)
4.5% of any Gross Revenue in excess of the Base Gross Revenue for such quarter
and (b) 35% of any Franchise Cash Flow in excess of the Base Franchise Cash Flow
for such quarter. Any such royalties payable by Licensee shall be paid in cash
to Licensor within 30 calendar days following the end of the relevant calendar
quarter, subject to any recoupment provided in Section 3.2 hereof.
1.3 Licensee shall be entitled to recoup amounts paid by it
pursuant to Section 7.2(b) in reimbursement of Licensor's direct costs in
obtaining or maintaining registration of the Licensed Property by reducing
royalty payments otherwise being made pursuant to Section 3.1 hereof in the
following circumstances: (a) in the case of reimbursement costs incurred
directly by Licensee with respect to any jurisdiction where registration is
obtained at the request of Licensee, such reimbursement costs shall be recouped
dollar for dollar but with no additional compensation, and (b) in the case of
reimbursement costs incurred directly by Licensee with respect to any
jurisdiction not covered by clause (a), such reimbursement costs shall be
recouped dollar for dollar with additional compensation of a 20% annual return
from the date of the reimbursement. In either case, the recoupment shall be
effected by subtracting from the royalty otherwise due an amount equal to the
lesser of the amount of then unreimbursed costs (including any required return)
and the amount of royalty attributable to revenues from such jurisdiction
(treating such revenues as the last revenues earned for the relevant quarter).
1.5 Upon reasonable request and 30 days' notice, Licensor
shall have the right to inspect and audit the books and records of Licensee to
insure the accurate payment of royalties hereunder.
1. DISCLOSURE OF THE LICENSED TRADE SECRETS AND
ASSISTANCE
1.1 Each of Licensee and Licensor agrees to disclose the
Licensed Trade Secrets developed by it to the other party at such other party's
cost and expense upon request by any reasonable means requested by such other
party, including without limitation through the training of, meeting with, or
other communication with officers or employees designated by it, or the transfer
of written documentation.
2. LICENSOR CONFIDENTIAL INFORMATION
1.1 Licensee understands that the Licensor Confidential
Information is secret, proprietary and of great value to Licensor, which value
may be impaired if the secrecy of the Licensor Confidential Information is not
maintained.
1.3 Licensor has taken and will continue to take reasonable
security measures to preserve and protect the secrecy of the Licensor
Confidential Information and Licensee agrees to take all measures reasonably
necessary, including, without limitation, the measures hereinafter specified, to
protect the secrecy of such information in order to prevent it from falling into
the public domain or into the possession of persons not bound to maintain the
secrecy of such information.
1.5 Licensee agrees not to disclose Licensor Confidential
Information obtained pursuant to this Agreement or otherwise, either directly or
indirectly, to any person or entity (other than Licensee's subsidiaries,
franchisees, sublicensees and manufacturers to whom disclosure is necessary for
the production and sale of the Licensed Products and who have executed
agreements containing the confidentiality terms of this Agreement and other than
to the Licensee's and its subsidiaries' respective stockholders, directors,
officers, employees and their agents who have been advised of the confidential
nature of such information and been directed to preserve its confidentiality),
during the term of this Agreement or at any time following the expiration or
termination of this Agreement.
1.7 Licensee shall exercise reasonable precautions to
safeguard the secrecy of the Licensor Confidential Information disclosed
pursuant hereto and to prevent the unauthorized disclosure thereof to anyone
other than the parties described in Section 5.3; provided, however, that
Licensee shall in any event exercise such precautions of the nature and type
consistent with the precautions Licensee takes to protect its own confidential
information.
1. LICENSEE CONFIDENTIAL INFORMATION
1.1 Licensor understands that the Licensee Confidential
Information disclosed to Licensor by Licensee under this Agreement is secret,
proprietary and of great value to Licensee, and that such value may be impaired
if the secrecy of the Licensee Confidential Information is not maintained.
1.1 Licensee has taken and will continue to take reasonable
security measures to preserve and protect the secrecy of the Licensee
Confidential Information and Licensor agrees to take all measures reasonably
necessary, including, without limitation, the measures hereinafter specified, to
protect the secrecy of such information in order to prevent it from falling into
the public domain or into the possession of persons not bound to maintain the
secrecy of such information.
1.3 Licensor agrees not to disclose the Licensee Confidential
Information obtained pursuant to this Agreement or otherwise, either directly or
indirectly, to any person or entity (other than Licensor's subsidiaries,
licensees, sublicensees and manufacturers who have executed agreements
containing the confidentiality terms of this Agreement and other than to the
Licensor's and its subsidiaries' respective stockholders, directors, officers,
employees and their agents who have been advised of the confidential nature of
such information and been directed to preserve its confidentiality), during the
term of this Agreement or at any time following the expiration or termination of
this Agreement.
1.5 Licensor shall exercise reasonable precautions to
safeguard the secrecy of the Licensee Confidential Information disclosed
pursuant hereto and to prevent the unauthorized disclosure thereof to anyone
other than the parties described in Section 6.3; provided, however, that
Licensor shall in any event exercise such precautions of the nature and type
consistent with the precautions Licensor takes to protect its own confidential
information.
2. COVENANTS
1.1 Licensee acknowledges, agrees and covenants as follows:
a () Unless Licensor consents in writing, Licensee shall use
the Licensed Property:
(i) only for the purposes of and pursuant to this Agreement; and
(i) with respect to the Licensed Names and Marks, only in a manner
consistent with the scope of the relevant registrations of the Licensed Names
and Marks. b () Licensee will not, during the term of this Agreement or
thereafter, challenge the title or any rights of Licensor in and to any of the
Licensed Property or in or to any of the Trade Secrets (other than Licensed
Trade Secrets developed by Licensee) or the use thereof in Mrs. Fields
Non-Traditional Outlets or attack the validity of this Agreement or any
Pre-Existing Licenses.
d () Licensee will assist Licensor, at Licensor's request, cost and
expense, to the extent necessary, in the procurement of any protection or to
protect any of Licensor's rights in the Licensed Property. Licensee shall notify
Licensor in writing of any infringements or imitations by others of the Licensed
Property which may come to Licensee's attention. Licensor may commence or
prosecute any claims or suits of infringement of any of the Licensed Property in
its own name if Licensor determines, in its reasonable business judgment, that
such action is necessary or appropriate to protect the Licensed Property, and,
if such claim or suit pertains to any Licensed Products, Licensor may join
Licensee as a party thereto. In the event Licensor does not decide to institute
any suit or take any action on account of any such infringements or imitations,
with the written consent of Licensor, Licensee may take such action if it so
chooses and shall keep Licensor informed thereof; provided, however, that
Licensor shall reimburse Licensee for costs incurred by Licensee in connection
with defending against such infringements or imitations.
f () Licensee agrees to use the registration symbol "R" in connection with
its use of the Licensed Names and Marks which are registered trademarks.
h () Licensee will take (or cause to be taken) at its own expense all steps
necessary to maintain the confidentiality of the Trade Secrets in accordance
with all relevant laws.
j () Licensee will do nothing to destroy, impair or in any way impede the
effect and validity of the Licensed Names and Marks.
l () Licensee will use its reasonable efforts to provide to Licensor and
any of its licensees access to and the right to receive cookie dough, cookie
tins, promotional materials and other supplies as MFI or MFD has customarily
provided to its licensees pursuant to any production agreement, contract or
arrangements of Licensee (including without limitation shipping arrangements)
now or hereafter in effect on terms and conditions comparable to those under
which Licensee purchases and receives shipments of cookie dough or such other
items; provided, that Licensor or its licensees shall be solely responsible for
making any required payments to the other parties to such agreements, contracts
or arrangements.
1.2 Licensor acknowledges, agrees and covenants as follows:
<PAGE>
1.4 a () Licensor will not, during the term of this Agreement or
thereafter, challenge the title or any rights of Licensee in and to any of the
Trade Secrets (other than Licensed Trade Secrets developed by Licensor) or the
use thereof in Mrs. Fields Stores or attack the validity of this Agreement.
c () Licensor will take (or cause to be taken) all steps necessary to
prepare, execute, and file all documents, notices, applications, registrations
and timely renewals thereof or other documents required or necessary for the
protection and maintenance of the Licensed Property in any jurisdiction in which
Licensor currently owns or may in the future, as requested by Licensee, own
intellectual property, it being agreed and understood that (i) Licensor shall
take such actions at its own expense in jurisdictions where its licensing
activities (other than under this Licensing Agreement) require such actions for
the protection and maintenance of the Licensed Property in such jurisdiction and
(ii) Licensor may condition its taking such actions in other jurisdictions on
receiving reimbursement from Licensee for Licensor's expenses in connection
therewith; provided, however, that should Licensor undertake licensing
activities (other than under this Licensing Agreement) in jurisdictions where
Licensee has made reimbursement pursuant to clause (ii), Licensor shall promptly
pay to Licensee the amounts previously so reimbursed by Licensee with respect to
such jurisdiction less any amount recouped by Licensee in respect thereof
pursuant to Section 3.2 hereof.
e () Other than pursuant to the Pre-Existing Licenses, Licensor shall not
sell, or license (including without limitation by franchising) third parties to
sell, Licensed Products (i) through a mail order system for so long as Licensee
shall have an exclusive license under this Agreement relating to a mail order
system, (ii) otherwise in the United States other than through Mrs. Fields
Non-Traditional Outlets or (iii) otherwise outside the United States other than
through Mrs. Fields Non-Traditional Outlets until the third anniversary of the
date hereof .
g () Licensor will take (or cause to be taken) at its own expense all steps
necessary to maintain the confidentiality of the Trade Secrets in accordance
with all relevant laws.
1. REPRESENTATIONS AND WARRANTIES
1.1 Licensee represents and warrants as follows:
a () Licensee has full power and authority to enter into this Agreement and
the transactions contemplated hereby, and the entering into of this Agreement
does not contravene, infringe upon or constitute a default under any agreement
or covenant to which Licensee is a party or violate or conflict with any law or
regulation by which it is bound.
a () No filing, registration, approval or consent of any governmental
agency or instrumentality or of any stock exchange authority heretofore not
obtained is required for the authorization, delivery or performance by Licensee
of this Agreement.
1.2 Licensor represents and warrants as follows:
a () Licensor has full power and authority to enter into this Agreement and
the transactions contemplated hereby, and the entering into of this Agreement by
Licensor does not contravene, infringe upon or constitute a default under any
agreement or covenant to which Licensor is a party or violate or conflict with
any law or regulation by which it is bound.
c () No filing, registration, approval or consent of any governmental
agency or instrumentality or of any stock exchange authority heretofore not
obtained is required for the authorization, delivery or performance by Licensor
of this Agreement.
e () Subject to the Pre-Existing Licenses, the pledge of the Licensed
Property as security for Licensor's obligations under its debt instruments and
Licensee's rights under this Agreement, Licensor owns all right and title, free
and clear of any claims or encumbrances, in and to the Licensed Names and Marks,
and it possesses the rights to use the Licensed Images, without encumbrance, and
Licensee's use of the foregoing, as authorized hereunder, to the best of
Licensor's knowledge, will not violate or infringe any rights of any third
party.
2. QUALITY CONTROL
1.1 For the protection of the goodwill associated with the
Licensed Property, Licensee will, and will cause its franchisees and
sublicensees to, only sell Licensed Products consistent with the good quality,
reputation and business integrity associated with the Licensed Property and
Licensed Products as of the date hereof, and in connection therewith and
consistent with the past practice of Mrs. Fields Inc. shall use only premium
ingredients and employ and follow recipes in order to make Licensed Products of
such quality, reputation and integrity.
1.1 Licensee will, and will cause its franchisees and
sublicensees to, conduct and operate Mrs. Fields Stores and Licensee will
conduct and operate its mail order operations so as to preserve the business
integrity and good reputation of Licensor and consistent with the past practice
of Mrs. Fields Inc.; and Licensee will refrain from all activity involving any
significant risk of bringing any of the Licensed Property into disrepute or in
any way damaging any of the Licensed Property, and Licensee shall not, and shall
not permit any franchisee or sublicensee to, use the Licensed Property to sell
any products which are not Licensed Products or Related Products in Mrs. Fields
Stores or in Licensee's mail order system, as such may be amended, modified or
restated from time to time hereafter.
1.3 The Licensed Products shall be of the high quality and
standards associated with the Licensed Property as of the date hereof, and shall
be of such style, appearance and quality as to be adequate for the protection
and enhancement of the Licensed Property and the goodwill pertaining thereto;
and will be prepared and sold in accordance with all applicable laws.
1.5 Licensor may request representative samples of the
Licensed Products from Licensee and if, at any time, Licensor deems the quality
of such products to be below the quality control standards in effect as of the
date hereof, Licensor may so notify Licensee, in writing, and Licensee will
promptly bring such sub-standard products up to the aforesaid quality control
standards as soon as reasonably practicable but in any event within 30 days.
1.7 Licensor shall have the right to inspect Mrs. Fields
Stores at any reasonable time and without notice, to the extent any such
inspection would not violate a franchise agreement, if any, relating to the Mrs.
Fields Store to be inspected, to determine whether Licensee's operations,
including, but not limited to, use of the Licensed Names and Marks and the
Licensed Products, are consistent with the standards set forth in this
Agreement. In this connection, Licensee agrees to use its reasonable efforts in
connection with entering into new franchise agreements to ensure that any such
inspection will be permitted thereunder. All inspections shall be made in a
manner so as to minimize any disruption to Mrs. Fields Stores. If Licensor
determines such operations do not comply with such standards and so notifies
Licensee of the same, Licensee shall thereafter take such steps or actions
necessary to bring its operations into compliance with such standards as soon as
reasonably practicable but in any event within 30 days.
1. DEVELOPMENT OF NEW PRODUCTS
1.1 The parties acknowledge that Licensee may, from time to
time, develop new Licensed Products (and related Licensed Trade Secrets) that it
intends to offer for sale in Mrs. Fields Stores or through its mail order system
under the Licensed Names and Marks. Any such Licensed Product (and related
Licensed Trade Secrets) shall be made available by Licensee for license to third
parties by Licensor under the Licensed Names and Marks where Licensor is then
permitted under this Agreement to provide such license, without other
consideration to Licensee than the mutual covenants and considerations of this
Agreement.
1.1 The parties acknowledge that Licensor may, from time to
time, develop new products (and related Licensed Trade Secrets) and, subject to
its compliance with Section 7.2(c) hereof, license such products to third
parties for sale under the Licensed Names and Marks. Any such products which are
Licensed Products (and related Licensed Trade Secrets) shall be made available
by Licensor for sale or license (including without limitation by franchising)
where Licensee is then permitted under this Agreement to make such sale or
provide such license, without other consideration to Licensor than the mutual
covenants and considerations of this Agreement.
2. PROPERTY OF LICENSOR; PROPERTY OF LICENSEE; OTHER OPERATIONS OF LICENSEE
1.1 Licensee recognizes the value of the goodwill associated
with the Licensed Names and Marks and acknowledges that the Licensed Names and
Marks and all rights therein and goodwill pertaining thereto belong exclusively
to Licensor.
1.3 Each of Licensor and Licensee (i) acknowledges that the
other party has an undivided interest in the Pre-Existing Trade Secrets, (ii)
agrees that, unless the other party consents in writing, it shall use the Trade
Secrets only in connection with the sale of Licensed Products using the Licensed
Property, and (iii) agrees that it shall maintain the Pre-Existing Trade Secrets
in the strictest confidence, in accordance with standards at least as high as
those set forth in Sections 5 and 6 hereof.
1.5 Licensor acknowledges that Licensee may operate and/or
license others to operate cookie shops, restaurant operations or other food
retail or wholesale sales or service outlets under various trade names and
trademarks other than the Licensed Names and Marks, and that nothing in this
Agreement shall be deemed to restrict Licensee from operating or licensing any
cookie shops, restaurants or other operations under any other trade names or
trademarks or at any location that does not utilize the Licensed Property.
1. CURE PERIOD
1.1 In the event that Licensor determines that Licensee has
breached the quality control standards described in Section 9 hereof, Licensee
shall have 90 days following notice thereof by Licensor to cure the same as
provided in such Section 9; provided, however, that Licensee shall have such
additional time to cure such breach following such 90 day period for so long as
such breach is by its nature curable and Licensee continues to diligently
attempt to cure such breach; provided, however, that in any case such breach is
cured within 360 days after the initial notice thereof.
1. INDEMNIFICATION
1.1 Licensor agrees to indemnify, defend and hold Licensee
harmless from any claims, liabilities, lawsuits, demands, actions, damages and
expenses (including reasonable attorneys' fees) (collectively, "Damages")
arising from or out of (i) any breach of the agreements, covenants,
representations or warranties of Licensor contained in this Agreement, (ii) any
damages or injury to any person, including, but not limited to customers,
employees of Licensor, and members of the public, suffered and incurred on or
about stores or locations, or arising out of mail order activities, of licensees
of Licensor (other than Licensee) or sublicensees of Licensor, or (iii) the
activities hereunder of Licensor, including without limitation activities
arising under sublicense or franchise agreements to which Licensee may from time
to time be a party, other than any such Damages which arise due to the gross
negligence or wrongful acts of Licensee or its sublicensees or franchisees.
1.3 Licensee agrees to indemnify, defend and hold Licensor
harmless from and against any and all Damages arising from or out of (i) any
breach of the agreements, covenants, representations, or warranties of Licensee
contained in this Agreement, (ii) any damages or injury to any person,
including, but not limited to customers, employees of Licensee, and members of
the public, suffered and incurred on or about Mrs. Fields Stores or arising out
of mail order activities of the Licensee hereunder or sublicensees of Licensee,
or (iii) the activities hereunder of Licensee, including without limitation
activities under license agreements to which Licensor may from time to time be a
party other than any such Damages to the extent attributable to the gross
negligence or wrongful acts of Licensor or its sublicensees or franchisees.
1. MANAGEMENT ARRANGEMENTS
1.1 Licensee will provide to Licensor reasonable managerial
and administrative support as requested by it, subject to the right of each
party to terminate such arrangement upon not less than six months' written
notice, and in connection therewith Licensor (acting through its Board of
Managers) and Licensee (acting through its Board of Directors) will by the end
of January for each year beginning in 1997, establish a budget in reasonable
detail for the costs expected to be reimbursed by Licensor under this Section
14.1 for such year. Licensor will reimburse Licensee quarterly for such
managerial and administrative support in an amount equal to all direct costs and
indirect costs allocated on a reasonable basis incurred by Licensee in the
applicable fiscal quarter in connection with providing such support, including
for compensation paid to personnel substantially dedicated to Licensor's
operations, provided that the costs to be reimbursed in any calendar year shall
not exceed the costs budgeted for such year in the budget for such year. Such
reimbursement shall be made on a quarterly basis within 30 days following
receipt by Licensor of a bill summarizing such costs in reasonable detail.
1. NOTICES
1.1 All notices provided by this Agreement shall be in writing
and shall be given by overnight courier, facsimile transmission, or by personal
delivery, by one party to the other, addressed to such other party at the
applicable address set forth below, or to such other address as may be given for
such purpose by such other party by notice duly given hereunder. Notice shall be
deemed properly given on the date of delivery:
To Licensee: Mrs. Fields' Original Cookies,
Inc.
c/o Capricorn Investors II, L.P.
30 East Elm St.
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur,Jr.
Fax: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Fax: (212) 735-3636
To Licensor: The Mrs. Fields' Brand, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm St.
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur,Jr.
Fax: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Fax: (212) 735-3636
1. GENERAL PROVISIONS
1.1 Independent Contractors. It is understood and agreed by
the parties hereto that this Agreement does not create a fiduciary relationship
between them, that Licensor and Licensee are and shall be independent
contractors, and that 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 whatsoever.
1.1 Entire Agreement. This Agreement and the Exhibits and
other documents referred to herein which form a part hereof contain the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement supersedes all prior agreements and understandings, oral and
written, with respect to its subject matter.
. Should any provision of this Agreement for any reason be declared invalid or
unenforceable, such declaration shall not affect the validity or enforceability
of any other provision of this Agreement, all of which other provisions shall
remain in full force and effect.
. This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, successors and permitted assigns. Licensee may not assign its
respective rights and obligations hereunder except to its wholly-owned
subsidiaries, its parent company, or a wholly-owned subsidiary of its parent
company, or pursuant to the sale of all or substantially all of its assets;
provided that Licensee may assign its rights hereunder as security for its
obligations, including its obligations under its debt instruments. Subject to
Sections 2.1 and 2.3 Licensee may freely sublicense (including without
limitation by franchising) its rights hereunder pursuant to franchise and
international sublicense agreements in the nature of franchise agreements
consistent in form and substance with those used by Mrs. Fields Inc. as of the
date hereof with such material variations therefrom to be approved by Licensor
in its sole reasonable discretion.
. This Agreement may be amended, modified or supplemented at any time by written
agreement of the parties hereto. Any failure by either party to comply with any
term or provision of this Agreement may be waived by the other party at any time
by an instrument in writing signed by or on behalf of both parties, but such
waiver or failure to insist upon strict compliance with such term or provision
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure to comply. . This Agreement is not intended, and shall not be
deemed, to confer upon or give any person except the parties hereto and their
respective successors and permitted assigns, any remedy, claim, liability,
reimbursement, cause of action or other right under or by reason of this
Agreement.
. This Agreement may be executed in counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
. The section headings contained in this Agreement are solely for the purpose of
reference, are not part of the agreement of the parties and shall not in any way
affect the meaning or interpretation of this Agreement. Reference in this
Agreement to "subsidiaries" of Licensee shall be deemed to include any
corporation, limited liability company, partnership or other entity of which
Licensee or other subsidiaries owns at least 50% of the voting common stock or
equivalent security.
1.15 Governing Law. This Agreement shall be governed by the
laws of the State of New York, without regard to the principles of conflicts of
law thereof.
. The parties will attempt to settle any claim or controversy arising out of
this Agreement through consultation and negotiation in good faith and in a
spirit of mutual cooperation. Licensee and Licensor shall each appoint two
individuals to a four-person committee, which committee will oversee the
negotiation of all disputes arising hereunder. All disputes shall be first
submitted to such committee for negotiation before instituting any formal
mediation or arbitration. If such negotiations fail, then such dispute will be
mediated by a mediator mutually acceptable to the parties. By mutual agreement,
however, the parties may postpone mediation until they have each completed some
specified but limited discovery regarding the dispute. The parties may also
mutually agree to replace mediation with some other form of alternative dispute
resolution ("ADR"), such as neutral fact-finding or a mini-trial. Any dispute
which the parties cannot resolve through negotiation, mediation, or another form
of ADR within 60 days may be submitted to binding arbitration, in accordance
with Section 16.11.
. Except as set forth in Section 16.10, and in this Section, any controversy,
claim, or dispute arising out of or related to this Agreement, or the breach or
alleged breach hereof, will be submitted by the parties for arbitration by the
American Arbitration Association in the City of New York, New York, United
States, in accordance with the international commercial arbitration rules then
in effect of the American Arbitration Association (the "AAA Rules") by three
arbitrators appointed in accordance with the AAA Rules. The decision of the
arbitrators shall be final and binding, and judgment on the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. The
award rendered by the arbitration board shall include costs of arbitration,
reasonable attorneys' fees and reasonable costs for expert and other witnesses.
The parties shall be entitled to discovery as provided in the AAA Rules. A
transcribed record of the proceedings shall be prepared in English. Nothing in
this Agreement shall prevent either party from seeking injunctive relief (or any
other provisional remedy or equitable relief) from any court having jurisdiction
over the parties and the subject matter of the dispute to protect their
respective rights.
1.21 Further Assurances. From time to time, as and when
requested by either party hereto, the other party shall execute and deliver, or
cause to be executed and delivered, all such documents and instruments and shall
take, or cause to be taken all such further or other actions, as such other
party may reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Herbeet S. Winokur
Name:Herbert S. Winokur
Title:President
<PAGE>
THE MRS. FIELDS' BRAND, INC.
By:/s/Herbet S. Winokur
Name:Herbert S. Winokur
Title:President
<PAGE>
EXHIBIT A
LICENSED IMAGES
<PAGE>
EXHIBIT B
LICENSED NAMES AND MARKS
<PAGE>
EXHIBIT C
PRE-EXISTING LICENSES
<PAGE>
0118466.21-01S6a
EXHIBIT D
RELATED PRODUCTS
ASSET PURCHASE AGREEMENT
Dated as of August 7, 1996
among
MRS. FIELDS INC.
AND OTHER SELLERS
IDENTIFIED HEREIN
MRS. FIELDS' ORIGINAL COOKIES, INC.,
and
CAPRICORN INVESTORS II, L.P.
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of August 7, 1996, among
MRS. FIELDS INC., a Delaware corporation ("MFI" or a "Seller"), MRS. FIELDS
DEVELOPMENT CORPORATION, a Delaware corporation and a wholly-owned subsidiary of
MFI ("MFD"), MRS. FIELDS COOKIES, a California corporation and a wholly-owned
subsidiary of MFD (together with MFD, the "Other Sellers" and the Other Sellers
together with MFI, the "Sellers"), MRS. FIELDS' ORIGINAL COOKIES, INC., a
Delaware corporation (the "Buyer"), and CAPRICORN INVESTORS II, L.P., a Delaware
limited partnership and currently the sole stockholder of the Buyer
("Capricorn").
WHEREAS, the parties desire that the Buyer purchase from the Sellers,
and that the Sellers sell to the Buyer, the Acquired Assets (as defined in
Section 1(a)), and that the Buyer assume the Assumed Liabilities (as defined in
Section 1(c)), upon the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
(a) Purchase, Sale and Assumption. Purchase and Sale. On the
terms and subject to the conditions of this Agreement, the Sellers agree to
sell, transfer, assign and deliver to the Buyer, and the Buyer agrees to, and
Capricorn agrees to cause the Buyer to, accept and purchase from the Sellers, at
the Closing (as defined in Section 2(a)) all the business and operations of any
of the Sellers (such business and operations being herein called, collectively,
the "Acquired Business") and all the assets and properties of any of the Sellers
of every kind and description used or held for use in connection with the
Acquired Business (such assets being herein called, collectively, the "Acquired
Assets"), other than the Excluded Assets (as defined in Section 1(b)). The
Acquired Assets shall include without limitation (i) the outstanding capital
stock of Mrs. Fields Cookies (Canada) Ltd., an Ontario corporation ("MF
Canada"), Mrs. Fields Cookies Australia, a Utah corporation ("MF Australia"),
Mrs. Fields Limited, a United Kingdom corporation ("MFUK"), Fairfield Foods
Inc., a New Jersey corporation ("Fairfield"), and, unless previously disposed of
by the Sellers, Mrs. Fields Cookies Far East Limited, a Hong Kong corporation
("MFHK"), held by the Sellers (MF Canada, MF Australia, MFUK, Fairfield and MFHK
being herein called, collectively, the "Subsidiaries"), (ii) an undivided
interest with The Mrs. Fields' Brand, Inc. in all recipes, techniques,
processes, methods of production and commercialization, training methods and
know-how owned by the Sellers (the "Trade Secrets") and (iii) a Closing Cash
Amount (as defined in Section 2(c)(i)) of not less than the Required Corporate
Cash Amount (as defined in Section 2(c)(i)), all of the cash in the store
accounts (the "Store Cash") and cash held in trust accounts for settlement of
future workers compensation insurance claims (the "Trust Cash") in accordance
with the Sellers' workers' compensation insurance policies.
(b) Excluded Assets. The term "Excluded Assets" means,
collectively, the following:
(i) all cash in the corporate bank accounts other than the cash
included in the Closing Cash Amount;
(ii) all rights and claims (including, without
limitation, refunds and claims thereto) of any Seller or of
any Subsidiary with respect to the Excluded Liabilities (as
defined in Section 1(d));
(iii) the capital stock of any subsidiary of any of the Sellers other
than the Subsidiaries;
(iv) the "Mrs. Fields" trade name and related
trademarks and the licensing assets, contract rights and
general intangibles specified or generally described on
Schedule 1(b) (the "Licensing Assets"); and
(v) any and all minute books, stock transfer records and records of
Taxes (as defined in Section 4(f)(iii)) of any Seller or any of its Subsidiaries
(c) Assumed Liabilities. On the terms and subject to the conditions of this
Agreement, the Buyer agrees to assume, at and effective from the Closing, the
Assumed Liabilities, other than the Excluded Liabilities. The term "Assumed
Liabilities" means, collectively, all liabilities and obligations of any Seller
and the Subsidiaries including, but not limited to, liabilities and obligations
that:
(i) constitute the working capital liabilities as of the
Closing Date of a kind reflected on Schedule 1(c) as
"Accounts payable trade" and "Accrued expenses";
(ii) arise out of or relate to any contract, agreement or
lease in the Acquired Business;
(iii) arise out of or relate to any event occurring
after the Closing or the operation of the Acquired Business or the use
or ownership of any of the Acquired Assets after the Closing;
(iv) arise out of or relate to MFI's obligations under the
Senior Management Value Creation Plan, dated December
1994 (the "Value Creation Plan");
(v) arise out of store closing costs, including those
for which reserves have been or prior to the Closing are established on
the Sellers' financial statements;
(vi) arise out of unpaid workers' compensation insurance
claims arising prior to the Closing, including without
limitation those relating to the Trust Cash; and
(vii)arise out of severance claims by employees of the
Sellers following the Closing by reason of the
transactions contemplated by this Agreement.
(d) Excluded Liabilities. The term "Excluded Liabilities" means, collectively,
the following:
(i) any liability in respect of any Excluded Assets;
(ii) any obligation or liability with respect to the
issuance, sale and retirement of the Series A Notes of
MFI in the original principal amount of $15,000,000
(the "Series A Notes");
(iii)any obligation or liability with respect to the
issuance, sale and retirement of all outstanding shares
of Preferred Stock, $.001 par value per share, of MFI
(the "MFI Preferred Stock");
(iv) any obligation or liability with respect to the
issuance, sale and retirement of all outstanding shares
of Preferred Stock, $.001 par value per share, of MFD
(the "MFD Preferred Stock");
(v) any obligation or liability under the contracts
relating to the Licensing Assets;
(vi) any obligation or liability to the equity security
holders of MFI including in connection with the
transactions contemplated by this Agreement or the
liquidation or dissolution of MFI;
(vii)the Sellers' liability for any Taxes (as defined in
Section 4(f)(iii)) attributable to taxable years or
periods ending at the time of or prior to the Closing,
or, in the case of any Straddle Period (as defined in
Section 11(a)(i)), the portion of such Straddle Period
(as determined in Section 11(a)(i)) ending at the time
of the Closing, except to the extent such liabilities
constitute "Accrued expenses" for purposes of
determining the Working Capital Amount (as defined in
Section 2(c));
(viii) the obligations and liabilities of any Seller or of
any Subsidiary with respect to any contract, agreement,
arrangement or understanding (including without
limitation any payables) with any of their respective
stockholders, creditors or affiliates (in each case,
other than the Sellers and the Subsidiaries) identified
on Schedule 1(d)(viii);
(ix) the Sellers' and/or the Subsidiaries' liabilities under
the Riverview Financial Corporation Profit Sharing Plan
and the Mrs. Fields Inc. 401(k) Retirement Savings
Plan; and
(x) the obligations and liabilities of any Seller or any
Subsidiary with respect to the payment of expenses
pursuant to Section 16, including any indemnification
or other obligations under any related engagement
agreements or arrangements.
(e) Purchase Price. The purchase price for the Acquired Assets
(the "Purchase Price") shall be the aggregate cash and note amounts payable by
the Buyer pursuant to, and as set forth in, Section 2(b)(ii). The Purchase Price
shall be subject to adjustment as provided in Section 2(c). No separate amount
shall be payable by any Seller in respect of the assumption by the Buyer of the
Assumed Liabilities and no such assumption shall reduce the Purchase Price
payable hereunder.
(f) Allocation of Purchase Price. Prior to the Closing Date,
the Buyer and the Sellers shall negotiate, draft and execute a schedule (the
"Allocation Schedule") allocating the Purchase Price (including, for purposes of
this Section 1(f), any other consideration paid to the Sellers, including the
Assumed Liabilities) among the Acquired Assets. Promptly following the making of
the Purchase Price adjustments contemplated by Section 2(c), the Buyer and the
Sellers shall in good faith negotiate adjustments to the Allocation Schedule to
reflect any differences between the Purchase Price and the Adjusted Purchase
Price (as defined in Section 2(c)), and execute a revised Allocation Schedule.
The Allocation Schedule shall be reasonable and shall be prepared in accordance
with Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder. Each of the Sellers and the Buyer agrees that
promptly upon receiving the Allocation Schedule it shall return an executed copy
thereof to the other parties. Each of the Sellers and the Buyer agrees to file
Internal Revenue Service Form 8594, and all federal, state, local and foreign
Tax Returns (as defined in Section 4(f)), in accordance with the Allocation
Schedule. Each of the Sellers and the Buyer agrees to provide the others
promptly with any other information required to complete Form 8594.
(i) Nonassignable Assets. To the extent that any lease,
contract, permit, license or other asset included in the Acquired Assets is not
capable of being assigned, transferred, subleased or sublicensed without the
consent or waiver of a third party (whether or not a governmental authority), or
if such assignment, transfer, sublease or sublicense would constitute a breach
thereof or a violation of applicable law, this Agreement (and any related
documents delivered at the Closing) shall not constitute an actual or attempted
assignment, transfer, sublease or sublicense thereof unless and until such
consent or waiver of such third party has been duly obtained or such assignment,
transfer, sublease or sublicense has otherwise become lawful (any lease,
contract, permit, license or other asset not assigned, transferred, subleased or
sublicensed as a result of this Section 1(g)(i) is hereinafter referred to as an
"Unassigned Asset").
(ii) To the extent that the consents and waivers referred to
in Section 1(g)(i) are not obtained prior to the Closing, or until the
impracticalities of transfer referred to therein are resolved, and in each case
subject to Section 8(a), (x) each Seller shall, subject to Section 8(a), use its
best efforts to (A) provide or cause to be provided to the Buyer the benefits of
any Unassigned Asset, (B) cooperate in any arrangement, reasonable and lawful as
to both the Sellers and the Buyer, designed to provide such benefits to the
Buyer and (C) enforce for the account and at the expense of the Buyer any rights
of the Sellers arising from such Unassigned Asset, including the right to elect
to terminate in accordance with the terms thereof on the advice of the Buyer,
and (y) the Buyer shall use its best efforts to perform the obligations of the
Sellers arising under such Unassigned Asset or shall promptly reimburse the
Sellers for the expense thereof.
(g) Closing; Transactions to be Effected; Purchase Price
Adjustment. Closing. The closing (the "Closing") of the purchase and sale of the
Acquired Assets and the assumption by the Buyer of the Assumed Liabilities shall
be held at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York, at 10:00 a.m. on September 4, 1996, or if the
conditions to Closing set forth in Section 3 of this Agreement shall not have
been satisfied by such date, as soon as practicable after such conditions shall
have been satisfied. The date on which the Closing shall occur is hereinafter
referred to as the "Closing Date".
(h) Transactions to be Effected. At the Closing, on the terms
and subject to the conditions of this Agreement:
(i) the Sellers shall deliver to the Buyer (A) such
appropriately executed and authenticated instruments of sale,
assignment, transfer and conveyance to the Buyer of the Acquired Assets
as the Buyer or its counsel may reasonably request, such instruments to
be reasonably satisfactory in form to the Buyer and its counsel, (B) a
certificate or certificates representing all the outstanding shares of
capital stock (the "Subsidiary Shares") of the Subsidiaries owned by
the Sellers, duly endorsed in blank in proper form for transfer, with
appropriate transfer stamps, if any, affixed, and (C) the documents to
be delivered by the Sellers pursuant to Section 3(a); and
(ii) the Buyer shall deliver to the Sellers (A) by
wire transfer to one or more bank accounts designated in writing by MFI
on behalf of the Sellers at least two business days prior to the
Closing Date, immediately available funds in an amount equal to
$5,357,000, (B) notes of the Buyer (the "Buyer Notes"), registered in
the name of MFI or its designees, which Buyer Notes shall consist of
three series of senior secured notes (with respective aggregate
principal amounts equal to $2,000,000 (the "MFI Series 1 Notes"),
$3,000,000 (the "MFI Series 2 Notes") and $10,000,000 (the "MFI Series
3 Notes")), and one series of senior subordinated notes (with an
aggregate principal amount of $4,643,000 (the "MFI Series 4 Notes")),
all of which notes shall have the terms set forth in the form of Note
Agreement (the "Buyer Note Agreement") attached hereto as Exhibit A,
(C) such instruments of assumption with respect to the Assumed
Liabilities, appropriately executed and authenticated by the Buyer, as
the Sellers or their counsel may reasonably request, such instruments
to be reasonably satisfactory in form to the Sellers and their counsel,
and (D) the documents to be delivered by the Buyer pursuant to Section
3(b).
(iii) Purchase Price Adjustments. W/C Adjustment. Within 45
days after the Closing Date, the Sellers shall prepare and deliver to the Buyer
a statement (the "W/C Statement"), which has been reviewed and reported on by
the Sellers' independent auditors in accordance with procedures to be
established by MFI and the Buyer without exception or qualification, setting
forth the Closing Cash Amount (as defined below) and the Working Capital Amount
(as defined below).
(iv) The Purchase Price shall be increased, solely through an
increase in the cash portion of the Purchase Price, by the amount, if any, by
which the Closing Cash Amount exceeds the Required Corporate Cash Amount and the
Purchase Price shall be decreased, solely through a decrease in the cash portion
of the Purchase Price, by the amount, if any, by which the Required Corporate
Cash Amount exceeds the Closing Cash Amount. The Purchase Price shall also be
increased, solely through an increase in the cash portion of the Purchase Price,
by the amount, if any, by which the Working Capital Amount exceeds by more than
$100,000 the Working Capital Base Amount (as defined below), and the Purchase
Price shall be decreased, solely through a decrease in the cash portion of the
Purchase Price, by the amount, if any, by which the Working Capital Base Amount
exceeds by more than $100,000 the Working Capital Amount. Should there be both
an increase and a decrease, only the net amount will be paid. The Buyer shall
pay any such increase in the Purchase Price, and the Sellers shall repay to the
Buyer any such decrease in the Purchase Price within 5 business days following
the determination of the amount pursuant to this Section 2(c).
(v) "Closing Cash Amount" means the amount of cash (other than
the Store Cash, the Trust Cash and the aggregate amount of all checks written by
any Seller but not cleared as of the Closing Date) included in the Acquired
Assets determined in accordance with generally accepted accounting principles
consistent with past practice.
(vi) "Required Corporate Cash Amount" means the sum of (i)
$1,600,000 plus (ii) in the event that as of the Closing Date the Sellers shall
not have paid all amounts due in respect of the settlement of the dispute
relating to the London store lease of MFUK, the aggregate amount remaining to be
so paid up to $200,000 (less any such amounts paid by the Sellers following
August 8, 1996 and prior to the Closing Date).
(vii) "Working Capital Amount" means the ordinary working
capital of the Acquired Business as of the close of business on the Closing
Date, excluding the Closing Cash Amount, calculated on the same basis as
reflected in line items on Schedule 1(c), which the parties agree lists the line
items of current assets and current liabilities that constitute ordinary working
capital for purposes of this Agreement, and that any items on Schedule 1(c) that
are based upon errors of fact or that are not in accordance with generally
accepted accounting principles consistent with past practice shall be retained
for purposes of calculating the Working Capital Amount. In addition, reserves
with respect to items on Schedule 1(c) shall continue to be established and
accounted for in a manner consistent with past practice.
(viii) "Working Capital Base Amount" means $(173,541).
(ix) Preparation of W/C Statement; Resolution of
Disagreements. The Buyer shall assist the Sellers and their independent auditors
in the preparation of the W/C Statement, and shall provide the Sellers and their
independent auditors access at all reasonable times to the personnel,
properties, books and records of the Acquired Business for such purpose. The
Buyer's independent auditors may participate in the preparation of the W/C
Statement; provided, however, that the Buyer acknowledges that the Sellers shall
have the primary responsibility and authority for preparing the W/C Statement
and the Sellers' independent auditors shall have the primary responsibility and
authority for certifying the W/C Statement. During the five-day period following
the Buyer's receipt of the W/C Statement, the Buyer and its independent auditors
will be permitted to review the working papers of the Sellers' independent
auditors relating to such Statement. The W/C Statement shall become final and
binding upon the parties on the fifth day following receipt thereof by the Buyer
unless the Buyer gives written notice of its disagreement (a "Notice of
Disagreement") with respect to the W/C Statement to the Sellers prior to such
date. Any Notice of Disagreement shall specify in reasonable detail the nature
of any disagreement so asserted and shall be accompanied by a letter from the
Buyer's independent auditors indicating that they concur with each of the
positions taken by the Buyer in the Notice of Disagreement. If a Notice of
Disagreement is received by the Sellers in a timely manner, then the W/C
Statement (as revised in accordance with clause (i) or (ii) below) shall become
final and binding upon the parties on the earlier of (i) the date the parties
hereto resolve in writing any differences they have with respect to any matter
specified in the Notice of Disagreement or (ii) the date any disputed matters
are finally resolved in writing by the Arbitrator (as defined below). During the
five-day period following the delivery of a Notice of Disagreement, the Sellers
and the Buyer shall seek in good faith to resolve in writing any differences
which they may have with respect to any matter specified in the Notice of
Disagreement. At the end of such five-day period, the Sellers and the Buyer
shall submit to an arbitrator (the "Arbitrator") for review and resolution any
and all matters that remain in dispute. The Arbitrator shall be such nationally
recognized independent public accounting firm as shall be agreed upon by the
parties hereto in writing. The Sellers and the Buyer shall jointly request that
the arbitration be conducted in New York City in accordance with the procedures
of the American Arbitration Association. The Arbitrator shall render a decision
resolving the matters submitted to the Arbitrator within 25 days following
submission thereto. The cost of any arbitration (including the fees of the
Arbitrator) pursuant to this Section 2(c)(ii) shall be borne 50% by the Buyer
and 50% by the Sellers, except that each party shall bear all fees and expenses
attributable to any expert witness retained by such party but not the other
party. The fees and disbursements of the Sellers' independent auditors incurred
in connection with their certification of the Adjusted W/C Statement shall be
borne by the Sellers, and the fees and disbursements of the Buyer's independent
auditors incurred in connection with their review of the W/C Statement or
certification of any Notice of Disagreement shall be borne by the Buyer.
(i) Post-Closing Activities. After the Closing, one or more of
the Sellers or their Subsidiaries may be liquidated, dissolved and wound-up in
accordance with the applicable corporate law, and will effect such state and
federal regulatory and tax filings as are reasonably required. The Buyer agrees
to make its personnel, and applicable books and records, available to MFI in
order to enable MFI to file all Tax Returns (as defined in Section 4(f) of this
Agreement) required to be filed by MFI or any of its subsidiaries, including in
connection with a liquidation of the Sellers or their subsidiaries and in
connection with the Excluded Assets, the Excluded Liabilities and any indemnity
claims hereunder provided that the Buyer's personnel will be so available only
to the extent that the performance of such actions does not interfere with the
performance of such personnel's duties for or on behalf of the Buyer. MFI
understands and agrees that MFI will be solely responsible for paying or
providing for the payment of, and the Buyer will not be required to pay, any
out-of-pocket expenses incurred in connection with such actions.
(j) Conditions to Closing. Buyer's Obligation. The obligation
of the Buyer to, and of Capricorn to cause the Buyer to, purchase the Acquired
Assets is subject to the satisfaction (or waiver by the Buyer) as of the Closing
of the following conditions:
(i) The representations and warranties of the Sellers
made in this Agreement qualified as to materiality shall be true and
correct and those not so qualified shall be true and correct in all
material respects as of the date hereof and on and as of the Closing,
as though made on and as of the Closing Date, and the Sellers shall
have performed or complied in all material respects with all
obligations and covenants required by this Agreement to be performed or
complied with by the Sellers by the time of the Closing; and the
Sellers shall have delivered to the Buyer a certificate dated the
Closing Date and signed by an authorized officer of each Seller
confirming the foregoing.
(ii) The Buyer shall have received an opinion dated
the Closing Date of Stoel Rives, counsel to the Sellers, to the effect
set forth in Exhibit B.
(iii) No injunction or order of any court or
administrative agency of competent jurisdiction shall be in effect, and
no statute, rule or regulation of any governmental authority of
competent jurisdiction shall have been promulgated or enacted, as of
the Closing which restrains or prohibits the purchase and sale of the
Acquired Assets.
(iv) The waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), shall
have expired or been terminated.
(v) The conditions to the Buyer's obligations set
forth in the Asset Purchase Agreement (the "OCC/HSC Agreement") among
the Buyer, Chocamerican, Inc., a Delaware corporation ("Chocamerican"),
The Original Cookie Company, Incorporated, a California corporation
("OCC"), and Hot Sam Companies, Inc., a Delaware corporation ("HSC"),
and Capricorn, an executed form of which is attached as Exhibit C,
shall have been satisfied or waived by the Buyer.
(vi) The conditions to the obligations of the License
Buyer (as defined below) set forth in the Licensing Assets Purchase
Agreement (the "License Purchase Agreement") among MFD, The Mrs. Fields
Brand, Inc., a Delaware corporation (the "License Buyer"), and
Capricorn, an executed form of which is attached as Exhibit D, shall
have been satisfied or waived by the Buyer.
(vii) The Sellers and the Buyer shall have obtained
consents, in form reasonably satisfactory to the Sellers and the Buyer,
to the transactions contemplated hereby from the persons whose consent
is required for the transfer or assignment to the Buyer of any of the
Acquired Assets, or no such consent shall be required, (A) under each
of the agreements identified on Schedule 3(a)(vii) and (B) under store
leases with respect to at least 50% of the stores of the Acquired
Business.
(viii) The Sellers shall have demonstrated to the
reasonable satisfaction of the Buyer that the Closing Cash Amount shall
be not less than the Required Corporate Cash Amount and that the
working capital position of MFI as of the Closing Date shall be
consistent with the operation of MFI from the date of the Balance Sheet
through the Closing Date in the ordinary course of business consistent
with past practice and otherwise in accordance with this Agreement.
(ix) The other parties thereto shall have executed
and delivered to the Buyer the Buyer Note Agreement and the Other
Agreements (as defined in Section 3(b)(vi)).
(k) Sellers' Obligation. The obligation of the Sellers to
sell, assign, transfer and deliver the Acquired Assets to the Buyer is subject
to the satisfaction (or waiver by the Sellers) as of the Closing of the
following conditions:
(i) The representations and warranties of the Buyer
and Capricorn made in this Agreement qualified as to materiality shall
be true and correct and those not so qualified shall be true and
correct in all material respects as of the date hereof and on and as of
the Closing, as though made on and as of the Closing Date, and the
Buyer shall have performed or complied in all material respects with
all obligations and covenants required by this Agreement to be
performed or complied with by the Buyer by the time of the Closing; and
the Buyer shall have delivered to the Sellers a certificate dated the
Closing Date and signed by an authorized officer of the Buyer
confirming the foregoing.
(ii) The Sellers shall have received an opinion dated
the Closing Date of Skadden, Arps, Slate, Meagher & Flom, counsel to
the Buyer, to the effect set forth in Exhibit E.
(iii) The indebtedness to be incurred by the Buyer in
connection with the Closing and the OCC/HSC Agreement (other than the
Buyer Notes and the indebtedness identified as the "Buyer Notes" under
the OCC/HSC Agreement) shall have terms and documentation reasonably
satisfactory to the Sellers and their counsel.
(iv) The Closing (as defined in the OCC/HSC
Agreement) shall have occurred and the conditions precedent thereunder
shall have been satisfied or waived with MFI's consent as contemplated
by Section 6(f).
(v) The Closing (as defined in the License Purchase
Agreement) shall have occurred.
(vi) The Buyer shall have executed and delivered to
the designees of MFI the Buyer Note Agreement and the Buyer Notes and
all other documents required to be executed and delivered by the Buyer
in connection therewith, including without limitation the Collateral
Documents (as such term is defined in the Buyer Note Agreement) and the
Buyer shall have executed and delivered to the License Buyer the
License Agreement (the "License Agreement") in the form attached hereto
as Exhibit F and all other documents required to be executed and
delivered by the Buyer in connection therewith (the License Agreement
together with the Buyer Note Agreement and such other documents, the
"Other Agreements") and shall have executed and delivered to the
appropriate Persons any and all documents in connection with the
transactions contemplated by the Other Agreements.
(vii) Capricorn and/or its designees shall have
acquired from the designees of MFI the MFI Series 4 Notes and paid to
such designees an aggregate of $4,643,000 in cash.
(viii) Each of the executives of MFI who are
participants in the Value Creation Plan shall have been offered
employment by the Buyer on terms and conditions which are comparable to
his existing terms and conditions of employment except for
participation in the Value Creation Plan.
(ix) The conditions contemplated by Sections
3(a)(iii), 3(a)(iv) and 3(a)(vii) shall have been satisfied.
<PAGE>
(x)
(l) Waiver of Closing Conditions. The parties hereto
acknowledge and agree that if the Buyer or the Sellers shall have received prior
to the Closing written notice from the Sellers or the Buyer, respectively,
providing specific information as to the failure of any condition set forth in
paragraph (a) or (b) above, respectively, and such party or parties determine to
proceed with the Closing, such party or parties will be deemed to have waived
such condition and shall not be entitled to be indemnified pursuant to Section
11 for any losses arising from any matters relating to such conditions;
provided, that no such waiver shall affect the calculation of any adjustment to
the Purchase Price under Section 2(c).
5. Representations and Warranties of the Sellers. The Sellers
hereby jointly and severally represent and warrant to the Buyer as follows:
(a) Organization and Standing of the Sellers. Each of the
Sellers and the Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
Each of the Sellers and the Subsidiaries has full corporate power and authority
and possesses all governmental franchises, licenses, permits, authorizations and
approvals necessary to enable it to use its corporate name and to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, would not have a material adverse effect on the assets, financial
condition or results of operations of the Acquired Business. Each of the Sellers
and the Subsidiaries is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership, leasing
or holding of its properties makes such qualification necessary, except such
jurisdictions where the failure so to qualify would not have a material adverse
effect on the assets, financial condition or results of operations of the
Acquired Business. The Sellers have made available to the Buyer true and
complete copies of the Certificate of Incorporation, as amended to date, and the
By-laws, as in effect on the date hereof, of the Subsidiaries.
(b) Authority; No Conflict. Each of the Sellers has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. All corporate acts and other
proceedings required to be taken by each of the Sellers (including without
limitation any and all stockholder or debtholder approvals) to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly executed and delivered by each of the Sellers and
constitutes a valid and binding obligation of each of the Sellers, enforceable
against each of the Sellers in accordance with its terms. MFI gave valid notice
to Randall K. Fields and Debra J. Fields (collectively, the "Founders") under
the Stock Option Agreement dated as of January 1, 1993 (as supplemented by the
letter of waiver dated June 30, 1994 signed by the Founders) (collectively, the
"Founders Agreement") among MFI, the Founders, The Prudential Insurance Company
of America, Principal Mutual Life Insurance Company, Pruco Life Insurance
Company, Zions First National Bank and IDS Certificate Company in respect of the
proposed transactions contemplated by this Agreement and the License Purchase
Agreement and the transactions contemplated hereby and thereby on or about May
17, 1996 and the Closing will be in compliance with the Founders Agreement. The
execution and delivery of this Agreement and the Buyer Note Agreement do not,
and the consummation of the transactions contemplated hereby and thereby and
compliance with the terms hereof and thereof will not, conflict with, or result
in any violation of or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation, or result in the creation of any Lien (as
defined in Section 4(g)) upon any of the Acquired Assets under, any provision of
(i) any relevant corporation law statute, (ii) the Certificate or Articles of
Incorporation or By-laws of any of the Sellers or the Subsidiaries, (iii) except
as disclosed on the Schedules hereto, any material note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment, or agreement to
which any of the Sellers or the Subsidiaries is a party or by which any of the
Acquired Assets is bound or (iv) any judgment, order or decree, or material
statute, law, ordinance, rule or regulation applicable to any of the Sellers or
the Subsidiaries or any of the Acquired Assets, other than, in the case of
clause (iii) above, any such conflicts, violations, defaults, rights or liens,
claims, encumbrances, security interests, options, charges or restrictions that
individually or in the aggregate would not have a material adverse effect on the
assets, financial condition or results of operations of the Acquired Business.
No material consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required to be obtained or made by or with respect to any of the
Sellers or the Subsidiaries or their respective affiliates in connection with
the execution and delivery of this Agreement or the consummation by the Sellers
of the transactions contemplated hereby, other than (A) compliance with and
filings under the HSR Act and (B) those that may be required solely by reason of
the Buyer's (as opposed to any other third party's) participation in the
transactions contemplated hereby.
(c) Capital Stock of the Subsidiaries. The authorized capital
stock of MF Canada consists of 100 shares of Common Stock, without par value
(the "MF Canada Shares"), all of which are validly issued and outstanding, fully
paid and nonassessable and held beneficially and of record by MFI. The
authorized capital stock of MF Australia consists of 50,000 shares of Common
Stock, par value $1.00 per share (the "MF Australia Shares"), all of which are
validly issued and outstanding, fully paid and non-assessable and held
beneficially and of record by MFI. The authorized capital stock of MFUK consists
of 20,000 shares of Common Stock, par value (pound)1 per share (the "MFUK
Shares"), 1,000 of which are validly issued and outstanding, fully paid and
nonassessable and held beneficially and of record by MFI. The authorized capital
stock of Fairfield consists of 2,500 shares of Common Stock, par value $1.00 per
share (the "Fairfield Shares"), 50 shares of which are validly issued and
outstanding, fully paid and non-assessable and held beneficially of record by
MFI. The authorized capital stock of MFHK consists of 3,000,000 shares of Common
Stock, par value $1.00 per share (the "MFHK Shares"), all of which are validly
issued and outstanding, fully paid and nonassessable and held beneficially and
of record by MFI. None of the Subsidiary Shares has been issued in violation of,
and none of the Subsidiary Shares is subject to, any preemptive or subscription
rights. Except as set forth above, there are no shares of capital stock or other
equity securities of the Subsidiaries outstanding. There are no outstanding
warrants, options, agreements, convertible or exchangeable securities or other
commitments (other than this Agreement) pursuant to which the Subsidiaries are
or may become obligated to issue, sell, purchase, return or redeem any shares of
capital stock or other securities of the Subsidiaries, and there are not any
equity securities of the Subsidiaries reserved for issuance for any purpose.
Except as disclosed on Schedule 4(c), MFI directly or through one or more wholly
owned subsidiaries has good and valid title to the Subsidiary Shares, free and
clear of any Liens. Assuming the Buyer has the requisite power and authority to
be the lawful owner of the Subsidiary Shares, upon delivery to the Buyer at the
Closing of one or more certificates representing the Subsidiary Shares, duly
endorsed by MFI for transfer to the Buyer, and upon MFI's receipt of its
respective share of the Purchase Price, good and valid title to the Subsidiary
Shares will pass to the Buyer, free and clear of any Liens other than those
arising from acts of the Buyer or its affiliates. Other than this Agreement, and
except as disclosed on Schedule 4(c), the Subsidiary Shares are not subject to
any voting trust agreement or other contract, agreement, arrangement, commitment
or understanding, including any such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting, dividend rights
or disposition of the Subsidiary Shares.
(d) Equity Interests. Except as disclosed on Schedule 4(d),
none of the Sellers directly or indirectly owns any capital stock of or other
equity interests in any corporation, partnership or other entity.
(i) Financial Statements; Undisclosed Liabilities. Schedule
4(e)(i) sets forth the audited consolidated balance sheets of MFI and its
subsidiaries as of December 31, 1993, 1994 and 1995 and the audited consolidated
statements of income, stockholders' equity and cash flows of MFI for the fiscal
years then ended, together with the notes to such financial statements
(collectively, the "Financial Statements"). The Financial Statements have been
prepared in conformity with generally accepted accounting principles
consistently applied (except in each case as described in the notes thereto) and
on the basis described in such notes fairly present the financial condition and
the results of operations of MFI, as the case may be, as of and for the periods
indicated. The Acquired Assets constitute, with the exception of any Excluded
Assets, all the assets, properties, rights and interests reflected on the
audited balance sheet of MFI as of December 31, 1995 (the "Balance Sheet")
(other than those assets, properties, rights and interests sold or disposed of
in the ordinary course of the Acquired Business, consistent with past practice,
since the date of the Balance Sheet).
(ii) Except as set forth on Schedule 4(e)(ii), to the
knowledge of the Sellers, all of the Assumed Liabilities arise out of or relate
to the Acquired Business and none of the Sellers or the Subsidiaries has any
material liabilities or obligations of any nature (whether accrued, absolute,
contingent, unasserted or otherwise), except (1) as disclosed, reflected,
reserved against or contemplated in the Balance Sheet and the notes thereto, (2)
for items disclosed in the Schedules hereto, (3) for liabilities and obligations
incurred in the ordinary course of business consistent with past practice since
the date of the Balance Sheet other than in violation of this Agreement, (4) for
Taxes or (5) for Excluded Liabilities.
(e) Taxes. (i) Except as set forth on Schedule 4(f), the
Sellers have, in respect of the Acquired Business, filed all material Tax
Returns which are required to be filed (all such returns being true, correct and
complete in all material respects) and have paid all Taxes shown to be due on
such Tax Returns, and all monies required to be withheld by the Sellers from
employees of the Acquired Business for income Taxes and social security and
other payroll Taxes have been collected or withheld, and either paid to the
respective taxing authorities, set aside in accounts for such purpose, or
accrued, reserved against and entered upon the books of the Acquired Business.
(f) (ii) The reserve for Taxes reflected in the Balance Sheet
is adequate for the payment of all liabilities for Taxes with respect to or
imposed upon the Acquired Business or the Acquired Assets through the date of
such Balance Sheet. Any Taxes in respect of the period since the date of such
Balance Sheet have arisen in the ordinary course of business. Except as set
forth on Schedule 4(f), there are no ongoing audits or examinations of any of
the Tax Returns of any of the Sellers or the Subsidiaries and none of the
Sellers or the Subsidiaries has been notified by any governmental authority that
any such audit is contemplated or pending. Except as set forth on Schedule 4(f),
no governmental authority is now asserting or threatening to assert against any
of the Sellers or the Subsidiaries any deficiency or claim for additional Taxes.
Except as set forth on Schedule 4(f), no extension of time with respect to any
date on which a Tax Return was or is to be filed by any of the Sellers or the
Subsidiaries is in force, and no waiver agreement by any of the Sellers or the
Subsidiaries is in force for the extension of time for the assessment or payment
of any Taxes. There are no liens for Taxes upon any of the Acquired Assets other
than Liens for Taxes not yet due or payable.
(g) (iii) For purposes of this Agreement, "Taxes" shall mean
federal, state, local or foreign income, gross receipts, property, sales, use,
license, excise, franchise, employment, payroll, withholding, alternative or
add-on minimum, ad valorem, transfer or excise tax, or any other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, imposed by any governmental
authority. For purposes of this Agreement, "Tax Returns" shall mean all federal,
state, local and foreign tax returns, declarations, statements, reports,
schedules, forms and information returns and any amended Tax Returns relating to
Taxes.
(h) Title to Acquired Assets. The Sellers have good and
marketable title to the Acquired Assets, free and clear of all mortgages, liens,
claims, security interests, easements, rights of way, pledges, restrictions,
charges or encumbrances of any nature whatsoever (collectively, "Liens"), except
(i) such as are disclosed on the Schedules hereto and (ii) mechanics',
carriers', workmen's, repairmen's or other like Liens arising or incurred in the
ordinary course of business, Liens arising under original purchase price
conditional sales contracts and equipment leases with third parties entered into
in the ordinary course of business, Liens for Taxes which are not due and
payable or which may thereafter be paid without penalty and other Liens, if any,
which do not, individually or in the aggregate, materially impair the continued
use and operation, consistent with past practice, of the Acquired Asset to which
they relate (the Liens described in clauses (i) and (ii) above are hereinafter
referred to collectively as "Permitted Liens"). Subject to Section 1(g), at the
Closing, the Buyer shall acquire the Acquired Assets free and clear of all Liens
other than Permitted Liens.
(i) Condition of Assets. Except as disclosed on Schedule
4(h),(i) the tangible personal assets included in the Acquired Assets have been
maintained in all material respects in accordance with generally accepted
industry practice, (ii) the tangible personal assets included in the Acquired
Assets are in all material respects in good operating condition and repair,
ordinary wear and tear excepted, and (iii) the leased personal property included
in the Acquired Assets is in all material respects in the condition required of
such property by the terms of the leases applicable thereto.
(j) Trademarks, etc. Schedule 4(i) sets forth a true and
complete list of all material patents, trademarks (registered or unregistered),
trade names (registered or unregistered), service marks (registered or
unregistered), registered copyrights and material unregistered copyrights and
computer software applications, other than off-the-shelf applications, together
with all applications therefor, owned or used by or licensed to the Sellers and
the Subsidiaries and all license agreements related thereto that are not
Excluded Assets to which any Seller or any Subsidiary is a party (collectively
"Intellectual Property") and with respect to trademarks, contains a list of all
jurisdictions in which such trademarks are registered or applied for and all
registration and application numbers. Except as disclosed on Schedule 4(i) or as
set forth in the License Agreement, a Seller or a Subsidiary owns or has the
valid right to use, without payment to any other party, the Intellectual
Property used in or necessary for the conduct of their businesses and the
consummation of the transactions contemplated hereby will not alter or impair
any such rights. All material Intellectual Property owned by the Sellers or a
Subsidiary is valid and all registrations related thereto have been duly
maintained. Except as disclosed on Schedule 4(i), all Intellectual Property
owned by a Seller or a Subsidiary is free and clear of all Liens. Except as
disclosed on Schedule 4(i), to the Sellers' knowledge, no claims or other
proceedings are pending or threatened by any person or entity with respect to
the ownership, validity, enforceability or use of any Intellectual Property. To
the Sellers' knowledge (i) the conduct of their businesses does not infringe
upon the rights of any third party, (ii) no third party is infringing upon any
Intellectual Property owned by the Sellers or a Subsidiary except as set forth
in Schedule 4(i) and (iii) the Intellectual Property identified on Schedule
4(i), together with the Licensing Assets being acquired by the License Buyer
under the License Purchase Agreement, is all of the Intellectual Property
necessary to conduct the Acquired Business as presently conducted.
(k) Contracts. Except as described in Schedule 4(j) and except
for contracts or agreements exclusively relating to the Excluded Assets, none of
the Sellers or any of the Subsidiaries is a party to or bound by any:
(i) employment agreement or employment contract for any
employee whose aggregate annual compensation is in
excess of $60,000;
(ii) employee collective bargaining agreement or other
contract with any labor union;
(iii)covenant not to compete (other than pursuant to any
radius restriction contained in any lease, reciprocal
easement or development, construction, operating or
similar agreement);
(iv) agreement or contract with any other Seller (or any
affiliate of any such other Seller) or any officer,
director or employee of any Seller or any affiliates of
any Seller (other than employment agreements covered by
clause (i) above);
(v) lease or similar agreement under which a Seller or a
Subsidiary is a lessor or sublessor of, or makes
available for use by any third party, any real property
owned or leased by such Seller or Subsidiary or any
portion of premises otherwise occupied by such Seller
or Subsidiary;
(vi) lease or similar agreement under which (A) a Seller or
a Subsidiary is lessee of, or holds or uses, any
machinery, equipment, vehicle or other tangible
personal property owned by a third party or (B) a
Seller or Subsidiary is a lessor or sublessor of, or
makes available for use by any third party, any
tangible personal property owned or leased by such
Seller or Subsidiary, in any such case which has an
annual rental obligation in excess of $10,000;
(vii)(A) continuing contract for the future purchase of
materials, supplies or equipment (other than purchase
contracts and orders for inventory in the ordinary
course of business consistent with past practice), (B)
management, service, consulting or other similar type
of contract or (C) advertising agreement or
arrangement, in any such case which has an annual
obligation in excess of $10,000;
(viii) material license or other agreement relating in whole or in part to
patents, trademarks, trade names, service marks or copyrights
(including any license or other agreement under which a Seller or a
Subsidiary has the right to use any of the same owned or held by a
third party);
(ix) agreement or contract under which a Seller or a Subsidiary has
borrowed or loaned any money or issued any note, bond, indenture or
other evidence of indebtedness or directly or indirectly guaranteed
(including, without limitation, through so-called take-or-pay or
keepwell agreements) indebtedness, liabilities or obligations of
others (other than endorsements for the purpose of collection in the
ordinary course of business), or any other note, bond, indenture or
other evidence of indebtedness;
(x) agreement or contract under which any other person has directly or
indirectly guaranteed indebtedness, liabilities or obligations of a
Seller or a Subsidiary (other than endorsements for the purpose of
collection in the ordinary course of business);
(xi) mortgage, pledge, security agreement, deed of trust or other document
granting a Lien (including, but not limited to, Liens upon any
properties acquired under conditional sales, capital leases or other
title retention or security devices other than any original purchase
price conditional sales contracts or equipment leases entered into in
the ordinary course of business);
(xii)any agreement or contract providing for the sale or purchase of
assets in excess of $25,000, not in the ordinary course of business
consistent with past practice;
(xiii) any agreement, arrangement or understanding (including without
limitation any payables) between any Seller or Subsidiary and any of
their respective stockholders, creditors which are Lenders (as defined
in the Buyer Note Agreement) or affiliates (in each case, other than
the Sellers and the Subsidiaries); and
(xiv)other agreement, contract, lease, license, commitment or instrument
pursuant to which after the Closing the Buyer will have an aggregate
annual liability in excess of $10,000.
Except as disclosed on Schedule 4(j), each agreement,
contract, lease, license, commitment or instrument of the Sellers and the
Subsidiaries described on Schedule 4(j) and the other Schedules hereto
(collectively, the "Contracts") is valid, binding and in full force and effect.
Except as disclosed in Schedule 4(h) or Schedule 4(j), a Seller or a Subsidiary
has performed all material obligations required to be performed by it to date
under the Contracts and it is not (with or without the lapse of time or the
giving of notice, or both) in breach or default in any material respect
thereunder and, to the Sellers' knowledge, no other party to any of the
Contracts is (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder.
(a) Litigation; Decrees. Schedule 4(k) sets forth a list of
all lawsuits, claims, proceedings or investigations pending, or, to the Sellers'
knowledge, threatened, as of the date of this Agreement, by or against or
affecting a Seller or a Subsidiary or any of the Acquired Assets, which (i)
relate to or involve more than $25,000 (other than claims which are, or would be
but for retentions, deductibles, the nonpayment of premiums or other defenses by
carriers relating to alleged acts or omissions of the insureds, covered by the
insurance policies set forth on Schedule 4(l)), (ii) seek any injunctive relief,
or (iii) relate to the transactions contemplated by this Agreement. Except as
disclosed on Schedule 4(k), none of the Sellers or the Subsidiaries is in
default under any material judgment, order or decree of any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, applicable to it or any of the Acquired
Assets.
(b) Insurance. The insurance policies currently maintained
with respect to each Seller and each Subsidiary and the Acquired Assets are
listed on Schedule 4(l). All such policies are in full force and effect. The
Sellers have heretofore made available to the Buyer true and complete copies of
all such policies.
(i) Benefit Plans. Schedule 4(m)(i) contains a list of all
"employee pension benefit plans" (as defined in section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes
referred to herein as "Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(k) of ERISA), bonus, stock option, stock purchase, deferred
compensation plans or arrangements, and other employee fringe benefit plans (all
the foregoing being herein called "Benefit Plans") maintained, or contributed
to, by any Seller or Subsidiary for the benefit of any employees of any Seller
or Subsidiary who are employed primarily in the Acquired Business. The Sellers
have delivered to the Buyer true, complete and correct copies of (1) each
Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions
thereof), (2) the most recent annual report on Form 5500 filed with the Internal
Revenue Service with respect to each Benefit Plan (if any such report was
required), (3) the most recent summary plan description for each Benefit Plan
for which such a summary plan description is required and (4) each trust
agreement and group annuity contract relating to any Benefit Plan.
(ii) Each Benefit Plan has been administered in all material
respects in accordance with its terms and the applicable provisions of ERISA and
the Code. Except as disclosed in Schedule 4(m)(ii)-l, all material reports,
returns and similar documents with respect to the Benefit Plans required to be
filed with any governmental agency or distributed to any Benefit Plan
participant have been duly and timely filed or distributed. Except as disclosed
in Schedule 4(m)(ii)-2, there are no investigations by any governmental agency,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Benefit Plans), suits or proceedings against or
involving any Benefit Plan or asserting any rights or claims to benefits under
any Benefit Plan that could reasonably give rise to any material liability, and,
to the Sellers' knowledge, there are no facts that could reasonably give rise to
any material liability in the event of any such investigation, claim, suit or
proceeding.
(iii) Except as disclosed in Schedule 4(m)(iii), all
contributions to, and payments from, the Benefit Plans that may have been
required to be made in accordance with the Benefit Plans have been timely made.
(iv) No "prohibited transaction" (as defined in Section 4975
of the Code or Section 406 of ERISA) has occurred that involves the assets of
any Benefit Plan and that could subject the Acquired Business or any of its
employees, or, to the Sellers' knowledge, a trustee, administrator or other
fiduciary of any trusts created under any Benefit Plan, to any material tax or
penalty on prohibited transactions imposed by Section 4975 of ERISA or the
sanctions imposed under Title I of ERISA. None of the Sellers nor any trustee,
administrator or other fiduciary of any Benefit Plan nor any agent of any of the
foregoing has engaged in any transaction or acted or failed to act in a manner
that could subject the Acquired Business to any material liability for breach of
fiduciary duty under ERISA or any other applicable law. No liability under Title
IV of ERISA has been incurred by the Sellers, the Subsidiaries or their
affiliates within six years prior to the date hereof that has not been satisfied
in full and no condition exists that presents a material risk of incurring such
liability.
(v) Except as disclosed in Schedule 4(m)(v), at no time within
the five years preceding the Closing Date has any Seller or Subsidiary been
required to contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) or incurred any withdrawal liability, within the meaning of
Section 4201 of ERISA, which liability has not been fully paid as of the date
hereof, or announced an intention to withdraw, but not yet completed such
withdrawal, from any multiemployer plan.
(vi) None of the Sellers maintains or contributes to a Pension
Plan which is subject to Section 302 of ERISA or Section 412 of the Code.
(vii) With respect to any Benefit Plan that is an employee
welfare benefit plan, except as disclosed in Schedule 4(m)(vii), (1) no such
Benefit Plan is funded through a welfare benefits fund, as such term is defined
in Section 419(e) of the Code and (2) each such Benefit Plan that is a group
health plan, as such term is defined in Section 5000(b)(1) of the Code, complies
with the applicable requirements of Section 498OB(f) of the Code.
(c) Absence of Changes or Events. Except as disclosed on
Schedule 4(n), since the date of the Balance Sheet, there has not been any
material adverse change in the assets, financial condition or results of
operations of the Acquired Business other than changes relating to the economy
in general or the Acquired Business's industry in general and not specifically
related to the Acquired Business. Since the date of the Balance Sheet, each
Seller has conducted its portion of the Acquired Business in the ordinary course
and in substantially the same manner as presently conducted and has made all
reasonable efforts consistent with past practice to preserve its relationships
with customers, suppliers and others with whom it deals, and none of the Sellers
has taken any action that, if taken after the date hereof, would constitute a
material breach of any of the covenants set forth in Section 5(b).
(i) Compliance with Applicable Laws; Environmental Matters.
Except as set forth in Schedule 4(o), to the knowledge of the Sellers, each
Seller and each Subsidiary is in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any governmental authority or
instrumentality, domestic or foreign, except where noncompliance would not have
a material adverse effect on the assets, financial condition or results of
operations of the Acquired Business. Except as set forth in Schedule 4(o), no
Seller has received any written communication from a governmental authority that
alleges that any Seller or Subsidiary is not in compliance, in respect of the
Acquired Business, in all material respects, with material federal, state, local
or foreign laws, ordinances, rules and regulations.
(ii) Except as set forth in Schedule 4(o), to the knowledge of
the Sellers, none of the operations or properties of the Sellers and the
Subsidiaries is the subject of any federal, state or foreign investigation, in
respect of the Acquired Business, evaluating whether any remedial action is
needed to respond to a release of any Hazardous Substance (as defined below)
into the environment, and none of the Sellers or the Subsidiaries has received
any written communication from a governmental authority that alleges that any
Seller or a Subsidiary is not in compliance, and the Sellers and the
Subsidiaries are in compliance, in all material respects, with all federal,
state, local or foreign laws, ordinances, codes, rules and regulations relating
to the environment ("Environmental Laws") in respect of the Acquired Business,
except where noncompliance would not have a material adverse effect on the
assets, financial condition or results of operations of the Acquired Business.
The Sellers and the Subsidiaries have filed all material notices required in
respect of the Acquired Business to be filed by them under any Environmental Law
indicating past or present treatment, storage or disposal of a Hazardous
Substance or reporting a spill or release of a Hazardous Substance into the
environment. None of the Sellers or any of the Subsidiaries has any material
contingent liabilities in respect of the Acquired Business in connection with
any Hazardous Substance that individually or in the aggregate would have a
material adverse effect on the assets, financial condition or results of
operations of the Acquired Business. "Hazardous Substance" includes: (i) any
hazardous, toxic or dangerous waste, substance or material defined as such in
(or for the purposes of) the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, and any so-called superfund or superlien law, or
any other Environmental Law, including Environmental Laws relating to or
imposing liability or standards of conduct concerning any hazardous or toxic
waste, substance or material in effect on the date of this Agreement, (ii)
asbestos or polychlorinated biphenyls, and (iii) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any federal,
state, foreign or local governmental authority pursuant to any Environmental Law
or any health and safety or similar law, code, ordinance, rule or regulation,
order or decree, and which could reasonably pose a hazard to the health and
safety of workers at or users of any properties included in the Acquired Assets
or cause damage to the environment.
(d) Employee and Labor Relations. Except as set forth on
Schedule 4(p), (i) there is no labor strike, dispute, or work stoppage or
lockout actually pending, or, to the Sellers' knowledge, threatened, against or
affecting the Acquired Business and during the past two years there has not been
any such action; (ii) to the Sellers' knowledge, no union organizational
campaign is in progress with respect to the employees of the Acquired Business
and no question concerning representation exists respecting such employees;
(iii) each Seller and each Subsidiary is in compliance in all material respects
with all laws applicable to the Acquired Business respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice; (iv) there is no unfair labor
practice charge or complaint against any Seller or any Subsidiary in connection
with the Acquired Business pending, or, to the Sellers' knowledge, threatened,
before the National Labor Relations Board; (v) there is no pending, or, to the
Sellers' knowledge, threatened, grievance that, if adversely decided, would have
a material adverse effect on the assets, financial condition or results of
operations of the Acquired Business; and (vi) no charges with respect to or
relating to the Acquired Business are pending before the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices that, if adversely decided, would
have a material adverse affect on the assets, financial condition or results of
operations of the Acquired Business.
(e) Licenses; Permits. Except as disclosed on Schedule 4(q),
all material licenses, permits or authorizations issued or granted to the
Sellers by local, state or federal governmental authorities or agencies and
applicable to the Acquired Business are validly held by a Seller or a
Subsidiary, the Sellers and the Subsidiaries have complied with all requirements
in connection therewith and the same will not be subject to suspension,
modification or revocation as a result of this Agreement or the consummation of
the transactions contemplated hereby.
(f) Inventory. Except as set forth in Schedule 4(r), all
inventory of the Acquired Business is of a quality usable and salable in the
ordinary course of business, except for items of obsolete materials and
materials of below-standard quality (all of which have been written down in the
Balance Sheet to realizable market value or for which adequate reserves have
been provided therein, in each case to the extent required by generally accepted
accounting principles as applied by the Sellers (including methods and
practices) in the preparation of the Balance Sheet), or which have become
obsolete in the ordinary course of business since the date of the Balance Sheet.
(g) Securities Act of 1933. The Buyer Notes being acquired by
MFI pursuant to this Agreement are being acquired for investment only and not
with a view to any public distribution thereof, and MFI will not offer to sell
or otherwise dispose of the Buyer Notes so acquired by it in violation of any of
the registration requirements of the Securities Act of 1933.
5. Covenants of the Sellers. The Sellers jointly and severally covenant and
- ------------------------ agree as follows: (a) Access. Prior to the Closing the
Sellers will give the Buyer and its representatives, employees, counsel and
accountants reasonable access, during normal business hours and upon reasonable
notice, to the personnel, properties, books and records of the Sellers and the
Subsidiaries; provided, however, that such access does not unreasonably disrupt
the normal operations of any Seller or any Subsidiary. (b) Conduct of the
Sellers. Except with the prior written consent of the Buyer or as otherwise
expressly permitted by this Agreement, the Sellers shall not take any action, at
any time on or after the date hereof and at or prior to the Closing, that would,
or that could reasonably be expected to, result in (i) any of the
representations and warranties of the Sellers set forth in this Agreement that
are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) any of the conditions to the purchase and sale of the
Acquired Assets set forth in Section 3 not being satisfied. (c) Preservation of
the Acquired Business. Each Seller will carry on the Acquired Business
diligently and in the ordinary course, substantially in the same manner as
heretofore conducted, and keep its retail operations substantially intact,
including its present relationships with suppliers and customers and others
having business relations with it; provided, however, that the Sellers may
remove cash from the Acquired Business in any manner and to any extent on or
prior to the Closing Date consistent with the Sellers' obligation to include in
the Acquired Assets the Closing Cash Amount, the Store Cash and the Trust Cash.
The Sellers will maintain, at all times prior to the Closing Date, in inventory
quantities of raw materials and other supplies and materials sufficient to allow
the Buyer to continue and operate the Acquired Business, after the Closing Date,
free from any shortage of such items (assuming the Buyer causes the Acquired
Business to continue to purchase such items after the Closing Date in the
ordinary course consistent with past practice). Except with the written consent
of the Buyer, the Sellers shall not amend in any material respect or terminate
any of the agreements identified in Schedule 3(a)(vii) or enter into any new
agreement (other than any supply agreement or contract, with respect to which
the Sellers have consulted with the Buyer) relating to the Acquired Business
which, if existing as of the date hereof, would be required to be disclosed on
any of the Schedules to the representations and warranties of the Sellers in
Section 4 of this Agreement. (d) Confidentiality. The Sellers will keep
confidential, and cause their affiliates and instruct their and their
affiliates' officers, directors, employees and advisors to keep confidential,
all information concerning the transactions contemplated by this Agreement
(including as to the parties hereto) and all nonpublic information relating to
the Acquired Business, except as required by law or administrative process and
except for information which becomes public other than as a result of a breach
of this Section 5(d). Notwithstanding the foregoing, affiliates of MFI who
became parties to the Buyer Note Agreement and holders of Buyer Notes shall be
deemed to have complied with this Section 5(d) if they comply with Section 13.12
of the Buyer Note Agreement. (e) Insurance. The Sellers shall keep, or cause to
be kept, all insurance policies set forth on Schedule 4(l), or replacements
therefor with reputable firms and providing no lesser coverage (in amount or
scope), in full force and effect through the close of business on the Closing
Date. (f) Other Transactions. Prior to the Closing, none of the Sellers, the
Subsidiaries nor any other affiliate of the Sellers shall, directly or
indirectly, encourage, solicit, initiate or participate in discussions or
negotiations with any corporation, partnership, person, or other entity or group
(other than the Buyer and its representatives) concerning any merger, sale of
securities, sale of substantial assets or similar transaction involving the
Sellers and the Subsidiaries. In the event that any Seller or any Subsidiary
receives an offer relating to any such transaction, the Sellers will promptly
notify the Buyer of such proposal.
6. Representations and Warranties of the
Buyer and Capricorn. The Buyer and Capricorn jointly and severally hereby
represent and warrant to the Sellers as follows: (a) Authority. The Buyer is a
corporation and Capricorn is a limited partnership, duly organized, validly
existing and in good standing under the laws of the State of Delaware. The Buyer
has all requisite corporate, and Capricorn has all requisite partnership, power
and authority to enter into this Agreement and the Other Agreements and to
consummate the transactions contemplated hereby and thereby. All corporate or
partnership acts and other proceedings required to be taken by the Buyer or
Capricorn to authorize the execution, delivery and performance of this Agreement
and the Other Agreements and the consummation of the transactions contemplated
hereby and thereby have been duly and properly taken. This Agreement has been
duly executed and delivered by the Buyer and Capricorn and constitutes a valid
and binding obligation of the Buyer and Capricorn, enforceable against the Buyer
and Capricorn in accordance with its terms. When executed and delivered at the
Closing, the Other Agreements will be duly executed and delivered by the Buyer
and will constitute its valid and binding obligation, enforceable against it in
accordance with their terms. The execution and delivery of this Agreement and
the Other Agreements do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the terms hereof and thereof
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation, or result in the
creation of any Lien upon any of the properties or assets of the Buyer or
Capricorn under, any provision of (i) the General Corporation Law or the Revised
Uniform Limited Partnership Act of the State of Delaware, (ii) the Certificate
of Incorporation or By-laws of the Buyer or the Partnership Agreement of
Capricorn, (iii) any material note, bond, mortgage, indenture, deed of trust,
license, lease, contract, commitment or agreement to which the Buyer or
Capricorn is a party or by which any of its properties are bound, or (iv) any
judgment, order, or decree, or material statute, law, ordinance, rule or
regulation applicable to the Buyer or Capricorn or their respective properties
or assets, other than, in the case of clause (iii) above, any such conflicts,
violations, defaults, rights or Liens that individually or in the aggregate
would not have a material adverse effect on the assets, financial condition or
results of operations of the Buyer or Capricorn. No material consent, approval,
license, permit, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is required to
be obtained or made by or with respect to the Buyer or Capricorn in connection
with the execution and delivery of this Agreement and the Other Agreements or
the consummation by the Buyer or Capricorn of the transactions contemplated
hereby and thereby, other than compliance with and filings under the HSR Act.
(b) Actions and Proceedings, etc. There are no (i) outstanding judgments,
orders, writs, injunctions or decrees of any court, governmental agency or
arbitration tribunal against the Buyer or Capricorn which have a material
adverse effect on the ability of the Buyer or Capricorn to consummate the
transactions contemplated hereby or (ii) actions, suits, claims or legal,
administrative or arbitration proceedings or investigations pending or, to the
best knowledge of the Buyer or Capricorn, threatened against the Buyer or
Capricorn, which are likely to have a material adverse effect on the ability of
the Buyer or Capricorn to consummate the transactions contemplated hereby. (c)
Securities Act of 1933. The Subsidiary Shares being purchased by the Buyer
pursuant to this Agreement are being acquired for investment only and not with a
view to any public distribution thereof, and the Buyer will not offer to sell or
otherwise dispose of the Subsidiary Shares so acquired by it in violation of any
of the registration requirements of the Securities Act of 1933 and applicable
state securities or "blue sky" laws. (d) Availability of Funds. The Buyer and
Capricorn have no current reason to believe that the financing necessary to
consummate the transactions contemplated by this Agreement, the License Purchase
Agreement and the OCC/HSC Agreement will not be available on a timely basis for
the transactions contemplated by this Agreement. The Buyer estimates that it
will require approximately $15,000,000 in financing for purposes of payment by
the Buyer of the cash portion of the Purchase Price and the cash portion of the
purchase price to be payable under the OCC/HSC Agreement. Capricorn hereby
commits to provide or obtain all such financing within 30 days following the
execution and delivery of this Agreement. (e) Status of Buyer. The Buyer was
incorporated on February 13, 1996. The Buyer has engaged in no business other
than in connection with its organization and the negotiation of this Agreement,
the OCC/HSC Agreement and the Other Agreements (collectively, the "Transaction
Documents") and has no material liabilities or obligations of any nature
(whether accrued, absolute, contingent, unasserted or otherwise), except those
set forth in the Transaction Documents and obligations to pay fees and expenses
incurred in connection therewith which as of the date of this Agreement are
estimated to not exceed $1,900,000. True and correct copies of the Buyer's
Certificate of Incorporation and By-laws, in the form they will be in effect on
the Closing Date, have been furnished to MFI. (f) OCC/HSC Agreement. The OCC/HSC
Agreement includes, or incorporates by reference, all of the agreements of the
parties thereto with respect to the transactions referred to therein. The Buyer
will not waive or amend any provision of the OCC/HSC Agreement without the prior
written consent of MFI, which consent shall not be unreasonably withheld. (g)
Management Incentives. The Buyer will offer existing MFI management employment
agreements and up to 15% of the equity of the Buyer, such equity to be offered
in the form of options with 5% vesting over time with no performance minimums,
5% vesting over time with performance criteria based on the "management case",
and up to 5% for value obtained in excess of the "management case." All of the
management options will be subject to customary antidilution adjustment
provisions. (h) Pro Forma Balance Sheet of Buyer. Attached as Schedule 6(h)
hereto is an unaudited pro forma balance sheet of the Buyer which has been
presented as if the transactions contemplated by this Agreement and the OCC/HSC
Agreement are consummated as of August 31, 1996 based on the assumptions that
(i) various actual and estimated information received from MFI and Chocamerican
accurately reflects the assets and liabilities to be transferred to the Buyer at
the closings under this Agreement and the OCC/HSC Agreement and (ii) transaction
costs payable by the Buyer in connection with such transactions equal
$1,900,000.
7. Covenants of the Buyer and Capricorn. The Buyer and Capricorn
jointly and severally covenant and agree as follows: (a) Covenants and
Agreements of the Buyer in the OCC/HSC Agreement. The Buyer will observe or
perform each term, covenant, condition and agreement on its part to be observed
or performed contained in the OCC/HSC Agreement. (b) No Additional
Representations. The Buyer and Capricorn acknowledge that none of the Sellers,
the Subsidiaries or any other person has made any representation or warranty,
expressed or implied, as to the accuracy or completeness of any information
regarding any Seller, the Subsidiaries, the Acquired Business, the Acquired
Assets or Assumed Liabilities, except as expressly set forth in this Agreement,
the Schedules hereto or any certificate delivered by the Sellers at the Closing,
and none of the Sellers, the Subsidiaries or any other person will have or be
subject to any liability to the Buyer or any other person resulting from the
distribution to the Buyer, or the Buyer's use of, any such information, except
as expressly set forth in this Agreement. (c) Confidentiality. Except as
contemplated by this Agreement, the Buyer and Capricorn will keep confidential,
and cause its affiliates and instruct its and its affiliates' officers,
directors, employees and advisors to keep confidential, all nonpublic
information relating to the Sellers, the Subsidiaries or the Acquired Business,
except as required by law or administrative process and except for information
which becomes public other than as a result of a breach of this Section 7(c);
provided, however, that the obligations of the Buyer and Capricorn under this
Section 7(c) shall terminate, with respect to information concerning the
Acquired Business (but not with respect to other information) upon any
occurrence of the Closing. (d) Conduct of the Buyer. Except with the prior
written consent of the Sellers, the Buyer shall not take any action, at any time
on or after the date hereof and at or prior to the Closing, that would, or that
could reasonably be expected to, result in (i) any of the representations and
warranties of the Buyer set forth in this Agreement that are qualified as to
materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or (iii) any
of the conditions to the purchase and sale of the Acquired Assets set forth in
Section 3 not being satisfied. 8. Mutual Covenants. Each of the Sellers, the
Buyer and Capricorn covenants and agrees as follows: (a) Best Efforts. Subject
to the terms and conditions of this Agreement, each party will use its best
efforts to cause the Closing to occur. The Buyer acknowledges that certain
consents to the transactions contemplated by this Agreement may be required from
third parties and that such consents have not been obtained. Except with respect
to liabilities which constitute Excluded Liabilities, the Buyer agrees that the
Sellers shall not have any liability whatsoever to the Buyer arising out of or
relating to the failure to obtain any consents that may be required in
connection with the transactions contemplated by this Agreement or because of
the termination of any contract as a result thereof. The Buyer further agrees
that no representation, warranty or covenant of the Sellers contained herein
shall be breached or deemed breached as a result of (i) the failure to obtain
any such consent or as a result of any such termination or (ii) any lawsuit,
action, claim, proceeding or investigation commenced or threatened by or on
behalf of any persons arising out of or relating to the failure to obtain any
such consent or any such termination. The Sellers and the Buyer shall use their
best efforts to, and shall cooperate with each other to obtain as soon as
practicable, the consent, approval or waiver, in form reasonably satisfactory to
the Sellers and the Buyer, from any person whose consent, approval or waiver is
necessary to assign or transfer any Acquired Asset to the Buyer or otherwise to
satisfy the conditions set forth in Sections 3(a)(vii) and 3(b)(vii), and to
remove the Sellers and their affiliates as primary obligors or guarantors under
the leases of the stores included in the Acquired Assets (the "Acquired
Leases"). It is understood and agreed that such best efforts and cooperation
shall not include any requirement of the Sellers or the Buyer or any of their
respective affiliates to expend money, commence or defend any litigation or
offer or grant any accommodation (financial or otherwise) to any third party
(except to the extent the payment of a fee to or the reimbursement of the
expenses of any landlord under any Acquired Lease is specifically contemplated
by such Acquired Lease or, if not so contemplated, is reasonably comparable to
those so contemplated, in which cases the Buyer shall pay all such amounts). The
covenants contained in this Section 8(a) shall continue after the Closing Date.
(b) Cooperation. The Buyer and MFI shall cooperate with each other for a period
of 90 days after the Closing to ensure the orderly transition of the Acquired
Assets from the Sellers to the Buyer and to minimize any disruption to the
respective businesses of the Sellers and the Buyer that might result from the
transactions contemplated hereby. (c) Publicity. MFI and the Buyer agree that,
from the date hereof through the Closing Date, no public release or announcement
concerning the transactions contemplated hereby shall be issued by either party
without the prior consent of the other party, and, to the extent practical, of
each person named therein (which consent shall not be unreasonably withheld),
except as such release or announcement may be required by any franchising or
other law or the rules or regulations of any United States or foreign securities
exchange, in which case the party required to make the release or announcement
shall allow the other party reasonable time to comment on such release or
announcement in advance of such issuance. (d) Antitrust Notification. Each of
the Sellers and the Buyer (and their respective ultimate parent entities) will
as promptly as practicable, but in no event later than five business days
following the execution and delivery of this Agreement, file with the United
States Federal Trade Commission (the "FTC") and the United States Department of
Justice (the "DOJ") the notification and report form, if any, required for the
transactions contemplated hereby and any supplemental information requested in
connection therewith pursuant to the HSR Act. Any such notification and report
form and supplemental information will be in substantial compliance with the
requirements of the HSR Act. Each of the Sellers, the Buyer and Capricorn shall
furnish to the other such necessary information and reasonable assistance as the
other may request in connection with its preparation of any filing or submission
which is necessary under the HSR Act. The Sellers and the Buyer shall keep each
other apprised of the status of any communications with, and inquiries or
requests for additional information from, the FTC and the DOJ and shall comply
promptly with any such inquiry or request. Each of the Sellers, the Buyer and
Capricorn will use its best efforts to obtain any clearance required under the
HSR Act for the purchase and sale of the Acquired Assets; provided, however,
that such best efforts obligation shall not require the Buyer to restructure any
of the transactions contemplated by, or to divest any of the assets to be
acquired pursuant to, either this Agreement, the License Purchase Agreement or
the OCC/HSC Agreement. (i) Records. On the Closing Date, the Sellers shall
deliver or cause to be delivered to the Buyer all original agreements,
documents, books, records and files (collectively, "Records"), in the possession
of the Sellers relating to the Acquired Business of the Sellers and the
Subsidiaries, subject to the following exceptions: (A) The Buyer recognizes that
certain Records may contain incidental information relating to the Sellers and
the Subsidiaries or may relate primarily to Excluded Assets and/or Excluded
Liabilities, and that the Sellers may retain such Records and shall provide
copies of the relevant portions thereof to the Buyer; (B) The Sellers may retain
all Records relating to the sale of the Acquired Assets, including bids received
from other parties and analyses relating to the Acquired Business; (C) The
Sellers may retain any Tax Returns. The Buyer shall be provided with copies of
such Tax Returns only to the extent that they relate to the Acquired Business or
the Acquired Assets or the Buyer's obligations under this Agreement. The Sellers
shall not dispose of or destroy such records without first offering to turn over
possession thereof to the Buyer (at the Buyer's expense) by written notice to
the Buyer at least 30 days prior to the proposed date of such disposition or
destruction; and (D) the Sellers shall retain their respective corporate record
books and stock records containing their certificates of incorporation, bylaws,
minutes of the meetings of the board(s) of directors and stockholders, and
similar corporate governance documents. (ii) After the Closing, upon reasonable
written notice, the Buyer and the Sellers agree to furnish or cause to be
furnished to each other and their representatives, employees, counsel and
accountants access, during normal business hours, access to such information
(including Records pertinent to the Acquired Business) and assistance relating
to the Acquired Business as is reasonably necessary for financial reporting and
accounting matters, the preparation and filing of any Tax Returns or the defense
of any Tax claim or assessment; provided, however, that such access does not
unreasonably disrupt the normal operations of the Sellers, the Buyer or the
Acquired Business. (e) Supplemental Disclosure. Prior to the Closing, each party
shall supplement or amend its Schedules provided in connection with its
representations and warranties in this Agreement to include any information
hereafter obtained which would have been required to be set forth or described
in any such Schedule had it been existing or known as of the date of this
Agreement or which is necessary to complete or correct such Schedule.
Notwithstanding the foregoing, for purposes of determining the accuracy of such
representations and warranties for purposes of (x) Sections 3(a)(i) and 3(b)(i)
or (y) Sections 11(b)(i) and 11(c)(i), such Schedules shall be deemed to
include, respectively, (x) only that information contained therein on the date
of this Agreement or (y) all information contained in such Schedules as so
supplemented or amended. (f) 338 Elections.With respect to the purchase by the
Buyer of all of the Subsidiary Shares held by the Sellers, (i) if the Buyer
requests, the Sellers agree to join with the Buyer in making elections under
either or both of Sections 338(g) and 338(h)(10) of the Code (and any comparable
election under state or local tax law) for any of the Subsidiaries (the
"Election"), (ii) the Sellers and the Buyer shall, as promptly as practicable
following the Closing, cooperate with each other to take all actions necessary
and appropriate (including filing such forms, returns, elections, schedules and
other documents as may be required) to effect and preserve timely Elections in
accordance with the provisions of the Treasury Regulation or any comparable
provision of state or local tax law) or any successor provisions, and (iii) the
Sellers and the Buyer shall report the purchase by the Buyer of stock of any of
the Subsidiaries consistent with the Election (and any comparable elections
under state or local tax law) and shall take no position to the contrary thereto
in any Tax Return, any proceeding before any taxing authority or otherwise. In
connection with an Election, the Buyer shall determine the Aggregate Deemed
Sales Price (as defined under applicable Treasury Regulations) and the
allocation of such Aggregate Deemed Sales Price among the assets of the
Subsidiaries, as the case may be. Such allocation of the Aggregate Deemed Sales
Price shall be made in accordance with Section 338(b) of the Code and any
applicable Treasury Regulations. The Sellers and the Buyer (i) shall be bound by
such allocation for purposes of determining any Taxes, (ii) shall prepare and
file all Tax Returns to be filed with any taxing authority in a manner
consistent with such allocation, and (iii) shall take no position inconsistent
with such allocation in any Tax Return, any proceeding before any taxing
authority or otherwise. In the event that such allocation is disputed by any
taxing authority, the party receiving notice of such dispute shall promptly
notify the other party concerning resolution of such dispute. To the extent that
the Purchase Price is adjusted by reason of any payment under this Agreement or
otherwise, (i) the Aggregate Deemed Sales Price shall be adjusted to reflect
such change, (ii) the provisions of this Section 8(g) shall be followed in
redetermining the allocation of the Aggregate Deemed Sales Price, and (iii) the
parties to this Agreement will, to the extent required by law, file amended Tax
Returns consistent with such revised allocation. Notwithstanding the foregoing,
any such Election shall be made in a manner consistent with the Allocation
Schedule as provided for in Section 1(f).
9. Employee and Related Matters. (a)
Employment Offers. The Buyer and the Sellers agree that all employees of the
Sellers employed on the Closing Date (collectively, the "Employees") shall be
offered employment with the Buyer on terms consistent with the Sellers'
compensation and employee benefits standards as in effect at the Closing Date
and giving such employees service credit for their terms of employment with the
Sellers (all such employees who accept such employment offers are hereinafter
referred to as "Continued Employees"). The Buyer agrees that each employment
offer to an Employee shall be conditioned upon the waiver in writing by each
such employee of any right of such employee to severance payments from any of
the Sellers or their affiliates and after the Closing the Buyer shall indemnify
and hold harmless the Sellers and their affiliates from any claims by any such
employee with respect thereto. Notwithstanding the foregoing, it is understood
that nothing in this Agreement shall prohibit or restrict the Buyer from
terminating Continued Employees, changing compensation levels or other terms and
conditions of employment (other than service credit for past employment with the
Sellers) subsequent to the Closing Date. (b) Employee Withholding and Reporting.
The Sellers shall transfer to the Buyer any records (including, but not limited
to, Forms W-4 and Employee Withholding Allowance Certificates) relating to
withholding and payment of income and employment taxes (federal, state and
local) and FICA taxes with respect to wages paid by the Sellers during the 1996
calendar year to any employees retained by the Buyer. The Buyer shall, to the
extent permitted by applicable law, provide such employees with Forms W-2, Wage
and Tax Statements for the 1996 calendar year setting forth the wages and taxes
withheld with respect to such employees for the 1996 calendar year by the
Sellers and the Buyer as predecessor and successor employers, respectively. The
Buyer and the Sellers shall also comply with the filing requirements set forth
in Revenue Procedure 84-77, 1984-2 C.B. 753, to implement this Section 9(b). (c)
Nothing in this Section 9, express or implied, is intended to confer or shall
confer upon any of the Sellers' employees, former employees or any Continued
Employee any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement, including, without limitation, any rights of
employment.
10. Further Assurances. From time to time, as and when requested by
either party hereto, the other party shall execute and deliver, or cause to be
executed and delivered, all such documents and instruments and shall take, or
cause to be taken all such further or other actions, as such other party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement. (i) Indemnification. Tax Indemnification. MFI
agrees to indemnify the Buyer, its affiliates and each of their respective
officers, directors, employees and agents and hold them harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) (collectively, "Loss") suffered or incurred by any such indemnified
party arising from Taxes applicable to the Acquired Business or the Acquired
Assets, in each case attributable to taxable years or periods ending at the time
of or prior to the Closing and, with respect to any Straddle Period, the portion
of such Straddle Period ending at the time of the Closing, except to the extent
that such Taxes constitute "Accrued expenses" for purposes of determining the
Working Capital Amount. In addition, MFI agrees to indemnify the Buyer, its
affiliates and each of their respective officers, directors, employees and
agents and hold them harmless from any Loss for Taxes arising from any
Subsidiary's membership in an "affiliated group" (as defined in Section 1504 of
the Code) prior to the Closing Date under Treasury Regulations Section 1.1502-6
(or similar provisions of state, local or foreign law) as a transferee or
successor, by contract or law. The Buyer shall be liable for and shall pay and
shall indemnify the Sellers, their affiliates and each of their respective
officers, directors, employees and agents for all Taxes applicable to the
Acquired Business or the Acquired Assets that (x) are attributable to taxable
years or periods beginning immediately after the Closing or, with respect to any
Straddle Period, the portion of such Straddle Period beginning immediately after
the Closing, or (y) which constitute "Accrued expenses" for purposes of
determining the Working Capital Amount. For purposes of this Section 11(a), any
Straddle Period shall be treated on a "closing of the books" basis as two
partial periods, one ending at the time of the Closing and the other beginning
immediately after the Closing; provided, however, that Taxes (such as property
Taxes) imposed on a periodic basis shall be allocated pro rata on a daily basis
in accordance with the principles under Section 164(d) of the Code. "Straddle
Period" means any taxable year or period beginning before and ending after the
Closing. (ii) Notwithstanding paragraph (i), any sales Tax, use Tax, real
property transfer or gains Tax, documentary stamp Tax or similar Tax
attributable to the sale or transfer of the Acquired Business or the Acquired
Assets shall be paid by MFI. The Buyer and the Sellers agree timely to sign and
deliver such certificates or forms as may be necessary or appropriate to
establish an exemption from (or otherwise reduce), or file Tax Returns with
respect to, such Taxes. (iii) MFI or the Buyer, as the case may be, shall
provide prompt reimbursement for any Tax paid by one party all or a portion of
which is the responsibility of the other party in accordance with the terms of
this Section 11(a); provided, however, that any claim for reimbursement asserted
against MFI shall be limited to an offset of the unpaid portions, if any, of the
MFI Series 2 Notes as provided in Section 11(g). Within a reasonable time prior
to the payment of any said Tax, the party paying such Tax shall give notice to
the other party of the Tax payable and the portion which is the liability of
each party, although failure to do so will not relieve the other party from its
liability hereunder except to the extent the indemnifying party is materially
adversely affected thereby. (iv) The Buyer (or MFI, as the case may be) shall
promptly notify MFI (or the Buyer, as the case may be) in writing, upon receipt
by the Buyer (or MFI, as the case may be) or any of its (or their) affiliates of
notice of any pending or threatened federal, state, local or foreign Tax audits,
examinations or assessments which may affect the Tax liabilities for which MFI
(or the Buyer, as the case may be) would be required to indemnify the Buyer (or
MFI, as the case may be) pursuant to paragraph (i) of this Section 11(a),
although failure to do so will not relieve MFI (or the Buyer, as the case may
be) from its liability hereunder, except to the extent MFI (or the Buyer, as the
case may be) is materially adversely affected thereby. MFI shall have the right
to control any Tax audit or administrative or court proceeding relating to
taxable periods ending at the time of or before the Closing, and to employ
counsel of their choice at their expense; provided, however, that the Buyer
shall be entitled to participate at its own expense in (but shall have no right
to control) any Tax Audit or administrative or court proceeding relating to
taxable periods ending at the time of or before the Closing to the extent that
its interest could be materially adversely affected. In the case of the Straddle
Period, MFI shall be entitled to participate at its expense in (but, except as
provided below, shall have no right to control) any Tax audit or administrative
or court proceeding relating in whole or in part to Taxes attributable to the
portion of such Straddle Period ending at the time of the Closing and, with the
written consent of the Buyer, and at MFI's sole expense, may assume the entire
control of such audit or proceeding. Neither the Buyer nor any of its affiliates
may settle any Tax claim for any taxable year or period ending at or before the
time of the Closing or for any Straddle Period which may be the subject of
indemnification by MFI under paragraph (i) of this Section 11(a) without the
prior written consent of MFI, which consent may not be unreasonably withheld.
(v) After the Closing, each of MFI and the Buyer shall (and shall cause their
respective affiliates to): (1) assist the other party in preparing any Tax
Returns which such other party is responsible for preparing and filing; (2)
cooperate fully in preparing for any audits of, or disputes with taxing
authorities regarding, any Tax Returns relating to the Acquired Business or the
Acquired Assets; (3) make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to Taxes
relating to the Acquired Business or the Acquired Assets; (4) provide timely
notice to the other in writing of any pending or threatened Tax audits or
assessments relating to the Acquired Business or the Acquired Assets for taxable
periods for which the other may have a liability under this Section 11(a); and
(5) furnish the other with copies of all correspondence received from any taxing
authority in connection with any Tax audit or information request with respect
to any such taxable period. (i) MFI shall have no right of contribution against
the Subsidiaries in respect of any indemnification obligation under this Section
11(a). (b) Other Indemnification by MFI. MFI agrees to indemnify the Buyer, its
affiliates and each of their respective officers, directors, employees and
agents and hold them harmless from any Loss suffered or incurred by any such
indemnified party (other than any relating to Taxes for which the exclusive
indemnification provisions are set forth in Section 11(a)) to the extent arising
from: (i) any breach of any representation or warranty of the Sellers contained
in this Agreement or in any Schedule, certificate, instrument or other document
delivered pursuant hereto or thereto (respectively, the "Related Documents")
(regardless of whether such breach is related to any Assumed Liability);
provided that, for purposes of determining the occurrence of a breach of any
representation or warranty of the Sellers in connection with any claim made for
indemnification under this Section 11(b), as well as for determining the amount
of any Losses arising therefrom, (A) the "material adverse change" and the
"material adverse effect" qualifiers shall be disregarded except in the third
line of Section 4(n) and the sixth line of Section 4(o)(i) and (B) the
"material" qualifier shall be disregarded in Section 4(e)(ii), in the 15th line
of Section 4(g), in the seventh, 11th and 14th lines of the last paragraph of
Section 4(j), in the 15th line of Section 4(n), in the 12th line of Section
4(o)(i) (immediately preceding the word "federal"), and in the 24th line of
Section 4(o)(ii); (ii) any breach of any covenant of the Sellers contained in
this Agreement requiring performance after the Closing Date; (iii) any payment
made by the Buyer or any subsidiary thereof on or after the Closing Date under
the Agreement between MFI and Stephens Franchise Finance, Inc. dated July 10,
1991 and the schedules and exhibits thereto (the "Stephens Agreement"); or (iv)
any Excluded Liabilities; provided, however, that MFI shall not have any
liability to the Buyer under clauses (i) and (ii) above unless the aggregate of
all Losses relating thereto for which MFI would, but for this proviso, be liable
exceeds on a cumulative basis an amount equal to $66,667, and then only to the
extent of any such excess; provided further, however, that MFI shall not have
any liability under clauses (i) and (ii) above for any individual items where
the Loss relating thereto is less than $6,000, but individual items where the
Loss relating thereto is less than $6,000 and more than $1,000 shall be
aggregated solely for purposes of the first proviso to this Section 11(b);
provided further, however, that MFI shall not have any liability under clause
(i) above for any breach of a representation or warranty of the Sellers
contained in this Agreement or in any of the Related Documents delivered
pursuant hereto or thereto if the Buyer or Capricorn had actual knowledge of
such breach at the time of the Closing (it being agreed that the burden of proof
of such actual knowledge shall be on MFI); provided further, however, that MFI
shall not have any liability under Section 11(b)(i), (ii) or (iv) to the extent
the liability or obligation arises as a result of any action taken or omitted to
be taken by the Buyer or any of its affiliates; and provided further, however,
that the aggregate amount required to be paid by MFI pursuant to (x) Section
11(b)(i), (ii) or (iii) (other than due to a breach of the Sellers' covenant
with respect to confidentiality set forth in Section 5(d)) shall not exceed
$2,000,000 or (y) Section 11(b)(iii) shall not exceed $200,000, it being agreed
and understood that the limitation to apply to amounts required to be paid under
Section 11(b)(iv) or under Section 11(b)(ii) due to a breach of the aforesaid
confidentiality covenant shall be the maximum purchase price received by the
Sellers pursuant to this Agreement. (a) Indemnification by the Buyer. The Buyer
shall indemnify MFI, its affiliates and each of their respective officers,
directors, employees and agents against and hold them harmless from any Loss
suffered or incurred by any such indemnified party (other than any relating to
Taxes for which the exclusive indemnification provisions are set forth in
paragraph (a) of this Section 11) to the extent arising from: (i) any breach of
any representation or warranty of the Buyer or Capricorn contained in this
Agreement or in any Related Document delivered pursuant hereto or thereto or in
connection herewith; (ii) any breach of any covenant of the Buyer contained in
this Agreement requiring performance after the Closing Date; or (iii) any
Assumed Liabilities or any guarantees of any Assumed Liabilities; provided,
however, that the indemnification baskets and cap from Section 11(b) shall apply
to the Buyer's indemnification obligations under Section 11(c)(i) or (ii) and
the Buyer shall not have any liability under clause (i) above for any breach of
a representation or warranty of the Buyer contained in this Agreement or in any
Related Document delivered pursuant hereto or thereto if the Sellers had actual
knowledge of such breach at the time of the Closing (it being agreed that the
burden of proof of such actual knowledge shall be on the Buyer). (a) Losses Net
of Insurance, etc. The amount of any loss, liability, claim, damage, expense or
Tax for which indemnification is provided under this Section 11 (other than
Section 11(b)(iii)) shall be net of any amounts recovered or recoverable by the
indemnified party under insurance policies with respect to such loss, liability,
claim, damage, expense or Tax and shall be (i) increased to take account of any
net Tax cost incurred by the indemnified party arising from the receipt of
indemnity payments hereunder (grossed up for such increase) and (ii) reduced to
take account of any net Tax benefit realized by the indemnified party arising
from the incurrence or payment of any such loss, liability, claim, damage,
expense or Tax. In computing the amount of any such Tax cost or Tax benefit, the
indemnified party shall be deemed to recognize all other items of income, gain,
loss, deduction or credit before recognizing any item arising from the receipt
of any indemnity payment hereunder or the incurrence or payment of any
indemnified loss, liability, claim, damage, expense or Tax. Any indemnity
payment under this Agreement shall be treated as an adjustment to the Adjusted
Purchase Price, for Tax purposes, unless a final determination (which shall
include the execution of a Form 870-AD or successor form) with respect to the
indemnified party or any of its affiliates causes any such payment not to be
treated as an adjustment to the Adjusted Purchase Price, for United States
federal income Tax purposes. (b) Termination of Indemnification. The obligations
to indemnify and hold harmless a party hereto, (i) pursuant to Section 11(a),
shall terminate at the time the applicable statutes of limitations with respect
to the Tax liabilities in question expire (giving effect to any extension
thereof); (ii) pursuant to Sections 11(b)(i) and (ii) and 11(c)(i) and (ii),
shall terminate on the date that is 18 months after the Closing Date; (iii)
pursuant to Section 11(b)(iii), shall terminate on the earlier to occur of the
scheduled maturity of the MFI Series 1 Notes and such time, if ever, as the
Buyer or a subsidiary shall have received an aggregate amount of payments
pursuant to Section 11(b)(iii) equal to $200,000; and (iv) pursuant to Sections
11(b)(iv) and 11(c)(iii) shall survive indefinitely; provided, however, that
such obligations to indemnify and hold harmless shall not terminate with respect
to any item as to which the person to be indemnified or the related party hereto
shall have, before the expiration of the applicable period, previously made a
claim by delivering a notice to the indemnifying party stating in reasonable
detail the basis of such claim and, in the case of a claim arising from a third
party claim, suit, action or proceeding, stating that the claim has actually
been asserted and including a copy of such claim if in writing or the pleadings
relating to such suit, action or proceeding. (c) Procedures Relating to
Indemnification (Other than under Section 11(a). In order for a party (the
"indemnified party") to be entitled to any indemnification provided for under
this Agreement (other than under Section 11(a) in respect of, arising out of or
involving a claim or demand made by any person, firm, governmental authority or
corporation against the indemnified party (a "Third Party Claim"), such
indemnified party must notify the indemnifying party in writing, and in
reasonable detail, of the Third Party Claim within 10 business days after
receipt by such indemnified party of written notice of the Third Party Claim;
provided, however, that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the indemnifying party
shall have been actually prejudiced as a result of such failure. Thereafter, the
indemnified party shall deliver to the indemnifying party, within five business
days after the indemnified party's receipt thereof, copies of all notices and
documents (including court papers) received by the indemnified party relating to
the Third Party Claim. (d) If a Third Party Claim is made against an indemnified
party, the indemnifying party will be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with counsel
selected by the indemnifying party and reasonably satisfactory to the
indemnified party. Should the indemnifying party so elect to assume the defense
of a Third Party Claim, the indemnifying party will not be liable to the
indemnified party for legal expenses subsequently incurred by the indemnified
party in connection with the defense thereof. If the indemnifying party assumes
such defense, the indemnified party shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party, it being understood that the
indemnifying party shall control such defense. The indemnifying party shall be
liable for the fees and expenses of counsel employed by the indemnified party
for any period during which the indemnifying party has not assumed the defense
thereof (other than during any period in which the indemnified party shall have
failed to give notice of the Third Party Claim as provided above). If the
indemnifying party chooses to defend or prosecute any Third Party Claim, all the
parties hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and (upon the indemnifying party's
request) the provision to the indemnifying party of records and information
which are reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Whether or not the indemnifying
party shall have assumed the defense of a Third Party Claim, the indemnified
party shall not admit any liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the indemnifying party's prior written
consent (which consent shall not be unreasonably withheld). Notwithstanding the
other provisions of this Section 11(f), the Buyer shall be deemed to have
complied with this Section 11(f) as to indemnification under Section 11(b)(iii)
by providing to the Sellers notice as to the amounts and dates of any payment
under the Stephens Agreement. (e) Certain Set-off Rights. All payments, if any,
required to be made by MFI under Section 11(b) shall be made solely by (i) a
dollar for dollar reduction of the amount, if any, then remaining payable, under
the MFI Series 1 Notes, applied first to accrued and unpaid interest and then to
principal, or (ii) in the event the MFI Series 1 Notes have been prepaid and the
escrow arrangements have been established pursuant to the terms thereof, a claim
by the Buyer under such escrow arrangements. All payments, if any, required to
be made by the Sellers under Section 11 other than those set forth in the
preceding sentence shall be made solely by a dollar for dollar reduction of the
amount, if any, then remaining payable, under the MFI Series 2 Notes, applied
first to accrued and unpaid interest and then to principal; provided, however,
that the maximum potential amount (the "Potential Set-Off Amount") of such right
of set-off (which right would allow a maximum set-off against the MFI Series 2
Notes during the first year after the Closing Date of $3,000,000, assuming that
there are no prepayments during such year) shall decrease by $600,000 on each
anniversary of the Closing Date, commencing on the first anniversary thereof.
MFI shall have no right of contribution against the Subsidiaries in respect of
any indemnification obligation under this Section 11(g). (i) Waiver of Other
Remedies. The Buyer acknowledges and agrees that, from and after the Closing,
its sole and exclusive remedy with respect to any and all claims relating to the
subject matter of this Agreement (other than claims of fraud) shall be pursuant
to the indemnification provisions set forth in this Section 11. In furtherance
of the foregoing, the Buyer hereby waives, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights, claims and
causes of action (other than claims of, or causes of action arising from, fraud)
it may have against the Sellers or any of their affiliates, creditors or
stockholders relating to the subject matter of this Agreement arising under or
based upon any federal, state or local statute, law, ordinance, rule or
regulation. (ii) MFI acknowledges and agrees that, from and after the Closing,
its sole and exclusive remedy with respect to any and all claims relating to the
subject matter of this Agreement (other than claims of fraud) shall be pursuant
to the indemnification provisions set forth in this Section 11. In furtherance
of the foregoing, MFI hereby waives, from and after the Closing, to the fullest
extent permitted under applicable law, any and all rights, claims and causes of
action (other than claims of, or causes of action arising from, fraud) it may
have against the Buyer or any of its affiliates, creditors or stockholders
relating to the subject matter of this Agreement arising under or based upon any
federal, state or local statute, law, ordinance, rule or regulation. 5.
Assignment. This Agreement and the rights and obligations hereunder shall not be
assignable or transferable by the Buyer or the Sellers (other than by operation
of law in connection with a merger, a sale of substantially all the assets, or a
liquidation of the Buyer or the Sellers) without the prior written consent of
the other parties hereto (which consent shall not be unreasonably withheld);
provided, however, that the Buyer may assign its right to purchase the Acquired
Assets hereunder to a subsidiary or affiliate of the Buyer without the prior
written consent of the Sellers and, following the Closing Date, may freely
dispose of the Acquired Business and the Sellers may assign their rights
hereunder to their lenders; provided further, however, that no assignment shall
limit or affect the assignor's obligations hereunder; and provided further,
however, that the Buyer Notes (other than the MFI Series 4 Notes and any shares
of the Buyer's common stock issuable upon conversion thereof) shall be
transferable in accordance with their terms, subject to applicable laws and
regulations and subject to the requirement that the Buyer Notes not be
transferred or distributed in respect of MFI's common stock or otherwise in a
manner which could subject the Buyer to reporting under the U.S. federal or U.K.
securities laws. In connection with seeking any such consent, a party proposing
to so assign or transfer its rights and obligations shall give to the party
whose consent is sought reasonable details of the proposed assignment or
transfer, including the proposed method of making adequate provision for such
party's obligations hereunder. 6. No Third-Party Beneficiaries. Except as
provided for indemnified parties in Section 11 and except for the waivers of
other remedies by MFI and the Buyer in Section 11(h), this Agreement is for the
sole benefit of the parties hereto and their permitted assigns and nothing
herein expressed or implied shall give or be construed to give to any person or
entity, other than the parties hereto and such assigns, any legal or equitable
rights hereunder. (a) Termination. Anything contained herein to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date: (i) by
mutual written consent of the Sellers and the Buyer; (ii) by the Sellers if any
of the conditions set forth in Section 3(b) hereof shall have become incapable
of fulfillment, and shall not have been waived by the Sellers; (iii) by the
Buyer if any of the conditions set forth in Section 3(a) hereof shall have
become incapable of fulfillment, and shall not have been waived by the Buyer; or
(iv) by either party hereto, if the Closing does not occur on or prior to
October 30, 1996. (a) In the event of termination by the Sellers or the Buyer
pursuant to this Section 14, written notice thereof shall forthwith be given to
the other parties and the transactions contemplated by this Agreement shall be
terminated, without further action by either party. If the transactions
contemplated by this Agreement are terminated as provided herein: (i) the Buyer
shall return all documents and other material received from any Seller or any
Subsidiary relating to the transactions contemplated hereby, whether so obtained
before or after the execution hereof, to the Sellers; and (ii) all confidential
information received by the Buyer with respect to the Acquired Business shall be
kept confidential. (b) If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 14, this
Agreement shall become void and of no further force and effect, except for the
provisions of (i) Section 16 hereof relating to certain expenses, (ii) Section
8(c) hereof relating to publicity, (iii) Section 23 hereof relating to finder's
fees and broker's fees and (iv) this Section 14. Nothing in this Section 14
shall be deemed to release either party from any liability for any breach by
such party of the terms and provisions of this Agreement or to impair the right
of either party to compel specific performance by the other party of its
obligations under this Agreement. 5. Survival of Representations. The
representations and warranties in this Agreement and in any other document
delivered in connection herewith shall survive the Closing solely for purposes
of Sections 11(b) and 11(c) of this Agreement and shall terminate at the close
of business 18 months following the Closing Date. 6. Expenses. Whether or not
the transactions contemplated hereby are consummated, except as otherwise
expressly provided in this Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses; provided, however, that the
costs and expenses listed on Schedule 16 shall be paid as set forth on Schedule
16. (a) Arbitration. Subject to the provisions of Sections 2(c) and 25, any
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the transactions contemplated hereby, including, without
limitation, the interpretation hereof and any breach, termination or invalidity
hereof, shall be settled exclusively and finally (i) through good faith
negotiation of the parties for a period not in excess of 30 days and (ii) in the
event such negotiations do not yield a settlement within such 30-day period, by
arbitration (irrespective of the magnitude thereof, the amount in controversy or
whether such matter would otherwise be considered justiciable or ripe by a court
or arbitral tribunal). (b) The arbitration shall be conducted in accordance with
the commercial arbitration rules of the American Arbitration Association (the
"Arbitration Rules"), except as those rules conflict with the provisions of this
Section 17, in which event the provisions of this Section 17 shall control. (c)
The arbitral tribunal shall consist of three arbitrators chosen in accordance
with the Arbitration Rules. The arbitration shall be conducted in New York City.
Any submission of a matter for arbitration shall include joint written
instructions of the parties requiring the arbitral tribunal to render a decision
resolving the matters submitted within 60 days following the submission thereof.
(d) Any decision or award of the arbitral tribunal shall be final and binding
upon the parties to the arbitration proceeding. The parties agree that the
arbitral award may be enforced against the parties to the arbitration proceeding
or their assets wherever they may be found and that a judgment upon the arbitral
award may be entered in any court having jurisdiction thereof. (e) All
out-of-pocket costs and expenses incurred by any party in connection with the
resolution of any disagreement, dispute, controversy or claim pursuant to this
Section 17, including, but not limited to, reasonable attorney's fees and
disbursements, shall be borne by the party incurring the same; provided,
however, that the arbitral tribunal shall have the discretion to declare any
party as the "prevailing party" with respect to one or more of the issues that
were the subject of the arbitration and to require the other parties to the
arbitration to reimburse such "prevailing party" for some or all of its costs
and expenses incurred in connection with such proceeding. (f) The costs of the
arbitral tribunal shall be divided evenly between any parties thereto affiliated
with the Sellers, on the one hand, and any parties thereto affiliated with the
Buyer, on the other hand, unless there is a "prevailing party", in which case
the arbitral tribunal may allocate more or all of such costs to the party
thereto that is not the "prevailing party". (g) This Section 17 shall not
prohibit or limit in any way any party from seeking or obtaining preliminary or
interim injunctive or other equitable relief from a court for a breach or
alleged breach of any of the covenants and agreements of another party contained
in this Agreement. 7. Amendments. No amendment to this Agreement shall be
effective unless it shall be in writing and signed by all parties hereto. 8.
Notices. All notices or other communications required or permitted to be given
hereunder shall be in writing and shall be delivered by hand or sent prepaid
telex, cable or telecopy, or sent, postage prepaid, by registered, certified or
express mail, or reputable overnight courier service and shall be deemed given
when so delivered by hand, telexed, cabled or telecopied, or if mailed, three
days after mailing (one business day in the case of express mail or overnight
courier service), as follows: (i) if to Capricorn or the Buyer,
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(ii) if to MFI or the Other Sellers:
Mrs. Fields Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Attention: Larry A. Hodges, President
Telecopy: (801) 463-2183
with a copy to:
Stoel Rives LLP
201 South Main Street
Suite 1100
Salt Lake City, Utah 84111
Attention: Kent W. Larsen
Telecopy: (801) 578-6999
4. Interpretation. The headings contained in this Agreement,
in any Exhibit or Schedule hereto and in the table of contents and index of
defined terms to this Agreement, are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. The phrase
"to the Sellers' knowledge" or similar phrases means the actual knowledge, as of
the time the relevant statement is made, of any officer or director of any of
the Sellers. For purposes of the representations, warranties and covenants
hereunder, references to "the date of this Agreement," "the date hereof" or
other similar phrases shall be deemed to be references to August 13, 1996.
5. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
6. Entire Agreement. This Agreement contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
7. Fees. Each party hereto hereby represents and warrants that
the only broker or finder that has acted in connection with this Agreement or
the transactions contemplated hereby or that may be entitled to any brokerage
fee, finder's fee or commission in respect thereof is Dillon, Read & Co. Inc.
Any fees or commissions payable to Dillon, Read & Co. Inc. in connection with
the transactions contemplated hereby shall be paid as provided on Schedule 16.
8. Severability. If any provision of this Agreement or the
application of any such provision to any person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
(a) Consent to Jurisdiction. Each of the Sellers, Capricorn
and the Buyer irrevocably submits to the exclusive jurisdiction of (i) the
Supreme Court of the State of New York, New York County and (ii) the United
States District Court for the Southern District of New York, solely for the
purposes of seeking specific performance or enforcing an arbitral award arising
out of this Agreement or any transaction contemplated hereby. Each of the
Sellers, Capricorn and the Buyer agrees to commence any such action, suit or
proceeding relating thereto either in the United States District Court for the
Southern District of New York or, if, for jurisdictional reasons, such suit,
action or other proceeding may not be brought in such court, in the Supreme
Court of the State of New York, New York County. Each of the Sellers, Capricorn
and the Buyer further agrees that service of any process, summons, notice or
document by U.S. registered mail to such party's respective address set forth
above shall be effective service of process for any action, suit or proceeding
in New York with respect to any matters to which it has submitted to
jurisdiction as set forth above in this Section 25(a). Each of the Sellers,
Capricorn and the Buyer irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding described above in (i) the
Supreme Court of the State of New York, New York County or (ii) the United
States District Court for the Southern District of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
(b) Should any litigation be commenced in connection with the
matters described in the preceding Section 25(a), the party prevailing shall be
entitled, in addition to such other relief as may be granted, to a reasonable
sum for such party's attorneys' fees and expenses determined by the court in
such litigation or in a separate action brought for that purpose.
9. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
applicable to agreements made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first written above.
MRS. FIELDS INC.
By:/s/Larry A. Hodges
Name:Larry A. Hodges
Title:President/CEO
MRS. FIELDS DEVELOPMENT CORPORATION
By:/s/Larry A. Hodges
Name:Larry A. Hodges
Title:President/CEO
MRS. FIELDS COOKIES
By:/s/Larry A. Hodges
Name:Larry A. Hodges
Title:President/CEO
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winomur
Title:Manager
CAPRICORN INVESTORS II, LP.
By CAPRICORN HOLDINGS, L.L.C.,
General Partner
By:/s/Herbert S. Winokur
Name: Herbert S. Winokur, Jr.
Title: Manager
<PAGE>
APPENDIX A
INDEX OF DEFINED TERMS
Defined Term Page
Acquired Assets 2
Acquired Business 2
Acquired Leases 64
Allocation Schedule 8
Arbitration Rules 94
Arbitrator 17
Assumed Liabilities 4
Balance Sheet 32
Benefit Plans 43
Buyer 1
Buyer Note Agreement 12
Buyer Notes 11
Capricorn 1
Chocamerican 20
Closing 10
Closing Cash Amount 14
Closing Date 11
Code 8
Continued Employees 71
Contracts 41
DOJ 65
Election 69
Employees 71
Environmental Laws 48
ERISA 43
Excluded Assets 3
Excluded Liabilities 5
Fairfield 2
Fairfield Shares 29
Financial Statements 31
Founders 26
Founders Agreement 27
FTC 65
Hazardous Substance 48
HSC 20
HSR Act 20
Indemnified Party 85
Intellectual Property 36
License Agreement 23
License Buyer 20
License Purchase Agreement 20
Licensing Assets 4
Liens 35
Loss 73
MF Australia 2
MF Australia Shares 29
MF Canada 2
MF Canada Shares 29
MFD 1
MFD Preferred Stock 6
MFHK 2
MFHK Shares 29
MFI 1
MFI Preferred Stock 6
MFI Series 1 Notes 12
MFI Series 2 Notes 12
MFI Series 3 Notes 12
MFI Series 4 Notes 12
MFUK 2
MFUK Shares 29
Notice of Disagreement 16
OCC 20
OCC/HSC Agreement 20
Other Agreements 23
Other Sellers 1
Pension Plans 43
Permitted Liens 35
Potential Set-Off Amount 88
Purchase Price 6
Records 66
Related Documents 79
Seller 1
Series A Notes 5
Store Cash 3
Straddle Period 75
Subsidiaries 2
Subsidiary Shares 11
Tax Returns 34
Taxes 34
Third Party Claim 85
Trade Secrets 3
Transaction Documents 59
Trust Cash 3
Unassigned Asset 9
Value Creation Plan 5
W/C Statement 12
Working Capital Amount 14
Working Capital Base Amount 15
<PAGE>
ii
TABLE OF CONTENTS
Page
1. Purchase, Sale and Assumption 2
2. Closing; Transactions to be Effected; Purchase Price Adjustment 10
3. Conditions to Closing 18
4. Representations and Warranties of the Sellers 25
5. Covenants of the Sellers 51
6. Representations and Warranties of the Buyer and Capricorn 55
7. Covenants of the Buyer and Capricorn 60
8. Mutual Covenants 62
9. Employee and Related Matters 71
10. Further Assurances 72
11. Indemnification 73
12. Assignment 89
13. No Third-Party Beneficiaries 90
14. Termination 91
15. Survival of Representations 93
16. Expenses 93
17. Arbitration 93
18. Amendments 96
19. Notices 96
20. Interpretation 97
21. Counterparts 97
22. Entire Agreement 98
23. Fees 98
24. Severability 98
25. Consent to Jurisdiction 98
26. Governing Law 100
<PAGE>
0151160.23-01S1a
Appendix A Index of Defined Terms
Exhibit A Form of Buyer Note Agreement (including forms of the Buyer Notes)
Exhibit B Form of Stoel Rives Opinion
Exhibit C OCC/HSC Agreement
Exhibit D Form of License Purchase Agreement
Exhibit E Form of Skadden, Arps, Slate, Meagher & Flom Opinion
Exhibit F Form of License Agreement
Schedules
1(b) Licensing Assets
1(c) Ordinary Working Capital
1(d)(viii) Affiliate Contracts
3(a)(vii) Agreements Requiring Consent to Transfer or Assign
4(c) Ownership of Subsidiaries
4(d) Equity Interests
4(e)(i) Financial Statements
4(e)(ii) Disclosed Liabilities
4(f) Tax Returns
4(h) Condition of Assets
4(i) Trademarks, etc.
4(j) Contracts
4(k) Litigation
4(l) Insurance
4(m)(i) Benefit Plans
4(m)(ii)-1 Benefit Plan Documents
4(m)(ii)-2 Proceedings
4(m)(iii) Contributions and Payments;
Funding Deficiencies
4(m)(v) Liabilities to Multiemployer Plans
4(m)(vii) Employee Welfare Benefit Plans
4(n) Material Events
4(o) Compliance with Applicable Laws;
Environmental Matters
4(p) Employee and Labor Relations
4(q) Material Licenses and Permits
4(r) Inventory
6(h) Pro Forma Balance Sheet of Buyer
16 Fees and Expenses
EXHIBIT B TO THE
STORE COMPANY
SECURITY AGREEMENT
COPYRIGHT SECURITY AGREEMENT
COPYRIGHT SECURITY AGREEMENT ("Agreement"), dated as of
September 18, 1996, is entered into among Mrs. Fields' Original Cookies, Inc., a
Delaware corporation (with its successors, the "Store Company"), Mrs. Fields
Cookies Australia, a Utah corporation, and Fairfield Foods Inc., a New Jersey
corporation, each located c/o Capricorn Investors II, L.P. at 30 East Elm
Street, Greenwich, Connecticut 06830 (each individually a "Grantor" and
collectively, the "Grantors"), in favor of The Bank of New York, as collateral
agent (the "Collateral Agent") for the Lenders (as defined below), located at
101 Barclay Street, Floor 21 West, New York, New York 10286. Capitalized terms
not otherwise defined herein have the meanings set forth in the Security
Agreement, dated as of September 18, 1996, made by the Grantors and the
Collateral Agent (the "Security Agreement").
WHEREAS, the Store Company and Chocamerican, Inc., a Delaware
corporation ("Chocamerican"), The Prudential Insurance Company of America, a New
Jersey mutual insurance company ("Prudential"), Principal Mutual Life Insurance
Company, an Iowa corporation ("Principal"), Pruco Life Insurance Company, an
Arizona corporation ("Pruco"), Contrarian Capital Advisors, L.L.C., a Delaware
limited liability company, as agent ("Contrarian"), and Mrs. Fields Inc., a
Delaware corporation ("MFI," and together with Chocamerican, Prudential,
Principal, Pruco and Contrarian, the "Lenders"), are entering into that certain
Senior Note and Senior Subordinated Note Agreement, of even date herewith, (said
Agreement, as it may be amended or otherwise modified from time to time, being
the "Note Agreement"); and
WHEREAS, the Collateral Agent, acting on behalf of and for the
ratable benefit of the Lenders, is hereby referred to as the "Secured Party";
WHEREAS, pursuant to the Security Agreement, the Grantors are
granting a security interest to the Secured Party in certain collateral,
including the Copyrights (as defined herein).
<PAGE>
3
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Grantors and the Secured Party hereby agree as follows:
1. Grant of Security Interest
a. As collateral security for the full and prompt payment when
due (whether at stated maturity, by acceleration or otherwise) of the Notes and
all of the other Obligations, each Grantor hereby grants to the Secured Party a
security interest in all of each Grantor's right, title and interest in the
Copyrights, whether now owned or existing or hereafter acquired or arising, and
wherever located, except such of the Copyrights as such Grantor is prohibited by
law or by any contract or agreement entered into prior to the Closing Date from
granting a security interest in; provided, however, that the security interest
in each Grantor's Copyrights created hereunder shall be subject to the rights of
licensees or franchisees in such Copyrights (whether existing as of the date
hereof or arising after the date hereof) to the same extent as each Grantor's
are so subject.
b. For purposes of this Agreement, "Copyrights" shall mean all
United States copyrights, registrations and applications therefor, including,
without limitation, the copyrights listed on Schedule I hereto, along with any
and all (i) renewals and extensions thereof, (ii) income, royalties, damages and
payments now and hereafter due and/or payable to any of the Grantors with
respect thereto, including, without limitation, damages and payments for past or
future infringements and misappropriations thereof, (iii) rights to sue for
past, present and future infringements or misappropriations thereof, and (iv)
all other rights corresponding thereto throughout the world.
c. Schedule I hereto contains a true and accurate list of all
of the Grantors' U.S. Copyright registrations and applications.
d. The security interest granted hereby is granted in
conjunction with the security interest, granted to the Secured Party under the
Security Agreement, which is incorporated in its entirety herein by reference
except that references to "Collateral" in the Security Agreement as incorporated
herein shall be deemed to refer only to the Copyrights.
2. Governing Law.
This Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of New York, without
regard to principles of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, the Grantors and the Secured Party have
caused this Agreement to be duly executed and delivered as of the date first
above written.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
MRS. FIELDS COOKIES AUSTRALIA
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
FAIRFIELD FOODS INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
<PAGE>
Accepted and acknowledged by:
THE BANK OF NEW YORK,
AS COLLATERAL AGENT
By:/s/Bryon Merino
Name:Bryon Merino
Title:Assistant Treasurer
<PAGE>
5
0132932.04-01S6a
SCHEDULE I
Grantors' U.S. Copyright
Registrations and Applications
NONE
EXHIBIT E TO SENIOR NOTE AND SENIOR SUBORDINATED NOTE AGREEMENT
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of September 18, 1996, by and
among (i) Chocamerican, Inc., a Delaware corporation ("Chocamerican"), The
Prudential Insurance Company of America, a New Jersey mutual insurance company
("Prudential"), Principal Mutual Life Insurance Company, an Iowa corporation
("Principal"), Pruco Life Insurance Company, an Arizona corporation ("Pruco"),
Contrarian Capital Advisors, L.L.C., a Delaware limited liability company, as
agent ("Contrarian"), Mrs. Fields Inc., a Delaware corporation ("MFI") (together
with any subsequent holders of the various series of Notes to which this
Agreement applies at the time amounts are deposited pursuant to Section 3, the
"Noteholders"), (ii) Mrs. Fields' Original Cookies, Inc., a Delaware corporation
(the "Borrower"), and (iii) The Bank of New York, a New York banking corporation
(the "Escrow Agent").
W I T N E S S E T H
WHEREAS, pursuant to an Asset Purchase Agreement, dated as of
August 7, 1996 as amended by the First Amendment dated as of September 17, 1996
(the "Chocamerican Agreement"), among the Borrower, Chocamerican, two
subsidiaries of Chocamerican and Capricorn Investors II, L.P., a Delaware
limited partnership ("Capricorn"), the Borrower is as of the date of this
Agreement purchasing certain assets specified therein;
WHEREAS, pursuant to an Asset Purchase Agreement, dated as of
August 7, 1996 (the "MFI Agreement", together with the Chocamerican Agreement,
the "Asset Purchase Agreements"), among the Borrower, MFI, two subsidiaries of
MFI and Capricorn, the Borrower is as of the date of this Agreement purchasing
certain assets specified therein;
WHEREAS, the Noteholders have entered into a Senior Note and
Senior Subordinated Note Agreement, dated as of September 18, 1996 (the "Note
Agreement"), by and among the Noteholders and the Borrower pursuant to which the
Borrower is as of the date of this Agreement issuing various series of Notes
(each series, a "Note Series") as partial consideration for the assets to be
acquired pursuant to the Asset Purchase Agreements; and
WHEREAS, certain Note Series specified in the Note Agreement
will be subject to set-off rights for general and tax indemnification claims
under the Asset Purchase Agreements and the escrow arrangements provided herein
in the event any such Notes shall be prepaid.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and intending to be legally bound, the parties hereto agree as
follows:
1. Definitions. Capitalized terms used herein but not otherwise defined
shall have the meanings ascribed thereto in the Note Agreement.
3. Appointment of Escrow Agent. Each Noteholder and the Borrower hereby
appoint the Escrow Agent to act as escrow agent hereunder, and the Escrow Agent
hereby accepts such appointment for the purpose of receiving and disbursing the
escrow funds and accrued interest thereon in accordance with the terms and
conditions set forth herein.
5. Deposit of Funds; Designation of Escrow Amounts. In the event the
Borrower makes mandatory or voluntary prepayments (each, a "Prepayment") of
principal (pursuant to Section 5.2 or Section 5.3 of the Note Agreement) on the
Chocamerican Series 2 Notes, the Chocamerican Series 3 Notes, the MFI Series 1
Notes or the MFI Series 2 Notes during a period of time when the Borrower's
set-off rights with respect to such Note Series remain in effect pursuant to
Section 5.11 of the Note Agreement, the amount of principal being so prepaid on
each Note Series or, if the amount is in respect of the Chocamerican Series 3
Notes or the MFI Series 2 Notes and in excess of the then applicable limitation
to set-off thereunder, such then applicable amount (but excluding any such
excess), as the case may be (the "Prepayment Amount"), shall be deposited by the
Borrower with the Escrow Agent in Escrow Accounts as described in Section 4
below. The Prepayment Amount shall be maintained by the Escrow Agent in
accordance with the provisions of Section 6 hereof, and will be disbursed by the
Escrow Agent pursuant to the provisions of Section 8 hereof.
7. Segregation and Maintenance of Escrow Accounts. The Escrow Agent
shall establish and maintain a separate account (an "Escrow Account") for each
Note Series that is subject to indemnification set-off in accordance with the
Note Agreement. In the event the Borrower makes a Prepayment, the Borrower shall
provide the Escrow Agent with a certificate identifying (i) the Note Series and
the identity of the Noteholders to which such Prepayment Amount relates and (ii)
the percentage of the aggregate amount of Notes of such Note Series held by each
such Noteholder (the "Percentage Interest") of record as of the date of such
Prepayment. Once established, each Escrow Account shall thereafter be (i)
credited with (A) any Prepayment Amount applicable to such Escrow Account, (B)
the Escrow Account's interest income, and (ii) debited with (A) any
disbursements of Escrow Funds (as defined below) in accordance with Section 8(a)
and (B) any disbursements of Escrow Funds in accordance with Section 8(b). The
Escrow Agent shall maintain a ledger containing the Percentage Interest of each
Noteholder in each Prepayment Amount and the aggregate Percentage Interest of
each Noteholder in each Escrow Account.
9. Note Series Representatives. Prudential or a successor designated by
Prudential shall have the authority to act on behalf of the holders of the MFI
Series 1 Notes and the MFI Series 2 Notes and Chocamerican or a successor
designated by Chocamerican shall have the authority to act on behalf of the
holders of the Chocamerican Series 2 Notes and the Chocamerican Series 3 Notes
(collectively, the "Note Series Representatives").
<PAGE>
11. Investment of Prepayment Amount. The Prepayment Amount in each
Escrow Account during the term of this Agreement and the interest thereon
(collectively, the "Escrow Funds") shall be continuously invested and reinvested
by the Escrow Agent in such investments as each Note Series Representative shall
from time to time direct in writing, in its complete discretion, provided,
however, that the Escrow Funds shall be invested only in Permitted Investments
(as hereinafter defined). "Permitted Investments" shall mean any of the
following investments with a maturity of not more than one month: (i) direct
obligations of or obligations guaranteed by the United States of America; (ii)
commercial paper rated A-1 by Standard & Poor's Corporation or Prime-1 by
Moody's Investors Service, Inc., or better; (iii) certificates of deposit issued
by United States commercial banks having capital and surplus of at least
$500,000,000; and (iv) investments in institutional money market funds investing
principally in obligations permitted by clauses (i) through (iii) of this
definition. The registered owner, if any, of any securities or other investments
in which the Escrow Funds are from time to time invested shall be the Escrow
Agent or its nominee. The Escrow Agent shall not be responsible for any loss
incurred as a result of any investments made in accordance with the terms
hereof. Temporarily uninvested funds held hereunder shall not earn or accrue
interest.
13. Income Taxes. The parties hereto agree that each Escrow Account
established by this Agreement shall be treated for income tax purposes as a
"grantor trust" under subpart E of part I of subchapter J of the Internal
Revenue Code of 1986, as amended (the "Code"), and that each Noteholder (or the
tax group of which such Noteholder is a member) shall report for Federal, state
and local income tax purposes its Percentage Interest of all income or other tax
items derived from the investment of the Escrow Funds. The Escrow Agent shall
provide to each Noteholder as and when requested in writing by such Noteholder
the information necessary for such Noteholder to determine such liability. Prior
to the filing by such Noteholder (or the tax group of which such Noteholder is a
member) of any income tax return that includes income reportable pursuant to the
preceding sentence, such Noteholder shall deliver a written request and
instructions for payment to the Escrow Agent, and the Escrow Agent shall
promptly pay to such Noteholder from the relevant Escrow Account an amount equal
to the aggregate Federal, state and local income tax that the Escrow Account
would have paid if it were a corporation subject to the tax imposed on
corporations at the maximum effective Federal, state and local income tax rate
then in effect for such fiscal year (which rate shall be determined taking into
account the deductibility of state and local income taxes for Federal income tax
purposes).
15. Escrow Payment. The Escrow Agent shall release funds from a Note
Series Escrow Account on the next business day, or as soon thereafter as the
investments have matured and funds are available for distribution:
16. (a) To the applicable Noteholders upon the
termination of or limitation to the amount of the
set-off rights provided in Section 5.11 of the Note
Agreement and Section 11(a) and Section 11(b) of the
respective Asset Purchase Agreements as set forth on
Schedule I hereto; provided, however, that the Escrow
Agent shall not release to the Noteholders funds in
an amount equal to the amount claimed by the Borrower
pursuant to such provisions in a notice (a "Claim
Notice") delivered to the Escrow Agent before such
time, which notice shall specify the amount claimed
and the basis for such claim.
(b) To the applicable Noteholders or the Borrower, as
the case may be, upon the applicable Note Series
Representative and the Borrower duly executing and
delivering to the Escrow Agent a Certificate
Authorizing Release in the form attached hereto as
Exhibit A authorizing release of funds to the
Noteholders of record and/or to the Borrower, as the
case may be, at such times and in such amounts as
appropriate to reflect the resolution of a claim for
which the Escrow Agent had received a Claim Notice.
(c) To the applicable Noteholders within 20 business
days following March 31, June 30, September 30 or
December 31 in any year in which an Escrow Account
holds funds in an amount equal to the net investment
income earned by such Escrow Account during the
fiscal quarter then ended and not previously
disbursed.
<PAGE>
Each Noteholder shall be entitled to receive its Percentage Interest in the
Escrow Funds contained in an Escrow Account upon any disbursement of funds to
Noteholders from such Escrow Account under this Section 8.
1. Termination. This Agreement shall terminate and be of no further
force and effect upon the date that the Borrower's set-off rights with respect
to the Chocamerican Series 2 Notes, the Chocamerican Series 3 Notes, the MFI
Series 1 Notes and the MFI Series 2 Notes shall no longer be in effect pursuant
to Section 5.11 of the Note Agreement and there shall be no disputed amount
related to a Claim Notice issued as described above in Section 8(a).
3. Compensation of Escrow Agent. The Escrow Agent shall be entitled to
reasonable compensation from the Borrower for all services rendered hereunder. A
schedule of fees of the Escrow Agent is set forth on Schedule II hereto. The
Escrow Agent shall also be entitled to reimbursement from the Borrower for all
expenses paid or incurred by it in the administration of its duties hereunder,
including, but not limited to, all of its counsel's, advisor's and agent's fees
and disbursements. Compensation and expenses of the Escrow Agent shall be paid
by the Borrower upon demand thereto by the Escrow Agent.
5. Exculpation and Indemnification of Escrow Agent. It is understood and
agreed that the Escrow Agent shall:
(a) be under no duty to accept information from any person
other than the Borrower or the Note Series Representatives and then only to the
extent and in the manner provided in this Agreement;
(c) be protected in acting upon any written notice, opinion,
request, certificate, approval, consent or other document believed by it to be
genuine and to be signed by the proper party or parties;
(e) be deemed conclusively to have given and delivered any
notice required to be given or delivered hereunder if the same is in writing,
signed by any one of its authorized officers and (i) mailed, by registered or
certified mail, postage prepaid, or (ii) hand delivered, in a sealed wrapper,
addressed as follows,
If to the Borrower:
Mrs. Fields' Original Cookies, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attn: Herbert S. Winokur, Jr.
Telephone: (203) 861-6600
Fax: (203) 861-6671
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: Randall Doud
Telephone: (212) 735-2524
Fax: (212) 735-2000
If to Chocamerican:
Chocamerican, Inc.
1105 North Market Street
Suite 1300
Wilmington, Delaware
Attn: Francois de Carbonnel
Telephone: (302) 428-1146
Fax: (216) 883-7980
With a copy to:
Sidley & Austin
875 Third Avenue
New York, New York 10022
Attn: Scott M. Freeman
Telephone: (212) 906-2358
Fax: (212) 906-2021
If to MFI:
Mrs. Fields Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Attn: Larry A. Hodges, President
Fax: (801) 463-2183
With a copy to:
Stoel Rives LLP
201 South Main Street
Suite 1100
Salt Lake City, Utah 84111
Attn: Kent W. Larsen
Fax: (801) 578-6999
If to Prudential:
The Prudential Insurance Company of America
c/o Prudential Financial Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Fax: (201) 802-7045
<PAGE>
If to Principal:
Investment Securities Department
The Principal Financial Group
711 High Street
Des Moines, Iowa 50392-0800
Attn: Mark P. Denkinger
Telephone: (515) 248-8016
Fax: (515) 248-2490
If to Pruco:
Pruco Life Insurance Company
c/o Prudential Financial Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Fax: (201) 802-7045
If to Contrarian:
Contrarian Capital Advisors, L.L.C.
411 West Putnam Avenue, Suite 225
Greenwich, Connecticut 06830
Attn: Janice Stanton
Telephone: (203) 862-8204
Fax: (203) 629-1977
(a) be indemnified and held harmless jointly and severally by
the parties hereto (other than itself) against any claim made against it by
reason of its acting or failing to act in connection with any of the
transactions contemplated hereby and against any loss, liability or expense,
including the expense of defending itself against any claim of liability it may
sustain in carrying out the terms of this Agreement, except such claims which
are occasioned by its bad faith, gross negligence, willful misconduct or fraud;
provided, however, that promptly after the receipt by the Escrow Agent of notice
of any demand or claim or the commencement of any action, suit or proceeding,
the Escrow Agent shall, if an indemnification claim in respect thereof is to be
made by the Escrow Agent against any of the parties hereto (other than itself),
notify such other party thereof in writing, but failure to so notify shall not
affect the Escrow Agent's rights hereunder, and provided, further, that the
indemnitors hereunder shall be entitled, jointly or severally and at their own
expense, to participate in and/or assume the defense of any such action, suit or
proceeding and, specifically and without limiting the foregoing, the Escrow
Agent shall in no event have any liability in connection with its investment or
reinvestment, in good faith and in accordance with the terms hereof, of any
Escrow Funds held by it hereunder, including without limitation any liability
for any delay not resulting from gross negligence or bad faith in such
investment or reinvestment, or for any loss of income incident to any such
delay.
(c) have no liability or duty to inquire into the terms and
conditions of any agreements to which the Escrow Agent is not a party, its
duties under this Agreement being understood to be purely ministerial and not
fiduciary in nature;
(e) be permitted to consult with counsel of its choice,
including in-house counsel, and shall not be liable for any action taken,
suffered or omitted by it in good faith in accordance with the written advice of
such counsel, provided, however, that nothing contained in this Section 11(f),
nor any action taken by the Escrow Agent, or of any counsel, shall relieve the
Escrow Agent from liability for any claims which are occasioned by its bad
faith, gross negligence, willful misconduct or fraud, all as provided in Section
11(d) above;
(g) not be bound by any modification, amendment, termination,
cancellation, rescission or supersession of this Agreement, unless the same
shall be in writing and signed by all of the parties hereto;
(i) have no liability for any act or omission done pursuant to
the instructions contained or expressly provided for herein, or written
instructions given by the applicable Note Series Representative and/or the
Borrower, as the case may be, pursuant hereto;
(k) not have any interest in the Escrow Funds deposited
hereunder but is serving as escrow holder only and has only possession thereof;
(m) in the event of ambiguity in the provisions governing the
Escrow Funds or uncertainty on the part of the Escrow Agent as to how to
proceed, such that the Escrow Agent, in its sole and absolute judgment, deems it
necessary for its protection so to do, be entitled to refrain from taking any
action other than to retain custody of the Escrow Funds deposited hereunder
until it shall have received joint written instructions signed by the applicable
Note Series Representative and the Borrower, or to deposit the Escrow Funds with
a court of competent jurisdiction and thereunder to have no further duties or
responsibilities in connection therewith.
(o) be deemed to make no representation as to the validity,
value, genuineness or collectability of any security or other document or
instrument held by or delivered to it;
(q) not be called upon to advise any party as to selling or
retaining, or taking or refraining from taking any action with respect to, any
securities or other property deposited hereunder;
(s) have the right, at any time, to resign hereunder by giving
written notice of its resignation to the Noteholders and the Borrower, at their
addresses set forth above, in which case:
<PAGE>
(i) all property in the Escrow Accounts
shall be delivered by it to such person as may be
designated in writing by the applicable Note Series
Representative and the Borrower, whereupon the Escrow
Agent's obligations hereunder shall cease and
terminate;
(i) if after 30 days from the date of its
written notice of intent to resign no such person has
been designated by such date the Escrow Agent's sole
responsibility thereafter shall be to keep all
property then held by it in the applicable Escrow
Account and to deliver the same to a person
designated in writing by the applicable Note Series
Representative and the Borrower, or, if no such
person shall have been so designated, in accordance
with the directions of a final order or judgment of a
court of competent jurisdiction, and the provisions
of Sections 11(f), 11(j) and 11(k) hereof shall
remain in effect; and
(a) be reimbursed, as provided in Section 10 hereof, upon its
request for all reasonable expenses, disbursements and advances incurred or made
by it, its counsel or its agents in accordance with any provisions of this
Agreement, except any such expenses, disbursements or advances as may be
attributable to its bad faith, gross negligence, willful misconduct or fraud.
1. Escrow Agent's Lien on Escrow Funds.
2. The Noteholders and the Borrower hereby grant to the Escrow
Agent a lien on the Escrow Funds such that, in the event that any and all
charges payable under this Agreement shall not be timely paid to it, the Escrow
Agent shall have the right to pay itself from the Escrow Funds the full amount
owed to it, provided that written notice of the Escrow Agent's intent to proceed
under this Section 12 be given to the Noteholders at least five business days in
advance of such action.
1. Notices. All requests, notices or other communications hereunder
shall be in writing, shall be deemed to have been given (i) upon receipt if
delivered by facsimile transmission (with original hard copy to follow by
overnight courier) or by hand in a sealed wrapper, (ii) one day after having
been delivered to an overnight courier or (iii) three days after having been
deposited in the mail as registered or certified mail, return receipt requested,
postage prepaid (a) to the addresses of the Noteholders and the Borrower set
forth in Section 11(c) and (b) to the address of the Escrow Agent as follows:
The Bank of New York
101 Barclay Street
New York, New York 10286
21st Floor
Attn: Tim Shea
Telephone: (212) 815-5287
Fax: (212) 815-5915
2. Counterparts. This Agreement may be executed in two or more
counterparts, each ofwhich shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4. 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.
6. Assignment. This Agreement shall be binding on and shall inure to
the benefit of the parties hereto and, in the case of the Noteholders, to their
permitted transferees of the Notes pursuant to the provisions of the Note
Agreement.
8. Choice of Law and Jurisdiction.
10. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York. The parties to this Agreement
hereby agree that jurisdiction over such parties and over the subject matter of
any action or proceeding arising under this Agreement may be exercised by a
competent Court of the State of New York or by a United States Court sitting in
New York City.
12. Amendment and Waiver.
14. This Agreement may be modified only by a written amendment
signed by all the parties hereto, and no waiver of any provision hereof shall be
effective unless expressed in a writing signed by the party to be charged.
16. Use of The Bank of New York Name. No printed or other material in
any language, including prospectuses, notices, reports, and promotional material
which mentions The Bank of New York by name or the rights, powers, or duties of
the Escrow Agent under this Agreement shall be issued by any of the other
parties hereto, or on such party's behalf, without the prior written consent of
The Bank of New York; provided, that nothing herein shall prevent the holder of
any Note from delivering copies of any financial statements and other documents
delivered to such holder, and disclosing any other information disclosed to such
holder, by or on behalf of the Borrower or any Subsidiary in connection with or
pursuant to the Asset Purchase Agreements or the Note Agreement to (i) such
holder's directors, officers, employees, agents and professional consultants,
(ii) any other holder of any Note, (iii) any Person to which such holder offers
to sell such Note or any part thereof, (iv) any Person to which such holder
sells or offers to sell a participation in all or any part of such Note, (v) any
federal or state regulatory authority having jurisdiction over such holder, (vi)
the National Association of Insurance Commissioners or any similar organization
or (vii) any other Person to which such delivery or disclosure may be necessary
or appropriate (A) in compliance with any law, rule, regulation or order
applicable to such holder, (B) in response to any subpoena or other legal
process, (C) in connection with any litigation to which such holder is a party,
provided that such holder uses its best efforts to notify the Borrower that such
information has been requested from it, or (D) in order to implement or
facilitate the exercise of remedies by such holder in its capacity as such or to
protect such holder's rights or interests as a holder of such Note.
18. Miscellaneous. Nothing in this Agreement is intended to or shall
confer upon anyone other than the parties hereto any legal or equitable right,
remedy or claim.
20. Severability. If any provision of this Agreement on the application
of any such provision to any person or circumstance shall be held invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
<PAGE>
THE BANK OF NEW YORK
By: /s/Bryon Merino
Name:Bryon Merino
Title:Assistant Treasurer
MRS FIELDS' ORIGINAL COOKIES,
INC.
By: /s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
<PAGE>
CHOCAMERICAN, INC.
By:/s/Pascual Richoux
Name:Pascual Richoux
Title:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:/s/Stephen R. Haekel
Name:Stephen R. Haekel
Its:Vice President
<PAGE>
PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY
By:/s/Warren Shank
Name:Warren Shank
Its:Counsel
PRUCO LIFE INSURANCE COMPANY
By:/s/Joseph Y. Alouf
Name:Joseph Y. Alouf
Its:Asst. Vice President
CONTRARIAN CAPITAL ADVISORS, L.L.C., AS
AGENT FOR THE ENTITIES LISTED BELOW:
OPPENHEIMER & CO., INC.
OPPENHEIMER HORIZON
PARTNERS, L.P.
OPPENHEIMER INSTITUTIONAL
HORIZON PARTNERS, L.P.
OPPENHEIMER INSTITUTIONAL
HORIZON FUND II, LTD.
THE & TRUST
By:/s/Janice M. Stanton
Name:Janice M. Stanton
Its:Partner
MRS. FIELDS INC.
By:/s/Larry A. Hodges
Name:Larry A. Hodges
Its:President/CEO
<PAGE>
EXHIBIT A
Form of
Certificate Authorizing Release
THE UNDERSIGNED HEREBY CERTIFY THAT:
<PAGE>
1. We are duly authorized to execute this Certificate Authorizing
Release.
3. You are hereby authorized to release $__________ to the Borrower as
follows:
4. [wire instructions]
1. You are hereby authorized to release the amounts set forth next to
each of the following Noteholders as follows:
3. $___________ [Noteholder]
5. [wire instructions]
$___________ [Noteholder]
[wire instructions]
* * * *
The foregoing certifications are made and delivered as of this
____ day of __________, _____ pursuant to Section 8 of the Escrow Agreement
dated as of September 18, 1996 (the "Escrow Agreement"), by and among the
Borrower, the Noteholders and The Bank of New York, as Escrow Agent. Capitalized
terms used herein shall have the meanings set forth in the Escrow Agreement.
Borrower:
MRS. FIELDS' ORIGINAL COOKIE
COMPANY, INC.
By:______________________
Name:
Title:
Note Series Representative:
[ ]
By:______________________
Name:
Title:]
[ ]
By:______________________
Name:
Title:]
<PAGE>
SCHEDULE I
Escrow Payments
1. MFI Series 1 Notes
The Escrow Agent shall distribute the full amount in the
Escrow Account 18 months following the date of Escrow Agreement.
2. MFI Series 2 Notes
The Escrow Agent shall distribute any funds in the Escrow
Account in excess of the following amounts at the dates specified:
Anniversary
of the date of
Amount Escrow Agreement
$2,400,000 First
$1,800,000 Second
$1,200,000 Third
$600,000 Fourth
$0 Fifth
3. Chocamerican Series 2 Notes
The Escrow Agent shall distribute the full amount in the
Escrow Account 18 months following the Closing.
4. Chocamerican Series 3 Notes
The Escrow Agent shall distribute any funds in the Escrow
Account in excess of the following amounts at the dates specified:
Anniversary
of the date of
Amount Escrow Agreement
$2,400,000 First
$1,800,000 Second
$1,200,000 Third
$600,000 Fourth
$0 Fifth
<PAGE>
0127269.11-01S5a
SCHEDULE II
Escrow Agent Fees
[To be inserted]
EXHIBIT C-2 TO SENIOR
NOTE AND SENIOR
SUBORDINATED NOTE AGREEMENT
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of September 18, 1996, made by
Mrs. Fields' Original Cookies, Inc., a Delaware corporation (with its
successors, the "Store Company"), and each subsidiary of the Store Company
listed on Schedule A hereto (which Schedule shall be revised from time to time
to reflect the addition of any new subsidiaries of the Store Company) (each
individually a "Grantor" and collectively, the "Grantors") in favor of The Bank
of New York, as collateral agent for the Lenders (the "Collateral Agent"),
pursuant to that certain Collateral Agency Agreement of even date herewith, as
amended and from time to time in effect.
W I T N E S S E T H :
WHEREAS, the Store Company, Chocamerican, Inc., a Delaware
corporation, The Prudential Insurance Company of America, a New Jersey mutual
insurance company, Principal Mutual Life Insurance Company, an Iowa corporation,
Pruco Life Insurance Company, an Arizona corporation, Contrarian Capital
Advisors, L.L.C., a Delaware limited liability company, as agent, and Mrs.
Fields Inc., a Delaware corporation, are entering into that certain Senior Note
and Senior Subordinated Note Agreement, of even date herewith, (said Agreement,
as it may be amended or otherwise modified from time to time, being the "Note
Agreement"); and
WHEREAS, it is a condition precedent to the closing of the
transactions contemplated by the Note Agreement that the Store Company shall
have entered into this Agreement; and
WHEREAS, the Collateral Agent, acting on behalf of and for the
ratable benefit of the Lenders, is hereby referred to as the "Secured Party";
NOW, THEREFORE, in consideration of the premises and in order
to induce the Lenders to enter into the Note Agreement, each Grantor hereby
agrees with the Secured Party as follows:
i. Defined Terms. For purposes of this Agreement, "Majority
Lenders" means (i) for so long as any Senior Notes remain outstanding, the
Majority Chocamerican Senior Lenders and the Majority MFI Lenders (as each such
term is defined in the Note Agreement) and (ii) if none of the Senior Notes
remain outstanding, the Majority Senior Subordinated Lenders (as such term is
defined in the Note Agreement). Capitalized terms used in this Agreement but not
defined herein have the respective meanings assigned to such terms in the Note
Agreement. In addition, the following terms used in this Agreement have the
meanings specified below (such meanings being equally applicable to both the
singular and plural forms of the terms defined):
ii. "Account" means, with respect to any Grantor, any
"account," as such term is defined in Section 9-106 of the UCC, now
owned or hereafter acquired by such Grantor and, in any event,
includes, without limitation, (i) all accounts receivable, book debts
and other forms of obligations (other than forms of obligations
evidenced by Chattel Paper, Documents or Instruments) now owned or
hereafter received or acquired by or belonging or owing to such Grantor
(including, without limitation, under any trade name, style or division
thereof) whether arising out of goods sold or services rendered by such
Grantor or from any other transaction, whether or not the same involves
the sale of goods or services by such Grantor (including, without
limitation, any such obligation which might be characterized as an
account under the UCC), (ii) all of such Grantor's rights in, to and
under all purchase orders or receipts now owned or hereafter acquired
by it for goods or services, and all of such Grantor's rights to any
goods represented by any of the foregoing (including, without
limitation, unpaid seller's rights of rescission, replevin, reclamation
and stoppage in transit and rights to returned, reclaimed or
repossessed goods), and (iii) all moneys due or to become due to such
Grantor under all contracts for the sale of goods or the performance of
services or both by such Grantor (whether or not yet earned by
performance on the part of the Grantor or in connection with any other
transaction), now in existence or hereafter occurring, including,
without limitation, the right to receive the proceeds of said purchase
orders and contracts, and (iv) all collateral security and guarantees
of any kind given by any Person with respect to any of the foregoing.
<PAGE>
"Account Debtor" means any "account debtor," as such term is
defined in Section 9-105(1)(a) of the UCC.
"Chattel Paper" means, with respect to any Grantor, any
"chattel paper," as such term is defined in Section 9-105(1)(b) of the
UCC, now owned or hereafter acquired by such Grantor.
"Collateral" has the meaning assigned to such term in Section 2 of
this Agreement.
"Contracts" means, with respect to any Grantor, all contracts,
undertakings or other agreements (other than Chattel Paper, Documents
or Instruments) in or under which such Grantor may now or hereafter
have any right, title or interest, including, without limitation, with
respect to an Account, any agreement relating to the terms of payment
or the terms of performance thereof.
"Documents" means, with respect to any Grantor, any
"document," as such term is defined in Section 9-105(1)(f) of the UCC,
now owned or hereafter acquired by such Grantor.
"Equipment" means, with respect to any Grantor, any
"equipment," as such term is defined in Section 9-109(2) of the UCC,
now owned or hereafter acquired by such Grantor and, in any event,
includes, without limitation, all machinery, equipment, furnishings,
fixtures, vehicles, computers and other electronic data processing and
office equipment now owned or hereafter acquired by such Grantor and
any and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components,
parts, equipment and accessories installed thereon or affixed thereto.
"General Intangibles" means, with respect to any Grantor, any
"general intangibles," as such term is defined in Section 9-106 of the
UCC, now owned or hereafter acquired by such Grantor and, in any event,
includes, without limitation, all customer lists, Trademarks, patents,
rights in intellectual property, licenses, permits, Copyrights, Trade
Secrets, proprietary or confidential information, inventions (whether
patented or patentable or not) and technical information, procedures,
designs, knowledge, know-how, software, data bases, data, skill,
expertise, experience, processes, models, drawings, materials and
records, goodwill, rights of indemnification and all right, title and
interest which such Grantor may now or hereafter have in or under any
Contract, now owned or hereafter acquired by such Grantor.
"Instrument" means, with respect to any Grantor, any
"instrument," as such term is defined in Section 9-105(1)(i) of the
UCC, now owned or hereafter acquired by such Grantor, other than
instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Intellectual Property" means the following: (a) trademarks
(including service marks, designs, logos, indicia, trade names,
corporate names, business names, fictitious business names, trade
styles and/or other source and/or business identifiers, whether
registered or at common law), registrations and applications therefor,
including, without limitation, the trademarks and applications listed
on Schedule B hereto, purported to be owned by any of the Grantors and
used in their respective businesses and the goodwill of the business of
any of the Grantors connected therewith and symbolized thereby, along
with any and all (i) renewals thereof, (ii) income, royalties, damages
and payments now and hereafter due and/or payable to any of the
Grantors with respect thereto, including, without limitation, damages
and payments for past or future infringements or misappropriation
thereof, (iii) rights to sue for past, present and future infringements
or misappropriation thereof, and (iv) all other rights corresponding
thereto throughout the world (all of the foregoing trademarks, trade
names, service marks, registrations and applications thereto, and
goodwill, together with the items described in the foregoing clauses
(i) through (iv) are sometimes hereinafter individually and/or
collectively referred to as the "Trademarks"); (b) trade secrets,
including, without limitation, all techniques, processes, methods of
production and commercialization, training methods, recipes,
formulations, specifications and know-how owned by any Grantor and used
in their respective businesses which pertain to and are necessary or
useful in relation to the composition, production, and sale of products
sold pursuant to the business of any Grantor, along with any and all
(i) income, royalties, damages and payments now and hereafter due
and/or payable to any of the Grantors with respect thereto, including,
without limitation, damages and payments for past or future
infringements and misappropriations thereof, (ii) rights to sue for
past, present and future infringements or misappropriations thereof,
and (iii) all other rights corresponding thereto throughout the world
(all of the foregoing trade secrets, together with the items described
in the foregoing clauses (i) through (iii) are sometimes hereinafter
individually and/or collectively referred to as the "Trade Secrets");
and (c) copyrights, registrations and applications therefor, including,
without limitation, the copyrights listed on Schedule C hereto, along
with any and all (i) renewals and extensions thereof, (ii) income,
royalties, damages and payments now and hereafter due and/or payable to
any of the Grantors with respect thereto, including, without
limitation, damages and payments for past or future infringements and
misappropriations thereof, (iii) rights to sue for past, present and
future infringements or misappropriations thereof, and (iv) all other
rights corresponding thereto throughout the world (all of the foregoing
copyrights, registrations and applications, together with the items
described in the foregoing clauses (i) through (iv) are sometimes
hereinafter individually and/or collectively referred to as the
"Copyrights").
<PAGE>
"Inventory" means, with respect to any Grantor, any
"inventory," as such term is defined in Section 9-109(4) of the UCC,
now owned or hereafter acquired by such Grantor, and wherever located,
and, in any event, includes, without limitation, all inventory,
merchandise, goods and other personal property now owned or hereafter
acquired by such Grantor which are held for sale or lease or are
furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or consumed
or to be used or consumed in such Grantor's business, or the
processing, packaging, delivery or shipping of the same, and all
finished goods.
"Permitted Liens" means Liens permitted by Section 9.2 of the
Note Agreement existing as of the date hereof or arising hereafter.
"Proceeds" means, with respect to any Grantor, "proceeds," as
such term is defined in Section 9-306(1) of the UCC, and, in any event,
shall include, without limitation, (i) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to such Grantor from
time to time with respect to any of the Collateral, (ii) any and all
payments (in any form whatsoever) made or due and payable to such
Grantor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of
the Collateral by any Governmental Authority (or any Person acting
under color of Governmental Authority), and (iii) any and all other
amounts from time to time paid or payable under or in connection with
any of the Collateral.
"UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York; provided, however,
in the event that, by reason of mandatory provisions of law, any or all
of the attachment, perfection or priority of the Secured Party's
security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of
New York, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof
relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
1. Grant of Security Interest.
3. As collateral security for the full and prompt payment when
due (whether at stated maturity, by acceleration or otherwise) of the Notes and
all of the other Obligations, each Grantor hereby assigns, conveys, mortgages,
pledges, hypothecates and transfers to the Secured Party, and hereby grants to
the Secured Party a security interest in all of each Grantor's right, title and
interest in, to and under the following, except such of the following as such
Grantor is prohibited by law or by any contract or agreement entered into prior
to the Closing Date from granting a security interest in (all of which being
hereinafter collectively called the "Collateral"):
(i) all Accounts;
(iii) all Chattel Paper;
(v) all Contracts and any and all claims of such Grantor for damages
arising out of or for breach of or a default under any Contract and the
right of such Grantor to perform or to compel performance under any
Contract and to exercise all remedies thereunder;
(i) all Documents;
(iii) all Equipment;
(v) all General Intangibles;
(vii) all Instruments;
(ix) all Inventory;
(xi) all Intellectual Property;
(xiii) all other goods and personal property of such Grantor whether
tangible or intangible or whether now owned or hereafter acquired by
such Grantor and wherever located; and
(i) to the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of, each of the foregoing;
<PAGE>
provided, however, that the security interest in each Grantor's Intellectual
Property and General Intangibles, to the extent that such General Intangibles
contain Intellectual Property, created hereunder shall be subject to the rights
of licensees or franchisees in such Intellectual Property (whether existing as
of the date hereof or arising after the date hereof) to the same extent as each
Grantor's are so subject.
1. Rights of the Secured Party; Limitations on Secured Party's
Obligations.
(a) It is expressly agreed by each Grantor that, anything
herein to the contrary notwithstanding, each Grantor shall remain liable under
each of the Contracts and, following the occurrence and during the continuance
of an Event of Default, each Grantor shall perform all of its duties and
obligations thereunder, all in accordance with and pursuant to the terms and
provisions of each such Contract. Neither the Secured Party nor any Lender shall
have any obligation or liability under any Contract solely by reason of or
arising out of this Agreement or the granting of a security interest in any
Contract to the Secured Party or the receipt by the Secured Party or any Lender
of any payment relating to any Contract pursuant hereto, nor shall the Secured
Party or any Lender be required or obligated in any manner to perform or fulfill
any of the obligations of any Grantor under or pursuant to any Contract, or to
make any payment, or to make any inquiry as to the nature or the sufficiency of
any payment received by it or the sufficiency of any performance by any party
under any Contract, or to present or file any claim, or to take any action to
collect or enforce any performance or the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.
(a) Upon the occurrence and during the continuance of an Event
of Default, the Secured Party shall have the right to collect any Accounts,
Chattel Paper and Instruments of any Grantor. If required by the Secured Party
at any time following the occurrence and during the continuance of any Event of
Default, any Proceeds, when first collected by any Grantor, received in payment
of any Account or in payment for any of its Inventory or on account of any of
its Contracts, shall be promptly deposited by such Grantor in the form received
(without alteration and with all necessary endorsements) in a special bank
account maintained by the Secured Party and subject to withdrawal only by the
Secured Party, as hereinafter provided, and until so turned over shall be deemed
to be held in trust by such Grantor for and as the Secured Party's property and
shall not be commingled with such Grantor's other funds or properties. Such
Proceeds, when deposited, shall continue to be collateral security for the Notes
and all of the other Obligations and shall not constitute payment thereof until
applied as hereinafter provided. The Secured Party shall apply all or a part of
the funds on deposit in said special account to the principal of and/or interest
on the Notes in accordance with the provisions of Section 8(d) hereof and any
part of such funds which the Secured Party elects not so to apply and deems not
required as collateral security for the Notes or any of the other Obligations
shall be paid over from time to time by the Secured Party to each Grantor. At
any time following the occurrence and during the continuance of an Event of
Default, at the request of the Secured Party, each Grantor shall deliver to the
Secured Party any or all original and other documents evidencing, and relating
to, the sale and delivery of Inventory or the performance of labor or service
which created any or all Accounts, including, without limitation, all original
orders, invoices and shipping receipts; and, prior to or following the
occurrence or during the continuance of an Event of Default such Grantor shall
deliver photocopies thereof to the Secured Party at its request.
(c) The Secured Party may, but shall not be obligated to, at
any time following the occurrence and during the continuance of an Event of
Default, after first notifying any Grantor of its intention to do so, notify
Account Debtors of such Grantor, parties to Contracts of such Grantor, obligors
of Instruments of such Grantor and obligors in respect of Chattel Paper of such
Grantor that the Accounts and the right, title and interest of such Grantor in
and under such Contracts, such Instruments and such Chattel Paper have been
assigned to the Secured Party and that payments shall be made directly to the
Secured Party. Upon the request of the Secured Party following the occurrence
and during the continuance of an Event of Default, each Grantor will so notify
such Account Debtors, parties to such Contracts, obligors of such Instruments
and obligors in respect of such Chattel Paper. At any time following the
occurrence and during the continuance of an Event of Default, the Secured Party
may, but shall not be obligated to, in its own name or in the name of others
communicate with such Account Debtors, parties to such Contracts, obligors of
such Instruments and obligors in respect of such Chattel Paper to verify with
such Persons to the Secured Party's satisfaction the existence, amount and terms
of any such Accounts, Contracts, Instruments or Chattel Paper.
(e) Upon prior notice to any Grantor (unless an Event of
Default has occurred and is continuing, in which case no notice is necessary),
the Secured Party shall have the right, but not the obligation, during regular
business hours of Grantor (unless an Event of Default has occurred and is
continuing, in which case such right is exercisable at any time), to make test
verifications of the Accounts and physical verifications of the Inventory in any
manner and through any medium that it reasonably considers advisable, and each
Grantor agrees to furnish all such assistance and information as the Secured
Party may reasonably require in connection therewith. If an Event of Default has
occurred and is continuing, each Grantor shall, at its own expense cause
certified independent public accountants satisfactory to the Secured Party to
prepare and deliver to the Secured Party, at any time and from time to time
promptly upon the Secured Party's request, the following reports: (i) a
reconciliation of all its Accounts, (ii) an aging of all its Accounts, (iii)
trial balances, and (iv) a test verification of such Accounts as the Secured
Party may reasonably request. Each Grantor, at its own expense, will cause
certified independent public accountants satisfactory to the Secured Party to
prepare and deliver to the Secured Party the results of the annual physical
verification of its Inventory made or observed by such accountants.
<PAGE>
2. Representations and Warranties.
(a) The Store Company hereby represents and warrants to the
Lenders as follows:
(i) The Store Company is a corporation duly incorporated,
validly existing and in good standing in Delaware. The Store Company's
principal place of business and the place where its records concerning
the Collateral are kept is located in Utah.
(i) The execution, delivery and performance by the Store
Company of this Agreement are within the Store Company's corporate
powers, have been duly authorized by all necessary corporate action and
do not contravene the Store Company's restated certificate of
incorporation or by-laws.
(i) No consent, authorization, approval or other action by,
and no notice to or filing with, any Governmental Authority in the
United States is required for the due execution, delivery and
performance by the Store Company of this Agreement (other than routine
filings of UCC financing and continuation statements and filings with
the U.S.
Patent and Trademark and Copyright Offices).
(i) This Agreement has been duly executed and delivered by the
Store Company and is the legal, valid and binding obligation of the
Store Company, enforceable against the Store Company in accordance with
its terms, but subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the rights of creditors generally and to general principles
of equity.
(a) Each Grantor hereby represents and warrants to the
Lenders as follows:
(i) Assuming each Grantor other than the Store Company is duly
organized and validly existing under the laws of its jurisdiction of
organization, upon the filing of appropriate financing statements or
other documents evidencing the security interest created hereby in the
jurisdictions listed on Schedule D hereto, this Agreement will be
effective to create a valid and continuing Lien on each Grantor's
rights in the Collateral, the perfection of which is governed by the
Uniform Commercial Code as in effect in such jurisdictions, and prior
to all other Liens except Permitted Liens and any other Lien created
prior to the date hereof; provided, however, that each Grantor makes no
representations or warranties with respect to the nature or extent of
its rights in any of the Collateral or the creation of any Lien with
respect to Collateral located outside of the United States including,
without limitation, Intellectual Property.
1. Covenants.
2. Each Grantor covenants and agrees with the Secured Party
and the Lenders that from and after the date of this Agreement and until the
Notes have been paid in full and all of the other Obligations have been fully
satisfied:
(a) Further Documentation; Pledge of Instruments. At any time
and from time to time, and at the sole expense of such Grantor, such Grantor
will promptly and duly execute and deliver any and all such further instruments
and documents including, without limitation, the Trademark Security Agreement
and the Copyright Security Agreement, substantially in the form attached hereto
as Exhibit A and Exhibit B, respectively, and take such further action as shall
be necessary or as the Secured Party may reasonably deem desirable to obtain the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, using its best efforts to secure all consents and
approvals necessary or appropriate for the assignment to the Secured Party of
any Contract held by such Grantor or in which such Grantor has any rights not
heretofore assigned, the filing of any financing or continuation statements or
amendments thereto under the UCC in the jurisdictions indicated on Schedule D
hereto with respect to the Liens and security interests granted hereby,
transferring Collateral to the Secured Party's possession (if a security
interest in such Collateral can be perfected by possession) and placing the
interest of the Secured Party as lienholder on the certificate of title of any
vehicle and recording the Secured Party's security interest in any Grantor's
after-acquired Intellectual Property. Such Grantor also hereby authorizes the
Secured Party to file any such financing or continuation statement without the
signature of such Grantor to the extent permitted by applicable law. If any of
the Collateral should be or become evidenced by any Instrument, such Grantor
agrees to pledge such Instrument to the Secured Party and shall duly endorse
such Instrument and deliver the same to the third party, other than checks
processed by such Grantor in the ordinary course of business.
<PAGE>
(c) Maintenance of Records. Such Grantor will keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral, including, without limitation, a record of all payments received and
all credits granted with respect to the Collateral and all other dealings with
the Collateral, consistent with its recordkeeping practices as in effect on the
date hereof. All Chattel Paper will be marked with the following legend: "This
writing and the obligations evidenced or secured hereby are subject to the
security interest of The Bank of New York, as the Collateral Agent." If
requested by the Secured Party, the security interest of the Secured Party shall
be noted on the certificate of title of each vehicle. For the Secured Party's
and the Beneficiaries' further security, such Grantor agrees that the Secured
Party and the Beneficiaries shall have a special property interest in all of
such Grantor's books and records pertaining to the Collateral and, following the
occurrence and during the continuance of any Event of Default, such Grantor
shall deliver and turn over any such books and records to the Secured Party or
to its representatives at any time on demand of the Secured Party. Prior to the
occurrence of an Event of Default and upon reasonable notice from the Secured
Party, such Grantor shall permit any representative of the Secured Party to
inspect such books and records and will provide photocopies thereof to the
Secured Party.
(e) Indemnification. In any suit, proceeding or action brought
by the Secured Party relating to any Account, Chattel Paper, Contract, General
Intangible or Instrument for any sum owing thereunder, or to enforce any
provision of any Account, Chattel Paper, Contract, General Intangible or
Instrument, such Grantor will save, indemnify and keep the Secured Party
harmless from and against all claims, damages, losses, liabilities and expenses
(including, without limitation, fees and disbursements of counsel selected by
the Secured Party, including those incurred upon any appeal) suffered by reason
of any defense, set-off, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a breach by such Grantor of
any obligation thereunder or arising out of any other agreement, Indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from such Grantor, and all such obligations of such Grantor shall be and remain
enforceable against and only against such Grantor and shall not be enforceable
against the Secured Party or the Lenders.
(f) Compliance with Laws, Etc. Such Grantor will comply with
the requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority or arbitrator applicable to the Collateral or any part
thereof or to the operation of such Grantor's business, the noncompliance with
which, individually or in the aggregate, would or would be reasonably likely to
materially adversely affect the business, condition (financial or other),
assets, properties or operations of any of the Store Company and the Grantors
taken as a whole; provided, however, that such Grantor may contest the
requirement of any applicable law, rule, regulation or order in any reasonable
manner which shall not, in the sole opinion of the Secured Party, adversely
affect the Secured Party's rights hereunder or adversely affect the first
priority of its Lien on and security interest in the Collateral, subject only to
Permitted Liens.
(h) Payment of Obligations. Such Grantor will pay, before the
same shall become delinquent and before any penalty or interest accrues thereon,
all taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom and all claims of
any kind (including, without limitation, claims for labor, materials and
supplies), except that no such item need be paid if (i) such non-payment does
not involve any danger of the sale, forfeiture or loss of any of the Collateral
or any interest therein which, individually or in the aggregate, would or would
be reasonably likely to materially adversely affect the business, condition
(financial or other), assets, properties or operations of any of the Store
Company and the Grantors taken as a whole, and (ii) such charge is adequately
reserved against in accordance with and to the extent required by GAAP.
(j) Compliance with Terms of Accounts, Etc. Following the
occurrence and during the continuance of an Event of Default, such Grantor will
comply with and perform all of its obligations, covenants, conditions and
agreements with respect to any Account or Chattel Paper.
(l) Limitation on Liens on Collateral. Such Grantor will not
create, permit or suffer to exist, and will defend the Collateral against and
take such other action as is necessary to remove, any Lien on the Collateral
except Permitted Liens, and will defend the right, title and interest of the
Secured Party and the Lenders in and to any of such Grantor's rights under the
Chattel Paper, Contracts, Documents, Intellectual Property, General Intangibles
and Instruments and to the Equipment and Inventory and in and to the Proceeds
thereof against the claims and demands of all Persons whomsoever other than
holders of Permitted Liens.
(n) Limitations on Modifications of Accounts. Following the
occurrence and during the continuance of any Event of Default, such Grantor will
not, without the Secured Party's prior written consent, grant any extension of
the time of payment of any of the Accounts, Chattel Paper or Instruments, or
compromise, compound or settle the same for less than the full amount thereof,
or release, wholly or partly, any Person liable for the payment thereof, or
allow any credit or discount whatsoever thereon.
(p) Maintenance of Insurance. Such Grantor will maintain, with
financially sound and reputable companies, insurance policies (i) insuring its
Inventory and Equipment against casualties and (ii) insuring such Grantor
against liability for personal injury and property damage relating to such
Inventory and Equipment, such policies to be in such amounts and against at
least such risks as are usually insured against in the same general area by
companies engaged in the same or a similar business, naming the Secured Party as
an additional insured. Any amounts payable under any of such Grantor's insurance
policies for any loss shall be paid directly to such Grantor to be used by such
Grantor to repair and restore the property which was the subject of the claim;
provided that, for so long as an Event of Default has occurred and is continuing
any amounts payable under such Grantor's insurance policies shall be paid
directly to the Secured Party to be used by such Grantor to repair and restore
the property which was the subject of the claim. Such Grantor shall, if
requested by the Secured Party, deliver to the Secured Party, as often as the
Secured Party may reasonably request, a report of its insurance broker with
respect to the insurance on its Inventory and Equipment. All insurance with
respect to the Inventory and Equipment shall (i) contain a clause which provides
that the Secured Party's interest under the policy will not be invalidated by
any act or omission of, or any breach of warranty by, the insured, or by any
change in the title, ownership or possession of the insured property, or by the
use of the property for purposes more hazardous than is permitted in the policy,
and (ii) provide that no cancellation, reduction in amount or change in coverage
thereof shall be effective until at least ten days after receipt by the Secured
Party of written notice thereof.
<PAGE>
(r) Limitations on Disposition. Such Grantor will not sell,
lease, transfer or otherwise dispose of any of the Collateral, or attempt or
contract to do so, except as permitted by the Note Agreement. In connection with
any franchising or other disposition of a store permitted by the Note Agreement,
the Collateral Agent hereby releases, without any further action, all of its
right, title and interest in and to any portion of the Collateral consisting of
tangible assets then located on the premises of such store effective as of the
effective date of any agreement pursuant to which any such store is sold,
franchised or otherwise disposed of. The Collateral Agent agrees to execute such
documents or instruments (including, without limitation, UCC-3 termination
statements or UCC-3 releases) as a Grantor may request in order to evidence or
effectuate the provisions of this Section 5(j).
(t) Further Identification of Collateral. Such Grantor will,
if so requested by the Secured Party, furnish to the Secured Party, as often as
the Secured Party reasonably requests, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Secured Party may reasonably request (without
imposing any undue burden on such Grantor), all in reasonable detail.
(v) Right of Inspection. Subject to the provisions of Article
V of the Collateral Agency Agreement, upon reasonable notice to such Grantor
(unless an Event of Default has occurred and is continuing, in which case no
notice is necessary), the Secured Party shall at all times have full and free
access during normal business hours to all the books and records and
correspondence of such Grantor, and the Secured Party or its representatives may
examine the same, take extracts therefrom and make photocopies thereof;
provided, however, that the expenses incurred by the Secured Party in connection
with the foregoing shall be borne by the Lenders unless an Event of Default has
occurred and is continuing, in which case such expenses shall be borne by such
Grantor. Upon reasonable notice to such Grantor (unless an Event of Default has
occurred and is continuing, in which case no notice is necessary), the Secured
Party and its representatives shall also have the right to enter into and upon
any premises where any of the Equipment or Inventory is located for the purpose
of inspecting the same, observing its use or otherwise protecting its interests
therein.
(x) Maintenance of Equipment. Such Grantor will, to the extent
reasonably prudent, maintain or cause to be maintained in good repair, working
order and condition the Equipment and from time to time, to the extent
reasonably prudent, will make or cause to be made all appropriate repairs,
renewals, replacements or disposals thereof.
(z) Continuous Perfection. Such Grantor will not change its
name, identity or corporate structure in any manner which might make any
financing or continuation statement filed in connection herewith seriously
misleading within the meaning of Section 9-402(7) of the UCC (or any other then
applicable provision of the UCC) unless such Grantor shall have given the
Secured Party at least 30 days' prior written notice thereof and shall have
taken all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by the Secured Party to amend such
financing statement or continuation statement so that it is not seriously
misleading. Such Grantor will not change its principal place of business or
remove its records unless it gives the Secured Party at least 30 days' prior
written notice thereof and has taken such action as is necessary to cause the
security interest of the Secured Party in the Collateral to continue to be
perfected.
(bb) New Intellectual Property.
(i) If, at any time before the Notes or the other Obligations
shall have been paid in full, such Grantor shall (A) obtain any rights
to or interests in any new inventions whether or not patentable,
patents, patent applications or any reissue, divisions, continuations,
renewal, extension or continuation-in-part of any patent or improvement
of any patent, trademarks, trade names, service marks, and
registrations or applications for registration thereof, trade secrets,
copyrights and registrations or applications for registration thereof,
or licenses, or (B) become entitled to the benefit of any patent or
patent or trademark application, or any reissue, divisions,
continuations, renewal, extension, or continuation-in-part of any
patent or any improvement of any patent, trademark or trademark
registration or renewal, trade secret, license or license renewal,
copyright or copyright registration or renewal (collectively, "New
Intellectual Property"), such Grantor covenants and agrees to prepare,
execute and record with all appropriate federal, state and/or local
offices and authorities an amendment to this Agreement adding such New
Intellectual Property to the Collateral, in form and substance
reasonably satisfactory to the Majority Lenders and, as soon as
received, deliver to the Secured Party reasonable proof that such
amended Agreement has been duly recorded and that a security interest
in favor of the Secured Party in such New Intellectual Property has
been granted.
(i) Each Grantor covenants and agrees that from and after the
date hereof and until the obligations shall have been paid in full,
such Grantor shall promptly amend this Agreement by amending Schedule B
or C, as applicable, to include such New Intellectual Property.
<PAGE>
(a) No Material Adverse Action. No Grantor shall take or fail
to take any action which would have a material adverse effect on the
enforceability of the Secured Party's interest in the Intellectual Property, or
the value, in the aggregate, of the Intellectual Property.
(c) New Subsidiaries. The Store Company agrees that if it
shall, in the future, form or acquire, directly or indirectly, any Subsidiaries
that are formed in the United States, such Subsidiaries shall become parties to
this Agreement, and the Store Company shall cause such Subsidiary to execute and
deliver to the Secured Party any documents that the Secured Party requests,
evidencing such Subsidiary's agreement to be bound by the terms and conditions
of this Agreement.
2. The Secured Party's Appointment as Attorney-in-Fact.
(a) Each Grantor hereby irrevocably constitutes and appoints
the Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, from time to time in the Secured Party's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute and deliver any and all documents
and instruments which the Secured Party may deem necessary or desirable to
accomplish the purposes of this Agreement and, without limiting the generality
of the foregoing, hereby gives the Secured Party the power and right, on behalf
of such Grantor, without notice to or assent by such Grantor to do the
following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any
Collateral and, in the name of such Grantor or in its own name or
otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other Instruments for the payment of
moneys due under any Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Secured Party for the purpose of collecting
any and all such moneys due under any Collateral whenever payable and
to file any claim or to take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by the Secured
Party for the purpose of collecting any and all such moneys due under
any Collateral whenever payable;
(i) to pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for by the
terms of this Agreement and to pay all or any part of the premiums
therefor and the costs thereof; and
(i) (A) to direct any party liable for any payment under any
of the Collateral to make payment of any and all moneys due, and to
become due thereunder, directly to the Secured Party or as the Secured
Party shall direct; (B) to receive payment of and receipt for any and
all moneys, claims and other amounts due, and to become due at any
time, in respect of or arising out of any Collateral; (C) to sign and
indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other
Documents constituting or relating to the Collateral; (D) to commence
and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any
part thereof and to enforce any other right in respect of any
Collateral; (E) to defend any suit, action or proceeding brought
against such Grantor with respect to any Collateral; (F) to settle,
compromise or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as
the Secured Party may deem appropriate; (G) to license or, to the
extent permitted by an applicable license, sublicense, whether general,
special or otherwise, and whether on an exclusive or non-exclusive
basis, any patent or trademark, throughout the world for such term or
terms, on such conditions, and in such manner, as the Secured Party
shall in its sole discretion determine; and (H) generally to sell,
transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the
Secured Party were the absolute owner thereof for all purposes, and to
do, at the Secured Party's option and such Grantor's expense, at any
time, or from time to time, all acts and things which the Secured Party
reasonably deems necessary to protect, preserve or realize upon the
Collateral and the Secured Party's and the Lenders' Lien therein, in
order to effect the intent of this Agreement, all as fully and
effectively as such Grantor might do.
<PAGE>
(a) The Secured Party agrees that, unless it receives actual
notice that an Event of Default has occurred and is continuing, it will forbear
from exercising the power of attorney or any rights granted to the Secured Party
pursuant to this Section 6. Each Grantor hereby ratifies, to the extent
permitted by law, all that any said attorney shall lawfully do or cause to be
done by virtue hereof. The power of attorney granted pursuant to this Section 6,
being coupled with an interest, shall be irrevocable until the Notes and the
other Obligations are indefeasibly paid in full.
(c) The powers conferred on the Secured Party hereunder are
solely to protect the Secured Party's and the Lenders' interests in the
Collateral and shall not impose any duty upon it to exercise any such powers.
The Secured Party shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be responsible to such
Grantor for any act or failure to act, except for the gross negligence or
willful misconduct of it or of such officers, directors, employees or agents.
(e) Such Grantor also authorizes the Secured Party, at any
time and from time to time following the occurrence and during the continuance
of an Event of Default, (i) to communicate in such Grantor's own name with any
party to any Contract with regard to the assignment of the right, title and
interest of such Grantor in and under the Contracts hereunder and other matters
relating thereto and (ii) to execute, in connection with the sale provided for
in Section 8 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
2. Performance by the Secured Party of Such Grantor's Obligations.
3. If any Grantor fails to perform or comply with any of its agreements
contained herein and the Secured Party, as provided for by the terms of this
Agreement, shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the reasonable expenses of the Secured Party
and its agents incurred in connection with such performance or compliance,
together with interest thereon at the highest rate then in effect in respect of
the Notes, shall be payable by such Grantor to the Secured Party on demand and
shall constitute Obligations secured hereby.
1. Remedies, Rights Upon an Event of Default.
(a) If any Event of Default shall occur and be continuing, the
Secured Party shall, at the request of the Majority Lenders, or may with the
consent of the Majority Lenders, exercise in addition to all other rights and
remedies granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Notes or the other
Obligations, all rights and remedies of a secured party under the UCC. Without
limiting the generality of the foregoing, each Grantor expressly agrees that in
any such event the Secured Party, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon such Grantor or any other Person
(all and each of which demands, advertisements and/or notices are hereby
expressly waived to the maximum extent permitted by the UCC and other applicable
law), may forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
an option or options to purchase or sell, or otherwise dispose of and deliver
said Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange or broker's board or
any of the Secured Party's offices or elsewhere at such prices as it may in its
sole discretion elect, for cash or on credit or for future delivery without
assumption of any credit risk. The Secured Party or any Lender shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase, by bidding in its debt or
otherwise, the whole or any part of said Collateral so sold, free of any right
or equity of redemption, which equity of redemption such Grantor hereby
releases. Each Grantor further agrees, at the Secured Party's request to
assemble the Collateral and make it available to the Secured Party at places
which the Secured Party shall reasonably select, whether at such Grantor's
premises or elsewhere. The Secured Party shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale as
provided in Section 8(d) hereof, with such Grantor remaining liable for any
deficiency remaining unpaid after such application, and only after so paying
over such net proceeds and after the payment by the Secured Party of any other
amount required by any provision of law, including Section 9-504(1)(c) of the
UCC, need the Secured Party account for the surplus, if any, such Grantor. To
the maximum extent permitted by applicable law, such Grantor waives all claims,
damages, and demands against the Secured Party or the Lenders arising out of the
repossession, retention or sale of the Collateral. Each Grantor agrees that the
Secured Party need not give more than ten days' notice of the time and place of
any public sale or of the time after which a private sale may take place and
that such notice is reasonable notification of such matters. Such Grantor shall
remain liable for any deficiency if the proceeds of any sale or disposition of
the Collateral are insufficient to pay all amounts to which the Secured Party is
entitled, such Grantor also being liable for the fees and expenses of any
attorneys employed by the Secured Party or the Lenders to collect such
deficiency.
<PAGE>
(a) Each Grantor also agrees to pay all costs of the Secured
Party and the Lenders including, without limitation, attorneys' fees and
disbursements, incurred in connection with the enforcement of any of its rights
and remedies hereunder.
(c) Each Grantor hereby waives presentment, demand, protest or
any notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Agreement or any Collateral.
(e) The Proceeds of any sale, disposition or other realization
upon all or any part of the Collateral shall be distributed by the Secured Party
as provided in Section 4.2 of the Collateral Agency Agreement.
2. Limitation on the Secured Party's Duty in Respect of
Collateral.
4. Other than as may be specifically provided in the
Collateral Agency Agreement, the Secured Party shall not have any duty as to any
Collateral in its possession or control or in the possession or control of its
agents or nominees or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto, except that the
Secured Party shall use reasonable care with respect to the Collateral in its
possession or under its control. Upon request of any Grantor, the Secured Party
shall account for any moneys received by it in respect of any foreclosure on or
disposition of the Collateral.
6. Notices.
8. All notices and other communications provided for hereunder
shall be given or made by telecopy, first class mail, overnight delivery, or
personal delivery, if to any Grantor, addressed to it at c/o Capricorn Investors
II, L.P., 30 East Elm Street, Greenwich, Connecticut 06830, Attention: Herbert
S. Winokur, Jr., with a copy to Randall H. Doud, Esq., Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, New York, New York 10022, and if to the
Secured Party, addressed to it at The Bank of New York, 101 Barclay Street,
Floor 21 West, New York, New York 10286, Attention: Corporate Trust Trustee
Administration, or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party given in
accordance with this Section 10. Except as otherwise provided in this Agreement,
all such communications shall be deemed to have been duly given when transmitted
by telecopy, subject to telephone confirmation of receipt and the provision
immediately thereafter of a copy by first class mail, overnight delivery or
personal delivery or, in the case of a mailed notice, when duly deposited in the
U.S. mails, first class postage prepaid, in each case given or addressed as
aforesaid.
10. Amendments, Etc.
12. No amendment or waiver of any provision of this Agreement
nor consent to any departure by any Grantor therefrom shall in any event be
effective unless the same shall be in writing, approved by the Majority Lenders
and signed by the Secured Party, and then any such waiver or consent shall only
be effective in the specific instance and for the specific purpose for which
given.
<PAGE>
14. No Waiver; Remedies.
16. (a) No failure on the part of the Secured Party to
exercise, and no delay in exercising any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative, may be exercised singly or
concurrently, and are not exclusive of any remedies provided by law, any of the
other Security Documents or the Note Agreement.
18. (b) Failure by the Secured Party at any time or times
hereafter to require strict performance by any Grantor or any other Person of
any of the provisions, warranties, terms or conditions contained in any of the
Security Documents now or at any time or times hereafter executed by any Grantor
or any such other Person and delivered to any of the Secured Party shall not
waive, affect or diminish any right of the Secured Party at any time or times
hereafter to demand strict performance thereof, and such right shall not be
deemed to have been modified or waived by any course of conduct or knowledge of
the Secured Party, or any agent, officer or employee of such Secured Party.
1. Successors and Assigns.
2. This Agreement and all obligations of each Grantor
hereunder shall be binding upon the successors and assigns of each Grantor, and
shall, together with the rights and remedies of the Secured Party hereunder,
inure to the benefit of the Secured Party, the Lenders and their respective
successors and assigns.
1. Governing Law.
3. This Agreement shall be governed by, and be construed and
interpreted in accordance with, the law of the State of New York, without regard
to principles of conflicts of laws. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity and without invalidating the remaining
provisions of this Agreement.
5. Consent to Jurisdiction.
7. Courts within the State of New York shall, to the extent
permitted by applicable law, have nonexclusive jurisdiction over any and all
disputes arising under or pertaining to this Agreement and all obligations of
each Grantor hereunder. In any and all such disputes, the Store Company and each
Grantor, hereby irrevocably consent to the nonexclusive jurisdiction of all
courts within the State of New York and the service of process of any of the
aforesaid courts by the mailing of copies thereof by registered or certified
mail, postage prepaid, to the Store Company or such Grantor at its address
provided herein, and venue in any such dispute shall, to the extent permitted by
applicable law, be proper in New York County or the Southern District of New
York.
9. Section Titles.
11. The Section titles contained in this Agreement are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of this Agreement.
<PAGE>
IN WITNESS WHEREOF, Each Grantor has caused this Agreement to
be executed and delivered by its duly authorized officer on the date first above
written.
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
MRS. FIELDS COOKIES AUSTRALIA
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
FAIRFIELD FOODS INC.
By:/s/Herbert S. Winour
Name:Herbert S. Winokur
Title:President
<PAGE>
Accepted and acknowledged by:
THE BANK OF NEW YORK,
AS COLLATERAL AGENT
By:/s/Bryon Merino
Name:Bryon Merino
Title:Assistant Treasurer
<PAGE>
SCHEDULE A
TO SECURITY AGREEMENT
GRANTORS
<PAGE>
Mrs. Fields' Original Cookies, Inc.
Mrs. Fields Cookies Australia
Fairfield Foods Inc.
<PAGE>
SCHEDULE C
TO
SECURITY AGREEMENT
COPYRIGHTS
None
<PAGE>
SCHEDULE D
TO SECURITY AGREEMENT
FILINGS
2
EXHIBIT D TO OCC
ASSET PURCHASE AGREEMENT
-------------------------------
MRS. FIELDS' ORIGINAL COOKIES, INC.
-------------------------------
STOCKHOLDERS' AGREEMENT
among
MRS. FIELDS' ORIGINAL COOKIES, INC.
and
ITS STOCKHOLDERS AND OTHER SECURITYHOLDERS
--------------------------------
Dated as of September 18, 1996
--------------------------------
<PAGE>
3
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of September
18, 1996, among MRS. FIELDS' ORIGINAL COOKIES, INC., a Delaware corporation
(the "Company"), MRS. FIELDS' HOLDING COMPANY, INC., a Delaware corporation
("Holdco"), and CHOCAMERICAN, INC., a Delaware corporation
("Chocamerican"), and such other persons to become
parties to this Agreement as described herein.
W I T N E S S E T H:
WHEREAS, pursuant to an Asset Purchase Agreement dated August 7, 1996,
among Mrs. Fields Inc., a Delaware corporation ("MFI"), various subsidiaries of
MFI, the Company and Capricorn Investors II, L.P., a Delaware limited
partnership ("Capricorn"), the Company has as of the date of this Agreement
purchased certain assets specified therein and issued as partial consideration
therefor to designees of MFI senior subordinated notes of the Company
("Convertible Notes") convertible into shares of common stock, par value $.01
per share of the Company (the "Common Stock");
WHEREAS, pursuant to an Asset Purchase Agreement dated as of August 7,
1996, as amended by a First Amendment dated as of September 17, 1996, among
Chocamerican and two subsidiaries of Chocamerican, the Company and Capricorn,
the Company has as of the date of this Agreement purchased the assets specified
therein and as partial consideration therefor issued to one of such subsidiaries
of Chocamerican Convertible Notes;
WHEREAS, it is expected that the Company will adopt a Stock Option Plan
and the grant of options pursuant thereto to employees of the Company will be
conditioned on such employees becoming parties to this Agreement;
WHEREAS, as of the date of this Agreement, Holdco owns all the
outstanding shares of Common Stock and Holdco has acquired the Convertible Notes
issued to designees of MFI;
WHEREAS, the parties hereto deem it in their best interests and in the
best interests of the Company to provide consistent and uniform management for
the Company and desire to enter into this Agreement in order to effectuate that
purpose and to set forth their respective rights and obligations in connection
with their investment in the Company; and
WHEREAS, the parties hereto also desire to restrict the sale,
assignment, transfer, encumbrance or other disposition of the shares of Common
Stock and the Convertible Notes, and to provide for certain rights and
obligations in respect thereto as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
1. Section Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
3. "Affiliate" means as to any Person (a) any Person which directly or
indirectly controls, is controlled by, or is under common control with such
Person, (b) any Person who is a director, officer, partner or principal of such
Person or of any Person which directly or indirectly controls, is controlled by,
or is under common control with such Person, and (c) any individual who is a
member of the immediate family of any Person described in clause (a) or clause
(b) above. For purposes of this definition, "control" of a Person shall mean the
power, direct or indirect, (i) to vote or direct the voting of 5% or more of the
Voting Stock of such Person or (ii) to direct or cause the direction of the
management and policies of such Person whether by ownership of Capital Stock, by
contract or otherwise.
<PAGE>
5. "Agreement" means this Agreement as in effect on the date hereof and as
hereafter from time to time amended, modified or supplemented in accordance with
the terms hereof.
7. "Board of Directors" means the Board of Directors of the Company as from
time to time hereafter constituted.
9. "By-Laws" means the By-Laws of the Company in effect on the date hereof,
substantially in the form of Exhibit A hereto, and as hereafter further amended
in accordance with the terms hereof and pursuant to applicable law.
11. "Call Notice" has the meaning specified in Section 6.1.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock of any Person, including, without limitation, shares of
preferred or preference stock, (ii) all partnership interests (whether general
or limited) in any Person which is a partnership, (iii) all membership interests
or limited liability company interests in any limited liability company, and
(iv) all equity or ownership interests in any Person of any other type.
"Cause" means, when used in connection with the termination of a
Management Investor's employment with the Company or any of its Subsidiaries,
(i) the refusal of such Management Investor to implement or adhere to lawful
policies or directives of the Board of Directors consistent with such Management
Investor's employment agreement with the Company; (ii) such Management
Investor's conviction of or entrance of a plea of nolo contendere to (A) a
felony, (B) to any other crime, which other crime is punishable by incarceration
for a period of one year or longer, or (C) other conduct of a criminal nature
that may have an adverse impact on the Company's reputation and standing in the
community; (iii) conduct that is in violation of such Management Investor's
common law duty of loyalty to the Company; (iv) fraudulent conduct by such
Management Investor in connection with the business affairs of the Company,
regardless of whether said conduct is designed to defraud the Company or others;
(v) theft, embezzlement, or other criminal misappropriation of funds by such
Management Investor, whether from the Company or any other person; or (vi) any
breach of or such Management Investor's failure to fulfill any of such
Management Investor's obligations, covenants, agreements, or duties under his
employment agreement with the Company; provided, however, that "Cause" pursuant
to clause (i) or (vi) shall not be deemed to exist unless the Company has given
such Management Investor written notice thereof specifying in reasonable detail
the facts and circumstances alleged to constitute "cause", and 30 days after
such notice such conduct or circumstances has not entirely ceased or been
entirely remedied. Any determination of Cause shall be made by the Board of
Directors, which determination shall be final and binding on a Management
Investor.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company as in effect on the date hereof, substantially in the form of
Exhibit B hereto, and as hereafter from time to time amended, modified,
supplemented or restated in accordance with the terms hereof and pursuant to
applicable law.
"Commission" means the Securities and Exchange Commission and any
successor commission or agency having similar powers.
"Date of Termination" means, with respect to any Management Investor,
the date such Management Investor ceases to be an employee of the Company or any
of its subsidiaries.
"Exchange Act" means, as of any date, the Securities Exchange Act of
1934, as amended, or any similar Federal statute then in effect and superseding
such act, and any reference to a particular section thereof shall include a
reference to the comparable section, if any, of such similar Federal statute,
and the rules and regulations thereunder.
"Fair Market Value" means the fair market value of shares of Common
Stock as determined from time to time by the Board of Directors as evidenced by
a resolution thereof.
<PAGE>
"Management Investor" means, for so long as such Person owns shares of
Common Stock, each employee of the Company or any subsidiary thereof who
purchases Common Stock, or receives options to purchase Common Stock, from the
Company, and each Permitted Transferee of any such Person.
"NASD" means the National Association of Securities Dealers, Inc. and its
successors and assigns.
"Offered Securities" has the meaning specified in Section 4.l(a).
"Permitted Transferee" has the meaning specified in Section 3.2.
"Person" means an individual or a corporation, association, partnership,
limited liability company, joint venture, organization, business, trust or any
other entity or organization, including a government or any subdivision or
agency thereof.
"Pro Rata Portion" means, with reference to any Shareholder at any time, a
fraction, the numerator of which is the number of shares of Common Stock then
issued and outstanding and held by such Shareholder, and the denominator of
which is the aggregate number of shares of Common Stock then issued and
outstanding and held by the Shareholders taken together.
<PAGE>
0157584.21-New York Server 1a Draft September 19, 1997 - 4:42 pm
"Registrable Securities" means (i) all shares of Common Stock
outstanding on the date hereof and now or hereafter owned of record or
beneficially by the Shareholders, (ii) any shares of Common Stock issued or
issuable upon the conversion of the Convertible Notes and (iii) any shares of
Capital Stock issued by the Company in respect of any shares of Common Stock
referred to in (i) or (ii) by way of a stock dividend or stock split or in
connection with a combination or subdivision of shares, reclassification,
recapitalization, merger, consolidation or other reorganization of the Company.
As to any particular Registrable Securities that have been issued, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of under such registration statement, (ii) they shall have been distributed to
the public pursuant to Rule 144 under the Securities Act, (iii) they shall have
been otherwise transferred or disposed of, and new certificates therefor not
bearing a legend restricting further transfer shall have been delivered by the
Company, and subsequent transfer or disposition of them shall not require their
registration or qualification under the Securities Act or any similar state law
then in force, (iv) they shall have ceased to be outstanding, or (v) with
respect to the Registrable Securities held by any Person, when such Registrable
Securities, when aggregated with the Registrable Securities held by such
Person's Affiliates, constitute 1% or less of the shares of Common Stock at the
time outstanding.
"Registration Expenses" shall mean any and all out-of-pocket expenses
incident to the Company's performance of or compliance with Section 5 hereof,
including, without limitation, all Commission, stock exchange and NASD
registration and filing fees, all fees and expenses of complying with securities
and blue sky laws (including the reasonable fees and disbursements of
underwriters' counsel in connection with blue sky qualifications and NASD
filings), all fees and expenses of the transfer agent and registrar for the
Registrable Securities, all printing expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, and one firm of counsel retained by each
Shareholder exercising its rights under Section 5 hereof, but excluding
underwriting discounts and commissions and applicable transfer and documentary
stamp taxes, if any, which shall be borne by the seller of the Registrable
Securities in all cases.
"Securities Act" means, as of any date, the Securities Act of 1933, as
amended, or any similar Federal statute then in effect and superseding such act,
and any reference to a particular section thereof shall include a reference to
the comparable section, if any, of any such similar Federal statute, and the
rules and regulations thereunder.
"Shareholder" means, (i) Chocamerican, (ii) Holdco, (iii) each of the
Management Investors who becomes a party hereto, (iv) any other investor in the
Company who becomes a party hereto (the "Other Investors") and (v) each
Permitted Transferee who becomes a party to or bound by the provisions of this
Agreement in accordance with the terms hereof, in each case for so long as such
person continues to hold shares of Common Stock.
"Subsidiary" means, as to any Person, another Person of which
outstanding Voting Stock having the power to elect a majority of the members of
the board of directors (or comparable body or authority performing similar
functions) of such other Person are at the time owned, directly or indirectly
through one or more intermediaries, or both, by such first Person.
"Underwritten Offering" means a firm commitment underwriting through a
nationally recognized underwriter.
"Voting Stock" means Capital Stock of any class or classes, the holders
of which are ordinarily, in the absence of contingencies, entitled to vote for
the election of corporate directors (or Persons performing similar functions).
<PAGE>
1. Section Management.
1.1. Section Board of Directors; Shareholders .
(i) Subject to the terms of this Agreement and the Certificate of
Incorporation and the By-Laws, the business and affairs of the Company shall be
managed by the Board of Directors, which will initially consist of nine
directors designated as follows: Holdco shall be entitled to designate seven
directors (the "Holdco Directors"); and Chocamerican shall be entitled to
designate two directors (the "Chocamerican Directors"). For so long as
Chocamerican owns Convertible Notes or shares of Common Stock, the Board of
Directors shall consist of no fewer than six members and no more than nine
members.
(a) Each Shareholder agrees to vote its shares of Voting Stock of the
Company for the removal of any director upon the request of the person who
designated such director and shall not vote any of its shares of Voting Stock of
the Company for the removal of any director under any other circumstance. In the
event that any director is unwilling or unable (by reason of death, resignation
or otherwise) to serve as such or is removed in accordance with the terms of
this Section 2.1(b), then the Shareholders, prior to the transaction of any
other business by the Shareholders or the Board of Directors, shall elect the
successor or replacement to such director upon the nomination of the person who
designated such director.
(c) A quorum for any meeting of the Board of Directors shall consist of
four directors (a "Quorum of the Board"). No action may be taken by the Board of
Directors at any meeting unless a Quorum of the Board is present at the time
such action is taken. Resolutions of the Board of Directors shall be adopted
only by the affirmative vote of the majority of directors present at a meeting
at which a Quorum of the Board is present. Any action required or permitted to
be taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if all members of the Board of Directors or of such
committee, as the case may be, consent in writing to the taking of such action.
For so long as Chocamerican owns Convertible Notes or shares of Common Stock,
the notice requirements for meetings of the Board of Directors contained in the
By-Laws shall not be amended without the consent of Chocamerican.
1.2. Section Authority of Board of Directors . The Board of Directors
shall have and exercise all of the powers belonging or pertaining to the
Company, excepting only as to such matters as by law, or the Certificate of
Incorporation or the By-Laws, that require the action of the Shareholders.
1.4. Section No Conflict with Agreement . Each Shareholder shall vote
its shares of Voting Stock of the Company, and shall take all actions necessary,
to ensure that the Certificate of Incorporation and By-Laws do not, at any time,
conflict with the provisions of this Agreement.
1. Section Transfers of Shares of Common Stock.
2.1. Section Restrictions on Transfer . Each Shareholder agrees that
such Shareholder will not, directly or indirectly, offer, sell, transfer, assign
or otherwise dispose of (or make any exchange, gift, assignment or pledge of)
(collectively, for purposes of Sections 3 and 4 only, a "transfer") any of its
shares of Common Stock or Convertible Notes, or options, warrants or rights to
subscribe for or purchase shares of Common Stock that may be issued hereafter to
such Shareholder, except as provided in Section 3.2 or other than an exercise of
options, warrants or rights to subscribe for or purchase shares of Common Stock.
In addition to the other restrictions contained in this Section 3, each
Shareholder agrees that it will not, directly or indirectly, transfer any of its
shares of Common Stock or Convertible Notes (or options, warrants or rights that
may be hereafter issued to such Shareholder) except as permitted under the
Securities Act and other applicable securities laws.
<PAGE>
1.1. Section Exceptions to Restrictions . The provisions of Section 3.1
shall not apply to any of the following transfers:
--------------------------
(a) Any transfer from Holdco to any Affiliate of Holdco.
(a) Any transfer from Chocamerican to any Affiliate of
Chocamerican.
(c) Any transfer from a Management Investor to members of
such Management Investor's immediate family or trusts
for their benefit and, upon such Management Investor's
death, such Management Investor's executors,
administrators, testamentary trustees, legatees and
beneficiaries.
(d) Any transfer pursuant to the laws of descent and
distribution or by last will and testament.
(f) Any transfer approved by the Board of Directors (which
approval
shall not be unreasonably withheld, it being understood that the Board of
Directors must provide reasons in writing to the proposed transferor in the
event that it withholds such consent).
(h) Any transfer of shares of Common Stock in accordance
with Section 4, 5 or Section 6 hereof.
(j) Any transfer from an Other Investor to any Affiliate of
such Other Investor.
(l) The exceptions in clauses (a), (b), (c), (d), (e) and (g) above are subject
to the condition that each such Affiliate or other transferee referred to
therein (each a "Permitted Transferee") shall execute the agreement referred to
in Section 3.3(b) hereof. The provisions of this Agreement shall be applied to
the shares of Common Stock acquired by any Permitted Transferee of a Shareholder
in the same manner and to the same extent as such provisions were applicable to
such shares of Common Stock in the hands of such Shareholder. Any reference in
this Agreement to Holdco shall be deemed to include Holdco and its Permitted
Transferees, any reference in this Agreement to Chocamerican shall be deemed to
include Chocamerican and its Permitted Transferees, any reference to an Other
Investor shall be deemed to include such Other Investor and its Permitted
Transferees and any reference to a Management Investor shall be deemed to
include such Management Investor and his Permitted Transferees.
(n) No transfer of any shares of Common Stock to a Permitted Transferee shall be
effective unless such transfer is made (i) pursuant to an effective registration
statement under the Securities Act and is qualified under applicable state
securities or blue sky laws or (ii) without registration under the Securities
Act and qualification under applicable state securities or blue sky laws, as a
result of the availability of an exemption from registration and qualification
under such laws, and such Shareholder shall have furnished to the Company a
certificate or, if reasonably requested by the Company, an opinion of counsel,
in either case reasonably satisfactory in form and substance to the Company and
its counsel, to that effect; provided, however, that no such certificate or
opinion of counsel shall be required in connection with a transfer of shares of
Common Stock pursuant to Sections 4.1, 4.4 or 4.5 hereof and that such opinion
of counsel shall only be required in connection with a transfer of shares of
Common Stock pursuant to Sections 3.2 (a), (b), (c), (d) or (g) hereof if, after
receiving a certificate, the Company reasonably requests that such opinion of
counsel be delivered.
1.1. Section Endorsement of Certificates .
(a) Upon the execution of this Agreement, in addition to any other
legend that the Company may deem advisable under the Securities Act and certain
state securities laws, all certificates representing shares of issued and
outstanding shares of Common Stock that are subject to any of the provisions of
this Agreement shall be endorsed at all times as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND ARE
TRANSFERABLE ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF A
STOCKHOLDERS' AGREEMENT DATED AS OF SEPTEMBER 18, 1996, AMONG THE
COMPANY AND ITS STOCKHOLDERS. A COPY OF THE ABOVE-REFERENCED AGREEMENT
IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT, OR AN EXEMPTION FROM REGISTRATION,
UNDER SAID ACT.
(a) Except as otherwise expressly provided in this Agreement, all
certificates representing shares of Common Stock hereafter issued to or acquired
by any of the Shareholders or their successors or assigns shall bear the legends
set forth above, and the shares of Common Stock represented by such certificates
shall be subject to the applicable provisions of this Agreement. The obligations
of a party hereto shall be binding upon any transferee to whom shares of Common
Stock are transferred by such party, whether or not such transfer is permitted
under the terms of this Agreement. Prior to consummation of any such transfer,
such party shall cause the transferee to execute an agreement in form and
substance reasonably satisfactory to the other parties hereto, providing that
such transferee shall be bound by and shall fully comply with the terms of this
Agreement. Prompt notice shall be given to the Company and each Shareholder by
the transferor of any transfer (whether or not to a Permitted Transferee) of any
shares of Common Stock.
<PAGE>
1.2. Section Improper Transfer . Any attempt to transfer or encumber
any shares of Common Stock other than in accordance with the terms of this
Agreement shall be null and void and neither the Company nor any transfer agent
of such securities shall give any effect to such attempted transfer or
encumbrance in its stock records.
2. Section Rights of First Refusal; Drag-Along Rights; Tag-Along
Rights; Transfer of Convertible Notes.
1.1. Section Transfers by Shareholders .
(a) Except for (i) transfers to a Permitted Transferee and (ii) the
sale of securities contemplated by Sections 5 and 6 hereof, if, at any time
following the seventh anniversary of the date hereof, a Shareholder other than
Holdco (the "Selling Shareholder") receives a bona fide offer, which it desires
to accept (a "Transfer Offer"), to purchase any shares of Common Stock or
Convertible Notes (or options, warrants or rights to subscribe for or purchase
shares of Common Stock) owned by it, then the Selling Shareholder shall cause
the Transfer Offer to be reduced to writing and shall deliver written notice of
such Transfer Offer (a "Transfer Notice"), accompanied by a copy of such
Transfer Offer, to the other Shareholders (individually and collectively
referred to as the "Other Shareholders") and the Company, setting forth the
identity of the offeror, the number of shares of Common Stock or Convertible
Notes (or options, warrants, or rights to subscribe for or purchase shares of
Common Stock) proposed to be transferred (the "Offered Securities"), the price
per security contained in the Transfer Offer (the "Transfer Offer Price Per
Security"), and all other terms applicable thereto. The Transfer Notice shall
also contain an irrevocable offer by the Selling Shareholder to sell the Offered
Securities to the Other Shareholders and the Company at a price equal to the
Transfer Offer Price Per Security and upon substantially the same terms as
contained in the Transfer Offer. In the event that the form of consideration
specified in the Transfer Offer is other than cash, the Other Shareholders and
the Company shall have the option of paying the Transfer Offer Price Per
Security in cash in an amount equal to the fair market value of such
consideration unless it is reasonably practicable to deliver substantially
identical consideration, in which case the purchaser may so deliver. Fair market
value shall be determined by a nationally recognized investment banking firm
mutually acceptable to the parties, unless they agree otherwise.
(a) Upon receipt of the Transfer Notice, the Company shall then have
the irrevocable right to accept such offer at the Transfer Offer Price Per
Security and on the other terms specified in the Transfer Offer with respect to
all or any portion of the Offered Securities; provided, however, that in the
event the Company does not purchase any or all of the Offered Securities, the
Other Shareholders shall have the irrevocable right to purchase such unpurchased
Offered Securities (including any such Offered Securities not purchased by such
Other Shareholders hereunder) in proportion to each of such Other Shareholder's
Pro Rata Portion until all of such Offered Securities are purchased or until no
Other Shareholder desires to purchase any more Offered Securities. The rights of
each of the Other Shareholders and the Company pursuant to this Section 4.1(b)
shall be exercisable by the delivery of notice to the Selling Shareholder (the
"Notice of Exercise"), within 30 calendar days from the date of delivery of the
Transfer Notice. The Notice of Exercise shall state the total number of shares
of the Offered Securities as to which each of the Other Shareholders or the
Company, as the case may be, is accepting under the offer, without regard to
whether or not the Company purchases any Offered Securities. A copy of such
Notice of Exercise shall also be delivered by the Other Shareholders to the
Company. The rights of the Other Shareholders and the Company pursuant to this
Section 4.1(b) shall terminate if unexercised 30 calendar days after the date of
delivery of the Transfer Notice.
(c) In the event that the Other Shareholders or the Company exercise
their rights to purchase all of the Offered Securities in accordance with
Section 4.1(b) hereof, then the Selling Shareholder must sell such Offered
Securities to the Other Shareholders or the Company, as the case may be, at the
Transfer Offer Price Per Security and on the other terms specified in the
Transfer Offer.
<PAGE>
(e) For purposes of this Section 4, any Person who has failed to give
notice of the election of an option hereunder within the specified time period
will be deemed to have waived its rights with respect thereto on the day
immediately following the last day of such period.
1.2. Section Transfer of Offered Securities to Third Parties . If all
notices required to be given pursuant to Section 4.1 hereof have been duly given
and the Other Shareholders and the Company offer to purchase fewer than all of
the Offered Securities pursuant to the provisions hereof, then the Selling
Shareholder shall have the right, subject to compliance by the Selling
Shareholder with the provisions of Section 3.3(b) hereof for a period of 120
calendar days from the earlier of (i) the expiration of the option period
pursuant to Section 4.1 hereof with respect to such Transfer Offer or (ii) the
date on which the Selling Shareholder receives notice from the Other
Shareholders and the Company that they will not exercise the option granted
pursuant to Section 4.1 hereof, to sell to any third party that is not an
Affiliate of the Selling Shareholder the Offered Securities at a price per
Offered Security of not less than 100% of the Transfer Offer Price Per Security
and on the other terms specified in the Transfer Offer.
1.4. Section Purchase of Offered Securities . The consummation of any
purchase and sale pursuant to Section 4.1 hereof shall take place on such date,
not later than 30 calendar days after the expiration of the option period
pursuant to Section 4.1 hereof with respect to such option, as the Other
Shareholders or the Company, as the case may be, shall select. Prior to the
consummation of any sale pursuant to Section 4.1 hereof, the Selling Shareholder
shall comply with Section 3.3(b) hereof. Upon the consummation of any such
purchase and sale, the Selling Shareholder shall deliver certificates
representing the Offered Securities sold duly endorsed, free and clear of any
liens, against delivery of the Transfer Offer Price Per Security for each of the
Offered Securities purchased by certified or bank check or, in the case of
non-cash consideration, such other manner reasonably acceptable to the parties.
1.1. Section Drag-Along Rights .
(a) If Holdco approves or authorizes a sale or exchange, whether
directly or pursuant to a merger, consolidation or otherwise (the "Company
Sale"), of at least a majority of the then outstanding Common Stock in a bona
fide arm's-length transaction to a third party that is not an Affiliate of
Holdco or of the Company (an "Independent Third Party"), then Holdco shall have
the right, subject to all the provisions of this Section 4.4 (the "Drag-Along
Right"), to require each of the other Shareholders and any holder of Convertible
Notes to (i) if such Company Sale is structured as a sale of stock, sell,
transfer and deliver or cause to be sold, transferred and delivered to such
Independent Third Party all shares of Common Stock and Convertible Notes, and
other transferable options, warrants or rights to subscribe for or purchase
Common Stock, owned by them or (ii) if such Company Sale is structured as a
merger, consolidation or other transaction requiring the consent or approval of
the Company's shareholders, vote such Shareholder's shares of Voting Stock in
favor thereof, and otherwise consent to and raise no objection to such
transaction, and waive any dissenters' rights, appraisal rights or similar
rights that such Shareholder may have in connection therewith; and, in any such
event, except to the extent otherwise provided in subsection (c) of this Section
4.4, each such other Shareholder shall agree to and shall be bound by the same
terms, provisions and conditions (including, without limitation, provisions in
respect of indemnification) in respect of the Company Sale as are applicable to
Holdco; provided, that holders of Convertible Notes shall be entitled to receive
in the Company Sale (i) the consideration they would have received in the
Company Sale had they fully converted such Convertible Notes into shares of
Common Stock immediately prior to the consummation of the Company Sale or (ii)
if of greater value than the consideration available pursuant to clause (i), as
determined in good faith by the Board of Directors, cash in an amount, or
marketable securities with a value, equal to the unpaid principal of and
interest on such Convertible Notes immediately prior to the consummation of the
Company Sale. The provisions of Sections 4.1 through 4.3 hereof, inclusive,
shall not apply to any transactions to which this Section 4.4 applies.
(a) If Holdco desires to exercise Drag-Along Rights, it shall give
written notice to the other Shareholders (the "Drag-Along Notice") of the
Company Sale, setting forth the name and address of the transferee, the date on
which such transaction is proposed to be consummated (which shall be not less
than 30 days after the date such Drag-Along Notice is given), and the proposed
amount and form of consideration and terms and conditions of payment offered by
such transferee, including, without limitation, the material terms of any debt
or equity securities proposed to be included as part of such consideration,
identifying the issuer or issuers thereof. If such consideration includes any
non-cash consideration, such notice shall also state the fair market value of
such non-cash consideration and shall describe in reasonable detail the method
by which such value shall have been determined.
<PAGE>
(c) The obligations of the Shareholders in respect of a Company Sale
under this Section 4.4 are subject to the satisfaction of the following
conditions: (i) upon the consummation of the Company Sale, the same form of
consideration and the same portion of the aggregate consideration realized upon
such Company Sale shall be paid or distributed in respect of each share of
Common Stock then issued and outstanding (except as contemplated by the proviso
to Section 4.4 (a) hereof); (ii) if any Shareholder is given an option as to the
form and amount of consideration to be received, each Shareholder will be given
the same option; (iii) each holder of then currently exercisable rights to
acquire shares of Common Stock will be given a reasonable opportunity to
exercise such rights prior to the consummation of the Company Sale and thereby
to participate in such sale as a holder of such Common Stock; (iv) the maximum
liability of any Shareholder for indemnification in respect of all matters
arising pursuant to or in connection with the Company Sale shall not exceed the
net proceeds received by such Shareholder from such Company Sale; and (v) no
Shareholders shall be required to make general representations or warranties
regarding the financial condition, business, assets or affairs of the Company
and its Subsidiaries.
1.1. Section Tag-Along Rights .
(a) Notwithstanding anything in this Agreement to the contrary, except
in the case of (i) transfers by Holdco to a Permitted Transferee referred to in
Section 3.2 (a) hereof, (ii) transactions where Drag-Along Rights are exercised
pursuant to Section 4.4 hereof and (iii) sales pursuant to Section 5 hereof,
Holdco shall refrain from effecting any Company Sale with respect to any of the
Common Stock or the Convertible Notes unless, prior to the consummation thereof,
the other Shareholders shall have been afforded the opportunity to join in such
sale on a pro rata basis, as hereinafter provided in this Section 4.5.
(a) Prior to consummation of such proposed Company Sale, Holdco shall
cause the person or group that proposes to acquire such shares (the "Proposed
Purchaser") to offer in writing (the "Purchase Offer") to purchase shares of
Common Stock (or shares of Common Stock into or for which the Convertible Notes
or any employee stock options are then convertible or exercisable) owned by the
other Shareholders, such that the number of shares of such Common Stock (or
shares of Common Stock into or for which the Convertible Notes or any employee
stock options are then convertible or exercisable) so offered to be purchased
from the other Shareholders shall be equal to the product obtained by
multiplying the aggregate number of shares of Common Stock proposed to be
purchased by the Proposed Purchaser by such other Shareholder's Pro Rata
Portion. If the Purchase Offer is accepted by any other Shareholder, then the
number of shares of Common Stock to be sold to the Proposed Purchaser by Holdco,
shall be reduced by the aggregate number of shares of Common Stock to be
purchased by the Proposed Purchaser from such other Shareholder pursuant
thereto. Such purchase shall be made on the same terms and conditions as the
Proposed Purchaser shall have offered to purchase shares of Common Stock to be
sold by Holdco (net, in the case of any options, warrants or rights, of any
amounts required to be paid by the holder upon exercise thereof). The other
Shareholders shall have 20 days from the date of receipt of the Purchase Offer
during which to accept such Purchase Offer, and the closing of such purchase
shall occur within 30 days after such acceptance or at such other time as the
other Shareholders and the Proposed Purchaser may agree.
1.1. Section Transfer of Convertible Notes. (a) If, at any time or from
time to time following the date hereof, Holdco receives a bona fide offer, which
it desires to accept (a "Convertible Note Transfer Offer"), to purchase any
Convertible Notes owned by it, then Holdco shall cause the Convertible Note
Transfer Offer to be reduced to writing and shall deliver written notice of such
Convertible Note Transfer Offer (a "Convertible Note Transfer Notice"),
accompanied by a copy of such Convertible Note Transfer Offer, to Chocamerican
and the Company, setting forth the identity of the offeror, the principal amount
of Convertible Notes proposed to be transferred (the "Offered Notes"), the price
per $1,000 principal amount of the Convertible Notes contained in the
Convertible Note Transfer Offer (the "Convertible Note Transfer Offer Price"),
and all other terms applicable thereto. (b) Upon receipt of the Convertible Note
Transfer Notice, Chocamerican shall then have the irrevocable right to accept
the Convertible Note Transfer Offer in lieu of Holdco at the Convertible Note
Transfer Offer Price and on the other terms specified in the Convertible Note
Transfer Offer with respect to all of the Offered Notes; provided, however, that
in the event Chocamerican does not accept such offer with respect to any or all
of the Offered Notes, Holdco shall have the irrevocable right to sell all or a
portion of its Convertible Notes at the Convertible Note Transfer Offer Price
and on the other terms specified in the Convertible Note Transfer Offer. The
right of Chocamerican pursuant to this Section 4.6(b) shall be exercisable by
the delivery of notice to Holdco (the "Convertible Note Notice of Exercise"),
within 30 calendar days from the date of delivery of the Convertible Note
Transfer Notice. The Convertible Note Notice of Exercise shall state the total
principal amount of the Offered Notes as to which Chocamerican is accepting
under the Convertible Note Transfer Offer. The rights of Chocamerican pursuant
to this Section 4.6(b) shall terminate if unexercised 30 calendar days after the
date of delivery of the Convertible Note Transfer Notice. If Chocamerican
accepts the Convertible Note Transfer Offer and the offeror fails to close the
acquisition of Chocamerican's Convertible Notes, Holdco shall have no obligation
to Chocamerican as a result of such failure to close but shall not be permitted
to sell any of its Convertible Notes to such offeror or any of its affiliates.
Section Registration Rights .
<PAGE>
1.3. Section Demand Registration .
(a) Subject to the conditions and limitations hereinafter set forth in
this Section 5.1, following the one year anniversary of the effectuation of an
initial public offering by the Company of the Common Stock, Chocamerican may
request in writing that the Company effect the registration under the Securities
Act of all or part of Chocamerican's Registrable Securities specifying in the
request the number and type of Registrable Securities to be registered by
Chocamerican and the intended method of disposition thereof (such notice is
hereinafter referred to as a "Chocamerican Request"). A registration requested
pursuant to this Section 5.1(a) is referred to herein as a "Demand
Registration." Upon receipt of such Chocamerican Request, the Company will
promptly give written notice of such requested Demand Registration to all other
holders of Registrable Securities, which other holders shall have the right
(subject to the limitations set forth in Section 5.1(f) hereof) to include the
Registrable Securities held by them in such registration and thereupon the
Company will, as expeditiously as possible, use its best efforts to effect the
registration under the Securities Act of the following:
(i) the Registrable Securities that the Company has been so
requested to register by Chocamerican; and
(i) all other Registrable Securities that the Company has
been requested to register by any other holder thereof
by written request given to the Company within 10
calendar days after the giving of such written notice
by the Company (which request shall specify the
intended method of disposition of such Registrable
Securities), all to the extent necessary to permit the
disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Securities so
to be registered.
(a) Subject to the proviso set forth in Section 5.1(e) hereof, (i) the
Company shall not be obligated to effect more than (A) one Demand Registration
pursuant to this Section 5.1 at the request of Chocamerican and (ii) the Company
shall not be obligated to file a registration statement under Section 5.1(a)
hereof unless the Company shall have received requests for such registration
with respect to at least 5% of the outstanding shares of Common Stock.
(c) The Company shall not be obligated to file a registration statement
relating to any Chocamerican Request under Section 5.1(a) hereof within a period
of 12 months after the effective date of any other registration statement filed
by the Company with the Commission.
(e) In connection with any offering pursuant to this Section 5.1, the
only shares that may be included in such offering are (i) Registrable Securities
and (ii) shares of authorized but unissued Common Stock that the Company elects
to include in such offering ("Company Securities").
(g) If the Board of Directors of the Company makes a good faith
determination, certified by the Chief Executive Officer of the Company, that (i)
the filing of a registration statement or the compliance by the Company with its
disclosure obligations in connection with a registration statement would require
the disclosure of material information that the Company has a bona fide business
purpose for preserving as confidential or (ii) such registration would be likely
to have an adverse affect on any proposal or plan by the Company to engage in
any financing transaction, acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction, the Company may delay the filing of a registration statement and
shall not be required to maintain the effectiveness thereof or amend or
supplement a registration statement for a period expiring upon the earlier to
occur of (A) the date on which such material information is disclosed to the
public or ceases to be material, in the case of clause (i), (B) the date on
which such transaction is completed or abandoned, in the case of clause (ii), or
(C) 120 days after the Company makes such good faith determination, in the case
of either clauses (i) or (ii); provided that in such event, the holders of
Registrable Securities initiating the request for such registration will be
entitled to withdraw such request, and if such request is withdrawn such
registration will not count as the permitted registration under this Section 5.1
in such event or in any other event, if in the case of any other event, such
holder reimburses the Company for all Registration Expenses relating to such
withdrawn registration.
<PAGE>
(i) If, in connection with any Underwritten Offering, the managing
underwriter shall advise the Company and any holder of Registrable Securities
that has requested registration that, in its judgment, the number of securities
proposed to be included in such offering should be limited due to market
conditions, the Company will so advise each holder of Registrable Securities
that has requested registration, and shares shall be excluded from such offering
in the following order until such limitation has been met: First, the
Registrable Securities requested to be included by the Company shall be excluded
until all such Registrable Securities shall have been so excluded; and
thereafter, the Registrable Securities requested to be included in such offering
pursuant to Section 5.1(a)(i) hereof by Chocamerican or pursuant to Section
5.1(a)(ii) hereof by other Shareholders shall be excluded pro rata, based on the
respective number of Registrable Securities as to which registration has been so
requested by such Shareholders.
(k) A registration requested pursuant to Section 5.1(a) hereof will not
be deemed to have been effected unless it has become effective; provided, that
if after it has become effective, the offering of Registrable Securities
pursuant to such registration is interfered with by any stop order, injunction
or other order or requirement of the Commission or other governmental agency or
court, such registration will be deemed not to have been effected.
(m) If Chocamerican specifies in the Chocamerican Request an
Underwritten Offering, Chocamerican shall have the right, with the approval of
the Company, which approval shall not be unreasonably withheld, to select the
managing underwriter; provided, however, in the event that the Company has
elected to include Company Securities in such offering, the Company shall have
the right, with the approval of a majority of the holders of Registrable
Securities that have requested to be included in such offering, which approval
shall not be unreasonably withheld, to select the managing underwriter.
(o) The Company will pay all Registration Expenses incurred in
connection with any Demand Registration effected by it pursuant to this Section
5.1.
1.1. Section Piggyback Registrations .
(a) If at any time the Company proposes to register any of its equity
securities under the Securities Act (other than a registration on Form S-4 or
S-8 or any successor forms thereto) for the account of another Person or, at any
time following the effectuation of an initial public offering by the Company of
the Common Stock, for its own account, on a form and in a manner that would
permit registration of Registrable Securities for sale to the public under the
Securities Act, it will give written notice to all the holders of Registrable
Securities promptly of its intention to do so, describing such securities and
specifying the form and manner and the other relevant facts involved in such
proposed registration, including, without limitation, (x) the intended method of
disposition of the securities offered, including whether or not such
registration will be effected through an underwriter in an Underwritten Offering
or on a "best efforts" basis, and, in any case, the identity of the managing
underwriter, if any, and (y) the price at which the Registrable Securities are
reasonably expected to be sold. Upon the written request of any holder of
Registrable Securities delivered to the Company within 30 calendar days after
the receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such holder), the Company will effect
the registration under the Securities Act of all the Registrable Securities that
the Company has been so requested to register; provided, however, that:
(i) if, at any time after giving such written notice of its
intention to register any securities and prior to the effective date of
the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such
securities, the Company may, at its election, give written notice of
such determination to each holder of Registrable Securities who shall
have made a request for registration as hereinabove provided and
thereupon the Company shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith); and
(i) if such registration involves an Underwritten Offering,
all holders of Registrable Securities requesting to be included in the
Company's registration must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions
as apply to the Company.
<PAGE>
(a) The Company shall not be obligated to effect any registration of
Registrable Securities under this Section 5.2 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans.
(c) If a registration pursuant to this Section 5.2 involves an
Underwritten Offering and the managing underwriter advises the issuer that, in
its opinion, the number of securities proposed to be included in such
registration should be limited due to market conditions, the Company will so
advise each holder of Registrable Securities that has requested registration
pursuant to Section 5.2(a) hereof, and shares shall be excluded from such
offering pro rata, based on the respective number of Registrable Securities as
to which registration has been so requested by such Shareholders, until all such
Registrable Securities shall have been so excluded; and thereafter, the
securities requested to be registered by the Company shall be excluded.
(e) In connection with any Underwritten Offering with respect to which
holders of Registrable Securities shall have requested registration pursuant to
this Section 5.2, the Company shall have the right to select the managing
underwriter with respect to the offering; provided that such managing
underwriter shall be a nationally recognized investment banking firm.
(g) The Company will pay all Registration Expenses incurred in
connection with each of the registrations of Registrable Securities effected by
it pursuant to this Section 5.2.
1.2. Section Registration Procedures .
(a) If and whenever the Company is required to use its best efforts to
effect or cause the registration of any Registrable Securities under the
Securities Act as provided in Section 5.1 or 5.2 hereof, the Company will, as
expeditiously as possible:
(i) prepare and, in any event within 90 calendar days after
the end of the period within which requests for registration may be
given to the Company, file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to
cause such registration statement to become and remain effective;
provided, that the Company may discontinue any registration of its
securities that is being effected pursuant to Section 5.2 hereof at any
time prior to the effective date of the registration statement relating
thereto;
(i) prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such
registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for
such period as may be requested by the Shareholders not exceeding nine
months and to comply with the provisions of the Securities Act with
respect to the disposition of all the shares of Common Stock covered by
such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement;
(i) furnish to each holder of Registrable Securities covered
by the registration statement and to each underwriter, if any, of such
Registrable Securities, such number of copies of a prospectus and
preliminary prospectus for delivery in conformity with the requirements
of the Securities Act, and such other documents, as such Person may
reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities;
(i) use its best efforts to register or qualify such
Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as each
seller shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition of the Registrable Securities
owned by such seller in such jurisdictions, except that the Company
shall not for any such purpose be required (A) to qualify to do
business as a foreign corporation in any jurisdiction where, but for
the requirements of this Section 5.3(a)(iv), it is not then so
qualified, (B) to subject itself to taxation in any such jurisdiction,
or (C) to take any action which would subject it to general or
unlimited service of process in any such jurisdiction where it is then
so subject;
<PAGE>
(i) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(i) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 5.3(a)(ii) hereof,
if the Company becomes aware that the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and, at the
request of any such seller, deliver a reasonable number of copies of an
amended or supplemental prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing;
(i) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make generally
available to its security holders, in each case as soon as practicable,
but not later than 45 calendar days after the close of the period
covered thereby (90 calendar days in case the period covered
corresponds to a fiscal year of the Company), an earnings statement of
the Company which will satisfy the provisions of Section 11(a) of the
Securities Act;
(i) use its best efforts in cooperation with the underwriters
to list such Registrable Securities on each securities exchange on
which the shares of Common Stock are then listed or, if the shares of
Common Stock are not then listed on a securities exchange, on each
securities exchange as the underwriters may reasonably designate;
(i) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement;
(i) in the event such registration is effected through an
Underwritten Offering, use its best efforts to obtain a "cold comfort"
letter from the independent public accountants for the Company in
customary form and covering such matters of the type customarily
covered by such letters as the holders of Registrable Securities
requesting registration may reasonably request in order to effect an
underwritten public offering of such Registrable Securities; and
(i) execute and deliver all instruments and documents
(including in an Underwritten Offering an underwriting agreement in
customary form) and take such other actions and obtain such
certificates and opinions as the holders of Registrable Securities
requesting registration may reasonably request in order to effect an
underwritten public offering of such Registrable Securities.
(a) It shall be a condition precedent to the obligation of the Company
to take any action pursuant to this Section 5 in respect of Registrable
Securities that each holder requesting registration thereof shall furnish to the
Company such information regarding the Registrable Securities held by such
holder and the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the action taken
by the Company; provided, however, that the failure of any holder of Registrable
Securities to furnish such information shall not affect the obligations of the
Company pursuant to this Section 5 with respect to any holder of Registrable
Securities who furnishes such information to the Company. Notwithstanding any
provision to the contrary contained herein, no holder of Registrable Securities
(other than any such holder who holds of record or beneficially owns more than
10% of the outstanding Voting Stock of the Company or who is a director, nominee
for director or executive officer of the Company) shall be required (i) to
furnish any information to the Company or the underwriters in connection with
such registration, other than in a writing furnished by such holder expressly
for use in such registration statement which shall be limited to matters
concerning such holder's identity, its beneficial ownership of securities of the
Company, the class and number of such securities it intends to include in such
registration and its intended method of distribution, or (ii) to make any
representations or warranties to the Company, the underwriters or any other
Person (whether in the underwriting agreement or otherwise), except with respect
to the information so furnished.
(c) Each holder of Registrable Securities will, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 5.3(a)(vi) hereof, forthwith discontinue disposition of the Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 5.3(a)(vi) hereof.
<PAGE>
(e) If a registration pursuant to Section 5.1 or 5.2 hereof involves an
Underwritten Offering, each holder of Registrable Securities agrees, whether or
not such holder's Registrable Securities are included in such registration, not
to effect any sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Registrable Securities, or of any security
convertible into or exchangeable or exercisable for any Registrable Securities
(other than as part of such Underwritten Offering), without the consent of the
managing underwriter, during a period commencing seven calendar days before and
ending 180 calendar days (or such lesser number as the managing underwriter
shall designate) after the effective date of such registration; provided, that
such period shall not extend beyond the period during which the Company is
subject to such a restriction.
(g) If a registration pursuant to Section 5.1 or 5.2 hereof involves an
Underwritten Offering, the Company agrees, if so required by the managing
underwriter, not to effect any sale or distribution of any of its equity or debt
securities, as the case may be, or securities convertible into or exchangeable
or exercisable for any of such equity or debt securities, as the case may be,
during a period commencing seven calendar days before and ending 180 calendar
days after the effective date of such registration, except for such Underwritten
Offering or except in connection with a stock option plan, stock purchase plan,
savings or similar plan, or an acquisition, merger or exchange offer.
(i) If a registration pursuant to Section 5.1 or 5.2 hereof involves an
Underwritten Offering, any holder of Registrable Securities requesting to be
included in such registration may elect, in writing, not less than five days
prior to the effective date of the registration statement filed in connection
with such registration, not to register such securities in connection with such
registration, unless such holder has agreed with the Company or the managing
underwriter to limit its rights under this Section 5.3.
(k) It is understood that in any Underwritten Offering in addition to
any shares of Common Stock (the "initial shares") the underwriters have
committed to purchase, the underwriting agreement may grant the underwriters an
option to purchase up to a number of additional authorized but unissued shares
of Common Stock (the "option shares") equal to 15% of the initial shares (or
such other maximum amount as the NASD may then permit), solely to cover
over-allotments. Shares of Common Stock proposed to be sold by the Company and
the other sellers shall be allocated between initial shares and option shares as
agreed or, in the absence of agreement, pursuant to Section 5.1(f) or 5.2(c)
hereof, as the case may be. The number of initial shares and option shares to be
sold by requesting holders shall be allocated pro rata among all such holders on
the basis of the relative number of shares of Registrable Securities each such
holder has requested to be included in such registration.
1.1. Section Indemnification .
(a) In the event of any registration of any securities under the
Securities Act pursuant to Section 5.1 or 5.2 hereof, the Company will, and it
hereby agrees to, indemnify and hold harmless, to the extent permitted by law,
each seller of any Registrable Securities covered by such registration
statement, its directors, officers, employees and agents, each Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such seller or underwriter within the
meaning of the Securities Act, as follows:
(i) against any and all loss, liability, claim, damage or
expense whatsoever arising out of or based upon an untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (or any amendment or supplement thereto),
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or arising out of an untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein not misleading;
(i) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company; and
(i) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid
under clauses (i) or (ii) above;
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any such seller or underwriter specifically stating that it is for use
in the preparation of any registration statement (or any amendment thereto) or
any preliminary prospectus or prospectus (or any amendment or supplement
thereto); and provided, further, that the Company will not be liable (A) in the
case of any Underwritten Offering, to any Person who participates as an
underwriter in the offering or sale of Registrable Securities or any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, or (B) in the case of any offering other than an Underwritten
Offering, to any seller of Registrable Securities covered by such registration
statement or any other Person, if any, who controls such seller within the
meaning of the Securities Act, under the indemnity agreement in this Section
5.4(a) with respect to any preliminary prospectus or final prospectus or final
prospectus as amended or supplemented, as the case may be, to the extent that
any such loss, claim, damage or liability of such underwriter or controlling
Person (or seller or controlling Person, as the case may be) results from the
fact that such underwriter (or seller, as the case may be) sold Registrable
Securities to a Person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final prospectus or of the
final prospectus as then amended or supplemented, whichever is most recent, if
the Company has previously furnished copies thereof to such underwriter. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller, director, officer, employee, agent,
underwriter or controlling Person, and shall survive the transfer of such
securities by such seller.
<PAGE>
(a) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 5.1 or 5.2 hereof, that the Company shall have received an undertaking
reasonably satisfactory to it from the prospective seller of such Registrable
Securities or any underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section 5.4(a) hereof) the Company
and its directors and officers and each other Person, if any, who controls the
Company within the meaning of the Securities Act, with respect to any statement
or alleged statement in or omission or alleged omission from such registration
statement, any preliminary, final or summary prospectus contained therein, or
any such amendment or supplement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such seller or
underwriter specifically stating that it is for use in the preparation of such
registration statement, preliminary, final or summary prospectus or amendment or
supplement; provided, however, that the maximum liability of any seller of
Registrable Securities for such indemnification shall not exceed the net
proceeds received by such seller from the sale of such Registrable Securities.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling Person and shall survive the transfer of such securities by such
seller.
(c) Promptly after receipt by an indemnified party hereunder of written
notice of the commencement of any action or proceeding involving a claim
referred to in this Section 5.4, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to such indemnifying party of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 5.4, except to the extent (not including any such notice of an
underwriter) that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim (in which case the indemnifying party shall not be liable for the fees and
expenses of more than one counsel for the sellers of Registrable Securities or
for more than one counsel for the underwriters in connection with any one action
or separate but similar or related actions), the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof.
(e) The Company and each seller of Registrable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any underwriting
agreement with respect to any required registration or other qualification of
securities under any federal or state law or regulation of any governmental
authority.
1.2. Section Contribution . In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
5.4 hereof is for any reason not available, the parties required to indemnify by
the terms thereof shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, any seller of Registrable Securities and one or more of
the underwriters, except to the extent that contribution is not permitted under
Section 11(f) of the Securities Act. In determining the amounts that the
respective parties shall contribute, there shall be considered the relative
benefits received by each party from the offering of the Registrable Securities
(taking into account the portion of the proceeds of the offering realized by
each), the parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to correct
and prevent any statement or omission and any other equitable considerations
appropriate under the circumstances. The Company and each Person selling
securities agree with each other that no seller of Registrable Securities shall
be required to contribute any amount in excess of the amount such seller would
have been required to pay to an indemnified party if the indemnity under Section
5.4 hereof were available. The Company and each such seller agree with each
other and the underwriters of the Registrable Securities, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the Registrable Securities. For purposes
of this Section 5.5, each Person, if any, who controls an underwriter within the
meaning of the Securities Act shall have the same rights to contribution as such
underwriter, and each director and each officer of the Company who signed the
registration statement, and each Person, if any, who controls the Company or a
seller of Registrable Securities, shall have the same rights to contribution as
the Company or a seller of Registrable Securities, as the case may be.
1.4. Section Rule 144 . If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any holder of Registrable Securities, make
publicly available other information), and it will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell shares of Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
Rule may be amended from time to time or (ii) any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether the Company has complied with such requirements.
<PAGE>
1. Section Call Rights of the Company.
(i) Section Call Right; Purchase Price . If a Management Investor's
employment with the Company or any of its subsidiaries is terminated for any
reason prior to equity securities of the Company having been registered under
the Securities Act, the Company shall have the option, for a period of 90 days
after the Date of Termination, to purchase all or any portion of the shares of
Common Stock held by such Management Investor or his Permitted Transferees. The
Company may exercise such option by giving notice thereof (the "Call Notice") to
such Management Investor prior to the expiration of such period. The purchase
price applicable to such shares of Common Stock shall be: if such termination is
other than by the Company for Cause, the Fair Market Value of such shares as of
the Date of Termination; or if such termination is by the Company for Cause, the
lesser of (A) the amount paid by such Management Investor for such shares and
(B) the Fair Market Value of such shares as of the Date of Termination.
1.1. Section Call Notices . The Call Notice shall specify the number of
shares of Common Stock owned by the Management Investor as to which the Company
is exercising its call right pursuant to this Section 6 and shall contain an
irrevocable offer to purchase such shares at a price equal to the price required
to be paid by the Company pursuant to Section 6.1.
1.3. Section Method of Payment . Upon any exercise by the Company of
its call right under Section 6, the Company shall pay the applicable purchase
price by a certified check or checks or in cash; provided, however, that, at the
election of the Company, the purchase price may be paid by a certified check or
checks for 25% of the appropriate amount, plus a note of the Company in the
principal amount of 75% of the purchase price, payable in three equal annual
installments commencing on the first anniversary of the issuance thereof and
bearing interest payable annually at the rate then paid by the Company on its
bank debt or other senior debt as determined by the Board of Directors. If the
Company is prohibited by any agreement from making a payment contemplated by
this Section 6, such payment shall be deferred until such time as the Company is
permitted to make it.
1.5. Section Closing . The closing by the Company of any exercise of
its call right under Section 6.1 shall take place at the offices of the Company,
or such other place as may be mutually agreed, not less than 15 nor more than 30
days after the date such option is exercised, as specified by the Company in its
Call Notice. At such closing, such Management Investor shall deliver
certificates for the shares of Common Stock to be sold to the Company duly
endorsed, or accompanied by written instruments to transfer in form satisfactory
to the Company duly executed, by such Management Investor, free and clear of any
liens, against payment by the Company of the applicable purchase price therefor.
2. Section Miscellaneous.
1.1. Section Inspection Rights . Each Shareholder that holds 5% or more
of the shares of Common Stock at the time outstanding, shall have the right,
upon reasonable prior notice to the Company, to visit and inspect the properties
of the Company and its Subsidiaries and to examine and copy (at its own expense)
their books of record and accounts, and to discuss their affairs, finances, and
accounts with their officers and their current and prior independent public
accountants, all at such times (during normal business hours) as such
Shareholder may reasonably request. The foregoing rights are in addition to, and
are not intended to limit, any rights that the Shareholders may have under the
law of the State of Delaware, including Sections 219 and 220 of the Delaware
General Corporation Law.
1.1. Section Confidentiality . All materials and information obtained
by any Shareholder pursuant to Section 7.1 hereof shall be kept confidential and
shall not be disclosed to any third party except (a) as has become generally
available to the public (other than through disclosure by such Shareholder in
contravention of this Agreement), (b) to such Shareholder's directors, officers,
trustees, partners, employees, agents, and professional consultants on a need to
know basis, (c) to any other holder of shares of Common Stock, (d) to any Person
to which such Shareholder offers to sell or transfer any shares of Common Stock,
provided that the prospective transferee shall agree to be bound by the
provisions of this Section 7.2, (e) in any report, statement, testimony or other
submission to any governmental authority having or claiming to have jurisdiction
over such Shareholder, or (f) in order to comply with any law, rule, regulation,
or order applicable to such Shareholder, or in response to any summons, subpoena
or other legal process or formal or informal investigative demand issued to such
Shareholder in the course of any litigation, investigation or administrative
proceeding.
1.1. Section Successors and Assigns . Except as otherwise provided
herein, all the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective
successors and assigns of the parties hereto. No Shareholder may assign any of
its rights hereunder to any Person other than a transferee that has complied in
all respects with the requirements of this Agreement (including, without
limitation, Section 3.3 hereof). The Company may not assign any of its rights
hereunder to any other Person. If any transferee of any Shareholder shall
acquire any shares of Common Stock in any manner, whether by operation of law or
otherwise, such shares shall be held subject to all of the terms of this
Agreement, and by taking and holding such shares such Person shall be entitled
to receive the benefits of and be conclusively deemed to have agreed to be bound
by and to comply with all of the terms and provisions of this Agreement.
<PAGE>
1.4. Section Amendment and Modification: Waiver of Compliances; Conflicts .
(a) This Agreement may be amended only by a written instrument duly
executed by all of the Shareholders. In the event of the amendment or
modification of this Agreement in accordance with its terms, the Shareholders
shall cause the Board of Directors to meet within 30 calendar days following
such amendment or modification or as soon thereafter as is practicable for the
purpose of adopting any amendment to the Certificate of Incorporation and
By-Laws that may be required as a result of such amendment or modification to
this Agreement, and, if required, proposing such amendments to the Shareholders
entitled to vote thereon, and the Shareholders agree to vote in favor of such
amendments.
(c) Except as otherwise provided in this Agreement, any failure of any
of the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
(e) In the event of any conflict between the provisions of this
Agreement and the provisions of any other agreement, the provisions of this
Agreement shall govern and prevail.
(g) Nothing contained in this Agreement shall in any way restrict the
ability of any holder of Convertible Notes to convert such notes into Common
Stock in accordance with the terms thereof.
1.6. Section Notices . All notices and other communications provided
for hereunder shall be in writing and delivered by hand or sent by first class
mail or sent by telecopy (with such telecopy to be confirmed promptly in writing
sent by first class mail), sent as follows:
(i) If to Holdco, addressed to:
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(ii) If to a Management Investor, addressed to such
shareholder at the address set forth in the stock records of the Company;
(iii) If to the Company, addressed to:
Mrs. Fields' Original Cookies, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(iv) If to Chocamerican, addressed to:
Chocamerican, Inc.
1105 North Market Street
Suite 1300
Wilmington, Delaware 19801
Attention: Francois de Carbonnel
Telecopy: (216) 883-7980
with a copy to:
Sidley & Austin
875 Third Avenue
New York, New York 10022
Attention: Scott M. Freeman
Telecopy: (212) 906-2021
or to such other address or addresses or telecopy number or numbers as any of
the parties hereto may most recently have designated in writing to the other
parties hereto by such notice. All such communications shall be deemed to have
been given or made when so delivered by hand or sent by telecopy, or three
business days after being so mailed.
<PAGE>
1.1. Section Entire Agreement: Governing Law .
(a) This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire agreement
among the parties hereto with respect to the subject transactions contemplated
hereby and supersede all prior oral and written agreements and memoranda and
undertakings among the parties hereto with regard to this subject matter. The
Company represents to the Shareholders that the rights granted to the holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted or obligations accepted under any other agreement (including the
Certificate of Incorporation) to which the Company is a party. Neither the
Company nor any Subsidiary of the Company will hereafter enter into any
agreement with respect to its equity or debt securities which is inconsistent
with the rights granted to any Shareholder under this Agreement without
obtaining the prior written consent of the Shareholder.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO THE CHOICE OF
LAW PRINCIPLES THEREOF).
1.2. Section Injunctive Relief . The Shareholders acknowledge and agree
that a violation of any of the terms of this Agreement will cause the
Shareholders irreparable injury for which an adequate remedy at law is not
available. Therefore, the Shareholders agree that each Shareholder shall be
entitled to, an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any Shareholder from committing any
violations of the provisions of this Agreement.
1.4. Section Availability of Agreement . For so long as this Agreement
shall be in effect, this Agreement shall be made available for inspection by any
Shareholder upon request at the principal executive offices of the Company.
1.6. Section Headings . The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
1.1. Section Recapitalizations, Exchanges, Etc. Affecting the Shares of
Common Stock; New Issuances . The provisions of this Agreement shall apply, to
the full extent set forth herein with respect to the shares of Common Stock and
to any and all equity or debt securities of the Company or any successor or
assign of the Company (whether by merger, consolidation, sale of assets, or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of, such equity or debt securities and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
reclassifications, recapitalizations, reorganizations and the like occurring
after the date hereof.
1.1. Section Counterparts . This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
1.1. Section Arbitration .
1.2. (a) Any disagreement, dispute, controversy or claim
arising out of or relating to this Agreement or the transactions contemplated
hereby, including, without limitation, the interpretation hereof and any breach,
termination or invalidity hereof, shall be settled exclusively and finally (i)
through good faith negotiation of the parties for a period not in excess of 30
days and (ii) in the event such negotiations do not yield a settlement within
such 30-day period, by arbitration (irrespective of the magnitude thereof, the
amount in controversy or whether such matter would otherwise be considered
justiciable or ripe by a court or arbitral tribunal).
(b) The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association (the
"Arbitration Rules"), except as those rules conflict with the provisions of this
Section 7.12, in which event the provisions of this Section 7.12 shall control.
(c) The arbitral tribunal shall consist of three arbitrators
chosen in accordance with the Arbitration Rules. The arbitration shall be
conducted in New York City. Any submission of a matter for arbitration shall
include joint written instructions of the parties requiring the arbitral
tribunal to render a decision resolving the matters submitted within 60 days
following the submission thereof.
(d) Any decision or award of the arbitral tribunal shall be
final and binding upon the parties to the arbitration proceeding. The parties
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having jurisdiction
thereof.
(e) All out-of-pocket costs and expenses incurred by any party
in connection with the resolution of any disagreement, dispute, controversy or
claim pursuant to this Section 7.12, including, but not limited to, reasonable
attorney's fees and disbursements, shall be borne by the party incurring the
same; provided, however, that the arbitral tribunal shall have the discretion to
declare any party as the "prevailing party" with respect to one or more of the
issues that were the subject of the arbitration and to require the other parties
to the arbitration to reimburse such "prevailing party" for some or all of its
costs and expenses incurred in connection with such proceeding.
(f) The costs of the arbitral tribunal shall be divided evenly
between the parties, unless there is a "prevailing party," in which case the
arbitral tribunal may allocate more or all of such costs to the party thereto
that is not the "prevailing party".
<PAGE>
(g) This Section 7.12 shall not prohibit or limit in any way
any party from seeking or obtaining preliminary or interim injunctive or other
equitable relief from a court for a breach or alleged breach of any of the
covenants and agreements of another party contained in this Agreement.
1.1. Section Transactions with Affiliates . Holdco covenants and agrees
with Chocamerican that, for so long as this Agreement shall remain in effect,
Holdco will not cause or permit the Company or any of its Subsidiaries to sell
or transfer any property, assets or securities to, or purchase or acquire any
property, assets or securities from, or otherwise engage in any other
transactions with, any Affiliate of Holdco or its Subsidiaries ("Affiliate
Transactions") except for Affiliate Transactions pursuant to the License
Agreement entered into as of the date of this Agreement by the Company and The
Mrs. Fields' Brand, Inc. or which are on terms that are determined by the
Company's disinterested directors to be no less favorable to the Company or the
relevant Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Subsidiary with an unrelated Person. For the
purposes of this Section 7.13, "disinterested director" shall mean a director
that is not an employee, officer, director or partner of the Company, Holdco or
Capricorn or any of their affiliates (other than Chocamerican or any current or
former stockholder of Chocamerican). Holdco covenants and agrees with
Chocamerican that it will provide the Board of Directors within 90 days
following the end of each calendar year a statement which sets forth a list of
all Affiliate Transactions which occurred during the prior calendar year.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
CHOCAMERICAN, INC.
By:/s/Pascual Richoux
Name:Pascual Richoux
Title:Exec. VP-Finance
MRS. FIELDS' HOLDING COMPANY,
INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
Section Heading Page
1. Certain Definitions 2
2. Management 7
2.1. Board of Directors; Shareholders 7
2.2. Authority of Board of Directors 8
2.3. No Conflict with Agreement 8
3. Transfers of Shares of Common Stock 8
3.1. Restrictions on Transfer 8
3.2. Exceptions to Restrictions 8
3.3. Endorsement of Certificates 10
3.4. Improper Transfer 11
4. Rights of First Refusal; Drag-Along Rights; Tag-Along Rights; Transfe
of Convertible Notes 11
4.1. Transfers by Shareholders 11
4.2. Transfer of Offered Securities to Third Parties 13
4.3. Purchase of Offered Securities 13
4.4. Drag-Along Rights 14
4.5. Tag-Along Rights 16
4.6. Transfer of Convertible Notes 17
5. Registration Rights 18
5.1. Demand Registration 18
5.2. Piggyback Registrations 21
5.3. Registration Procedures 22
5.4. Indemnification 27
5.5. Contribution 31
5.6. Rule 144 32
6. Call Rights of the Company 32
6.1. Call Right; Purchase Price 32
6.2. Call Notices 32
6.3. Method of Payment 33
6.4. Closing 33
7. Miscellaneous 33
7.1. Inspection Rights 33
7.2. Confidentiality 34
7.3. Successors and Assigns 34
7.4. Amendment and Modification: Waiver of Compliances;
Conflicts 35
7.5. Notices 35
7.6. Entire Agreement: Governing Law 37
7.7. Injunctive Relief 38
7.8. Availability of Agreement 38
7.9. Headings 38
7.10. Recapitalizations, Exchanges, Etc. Affecting the Shares of
Common Stock; New Issuances 38
7.11. Counterparts 38
7.12. Arbitration 39
7.13. Transactions with Affiliates 40
4
EXHIBIT A TO THE
STORE COMPANY
SECURITY AGREEMENT
TRADEMARK SECURITY AGREEMENT
TRADEMARK SECURITY AGREEMENT ("Agreement"), dated as of
September 18, 1996, is entered into among Mrs. Fields' Original Cookies, Inc., a
Delaware corporation (with its successors, the "Store Company"), Mrs. Fields
Cookies Australia, a Utah corporation, and Fairfield Foods Inc., a New Jersey
corporation, each located c/o Capricorn Investors II, L.P. at 30 East Elm
Street, Greenwich, Connecticut 06830 (each individually a "Grantor" and
collectively, the "Grantors"), in favor of The Bank of New York as collateral
agent (the "Collateral Agent") for the Lenders (as defined herein), located at
101 Barclay Street, Floor 21 West, New York, New York 10286. Capitalized terms
not otherwise defined herein have the meanings set forth in the Security
Agreement, dated as of September 18, 1996, made by the Grantors and the
Collateral Agent (the "Security Agreement").
WHEREAS, the Store Company and Chocamerican, Inc., a Delaware
corporation ("Chocamerican"), The Prudential Insurance Company of America, a New
Jersey mutual insurance company ("Prudential"), Principal Mutual Life Insurance
Company, an Iowa corporation ("Principal"), Pruco Life Insurance Company, an
Arizona corporation ("Pruco"), Contrarian Capital Advisors, L.L.C., a Delaware
limited liability company, as agent ("Contrarian"), and Mrs. Fields Inc., a
Delaware corporation ("MFI," and together with Chocamerican, Prudential,
Principal, Pruco and Contrarian, the "Lenders"), are entering into that certain
Senior Note and Senior Subordinated Note Agreement, of even date herewith, (said
Agreement, as it may be amended or otherwise modified from time to time, being
the "Note Agreement"); and
WHEREAS, the Collateral Agent, acting on behalf of and for the
ratable benefit of the Lenders, is hereby referred to as the "Secured Party";
and
WHEREAS, pursuant to the Security Agreement, the Grantors are
granting a security interest to the Secured Party in certain collateral,
including the Trademarks (as defined herein).
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Grantors and the Secured Party hereby agree as follows:
1. Grant of Security Interest
a. As collateral security for the full and prompt payment when
due (whether at stated maturity, by acceleration or otherwise) of the Notes and
all of the other Obligations, each Grantor hereby grants to the Secured Party a
security interest in all of each Grantor's right, title and interest in the
Trademarks, whether now owned or existing or hereafter acquired or arising, and
wherever located, except such of the Trademarks as such Grantor is prohibited by
law or by any contract or agreement entered into prior to the Closing Date from
granting a security interest in; provided, however, that the security interest
in each Grantor's Trademarks created hereunder shall be subject to the rights of
licensees or franchisees in such Trademarks (whether existing as of the date
hereof or arising after the date hereof) to the same extent as each Grantor's
are so subject.
c. For purposes of this Agreement, "Trademarks" shall mean all
United States Trademarks (including service marks, designs, logos, indicia,
trade names, corporate names, business names, fictitious business names, trade
styles and/or other source and/or business identifiers, whether registered or at
common law), registrations and applications therefor, including, without
limitation, the trademarks and applications listed on Schedule I hereto,
purported to be owned by any of the Grantors and used in their respective
businesses and the goodwill of the business of any of the Grantors connected
therewith and symbolized thereby, along with any and all (i) renewals thereof,
(ii) income, royalties, damages and payments now and hereafter due and/or
payable to any of the Grantors with respect thereto, including, without
limitation, damages and payments for past or future infringements or
misappropriation thereof, (iii) rights to sue for past, present and future
infringements or misappropriation thereof, and (iv) all other rights
corresponding thereto throughout the world.
a. Schedule I hereto contains a true and accurate list of all
of the Grantors' U.S. Trademark and Service Mark registrations and applications.
c. The security interest granted hereby is granted in
conjunction with the security interest granted to the Secured Party under the
Security Agreement which is incorporated in its entirety herein by reference
except that reference to "Collateral" in the Security Agreement as incorporated
herein shall be deemed to refer only to the Trademarks.
2. Governing Law.
This Agreement shall be governed by, and be construed and
interpreted in accordance with, the laws of the State of New York, without
regard to principles of conflicts of laws.
<PAGE>
IN WITNESS WHEREOF, the Grantors and the Secured Party have
caused this Agreement to be duly executed and delivered as of the date first
above written.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
MRS. FIELDS COOKIES AUSTRALIA
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
FAIRFIELD FOODS INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
<PAGE>
Accepted and acknowledged by:
THE BANK OF NEW YORK,
AS COLLATERAL AGENT
By:/s/Bryon Merino
Name:Bryon Merino
Title:Assistant Treasurer
<PAGE>
SCHEDULE I
Grantors' U.S. Trademark and
Service Mark Registrations
and Applications
3
AMENDMENT TO COPYRIGHT SECURITY AGREEMENT
This Amendment to Copyright Security Agreement (this "Amendment") is
dated as of the 31st day of January, 1997 and is by and among Mrs. Fields'
Original Cookies, Inc., a Delaware corporation (with its successors, the "Store
Company"), Mrs. Fields Cookies Australia, a Utah corporation, Fairfield Foods
Inc., a New Jersey corporation, Mrs. Fields' Other Names, Inc., a Delaware
corporation (each individually, a "Grantor" and collectively, the "Grantors")
and The Bank of New York, as collateral agent pursuant to that certain Amended
and Restated Collateral Agency Agreement of even date herewith (the "Collateral
Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto are all of the parties to that certain
Security Agreement, dated as of September 18, 1996, as amended by that certain
Amendment to Security Agreement of even date herewith, and that certain
Copyright Security Agreement (other than Mrs. Fields' Other Names, Inc.), dated
as of September 18, 1996; and
WHEREAS, the parties are entering into that certain Amendment to
Security Agreement of even date herewith pursuant to which such Security
Agreement is being amended in certain respects and, in connection therewith,
also desire to amend such Copyright Security Agreement in certain respects, as
more fully set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. AMENDMENTS.
(a) Mrs. Fields' Other Names, Inc. is hereby made a party to the
Copyright Security Agreement and hereby grants, with respect to the assets of
Mrs. Fields' Other Names, Inc., the security interests contemplated therein, as
amended herein, in favor of the Collateral Agent.
(b) The definition of "Agreement" set forth in the first line of the
Copyright Security Agreement is hereby amended to mean such Copyright Security
Agreement as amended by this Amendment to Copyright Security Agreement and as
the same may be further amended, restated, modified or supplemented and in
effect from time to time.
(c) The definition of "Security Agreement" is hereby amended and
restated in its entirety to mean and refer to:
"that certain Security Agreement, dated as of September 18, 1996, by
and among Mrs. Fields' Original Cookies, Inc., a Delaware corporation,
Mrs. Fields Cookies Australia, a Utah corporation, Fairfield Foods
Inc., a New Jersey corporation, Mrs. Fields' Other Names, Inc., a
Delaware corporation (each individually, a "Grantor" and collectively,
the "Grantors") and The Bank of New York, as collateral agent pursuant
to that certain Amended and Restated Collateral Agency Agreement dated
as of January 31, 1997, as amended by that certain Amendment to
Security Agreement dated as of January 31, 1997 and as the same may be
further amended, restated, modified or supplemented and in effect from
time to time"
(d) The first WHEREAS clause of the Copyright Security Agreement is
hereby amended and restated in its entirety as follows:
<PAGE>
"WHEREAS, the Store Company and Chocamerican, Inc., a Delaware
corporation ("Chocamerican"), The Prudential Insurance Company of
America a New Jersey mutual insurance company ("Prudential"), Principal
Mutual Life Insurance Company, an Iowa corporation ("Principal"), Pruco
Life Insurance Company, an Arizona corporation ("Pruco"), Contrarian
Capital Advisors, L.L.C., a Delaware limited liability company, as
agent ("Contrarian"), Mrs. Fields Inc., a Delaware corporation ("MFI")
and Mrs. Fields Holding Company, Inc., a Delaware corporation
("Holding") have entered into that certain Senior Note and Senior
Subordinated Note Agreement dated as of September 18, 1996 (as it may
be amended, restated, modified or supplemented and in effect from time
to time, the "Note Agreement"), and the Store Company and LaSalle
National Bank, a national banking association ("LaSalle") are entering
into that certain Loan Agreement dated as of January 31, 1997 (as it
may be amended, restated, modified or supplemented and in effect from
time to time, the "Loan Agreement") (collectively, Chocamerican,
Prudential, Principal, Pruco, Contrarian, MFI, Holding and LaSalle,
together with their respective successors and assigns, are collectively
referred to herein as the "Lenders");"
(e) Section 1.a of the Copyright Security Agreement is hereby amended
and restated in its entirety as follows:
"a. As collateral security for the full and prompt payment
when due (whether at stated maturity, by acceleration or otherwise) of
the Obligations, each Grantor hereby grants to the Secured Party a
security interest in all of each Grantor's right, title and interest in
the Copyrights, whether now owned or existing or hereafter acquired or
arising, and wherever located, except such of the Copyrights as such
Grantor is prohibited by law or by any contract or agreement entered
into prior to September 18, 1996 from granting a security interest in;
provided, however, that the security interest in each Grantor's
Copyrights created hereunder shall be subject to the rights of
licensees or franchisees in such Copyrights (whether existing as of the
date hereof or arising after the date hereof) to the same extent as
each Grantor's rights are so subject."
2. MISCELLANEOUS.
(a) Captions. Section captions and headings used in this Amendment are
for convenience only and are not part of and shall not affect the construction
of this Amendment.
(b) Governing Law. This Amendment shall be a contract made under and
governed by the laws of the State of New York, without regard to conflict of
laws principles. Whenever possible, each provision of this Amendment shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Amendment shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Amendment.
(c) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall together constitute but one and the same document.
(d) Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
(e) References. From and after the date of execution of this Amendment,
any reference to the Copyright Security Agreement contained in any notice,
request, certificate or other instrument, document or agreement executed
concurrently with or after the execution and delivery of this Amendment shall be
deemed to include this Amendment unless the context shall otherwise require.
(f) Continued Effectiveness. The Copyright Security Agreement
(including the schedules thereto), as amended hereby, remains in full force and
effect and is hereby reaffirmed in all respects.
[Balance of page left intentionally blank; signature page follows.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to
Copyright Security Agreement as of the date first set forth above.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
MRS. FIELDS COOKIES AUSTRALIA, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
FAIRFIELD FOODS, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
MRS. FIELDS' OTHER NAMES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
THE BANK OF NEW YORK, AS COLLATERAL AGENT
By:/s/Bryon Merino
Name:Bryon Merino
Title:Assistant Treasurer
6
AMENDMENT TO SECURITY AGREEMENT
This Amendment to Security Agreement (this "Amendment") is dated as of
the 31st day of January, 1997 and is by and among Mrs. Fields' Original Cookies,
Inc., a Delaware corporation (with its successors, the "Store Company"), each
subsidiary of the Store Company listed on Schedule A hereto (which Schedule
shall be revised from time to time to reflect the addition of any new
subsidiaries of the Store Company), and Mrs. Fields' Other Names, Inc., a
Delaware corporation ("Mrs. Fields' Other Names") (the parties listed on
Schedule A and Mrs. Fields' Other Names are each individually, a "Grantor" and
collectively, the "Grantors") and The Bank of New York, as collateral agent
pursuant to that certain Amended and Restated Collateral Agency Agreement of
even date herewith (the "Collateral Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto (other than Mrs. Fields' Other Names) are
all of the parties to that certain Security Agreement dated as of September 18,
1996 (the "Security Agreement"); and
WHEREAS, the parties hereto desire to amend the Security Agreement in
certain respects, as more fully set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment and not
otherwise defined herein are used with the meanings given such terms in the
Security Agreement.
2. AMENDMENTS TO THE SECURITY AGREEMENT.
(a) Mrs. Fields' Other Names is hereby made a party to the Security
Agreement and hereby grants, as a grantor, in favor of the Collateral Agent, a
security interest in the assets of Mrs. Fields' Other Names, as more fully
described in subparagraph 2(d) herein.
(b) The following new definitions are hereby added to Section 1 of the
Security Agreement in their respective proper alphabetical places:
"Banks" means, collectively, LaSalle National Bank and each
other financial institution which hereafter becomes a party to the Loan
Agreement or acquires an interest in the LaSalle Obligations.
"Beneficiaries" means the Lenders.
"Collateral Agency Agreement" means that certain Amended and
Restated Collateral Agency Agreement dated as of January 31, 1997, as
the same may be amended, restated, modified or supplemented and in
effect from time to time.
"Goods" means, with respect to any Grantor, any "goods" as
such term is defined in Section 9-105 of the UCC, now owned or
hereafter acquired by such Grantor.
"LaSalle" means LaSalle National Bank.
"LaSalle Obligations" means the obligations of the Store
Company and its Subsidiaries under the Loan Agreement, the LaSalle
Notes and the other "Loan Documents" referred to in the Loan Agreement.
<PAGE>
"Lenders" means, collectively, the "Lenders" as defined in the
Note Agreement and the Banks.
"Loan Agreement" means that certain Loan Agreement dated as of
January 31, 1997 between the Store Company and LaSalle, as the same may
be amended, restated, modified or supplemented and in effect from time
to time.
"Majority Bank Lenders" means the holders of at least a
majority in dollar amount of the aggregate unpaid principal amount of
the LaSalle Obligations at the time outstanding.
"Majority Note Lenders" means (i) for so long as any Senior
Notes remain outstanding, the Majority Chocamerican Senior Lenders and
the Majority MFI Lenders (as each such term is defined in the Note
Agreement) and (ii) if none of the Senior Notes remain outstanding, the
Majority Senior Subordinated Lenders (as such term is defined in the
Note Agreement).
"NoteObligations" means the "Obligations" as defined in the Note
Agreement.
"Notes" means, collectively, all promissory notes evidencing any
LaSalle Obligations or any Note Obligations.
"Obligations" means, collectively, the LaSalle Obligations and
the Note Obligations.
"Store Company" means Mrs. Fields' Original Cookies, Inc., a
Delaware corporation.
"Subordination and Intercreditor Agreement" means that certain
Subordination and Intercreditor Agreement dated as of
January 31, 1997 among LaSalle National Bank, a national
banking association, and Chocamerican, Inc., The Prudential
Insurance Company of America, Principal Mutual Life
Insurance Company, Pruco Life Insurance Company, Contrarian
Capital Advisors, L.L.C., Mrs. Fields Inc. and Mrs. Fields'
Holding Company, Inc.
(c) The definitions of "Majority Lenders" and "Permitted Liens" are
hereby amended and restated in their respective entireties as follows:
"Majority Lenders" means (i) for so long as any LaSalle
Obligations remain outstanding, the Majority Bank Lenders, and (ii) at
any time when no LaSalle Obligations remain outstanding, the Majority
Note Lenders; provided, however, that for purposes of Article 8, such
term means either Majority Bank Lenders or (subject to the rights of
the Banks under section 2(e) of the Subordination and Intercreditor
Agreement) Majority Note Lenders, and for purpose of Article 11, such
term means both Majority Bank Lenders and Majority Note Lenders.
"Permitted Liens" means (a) while the Loan Agreement and the
Note Agreement are both in effect, any Lien which is permitted by both
the Loan Agreement and section 9.2 of the Note Agreement; (b) at any
time when the Loan Agreement has been terminated but the Note Agreement
remains in effect, any Lien which is permitted by section 9.2 of the
Note Agreement; and (c) at any time when the Note Agreement has been
terminated but the Loan Agreement remains in effect, any Lien which is
permitted by the Loan Agreement.
<PAGE>
(d) Section 2 of the Security Agreement is hereby amended and restated
in its entirety to read as follows:
2. Grant of Security Interest.
As collateral security for the full and prompt payment when
due (whether at stated maturity, by acceleration or otherwise) of the
Obligations, each Grantor hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to the Secured Party, and hereby grants to
the Secured Party a security interest in all of each Grantor's right,
title and interest in, to and under the following, except such of the
following as such Grantor is prohibited by law or by any contract or
agreement entered into prior to the Closing Date from granting a
security interest in (all of which being hereinafter collectively
called the "Collateral"):
i) all Accounts;
ii) all Chattel Paper;
iii) all Contracts and any and all claims of such Grantor
for damages arising out of or for breach of or a default under
any Contract and the right of such Grantor to perform or to
compel performance under any Contract and to exercise all
remedies thereunder;
iv) all Documents;
v) all Equipment;
vi) all General Intangibles;
vii) all Instruments;
viii) all Inventory;
ix) all Intellectual Property;
x) all Goods and all other personal property of such
Grantor whether tangible or intangible or whether now owned or
hereafter acquired by such Grantor and wherever located; and
xi) to the extent not otherwise included, all Proceeds of
each of the foregoing and all accessions to, substitutions and
replacements for, and rents, profits and products of, each of
the foregoing;
provided, however, that the security interest in each Grantor's
Intellectual Property and General Intangibles, to the extent that such
General Intangibles contain Intellectual Property, created hereunder
shall be subject to the rights of licensees or franchisees in such
Intellectual Property (whether existing as of the date hereof or
arising after the date hereof) to the same extent as each Grantor's
rights are so subject.
(e) Section 8(d) of the Security Agreement is hereby amended and
restated in its entirety as follows:
(d) The Proceeds of any sale, disposition or other realization
upon all or any part of the Collateral shall be distributed by the
Secured Party as provided in Section 5.2 of the Collateral Agency
Agreement.
(f) Schedule A of the Security Agreement is hereby amended to add Mrs.
Fields' Other Names, Inc. as a Grantor hereunder.
<PAGE>
3. MISCELLANEOUS.
(a) Captions. Section captions and headings used in this Amendment are
for convenience only and are not part of and shall not affect the construction
of this Amendment.
(b) Governing Law. This Amendment shall be a contract made under and
governed by the laws of the State of New York, without regard to conflict of
laws principles. Whenever possible, each provision of this Amendment shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Amendment shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Amendment.
(c) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall together constitute but one and the same document.
(d) Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
(e) References. From and after the date of execution of this Amendment,
any reference to the Security Agreement contained in any notice, request,
certificate or other instrument, document or agreement executed concurrently
with or after the execution and delivery of this Amendment shall be deemed to
include this Amendment unless the context shall otherwise require.
(f) Continued Effectiveness. The Security Agreement (including the
schedules thereto), as amended hereby, remains in full force and effect and is
hereby reaffirmed in all respects.
[Balance of page left intentionally blank; signature page follows.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to
Security Agreement as of the date first set forth above.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
MRS. FIELDS COOKIES AUSTRALIA, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
FAIRFIELD FOODS, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
MRS. FIELDS' OTHER NAMES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
THE BANK OF NEW YORK, AS COLLATERAL AGENT
By:/s/Bryon Merino
Name:Bryon Merino
Title:Assistant Treasurer
<PAGE>
Schedule A
Mrs. Fields Cookies Australia
Fairfield Foods, Inc.
3
FIRST AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement (this "Amendment") is dated as
of the ___ day of December, 1997 and is between MRS. FIELDS= ORIGINAL COOKIES,
INC., a Delaware corporation ("Borrower") and LASALLE NATIONAL BANK ("Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and Lender are parties to that certain Loan
Agreement dated as of January 31, 1997 (the same, as it may be amended,
restated, modified or supplemented and in effect from time to time, being herein
referred to as the "Loan Agreement") under which Lender, as lender, agreed to
make available to the Borrower a revolving credit facility on the terms and
conditions set forth therein; and
WHEREAS, the Borrower has requested that Lender amend the Loan
Agreement in certain respects, as more fully set forth herein, and Lender is
agreeable to such request;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used in this Amendment and not
otherwise defined herein are used with the meanings given such terms in the
Loan Agreement.
2. Amendment of Loan Agreement. The Loan Agreement is hereby amended,
effective as of the date first set forth above, as follows:
(a) The definition of AMaximum Letter of Credit Obligation@ is hereby
amended and restated in its entirety as follows:
AMaximum Letter of Credit Obligation@ shall mean the lesser of
(i) the Revolving Loan Commitment less the aggregate amount of
all Revolving Loans outstanding at any time, or (ii) $200,000.
(b) The definition of ARevolving Loan Maturity Date@ is hereby amended
and restated in its entirety as follows:
ARevolving Loan Maturity Date@ shall mean February 28, 1998,
unless extended by the Bank pursuant to any modification,
extension or renewal note executed by the Borrower and
accepted by the Bank in its sole and absolute discretion in
substitution for the Revolving Note.
(c) Section 2.4 of the Loan Agreement is hereby amended and restated
in its entirety as follows:
Section 2.4 Letters of Credit. Subject to the terms and
conditions of this Agreement and upon the execution and
delivery by the Borrower and the acceptance by the Bank, in
its sole and absolute discretion, of an application for letter
of credit, the Bank agrees to issue for the account of the
Borrower out of the Revolving Loan Commitment, Letters of
Credit in the standard form of the Bank and otherwise in form
and substance acceptable to the Bank, from time to time during
the term of this Agreement, provided that the Letter of Credit
Obligations may not at any time exceed the Maximum Letter of
Credit Obligation. The Letters of Credit shall expire on
December 31, 1998. The amount of any payments made by the Bank
with respect to draws made by a beneficiary under a Letter of
Credit for which the Borrower has failed to reimburse the Bank
upon the earlier of (i) the Bank=s demand for repayment, or
(ii) five (5) days from the date of such payment to such
beneficiary by the Bank, shall be deemed to have been
converted to a Revolving Loan (which Revolving Loan shall be a
Prime Loan) as of the date such payment was made by the Bank
to such beneficiary.
<PAGE>
3. Miscellaneous.
(a) This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall together
constitute but one and the same document.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
(c) Section captions and headings used in this Amendment are for
convenience only and are not part of and shall not affect the construction of
this Amendment.
(d) This Amendment shall be a contract made under and governed by the
laws of the State of Illinois, without regard to conflict of laws principles.
Whenever possible, each provision of this Amendment shall be interpreted in such
a manner as to be effective and valid under applicable law, but if any provision
of this Amendment shall be prohibited by or invalid under such law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Amendment.
(e) From and after the date of execution of this Amendment, any
reference to the Loan Agreement contained in any notice, request, certificate or
other instrument, document or agreement executed concurrently with or after the
execution and delivery of this Amendment shall be deemed to include this
Amendment unless the context shall otherwise require.
(f) Except as expressly set forth herein, nothing in this Amendment is
intended to or shall be deemed to have amended the Loan Agreement, which is
hereby reaffirmed in all respects. Notwithstanding anything contained herein,
the terms of this Amendment are not intended to and do not serve to effect a
novation as to the Loan Agreement. The parties hereto expressly do not intend to
extinguish the Loan Agreement. Instead, it is the express intention of the
parties hereto to reaffirm the indebtedness created under the Loan Agreement
which is evidenced by the notes provided for therein and secured by the
collateral referred to therein. The Loan Agreement, as amended hereby, and each
of the other "Loan Documents" referred to in the Loan Agreement remain in full
force and effect and are hereby reaffirmed in all respects.
[Balance of page intentionally left blank; signature page follows.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
MRS. FIELDS= ORIGINAL COOKIES, INC., a Delaware corporation
By:/s/Larry A. Hodges
Name:Larry A. Hodges
Title:President/CEO
LASALLE NATIONAL BANK
By:/s/Jon A. Levey
Name:Jon A. Levey
Title:Asst. Vice President
REVOLVING NOTE
$3,000,000 January 31, 1997
FOR VALUE RECEIVED, the undersigned, MRS. FIELDS' ORIGINAL COOKIES,
INC., a Delaware corporation (the "Borrower"), hereby unconditionally promises
to pay to the order of LASALLE NATIONAL BANK, a national banking association
(the "Bank"), at the Bank's offices at 135 South LaSalle Street, Chicago,
Illinois, or at such other place as the Bank may from time to time designate in
writing, on December 31, 1997 and in lawful money of the United States of
America and in immediately available funds, the principal sum of THREE MILLION
DOLLARS ($3,000,000), or, if less, the aggregate unpaid principal amount of all
advances made to the Borrower by the Bank pursuant to section 2.1 of the Loan
Agreement (as hereinafter defined).
This Revolving Note is referred to in and is executed and delivered
pursuant to and evidences obligations of the Borrower under that certain Loan
Agreement dated as of January 31, 1997, between the Borrower and the Bank (as
the same may be amended, restated, modified or supplemented and in effect from
time to time, the "Loan Agreement"), to which reference is hereby made for a
statement of the terms and conditions under which the Loans evidenced hereby are
made and are to be repaid and for a statement of the Bank's remedies upon the
occurrence of an Event of Default as defined therein. Capitalized terms used but
not otherwise defined herein are used in this Revolving Note as defined in the
Loan Agreement.
The Borrower further promises to pay interest on the outstanding unpaid
principal amount hereof from the date hereof until payment in full hereof at the
rate from time to time applicable to the Revolving Loans as determined in
accordance with the Loan Agreement; provided, that upon the occurrence and
during the continuance of an Event of Default, the Borrower shall pay interest
on the outstanding principal balance of this Revolving Note at the Default Rate
as determined in accordance with the Loan Agreement. Interest on each Prime Loan
shall be payable monthly in arrears on the last day of each month, commencing on
the last day of February, 1997, and at maturity hereof. Interest on each LIBOR
Loan hereunder shall be payable on the last day of the Interest Period
applicable thereto, on the date of any principal repayment of such LIBOR Loan
and at maturity hereof, as provided in the Loan Agreement. Interest shall be
calculated on the basis of a 360-day year and shall be paid for the actual
number of days elapsed.
<PAGE>
-3-
If a payment hereunder becomes due and payable on a day other than a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day (except as otherwise set forth with respect to LIBOR Loans in
clause (ii) of the definition of Interest Period, which provides that if such
extension would cause the last day of such Interest Period to occur in the next
following calendar month, then the last day of such Interest Period shall occur
on the immediately preceding Business Day), and interest shall be payable
thereon during such extension at the applicable rate specified above. Payments
submitted to the Bank in funds not immediately available shall not be applied
hereunder until collected and amounts outstanding hereunder shall continue to
bear interest at the applicable interest rate described in the Loan Agreement.
Any payment of interest hereon not paid when due shall, at the option of the
Bank, be added to the principal amount hereof and thereafter bear interest at
the applicable rate.
In no contingency or event whatsoever shall interest charged hereunder,
however such interest may be characterized or computed, exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such a court
determines that the Bank has received interest hereunder in excess of the
highest rate applicable hereto, such excess shall be applied or refunded in
accordance with the terms of the Loan Agreement.
The Bank shall have the exclusive right to apply and to reapply any and
all payments hereunder against the Obligations of the Borrower in such manner,
consistent with the Loan Agreement, as the Bank deems advisable.
The Borrower hereby waives demand, presentment and protest, and notice
of demand, presentment, protest and nonpayment. Except as otherwise provided in
the Loan Agreement and the other Loan Documents, the Borrower also waives all
rights to notice and hearing of any kind upon the occurrence of an Event of
Default prior to the exercise by the Bank of its right to repossess the
Collateral without judicial process or to replevy, attach or levy upon the
Collateral without notice or hearing.
No obligation of the Borrower hereunder shall be waived by the Bank
except in writing. No delay on the part of the Bank in the exercise of any right
or remedy shall operate as a waiver thereof, and no single or partial exercise
by the Bank of any right or remedy shall preclude other or further exercise
thereof, or the exercise of any other right or remedy. No Event of Default shall
be waived by Bank except in writing. No provision of this Revolving Note can be
amended, modified, terminated, discharged or waived without the prior written
consent of the Bank.
THIS REVOLVING NOTE SHALL BE DEEMED TO HAVE BEEN MADE AT CHICAGO,
ILLINOIS AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES
HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS
OF LAW PROVISIONS) AND DECISIONS OF THE STATE OF ILLINOIS. WHENEVER POSSIBLE
EACH PROVISION OF THIS REVOLVING NOTE SHALL BE INTERPRETED IN SUCH MANNER AS TO
BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS
REVOLVING NOTE SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH
PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY
WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS
OF THIS REVOLVING NOTE.
Borrower may not assign its obligations under this Revolving Note
without the prior written consent of the Bank. Whenever in this Revolving Note
reference is made to the Bank or the Borrower, such reference shall be deemed to
include, as applicable, reference to their respective successors and permitted
assigns. The provisions of this Revolving Note shall be binding upon and shall
inure to the benefit of such successors and permitted assigns. The Borrower's
successors and permitted assigns shall include, without limitation, a receiver,
trustee or debtor in possession of or for the Borrower.
MRS. FIELDS' ORIGINAL COOKIES, INC.,
a Delaware corporation
By:/s/L. Tim Pierce
Name:L. Tim Pierce
Title:SVP and Chief Financial Officer
5
AMENDMENT TO STOCK PLEDGE AGREEMENT
This Amendment to Stock Pledge Agreement (this "Amendment") is dated as
of the 31st day of January, 1997 and is by and among Mrs. Fields' Original
Cookies, Inc., a Delaware corporation (with its successors, the "Pledgor") and
The Bank of New York, as collateral agent pursuant to that certain Amended and
Restated Collateral Agency Agreement of even date herewith (the "Collateral
Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto are all of the parties to that certain
Stock Pledge Agreement dated as of September 18, 1996; and
WHEREAS, the parties desire to amend the Stock Pledge Agreement in
certain respects, as more fully set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment and not
otherwise defined herein are used with the meanings given such terms in the
Stock Pledge Agreement.
2. AMENDMENTS TO THE SECURITY AGREEMENT.
(a) The following new definitions are hereby added to Section 1 of the
Stock Pledge Agreement in their respective proper alphabetical places:
"Banks" means, collectively, LaSalle National Bank and each
other financial institution which hereafter becomes a party to the Loan
Agreement or acquires an interest in the LaSalle Obligations.
"Collateral Agency Agreement" means that certain Amended and
Restated Collateral Agency Agreement dated as of January 31, 1997, as
the same may be amended, restated, modified or supplemented and in
effect from time to time.
"Event of Default" means (a) while the Note Agreement and the
Loan Agreement both remain in effect, any "Event of Default" as such
term is defined in the Note Agreement and any "Event of Default" as
such term is defined in the Loan Agreement; (b) at any time when the
Note Agreement remains in effect but the Loan Agreement does not, any
"Event of Default" as such term is defined in the Note Agreement; and
(c) at any time when the Loan Agreement remains in effect but the Note
Agreement does not, any "Event of Default" as such term is defined in
the Loan Agreement.
"LaSalle" means LaSalle National Bank.
"LaSalle Obligations" means the obligations of the Pledgor and
its Subsidiaries under the Loan Agreement, the LaSalle Notes and the
other "Loan Documents" referred to in the Loan Agreement.
"Lenders" means, collectively, the "Lenders" as defined in the
Note Agreement and the Banks.
"Loan Agreement" means that certain Loan Agreement dated as of
January 31, 1997 between the Pledgor and LaSalle, as the same may be
amended, restated, modified or supplemented and in effect from time to
time.
<PAGE>
"Majority Bank Lenders" means the holders of at least a
majority in dollar amount of the aggregate unpaid principal amount of
the LaSalle Obligations at the time outstanding.
"Majority Note Lenders" means (i) for so long as any Senior
Notes remain outstanding, the Majority Chocamerican Senior Lenders and
the Majority MFI Lenders (as each such term is defined in the Note
Agreement) and (ii) if none of the Senior Notes remain outstanding, the
Majority Senior Subordinated Lenders (as such term is defined in the
Note Agreement).
"NoteObligations" means the "Obligations" as defined in the Note
Agreement.
"Notes" means, collectively, all promissory notes evidencing
any LaSalle Obligations or any Note Obligations.
"Obligations" means, collectively, the LaSalle Obligations and
the Note Obligations.
(b) Section 7(a) of the Stock Pledge Agreement is hereby amended by the
addition thereto at the end thereof after the words 'Note Agreement' the words
"while it remains in effect, and the Loan Agreement while it remains in effect;"
(c) Section 8 of the Stock Pledge Agreement is hereby amended and
restated in its entirety as follows:
(a) the Pledgor shall have the right, from time to time, to
vote and give consents with respect to the Collateral or any part
thereof for all purposes not inconsistent with the provisions of this
Stock Pledge Agreement, the other Security Documents or the Note
Agreement or the Loan Agreement; provided, however, that except as
permitted by the Note Agreement (while it remains in effect) and the
Loan Agreement (while it remains in effect), no vote shall be cast, and
no consent shall be given or action taken, which would have the effect
of impairing the position or interest of the Collateral Agent in
respect of the Collateral or authorizing or effecting (i) the
dissolution or liquidation, in whole or in part, of the Pledgor or any
Issuer, (ii) the consolidation or merger of any of the Issuers with any
other Person, (iii) the sale, disposition, or encumbrance of all or
substantially all the assets of the Pledgor or any Issuer, (iv) any
change in the authorized number of shares, the stated capital or the
authorized share capital of any of the Issuers or the issuance of any
additional shares of the stock of the Issuers, provided that all such
additional shares are pledged hereunder to the Collateral Agent, or (v)
the alteration of the voting rights with respect to the stock of any of
the Issuers; and
(b) the Pledgor shall be entitled, from time to time, to
collect and receive for its own use all dividends and distributions of
cash or property paid in respect of the Pledged Shares to the extent
not in violation of the Note Agreement (while it remains in effect) or
the Loan Agreement (while it remains in effect), other than shares of
stock of any Issuer and options, warrants, calls or commitments of any
character whatsoever relating to stock of any Issuer; provided,
however, that until actually paid, all rights to such dividends shall
remain subject to the lien created by this Stock Pledge Agreement.
(d) Section 9(a) of the Stock Pledge Agreement is hereby amended by
deleting the words "under the Note Agreement" in the third line thereof.
(e) Section 9(f) of the Stock Pledge Agreement is hereby amended and
restated in its entirety as follows:
(f) If any Event of Default shall have occurred, then so long
as such Event of Default shall continue, and whether or not any Lender
exercises any available right to declare any Note or any other
Obligations due and payable or seeks or pursues any other relief or
remedy available to it under applicable law or under this Stock Pledge
Agreement or the Note Agreement or the Loan Agreement, the Pledgor
shall cause all dividends and other distributions on the Collateral to
be paid directly to the Collateral Agent and retained by the Collateral
Agent as part of the Collateral, subject to the terms of this Stock
Pledge Agreement, and the Collateral Agent shall have the right to
exercise all voting, consensual and other powers of ownership
pertaining to the Collateral.
<PAGE>
(f) Section 10 of the Stock Pledge Agreement is hereby amended by
deleting the reference to 'Section 4.2 of the Collateral Agency Agreement' and
substituting therefor a reference to 'Section 5.2 of the Collateral Agency
Agreement'.
(g) Section 12 of the Stock Pledge Agreement is hereby amended and
restated in its entirety as follows:
Section 12. Assignment. Lenders and the Collateral Agent may
assign their respective interests in this Stock Pledge Agreement at any
time in accordance with the terms of the Collateral Agency Agreement,
the Note Agreement and the Loan Agreement, as applicable.
(h) Section 14(a) of the Stock Pledge Agreement is hereby amended by
adding the words "or the Loan Agreement" in the second line thereof following
the words 'the Note Agreement'.
(i) Section 14(b) of the Stock Pledge Agreement is hereby amended by
adding the words "or the Loan Agreement" in the fifth line thereof following the
words 'the Note Agreement'.
(j) Section 15 of the Stock Pledge Agreement is hereby amended by
adding the words "or the Loan Agreement" in the twenty second line thereof
following the words 'and the Note Agreement'.
(k) Section 16 of the Stock Pledge Agreement is hereby amended and
restated in its entirety as follows:
Section 16. Indemnification. The Pledgor agrees to indemnify
and hold harmless the Collateral Agent and the Lenders as and to the
extent provided in the Collateral Agency Agreement, the Note Agreement
and the Loan Agreement, as applicable.
(l) Section 18(d) of the Stock Pledge Agreement is hereby amended by
deleting the words 'the Lenders' in the last line thereof and substituting
therefor the words "the Majority Bank Lenders, the Majority Note Lenders,".
(m) Section 20 of the Stock Pledge Agreement is hereby amended by
deleting the words 'Section 13.5 of the Note Agreement or, in the case of the
Collateral Agent, in accordance with the provisions of Section 10.1 of' in lines
10, 11 and 12 thereof.
(n) Schedule I of the Stock Pledge Agreement is hereby amended by
adding the following: "Mrs. Fields' Other Names, Inc." in the Stock Issuer
column, "Common" in the Class of Stock column, "100" in the Total Authorized
Shares column, "1" in the Total Issued Shares column, "1" in the Number of
Shares Pledged column, and "_____" in the Stock Certificate Numbers column.
3. MISCELLANEOUS.
(a) Captions. Section captions and headings used in this Amendment are
for convenience only and are not part of and shall not affect the construction
of this Amendment.
(b) Governing Law. This Amendment shall be a contract made under and
governed by the laws of the State of New York, without regard to conflict of
laws principles. Whenever possible, each provision of this Amendment shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Amendment shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Amendment.
(c) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall together constitute but one and the same document.
(d) Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
(e) References. From and after the date of execution of this Amendment,
any reference to the Stock Pledge Agreement contained in any notice, request,
certificate or other instrument, document or agreement executed concurrently
with or after the execution and delivery of this Amendment shall be deemed to
include this Amendment unless the context shall otherwise require.
(f) Continued Effectiveness. The Stock Pledge Agreement, as amended
hereby, remains in full force and effect and is hereby reaffirmed in all
respects.
[Balance of page left intentionally blank; signature page follows.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to Stock
Pledge Agreement as of the date first set forth above.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/L. Tim Pierce
Name:L. Tim Pierce
Title:SVP and CFO
THE BANK OF NEW YORK, AS COLLATERAL AGENT
By:/s/Timothy J. Shea
Name:Timothy J. Shea
Title:Assistant Treasurer
LASALLE NATIONAL BANK
AND
CHOCAMERICAN, INC.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
PRUCO LIFE INSURANCE COMPANY
CONTRARIAN CAPITAL ADVISORS, L.L.C.
MRS. FIELDS INC.
and
MRS. FIELDS= HOLDING COMPANY, INC.
SUBORDINATION AND INTERCREDITOR AGREEMENT
Dated as of January 31, 1997
Re:
Mrs. Fields= Original Cookies, Inc.
<PAGE>
SUBORDINATION AND INTERCREDITOR AGREEMENT
THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (this AAgreement@) is
entered into as of January 31, 1997 among LASALLE NATIONAL BANK, a national
banking association (ALaSalle@), and CHOCAMERICAN, INC.(AChocamerican@), THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA (APrudential@), PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY (APrincipal@), PRUCO LIFE INSURANCE COMPANY (APruco@),
CONTRARIAN CAPITAL ADVISORS, L.L.C. (AContrarian@), MRS. FIELDS INC.(AMFI@) and
MRS. FIELDS= HOLDING COMPANY, INC. (AHolding@); collectively, Chocamerican,
Prudential, Principal, Pruco, Contrarian, MFI and Holding, together with their
respective successors and assigns, are collectively referred to herein as the
AJunior Lenders@) and any of them may be referred to as a AJunior Lender@.
RECITALS:
WHEREAS, concurrently with the execution and delivery of this
Agreement, LaSalle is entering into that certain Loan Agreement dated as of the
date hereof (as permitted hereby to be amended, restated, modified or
supplemented and in effect from time to time, the ACredit Agreement@) with MRS.
FIELDS= ORIGINAL COOKIES, INC., a Delaware corporation (the ABorrower@),
pursuant to which LaSalle has established certain credit facilities described
therein;
<PAGE>
WHEREAS, on September 18, 1996, the Junior Lenders entered into that
certain Senior Note and Senior Subordinated Note Agreement dated as of September
18, 1996 (as amended from time to time, the ANote Agreement@), with the
Borrower, pursuant to which the Borrower issued and sold to the Junior Lenders
(I) $2,000,000 aggregate principal amount of its MFI Series 1 Senior Notes, due
1999 (as amended, restated, modified or supplemented and in effect from time to
time, the AMFI Series 1 Notes@), (ii) $3,000,000 aggregate principal amount of
its MFI Series 2 Senior Notes, due 2001 (the AMFI Series 2 Notes@), (iii)
$10,000,000 aggregate principal amount of its MFI Series 3 Senior Notes, due
1999 (as amended, restated, modified or supplemented and in effect from time to
time, the AMFI Series 3 Notes@), (iv) $4,643,000 aggregate principal amount of
its MFI Series 4 Senior Subordinated Notes, due 1999 (as amended, restated,
modified or supplemented and in effect from time to time, the AMFI Series 4
Notes@), (v) $_________ aggregate principal amount of its Chocamerican Series 1
Senior Notes due 1996 (as amended, restated, modified or supplemented and in
effect from time to time, the AChocamerican Series 1 Notes@), (vi) $3,000,000
aggregate principal amount of its Chocamerican Series 2 Senior Notes due 1999
(as amended, restated, modified or supplemented and in effect from time to time,
the AChocamerican Series 2 Notes@), (vii) $3,000,000 aggregate principal amount
of its Chocamerican Series 3 Senior Notes due 2001 (as amended, restated,
modified or supplemented and in effect from time to time, the AChocamerican
Series 3 Notes@), (viii) $21,000,000 aggregate principal amount of its
Chocamerican Series 4 Senior Notes due 1999 (as amended, restated, modified or
supplemented and in effect from time to time, the AChocamerican Series 4
Notes@), (ix) $5,357,000 aggregate principal amount of its Chocamerican Series
5A Senior Subordinated Notes due 1999 (as amended, restated, modified or
supplemented and in effect from time to time, the AChocamerican Series 5A
Notes@), and (x) $2,000,000 aggregate principal amount of its Chocamerican
Series 5B Senior Subordinated Notes due 1999 (as amended, restated, modified or
supplemented and in effect from time to time, the AChocamerican Series 5B
Notes@) (the MFI Series 1 Notes, MFI Series 2 Notes, MFI Series 3 Notes, MFI
Series 4 Notes, Chocamerican Series 1 Notes, Chocamerican Series 2 Notes,
Chocamerican Series 3 Notes, Chocamerican Series 4 Notes, Chocamerican Series 5A
Notes and Chocamerican Series 5B Notes, and all notes which may be issued in
substitution therefor or replacement thereof, being collectively referred to
herein as the ASubordinated Notes@);
WHEREAS, Borrower has secured its obligations to LaSalle under the
Credit Agreement and its obligations to the Junior Lenders under the Note
Agreement and related documents (collectively, the AJunior Note Documents@), by
granting to the Collateral Agent, for the benefit of each of LaSalle and the
Junior Lenders a security interest in the personal property of Borrower (such
interests being hereinafter collectively referred to as "Security Interests" and
individually as a "Security Interest");
WHEREAS, LaSalle and the Junior Lenders have determined to enter
into this Agreement to provide for certain agreements between LaSalle and the
Junior Lenders with respect to their respective transactions with the Borrower;
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
Unless the context otherwise requires, capitalized terms used herein
shall have the meanings assigned thereto in the Credit Agreement or as
hereinafter set forth, and such definitions shall be equally applicable to both
the singular and plural forms of any of the terms so defined:
ACollateral Agency Agreement@ means that certain Amended and Restated
Collateral Agency Agreement dated of even date herewith by and among the parties
to this Agreement, the Borrower and the Collateral Agent, as the same may be
amended, restated, modified or supplemented and in effect from time to time.
ACollateral Agent@ means The Bank of New York, as collateral agent
appointed pursuant to the Collateral Agency Agreement, and any successor entity
service as collateral agent thereunder from time to time.
ADebtor Party@ shall mean the Borrower and any other Person which shall
be obligated to pay any amounts constituting Senior Indebtedness Liabilities or
Subordinated Indebtedness Liabilities.
<PAGE>
APermitted Junior Securities@ shall mean common stock of the Borrower
and other securities of the Borrower which are subordinated to the Senior
Indebtedness Liabilities to at least the same extent as the Subordinated
Indebtedness Liabilities are subordinated to the Senior Indebtedness Liabilities
at the time when such securities are issued by the Borrower.
APerson@ shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, and a government or
agency or political subdivision thereof.
ASenior Credit Agreement@ shall mean the Credit Agreement.
ASenior Indebtedness Covenant Default@ shall mean any Event of Default
other than a Senior Indebtedness Payment Default.
ASenior Indebtedness Documents@ shall mean, collectively, the Senior
Credit Agreement, the Senior Notes and the Senior Indebtedness Security
Documents.
ASenior Indebtedness Liabilities@ shall mean (a) the principal amount
of all Indebtedness of any Debtor Party existing under the Senior Credit
Agreement, (b) premium, if any, due and owing in respect of said Indebtedness,
(c) interest due and owing in respect of said Indebtedness (including, without
limitation, any such interest accruing subsequent to the filing by or against
any Debtor Party of any proceeding brought under the Bankruptcy Act of 1978,
whether or not such interest is allowed as a claim pursuant to the provisions of
said Act), (d) all claims for indemnity payments under or pursuant to the Credit
Agreement, (e) all other claims for unpaid fees, reimbursements and
out-of-pocket expenses incurred as a result of the enforcement of the Credit
Agreement and the Senior Indebtedness Security Documents; and (f) all amounts
payable under any guaranties, howsoever arising, by any Debtor Party of amounts
described in clauses (a) through (e), above; provided, however, that the
aggregate amount of the principal included in Senior Indebtedness Liabilities
pursuant to clause (a) of this definition shall not at any time exceed an amount
equal to $3,000,000.
ASenior Indebtedness Payment Default@ shall mean any default by any
Debtor Party to make any payment or mandatory prepayment of principal, premium,
if any, interest or other amounts due with respect to any Senior Indebtedness
Liabilities.
ASenior Indebtedness Security Documents@ shall mean all agreements,
instruments or documents pursuant to which any real or personal property and/or
interests in property owned by any Debtor Party are or shall be subjected to
Liens securing Senior Indebtedness Liabilities as amended, restated, modified or
supplemented and in effect from time to time.
<PAGE>
ASubordinated Indebtedness Liabilities@ shall mean (a) the principal
amount of all Indebtedness of any Debtor Party owing in respect of the Note
Agreement or the Subordinated Notes, (b) premium, if any, due and owing in
respect of said Indebtedness, (c) interest due and owing in respect of said
Indebtedness (including, without limitation, any such interest accruing
subsequent to the filing by or against any Debtor Party of any proceeding
brought under the Bankruptcy Act of 1978, whether or not such interest is
allowed as a claim pursuant to the provisions of such Act), (d) all claims for
indemnity payments under or pursuant to the Note Agreement, the Subordinated
Notes or any other Junior Note Document, (e) all other claims for unpaid fees,
reimbursements and expenses from time to time owing to the holders of the
Subordinated Notes pursuant to the Note Agreement, the Subordinated Notes or any
other Junior Note Document, and (f) all amounts payable under any guaranties,
howsoever arising, by any Debtor Party of amounts described in clauses (a)
through (e) above.
ASenior Notes@ shall mean all promissory notes executed by any Debtor
Parties evidencing any Senior Indebtedness Liabilities, as the same may be
amended, restated, modified or supplemented and in effect from time to time.
SECTION 2. SUBORDINATION OF SUBORDINATED INDEBTEDNESS LIABILITIES.
The Subordinated Indebtedness Liabilities shall be subordinate and
junior in right of payment, to the extent and in the manner hereinafter set
forth, to all Senior Indebtedness Liabilities, whether now outstanding or
hereafter incurred:
(a) In the event of any insolvency or bankruptcy
proceedings, and any receivership, liquidation, reorganization,
arrangement or other similar proceedings in connection therewith,
relative to any Debtor Party or to its creditors, as such, or to its
property, and in the event of any proceedings, for voluntary
liquidation, dissolution or other winding-up of any Debtor Party,
whether or not involving insolvency or bankruptcy, then the holders of
Senior Indebtedness Liabilities shall be entitled to receive from said
Debtor Party payment in full of all Senior Indebtedness Liabilities
owed thereby in cash or other property acceptable to the holders of the
Senior Indebtedness Liabilities (or to have such payment duly provided
for in a manner satisfactory to the holders of said Senior Indebtedness
Liabilities) before the holders of the Subordinated Indebtedness
Liabilities shall be entitled to receive any payment from said Debtor
Party in respect of the Subordinated Indebtedness Liabilities owed
thereby (other than payment made solely by distribution of Permitted
Junior Securities), and to that end the holders of Senior Indebtedness
Liabilities shall be entitled to receive for application in payment
thereof any payment or distribution of any kind or character, whether
in cash or property or Securities (other than Permitted Junior
Securities), which may be payable or deliverable in any such
proceedings in respect of the Subordinated Indebtedness Liabilities.
<PAGE>
(b) Upon the happening of any Senior Indebtedness
Payment Default, then upon notice thereof by LaSalle to Borrower, with
a copy to each other party to this Agreement, the holders of the
Subordinated Indebtedness Liabilities shall not be entitled to receive
any payment on account thereof (other than payment made solely by
distribution of Permitted Junior Securities) during the period
beginning on the date such Senior Indebtedness Payment Default shall
occur and ending upon the earlier of (1) the date such Senior
Indebtedness Payment Default has been waived in writing by the holders
of the related Senior Indebtedness Liabilities, (2) the date on which
notice that such Senior Indebtedness Payment Default shall have ceased
to exist is given by LaSalle to the Borrower, and (3) the date on which
such Senior Indebtedness Payment Default has been cured or shall have
ceased to exist.
(c) Upon the happening of any Senior Indebtedness
Covenant Default, the holders of the Subordinated Indebtedness
Liabilities shall not be entitled to receive any payment on account
thereof (other than payment made solely by distribution of Permitted
Junior Securities) during the period beginning on a Payment Blockage
Commencement Date, as defined below, and ending upon the earlier of (1)
the date such Senior Indebtedness Covenant Default has been waived in
writing by LaSalle, (2) the date on which notice that such Senior
Indebtedness Covenant Default shall have ceased to exist is given by
LaSalle to the Borrower, and (3) the date on which such Senior
Indebtedness Covenant Default has been cured or has ceased to exist;
provided, however, that (i) no more than three blockage periods under
this paragraph (c) shall be in effect during any period of 365
consecutive days; (ii) blockage periods under this paragraph 2(c) shall
not be in effect for more than 120 days during any period of 365
consecutive days, and (iii) no facts or circumstances constituting a
Senior Indebtedness Covenant Default existing on any Payment Blockage
Commencement Date may be used as a basis for any subsequent blockage
period unless cured or waived for a period of at least ten (10)
consecutive days. As used herein, the term APayment Blockage
Commencement Date@ shall mean the date on which written notice of a
particular Senior Indebtedness Covenant Default is given to the
Borrower, with a copy to each other party to this Agreement.
(d) In the event that any holder of Subordinated
Indebtedness Liabilities shall receive any cash or other assets of any
Debtor Party (other than Permitted Junior Securities), whether by
voluntary action of such Debtor Party, as a result of any
administrative, legal or equitable action, or otherwise, in violation
of the provisions of this Agreement or the Collateral Agency Agreement
(in any such case, at the time of such receipt), then such holder of
Subordinated Indebtedness Liabilities will be deemed to have held such
assets in trust for, and immediately upon receipt of written request
shall pay, deliver and assign to, the Collateral Agent such assets for
application in accordance with the Collateral Agency Agreement.
<PAGE>
(e) No holder of Subordinated Indebtedness Liabilities
shall accelerate the Indebtedness evidenced by the Subordinated Notes
or initiate or maintain any suit or other legal proceeding to enforce
any rights, powers or remedies under the Note Agreement, the
Subordinated Notes or any other Junior Note Document, unless prior
thereto (1) a period of not less than five (5) days shall have expired
commencing one day following the date on which such holder of
Subordinated Indebtedness Liabilities shall have provided LaSalle with
written notice specifying its intention to accelerate all or any part
of the Subordinated Indebtedness Liabilities or to initiate such suit
or other legal proceeding and the basis giving rise to the proposed
acceleration or initiation of such suit or other legal proceeding and
(2) no blockage period pursuant to subsection 2(c) above is then in
effect; provided, however, that the restrictions contained in this
paragraph (e) shall not apply with respect to any Debtor Party (I) to
the extent necessary to prevent the expiration of any applicable
statute of limitations or similar law, or (ii) upon the earliest to
occur of (x) the commencement by anyone not a holder of Subordinated
Indebtedness Liabilities of any insolvency, bankruptcy, receivership,
liquidation or reorganization proceedings or arrangements relative to
such Debtor Party, (y) the acceleration of all or any portion of the
Senior Indebtedness Liabilities or (z) the initiation by any holder of
Senior Indebtedness Liabilities of any suit, action or proceeding to
enforce any rights, powers or remedies of the holders of the Senior
Indebtedness Liabilities with respect thereto, including, without
limitation, under any Senior Indebtedness Documents.
SECTION 3. RELATIVE RIGHTS.
No right of any present or future holder of any Senior Indebtedness
Liabilities of the Debtor Parties to enforce subordination as herein provided
shall at any time or in any way be prejudiced or impaired by any failure to act
on the part of any Debtor Party, or by any noncompliance by any Debtor Party
with the terms, provisions and covenants of the Note Agreement or other Junior
Note Document, regardless of any knowledge thereof that any such holder of
Senior Indebtedness Liabilities may have or be otherwise charged with. The
provisions hereof are solely for the purpose of defining the relative rights of
the holders of Senior Indebtedness Liabilities on the one hand, and the holders
of the Subordinated Indebtedness Liabilities on the other hand, and nothing
herein shall impair, as between any Debtor Party and the holders of the
Subordinated Indebtedness Liabilities, the obligation of any Debtor Party, which
is unconditional and absolute, to pay to the holders of the Subordinated
Indebtedness Liabilities the entire amount thereof in accordance with the terms
of the Subordinated Notes, the Note Agreement and the other Junior Note
Documents, nor, except for the provisions contained in Section 2(e) hereof,
shall anything herein prevent the holder of any Subordinated Indebtedness
Liabilities from exercising all remedies otherwise permitted by applicable law
or under the Note Agreement, the Subordinated Notes or the other Junior Note
Documents upon default under the Note Agreement, the Subordinated Notes or the
other Junior Note Documents, subject to the rights, if any, of holders of Senior
Indebtedness Liabilities as herein provided.
SECTION 4. SUBROGATION.
<PAGE>
Upon payment in full of the Senior Indebtedness Liabilities in cash or
other property acceptable to the holders of the Senior Indebtedness Liabilities,
the holders of the Subordinated Indebtedness Liabilities shall be subrogated to
the rights of the holders of the Senior Indebtedness Liabilities to receive
payments or distributions of assets of the Debtor Parties made on or in respect
of Senior Indebtedness Liabilities until all amounts constituting Subordinated
Indebtedness Liabilities and all other amounts payable to the holders of the
Subordinated Indebtedness Liabilities shall be paid in full, and, for the
purposes of such subrogation, no payments to the holders of Senior Indebtedness
Liabilities of any cash, property, stock or obligations to which the holders of
the Subordinated Indebtedness Liabilities would (but for this Agreement) be
entitled shall, as between the Debtor Parties, their creditors (other than the
holders of Senior Indebtedness Liabilities) and the holders of the Subordinated
Indebtedness Liabilities, be deemed to be a payment by the Debtor Parties to or
on account of Senior Indebtedness Liabilities.
SECTION 5. PROOFS OF CLAIM, ETC.
In the event of any of the proceedings referred to in Section 2(a)
above, if any holder of Subordinated Indebtedness Liabilities has not filed any
claim, proof of claim or other instrument of similar character necessary to
enforce the obligations of the Debtor Parties in respect of the Subordinated
Indebtedness Liabilities held by such holder within thirty (30) days before the
expiration of the time to file the same, then and in such event, but only in
such event, any holder of the Senior Indebtedness Liabilities may notify such
holder in the manner provided in Section 8 hereof of such fact and that such
holder of the Senior Indebtedness Liabilities shall, if such claim, proof of
claim or other instrument of similar character is not so filed by such holder of
Subordinated Indebtedness Liabilities at least fifteen (15) days before the
expiration of the time to file the same, as an attorney-in-fact for such holder
of Subordinated Indebtedness Liabilities, file any claim, proof of claim or such
other instrument of similar character on behalf of such holder of Subordinated
Indebtedness Liabilities. At any time within fifteen (15) days prior to the
expiration of the time to file such claim, proof of claim or other instrument,
if such holder of Subordinated Indebtedness Liabilities has not so filed the
same, such holder of the Senior Indebtedness Liabilities then, as
attorney-in-fact for such holder of Subordinated Indebtedness Liabilities, may,
at its sole expense, file such claim, proof of claim or other instrument and
such holder of Subordinated Indebtedness Liabilities, by such holder=s
acceptance of such holder=s Subordinated Notes, appoints such holder of the
Senior Indebtedness Liabilities as an attorney-in-fact for such holder of
Subordinated Indebtedness Liabilities, to so file any claim, proof of claim or
such other instrument of similar character.
<PAGE>
In the event that any holder of Subordinated Indebtedness Liabilities
has failed to vote any claim thereof in connection with any proceedings referred
to in subparagraph (a) above within thirty (30) days before the expiration of
the time to vote said claim, then and in such event, but only in such event, any
holder of the Senior Indebtedness Liabilities may notify such holder in the
manner provided in Section 8 hereof of such fact and that such holder of the
Senior Indebtedness Liabilities shall request that such holder of Subordinated
Indebtedness Liabilities vote said claim at least fifteen (15) days before the
expiration of the time to do so. At any time within fifteen (15) days prior to
the expiration of the time to vote such claim, if such holder of Subordinated
Indebtedness Liabilities has not so voted the same, such holder of the
Subordinated Indebtedness Liabilities shall, at the sole expense of such holder
of the Senior Indebtedness Liabilities, execute, verify and deliver any such
instruments which any holder of Senior Indebtedness Liabilities may at any time
require in order to cause said holder of Subordinated Indebtedness Liabilities
to vote said claim.
If such holder of Subordinated Indebtedness Liabilities does not elect
to so enforce such obligations of the Debtor Parties, then and in such event,
but only in such event, such holder of the Senior Indebtedness Liabilities, may
thereafter request, and such holder of Subordinated Indebtedness Liabilities
shall, at the sole expense of such holder of the Senior Indebtedness
Liabilities, execute, verify and deliver, any such instruments which any holder
of Senior Indebtedness Liabilities may at any time require in order to prove and
realize upon any rights or claims pertaining to the Subordinated Indebtedness
Liabilities and to effectuate the full benefit of the subordination contained
herein, in any such case at the expense of such holder of the Senior
Indebtedness Liabilities.
SECTION 6. JUNIOR LENDERS' CONSENT TO LASALLE SECURITY INTERESTS.
Junior Lenders hereby consent to the Security Interests granted by the
Borrower to LaSalle in the Credit Agreement and the other Senior Indebtedness
Security Documents, and waive any default under the Note Agreement, the
Subordinated Notes and any other Junior Note Document that would otherwise occur
as a result thereof.
SECTION 7. COLLATERAL ISSUES.
(a) Notice and Cure Rights. LaSalle agrees that it shall not, nor
will it cause the Collateral Agent to, dispose of or otherwise exercise remedies
in respect of any Collateral, unless prior thereto:
(1) a period of not less than fifteen (15) days shall have
expired commencing one day following the date on which LaSalle
shall have provided the Junior Lenders with written notice
specifying LaSalle's intent to take or cause the Collateral
Agent to take such action and the basis for the Senior
Indebtedness Payment Default or Senior Indebtedness Covenant
Default giving rise to the proposed action; and
(2) at the end of such fifteen (15) day period, the Junior
Lenders shall not have exercised their right, set forth in
subsection 7(b) below, to purchase the Senior Indebtedness
Liabilities and such Senior Indebtedness Payment Default or
Senior Indebtedness Covenant Default remains uncured;
<PAGE>
provided, however, that, so long as no disposition of Collateral occurs during
such fifteen (15) day period, this sentence shall not be deemed to prevent (i)
the mere filing of an action to foreclose upon Collateral in order to commence
the running of time during which any answer of any Debtor Party thereto must be
filed, or (ii) the mere giving of a notice of intent to dispose of Collateral at
a sale under the UCC to be held after the running of such fifteen (15) day
period; and provided further that the restrictions contained in this sentence
shall not apply with respect to any Debtor Party (x) to the extent necessary to
prevent the expiration of any applicable statute of limitations or similar law,
or (y) after the commencement relative to such Debtor Party of any proceedings
described in Section 2(a).
(b) Right to Purchase Senior Indebtedness Liabilities. LaSalle
agrees that the Junior Lenders, or any of them, shall have the right to purchase
the Senior Indebtedness Liabilities from LaSalle upon LaSalle's giving of the
notice described in subsection 7(a)(1) above or upon LaSalle's determination
that a proposed amendment, modification or supplement to any of the Subordinated
Indebtedness Documents shall not be permitted pursuant to the terms of section
11.3 of the Senior Credit Agreement. Such right shall be exercisable by the
Junior Lenders, or any of them, by giving written notice to LaSalle (which
notice shall be given within fifteen (15) days after the date upon which LaSalle
shall have provided such notice to the Junior Lenders under subsection 7(a)(1)
above or of its determination pursuant to section 11.3 or section 11.4 of the
Senior Credit Agreement (the "Exercise Notice"). To be effective, the Exercise
Notice must state that the parties issuing the same are exercising the rights of
the Junior Lenders to purchase the Senior Indebtedness Liabilities, must specify
the closing date for the purchase (which date shall be not later than twenty
days from the date upon which LaSalle gave the notice described in the preceding
sentence) and must state that 100% of the Senior Indebtedness Liabilities will
be purchased for a purchase price equal to the aggregate amount of Senior
Indebtedness Liabilities as of the date of closing of such purchase. In the
event that the Exercise Notice is given by less than all of the Junior Lenders,
the purchasing Junior Lenders shall be those Junior Lenders which elect to
participate in such purchase, and the allocation of purchase interests shall be
as agreed among such purchasing Junior Lenders; provided that each Junior Lender
shall have the right to participate in such purchase in an amount equal to such
Junior Lender's pro rata share of the Subordinated Indebtedness Liabilities then
outstanding.
<PAGE>
Upon receipt of the Exercise Notice, LaSalle shall promptly
notify the Junior Lenders of the purchase price for the Senior Indebtedness
Liabilities in reasonable detail. At the closing of the such purchase (which may
be in person or by exchange of documents through courier), LaSalle will assign
to the purchasing Junior Lenders, and the purchasing Junior Lenders shall assume
from LaSalle, the Senior Indebtedness Liabilities under a written assignment and
assumption agreement in form and substance reasonably satisfactory to LaSalle
and such purchasing Junior Lenders, except that LaSalle shall make such
assignment on a non-recourse basis and without warranty except as to due
authorization and execution of the documents and as to LaSalle having good and
unencumbered title thereto. Concurrently with execution of such assignment and
assumption, (1) the purchasing Junior Lenders shall deliver the purchase price
to LaSalle by wire transfer of immediately available funds or other payment
means acceptable to LaSalle; (2) LaSalle will deliver to such purchasing Junior
Lenders the originals of any promissory notes or other instruments evidencing
any of the Senior Indebtedness Liabilities, duly endorsed by LaSalle on a
non-recourse basis except as to such due authorization and execution and
LaSalle's unencumbered title thereto; and (3) LaSalle will execute and deliver
to the purchasing Junior Lenders, also on a non-recourse basis, such other
agreements and instruments of assignment as are necessary or appropriate or
reasonably requested by the purchasing Junior Lenders to transfer to the
purchasing Junior Lenders all of LaSalle's right, title and interest in and to
the Senior Indebtedness Liabilities.
In the event that one or more of the Junior Lenders exercise
the right to purchase the Senior Indebtedness Liabilities pursuant to this
subsection 7(b) by giving an Exercise Notice but the purchase pursuant thereto
shall not be closed on or before the date which is twenty days after the date
upon which LaSalle provided its notice under subsection 7(a)(1) hereof or
section 11.3 of the Senior Credit Agreement, as applicable, such right to
purchase in favor of the Junior Lenders shall thereupon terminate and be of no
further force or effect. The foregoing sentence shall be without prejudice,
however, to the Junior Lenders' rights in respect of (I) any subsequent giving
by LaSalle of a Notice under subsection 7(a)(I) hereof, or (ii) any subsequent
proposed amendment, modification or supplement to the Subordinated Indebtedness
Documents which LaSalle determines not to permit pursuant to section 11.3 of the
Senior Credit Agreement.
(c) Receipt of Moneys. Each Junior Lender agrees that should it
receive any moneys from the sale, liquidation, casualty or other disposition of
any Collateral at any time when an Event of Default exists other than in
accordance with the Collateral Agency Agreement, it will (unless then otherwise
restricted by law) hold the same in trust for and promptly pay over the same,
upon demand, to the Collateral Agent for application in accordance with the
Collateral Agency Agreement.
(d) Provisions Concerning Insurance. Each Junior Lender agrees
with LaSalle and LaSalle agrees with the Junior Lenders that the other and the
Collateral Agent shall be entitled to obtain loss payee endorsements and/or
additional insured status with respect to any and all policies of insurance now
or thereafter obtained by the Borrower insuring casualty or other loss to any
property of Borrower and, in connection therewith, to file claims, settle
disputes, make adjustments and take any and all other actions otherwise then
permitted to each party hereto in regard thereto which it may then deem
advisable with respect to its collateral; provided that all proceeds of casualty
insurance with respect to the Collateral shall be applied in accordance with the
Collateral Agency Agreement..
SECTION 8. NOTICES.
<PAGE>
(a) Notices of Default. Each of LaSalle and the Junior Lenders
agrees to give to the other copies of any written notices of default,
termination, demand, acceleration, foreclosure, exercise of remedies and any
other written notice which is of a like nature, including, without limitation,
any of such which may be given under or pursuant to the terms of the Credit
Agreement or the Junior Note Documents, either concurrently with, or as soon as
practicable after, the giving of any such notice to Borrower (any such notice
being hereinafter referred to as a "Notice of Default");
(b) All communications provided for herein shall be in writing,
delivered or mailed prepaid by registered or certified mail or overnight air
courier, or by facsimile communication (with a copy sent on the same day by
overnight air courier) at the addresses set forth below, or to such other
address as such person may designate to the other persons named below by notice
given in accordance with this Section:
If to LaSalle: LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Jonathan A. Levey
Telecopy: (312) 904-5483
Confirmation: (312) 904-7641
If to Chocamerican: Chocamerican, Inc.
1105 North Market Street
Suite 1300
Wilmington, Delaware 19801
Attn: Francois de Carbonnel
Fax: (216) 883-7980
If to Prudential: The Prudential Insurance Company of America
c/o Prudential Financial Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Fax: (201) 802-7045
If to Principal: Investment Securities Department
The Principal Financial Group
711 High Street
Attn: Mark P. Denkinger
Telecopy: (515) 248-2490
Confirmation: (515) 248-8016
<PAGE>
If to Pruco: Pruco Life Insurance Company
c/o Prudential Financial Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Fax: (201) 802-7045
If to Contrarian: Contrarian Capital Advisors, L.L.C., as agent
411 West Putnam Avenue, Suite 225
Greenwich, Connecticut 06830
Attn: Janice Stanton
Telecopy: (203) 862-8204
Confirmation: (203) 629-1977
If to MFI: Mrs. Fields Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Attn: Larry A. Hodges, President
Telephone: (801) 463-2200
Fax: (801) 463-2183
If to Holding: Mrs. Fields= Holding Company, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attn: Herbert S. Winokur, Jr.
Telephone: (203) 861-6600
Fax: (203) 861-6671
If to Borrower: Mrs. Fields' Original Cookies, Inc. c/o
Capricorn Investors II, L.P. 30 East Elm Street Greenwich,
Connecticut 06830 Attn: Herbert S. Winokur, Jr. Telephone:
(203) 861-6600 Fax: (203) 861-6671
SECTION 9. MODIFICATIONS TO SENIOR INDEBTEDNESS DOCUMENTS.
<PAGE>
The holders of the Senior Indebtedness Liabilities may at any time and from time
to time without the consent of or notice to any Junior Lenders or other holders
of Subordinated Indebtedness Liabilities, without incurring liability to any
Junior Lender or other holder of Subordinated Indebtedness Liabilities and
without impairing or releasing the obligations of any Junior Lender or holder of
Subordinated Indebtedness Liabilities under this Agreement amend or modify the
Senior Indebtedness Documents; provided that any such action shall not (I)
increase the aggregate principal amount of loans made to the Borrower in excess
of $3,000,000; (ii) extend the final maturity date of the Senior Indebtedness
Liabilities beyond December 31, 1997; or (iii) increase the interest rate
payable on any of the Senior Indebtedness Liabilities (excluding any increase
provided for in the Senior Indebtedness Documents as in effect on the date
hereof and constituting a default rate of interest).
SECTION 10. CHANGES TO JUNIOR NOTE DOCUMENTS.
Until the Senior Indebtedness Liabilities have been paid in full in
cash or other property acceptable to the holders of the Senior Indebtedness
Liabilities and notwithstanding anything contained in the Junior Note Documents,
the Junior Lenders shall not, without the prior written consent of the holders
of the Senior Indebtedness Liabilities, agree to any amendment, modification or
supplement to the Junior Note Documents in violation of Section 11.3 of the
Senior Credit Agreement as in effect on the date hereof.
Section 11.
Sale or Transfer of Subordinated Indebtedness Liabilities. No Junior Lender
shall sell, assign, pledge, dispose of or otherwise transfer all or any portion
of the Subordinated Notes or the other Subordinated Indebtedness Liabilities (a)
without giving prior written notice of such action to LaSalle, and (b) unless
prior to the consummation of any such action, the transferee thereof shall
execute and deliver to LaSalle a written acknowledgment providing for the
continued subordination of such Subordinated Indebtedness Liabilities on the
terms provided herein and confirming the continued effectiveness of all of the
rights of the holders of the Senior Indebtedness Liabilities arising under this
Agreement and the Collateral Agency Agreement, in form and substance reasonably
satisfactory to LaSalle. Notwithstanding the failure to execute or deliver any
such acknowledgment, the subordination effected hereby shall survive any sale,
assignment, pledge, disposition or other transfer of all or any portion of the
Subordinated Indebtedness Liabilities, and the terms of this Agreement shall be
binding upon the successors and assigns of each Junior Lender.
SECTION 12. LEGENDS.
Until the Senior Indebtedness Liabilities are paid in full in cash or
other property acceptable to the holders of the Senior Indebtedness Liabilities,
Junior Lenders each agree that either (a) each Subordinated Note shall contain
in a conspicuous manner the following legend:
<PAGE>
"Payment of the obligation represented by this instrument is
subordinate to the Senior Indebtedness Liabilities
pursuant to, and is subject to, the terms of a
Subordination and Intercreditor Agreement, dated as
of January 31, 1997, among LaSalle National Bank,
Chocamerican, Inc., The Prudential Insurance
Company of America, Principal Mutual Life Insurance
Company, Pruco Life Insurance Company, Contrarian
Capital Advisors, L.L.C., Mrs. Fields Inc. and Mrs.
Fields= Holding Company, Inc."
or (b) the Junior Lenders will affirmatively notify any prospective assignees,
purchasers or transferees of any Subordinated Indebtedness Liabilities of the
existence and import of this Agreement prior to any proposed assignment, sale or
transfer of any Subordinated Indebtedness Liabilities.
SECTION 13. REPRESENTATIONS AND WARRANTIES OF JUNIOR LENDERS.
(a) Each Junior Lender hereby represents and
warrants to LaSalle that such Junior Lender has full power
and authority to enter into, execute, deliver and carry out the terms of this
Agreement, all of which have been duly authorized by all requisite action on its
part, and that this Agreement has been duly executed and delivered by it and
constitutes its valid and binding obligation, enforceable in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by equitable principles.
(b) LaSalle hereby represents and warrants to each
Junior Lender party hereto that LaSalle has full power
and authority to enter into, execute, deliver and carry out the terms of this
Agreement, all of which have been duly authorized by all requisite action on
LaSalle's part, and that this Agreement has been duly executed and delivered by
LaSalle and constitutes its valid and binding obligation, enforceable in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by equitable
principles.
SECTION 14. CONTINUED EFFECTIVENESS OF THIS AGREEMENT.
<PAGE>
The terms of this Agreement, the subordination effected hereby, and the
rights and the obligations of holders of the Subordinated Indebtedness
Liabilities and the Senior Indebtedness Liabilities arising hereunder, shall not
be affected, modified or impaired in any manner or to any extent by: (a) any
amendment or modification of or supplement to the Senior Credit Agreement, any
of the other Senior Indebtedness Documents or any of the Junior Note Documents
permitted hereby; (b) the validity or enforceability of any of such documents;
or (c) any exercise or non-exercise of any right, power or remedy under or in
respect of the Senior Indebtedness Liabilities or the Subordinated Indebtedness
Liabilities or any of the instruments or documents referred to in clause (a)
above. Each Junior Lender hereby acknowledges that the provisions of this
Agreement are intended to be enforceable at all times, whether before the
commencement of, after the commencement of, in connection with or premised on
the occurrence of any proceeding described in Section 2(a) hereof.
SECTION 15. EXCLUSIVE INTERCREDITOR PROVISIONS.
As between the holders of the Subordinated Indebtedness Liabilities and
the holders of the Senior Indebtedness Liabilities, this Agreement, taken
together with the Collateral Agency Agreement, constitute the whole agreement
among the parties.
SECTION 16. AMENDMENTS AND MODIFICATIONS.
This Agreement may be amended and/or modified only by an instrument in
writing signed by each of the parties hereto. No such amendment or modification
shall extend to or affect any obligation not expressly amended or modified or
impair any right consequent thereon.
SECTION 17. SEVERABILITY.
In case any one or more of the provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
SECTION 18. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon each party hereto and its
respective successors and assigns and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
SECTION 19. CHOICE OF LAW.
This Agreement, and any instrument or agreement required hereunder,
shall be governed by and construed in accordance with New York law without
regard to principles of conflicts of laws.
SECTION 20. COUNTERPARTS.
This Agreement, and any modifications or amendments hereto, may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original for all purposes, but all such
counterparts shall constitute but one and the same instrument.
[Balance of page intentionally left blank; signature pages follow.]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this
Agreement to be executed by an authorized officer on this ____
day of January, 1997.
LASALLE NATIONAL BANK
By:/s/Jon A. Levey
Name:Jon A. Levey
Its:Asst. Vice President
CHOCAMERICAN, INC.
By:/s/Francois E. de Carbonnel
Name:Francois E. de Carbonnel
Its:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:/s/Paul L. Meirin
Name:Paul L. Meirin
Its:Vice President
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:/s/John D. Gleavenger
Name:John D. Gleavenger
Its:Counsel
<PAGE>
PRUCO LIFE INSURANCE COMPANY
By:/s/Paul L. Meirin
Name:Paul L. Meirin
Its:Asst. Vice President
CONTRARIAN CAPITAL ADVISERS, L.L.C.,
As Agent for the Entities Listed Below:
OPPENHEIMER & CO., INC.
OPPENHEIMER HORIZON PARTNERS, L.P.
OPPENHEIMER INSTITUTIONAL HORIZON PARTNERS, L.P.
OPPENHEIMER INSTITIONAL HORIZON FUND II, L.P.
THE & TRUST
By
Its
MRS. FIELDS INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Its:President
MRS. FIELDS' HOLDING COMPAY, INC.
By:/s/Herbert S.Winokur
Name:Herbert S. Winokur
Its:President
<PAGE>
The undersigned hereby acknowledges and agrees to the above Agreement
as of the date first aforesaid.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/L. Tim Pierce
Name:L. Tim Pierce
Its:SVP and CFO
AMENDMENT TO TRADEMARK SECURITY AGREEMENT
This Amendment to Trademark Security Agreement (this "Amendment") is
dated as of the 31st day of January, 1997 and is by and among Mrs. Fields'
Original Cookies, Inc., a Delaware corporation (with its successors, the "Store
Company"), Mrs. Fields Cookies Australia, a Utah corporation, Fairfield Foods
Inc., a New Jersey corporation, Mrs. Fields' Other Names, Inc., a Delaware
corporation (each individually, a "Grantor" and collectively, the "Grantors")
and The Bank of New York, as collateral agent pursuant to that certain Amended
and Restated Collateral Agency Agreement of even date herewith (the "Collateral
Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto are all of the parties to that certain
Security Agreement, dated as of September 18, 1996, as amended by that certain
Amendment to Security Agreement of even date herewith, and that certain
Trademark Security Agreement (other than Mrs. Fields' Other Names, Inc.), dated
as of September 18, 1996 and recorded in the U.S. Patent and Trademark Office on
October 15, 1996 at Reel 1515, Frame 0428; and
WHEREAS, the parties are entering into that certain Amendment to
Security Agreement of even date herewith pursuant to which such Security
Agreement is being amended in certain respects and, in connection therewith,
also desire to amend such Trademark Security Agreement in certain respects, as
more fully set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. AMENDMENTS.
(a) Mrs. Fields' Other Names, Inc. is hereby made a party to the
Trademark Security Agreement and hereby grants, with respect to the assets of
Mrs. Fields' Other Names, Inc., the security interests contemplated therein, as
amended herein, in favor of the Collateral Agent.
(b) The definition of "Agreement" set forth in the first line of the
Trademark Security Agreement is hereby amended to mean such Trademark Security
Agreement as amended by this Amendment to Trademark Security Agreement and as
the same may be further amended, restated, modified or supplemented and in
effect from time to time.
(c) The definition of "Security Agreement" is hereby amended and
restated in its entirety to mean and refer to:
"that certain Security Agreement, dated as of September 18, 1996, by
and among Mrs. Fields' Original Cookies, Inc., a Delaware corporation,
Mrs. Fields Cookies Australia, a Utah corporation, Fairfield Foods
Inc., a New Jersey corporation, Mrs. Fields' Other Names, Inc., a
Delaware corporation (each individually, a "Grantor" and collectively,
the "Grantors") and The Bank of New York, as collateral agent pursuant
to that certain Amended and Restated Collateral Agency Agreement dated
as of January 31, 1997, as amended by that certain Amendment to
Security Agreement dated as of January 31, 1997 and as the same may be
further amended, restated, modified or supplemented and in effect from
time to time"
(d) The first WHEREAS clause of the Trademark Security Agreement is
hereby amended and restated in its entirety as follows:
"WHEREAS, the Store Company and Chocamerican, Inc., a Delaware
corporation ("Chocamerican"), The Prudential Insurance Company of
America a New Jersey mutual insurance company ("Prudential"), Principal
Mutual Life Insurance Company, an Iowa corporation ("Principal"), Pruco
Life Insurance Company, an Arizona corporation ("Pruco"), Contrarian
Capital Advisors, L.L.C., a Delaware limited liability company, as
agent ("Contrarian"), Mrs. Fields Inc., a Delaware corporation ("MFI")
and Mrs. Fields Holding Company, Inc., a Delaware corporation
("Holding") have entered into that certain Senior Note and Senior
Subordinated Note Agreement dated as of September 18, 1996 (as it may
be amended, restated, modified or supplemented and in effect from time
to time, the "Note Agreement"), and the Store Company and LaSalle
National Bank, a national banking association ("LaSalle") are entering
into that certain Loan Agreement dated as of January 31, 1997 (as it
may be amended, restated, modified or supplemented and in effect from
time to time, the "Loan Agreement") (collectively, Chocamerican,
Prudential, Principal, Pruco, Contrarian, MFI, Holding and LaSalle,
together with their respective successors and assigns, are collectively
referred to herein as the "Lenders");"
<PAGE>
(e) Section 1.a of the Trademark Security Agreement is hereby amended
and restated in its entirety as follows:
"a. As collateral security for the full and prompt payment
when due (whether at stated maturity, by acceleration or otherwise) of
the Obligations, each Grantor hereby grants to the Secured Party a
security interest in all of each Grantor's right, title and interest in
the Trademarks, whether now owned or existing or hereafter acquired or
arising, and wherever located, except such of the Trademarks as such
Grantor is prohibited by law or by any contract or agreement entered
into prior to September 18, 1996 from granting a security interest in;
provided, however, that the security interest in each Grantor's
Trademarks created hereunder shall be subject to the rights of
licensees or franchisees in such Trademarks (whether existing as of the
date hereof or arising after the date hereof) to the same extent as
each Grantor's rights are so subject."
2. MISCELLANEOUS.
(a) Captions. Section captions and headings used in this Amendment are
for convenience only and are not part of and shall not affect the construction
of this Amendment.
(b) Governing Law. This Amendment shall be a contract made under and
governed by the laws of the State of New York, without regard to conflict of
laws principles. Whenever possible, each provision of this Amendment shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Amendment shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Amendment.
(c) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall together constitute but one and the same document.
(d) Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
(e) References. From and after the date of execution of this Amendment,
any reference to the Trademark Security Agreement contained in any notice,
request, certificate or other instrument, document or agreement executed
concurrently with or after the execution and delivery of this Amendment shall be
deemed to include this Amendment unless the context shall otherwise require.
(f) Continued Effectiveness. The Trademark Security Agreement
(including the schedules thereto), as amended hereby, remains in full force and
effect and is hereby reaffirmed in all respects.
[Balance of page left intentionally blank; signature page follows.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment to
Trademark Security Agreement as of the date first set forth above.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/L.Tim Pierce
Name:L. Tim Pierce
Title:SVP and CFO
MRS. FIELDS COOKIES AUSTRALIA, INC.
By:/s/L. Tim Pierce
Name:L. Time Pierce
Title:SVP and CFO
FAIRFIELD FOODS, INC.
By:/s/L. Tim Pierce
Name:L. Tim Pierce
Title:SVP and CFO
MRS. FIELDS' OTHER NAMES, INC.
By:/s/L. Tim Pierce
Name:L. Tim Pierce
Title:SVP and CFO
THE BANK OF NEW YORK, AS COLLATERAL AGENT
By:/s/Timothy J. Shea
Name:Timothy J. Shea
Title:Assistant Treasurer
AMENDED AND RESTATED COLLATERAL AGENCY AGREEMENT
AMENDED AND RESTATED COLLATERAL AGENCY AGREEMENT (this "Agreement")
dated as of January 31, 1997, by and among Chocamerican, Inc., a Delaware
corporation ("Chocamerican"), The Prudential Insurance Company of America, a New
Jersey mutual insurance company ("Prudential"), Principal Mutual Life Insurance
Company, an Iowa corporation ("Principal"), Pruco Life Insurance Company, an
Arizona corporation ("Pruco"), Contrarian Capital Advisors, L.L.C., a Delaware
limited liability company, as agent ("Contrarian"), Mrs. Fields Inc., a Delaware
corporation ("MFI"), Mrs. Fields Holding Company, Inc., a Delaware corporation
("Holding", and together with Contrarian, Chocamerican, Prudential, Principal,
Pruco and MFI, and their respective successors and assigns and any transferee of
any of the Notes, the "Subordinated Beneficiaries"), LaSalle National Bank, a
national banking association (together with its successors and assigns and any
transferee of any "LaSalle Notes" (as defined below), the "Senior
Beneficiaries") (collectively, the Subordinated Beneficiaries and the Senior
Beneficiaries are herein referred to as the "Beneficiaries"), Mrs. Fields'
Original Cookies, Inc., a Delaware corporation (with its successors, the "Store
Company"), as a grantor of the security interests and liens in the Collateral
referred to below, and Mrs. Fields Cookies Australia, a Utah corporation ("Mrs.
Fields Australia"), Fairfield Foods, Inc., a New Jersey corporation
("Fairfield"), and Mrs. Fields' Other Names, Inc., a Delaware corporation ("Mrs.
Fields' Other Names") also as grantors of the security interests and liens in
the Collateral referred to below, and The Bank of New York, as collateral agent
appointed pursuant to this Agreement (the "Collateral Agent") in connection with
(i) that certain Senior Note and Senior Subordinated Note Agreement (the "Note
Agreement"), dated as of September 18, 1996, among the Subordinated
Beneficiaries and the Store Company, and (ii) that certain Loan Agreement (as
amended, restated, modified or supplemented and in effect from time to time, the
"Loan Agreement") dated as of January __, 1997 between the Senior Beneficiaries
and the Store Company and the Revolving Note issued by the Store Company
thereunder (as amended, restated, modified or supplemented and in effect from
time to time, and including any replacement notes issued therefor, the "LaSalle
Notes").
RECITALS
<PAGE>
-38-
WHEREAS, in connection with closing of the transactions contemplated by
the Note Agreement, the Store Company, Mrs. Fields Australia and Fairfield
executed and delivered in favor of the Collateral Agent, as agent for the
Subordinated Beneficiaries, that certain Security Agreement dated as of
September 18, 1996, and those certain Trademark Security Agreement and Copyright
Security Agreement, each dated as of September 18, 1996, referred to in such
Security Agreement; and (ii) the Store Company executed and delivered in favor
of the Collateral Agent, as agent for the Subordinated Beneficiaries, that
certain Stock Pledge Agreement dated as of September 18, 1996; and (iii) that
certain Collateral Agency Agreement by and among the Subordinated Beneficiaries,
the Store Company and the Collateral Agent; and
WHEREAS, the Store Company has requested that the Senior Beneficiaries
make certain loans and extensions of credit to the Store Company on and subject
to the terms and conditions of the Loan Agreement and, in connection therewith,
Mrs. Fields' Other Names is becoming a party to the Security Documents (other
than the Stock Pledge Agreement); and
WHEREAS, it is a condition precedent to the obligation of the Senior
Beneficiaries to make loans and extensions of credit to the Store Company under
the Loan Agreement that the parties amend and restate the Collateral Agency
Agreement in its entirety as set forth herein; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
foregoing recitals and the mutual covenants and promises set forth herein, the
parties hereto agree as follows:
ARTICLE I
AMENDMENT AND RESTATEMENT
The Collateral Agency Agreement dated as of September 18, 1996 by and
among the Subordinated Beneficiaries, the Store Company and the Collateral Agent
is hereby amended and restated in its entirety as set forth in this Amended and
Restated Collateral Agency Agreement. Concurrently with such amendment and
restatement, LaSalle, as the sole Senior Beneficiary at this time, and Mrs.
Fields' Other Names are becoming parties hereto.
ARTICLE II
TERMS AND DEFINITIONS
2.1 Definitions. (a) Capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed to such terms in the Note
Agreement.
(b) For purposes of this Agreement, the following terms shall have the
meanings indicated:
"Event of Default" means each "Event of Default" as defined in
the Loan Agreement and each "Event of Default" as defined in the Note
Agreement.
"Intercreditor Agreement" shall mean that certain
Subordination and Intercreditor Agreement dated as of January 31, 1997
by and among the Subordinated Beneficiaries parties hereto, LaSalle and
the Store Company, as the same may be amended, restated, modified or
supplemented and in effect from time to time.
"LaSalle" means LaSalle National Bank, a national banking association.
"LaSalle Obligations" means the obligations of the Store
Company and its Subsidiaries from time to time under the Loan Agreement
(or while any commitment of LaSalle remains in effect thereunder), the
LaSalle Notes and the other "Loan Documents" referred to in the Loan
Agreement.
"Majority Bank Lenders" means the holders of at least a
majority in dollar amount of the aggregate unpaid principal amount of
the LaSalle Obligations at the time outstanding.
"Majority Lenders" means (i) for so long as both Senior Notes
and LaSalle Obligations remain outstanding, the holders of at least a
majority in dollar amount of the aggregate unpaid principal amount then
outstanding of (x) the LaSalle Obligations, plus (y) the Senior Notes;
(ii) for so long as both Senior Subordinated Notes and LaSalle
Obligations remain outstanding and none of the Senior Notes remain
outstanding, the holders of at least a majority in dollar amount of the
aggregate unpaid principal amount then outstanding of (x) the LaSalle
Obligations, plus (y) the Senior Subordinated Notes; (iii) at any time
when no LaSalle Obligations remain outstanding and all obligations of
the Senior Beneficiaries to make loans or extensions of credit to the
Store Company under the Loan Agreement have terminated and are of no
further force or effect, the Majority Note Lenders; and (iv) at any
time when no Note Obligations remain outstanding, the Majority Bank
Lenders.
<PAGE>
"Majority Note Lenders" means (i) for so long as any Senior
Notes remain outstanding, the Majority Chocamerican Senior Lenders and
the Majority MFI Lenders (as each such term is defined in the Note
Agreement) and (ii) if none of the Senior Notes remain outstanding, the
Majority Senior Subordinated Lenders (as such term is defined in the
Note Agreement).
"Note Obligations" means the "Obligations" as defined in the Note Agreement.
"Security Documents" means the agreements referred to in the
first WHEREAS clause hereto, as the same may be amended, restated
modified or supplemented and in effect from time to time.
"Standstill Notice" means a written notice from the Majority
Bank Lenders to the Collateral Agent stating (i) that a "Senior
Indebtedness Covenant Default" (as defined in the Intercreditor
Agreement) is in existence, (ii) identifying a "Payment Blockage
Commencement Date" under the Intercreditor Agreement, and (iii)
directing the Collateral Agent, for the duration of the Standstill
Period commencing on the specified Payment Blockage Commencement Date,
to disregard any instructions from the Subordinated Beneficiaries
directing the Collateral Agent to initiate or maintain any suit or
other legal proceeding or other action seeking to sell or otherwise
dispose of or otherwise exercise remedies in respect of any Collateral.
"Standstill Period" means the period of time beginning on a
"Payment Blockage Commencement Date" specified by the Majority Bank
Lenders in a Standstill Notice, and ending upon the earlier of:
(i) the date upon which the Majority Bank Lenders
notify the Collateral Agent that such Standstill Period has
terminated; or
(ii) the date which is 120 days after the specified
Payment Blockage Commencement Date; or
(iii) the date (the "Omega Date") upon which such
Standstill Period shall have been in effect for a number of
days which, when aggregated with any prior Standstill Periods
in effect during the 365 day period immediately preceding the
Omega Date, shall equal 120 days (e.g. Standstill Periods
under this Agreement shall be in effect for a maximum of 120
days out of any period of 365 consecutive days);
provided, however, that no facts or circumstances constituting a
"Senior Indebtedness Covenant Default" (as defined in the Subordination
Agreement) existing on any "Payment Blockage Commencement Date" may be
used as a basis for any subsequent Standstill Notice unless such Senior
Indebtedness Covenant Default has been cured or waived for a period of
at least ten (10) consecutive days; and provided further that there
shall not be more than three (3) Standstill Periods in effect during
any period of 365 consecutive days.
2.2 Interpretation.
(a) Unless the context otherwise indicates, words expressed in
the singular shall include the plural and vice versa.
(b) Headings of articles and sections herein are solely for
convenience of reference, do not constitute a part hereof and shall not
affect the meaning, construction or effect hereof.
(c) The words "herein," "hereof," "hereby," "hereunder," and
other words of similar import refer to this Agreement as a whole and
not to any particular section or subdivision hereof.
2.3 Beneficiaries' Action or Instructions. (a) Any action permitted to
be taken by the Subordinated Beneficiaries or any direction which the
Subordinated Beneficiaries may give to the Collateral Agent, may be taken or
given, as the case may be, by the Majority Note Lenders. Each Subordinated
Beneficiary hereby represents and warrants to the Collateral Agent that it is a
Subordinated Beneficiary and, on the date hereof, it holds the principal amount
of Notes set forth opposite such Subordinated Beneficiary's name on Schedules B
and C attached hereto and that the Collateral Agent shall have the right to
assume that each such Subordinated Beneficiary shall continue to hold the
principal amount of Notes set forth opposite such Subordinated Beneficiary's
name on Schedules B and C attached hereto, until the Collateral Agent receives
written notice signed by a Subordinated Beneficiary that has transferred its
Notes, advising the Collateral Agent that it has transferred its Notes, which
written notice also shall specify the transferees, the amount of Notes
transferred by such Subordinated Beneficiary to each such transferee and the
principal amount of Notes then held by such Subordinated Beneficiary (if any).
Each Senior Beneficiary hereby represents and warrants to the Collateral Agent
that it is a Senior Beneficiary and, on the date hereof, it holds the principal
amount of LaSalle Notes set forth opposite such Senior Beneficiary's name on
Schedule A attached hereto and that the Collateral Agent shall have the right to
assume that each such Senior Beneficiary shall continue to hold the principal
amount of LaSalle Notes set forth opposite such Senior Beneficiary's name on
Schedule A attached hereto, until the Collateral Agent receives written notice
signed by a Senior Beneficiary that has transferred its LaSalle Notes, advising
the Collateral Agent that it has transferred its LaSalle Notes, which written
notice also shall specify the transferees, the amount of LaSalle Notes
transferred by such Senior Beneficiary to each such transferee and the principal
amount of LaSalle Notes then held by such Senior Beneficiary (if any).
(b) Any action permitted to be taken by the Senior Beneficiaries or any
direction which the Senior Beneficiaries may give to the Collateral Agent, may
be taken or given, as the case may be, by the Majority Bank Lenders.
<PAGE>
ARTICLE III
APPOINTMENT AND COMPENSATION OF THE COLLATERAL AGENT
3.1 Appointment of the Collateral Agent. Each Beneficiary hereby
appoints and, by acquiring certain interests, rights, benefits, duties, and
obligations under the Note Agreement, the Loan Agreement and the Security
Documents, each case in accordance with the terms of such agreements, shall be
deemed to have appointed The Bank of New York as Collateral Agent for such
Beneficiary and irrevocably authorizes and empowers the Collateral Agent to (i)
hold the Collateral for the benefit of all Beneficiaries, (ii) exercise such
authority, rights, powers, and duties hereunder as specifically are delegated to
and accepted by the Collateral Agent hereunder, and (iii) take such other action
in connection with the foregoing as the Beneficiaries may from time to time
direct in accordance with the terms and conditions of this Agreement. The Bank
of New York, hereby accepts its appointment as Collateral Agent and agrees to
perform the duties of the Collateral Agent specified herein and to exercise the
powers granted hereby, in either case in accordance with the terms hereof. In
performing its duties and functions in connection herewith, the Collateral Agent
shall be considered to be acting in an administrative and ministerial capacity
only and neither as trustee for any Beneficiary nor in its individual capacity.
3.2 Compensation of the Collateral Agent. As compensation for its
services as Collateral Agent, the Store Company agrees to pay the Collateral
Agent, so long as this Agreement remains in effect, annually on each 15th day of
October, the sum of Three Thousand Five Hundred Dollars ($3,500.00), payable by
wire transfer: The Bank of New York, ABA No. 021000018, Account No. 254198, New
York, New York, Attention: Tim Shea; and all the fees, costs and expenses
incurred in good faith by the Collateral Agent (including, without limitation,
the fees and disbursements of its counsel and other advisers as the Collateral
Agent elects to retain) (i) arising in connection with the preparation,
execution, delivery, performance, modification, and termination of this
Agreement or any other Security Document or the enforcement of any of the
provisions hereof or thereof or (ii) incurred or advanced in good faith in
connection with the administration of the Collateral, the sale or other
disposition thereof pursuant to any Security Document and the preservation,
protection, or defense of the Collateral Agent's rights under the Security
Documents and the other related documents and in and to the Collateral, or (iii)
incurred in good faith by the Collateral Agent in connection with the
resignation or removal of the Collateral Agent pursuant to Article 8 hereof.
Additionally, the Store Company agrees (A) to indemnify and hold harmless the
Collateral Agent from any present or future claim or liability for any stamp or
other similar tax and any penalties or interest with respect thereto, which may
be assessed, levied, or collected by any jurisdiction in connection with this
Agreement, any other Security Document or any Collateral, and (B) to pay or to
reimburse the Collateral Agent for any and all amounts in respect of all search,
filing, recording, and registration fees, taxes, excise taxes, and other similar
imposts which may be payable or determined to be payable in respect of the
execution, delivery, filing, performance, and enforcement of this Agreement,
each other Security Document, and all documents (including, without limitation,
financing statements) provided for herein or therein.
<PAGE>
ARTICLE IV
DUTIES, POWERS AND RIGHTS OF THE COLLATERAL AGENT
4.1 Specific Duties of the Collateral Agent. The Collateral Agent shall
have the following duties:
(a) upon the receipt by it of written instructions of the
Majority Bank Lenders or the Majority Note Lenders, execute and deliver
on behalf of the Beneficiaries such documents or instruments as the
Majority Bank Lenders or the Majority Note Lenders shall deem necessary
or appropriate from time to time to maintain the perfection of any Lien
in, to, or upon the Collateral or any portion thereof, which has been,
are or will be granted pursuant to any of the Security Documents;
(b) accept, on behalf of the Beneficiaries, any part of the
Collateral delivered to it, including, without limitation, any
certificated securities, instruments, and documents, and accept, on
behalf of the Beneficiaries, any new Collateral given as security for
the LaSalle Obligations and/or the Note Obligations, and execute and
deliver, on behalf of the Beneficiaries and at the direction of the
Majority Bank Lenders or the Majority Note Lenders, such documents or
instruments as the Majority Bank Lenders or the Majority Note Lenders
deem necessary or appropriate to evidence the creation of any Lien with
respect thereto and to perfect such Lien;
(c) upon the receipt by it of written instructions executed by
the Majority Bank Lenders and the Majority Note Lenders, release the
Collateral or any portion thereof from any Liens thereon which were
created pursuant to any of the Security Documents for the purposes of
securing the LaSalle Obligations or upon the receipt by it of written
instructions executed by the Majority Note Lenders, release the
Collateral or any portion thereof from any Liens thereon which were
created pursuant to any of the Security Documents for the purposes of
securing the Note Obligations; provided, in either case, that in
connection with a sale thereof for the benefit of the Senior
Beneficiaries or the Subordinated Beneficiaries, such sale is effected
in a commercially reasonable manner:
(d) furnish to each of the Beneficiaries, promptly upon
receipt thereof, duplicates of all reports, notices, requests, demands,
certificates, and other documents received by it under this Agreement
or any of the other Security Documents, unless any such document shall
state thereon that it has previously been furnished directly to the
Beneficiaries;
(e) provide to each of the Beneficiaries a copy of all notices
received from the issuer of any capital stock or securities which
constitute Collateral and, upon receipt by it of written instructions
of the Majority Bank Lenders exercise all rights and powers determined
by the Majority Bank Lenders which are appurtenant to any such capital
stock or securities which become a part of the Collateral (or, in the
absence of receipt of such written instructions of the Majority Bank
Lenders, upon receipt by the Collateral Agent of written instructions
of the Majority Note Lenders, exercise all rights and powers determined
by the Majority Note Lenders which are appurtenant to any such capital
stock or securities), including, without limitation, the right to vote
stock, to receive dividends or other distributions, and to grant or
refrain from granting any consent or waiver;
(f) inform each of the Beneficiaries in writing of the
existence of any Event of Default promptly upon learning of the same;
provided, however, that it shall not be deemed to have any knowledge
whatsoever of any Event of Default unless it has actually received
written notice stating that an Event of Default has occurred from any
of the Beneficiaries or the Store Company;
(g) upon receipt by it of written instructions of the Majority
Bank Lenders or the Majority Note Lenders, take those actions
determined by the Majority Bank Lenders or the Majority Note Lenders as
necessary to protect and preserve the Collateral and realize on and
foreclose upon the Collateral, including, without limitation,
initiating (at the expense of Store Company) and defending any and all
actions or proceedings which may be brought affecting any of the
Collateral or any portion thereof or otherwise pursue any remedies
available to any Beneficiary or to it in respect of the Collateral or
any portion thereof, which actions may include, without limitation,
initiating and conducting any public or private sale or pursuing any
other actions or remedies relating to the Collateral or any portion
thereof;
<PAGE>
(h) provide, at the direction of the Majority Bank Lenders or
the Majority Note Lenders, notice required by the Loan Agreement, the
Note Agreement or the Security Documents, or by law, to the Store
Company, or any other party entitled thereto, in order to take any
actions required or authorized to be taken under this Agreement or
specified in written instructions of the Majority Bank Lenders or the
Majority Note Lenders;
(i) receive any and all amounts of any kind made pursuant to
any of the Security Documents, including Section 7.2 hereof, and
receive proceeds of the Collateral subsequent to an Event of Default
and apply such amounts or proceeds as specified in section 5.2 hereof;
(j) receive any amounts payable under the Store Company's or
any of its Subsidiaries' insurance policies and distribute such amounts
all as specified in Section 5.2 of this Agreement;
(k) deliver a letter in the form attached hereto as Exhibit
4.1(k) to any franchisee or other licensee of the Store Company's or
any of its Subsidiaries' trademarks upon the reasonable request of the
Store Company; and
(l) take, or refrain from taking, such other actions (but only
such actions that are set forth in this Agreement) as the Majority Bank
Lenders or the Majority Note Lenders shall from time to time direct by
written instruction; provided, however, that the Collateral Agent shall
not take any action to initiate or maintain any suit or other legal
proceeding or other action seeking to sell or otherwise dispose of or
otherwise exercise remedies in respect of any Collateral pursuant to
directions of the Majority Note Lenders during any Standstill Period
which is in effect.
4.2 Duties Limited.
(a) The Collateral Agent shall be obliged to perform such
duties and only such duties as specifically set forth in this Agreement
and no implied covenants or obligations shall be read into this
Agreement against the Collateral Agent, and the Collateral Agent shall
be obliged to take any actions or exercise any rights, powers or
remedies which are discretionary with the Collateral Agent under this
Agreement only as may be specified in a written notice from the
Majority Bank Lenders or the Majority Note Lenders; provided, however,
that the Collateral Agent shall not take any actions specified in a
written notice if the provisions of this Agreement expressly prohibit
such action. Except as expressly provided herein or in written
instructions of the Majority Bank Lenders or the Majority Note Lenders,
the Collateral Agent shall not have any duty or obligation, express or
implied, to:
(i) manage, control, use, maintain, sell, dispose of,
purchase, bid for, or otherwise deal with the Collateral or
any portion thereof, or to otherwise take or refrain from
taking any action under, or in connection with this Agreement
or any of the other Security Documents, except to the extent
required by law;
(ii) take any action which relates to, materially
affects, or impairs the amounts which the Beneficiaries may
recover from disposition of the Collateral, including, without
limitation, any election or waiver of remedies available under
any of the Security Documents, or with respect to the
Collateral or the manner of foreclosure upon the same; any
determination of the order and timing of foreclosure upon any
portion of the Collateral or of the amount of any credit bid
to be entered at any public or private, judicial, or
nonjudicial sale of the Collateral; the pursuit of any
remedies against the Store Company or any of its Subsidiaries
following the completion of foreclosure upon the Collateral;
the compromise or settlement of any claims against the Store
Company or any of its Subsidiaries including the conduct of
any negotiations relating to the same or with a view toward
the termination of any pending foreclosure proceedings;
<PAGE>
(iii) obtain or maintain insurance on the Collateral
or any other insurance;
(iv) pay or discharge any tax, assessment or other
governmental charge or any Lien or encumbrance of any kind
owing with respect to, or assessed or levied against, any part
of the Collateral;
(v) take any action or omit to take any action
provided for in any of the Security Documents, and the
documents executed in connection therewith;
(vi) advance any monies for any purpose; or
(vii) except at the specific direction of the
Majority Bank Lenders or the Majority Note Lenders, record or
file any Security Document, any other document or any other
instrument referred to herein or therein with respect to any
Lien.
(b) In addition to and not in limitation of the provisions of
the foregoing Section 4.2(a), under no circumstances shall the
Collateral Agent have any duty or obligation to take any actions
hereunder, even if instructed to do so by the Majority Bank Lenders or
the Majority Note Lenders or if expressly set forth herein, if the
Collateral Agent determines, in its sole and absolute discretion, that
such actions would subject it to liability or expense for which
satisfactory indemnity has not been provided hereunder or otherwise.
4.3 Specific Powers of the Collateral Agent. In addition to all powers
necessary, appropriate, desirable or incidental to the Collateral Agent's
performance of the specific duties set forth in Section 4.1 hereof, the
Collateral Agent is hereby empowered and authorized to do, in its sole and
absolute discretion, any and all of the following in connection with its
performance of such duties; provided, however, that in no event shall it have
any obligation to do so:
(a) establish bank accounts in its name with the right to be
the only party authorized to draw from such account or accounts;
(b) employ such persons, firms, or professionals as it shall
deem appropriate or desirable in connection with the performance of its
duties hereunder, including, without limitation, appraisers,
auctioneers, stockbrokers, custodians of securities, fiduciaries,
commercial banks, investment banks, accountants, and attorneys; and
(c) execute and deliver, as Collateral Agent and on behalf of
the Beneficiaries, any agreements, escrow instructions, bills of sale,
applications, or any other documents related to or in any way connected
with any disposition of the Collateral, or any portion thereof,
permitted under this Agreement or directed by the Majority Bank Lenders
or the Majority Note Lenders in accordance with the terms hereof;
provided, however, that in the event it is unwilling or unable for any
reason to execute and deliver such documents, then it promptly shall
notify the Beneficiaries of such unwillingness or inability and shall
request execution and delivery of such documents by the Majority Bank
Lenders (if pursuant to direction of the Majority Bank Lenders) or the
Majority Note Lenders (if pursuant to direction of the Majority Note
Lenders).
4.4 Written Instructions. Any written request or written instructions
required or permitted to be given hereunder to the Collateral Agent shall be
given exclusively by the Majority Bank Lenders or the Majority Note Lenders. In
the event that the Collateral Agent receives written instructions from the
Majority Bank Lenders or the Majority Note Lenders which the Collateral Agent
determines, in its sole and absolute discretion, to be ambiguous, inconsistent,
in conflict with other instructions previously received, or otherwise
insufficient to direct the actions of the Collateral Agent, then the Collateral
Agent shall have no obligation whatsoever to take or refrain from taking any
action pursuant to such written instructions, but shall instead do any one or
more of the following:
<PAGE>
(a) seek additional written instructions from the Majority
Bank Lenders or the Majority Note Lenders (as applicable) satisfactory
to it;
(b) resign as Collateral Agent in accordance with this Agreement; or
(c) at the expense of the Beneficiaries, commence an action in
a court of appropriate jurisdiction requiring the Beneficiaries to
interplead and settle among themselves their rights in and to the
Collateral and any proceeds thereof then held by it.
The Collateral Agent shall not be liable to any party hereto by reason of its
actions under this Section 4.4.
4.5 Reliance. In acting with respect to this Agreement and the Security
Documents, the Collateral Agent shall be entitled to:
(a) rely on any communication reasonably believed by it to be
genuine and to have been made, sent, or signed by the person, firm, or
institution by whom it purports to have been made, sent, or signed;
(b) rely as to any matters of fact which might reasonably be
expected to be within the knowledge of the Beneficiaries or the Store
Company or any of its Subsidiaries, upon a certificate signed by or on
behalf of any of the Beneficiaries or the Store Company or any of its
Subsidiaries;
(c) rely on the representations made by the Majority Bank
Lenders and/or the Majority Note Lenders in their respective
instructions regarding their respective authority to provide the
instructions;
(d) rely on the advice or services of any persons, firms, or
professionals employed by it pursuant to Section 4.3(b) hereof and rely
upon the opinions and statements of any professional advisor so
employed; and
(e) rely on any resolution, statement, certificate,
instrument, opinion, report, notice, request, consent, order, bond, or
other paper or document which it reasonably believes to be genuine and
to have been signed or presented by the proper person or, in the case
of cables, facsimile transmissions, telecopies, and telexes, to have
been sent by the proper person.
The Collateral Agent shall not be liable to any party hereto for any consequence
of any such relying, acting, or refraining to act. Nothing in this Section 4.5
shall impair the right of the Collateral Agent in its discretion to take or omit
to take any action which the Collateral Agent deems proper to take or omit to
take if such action or omission is not inconsistent with any notice or direction
from the Majority Bank Lenders or the Majority Note Lenders; provided, that the
Collateral Agent shall not be under any obligation to take any action which is
discretionary with the Collateral Agent under this Agreement or any other
Security Document except as may be specified in a written notice from the
Majority Bank Lenders or the Majority Note Lenders.
4.6 No Responsibility. The Collateral Agent does not assume any
responsibility for:
(a) any failure or delay in performance or breach by the Store
Company or its Subsidiaries or by any Beneficiary of any obligation
under the Intercreditor Agreement, the Loan Agreement, the Note
Agreement or the Security Documents;
(b) the truth or accuracy of any representation or warranty or
statement given or made in connection with the Intercreditor Agreement,
the Loan Agreement, the Note Agreement or the Security Documents;
(c) the legality, validity, effectiveness, adequacy, or
enforceability of the Intercreditor Agreement, the Loan Agreement, the
Note Agreement or the Security Documents; or
(d) the validity, enforceability, or sufficiency of any
agreement or instrument or any depreciation or diminution in the value
of any Collateral or income thereon.
<PAGE>
As to any event or occurrence in which neither the Collateral Agent nor
any person acting on its behalf is a participant, the Collateral Agent shall be
conclusively presumed to have no knowledge of such event or occurrence, absent
gross negligence or willful misconduct, except to the extent that the Collateral
Agent shall have received a written notice from any of the Beneficiaries with
respect thereto.
4.7 Collateral Agent Protected. The Collateral Agent shall be protected
in acting or refraining to act upon any certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, or paper or document
reasonably believed by it to be genuine and to have been signed or presented by
the proper party or parties. The Collateral Agent may consult with independent
counsel of its selection, and the advice or written opinion of such counsel
shall constitute full and complete protection in respect of any action taken,
suffered, or omitted by it under this Agreement in good faith and in accordance
with such opinion of counsel. The Collateral Agent may execute any of its powers
hereunder or perform any duties hereunder either directly or through agents or
attorneys and the Collateral Agent shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed with due care by it
hereunder; provided, however, that as between the other parties hereto and the
Collateral Agent, all such powers and duties are those of the Collateral Agent
as provided hereunder.
ARTICLE V
APPLICATION OF PROCEEDS OF COLLATERAL
5.1 Sharing Notice. Upon receipt by the Collateral Agent of:
(a) notice from the Majority Bank Lenders of the acceleration
and maturity of any amount outstanding under the Loan Agreement, the
LaSalle Notes or any Security Document as a consequence of an Event of
Default thereunder; or
(b) notice from the Majority Note Lenders of the acceleration
and maturity of any amount outstanding under the Note Agreement, the
Notes or any Security Document as a consequence of an Event of Default
thereunder;
the Collateral Agent shall give notice (a "Sharing Notice") to each of the
Beneficiaries informing it of the occurrence of such Event of Default and
acceleration and requiring each Beneficiary to provide the Collateral Agent with
all necessary information to enable the Collateral Agent to calculate such
Beneficiary's pro rata share of any proceeds resulting from a foreclosure upon
the Collateral, in accordance with Section 5.2 hereof. For purposes of this
Section 5.1, such necessary information for each Beneficiary shall include (i) a
statement as to whether it holds Note Obligations or LaSalle Obligations, (ii)
the amount of outstanding principal owed to such Beneficiary, (iii) the amount
of accrued and unpaid interest owed to such Beneficiary, and (iv) all other
information sufficient to permit the Collateral Agent to calculate accrued and
unpaid interest on the amounts owed to such Beneficiary as of the date of any
distribution hereunder. Upon receipt of such information, the Collateral Agent
shall calculate and promptly notify the Beneficiaries as to any distribution to
which each Beneficiary is entitled pursuant to Section 5.2. Any Sharing Notice
shall be effective as of the date it is sent by the Collateral Agent and shall
remain effective until all the Beneficiaries agree that such Sharing Notice is
no longer in effect.
5.2 Application of Proceeds. The receipt of any amounts on behalf of
the Beneficiaries under the Loan Agreement, the LaSalle Notes, the Note
Agreement, the Notes or any Security Document, or otherwise, and the proceeds of
any sale, enforcement, or other disposition of any of the Collateral or any
other distribution in respect of the Collateral (each, a "Distribution") shall
be applied by the Beneficiaries and the Collateral Agent in the following order:
(a) First, to the payment of all fees, costs, expenses,
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, or disbursements incurred or made by
the Collateral Agent and its agents and counsel in connection with its
obligations under this Agreement;
(b) Second, to the Senior Beneficiaries, as specified in the
next sentence, until payment in full of all accrued and unpaid interest
on the LaSalle Notes at the nondefault rates of interest specified in
the Loan Agreement or the LaSalle Notes (excluding any interest on
unpaid interest specified in the Loan Agreement or the LaSalle Notes)
through and including the date of receipt of such amounts. The
Collateral Agent shall distribute such Distribution by (i) multiplying
the amount of such Distribution by the percentage specified for each
such Senior Beneficiary listed on Schedule A hereto and paying to such
Senior Beneficiary the lesser of (A) such amount or (B) the accrued
interest owing to such Senior Beneficiary (excluding interest at the
default rate and any interest on unpaid interest under the Loan
Agreement or the LaSalle Notes) and (ii) multiplying the amount of any
such Distribution remaining after application of clause (i) of this
Section 5.2(b) by the percentage specified for each Senior Beneficiary
listed on Schedule A hereto and paying such amount to such Senior
Beneficiary;
<PAGE>
(c) Third, to the Senior Beneficiaries, as specified in the
next sentence, until payment in full of the lesser of (1) the remaining
outstanding LaSalle Notes (including, without limitation, any remaining
interest at the default rate of interest on overdue interest as
specified in the Loan Agreement or the LaSalle Notes), or (2)
$3,000,000 plus any remaining interest outstanding on the LaSalle Notes
(including, without limitation, any remaining interest at the default
rate of interest on overdue interest as specified in the Loan Agreement
or the LaSalle Notes). The Collateral Agent shall distribute the
portion of such Distribution remaining after complying with clauses (a)
and (b) above by multiplying such remaining amount of such Distribution
by the percentage specified for such Senior Beneficiary on Schedule A
hereto and paying such amount to such Senior Beneficiary;
(d) Fourth, to the Subordinated Beneficiaries, as specified in
the next sentence, until payment in full of all accrued and unpaid
interest on the Senior Notes at the nondefault rates of interest
specified in the Note Agreement (excluding any interest on unpaid
interest specified in the Note Agreement or the Senior Notes) through
and including the date of receipt of such amounts, with such amounts
first being applied to interest on the Chocamerican Series 4 Notes and
the MFI Series 3 Notes, pro rata. The Collateral Agent shall distribute
the portion of such Distribution remaining after complying with clauses
(a), (b) and (c) above by (i) multiplying the remaining amount of such
Distribution by the percentage specified for each Subordinated
Beneficiary listed on Schedule B hereto and paying to such Subordinated
Beneficiary the lesser of (A) such amount or (B) the accrued interest
owing to such Subordinated Beneficiary (excluding interest at the
default rate and any interest on unpaid interest under the Note
Agreement or the Senior Notes) and (ii) multiplying the remaining
amount of any such Distribution remaining after application of clause
(i) of this Section 5.2(d) by the percentage specified for each
Subordinated Beneficiary listed on Schedule B hereto and paying such
amount to such Subordinated Beneficiary;
(e) Fifth, to the Subordinated Beneficiaries and, in the event
that the outstanding principal of the LaSalle Notes or any other
amounts owing to the Senior Beneficiaries under the Loan Agreement have
not been paid in full pursuant to clause (b) above, to the Senior
Beneficiaries, as specified in the next sentence, until payment in full
of the remaining outstanding Senior Notes and other amounts owing to
the Senior Beneficiaries under the Loan Agreement (including, without
limitation, any remaining interest at the default rate of interest on
overdue interest as specified in the Note Agreement or the Senior
Notes) and any remaining outstanding principal of the LaSalle Notes.
The Collateral Agent shall distribute the portion of such Distribution
remaining after complying with clauses (a), (b), (c) and (d) above by
multiplying the remaining amount of such Distribution by the percentage
specified for such Subordinated Beneficiary on Schedule B hereto and
paying such amount to such Subordinated Beneficiary;
(f) Sixth, to the Subordinated Beneficiaries as specified in
the next sentence, until payment in full of all accrued and unpaid
interest on the Senior Subordinated Notes at the rate of interest
specified in the Note Agreement (excluding any interest on unpaid
interest specified in the Note Agreement or the Senior Subordinated
Notes) through and including the date of receipt of such amounts. The
Collateral Agent shall distribute the portion of such Distribution
remaining after complying with clauses (a), (b), (c), (d) and (e) above
by (i) multiplying the remaining amount of such Distribution by the
percentage specified for each Subordinated Beneficiary listed on
Schedule C hereto and paying to such Subordinated Beneficiary the
lesser of (A) such amount or (B) the accrued interest owing to such
Subordinated Beneficiary (excluding interest at the default rate and
any interest on unpaid interest under the Note Agreement or the Senior
Subordinated Notes) and (ii) multiplying the remaining amount of any
such Distribution remaining after application of clause (i) by the
percentage specified for each Subordinated Beneficiary listed on
Schedule C hereto and paying such amount to such Subordinated
Beneficiary;
(g) Seventh, to the Subordinated Beneficiaries, as specified
in the next sentence, until payment in full of the remaining
outstanding Senior Subordinated Notes. The Collateral Agent shall
distribute the portion of such Distribution remaining after complying
with clauses (a), (b), (c), (d), (e) and (f) above by multiplying the
remaining amount of such Distribution by the percentage specified for
such Subordinated Beneficiary on Schedule C hereto and paying such
amount to such Subordinated Beneficiary;
(h) Eighth, to the Subordinated Beneficiaries, until payment
in full of all other amounts owing under the Note Agreement or any of
the Security Documents; and
(i) Ninth, to the Store Company, its successors or assigns, or
as a court of competent jurisdiction may direct, or as is otherwise
required by law.
5.3 This Agreement Controlling. In the event of any conflict between
the terms hereof concerning the Collateral and the duties, obligations and
liabilities of the Collateral Agent, and the terms of any other agreement to
which the Collateral Agent and one or more Beneficiaries and the Store Company
are parties, the provisions contained herein concerning the Collateral and the
duties, obligations, and liabilities of the Collateral Agent, shall be
controlling, whether or not bankruptcy, receivership, or insolvency proceedings
shall have at any time been commenced.
<PAGE>
ARTICLE VI
CONFIDENTIALITY
The Collateral Agent agrees, for the benefit of the Beneficiaries, the
Store Company, and the Subsidiaries, to hold in confidence and not disclose any
information (other than information (i) which was publicly known or otherwise
known to the Collateral Agent at the time of disclosure (except pursuant to
disclosure in connection with the Loan Agreement, the Note Agreement or the
other Security Documents), (ii) which subsequently becomes publicly known
through no act or omission by the Collateral Agent or (iii) which otherwise
becomes known to the Collateral Agent on a nonconfidential basis from a source
other than the Store Company or any Subsidiary, provided that such source, to
the best of the Collateral Agent's knowledge, is not bound by a confidentiality
agreement or similar understanding with the Store Company or any Subsidiary with
respect thereto) delivered or made available by or on behalf of the Store
Company or any Subsidiary to the Collateral Agent in connection with or pursuant
to this Agreement which is proprietary in nature and clearly marked, labeled or
otherwise designated as being confidential information, provided that nothing
herein shall prevent the Collateral Agent from delivering copies of any
financial statements and other documents delivered to the Collateral Agent, and
disclosing any other information disclosed to the Collateral Agent, by or on
behalf of the Store Company or any Subsidiary in connection with or pursuant to
the Loan Agreement, the Note Agreement or the Security Documents to (i) the
Collateral Agent's directors, officers, employees, agents, and professional
consultants (it being understood that such directors, officers, employees,
agents, and professional consultants shall be informed by the Collateral Agent,
in advance of disclosure, of the confidential nature of the items delivered and
shall be directed by the Collateral Agent to treat such items confidentially),
(ii) any holder of any Note or any LaSalle Note, (iii) any federal or state
regulatory authority having jurisdiction over the Collateral Agent, and (iv) any
other Person to which such delivery or disclosure may be reasonably necessary or
appropriate in order to implement or facilitate the exercise of remedies by the
Collateral Agent in its capacity as such. In the event that the Collateral Agent
or any of the Collateral Agent's directors, officers, employees, agents, or
professional consultants are requested or required (by oral question,
interrogatories, requests for information or documents, subpoena, civil
investigative demand, or similar process) to disclose any confidential material,
the Collateral Agent agrees to provide the Beneficiaries and the Store Company
with prompt notice of such request(s) so that they may seek an appropriate
protective order and/or waive compliance with the provisions hereof. It is
further agreed that if, in the absence of a protective order or the receipt of a
waiver hereunder, the Collateral Agent or the Collateral Agent's directors,
officers, employees, agents or professional consultants are nonetheless, in the
opinion of their counsel, compelled to disclose confidential material or else
stand liable for contempt or suffer significant financial penalty, the
Collateral Agent may disclose such information without liability hereunder.
<PAGE>
ARTICLE VII
AGREEMENTS, REPRESENTATIONS AND WARRANTIES OF BENEFICIARIES
7.1 Rights in Collateral. Each Beneficiary hereby acknowledges and
agrees that:
(a) it shall have no right to take or initiate any independent
direction or action respecting or against the Collateral or any portion
thereof including, without limitation, the right to bid at any
foreclosure sale of the Collateral or any portion thereof; provided,
however, that this provision shall not be deemed to prohibit any
Beneficiary from making any cash bid at any foreclosure sale to the
same extent, in the same manner, and with the same effect as any party
that is not a Beneficiary may so do;
(b) except as provided in paragraph (a) above, its sole right
respecting the Collateral shall consist of the right of the Majority
Bank Lenders (if such Beneficiary is a Senior Beneficiary) or the
Majority Note Lenders (if such Beneficiary is a Subordinated
Beneficiary) to provide written instructions to the Collateral Agent
and to receive, in accordance with this Agreement, the proceeds
realized through the actions directed by the Majority Bank Lenders or
the Majority Note Lenders; and
(c) it shall be bound in all respects by any and all actions
taken by the Collateral Agent pursuant to this Agreement in respect of
the Collateral or any portion thereof so long as such actions are
permitted or required by this Agreement or directed by the Majority
Bank Lenders or the Majority Note Lenders in accordance with the terms
hereof.
7.2 Duty to Hold in Trust. If any Beneficiary (or any assignee of any
Beneficiary) obtains any payments in respect of the Notes or the other
Obligations (whether by way of payment of excess cash as provided in Section
5.2(c) of the Note Agreement, or any other voluntary or involuntary payment, the
exercise of any right of setoff, offset, deduction, reimbursement or recoupment,
the application of any provision of any document (other than this Agreement, or
the Loan Agreement or the LaSalle Notes or the Note Agreement or the Notes), or
any other manner (except pursuant to this Agreement or the Loan Agreement or the
LaSalle Notes or the Note Agreement the Notes), such Beneficiary agrees herein
to hold such payment in trust for the benefit of all the Beneficiaries, and
forthwith shall notify all other Beneficiaries thereof of its (or such
assignee's) obtaining such payment and, after receipt of a Sharing Notice
pursuant to Section 5.1 hereof, pay to the Collateral Agent for distribution to
the Beneficiaries in accordance with the priorities specified in Section 5.2, an
amount equal to the payment so received, net of any out-of-pocket costs and
expenses paid by such Beneficiary (or such assignee) in so obtaining the same.
Upon receipt of any such payment, the Collateral Agent shall distribute the same
to all the Beneficiaries in accordance with the priorities set forth in Section
5.2 hereof.
7.3 Authority. The Store Company and each Beneficiary hereby represent
and warrant to all other parties hereto that:
(a) the execution, delivery, and performance by it of this
Agreement has been duly authorized by all necessary corporate action,
will not violate any provision of law, governmental regulation, or any
agreement or instrument to which it is a party, and requires no
governmental or other consent; and
(b) this Agreement is valid, binding, and enforceable against
it in accordance with its terms.
<PAGE>
ARTICLE VIII
RESIGNATION OR REMOVAL OF COLLATERAL AGENT
The Collateral Agent may, by written notice to the Beneficiaries, at
any time resign its agency under this Agreement. The Majority Lenders may remove
the Collateral Agent by written notice to the Collateral Agent. No such
resignation or removal shall become effective unless and until a successor
Collateral Agent under this Agreement is appointed and has accepted the
appointment, such successor Collateral Agent to be appointed by the Majority
Lenders and be reasonably acceptable to LaSalle; provided, however, that if no
successor Collateral Agent shall have been so appointed and shall have accepted
such appointment within thirty (30) days after the retiring Collateral Agent's
giving notice of resignation or after notice to the retiring Collateral Agent of
the retiring Collateral Agent's removal, as the case may be, then the retiring
Collateral Agent may apply to any court of competent jurisdiction, at the
expense of the Beneficiaries, to appoint a successor Collateral Agent to act
until such time as a successor shall have been appointed by the Majority
Lenders. Upon receipt by the predecessor Collateral Agent of any fees, expenses,
or costs due it hereunder and the acceptance of any appointment as Collateral
Agent hereunder by a successor Collateral Agent, such successor Collateral Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges, and duties of the retiring Collateral Agent, and the referring
Collateral Agent shall be discharged from any further duties and obligations
under this Agreement except the duty to execute and deliver any documents
necessary to vest or confirm the vesting of such rights, powers, privileges, and
duties in such successor Collateral Agent. After the retiring Collateral Agent's
resignation or removal hereunder as Collateral Agent, each reference herein to a
place for giving of notice or deliveries to the Collateral Agent shall be deemed
to refer to the principal office of the successor Collateral Agent or such other
office of the successor Collateral Agent as it may specify to each party hereto.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification.
(a) The Store Company agrees to pay, indemnify, and hold the Collateral
Agent and each director, officer, employee, agent, bailee, or other person
acting on behalf of the Collateral Agent, and each stockholder of any thereof,
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, the reasonable fees and disbursements of counsel and other
advisers), or disbursements of any kind or nature whatsoever with respect to the
execution, delivery, enforcement, performance and administration of this
Agreement, including, without limitation, any amendment hereto, and the other
Security Documents (including arising from the ordinary negligence of the person
seeking indemnification) unless arising from the gross negligence or willful
misconduct of the person seeking indemnification.
(b) in any suit, proceeding, or action brought by the Collateral Agent
under or with respect to the Collateral for any sum owing thereunder, or to
enforce any provisions hereof or of any of the other Security Documents, the
Store Company will save, indemnify, and keep the Collateral Agent (including its
successors, assigns, employees, and agents) and the Beneficiaries harmless from
and against all expense, loss, or damage suffered by reason of any defense,
set-off, counterclaim, recoupment, or reduction of liability whatsoever of the
obligee thereunder, arising out of a breach by the Store Company or any
Subsidiary of any obligation hereunder or thereunder or arising out of any other
agreement, indebtedness, or liability at any time owing to or in favor of such
obligee or its successors from the Store Company or any Subsidiary, and all such
obligations of the Store Company or any Subsidiary shall be and remain
enforceable against and only against the Store Company or any Subsidiary and
shall not be enforceable against the Collateral Agent or the Beneficiaries.
(c) the obligations under this Section 9.1 shall survive the
termination or modification of the other provisions of this Agreement and shall
survive the commencement of a case under any applicable bankruptcy law on behalf
of or against the Store Company or any Subsidiary or Affiliate of the Store
Company or any other proceeding for the reorganization, management, adjustment
of debt, dissolution, or liquidation on behalf of or against the Store Company
or any Subsidiary or Affiliate of the Store Company and shall survive any
dissolution of the Store Company or any Subsidiary or Affiliate of the Store
Company.
<PAGE>
ARTICLE X
SUCCESSORS AND ASSIGNS
10.1 Assignees. No provision of this Agreement shall restrict in any
manner the assignment, participation, or other transfer by any Beneficiary of
all or any part of its right, title, or interest under the Note Agreement, the
Notes, the Loan Agreement, the LaSalle Notes or any Security Document; provided,
however, that, unless the transferee becomes a Beneficiary for purposes hereof
in accordance with Section 10.2 hereof, the transferor Beneficiary shall remain
obligated to perform pursuant to this Agreement with respect to the interest
transferred.
10.2 Additional Beneficiaries. In connection with an assignment of all
or a part of its right, title, and interest under the Note Agreement, the Notes,
the Loan Agreement, the LaSalle Notes or any Security Document to any Accredited
Investor (within the meaning of Regulation D under the Securities Act of 1933,
as amended) (the "Transferee"), together with, in the case of any Transferee
under the Note Agreement, the Notes, the Loan Agreement, the LaSalle Notes or
any Security Document, the assumption by the Transferee of the obligations, if
any, of such Beneficiary thereunder to the extent of the interest assigned, all
in accordance with the applicable provisions of the Note Agreement, the Loan
Agreement or such Security Document, such Transferee shall become a Beneficiary
hereunder only upon (i) the written agreement of such transferor Beneficiary and
such Transferee and (ii) receipt by the Collateral Agent and the other
Beneficiaries of a notice from the Transferee of such transfer. Upon any
assignment by a Beneficiary to a Transferee in accordance with the provisions of
this Section 10.2, the Schedules to this Agreement shall be deemed to be amended
as appropriate to reflect the right, title and interest assigned by a
Beneficiary to such Transferee.
10.3 Benefit of the Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Store Company may not
assign any rights or obligations under this Agreement without the prior written
consent of the Majority Bank Lenders and the Majority Note Lenders.
ARTICLE XI
MISCELLANEOUS
11.1 Notices. All notices and other communications provided for in this
Agreement shall be given or made by facsimile transmission, first class mail,
overnight delivery or personal delivery to the intended recipient at the address
specified herein or below its signature on the signature pages hereof, or, as to
any party at such other address as shall be designated by such party in a notice
to each other party given in accordance with this Section 11.1. Except as
otherwise provided in this Agreement, all such communications shall be deemed to
have been duly given when transmitted by facsimile transmission, subject to
telephone confirmation of receipt and the provision immediately thereafter of a
copy by first class mail, overnight delivery or personal delivery, or, in the
case of a mailed notice, when duly deposited in the U.S. mails, first class
postage prepaid, in each case given or addressed as aforesaid, except that
notices and communications to the Collateral Agent shall not be effective until
received by the Collateral Agent at its address listed on the signature page
hereof or at such other address as shall be designated by such party in a notice
to each other party given in accordance with this Section 11.1.
11.2 No Partnership or Joint Venture. Nothing contained in this
Agreement, and no action taken by the Collateral Agent or the Beneficiaries (or
any of them) pursuant hereto, is intended to constitute or shall be deemed to
constitute a partnership, association or joint venture among any of the parties
hereto and no party hereto shall hold itself out in any manner to the contrary.
11.3 Payments. All payments hereunder shall be made in U.S. dollars in
immediately available funds.
11.4 Term. This Agreement shall remain in effect until all the Notes
and the other Obligations and all the LaSalle Notes and the other LaSalle
Obligations are paid in full.
11.5 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any document or agreement required hereunder.
11.6 Counterparts. This Agreement may be executed by the parties hereto
in as many counterparts as may be deemed necessary or convenient, and each such
counterpart, when so executed, shall be deemed an original and all such
counterparts shall constitute but one and the same agreement.
11.7 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
<PAGE>
11.8 Amendments and Waivers. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed by each of the Beneficiaries (and, if the rights or duties of the
Collateral Agent are affected thereby, by the Collateral Agent).
11.9 Entire Agreement. This Agreement and any agreement, document or
instrument attached hereto or referred to herein integrates all the terms and
conditions mentioned herein or incidental hereto, and supersedes all oral
negotiations and prior writings in respect to the subject matter hereof unless
such prior writings are referred to herein. In the event of any conflict between
the terms hereof concerning the Collateral and the duties, obligations and
liabilities of the Collateral Agent, and the terms of any other agreement to
which the Collateral Agent and one or more Beneficiaries and the Store Company
are parties, the provisions contained herein concerning the Collateral and the
duties, obligations, and liabilities of the Collateral Agent, shall be
controlling, whether or not bankruptcy, receivership, or insolvency proceedings
shall have at any time been commenced.
[Balance of page intentionally left blank; signature page follows.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Collateral Agency Agreement by their duly authorized officers as of the
day and year first above written.
THE BANK OF NEW YORK, as
Collateral Agent
By:/s/Timothy J. Shea
Name:Timothy J. Shea
Title:Assistant Treasurer
Address for notices:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Attn: Corporate Trust Trustee
Administration
Telephone: (212) 815-5287
Telecopier: (212) 815-5195
CHOCAMERICAN, INC.
By:/s/Francois E. de Carbonnel
Name:Francois E. de Carbonnel
Title:Chairman
Address for notices:
Chocamerican, Inc.
1105 North Market Street
Suite 1300
Wilmington, Delaware 19801
Attn: FranHois de Carbonnel
Telephone: (302) 428-1146
Telecopier: (216) 883-7980
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:/s/Paul L. Meirin
Name:Paul L. Meirin
Title:Vice Presaident
Address for notices:
The Prudential Insurance
Company of America
c/o Prudential Financial
Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Telecopier: (201) 802-7045
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By:/s/John D.Cleavenger
Name:John D. Cleavenger
Title:Counsel
Address for notices:
Principal Mutual Life Insurance
Company
Investment Securities Department
The Principal Financial Group
711 High Street
Des Moines, Iowa 50392-0800
Attn: Mark P. Denkinger
Telephone: (515) 248-8016
Telecopier: (515) 248-2490
<PAGE>
CONTRARIAN CAPITAL ADVISORS, L.L.C.,
AS AGENT FOR THE ENTITIES LISTED
BELOW:
OPPENHEIMER & CO., INC.
OPPENHEIMER HORIZON PARTNERS, L.P.
OPPENHEIMER INSTITUTIONAL HORIZON
PARTNERS, L.P.
OPPENHEIMER INSTITUTIONAL HORIZON
FUND II, LTD.
THE & TRUST
By:
Name:
Title:
Address for notices:
Contrarian Capital Advisors, L.L.C.
411 West Putnam Avenue, Suite 225
Greenwich, Connecticut 06830
Attn: Janice Stanton
Telephone: (203) 862-8204
Telecopier: (203) 629-1977
PRUCO LIFE INSURANCE COMPANY
By:/s/Paul L. Meirin
Name:Paul L. Meirin
Title:Vice President
Address for notices:
Pruco Life Insurance Company
c/o Prudential Financial
Restructuring Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4069
Attn: Managing Director
Telephone: (201) 802-7500
Telecopier: (201) 802-7045
MRS. FIELDS INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
Address for notices:
Mrs. Fields Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Attn: Larry A. Hodges
Telephone: (801) 463-2200
Fax: (801) 463-2183
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winour
Title:President
Address for notices:
Mrs. Fields' Holding Company, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attn: Herbert S. Winokur
Telephone: (203) 861-6600
Telecopier: (203) 861-6671
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
Address for notices:
Mrs. Fields' Original Cookies, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attn: Herbert S. Winokur
Telephone: (203) 861-6600
Telecopier: (203) 861-6671
LASALLE NATIONAL BANK
By:/s/Jon A. Levey
Name:Jon A. Levey
Title:Asst. Vice President
Address for notices:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Jonathan A. Levey
Telephone: (312) 904-7641
Telecopier: (312) 904-5483
<PAGE>
MRS. FIELDS COOKIES AUSTRALIA
By:/s/L. Tim Pierce
Name:L. Tim Pierce
Title:SVP and CFO
Address for notices:
Mrs. Fields Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Attn: Larry A. Hodges
Telephone: (801) 463-2200
Fax: (801) 463-2183
MRS. FIELDS' OTHER NAMES, INC.
By:/s/L. Tim Pierce
Name:L. Tim Pierce
Title:SVP and CFO
Address for notices:
Mrs. Fields Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Attn: Larry A. Hodges
Telephone: (801) 463-2200
Fax: (801) 463-2183
FAIRFIELD FOODS, INC.
By:/s/L. Tim Pierce
Name:L. Tim Pierce
Title:VP
Address for notices:
Mrs. Fields Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Attn: Larry A. Hodges
Telephone: (801) 463-2200
Fax: (801) 463-2183
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
PRINCIPAL AMOUNTS OF LASALLE NOTES
<S> <C> <C>
Principal Amount
of LaSalle Notes Amount Percentage
LaSalle National Bank $3,000,000 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE B
PRINCIPAL AMOUNTS OF SENIOR NOTES
<S> <C> <C>
Principal Amount
of Senior Notes Amount Percentage
Chocamerican, Inc. $27,000,000 64.3%
The Prudential Insurance
Company of America 5,079,360 12.1%
Principal Mutual Life
Insurance Company 1,356,640 3.2%
Pruco Life Insurance Company 211,600 0.5%
Contrarian Capital Advisors,
L.L.C. (as agent) 1,352,400 3.2%
Mrs. Fields Inc. 6,965,864 16.7%
Totals $41,965,864 100.0%
----------- ------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE C
PRINCIPAL AMOUNTS OF SENIOR SUBORDINATED NOTES
<S> <C> <C>
Principal Amount of
Senior Subordinated Notes Amount Percentage
Chocamerican, Inc. $ 7,357,000 61.3%
Mrs. Fields Holding Company, Inc. 4,643,000 38.7%
Totals $12,000,000 100.0%
----------- ------
</TABLE>
<PAGE>
EXHIBIT 4.1(k)
Dear Mrs. Fields Franchisee:
The Bank of New York is the collateral agent (the "Collateral Agent")
for a group of companies that has lent money to Mrs. Fields' Original Cookies,
Inc. (the "Company"). We have been authorized by these lenders and by the
Company to provide this letter to you as you have requested.
Under the terms of the various documents that the Company has signed,
the Company and its subsidiaries have granted to us on behalf of these lenders
continuing security interests in the trademarks, service marks, trade names,
logos and other symbols of the Mrs. Fields cookie business, as well as in the
recipes and other trade secrets that have been used in the Mrs. Fields cookie
business (collectively, the "Trademarks and Trade Secrets"). If the Company
defaults on its loans and the lenders become entitled to foreclose under the
terms of the security agreement, the lenders may receive or become entitled to
sell the Trademarks and Trade Secrets.
The purpose of this letter is to inform you, as a holder or prospective
holder of a franchise and trademark license from the Company and/or its
subsidiaries, that in the event of a foreclosure by us on behalf of the lenders
on the Trademarks and Trade Secrets, the documents specifically recognize your
rights (and prospective rights) under the franchise and trademark licenses from
the Company and/or its subsidiaries and provide that these rights cannot be
disturbed or interfered with by any such foreclosure and that the collateral
agent and the lenders are not authorized to disturb these rights; provided,
however, that nothing set forth herein shall be construed to waive any default
by you which may exist now or in the future under any of the agreements
governing a franchise and trademark license or any remedy which the Collateral
Agent or the lenders may have with respect thereto or any other rights of the
Company thereunder. If you should have any questions regarding this letter,
please contact ___________________________ at the Company.
Very truly yours,
The Bank of New York,
as Collateral Agent
By:__________________________________
Name:
Title:
SUPPLY DISTRIBUTION AGREEMENT BETWEEN
MRS. FIELDS, INC.
and
LITTLE CAESAR ENTERPRISES, INC.
This Agreement is between Mrs. Fields, Inc. ("Buyer"), a Delaware
corporation located at 462 West Bearcat Drive, Salt Lake City, Utah 84115 and
Blue Line Distributing, a division of Little Caesar Enterprises, Inc.
("Seller"), a Michigan corporation located at 24720 Haggerty Road, Farmington
Hills, Michigan 48335.
Purpose
Seller is a distributor of restaurant and food service supplies and manages the
purchase, storage, inventory control and distribution of supplies for customers.
Buyer wishes to purchase exclusively from Seller such supplies and services for
its restaurant locations and to make Seller's services available to its
franchisees and licensees who operate under its trademarks) ("Franchisees").
Therefore, the parties agree as follows:
Scope of Services
During the term of this Agreement, Seller agrees to procure, store, and
sell to Buyer and its Franchisees and distribute to Buyer's and its Franchisee's
locations listed on Exhibit A (attached and made part of this Agreement)
(collectively, "Sites") and to such other and future store locations (within
areas currently being serviced by the Seller) as Buyer shall designate in
writing to Seller at least 60 days in advance of the first requested delivery to
such location, the items listed at the prices stated in Exhibit B (attached and
made a part of this Agreement). Distribution of supplies will be conducted in
accordance with the following guidelines:
a. Each Site will be notified in writing of its call days and times for
ordering and the delivery days and times. For the designated Holiday Period
(one week before Thanksgiving through one week after Christmas), Buyer
requires additional deliveries to be made to selected sites. Notification
by Buyer of delivery schedule changes will be made 60 days prior to the
expected change. Seller will provided the stores and Buyer's Corporate
Headquarters, with written notification of delivery schedule changes at
least 30 days in advance.
b. Distributor commits to three (3) hour windows, plus or minus 1 1/2 hours of
the scheduled delivery time, for deliveries less than or equal to 500 miles
from Distributor's servicing Distribution Center and five (5) hour windows,
plus or minis 2 1/2 hours of the scheduled delivery time, for deliveries
more than 500 miles from Distributor's servicing Distribution Center. . The
Distributor's targeted compliance with respect to these windows is at least
95% (computed monthly).
c. Distributor commits that no deliveries will be scheduled at any site
between 12:00 noon and 1:00 p.m. daily. All invoices except those invoices
which are for deliveries made after business hours to Sites identified on
Exhibit D hereto will be checked by the Site's store manager or designated
representative prior to the Distributor's driver leaving the Site, provided
however, the Distributor's driver shall not be unreasonably delayed.
d. (1) Any Product shortages at the Site which are caused by the Distributor
will be replaced by the quickest appropriate means of transportation at the
Distributor's expense. All other product shortages at the Site will be
replaced by the Distributor at the Company's expense. The Company's
District Sales Manager ("DSM") may request the mode of transportation which
is reasonable in the circumstances. Distributor will not incur any
transportation costs in conjunction with such Product replacement without
authorization from the Company. Such authorization will be in whatever form
the Company requires to enable the Company to pay such transportation costs
to the Distributor within the payment terms set forth in this Agreement. If
the shortage is noted before the driver leaves the Site, a call shall be
made to the originating distribution center, the time shall be noted, and
the response and remedy from the distribution center shall be within 24
hours.
<PAGE>
(2)The Distributor has provided the Company with an order entry and
delivery procedure form which provides detailed procedures for processing
delivery adjustments (such form is set forth as Exhibit E).
(3)Distributor and the Company agree that for purposes of this Agreement,
visibly damaged goods that our caused by Distributor's negligence will be noted
at the Site at the time of delivery and will not be accepted by the Site and
will be treated as Distributor caused Product shortages. If hidden damage
surfaces after the Distributor's driver leaves, the Site store manager will
notify the designated Distributor customer service representative upon discovery
and receive a return item number that will authorize the Distributor's driver on
his next delivery to pick up the item and, subject to confirmation of
pre-delivery damage by receipt at the Distribution Center, issue a credit slip.
If pre-delivery damage is confirmed at the Distribution Center, the goods will
be treated as Distributor caused shortages.
e. Distributor will provide Company Corporate Headquarters, the District Sales
manager and each Site with a list of designated service representatives for
each Distribution Center (see Exhibit F) . Such list will be updated and
provided as required and at least quarterly.
f. The Company agrees to provide Distributor with thirty (30) days written
notice for promotional and new item requests. Such notice will include all
information requested by Distributor to enable Distributor to order such
items (i.e. product specifications, initial quantity, expected weekly
usage) . Distributor acknowledges that they will only ship such promo or
seasonal items according to the shipping schedule provided by the Company.
g. Distributor agrees to maintain a minimum order fill rate of 98% computed
monthly, by Site location, by product pieces for active Company proprietary
items only unless effected by acts of God, war and labor disputes.
h. The targeted core product temperature for Distributor's deliveries will be
set at fifteen (15)degrees Fahrenheit or lower, according to the Company's
published requirements, as set forth on Exhibit G hereto and as amended
from time to time. Such temperature will be measured via core probing
immediately upon delivery in the presence of Distributor's driver. No other
temperature measurement will be acceptable for purposes of applying this
section. Products not meeting the required core temperatures will not be
accepted by the Site and will be treated as Distributor caused Product
shortages as discussed in item 3 d. (1) above. Upon acceptance of the
Product by the Site manager or his designated representative, such Product
becomes the responsibility of the Company with respect to the Product
handling and storage.
i. Distributor agrees to provide weekly inventory and sales/usage reports via
hard copy and electronic data interchange. The format of these reports may
be modified to meet the Company's requirements, taking into consideration
the Distributor's data processing system capabilities. Distributor and the
Company agree that the goal of such reports is to provide:
(i) purchases by Product, by site, in cases and dollars,
(ii) descending usage by dollars and percentage of total,
(iii)inventory on hand, on order, average weekly movement, days on
hand, and excess days on hand.
<PAGE>
j . Distributor will continue to provide an excess inventory report to the
Company upon request but not more of ten than once a week. Distributor will
continue to provide, on a monthly basis, an obsolete and slow moving item report
containing average weekly movement, days on hand, excess days on hand and date
of last delivery. An obsolete inventory management program, will begin on the
effective date and utilize a report prepared by Distributor. This report will
contain three classifications of inventory:
(i) all items do not sell for thirteen (13) weeks or longer
("Impaired")
(ii) items which do not sell for a period of three (3) weeks if
refrigerated and/or time dated, four (4) weeks with no sales for
dry and eight (8) weeks with no sales for miscellaneous items
(iii)items with over thirteen (13) weeks inventory on hand ("Excess
Inventory quantities purchased by the distributor without written approval by
the Company will be the sole responsibility of the distributor as long as the
Company provides Distributor accurate inventory guidelines on all Company
proprietary items prior to the commencement of this agreement.
Payment
Buyer guarantees payment on all supplies purchased by Seller for Buyer within
fourteen (14) days of the date of invoice. Seller will give Buyer a one percent
(1%) discount on payments received within (7) days of the date of invoice.
Seller acknowledges that Buyer does not guarantee payment for any other
purchaser, including its franchisees and licensees. Buyer will pay interest on
delinquent amounts at an interest rate of one percent (1%) per month and twelve
percent (12%) per annum. Seller shall ship supplies to Buyer's locations, F.O.B.
Destination, freight prepaid. Seller will provide these same terms to Buyer's
Franchisees.
Title and Risk of Loss Title and risk of loss for all supplies shall pass from
Seller to Buyer upon acceptance of shipment by Buyer.
Orders
Buyer shall place orders by facsimile, phone or by mail on order forms supplied
by Seller.
Inventory
Buyer shall purchase all unused inventory purchased by Seller for Buyer or
its Franchisees within one hundred and twenty (120) days of date of purchase by
Seller. Buyer agrees to pay for any non moving supplies (whether purchased by
Buyer or its Franchisees) within thirty (30) days after the supplies have been
identified as non moving. Non moving supplies are supplies which have not been
ordered by Buyer within ninety (90) days of purchase by Seller. Buyer shall pay
Seller the reasonable cost of disposing any inventory not purchased by Buyer.
Taxes Buyer shall be responsible for all applicable taxes to Buyer. Seller shall
be responsible for all applicable taxes to seller. Both Buyer and Seller agree
to indemnify and defend the other under the terms of the Indemnification and
Insurance section of this Agreement should either receive a claim for the
other's failure to pay such taxes. Neither will pay a claim which is the
responsibility of the other without first notifying the other and giving the
other the opportunity to contest the claim.
Length of Agreement
This Agreement shall begin on May 1, 1996 and end on may 1, 1999 unless
extended otherwise by signed written agreement of both parties. Either party may
terminate this Agreement at any time upon one hundred and eighty (180) days
advance written notice of termination to the other. Notice will be considered
given on the date it is faxed or post marked if sent by U.S. mail.
Buyer's Minimum Purchase Guarantee
Buyer agrees to purchase for every location an average of one thousand
dollars ($1,000.00) worth of supplies per delivery drop 80% of the time, for
each one year period.
<PAGE>
Price
Buyer and Seller agree to the prices set forth in Exhibit B but agree the
prices are subject to change if the manufacturers' FOB plant costs change,
freight changes or minimum quantities of supplies purchased by Seller or Buyer
change.
Seller will give Buyer written notice of any price change twenty (20) days
prior to implementation of the change, unless Seller and Buyer agree to a
shorter notice period.
Promotional Supplies
Seller will not purchase promotional supplies without advance written
quantities from Buyer. Buyer agrees to Purchase any leftover promotional
supplies (whether purchased by Buyer or its Franchisees) within thirty (30) days
after the promotion ends.
Warranties and Guarantees
Seller agrees to purchase and deliver only those products which have been
previously approved in writing by Buyer. Seller is not responsible for supplies
once they have been delivered to Buyer or its Franchisees unless they were
damaged due to Seller's negligence.
Indemnification and Insurance
Seller
Seller will indemnify, defend (including costs and attorney fees) and hold
harmless Buyer, its owners, directors, officers, employees and representatives
from and against any claims brought against Buyer which are the result of
Seller's negligent acts or omissions. Seller will maintain during the term of
this Agreement Products Liability Insurance of no less than ten million dollars
($10,000,000) per occurrence. Seller will add Buyer as an additional insured to
the policy and provide Buyer with a copy of the certificate. The certificate
will also provide for thirty (30) days prior notice to the additional insured
prior to cancellation.
During the time of this Agreement, Seller shall maintain property insurance with
replacement value coverage for all supplies stored by Seller and/or in transit
to Buyer's locations.
Buyer
Buyer will indemnify, defend (including costs and attorney fees) and hold
harmless Seller, its owners, directors, officers, employees and representatives
from and against any claims brought against Seller which are the result of
Buyer's negligence. Buyer will maintain during the term of this Agreement
Products Liability Insurance of no less than $10,000,000 (Ten million dollars)
per occurrence. Buyer will add Seller as an additional insured to the policy and
provide Seller with a copy of the certificate. The certificate will also provide
for thirty (30) days prior notice to the additional insured prior to
cancellation. Assignability This Agreement shall not be assignable by either
party without the signed written consent of both parties.
Amendments
This Agreement and its Exhibits may not be changed without the signed
written consent of both parties.
Applicable Law
This Agreement shall be governed by and construed in accordance with the
laws of the state of Michigan.
Confidentiality
Both Seller and Buyer agree to hold the terms of this Agreement confidential
except when required by law or court order to disclose them. Buyer agrees that
the Confidentiality Agreement between it and Buyer will terminate thirty (30)
days after this Agreement is terminated.
Severability
If any provision of this Agreement is declared illegal or void or otherwise
unenforceable, the remaining provisions shall remain in full force and affect.
Entire Agreement
This Agreement, including Exhibits A and B attached, constitutes the entire
Agreement of the parties and supersedes all prior verbal or written agreements.
Counterparts
This Agreement may be executed in two (2) separate or more counterparts and each
may be deemed an original but when put together, will constitute one Agreement.
<PAGE>
Authority
The parties signing this Agreement represent they have authority to bind Buyer
and Seller to the above terms and conditions.
AGREED TO BY:
BLUE LINE DISTRIBUTING, a division MRS. FIELDS, INC.
Of Little Caesar Enterprises, Inc.
By: /s/ By: /s/Larry Hodges
Title: Title: President CEO
Date: 9/26/96 Date: 8/19/96
<PAGE>
EXHIBIT A
COMPANY AND FRANCHISE ADDRESSES
SEE ATTACHED
<PAGE>
EXHIBIT D
ADDRESSES OF ACTUAL DELIVERY LOCATIONS
SEE ATTACHED
Coca-Cola USA
FOUNTAIN
November 13, 1997
Mr. Larry Hodges
President
Mrs. Field's Original Cookies, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Dear Mr. Hodges:
This letter will constitute an amendment (the "Amendment") to that certain
amended and restated marketing agreement between Mrs. Field's Original Cookies,
Inc. ("MFOC") and Coca-Cola USA Fountain ("CCF") dated January 9, 1997 (the
"Restated Agreement"). The capitalized terms contained in this Amendment will
have the same meanings set forth in the Restated Agreement unless otherwise
defined herein.
Effective as of the date of execution of this Amendment, the Restated Agreement
is amended to reflect that the Term will end the later of December 31, 2002 or
when the MFOC System has purchased the Volume Commitment of CCF's Fountain
Syrups, unless terminated earlier pursuant to the terms of the Restated
Agreement. The Restated Agreement is further amended to reflect the fact that
CCF forgives MFOC's repayment of the Unearned 1993 Funding which currently
amounts to Five Hundred Four Thousand Dollars ($504,000). Accordingly, the
second to the last sentence of Section 4 of the Restated Agreement is deleted in
its entirety and the last sentence of such section is replaced by the following:
"Once the $600,000 advance has been earned, Company will begin to pay any
additional funding earned by the MFOC System to MFOC on a quarterly basis, after
the end of the three month period in which it is earned."
Except as specifically set forth above, the Restated Agreement and the terms and
conditions thereof will remain in full force and effect for the remainder of the
Term. From and after the date of execution of this Amendment, all references to
the Restated Agreement shall be deemed to be references to the Restated
Agreement as amended hereby.
<PAGE>
Mr. Larry Hodges
November 13, 1997
Page 2
Sincerely,
Tom Moore /s/ MES for LLM
Vice President, Field Sales
Accepted and agreed to this day, of , 1997.
MRS. FIELD'S ORIGINAL COOKIES, INC.
By: /s/ Larry Hodges
Larry Hodges, President
Date:
[LE972800 0031
<PAGE>
David L. Kennedy
Coca- Cola USA
January 9. 1997
Mr. Larry Hodges, President
Mrs. Field's Original Cookies, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Dear Mr. Hodges:
<PAGE>
This letter (the "Restated Agreement") will amend and restate the marketing
agreement between Coca-Cola USA Fountain ("Company") and Mrs. Field's Cookies
("MFC") dated April 1. 1996 (the "Mrs. Field's Agreement") concerning the
availability and promotion of Company's Fountain Beverages in Mrs. Field's
Cookies outlets. The Mrs. Field's Agreement is being amended at this time due to
the acquisition of MFC by a newly formed corporation, Mrs. Field's Original
Cookies, Inc. ("MFOC"). MFOC has also acquired Hot Sam Companies, Inc. ("Hot
Sam") and The Original Cookie Company, Inc. ("TOCC"), and this Restated
Agreement will also apply to the outlets previously owned by those companies.
Accordingly, the agreement dated July 12. 1993 among Company and Hot Sam and
TOCC (the "TOCC Agreement") is hereby superseded in its entirety. The parties
specifically acknowledge and agree that certain funding paid under the TOCC
Agreement remains unearned as of the execution of this Restated Agreement and
that Company's right to recover any portion of the unearned amount will
hereafter be governed by the provisions of this Restated Agreement. This
Restated Agreement will also supersede all prior oral and written agreements or
proposals between the parties governing the subject matter of this Restated
Agreement.
This Restated Agreement will apply to all outlets located in the continental
United States that are owned by MFOC and in which Fountain Beverages are served
(the "Corporate Outlets"), without regard to the trade name under which they are
operated. It will also apply to all MFOC outlets within the continental United
States that are owned by franchisees (the "Franchised Outlets"). The Corporate
and Franchised Outlets together are referred to as the "MFOC System" or the
"System Outlets".
<PAGE>
If at any time during the Term MFOC opens or acquires additional outlets in
which Fountain Beverages are served, or authorizes additional Franchised
Outlets, the terms of this Restated Agreement will apply to those outlets unless
they are already governed by another
<PAGE>
Mr. Larry Hodges
January 9, 1997
Page 2
agreement with Company that is validly assigned to MFOC as part of the
acquisition. Nothing in this Restated Agreement, however, will be construed to
require MFOC to sell Company's products in any outlets acquired after the
execution of this Restated Agreement in which such sale would constitute a
breach of a pre-existing binding and enforceable contract with another post-mix
supplier. Upon the expiration of any such pre-existing contract, MFOC shall make
Company's products available in such acquired outlets pursuant to the terms of
this Restated Agreement, if mutually agreed upon by the parties. If the parties
do not mutually agree that the terms of this Restated Agreement will apply to
those acquired outlets, MFOC will grant Company the opportunity to present a
marketing program for those acquired outlets and agrees not to accept an offer
from a competitor of Company with respect to those outlets without first
communicating such offer to Company and allowing Company the first right of
refusal.
When used in this Restated Agreement, the term "Beverages" means all soft drinks
and other non-alcoholic waters, sports drinks, frozen beverages, juices,
punches, ades and iced teas, whether carbonated or non-carbonated, but does not
include coffee or tea brewed on the premises, juice freshly squeezed on the
premises, or any dairy products. The term "Fountain Beverages" means all
Beverages prepared from syrup, powder or concentrate and dispensed on the
premises from post-rnix or frozen Beverage dispensers, bubblers and the like.
The term "Bottle/Can Beverages" means all Beverages packaged in bottles, cans or
other containers, excluding only those Beverages defined as Fountain Beverages.
"Fountain Syrup(s)" means the syrup required to produce the finished Fountain
Beverages.
The marketing program described In this Restated Agreement has been offered to
MFOC in response to current competitive conditions to afford Company the
opportunity to continue to provide Fountain Beverages on a competitive basis to
the MFOC System. Further, the collective program described herein represents the
entire program to be provided to the MFOC System by Company during the Term, and
is in lieu of any other generally available program(s).
In consideration of MFOC's agreement to serve and promote Company's Fountain
Beverages to consumers in the Corporate Outlets, and to cause the Franchised
Outlets to serve and promote Company's Fountain Beverages, and the other mutual
promises set forth in this Restated Agreement, the parties agree as follows:
<PAGE>
MARKETING AGREEMENT
Pretzel Time, Inc.
November 13, 1997
SCOPE OF MARKETING AGREEMENT
The parties to this Marketing Agreement are Pretzel Time, Inc. ("PTI") and
Coca-Cola USA Fountain ("CCF"). This Agreement will apply to all outlets where
Fountain Beverages are served that are owned or operated by PTI, including any
outlets that are opened after this Agreement is signed. This Agreement will also
apply to outlets acquired by PTI, unless those outlets are already governed by
an agreement with CCF and that agreement is validly assigned to PTI as part of
the acquisition. This Agreement will not apply to any outlets outside the fifty
United States, and may not be assigned to a third party without CCF's approval.
All outlets to which this Agreement applies are referred to as "Covered
Outlets." Once signed, this Marketing Agreement will supersede all prior oral
and written agreements between the parties relating to the marketing program
provided by CCF.
TERM
This Agreement will go into effect as of the first day of the month in which it
is signed and will continue for a period of five (5) years or until PTI has
purchased its Volume Commitment of CCF's Fountain Syrups, whichever occurs last.
When used in this Agreement, the term "Year" means each consecutive twelve-month
period during the Term, beginning with the first day of the Term.
BEVERAGE AVAILABILITY
The term "Beverage" means all soft drinks and other non-alcoholic waters, sports
drinks, frozen beverages, juices, juice drinks, punches, ades, bar mixers and
iced teas, whether carbonated or non-carbonated, with the exception of fresh
squeezed lemonade, tea or coffee brewed on the premises and dairy beverages.
"Fountain Beverages" are those Beverages that are dispensed from post-mix,
pre-mix or frozen beverage dispensers, bubblers, or similar equipment. The term
"Fountain Syrup" means the post-mix syrup used to prepare Fountain Beverages,
but does not include other forms of concentrate, or syrup for frozen Beverages
that is purchased from a full service supplier of frozen Beverages to which CCF
provides promotional funding.
PTI will serve in each Covered Outlet a core brand set of Fountain Beverages
that consists of Coca-Cola classic, diet Coke and Sprite, and the remaining
products will be jointly selected by Customer and CCF. CCF's Fountain Beverages
will be the only Fountain Beverages served in the Covered Outlets.
PTI recognizes that the sale of competitive Beverages in bottles, cans, or other
packaging would diminish the product availability rights given to CCF, and
therefore also agrees not to serve competitive Beverages in bottles, cans or
other packaging in the Covered Outlets. LE972800.086
VOLUME COMMITMENT
PTI agrees to purchase 825,000 gallons of CCF's Fountain Syrup during the Term.
This Term Volume Commitment will be increased by CCF if PTI opens additional
Covered Outlets or acquires additional outlets to which the Marketing Agreement
will apply. Projected annual volume is currently 165,000 gallons.
MARKETING PROGRAM
The following marketing programs will be provided to assist PTI in maximizing
the sale of Fountain Beverages in the Covered Outlets:
Conversion Fund. The amount of the fund is determined by multiplying One Dollar
($1.00) by documented volume of competitive Fountain Syrup purchased by PTI in
the year preceding the effective date of this Agreement. The purpose of the fund
is to offset costs associated with the conversion to CCF brands. Funding is
provided in return for PTI's commitment to serve CCF's Fountain Beverages in the
Covered Outlets throughout the Term, and will be paid when this Agreement is
signed.
Promotional Support Funds.
Funding is earned at the rate of One Dollar and sixty-five cents ($1.65) for
each gallon of CCF's Fountain Syrups that PTI purchases. To qualify for this
fund Customer must fulfill the following performance criteria:
3. List the available CCF Fountain Beverages, along with their
refill prices, and display approved versions of the related
trademarks on the menu boards of all Covered Outlets; and
3. Participate in the development and implementation of two (2) mutually
agreed upon brand development activities each Year; and
3. Participate in the development and implementation of at lease
three (3) mutually agreed upon promotions to be conducted on an
ongoing basis each Year. These promotions may include the use of
Coke To Go cups, "before 11 a.m." hot pricing promotions, combo
meal promotions and permanent refill pricing; and
4. Display in each Covered Outlet a mutually agreed upon neon sign
bearing approved versions of CCF's trademarks; and
5. Utilize a cap set comprised of 16, 20 and 32 ounce cups and a 44 ounce
promotional Coke To Go cup.
Upon execution of this Agreement, CCF will advance to PTI the sum of Two Hundred
Seventy-Two Thousand Two Hundred Fifty Dollars ($272,250) which
<PAGE>
sum represents a portion of the Promotional Support Funds CCF anticipates that
PTI will earn during the Term. After such time as PTI has earned this advance
(i.e., after PTI has purchased 165,000 gallons of CCF's Fountain Syrups and
fulfilled the applicable performance requirements), Promotional Support Funds
will be paid quarterly, at the end of the three (3) month period in which they
are earned.
EOUIPMENT PROGRAM
CCF will provide for PTI's use the equipment owned by CCF that is currently
installed in the Covered Outlets. In addition, for each new Covered Outlet
opened during the Term, CCF will provide an equipment package consisting of the
following: one (1) six valve drop-in dispenser. one (1) carbonator, one (1)
regulator, six (6) Bag-in-Box pumps and one (1) Bag-in-Box rack.
The equipment is provided by CCF subject to the terms and conditions of CCF's
standard lease agreement, but no lease payment will be charged. A copy of the
standard lease agreement is attached hereto as Exhibit A and is made a part of
this Agreement, except as specifically changed by this Agreement.
SERVICE PROGRAM
Each Covered Outlet may use CCF's Service Network without charge for up to three
(3) regular mechanical repair calls per Year. These calls are calculated on a
per outlet basis and may not be aggregated. Parts required for these repair
calls that are valued at no more than Fifteen Dollars ($15) will also be
provided without charge.
PTI will be invoiced for the cost of other types of service calls or for regular
mechanical repair calls in excess of those available under this program.
TERMINATION
Once this Agreement is signed by both parties, it may be terminated before the
scheduled expiration date only in the following circumstances:
(i) Either party may terminate this Agreement if the other party
fails to comply with a material term or condition hereof and
does not remedy the failure within ninety (90) day's after
receiving written notice (the "Cure Period"). Termination will
be effective thirty (30) days after the end of the Cure
Period.
(ii) CCF may terminate the Agreement if there is a transfer of a
substantial portion of the stock or assets of PTI that is not
in the ordinary course of business.
If this Agreement is terminated before its expiration date, PTI must return any
dispensing equipment owned by CCF. Additionally, PTI will pay the following sums
at the time of termination:
a. Any pre-paid but unearned Promotional Support Funds.
b. Damages calculated at the rate of eighty cents ($0.80) for each gallon
by which PTI fails to meet its Term Volume Commitment.
c. The unamortized portion of the cost of installation, and the entire cost
of refurbishing and removal of all equipment owned by CCF that was installed
less than five years before termination.
d. Interest on the the sums due to CCF at the rate of one percent per
month, accrued.
in the case of sums due under the subparts a and b above, from
the date the Agreement as signed and, in the case of sums due
under subpart c above. from the date costs were incurred.
This list of damages is not intended to restrict the right of either party, to
pursue other remedies or damages if the other party breaches the terms of this
Agreement.
DISPUTE RESOLUTION
If a dispute arises out of or relates to this Agreement or the breach thereof,
and if said dispute cannot be settled through direct discussions, the parties
agree to attempt to settle the dispute in an amicable manner by mediation
administered by the American Arbitration Association under its Commercial
Mediation Rules. Thereafter, any unresolved controversy or claim arising out of
or relating to this Agreement, or the breach thereof, shall be settled by
arbitration administered by the American Arbitration Association in accordance
with its Commercial Arbitration Rules, and judgment on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Any
arbitration brought under the terms of this agreement shall be conducted in the
following manner: Company shall appoint one person as an arbitrator and Customer
shall appoint one person as an arbitrator. The two arbitrators so chosen shall
select a third impartial arbitrator within ten (10) days of the date on which
the second arbitrator is selected. If the arbitrators selected by the parties
are unable or fall to agree upon the third arbitrator, such arbitrator shall be
selected by the American Arbitration Association. The three arbitrators shall
determine all questions presented to them by majority vote. The decision of a
majority of the arbitrators shall be final and conclusive on the parties hereto.
CONFIDENTIALITY
Neither party shall disclose to any third party without the prior written
consent of the other party any information concerning this Agreement or the
contemplated transaction, except for disclosure to any employees, attorneys,
accountants and consultants involved in assisting with the negotiation and
closing of the contemplated transaction, or unless such disclosure is required
by law.
ADDITIONAL TERMS
Authorization. Each party represents and warrants that it has the unrestricted
right and is authorized to enter into this Agreement and to perform the
obligations required of it under this Agreement.
Offset. CCF will not be obligated to pay to PTI any of the funding that would
otherwise be payable pursuant to this Agreement to the extent that PTI is in
default under CCF's credit terms or on any financial obligation to CCF, and CCF
may offset any arrearage against funding that would otherwise be payable to PTI
under this Agreement.
Force Majeure. Either party is excused from performance under this Agreement if
such nonperformance results from any acts of God, strikes, war, riots, acts of
governmental authorities, shortage of raw materials or any other cause outside
the reasonable control of the nonperforming party.
I
Notices. All notices to be given under this Agreement must be in writing and
mailed by registered or certified mail, return receipt requested, postage
prepaid, to the other party at the following address:
If to PTI: Larry Hodges
Pretzel Time, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
If to CCF: Area Vice President
Coca-Cola USA Fountain
6700 Antioch, Suite 4250
Merriam, KS 66204
With a copy to: Linda L. Milfred
Counsel
Coca-Cola USA Fountain
One Coca-Cola Plaza
Atlanta, Georgia 30313
Trademarks. Neither party shall make use of any of the other party's trademarks
or logos without the prior written consent of that party, and all use of such
trademarks shall inure to the benefit of the trademark owner.
Acquisition of PTI. CCF may terminate the Agreement if a controlling interest in
the stock or assets of PTI is acquired by or merged with a third party. In the
event that a controlling interest in PTI's stock or assets is acquired by or
merged with a third party and CCF does not elect to terminate this Agreement.
PTI shall elect either to (i) have the acquiring party ratify this
Agreement and assume all of PTI's obligations under this Agreement, or (ii) pay
to CCF all of the damages associated with early termination of the Agreement
specified in "Termination" above. If the acquiring party ratifies this Agreement
and assumes PTI's obligations hereunder and is subject to another agreement with
CCF that is applicable to acquired outlets, the parties will mutually determine
which agreement will govern the acquired outlets. This Agreement shall not be
otherwise assignable without the express written consent of CCF. If at any time
during the term PTI divests any Covered Outlets or terminates any franchise
agreements, PTI agrees to provide CCF with sufficient notice of such event to
allow CCF to protect its property interests.
Agreed to this day of , 1997.
PRETZEL TIME, INC. COCA-COLA USA FOUNTAIN
By:/s/Larry Hodges By: /s/Tom Moore
Tom Moore
Larry Hodges, President Vice President, Field Sales
<PAGE>
Exhibit A
Lease Agreement
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this _____ day of October, 1997, by and between MICHAEL R. WARD ("Employee") and
MRS. FIELDS' ORIGINAL COOKIES, INC., a Delaware corporation (the "Company").
RECITAL
Whereas, the Employee is currently employed as a Senior Executive
Officer of the Company pursuant to that certain Employment Agreement, dated
September 12, 1996 (the "Old Agreement"), by and between the Employee and the
Company; and
Whereas, the Company has determined that it is in the Company's
interest to assure the Employee's continuing employment with the Company beyond
the expiration date in the Employee's Old Agreement; and
Whereas, the Employee has determined that it is in his interest to continue
employment with the Company; and
Whereas, upon the execution of this Agreement, the Old Agreement is
automatically terminated and Employee shall have no rights or claims under that
Old Agreement.
Now, Therefore, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Employee and the Company hereby agree as
follows:
AGREEMENT
1. DUTIES. The Company does hereby hire, engage, and employ the
Employee as the Vice President of Administration/Legal Counsel of the Company
and Employee does hereby accept and agree to such hiring, engagement, and
employment. Employee shall serve the Company in such position fully, diligently,
competently, and in conformity with provisions of this Agreement and the
corporate policies of the Company as they presently exist, and as such policies
may be amended, modified, changed, or adopted during the Period of Employment,
as hereinafter defined.
During the Period of Employment Employee shall also serve as the Vice
President of Administration/Legal Counsel of each subsidiary or affiliate of the
Company that is now or that becomes a part of the Mrs. Fields Company Group. As
used in this Agreement, the term the "Mrs. Fields Company Group" shall mean and
refer to the Company and the Company's subsidiaries and affiliates from time to
time.
<PAGE>
Subject to specific elaboration by the Board of Directors of the
Company as to the duties (which shall be consistent herewith and with Employee
offices provided for hereunder) that are to be performed by Employee and the
manner in which such duties are to be performed, the duties of Employee shall
entail those duties customarily performed by a Vice President of
Administration/Legal Counsel of a company with a sales volume and the number of
employees commensurate with those of the Company. Provided, however, that at all
times during the Period of Employment, Employee shall perform those duties and
fulfill those responsibilities and refrain from those activities that are
reasonably prescribed or proscribed by the Board of Directors of the Company to
be performed or refrained from by his consistent with his positions with the
Company.
Employee shall be responsible and report only to the Company's
President and Chief Executive Officer.
Throughout the Period of Employment, Employee shall devote his full
time, energy, and skill to the performance of his duties for the Company and for
the benefit of the Company and the Mrs. Fields Company Group. The foregoing
notwithstanding, Employee shall be permitted to (i) engage in charitable and
community affairs, (ii) act as a director of any corporations or organizations
outside the Mrs. Fields Company Group not in competition with the Company or any
member of the Mrs. Fields Company Group and to manage such investments, not to
exceed three (3) in number, and receive compensation therefore, and (iii) to
make investments of any character in any business or businesses not in
competition with the Company or any member of the Mrs. Fields Company Group and
to manage such investments (but not be involved in the day to day operations of
any such business), provided, in each case and collectively, that the same does
or do not constitute or involve Employee in a conflict of interest
the Company or any member of the Mrs. Fields Company Group or
interfere with the performance of Employee's duties under this Agreement.
Employee shall exercise due diligence and care in the performance of
his duties for and the fulfillment of his obligations to the Company under this
Agreement.
The Company shall furnish Employee with office, secretarial and other
facilities and services as are reasonably necessary or appropriate for the
performance of Employee's duties hereunder and consistent with his position as
the Vice President of Administration/Legal Counsel of the Company.
2. PERIOD OF EMPLOYMENT. The Period of Employment (as defined below)
shall, unless sooner terminated as provided herein, be the two (2) year period
commencing on the date of execution of this Agreement.
Unless the Company gives notice of termination as provided under this
Agreement, this Agreement will automatically renew on each annual anniversary
from the execution of this Agreement for a successive two-year period.
<PAGE>
3. COMPENSATION.
(a) BASE SALARY. During the Period of Employment, the Company
shall pay Employee, and Employee agrees to accept from the Company, in payment
for his services a base salary of One Hundred Twenty-Five Thousand Dollars
($125,000.00) per year ("Base Salary"), payable in equal semi-monthly
installments or at such other time or times as Employee and the Company shall
agree. Upward adjustment to the Base Salary shall be considered by the Company's
Board of Directors not less frequently than annually. The Company's Board of
Directors at any time or times may, but shall have no obligation to, supplement
Employee's salary by such bonuses and/or other special payments and benefits as
the Board of Directors of the Company in its sole and absolute discretion may
determine.
(b) INCENTIVE COMPENSATION. During the Period of Employment, Employee
shall:
(i) participate in any incentive compensation plan adopted by the Company;
or
(ii) if the Company, for any reason, shall not adopt and implement an
incentive compensation plan in replacement of the 1997 Incentive Plan for
eligible employees of the Company (including Employee), Company and Employee
agree that this Agreement shall provide Employee with the opportunity to earn
and be paid incentive compensation to the same extent that he was eligible to
earn and be paid incentive compensation under the incentive compensation plan
under which, pursuant to the provisions of this Section 3(b), Employee was most
recently eligible to earn and be paid incentive compensation by the Company.
4. FRINGE BENEFITS. During the Period of Employment, Employee shall be
entitled to the following fringe benefits.
(a) BENEFIT PLANS. Employee shall be entitled to participate
in all benefit plans and programs generally available to all other senior
management employees of the Company or to all employees of the Company working
in Salt Lake City, Utah, subject to any restrictions specified in such plans and
to receive such other benefits and conditions of employment as are provided to
all other senior officers or executives of the Company as of the date of this
Agreement.
(b) EQUITY PLAN. Employee shall be entitled to participate in
an equity based plan or arrangement (the "Equity Plan") consistent with the
letter from Herbert S. Winokur, Jr. to Lawrence Hodges, dated August 5, 1996. In
the event that (i) the Company fails to adopt the Equity Plan, Employee may
terminate this Agreement and his employment hereunder with Good Reason, as
hereinafter defined, in accordance with the provisions of Section 9(b)
("Termination by Employee-Termination-With Good Reason"). Employee's right to
terminate this Agreement and his employment hereunder with Good Reason in
accordance with said Section 9(b) shall be Employee's sole and exclusive remedy
for or resulting from the failure, for any reason, of the Company or its Board
of Directors to create or implement the Equity Plan or to take any other action
specified in this Section 4(b).
Anything in this Agreement or in such plan or arrangement to the
contrary notwithstanding, the inclusion in such plan or arrangement of any
provision(s) addressing participation by Employee in such plan or arrangement
for a period of years shall not be interpreted as a promise of continued
employment by the Company for such period of years or any other period of time.
The plan or arrangement to be proposed by Employee shall provide that
any payments made thereunder, in conjunction with any other payments that
constitute "parachute payments" (as defined in Section 280G(b)(A) of the
Internal Revenue Code) (the "Code"), shall be limited such that no such payments
or portions thereof constitute an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code) or are otherwise nondeductible by the Company
for tax purposes under any other provision of the Code.
<PAGE>
(c) VACATION AND OTHER LEAVE. Employee shall be entitled to
such amounts of paid vacation and other leave, but not less than three (3) weeks
vacation per twelve-month period of employment, as from time to time may be
allowed to the Company's senior management personnel generally, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies applicable to such personnel.
(d) VESTING ON DEATH OR DISABILITY. Upon any termination of
this Agreement and Employee's employment hereunder by reason of Employee's death
or Permanent Disability, as defined in Section 7(b) ("Death or Disability -
Definition of Permanently Disabled and Permanent Disability"), provided that the
terms and provisions of such plan and applicable law permit, any theretofore
deferred or unvested portion of any award made to Employee in respect of any
retirement, pension, profit sharing, long term incentive, and similar plans
automatically shall become fully vested in Employee and shall be nonforfeitable,
and shall continue in effect and be redeemable by or payable to Employee (or his
designated beneficiary or estate) at the time and on the same conditions as
would have applied had Employee's employment not been so terminated. It is
expressly provided, however, that nothing in this Section 4(d) shall obligate
the Company to provide full vesting upon death or disability in connection with
participation by Employee in the equity plan or arrangement contemplated under
Section 4(b) ("Fringe Benefits-Equity Plan"), further, the provisions governing
payment of any incentive compensation payable to Employee pursuant to the
incentive compensation plan(s) referred to in Section 3(b)
("Compensation-Incentive Compensation") shall govern any payment of incentive
compensation due thereunder in the event of Employee's death or disability.
5. BUSINESS EXPENSES AND AUTOMOBILE ALLOWANCE. During the
Period of Employment, the Company shall pay, or in case paid by Employee in the
first instance, reimburse Employee for, any and all necessary, customary, and
usual expenses incurred by him in connection with the performance of his duties
hereunder, including, without limitation, all traveling expenses, and
entertainment expenses, upon submission of appropriate vouchers and
documentation.
<PAGE>
To the extent provided to all other senior officers or executives of
the Company, during the Period of Employment, Employee shall be entitled to
receive an automobile allowance and reimbursement for expenses associated with
the operation and maintenance of an automobile which is comparable to Employee's
current automobile. The Company will reimburse Employee upon presentation of
vouchers and documentation for any such operational and maintenance expenses
which are consistent with the usual accounting procedures of the Company.
6. NO OTHER BENEFITS OR COMPENSATION. Employee, as a result of
his employment by the Company, shall be entitled to only the compensation and
benefits provided for in this Agreement, subject to the terms thereof, and no
others.
7. DEATH OR DISABILITY.
(a) TERMINATION OF EMPLOYMENT. If Employee dies during the Period of
Employment, Employee's employment shall automatically cease and terminate
as of the date of Employee's death.
If Employee becomes Permanently Disabled (as hereinafter
defined) while employed by the Company, (i) Employee's employment and the
Company's obligations hereunder, including the payment of Base Salary pursuant
to Section 3(a) ("Compensation-Base Salary") shall continue for a period of
ninety (90) days from the date on which the Employee is determined to be
Permanently Disabled ("Employee s Disability Date"), and (ii) ninety (90) days
after the Employee's Disability Date, Employee's employment and all obligations
of the Company hereunder shall automatically cease and terminate.
In the case of Employee's death or Permanent Disability (as
hereinafter defined), the Company shall be obligated to pay to Employee (or to
Employee s estate in the case of Employee's death) any Base Salary and any
incentive compensation accrued to Employee as of the date of the Employee's
death, or in the case of Employee's Permanent Disability, as of the Employee's
Disability Date. In the event Employee's employment is terminated on account of
Employee's Permanent Disability, he shall, so long as his Permanent Disability
continues, remain eligible for all benefits provided under any long-term
disability programs of the Company in effect at the time of such termination,
subject to the terms and conditions of any such programs, as the same may be
changed, modified, or terminated for or with respect to all senior management
personnel of the Company.
(b) DEFINITION OF PERMANENTLY DISABLED AND PERMANENT DISABILITY. For
purposes of this Agreement (other than Sections 4 (a) ("Fringe Benefits-Benefit
Plans"), 4 (d) ("Fringe Benefits-Vesting on Death or Disability"), and the
provisions relating to disability insurance contained in the last sentence of
Section 7(a) ("Death or Disability-Termination of Employment"), the terms
"Permanently Disabled" and "Permanent Disability" shall mean Employee's
inability, because of physical or mental illness or injury, to perform
substantially all of his customary duties pursuant to this Agreement, and the
continuation of such disabled condition for a period of ninety (90) continuous
days, or for not less than one hundred eighty (180) days during any continuous
twenty-four (24) month period. Whether Employee is Permanently Disabled shall be
certified to the Company by a Qualified Physician (as hereinafter defined), or
if requested by Employee a panel of three Qualified Physicians. If Employee
requests such a panel, Employee and the Company shall each select a Qualified
Physician who together shall then select a third Qualified Physician. The
determination of the individual Qualified Physician or the panel, as the case
may be, shall be binding and conclusive for all purposes. As used herein, the
term "Qualified Physician" shall mean any medical doctor who is licensed to
practice medicine in the State of Utah and is reasonably acceptable to each of
Employee and the Company. Employee and the Company may in any instance, and in
lieu of a determination by a Qualified Physician or panel of Qualified
Physicians, agree between themselves that Employee is Permanently Disabled. The
terms Permanent Disability and Permanently Disabled as used herein may have
meanings different from those used in any disability insurance policy or program
maintained by Employee or the Company.
<PAGE>
8. TERMINATION BY THE COMPANY.
(a) TERMINATION FOR CAUSE. The Company, by
action of its Board of Directors, may, by providing written notice to Employee,
terminate the employment of Employee under this Agreement for "cause" at any
time. The term "cause" for purpose of this Agreement shall mean:
(i) The refusal of Employee to implement or adhere to lawful policies or
directives of the Board of Directors of the Company consistent with this
Agreement; or
(ii) Employee's conviction of or entrance of a plea of nolo contendere to
(A) a felony, (B) to any other crime, which other crime is punishable by
incarceration for a period of one (1) year or longer, or (C) other conduct of a
criminal nature that may have an adverse impact on the Company s reputation and
standing in the community; or
(iii) conduct that is in violation of Employee's common law duty of loyalty
to the Company; or
(iv) fraudulent conduct by Employee in connection with the business affairs
of the Company, regardless of whether said conduct is designed to defraud the
Company or others; or
(v) theft, embezzlement, or other criminal misappropriation of funds by
Employee, whether from the Company or any other person; or
(vi) any breach of or Employee's failure to fulfill any of Employee's
obligations, covenants, agreements, or duties under this Agreement.
<PAGE>
Provided, however, that "cause" pursuant to clause (i) or (vi) shall not be
deemed to exist unless the Company has given Employee written notice thereof
specifying in reasonable detail the facts and circumstances alleged to
constitute "cause", and thirty (30) days after such notice such conduct or
circumstances has not entirely ceased or been entirely remedied. If Employee's
employment is terminated for "cause," the termination shall take effect upon the
effective date (pursuant to Section 24 ("Notices")) of written notice of such
termination to Employee. In the event Employee's employment is terminated for
"cause," then except for unpaid accrued vacation, the Company shall have no
obligation to pay Employee any amounts, including, but not limited to Base
Salary, for or with respect to any period after the effective date of the
termination of Employee's employment for "cause," including any obligation under
the replacement to the 1994 Incentive Plan or the Equity Plan.
If the Company attempts to terminate Employee's employment pursuant to
this Section 8(a) and it is ultimately determined that the Company lacked
"cause," the provisions of Section 8(b) ("Termination by the Company-Termination
Without Cause") shall apply, and Employee's sole and exclusive remedy for such
breach of this Agreement by the Company and/or any other damages that Employee
shall have suffered or incurred of any nature whatsoever, shall be to receive
the payments expressly called for by Section 8(b) ("Termination by the
Company-Termination Without Cause") with interest on any past due payments at
the rate of eight percent (8%) per year from the date on which the applicable
payment would have been made pursuant to Section 8(b) ("Termination by the
Company-Termination Without Cause") plus Employee's costs and expenses
(including but not limited to reasonable attorneys' fees) incurred in connection
with such dispute.
(b) TERMINATION WITHOUT CAUSE. The Company may, with or without reason,
terminate Employee's employment under this Agreement without "cause" at any
time, by providing Employee thirty (30) days prior written notice of such
termination. If Employee's employment is terminated pursuant to this Section
8(b), Employee shall not be obligated to render services to the Company
following the effective date of such notice (the "Notice Date") except such
services as are requested by the Company pursuant to Section 11 ("Transition
Period Services"), and as its sole and exclusive obligation and duty to Employee
resulting directly or indirectly from the termination of Employee's employment
with the Company and in full and complete settlement of any and all claims that
Employee may have or claim to have arising directly or indirectly out of the
termination of his employment with the Company, the Company shall, subject to
Section 12 ("Non Competition") pay Employee, as severance pay, an amount (the
"Severance Amount") equal to the product of multiplying the then current
semi-monthly base salary by thirty-six (36) semi-monthly periods (the "Severance
Period"). The Severance Amount shall be payable by the Company to Employee in an
amount equal to the Base Salary payable in twelve (12) equally monthly
installments commencing on the Notice Date. The Company shall also pay to the
Employee a portion of any discretionary bonus (the "Bonus Portion"), as
determined by the Company's Board of Directors, referred to in Section 3(a)
("Compensation-Base Salary"), that, but for the termination of Employee's
employment, would have been paid to Employee for or with respect to the calendar
year in which Employee's employment is terminated. The Bonus Portion shall
consist of that percentage of the said discretionary bonus determined by
dividing the number of full or partial calendar months during the calendar year
in which Employee's employment is terminated that Employee was in the employ of
the Company by twelve (12). Until the end of the Severance Period or until
Employee is gainfully employed by another employer, which ever time period is
less, the Company shall allow Employee to continue participation in the Company
s group health insurance plan at the Company's expense. In accordance with all
applicable laws, Employee shall be extended all COBRA rights and benefits at the
end of the Severance Period.
<PAGE>
9. TERMINATION BY EMPLOYEE.
(a) TERMINATION-WITHOUT GOOD REASON. Employee shall have the
right to terminate this Agreement and his employment hereunder at any time upon
thirty (30) days prior written notice of such termination to the Company. Except
as expressly set forth in Section 11 ("Transition Period Services"), upon the
effective date of any such termination all obligations and rights of Employee
and the Company hereunder shall terminate and cease.
(b) TERMINATION-WITH GOOD REASON. If the Company:
(i) requires Employee to relocate his home, without Employee's consent, to
a location which is more than 75 miles from 462 West Bearcat Drive, Salt Lake
City, Utah 84115; or
(ii) fails to provide Employee with the compensation and benefits called
for by this Agreement; or
(iii) assigns Employee to a lower organizational
level than the level at which he is on
the date of this Agreement assigned, or substantially diminishes Employee's
assignment, duties, responsibilities, or operating authority from those
specified in Section 1 ("Duties"); or
(iv) fails to implement an incentive compensation plan required by Section
3(b) ("Compensation-Incentive Compensation"); or
(v) fails to implement an equity plan or arrangement required by Section
4(b)
("Fringe Benefits-Equity Plan"); or
(vi) is divested, by sale, closure, liquidation, foreclosure, or other
means, of any substantial part of its assets or business as now held or
conducted; or
(vii) breaches this Agreement and such breach continues for a period of
thirty (30) days after written notice thereof given by Employee to the Company,
then any one or more of such circumstances shall constitute "Good Reason", and,
subject to the provisions of Section 10 ("Means and Effect of Termination"),
Employee shall have the right to terminate this Agreement and his employment
hereunder for Good Reason, if, thirty (30) days after the effective date of
Employee's notice to the Company of such circumstances constituting Good Reason,
such circumstances continue to exist, and for all purposes of this Agreement any
such termination of this Agreement by Employee shall have the same effects under
this Agreement as the termination of the Employee's employment under this
Agreement by Company without "cause."
<PAGE>
10. MEANS AND EFFECT OF TERMINATION. Any termination of Employee's
employment under this Agreement shall be communicated by written notice of
termination from the terminating party to the other party. The notice of
termination shall indicate the specific provision(s) of this Agreement relied
upon in effecting the termination and shall set forth in reasonable detail the
facts and circumstances alleged to provide a basis for termination, if any such
basis is required by the applicable provision(s) of this Agreement. Any notice
of termination by the Company shall be approved by a resolution duly adopted by
a majority of the directors of the Company then in office. The burden of
establishing the existence of "cause" or Good Reason shall be upon the
terminating party. If Employee's employment is terminated by either party, then
promptly after the effective date of such termination or in the manner and at
the time or times provided in the relevant Section of this Agreement, the
Company promptly shall provide and pay to Employee, or in case of his death his
estate or heirs, all compensation, benefits, and reimbursements due or payable
to Employee for the period to the effective date of the termination. To the
extent permitted by applicable law, the calendar month in which Employee's
employment is terminated shall be counted as a full month in determining amount
and vesting of any benefits under benefit plans of the Company.
11. TRANSITION PERIOD SERVICES. In the event Employee's employment is
terminated by the Company pursuant to section 8(b) ("Termination by the
Company-Termination Without Cause") or by Employee pursuant to Section 9(a)
("Termination by Employee-Without Good Reason"), if requested by the Company in
writing, Employee shall render such services, on a part-time basis for a period
not to exceed sixty (60) days after the effective date of the notice of
termination (whether given by the Company or by Employee), as the Company's
Board of Directors reasonably requests for transition purposes. Employee shall
receive no compensation for such services, other than the payment of Base Salary
as provided in Section 8(b) ("Termination by the Company-Termination Without
Cause") and reimbursement for expenses incurred by Employee in providing such
services as provided in, and subject to the provisions of, Section 5 ("Business
Expenses and Automobile Allowance")
12. NON COMPETITION. For a period of one year from the date of the
termination of Employee's employment hereunder, Employee shall not become an
employee, owner (except for passive investments of not more than three percent
(3%) of the outstanding shares of, or any other equity interest in, any company
or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent or director of any firm or
person which either directly competes with a line or lines of business of the
Company accounting for ten percent (10%) or more of the Company's gross sales,
revenues or earnings before taxes. If, in any judicial proceeding, a court shall
refuse to enforce all of the separate covenants deemed included in this
paragraph, the parties intend that those of such covenants which, if eliminated,
would permit the remaining separate covenants to be enforced in such proceedings
shall, for the purpose of such proceedings, be deemed eliminated from the
provisions of this Section 12.
In addition to any other remedies that may otherwise be available for a
breach of Section 12 hereof by Employee, Employee agrees that in the event of
such breach he shall irrevocably forfeit any right he may have to any remaining
severance payment to be made under Section 8(b) ("Termination by the
Company-Termination Without Cause") subsequent to such breach.
13. ASSIGNMENT. This Agreement is personal in its nature and neither of
the parties hereto shall, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; provided, however, that,
in the event of the merger, consolidation, or transfer or sale of all or
substantially all of the assets of the Company with or to any other individual
or entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations hereby
created between the parties hereto shall be governed by and construed under and
in accordance with the internal laws of the State of Utah, which internal laws
exclude any law or rule of the State of Utah, or any interpretation thereof,
that would require or call for the application of the laws of any other state or
jurisdiction hereto.
15. ENTIRE AGREEMENT. Except with respect to final agreement regarding
those open incentive compensation matters described in Section 3(b)
("Compensation-Incentive Compensation") and the equity plan or arrangement
contemplated under Section 4(b) ("Fringe Benefits-Equity Plan"), this Agreement
embodies the entire agreement of the parties hereto respecting the matters
within its scope. This Agreement supersedes all prior agreements of the parties
hereto on the subject matter hereof. Any prior negotiations, correspondence,
agreements, proposals, or understandings relating to the subject matter hereof
shall he deemed to be merged into this Agreement and to the extent inconsistent
herewith, such negotiations, correspondence, agreements, proposals, or
understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as set forth
herein.
<PAGE>
This Agreement shall not be modified by any oral agreement, either
express or implied, and all modifications hereof shall be in writing and be
signed by the parties hereto. The provisions of this and the immediately
preceding sentence themselves may not be modified, either orally or by conduct,
either express or implied, and it is the declared intention of the parties
hereto that no provision of this Agreement, including said two sentences, shall
be modifiable in any way or manner whatsoever other than through a written
document signed by the parties hereto.
16. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
17. NUMBER AND GENDER. Where the context requires, the singular shall
include the plural, the plural shall include the singular, and any gender shall
include all other genders.
18. SECTION HEADINGS. The section headings in this Agreement are for
the purpose of convenience only and shall not limit or otherwise affect any of
the terms hereof.
19. DISPUTE RESOLUTION.
(a) NEGOTIATION AND MEDIATION. In the event any dispute arises
hereunder, the parties shall first attempt to resolve the dispute by negotiation
in good faith. If the dispute cannot be timely resolved through negotiation, the
parties will, before resorting to any of their remedies at law or in equity, try
to settle the dispute in good faith by mediation in Salt Lake City, Utah or such
other location as the parties may agree, under the then operative mediation
rules of the American Arbitration Association or such other mediation tribunal
or private mediator or medication services provider as the parties agree. The
mediator shall be such person as the parties mutually agree, but if the parties
have failed to agree on a mediator within seven (7) days after the date on which
any party demands that the parties proceed to mediation, the mediator shall be
selected by the American Arbitration Association or such other mediation
services provider as the parties agree.
(b) OTHER REMEDIES. Failing settlement of the dispute by
negotiation or mediation, the parties shall, unless they mutually agree to
resolve the dispute finally by arbitration, be entitled to pursue their legal
and equitable remedies (subject to the provisions of Section 20 ("Liquidated
Damages-Breach by the Company") in any court having jurisdiction.
20. LIQUIDATED DAMAGES-BREACH BY THE COMPANY. Because the damages
suffered by Employee in such an event would be difficult or impossible to
estimate, establish, ascertain, or prove, and in order to provide Employee with
a remedy in such an event without the necessity and associated cost of Employee
having to establish or prove the damages suffered by Employee as a result
thereof (which remedy the parties hereto have and do agree would be appropriate
and adequate compensation to Employee in such event), in the event that this
Agreement and Employee's employment hereunder shall be terminated (whether by
the Company or Employee) and thereafter Employee shall prevail in any dispute
between Employee and the Company relative to, involving, or concerning the
legality of or justification for the termination of this Agreement and
Employee's employment hereunder and any other issues or matters directly or
indirectly arising out of or in connection with such termination and Employee's
employment by the Company, subject to Section 12 ("Non Competition") Employee
shall be entitled to the continued payment of the Base Salary as provided in
Section 8(b) ("Termination by the Company-Termination Without Cause") as
liquidated and exclusive damages and not as a penalty, and in such case this
Agreement and Employee's employment hereunder, shall for all purposes be treated
as having been terminated by the Company without "cause" pursuant to Section
8(b) ("Termination by the Company-Termination Without Cause").
<PAGE>
In the event Employee files any claim, complaint, charge, action, or
lawsuit against the Company or its employees, agents, officers, directors, or
any other person affiliated or associated with the Company, with any
governmental agency, any state or federal court, or any mediation or arbitration
body or group, for or with respect to a matter, claim, or incident, known or
unknown, which has occurred or arisen or which shall hereafter occur or arise
relative to, involving, or concerning the termination of this Agreement and
Employee's employment hereunder (whether as a result of action of Employee or
the Company) and any other issues or matters directly or indirectly arising out
of or in connection with such termination and Employee's employment by the
Company, and in such claim, complaint, action, charge, or lawsuit, Employee
alleges or asserts the right to recover, receive, or be awarded damages from the
Company or its employees, agents, officers, directors, or any other person
affiliated or associated with the Company in addition to or in lieu of the
liquidated damages expressly provided for in this Section 20, Employee hereby
stipulates, agrees, and consents to the dismissal or withdrawal, with prejudice,
of any such claim, complaint, action, charge, or lawsuit (collectively, a
"Dismissable Claim"). In the event that Employee files any Dismissable Claim,
Employee shall be liable to the party or parties against whom the Dismissable
Claim is filed (the "Nonfiling Party") and shall indemnify and save the
Nonfiling Party harmless from all costs and expenses, including, but not limited
to, attorneys fees, incurred by the Nonfiling Party and/or the Nonfiling Party s
officers, agents, employees, directors, and/or any other person affiliated or
associated with the Nonfiling Party, if any, in defending or responding to any
such Dismissable Claim, regardless of whether such defense or response is before
a state or federal court or administrative agency or a mediation or arbitration
body and regardless of who might ultimately be deemed to be the prevailing party
as to any such Dismissable Claim.
21. ATTORNEY'S FEES. Employee and the Company agree that in any dispute
resolution proceedings arising out of this Agreement, the prevailing party shall
be entitled to its or his reasonable attorney's fees and costs incurred by it or
his in connection with resolution of the dispute in addition to any other relief
granted.
22. INDEMNIFICATION. If Employee is made a party to, is threatened to
be made a party to, or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding") by
reason of the fact that he is or was a director, officer, or employee of the
Company or is or was serving at the request of the Company as a director,
officer, employee, or agent of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to employee
benefit plans, whether before, during or after expiration or termination of this
Agreement, the Company shall indemnify and hold Employee harmless to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than such law permitted the Company to provide prior to
such amendment), against all expense, liability, and loss (including attorneys
fees, judgment fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by Employee in connection therewith,
and such indemnification shall continue after Employee ceases to be a director,
officer, employee, or agent of the Company and shall inure to the benefit of
Employee's heirs, executors, and administrators. The right to indemnification
conferred hereby shall include the right to be paid by the Company the
reasonable expenses incurred in defending any Proceeding in advance of its final
disposition as such expenses are incurred. The indemnification provided herein
shall not be deemed exclusive of any other rights to which Employee may be
entitled under the Certificate of Incorporation, Bylaws, any agreement, or vote
of stockholders or disinterested directors of the Company, or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office or position, and shall continue with respect to action in
such capacities even if Employee has thereafter ceased to be a director,
officer, employee, or agent of the Company, and shall inure to the benefit of
Employee's heirs, executors and administrators. Except in the case of fraudulent
conduct or theft, embezzlement, or other criminal misappropriation of funds by
Employee, then nothing in this Agreement waives the Company's obligations under
this paragraph, even if Employee is terminated.
<PAGE>
23. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, then only the portions of this Agreement which violate such
statute or public policy shall be stricken, All portions of this Agreement which
do not violate any statute or public policy shall continue in full force and
effect. Furthermore, any court order striking any portion of this Agreement
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Agreement.
24. NOTICES. All notices under this Agreement shall be in writing and
shall be either personally delivered or mailed postage prepaid, by certified
mail, return receipt requested, (a) if to the Company, to it at 462 West Bearcat
Drive, Salt Lake City, Utah 84115 Attention: President or (b) if to Employee to
him at 462 West Bearcat Drive, Salt Lake City, Utah 84115 by the same means, or
in either party's case to such other address or to the attention of such person
as the party has specified by prior written notice to the other party. Notice
shall be effective when personally delivered, or five (5) business days after
being so mailed.
25. COUNTERPARTS. This Agreement may be executed in counterparts
collectively containing the signatures of each of the parties.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and Employee has hereunto signed this
Agreement, on the date first written above.
MRS. FIELDS' ORIGINAL COOKIES, INC.,
a Delaware Corporation (the "Company")
By:/s/Larry A. Hodges
Name:Larry A. Hodges
Its:President/CEO
/s/Michael R. Ward
MICHAEL R. WARD ("Employee")
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this _____ day of October, 1997, by and between PAT KNOTTS ("Employee") and MRS.
FIELDS' ORIGINAL COOKIES, INC., a Delaware corporation (the "Company").
RECITAL
Whereas, the Employee is currently employed as a Senior Executive
Officer of the Company pursuant to that certain Employment Agreement, dated
September 12, 1996 (the "Old Agreement"), by and between the Employee and the
Company; and
Whereas, the Company has determined that it is in the Company's
interest to assure the Employee's continuing employment with the Company beyond
the expiration date in the Employee's Old Agreement; and
Whereas, the Employee has determined that it is in his interest to continue
employment with the Company; and
Whereas, upon the execution of this Agreement, the Old Agreement is
automatically terminated and Employee shall have no rights or claims under that
Old Agreement.
Now, Therefore, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Employee and the Company hereby agree as
follows:
AGREEMENT
1. DUTIES. The Company does hereby hire, engage, and employ the
Employee as the Senior Vice President of Operations of the Company and Employee
does hereby accept and agree to such hiring, engagement, and employment.
Employee shall serve the Company in such position fully, diligently,
competently, and in conformity with provisions of this Agreement and the
corporate policies of the Company as they presently exist, and as such policies
may be amended, modified, changed, or adopted during the Period of Employment,
as hereinafter defined.
During the Period of Employment Employee shall also serve as the Senior
Vice President of Operations of each subsidiary or affiliate of the Company that
is now or that becomes a part of the Mrs. Fields Company Group. As used in this
Agreement, the term the "Mrs. Fields Company Group" shall mean and refer to the
Company and the Company's subsidiaries and affiliates from time to time.
<PAGE>
Subject to specific elaboration by the Board of Directors of the
Company as to the duties (which shall be consistent herewith and with Employee
offices provided for hereunder) that are to be performed by Employee and the
manner in which such duties are to be performed, the duties of Employee shall
entail those duties customarily performed by a Senior Vice President of
Operations of a company with a sales volume and the number of employees
commensurate with those of the Company. Provided, however, that at all times
during the Period of Employment, Employee shall perform those duties and fulfill
those responsibilities and refrain from those activities that are reasonably
prescribed or proscribed by the Board of Directors of the Company to be
performed or refrained from by his consistent with his positions with the
Company.
Employee shall be responsible and report only to the Company's
President and Chief Executive Officer.
Throughout the Period of Employment, Employee shall devote his full
time, energy, and skill to the performance of his duties for the Company and for
the benefit of the Company and the Mrs. Fields Company Group. The foregoing
notwithstanding, Employee shall be permitted to (i) engage in charitable and
community affairs, (ii) act as a director of any corporations or organizations
outside the Mrs. Fields Company Group not in competition with the Company or any
member of the Mrs. Fields Company Group and to manage such investments, not to
exceed three (3) in number, and receive compensation therefore, and (iii) to
make investments of any character in any business or businesses not in
competition with the Company or any member of the Mrs. Fields Company Group and
to manage such investments (but not be involved in the day to day operations of
any such business), provided, in each case and collectively, that the same does
or do not constitute or involve Employee in a conflict of interest
the Company or any member of the Mrs. Fields Company Group or
interfere with the performance of Employee's duties under this Agreement.
Employee shall exercise due diligence and care in the performance of
his duties for and the fulfillment of his obligations to the Company under this
Agreement.
The Company shall furnish Employee with office, secretarial and other
facilities and services as are reasonably necessary or appropriate for the
performance of Employee's duties hereunder and consistent with his position as
the Senior Vice President of Operations of the Company.
2. PERIOD OF EMPLOYMENT. The Period of Employment (as defined below)
shall, unless sooner terminated as provided herein, be the two (2) year period
commencing on the date of execution of this Agreement.
Unless the Company gives notice of termination as provided under this
Agreement, this Agreement will automatically renew on each annual anniversary
from the execution of this Agreement for a successive two-year period.
3. COMPENSATION.
(a) BASE SALARY. During the Period of Employment, the Company
shall pay Employee, and Employee agrees to accept from the Company, in payment
for his services a base salary of One Hundred Seventy-Five Thousand Dollars
($175,000.00) per year ("Base Salary"), payable in equal semi-monthly
installments or at such other time or times as Employee and the Company shall
agree. Upward adjustment to the Base Salary shall be considered by the Company's
Board of Directors not less frequently than annually. The Company's Board of
Directors at any time or times may, but shall have no obligation to, supplement
Employee's salary by such bonuses and/or other special payments and benefits as
the Board of Directors of the Company in its sole and absolute discretion may
determine.
(b) INCENTIVE COMPENSATION. During the Period of Employment, Employee
shall:
(i) participate in any incentive compensation plan adopted by the Company;
or
(ii) if the Company, for any reason, shall not adopt and implement an
incentive compensation plan in replacement of the 1997 Incentive Plan for
eligible employees of the Company (including Employee), Company and Employee
agree that this Agreement shall provide Employee with the opportunity to earn
and be paid incentive compensation to the same extent that he was eligible to
earn and be paid incentive compensation under the incentive compensation plan
under which, pursuant to the provisions of this Section 3(b), Employee was most
recently eligible to earn and be paid incentive compensation by the Company.
4. FRINGE BENEFITS. During the Period of Employment, Employee shall be
entitled to the following fringe benefits.
(a) BENEFIT PLANS. Employee shall be entitled to participate
in all benefit plans and programs generally available to all other senior
management employees of the Company or to all employees of the Company working
in Salt Lake City, Utah, subject to any restrictions specified in such plans and
to receive such other benefits and conditions of employment as are provided to
all other senior officers or executives of the Company as of the date of this
Agreement.
(b) EQUITY PLAN. Employee shall be entitled to participate in
an equity based plan or arrangement (the "Equity Plan") consistent with the
letter from Herbert S. Winokur, Jr. to Lawrence Hodges, dated August 5, 1996. In
the event that (i) the Company fails to adopt the Equity Plan, Employee may
terminate this Agreement and his employment hereunder with Good Reason, as
hereinafter defined, in accordance with the provisions of Section 9(b)
("Termination by Employee-Termination-With Good Reason"). Employee's right to
terminate this Agreement and his employment hereunder with Good Reason in
accordance with said Section 9(b) shall be Employee's sole and exclusive remedy
for or resulting from the failure, for any reason, of the Company or its Board
of Directors to create or implement the Equity Plan or to take any other action
specified in this Section 4(b).
<PAGE>
Anything in this Agreement or in such plan or arrangement to the
contrary notwithstanding, the inclusion in such plan or arrangement of any
provision(s) addressing participation by Employee in such plan or arrangement
for a period of years shall not be interpreted as a promise of continued
employment by the Company for such period of years or any other period of time.
The plan or arrangement to be proposed by Employee shall provide that
any payments made thereunder, in conjunction with any other payments that
constitute "parachute payments" (as defined in Section 280G(b)(A) of the
Internal Revenue Code) (the "Code"), shall be limited such that no such payments
or portions thereof constitute an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code) or are otherwise nondeductible by the Company
for tax purposes under any other provision of the Code.
(c) VACATION AND OTHER LEAVE. Employee shall be entitled to
such amounts of paid vacation and other leave, but not less than three (3) weeks
vacation per twelve-month period of employment, as from time to time may be
allowed to the Company's senior management personnel generally, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies applicable to such personnel.
(d) VESTING ON DEATH OR DISABILITY. Upon any termination of
this Agreement and Employee's employment hereunder by reason of Employee's death
or Permanent Disability, as defined in Section 7(b) ("Death or Disability -
Definition of Permanently Disabled and Permanent Disability"), provided that the
terms and provisions of such plan and applicable law permit, any theretofore
deferred or unvested portion of any award made to Employee in respect of any
retirement, pension, profit sharing, long term incentive, and similar plans
automatically shall become fully vested in Employee and shall be nonforfeitable,
and shall continue in effect and be redeemable by or payable to Employee (or his
designated beneficiary or estate) at the time and on the same conditions as
would have applied had Employee's employment not been so terminated. It is
expressly provided, however, that nothing in this Section 4(d) shall obligate
the Company to provide full vesting upon death or disability in connection with
participation by Employee in the equity plan or arrangement contemplated under
Section 4(b) ("Fringe Benefits-Equity Plan"), further, the provisions governing
payment of any incentive compensation payable to Employee pursuant to the
incentive compensation plan(s) referred to in Section 3(b)
("Compensation-Incentive Compensation") shall govern any payment of incentive
compensation due thereunder in the event of Employee's death or disability.
5. BUSINESS EXPENSES AND AUTOMOBILE ALLOWANCE. During the
Period of Employment, the Company shall pay, or in case paid by Employee in the
first instance, reimburse Employee for, any and all necessary, customary, and
usual expenses incurred by him in connection with the performance of his duties
hereunder, including, without limitation, all traveling expenses, and
entertainment expenses, upon submission of appropriate vouchers and
documentation.
<PAGE>
To the extent provided to all other senior officers or executives of
the Company, during the Period of Employment, Employee shall be entitled to
receive an automobile allowance and reimbursement for expenses associated with
the operation and maintenance of an automobile which is comparable to Employee's
current automobile. The Company will reimburse Employee upon presentation of
vouchers and documentation for any such operational and maintenance expenses
which are consistent with the usual accounting procedures of the Company.
6. NO OTHER BENEFITS OR COMPENSATION. Employee, as a result of
his employment by the Company, shall be entitled to only the compensation and
benefits provided for in this Agreement, subject to the terms thereof, and no
others.
7. DEATH OR DISABILITY.
(a) TERMINATION OF EMPLOYMENT. If Employee dies during the Period of
Employment, Employee's employment shall automatically cease and terminate as of
the date of Employee's death.
If Employee becomes Permanently Disabled (as hereinafter
defined) while employed by the Company, (i) Employee's employment and the
Company's obligations hereunder, including the payment of Base Salary pursuant
to Section 3(a) ("Compensation-Base Salary") shall continue for a period of
ninety (90) days from the date on which the Employee is determined to be
Permanently Disabled ("Employee s Disability Date"), and (ii) ninety (90) days
after the Employee's Disability Date, Employee's employment and all obligations
of the Company hereunder shall automatically cease and terminate.
In the case of Employee's death or Permanent Disability (as
hereinafter defined), the Company shall be obligated to pay to Employee (or to
Employee s estate in the case of Employee's death) any Base Salary and any
incentive compensation accrued to Employee as of the date of the Employee's
death, or in the case of Employee's Permanent Disability, as of the Employee's
Disability Date. In the event Employee's employment is terminated on account of
Employee's Permanent Disability, he shall, so long as his Permanent Disability
continues, remain eligible for all benefits provided under any long-term
disability programs of the Company in effect at the time of such termination,
subject to the terms and conditions of any such programs, as the same may be
changed, modified, or terminated for or with respect to all senior management
personnel of the Company.
<PAGE>
(b) DEFINITION OF PERMANENTLY DISABLED AND PERMANENT DISABILITY. For
purposes of this Agreement (other than Sections 4 (a) ("Fringe
Benefits-Benefit Plans"), 4 (d) ("Fringe Benefits-Vesting on Death or
Disability"), and the provisions relating to disability insurance contained
in the last sentence of Section 7(a) ("Death or Disability-Termination of
Employment"), the terms "Permanently Disabled" and "Permanent Disability"
shall mean Employee's inability, because of physical or mental illness or
injury, to perform substantially all of his customary duties pursuant to
this Agreement, and the continuation of such disabled condition for a
period of ninety (90) continuous days, or for not less than one hundred
eighty (180) days during any continuous twenty-four (24) month period.
Whether Employee is Permanently Disabled shall be certified to the Company
by a Qualified Physician (as hereinafter defined), or if requested by
Employee a panel of three Qualified Physicians. If Employee requests such a
panel, Employee and the Company shall each select a Qualified Physician who
together shall then select a third Qualified Physician. The determination
of the individual Qualified Physician or the panel, as the case may be,
shall be binding and conclusive for all purposes. As used herein, the term
"Qualified Physician" shall mean any medical doctor who is licensed to
practice medicine in the State of Utah and is reasonably acceptable to each
of Employee and the Company. Employee and the Company may in any instance,
and in lieu of a determination by a Qualified Physician or panel of
Qualified Physicians, agree between themselves that Employee is Permanently
Disabled. The terms Permanent Disability and Permanently Disabled as used
herein may have meanings different from those used in any disability
insurance policy or program maintained by Employee or the Company.
8. TERMINATION BY THE COMPANY.
(a) TERMINATION FOR CAUSE. The Company, by
action of its Board of Directors, may, by providing written notice to Employee,
terminate the employment of Employee under this Agreement for "cause" at any
time. The term "cause" for purpose of this Agreement shall mean:
(i) The refusal of Employee to implement or adhere to lawful
policies ordirectives of the Board of Directors of the Company
consistent with this Agreement; or
(ii) Employee's conviction of or entrance of a plea of nolo
contendere to (A) a felony, (B) to any other crime, which other crime
is punishable by incarceration for a period of one (1) year or longer,
or (C) other conduct of a criminal nature that may have an adverse
impact on the Company s reputation and standing in the community; or
(iii) conduct that is in violation of Employee's common law duty
of loyalty to the Company; or
(iv) fraudulent conduct by Employee in connection with the
business affairs of the Company, regardless of whether said conduct is
designed to defraud the Company or others; or
<PAGE>
(v) theft, embezzlement, or other criminal misappropriation of
funds by Employee, whether from the Company or any other person; or
(vi) any breach of or Employee's failure to fulfill any of
Employee's obligations, covenants, agreements, or duties under this
Agreement.
Provided, however, that "cause" pursuant to clause (i) or (vi) shall not be
deemed to exist unless the Company has given Employee written notice thereof
specifying in reasonable detail the facts and circumstances alleged to
constitute "cause", and thirty (30) days after such notice such conduct or
circumstances has not entirely ceased or been entirely remedied. If Employee's
employment is terminated for "cause," the termination shall take effect upon the
effective date (pursuant to Section 24 ("Notices")) of written notice of such
termination to Employee. In the event Employee's employment is terminated for
"cause," then except for unpaid accrued vacation, the Company shall have no
obligation to pay Employee any amounts, including, but not limited to Base
Salary, for or with respect to any period after the effective date of the
termination of Employee's employment for "cause," including any obligation under
the replacement to the 1994 Incentive Plan or the Equity Plan.
If the Company attempts to terminate Employee's employment pursuant to
this Section 8(a) and it is ultimately determined that the Company lacked
"cause," the provisions of Section 8(b) ("Termination by the Company-Termination
Without Cause") shall apply, and Employee's sole and exclusive remedy for such
breach of this Agreement by the Company and/or any other damages that Employee
shall have suffered or incurred of any nature whatsoever, shall be to receive
the payments expressly called for by Section 8(b) ("Termination by the
Company-Termination Without Cause") with interest on any past due payments at
the rate of eight percent (8%) per year from the date on which the applicable
payment would have been made pursuant to Section 8(b) ("Termination by the
Company-Termination Without Cause") plus Employee's costs and expenses
(including but not limited to reasonable attorneys' fees) incurred in connection
with such dispute.
(b) TERMINATION WITHOUT CAUSE. The Company may, with or without reason,
terminate Employee's employment under this Agreement without "cause" at any
time, by providing Employee thirty (30) days prior written notice of such
termination. If Employee's employment is terminated pursuant to this
Section 8(b), Employee shall not be obligated to render services to the
Company following the effective date of such notice (the "Notice Date")
except such services as are requested by the Company pursuant to Section 11
("Transition Period Services"), and as its sole and exclusive obligation
and duty to Employee resulting directly or indirectly from the termination
of Employee's employment with the Company and in full and complete
settlement of any and all claims that Employee may have or claim to have
arising directly or indirectly out of the termination of his employment
with the Company, the Company shall, subject to Section 12 ("Non
Competition") pay Employee, as severance pay, an amount (the "Severance
Amount") equal to the product of multiplying the then current semi-monthly
base salary by thirty-six (36) semi-monthly periods (the "Severance
Period"). The Severance Amount shall be payable by the Company to Employee
in an amount equal to the Base Salary payable in twelve (12) equally
monthly installments commencing on the Notice Date. The Company shall also
pay to the Employee a portion of any discretionary bonus (the "Bonus
Portion"), as determined by the Company's Board of Directors, referred to
in Section 3(a) ("Compensation-Base Salary"), that, but for the termination
of Employee's employment, would have been paid to Employee for or with
respect to the calendar year in which Employee's employment is terminated.
The Bonus Portion shall consist of that percentage of the said
discretionary bonus determined by dividing the number of full or partial
calendar months during the calendar year in which Employee's employment is
terminated that Employee was in the employ of the Company by twelve (12).
Until the end of the Severance Period or until Employee is gainfully
employed by another employer, which ever time period is less, the Company
shall allow Employee to continue participation in the Company s group
health insurance plan at the Company's expense. In accordance with all
applicable laws, Employee shall be extended all COBRA rights and benefits
at the end of the Severance Period.
9. TERMINATION BY EMPLOYEE.
(a) TERMINATION-WITHOUT GOOD REASON. Employee shall have the
right to terminate this Agreement and his employment hereunder at any time upon
thirty (30) days prior written notice of such termination to the Company. Except
as expressly set forth in Section 11 ("Transition Period Services"), upon the
effective date of any such termination all obligations and rights of Employee
and the Company hereunder shall terminate and cease.
(b) TERMINATION-WITH GOOD REASON. If the Company:
(i) requires Employee to relocate his home, without Employee's
consent, to a location which is more than 75 miles from 462 West
Bearcat Drive, Salt Lake City, Utah 84115; or
(ii) fails to provide Employee with the compensation and benefits
called for by this Agreement; or
(iii) assigns Employee to a lower organizational level than the
level at which he is on the date of this Agreement assigned, or
substantially diminishes Employee's assignment, duties,
responsibilities, or operating authority from those specified in
Section 1 ("Duties"); or
(iv) fails to implement an incentive compensation plan required
by Section 3(b) ("Compensation-Incentive Compensation"); or
(v) fails to implement an equity plan or arrangement required by
Section 4(b) ("Fringe Benefits-Equity Plan"); or
(vi) is divested, by sale, closure, liquidation, foreclosure, or
other means, of any substantial part of its assets or business as now
held or conducted; or
(vii) breaches this Agreement and such breach continues for a
period of thirty (30) days after written notice thereof given by
Employee to the Company, then any one or more of such circumstances
shall constitute "Good Reason", and, subject to the provisions of
Section 10 ("Means and Effect of Termination"), Employee shall have
the right to terminate this Agreement and his employment hereunder for
Good Reason, if, thirty (30) days after the effective date of
Employee's notice to the Company of such circumstances constituting
Good Reason, such circumstances continue to exist, and for all
purposes of this Agreement any such termination of this Agreement by
Employee shall have the same effects under this Agreement as the
termination of the Employee's employment under this Agreement by
Company without "cause."
10. MEANS AND EFFECT OF TERMINATION. Any termination of Employee's
employment under this Agreement shall be communicated by written notice of
termination from the terminating party to the other party. The notice of
termination shall indicate the specific provision(s) of this Agreement relied
upon in effecting the termination and shall set forth in reasonable detail the
facts and circumstances alleged to provide a basis for termination, if any such
basis is required by the applicable provision(s) of this Agreement. Any notice
of termination by the Company shall be approved by a resolution duly adopted by
a majority of the directors of the Company then in office. The burden of
establishing the existence of "cause" or Good Reason shall be upon the
terminating party. If Employee's employment is terminated by either party, then
promptly after the effective date of such termination or in the manner and at
the time or times provided in the relevant Section of this Agreement, the
Company promptly shall provide and pay to Employee, or in case of his death his
estate or heirs, all compensation, benefits, and reimbursements due or payable
to Employee for the period to the effective date of the termination. To the
extent permitted by applicable law, the calendar month in which Employee's
employment is terminated shall be counted as a full month in determining amount
and vesting of any benefits under benefit plans of the Company.
11. TRANSITION PERIOD SERVICES. In the event Employee's employment is
terminated by the Company pursuant to section 8(b) ("Termination by the
Company-Termination Without Cause") or by Employee pursuant to Section 9(a)
("Termination by Employee-Without Good Reason"), if requested by the Company in
writing, Employee shall render such services, on a part-time basis for a period
not to exceed sixty (60) days after the effective date of the notice of
termination (whether given by the Company or by Employee), as the Company's
Board of Directors reasonably requests for transition purposes. Employee shall
receive no compensation for such services, other than the payment of Base Salary
as provided in Section 8(b) ("Termination by the Company-Termination Without
Cause") and reimbursement for expenses incurred by Employee in providing such
services as provided in, and subject to the provisions of, Section 5 ("Business
Expenses and Automobile Allowance")
12. NON COMPETITION. For a period of one year from the date of the
termination of Employee's employment hereunder, Employee shall not become an
employee, owner (except for passive investments of not more than three percent
(3%) of the outstanding shares of, or any other equity interest in, any company
or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent or director of any firm or
person which either directly competes with a line or lines of business of the
Company accounting for ten percent (10%) or more of the Company's gross sales,
revenues or earnings before taxes. If, in any judicial proceeding, a court shall
refuse to enforce all of the separate covenants deemed included in this
paragraph, the parties intend that those of such covenants which, if eliminated,
would permit the remaining separate covenants to be enforced in such proceedings
shall, for the purpose of such proceedings, be deemed eliminated from the
provisions of this Section 12.
In addition to any other remedies that may otherwise be available for a
breach of Section 12 hereof by Employee, Employee agrees that in the event of
such breach he shall irrevocably forfeit any right he may have to any remaining
severance payment to be made under Section 8(b) ("Termination by the
Company-Termination Without Cause") subsequent to such breach.
13. ASSIGNMENT. This Agreement is personal in its nature and neither of
the parties hereto shall, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; provided, however, that,
in the event of the merger, consolidation, or transfer or sale of all or
substantially all of the assets of the Company with or to any other individual
or entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations hereby
created between the parties hereto shall be governed by and construed under and
in accordance with the internal laws of the State of Utah, which internal laws
exclude any law or rule of the State of Utah, or any interpretation thereof,
that would require or call for the application of the laws of any other state or
jurisdiction hereto.
15. ENTIRE AGREEMENT. Except with respect to final agreement regarding
those open incentive compensation matters described in Section 3(b)
("Compensation-Incentive Compensation") and the equity plan or arrangement
contemplated under Section 4(b) ("Fringe Benefits-Equity Plan"), this Agreement
embodies the entire agreement of the parties hereto respecting the matters
within its scope. This Agreement supersedes all prior agreements of the parties
hereto on the subject matter hereof. Any prior negotiations, correspondence,
agreements, proposals, or understandings relating to the subject matter hereof
shall he deemed to be merged into this Agreement and to the extent inconsistent
herewith, such negotiations, correspondence, agreements, proposals, or
understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as set forth
herein.
This Agreement shall not be modified by any oral agreement, either
express or implied, and all modifications hereof shall be in writing and be
signed by the parties hereto. The provisions of this and the immediately
preceding sentence themselves may not be modified, either orally or by conduct,
either express or implied, and it is the declared intention of the parties
hereto that no provision of this Agreement, including said two sentences, shall
be modifiable in any way or manner whatsoever other than through a written
document signed by the parties hereto.
16. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
17. NUMBER AND GENDER. Where the context requires, the singular shall
include the plural, the plural shall include the singular, and any gender shall
include all other genders.
18. SECTION HEADINGS. The section headings in this Agreement are for
the purpose of convenience only and shall not limit or otherwise affect any of
the terms hereof.
<PAGE>
19. DISPUTE RESOLUTION.
(a) NEGOTIATION AND MEDIATION. In the event any dispute arises
hereunder, the parties shall first attempt to resolve the dispute by negotiation
in good faith. If the dispute cannot be timely resolved through negotiation, the
parties will, before resorting to any of their remedies at law or in equity, try
to settle the dispute in good faith by mediation in Salt Lake City, Utah or such
other location as the parties may agree, under the then operative mediation
rules of the American Arbitration Association or such other mediation tribunal
or private mediator or medication services provider as the parties agree. The
mediator shall be such person as the parties mutually agree, but if the parties
have failed to agree on a mediator within seven (7) days after the date on which
any party demands that the parties proceed to mediation, the mediator shall be
selected by the American Arbitration Association or such other mediation
services provider as the parties agree.
(b) OTHER REMEDIES. Failing settlement of the dispute by
negotiation or mediation, the parties shall, unless they mutually agree to
resolve the dispute finally by arbitration, be entitled to pursue their legal
and equitable remedies (subject to the provisions of Section 20 ("Liquidated
Damages-Breach by the Company") in any court having jurisdiction.
20. LIQUIDATED DAMAGES-BREACH BY THE COMPANY. Because the damages
suffered by Employee in such an event would be difficult or impossible to
estimate, establish, ascertain, or prove, and in order to provide Employee with
a remedy in such an event without the necessity and associated cost of Employee
having to establish or prove the damages suffered by Employee as a result
thereof (which remedy the parties hereto have and do agree would be appropriate
and adequate compensation to Employee in such event), in the event that this
Agreement and Employee's employment hereunder shall be terminated (whether by
the Company or Employee) and thereafter Employee shall prevail in any dispute
between Employee and the Company relative to, involving, or concerning the
legality of or justification for the termination of this Agreement and
Employee's employment hereunder and any other issues or matters directly or
indirectly arising out of or in connection with such termination and Employee's
employment by the Company, subject to Section 12 ("Non Competition") Employee
shall be entitled to the continued payment of the Base Salary as provided in
Section 8(b) ("Termination by the Company-Termination Without Cause") as
liquidated and exclusive damages and not as a penalty, and in such case this
Agreement and Employee's employment hereunder, shall for all purposes be treated
as having been terminated by the Company without "cause" pursuant to Section
8(b) ("Termination by the Company-Termination Without Cause").
In the event Employee files any claim, complaint, charge, action, or
lawsuit against the Company or its employees, agents, officers, directors, or
any other person affiliated or associated with the Company, with any
governmental agency, any state or federal court, or any mediation or arbitration
body or group, for or with respect to a matter, claim, or incident, known or
unknown, which has occurred or arisen or which shall hereafter occur or arise
relative to, involving, or concerning the termination of this Agreement and
Employee's employment hereunder (whether as a result of action of Employee or
the Company) and any other issues or matters directly or indirectly arising out
of or in connection with such termination and Employee's employment by the
Company, and in such claim, complaint, action, charge, or lawsuit, Employee
alleges or asserts the right to recover, receive, or be awarded damages from the
Company or its employees, agents, officers, directors, or any other person
affiliated or associated with the Company in addition to or in lieu of the
liquidated damages expressly provided for in this Section 20, Employee hereby
stipulates, agrees, and consents to the dismissal or withdrawal, with prejudice,
of any such claim, complaint, action, charge, or lawsuit (collectively, a
"Dismissable Claim"). In the event that Employee files any Dismissable Claim,
Employee shall be liable to the party or parties against whom the Dismissable
Claim is filed (the "Nonfiling Party") and shall indemnify and save the
Nonfiling Party harmless from all costs and expenses, including, but not limited
to, attorneys fees, incurred by the Nonfiling Party and/or the Nonfiling Party s
officers, agents, employees, directors, and/or any other person affiliated or
associated with the Nonfiling Party, if any, in defending or responding to any
such Dismissable Claim, regardless of whether such defense or response is before
a state or federal court or administrative agency or a mediation or arbitration
body and regardless of who might ultimately be deemed to be the prevailing party
as to any such Dismissable Claim.
21. ATTORNEY'S FEES. Employee and the Company agree that in any dispute
resolution proceedings arising out of this Agreement, the prevailing party shall
be entitled to its or his reasonable attorney's fees and costs incurred by it or
his in connection with resolution of the dispute in addition to any other relief
granted.
22. INDEMNIFICATION. If Employee is made a party to, is threatened to
be made a party to, or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding") by
reason of the fact that he is or was a director, officer, or employee of the
Company or is or was serving at the request of the Company as a director,
officer, employee, or agent of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to employee
benefit plans, whether before, during or after expiration or termination of this
Agreement, the Company shall indemnify and hold Employee harmless to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than such law permitted the Company to provide prior to
such amendment), against all expense, liability, and loss (including attorneys
fees, judgment fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by Employee in connection therewith,
and such indemnification shall continue after Employee ceases to be a director,
officer, employee, or agent of the Company and shall inure to the benefit of
Employee's heirs, executors, and administrators. The right to indemnification
conferred hereby shall include the right to be paid by the Company the
reasonable expenses incurred in defending any Proceeding in advance of its final
disposition as such expenses are incurred. The indemnification provided herein
shall not be deemed exclusive of any other rights to which Employee may be
entitled under the Certificate of Incorporation, Bylaws, any agreement, or vote
of stockholders or disinterested directors of the Company, or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office or position, and shall continue with respect to action in
such capacities even if Employee has thereafter ceased to be a director,
officer, employee, or agent of the Company, and shall inure to the benefit of
Employee's heirs, executors and administrators. Except in the case of fraudulent
conduct or theft, embezzlement, or other criminal misappropriation of funds by
Employee, then nothing in this Agreement waives the Company's obligations under
this paragraph, even if Employee is terminated.
<PAGE>
23. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, then only the portions of this Agreement which violate such
statute or public policy shall be stricken, All portions of this Agreement which
do not violate any statute or public policy shall continue in full force and
effect. Furthermore, any court order striking any portion of this Agreement
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Agreement.
24. NOTICES. All notices under this Agreement shall be in writing and
shall be either personally delivered or mailed postage prepaid, by certified
mail, return receipt requested, (a) if to the Company, to it at 462 West Bearcat
Drive, Salt Lake City, Utah 84115 Attention: President or (b) if to Employee to
him at 462 West Bearcat Drive, Salt Lake City, Utah 84115 by the same means, or
in either party's case to such other address or to the attention of such person
as the party has specified by prior written notice to the other party. Notice
shall be effective when personally delivered, or five (5) business days after
being so mailed.
25. COUNTERPARTS. This Agreement may be executed in counterparts
collectively containing the signatures of each of the parties.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and Employee has hereunto signed this
Agreement, on the date first written above.
MRS. FIELDS' ORIGINAL COOKIES, INC.,
a Delaware Corporation (the "Company")
By:/s/Larry A. Hodges
Name:Larry A. Hodges
Its:President/CEO
/s/Pat Knotts
PAT KNOTTS ("Employee")
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this _____ day of October, 1997, by and between L. TIM PIERCE ("Employee") and
MRS. FIELDS' ORIGINAL COOKIES, INC., a Delaware corporation (the "Company").
RECITAL
Whereas, the Employee is currently employed as a Senior Executive
Officer of the Company pursuant to that certain Employment Agreement, dated
September 12, 1996 (the "Old Agreement"), by and between the Employee and the
Company; and
Whereas, the Company has determined that it is in the Company's
interest to assure the Employee's continuing employment with the Company beyond
the expiration date in the Employee's Old Agreement; and
Whereas, the Employee has determined that it is in his interest
to continue employment with the Company; and
Whereas, upon the execution of this Agreement, the Old Agreement is
automatically terminated and Employee shall have no rights or claims under that
Old Agreement.
Now, Therefore, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Employee and the Company hereby agree as
follows:
AGREEMENT
1. DUTIES. The Company does hereby hire, engage, and employ the
Employee as the Senior Vice President, Chief Financial Officer and Secretary of
the Company and Employee does hereby accept and agree to such hiring,
engagement, and employment. Employee shall serve the Company in such position
fully, diligently, competently, and in conformity with provisions of this
Agreement and the corporate policies of the Company as they presently exist, and
as such policies may be amended, modified, changed, or adopted during the Period
of Employment, as hereinafter defined.
During the Period of Employment Employee shall also serve as the Senior
Vice President, Chief Financial Officer and Secretary of each subsidiary or
affiliate of the Company that is now or that becomes a part of the Mrs. Fields
Company Group. As used in this Agreement, the term the "Mrs. Fields Company
Group" shall mean and refer to the Company and the Company's subsidiaries and
affiliates from time to time.
<PAGE>
Subject to specific elaboration by the Board of Directors of the
Company as to the duties (which shall be consistent herewith and with Employee
offices provided for hereunder) that are to be performed by Employee and the
manner in which such duties are to be performed, the duties of Employee shall
entail those duties customarily performed by a Senior Vice President, Chief
Financial Officer and Secretary of a company with a sales volume and the number
of employees commensurate with those of the Company. Provided, however, that at
all times during the Period of Employment, Employee shall perform those duties
and fulfill those responsibilities and refrain from those activities that are
reasonably prescribed or proscribed by the Board of Directors of the Company to
be performed or refrained from by his consistent with his positions with the
Company.
Employee shall be responsible and report only to the Company's
President and Chief Executive Officer.
Throughout the Period of Employment, Employee shall devote his full
time, energy, and skill to the performance of his duties for the Company and for
the benefit of the Company and the Mrs. Fields Company Group. The foregoing
notwithstanding, Employee shall be permitted to (i) engage in charitable and
community affairs, (ii) act as a director of any corporations or organizations
outside the Mrs. Fields Company Group not in competition with the Company or any
member of the Mrs. Fields Company Group and to manage such investments, not to
exceed three (3) in number, and receive compensation therefore, and (iii) to
make investments of any character in any business or businesses not in
competition with the Company or any member of the Mrs. Fields Company Group and
to manage such investments (but not be involved in the day to day operations of
any such business), provided, in each case and collectively, that the same does
or do not constitute or involve Employee in a conflict of interest
the Company or any member of the Mrs. Fields Company Group or
interfere with the performance of Employee's duties under this Agreement.
Employee shall exercise due diligence and care in the performance of
his duties for and the fulfillment of his obligations to the Company under this
Agreement.
The Company shall furnish Employee with office, secretarial and other
facilities and services as are reasonably necessary or appropriate for the
performance of Employee's duties hereunder and consistent with his position as
the Senior Vice President, Chief Financial Officer and Secretary of the Company.
2. PERIOD OF EMPLOYMENT. The Period of Employment (as defined below)
shall, unless sooner terminated as provided herein, be the two (2) year period
commencing on the date of execution of this Agreement.
Unless the Company gives notice of termination as provided under this
Agreement, this Agreement will automatically renew on each annual anniversary
from the execution of this Agreement for a successive two-year period.
3. COMPENSATION.
(a) BASE SALARY. During the Period of Employment, the Company
shall pay Employee, and Employee agrees to accept from the Company, in payment
for his services a base salary of One Hundred Seventy-Five Thousand Dollars
($175,000.00) per year ("Base Salary"), payable in equal semi-monthly
installments or at such other time or times as Employee and the Company shall
agree. Upward adjustment to the Base Salary shall be considered by the Company's
Board of Directors not less frequently than annually. The Company's Board of
Directors at any time or times may, but shall have no obligation to, supplement
Employee's salary by such bonuses and/or other special payments and benefits as
the Board of Directors of the Company in its sole and absolute discretion may
determine.
(b) INCENTIVE COMPENSATION. During the Period of Employment, Employee
shall:
(i) participate in any incentive compensation plan adopted by the
Company; or
(ii) if the Company, for any reason, shall not adopt and
implement an incentive compensation plan in replacement of the 1997
Incentive Plan for eligible employees of the Company (including
Employee), Company and Employee agree that this Agreement shall
provide Employee with the opportunity to earn and be paid incentive
compensation to the same extent that he was eligible to earn and be
paid incentive compensation under the incentive compensation plan
under which, pursuant to the provisions of this Section 3(b), Employee
was most recently eligible to earn and be paid incentive compensation
by the Company.
4. FRINGE BENEFITS. During the Period of Employment, Employee shall be
entitled to the following fringe benefits.
(a) BENEFIT PLANS. Employee shall be entitled to participate
in all benefit plans and programs generally available to all other senior
management employees of the Company or to all employees of the Company working
in Salt Lake City, Utah, subject to any restrictions specified in such plans and
to receive such other benefits and conditions of employment as are provided to
all other senior officers or executives of the Company as of the date of this
Agreement.
(b) EQUITY PLAN. Employee shall be entitled to participate in
an equity based plan or arrangement (the "Equity Plan") consistent with the
letter from Herbert S. Winokur, Jr. to Lawrence Hodges, dated August 5, 1996. In
the event that (i) the Company fails to adopt the Equity Plan, Employee may
terminate this Agreement and his employment hereunder with Good Reason, as
hereinafter defined, in accordance with the provisions of Section 9(b)
("Termination by Employee-Termination-With Good Reason"). Employee's right to
terminate this Agreement and his employment hereunder with Good Reason in
accordance with said Section 9(b) shall be Employee's sole and exclusive remedy
for or resulting from the failure, for any reason, of the Company or its Board
of Directors to create or implement the Equity Plan or to take any other action
specified in this Section 4(b).
Anything in this Agreement or in such plan or arrangement to the
contrary notwithstanding, the inclusion in such plan or arrangement of any
provision(s) addressing participation by Employee in such plan or arrangement
for a period of years shall not be interpreted as a promise of continued
employment by the Company for such period of years or any other period of time.
The plan or arrangement to be proposed by Employee shall provide that
any payments made thereunder, in conjunction with any other payments that
constitute "parachute payments" (as defined in Section 280G(b)(A) of the
Internal Revenue Code) (the "Code"), shall be limited such that no such payments
or portions thereof constitute an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code) or are otherwise nondeductible by the Company
for tax purposes under any other provision of the Code.
(c) VACATION AND OTHER LEAVE. Employee shall be entitled to
such amounts of paid vacation and other leave, but not less than three (3) weeks
vacation per twelve-month period of employment, as from time to time may be
allowed to the Company's senior management personnel generally, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies applicable to such personnel.
(d) VESTING ON DEATH OR DISABILITY. Upon any termination of
this Agreement and Employee's employment hereunder by reason of Employee's death
or Permanent Disability, as defined in Section 7(b) ("Death or Disability -
Definition of Permanently Disabled and Permanent Disability"), provided that the
terms and provisions of such plan and applicable law permit, any theretofore
deferred or unvested portion of any award made to Employee in respect of any
retirement, pension, profit sharing, long term incentive, and similar plans
automatically shall become fully vested in Employee and shall be nonforfeitable,
and shall continue in effect and be redeemable by or payable to Employee (or his
designated beneficiary or estate) at the time and on the same conditions as
would have applied had Employee's employment not been so terminated. It is
expressly provided, however, that nothing in this Section 4(d) shall obligate
the Company to provide full vesting upon death or disability in connection with
participation by Employee in the equity plan or arrangement contemplated under
Section 4(b) ("Fringe Benefits-Equity Plan"), further, the provisions governing
payment of any incentive compensation payable to Employee pursuant to the
incentive compensation plan(s) referred to in Section 3(b)
("Compensation-Incentive Compensation") shall govern any payment of incentive
compensation due thereunder in the event of Employee's death or disability.
5. BUSINESS EXPENSES AND AUTOMOBILE ALLOWANCE. During the
Period of Employment, the Company shall pay, or in case paid by Employee in the
first instance, reimburse Employee for, any and all necessary, customary, and
usual expenses incurred by him in connection with the performance of his duties
hereunder, including, without limitation, all traveling expenses, and
entertainment expenses, upon submission of appropriate vouchers and
documentation.
<PAGE>
To the extent provided to all other senior officers or executives of
the Company, during the Period of Employment, Employee shall be entitled to
receive an automobile allowance and reimbursement for expenses associated with
the operation and maintenance of an automobile which is comparable to Employee's
current automobile. The Company will reimburse Employee upon presentation of
vouchers and documentation for any such operational and maintenance expenses
which are consistent with the usual accounting procedures of the Company.
6. NO OTHER BENEFITS OR COMPENSATION. Employee, as a result of
his employment by the Company, shall be entitled to only the compensation and
benefits provided for in this Agreement, subject to the terms thereof, and no
others.
7. DEATH OR DISABILITY.
(a) TERMINATION OF EMPLOYMENT. If Employee dies during the Period
of Employment, Employee's employment shall automatically cease and
terminate as of the date of Employee's death.
If Employee becomes Permanently Disabled (as hereinafter
defined) while employed by the Company, (i) Employee's employment and the
Company's obligations hereunder, including the payment of Base Salary pursuant
to Section 3(a) ("Compensation-Base Salary") shall continue for a period of
ninety (90) days from the date on which the Employee is determined to be
Permanently Disabled ("Employee s Disability Date"), and (ii) ninety (90) days
after the Employee's Disability Date, Employee's employment and all obligations
of the Company hereunder shall automatically cease and terminate.
In the case of Employee's death or Permanent Disability (as
hereinafter defined), the Company shall be obligated to pay to Employee (or to
Employee s estate in the case of Employee's death) any Base Salary and any
incentive compensation accrued to Employee as of the date of the Employee's
death, or in the case of Employee's Permanent Disability, as of the Employee's
Disability Date. In the event Employee's employment is terminated on account of
Employee's Permanent Disability, he shall, so long as his Permanent Disability
continues, remain eligible for all benefits provided under any long-term
disability programs of the Company in effect at the time of such termination,
subject to the terms and conditions of any such programs, as the same may be
changed, modified, or terminated for or with respect to all senior management
personnel of the Company.
(b) DEFINITION OF PERMANENTLY DISABLED AND PERMANENT DISABILITY. For
purposes of this Agreement (other than Sections 4 (a) ("Fringe
Benefits-Benefit Plans"), 4 (d) ("Fringe Benefits-Vesting on Death or
Disability"), and the provisions relating to disability insurance contained
in the last sentence of Section 7(a) ("Death or Disability-Termination of
Employment"), the terms "Permanently Disabled" and "Permanent Disability"
shall mean Employee's inability, because of physical or mental illness or
injury, to perform substantially all of his customary duties pursuant to
this Agreement, and the continuation of such disabled condition for a
period of ninety (90) continuous days, or for not less than one hundred
eighty (180) days during any continuous twenty-four (24) month period.
Whether Employee is Permanently Disabled shall be certified to the Company
by a Qualified Physician (as hereinafter defined), or if requested by
Employee a panel of three Qualified Physicians. If Employee requests such a
panel, Employee and the Company shall each select a Qualified Physician who
together shall then select a third Qualified Physician. The determination
of the individual Qualified Physician or the panel, as the case may be,
shall be binding and conclusive for all purposes. As used herein, the term
"Qualified Physician" shall mean any medical doctor who is licensed to
practice medicine in the State of Utah and is reasonably acceptable to each
of Employee and the Company. Employee and the Company may in any instance,
and in lieu of a determination by a Qualified Physician or panel of
Qualified Physicians, agree between themselves that Employee is Permanently
Disabled. The terms Permanent Disability and Permanently Disabled as used
herein may have meanings different from those used in any disability
insurance policy or program maintained by Employee or the Company.
8. TERMINATION BY THE COMPANY.
(a) TERMINATION FOR CAUSE. The Company, by
action of its Board of Directors, may, by providing written notice to Employee,
terminate the employment of Employee under this Agreement for "cause" at any
time. The term "cause" for purpose of this Agreement shall mean:
(i) The refusal of Employee to implement or adhere to lawful policies or
directives of the Board of Directors of the Company consistent with this
Agreement; or
(ii) Employee's conviction of or entrance of a plea of nolo
contendere to (A) a felony, (B) to any other crime, which other crime
is punishable by incarceration for a period of one (1) year or longer,
or (C) other conduct of a criminal nature that may have an adverse
impact on the Company s reputation and standing in the community; or
(iii) conduct that is in violation of Employee's common law duty
of loyalty to the Company; or
(iv) fraudulent conduct by Employee in connection with the
business affairs of the Company, regardless of whether said conduct is
designed to defraud the Company or others; or
(v) theft, embezzlement, or other criminal misappropriation of
funds by
Employee, whether from the Company or any other person; or
(vi) any breach of or Employee's failure to fulfill any of
Employee's obligations, covenants, agreements, or duties under this
Agreement.
<PAGE>
Provided, however, that "cause" pursuant to clause (i) or (vi) shall not be
deemed to exist unless the Company has given Employee written notice thereof
specifying in reasonable detail the facts and circumstances alleged to
constitute "cause", and thirty (30) days after such notice such conduct or
circumstances has not entirely ceased or been entirely remedied. If Employee's
employment is terminated for "cause," the termination shall take effect upon the
effective date (pursuant to Section 24 ("Notices")) of written notice of such
termination to Employee. In the event Employee's employment is terminated for
"cause," then except for unpaid accrued vacation, the Company shall have no
obligation to pay Employee any amounts, including, but not limited to Base
Salary, for or with respect to any period after the effective date of the
termination of Employee's employment for "cause," including any obligation under
the replacement to the 1994 Incentive Plan or the Equity Plan.
If the Company attempts to terminate Employee's employment pursuant to
this Section 8(a) and it is ultimately determined that the Company lacked
"cause," the provisions of Section 8(b) ("Termination by the Company-Termination
Without Cause") shall apply, and Employee's sole and exclusive remedy for such
breach of this Agreement by the Company and/or any other damages that Employee
shall have suffered or incurred of any nature whatsoever, shall be to receive
the payments expressly called for by Section 8(b) ("Termination by the
Company-Termination Without Cause") with interest on any past due payments at
the rate of eight percent (8%) per year from the date on which the applicable
payment would have been made pursuant to Section 8(b) ("Termination by the
Company-Termination Without Cause") plus Employee's costs and expenses
(including but not limited to reasonable attorneys' fees) incurred in connection
with such dispute.
(b) TERMINATION WITHOUT CAUSE. The Company may, with or without reason,
terminate Employee's employment under this Agreement without "cause" at any
time, by providing Employee thirty (30) days prior written notice of such
termination. If Employee's employment is terminated pursuant to this
Section 8(b), Employee shall not be obligated to render services to the
Company following the effective date of such notice (the "Notice Date")
except such services as are requested by the Company pursuant to Section 11
("Transition Period Services"), and as its sole and exclusive obligation
and duty to Employee resulting directly or indirectly from the termination
of Employee's employment with the Company and in full and complete
settlement of any and all claims that Employee may have or claim to have
arising directly or indirectly out of the termination of his employment
with the Company, the Company shall, subject to Section 12 ("Non
Competition") pay Employee, as severance pay, an amount (the "Severance
Amount") equal to the product of multiplying the then current semi-monthly
base salary by thirty-six (36) semi-monthly periods (the "Severance
Period"). The Severance Amount shall be payable by the Company to Employee
in an amount equal to the Base Salary payable in twelve (12) equally
monthly installments commencing on the Notice Date. The Company shall also
pay to the Employee a portion of any discretionary bonus (the "Bonus
Portion"), as determined by the Company's Board of Directors, referred to
in Section 3(a) ("Compensation-Base Salary"), that, but for the termination
of Employee's employment, would have been paid to Employee for or with
respect to the calendar year in which Employee's employment is terminated.
The Bonus Portion shall consist of that percentage of the said
discretionary bonus determined by dividing the number of full or partial
calendar months during the calendar year in which Employee's employment is
terminated that Employee was in the employ of the Company by twelve (12).
Until the end of the Severance Period or until Employee is gainfully
employed by another employer, which ever time period is less, the Company
shall allow Employee to continue participation in the Company s group
health insurance plan at the Company's expense. In accordance with all
applicable laws, Employee shall be extended all COBRA rights and benefits
at the end of the Severance Period.
9. TERMINATION BY EMPLOYEE.
(a) TERMINATION-WITHOUT GOOD REASON. Employee shall have the
right to terminate this Agreement and his employment hereunder at any time upon
thirty (30) days prior written notice of such termination to the Company. Except
as expressly set forth in Section 11 ("Transition Period Services"), upon the
effective date of any such termination all obligations and rights of Employee
and the Company hereunder shall terminate and cease.
(b) TERMINATION-WITH GOOD REASON. If the Company:
(i) requires Employee to relocate his home, without Employee's
consent, to a location which is more than 75 miles from 462 West
Bearcat Drive, Salt Lake City, Utah 84115; or
(ii) fails to provide Employee with the compensation and benefits
called for by this Agreement; or
(iii) assigns Employee to a lower organizational level than the
level at which he is on the date of this Agreement assigned, or
substantially diminishes Employee's assignment, duties,
responsibilities, or operating authority from those specified in
Section 1 ("Duties"); or
(iv) fails to implement an incentive compensation plan required
by Section 3(b) ("Compensation-Incentive Compensation"); or
(v) fails to implement an equity plan or arrangement required by
Section 4(b) ("Fringe Benefits-Equity Plan"); or
(vi) is divested, by sale, closure, liquidation, foreclosure, or
other means, of any substantial part of its assets or business as now
held or conducted; or
(vii) breaches this Agreement and such breach continues for a
period of thirty (30) days after written notice thereof given by
Employee to the Company, then any one or more of such circumstances
shall constitute "Good Reason", and, subject to the provisions of
Section 10 ("Means and Effect of Termination"), Employee shall have
the right to terminate this Agreement and his employment hereunder for
Good Reason, if, thirty (30) days after the effective date of
Employee's notice to the Company of such circumstances constituting
Good Reason, such circumstances continue to exist, and for all
purposes of this Agreement any such termination of this Agreement by
Employee shall have the same effects under this Agreement as the
termination of the Employee's employment under this Agreement by
Company without "cause."
<PAGE>
10. MEANS AND EFFECT OF TERMINATION. Any termination of Employee's
employment under this Agreement shall be communicated by written notice of
termination from the terminating party to the other party. The notice of
termination shall indicate the specific provision(s) of this Agreement relied
upon in effecting the termination and shall set forth in reasonable detail the
facts and circumstances alleged to provide a basis for termination, if any such
basis is required by the applicable provision(s) of this Agreement. Any notice
of termination by the Company shall be approved by a resolution duly adopted by
a majority of the directors of the Company then in office. The burden of
establishing the existence of "cause" or Good Reason shall be upon the
terminating party. If Employee's employment is terminated by either party, then
promptly after the effective date of such termination or in the manner and at
the time or times provided in the relevant Section of this Agreement, the
Company promptly shall provide and pay to Employee, or in case of his death his
estate or heirs, all compensation, benefits, and reimbursements due or payable
to Employee for the period to the effective date of the termination. To the
extent permitted by applicable law, the calendar month in which Employee's
employment is terminated shall be counted as a full month in determining amount
and vesting of any benefits under benefit plans of the Company.
11. TRANSITION PERIOD SERVICES. In the event Employee's employment is
terminated by the Company pursuant to section 8(b) ("Termination by the
Company-Termination Without Cause") or by Employee pursuant to Section 9(a)
("Termination by Employee-Without Good Reason"), if requested by the Company in
writing, Employee shall render such services, on a part-time basis for a period
not to exceed sixty (60) days after the effective date of the notice of
termination (whether given by the Company or by Employee), as the Company's
Board of Directors reasonably requests for transition purposes. Employee shall
receive no compensation for such services, other than the payment of Base Salary
as provided in Section 8(b) ("Termination by the Company-Termination Without
Cause") and reimbursement for expenses incurred by Employee in providing such
services as provided in, and subject to the provisions of, Section 5 ("Business
Expenses and Automobile Allowance")
12. NON COMPETITION. For a period of one year from the date of the
termination of Employee's employment hereunder, Employee shall not become an
employee, owner (except for passive investments of not more than three percent
(3%) of the outstanding shares of, or any other equity interest in, any company
or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent or director of any firm or
person which either directly competes with a line or lines of business of the
Company accounting for ten percent (10%) or more of the Company's gross sales,
revenues or earnings before taxes. If, in any judicial proceeding, a court shall
refuse to enforce all of the separate covenants deemed included in this
paragraph, the parties intend that those of such covenants which, if eliminated,
would permit the remaining separate covenants to be enforced in such proceedings
shall, for the purpose of such proceedings, be deemed eliminated from the
provisions of this Section 12.
In addition to any other remedies that may otherwise be available for a
breach of Section 12 hereof by Employee, Employee agrees that in the event of
such breach he shall irrevocably forfeit any right he may have to any remaining
severance payment to be made under Section 8(b) ("Termination by the
Company-Termination Without Cause") subsequent to such breach.
13. ASSIGNMENT. This Agreement is personal in its nature and neither of
the parties hereto shall, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; provided, however, that,
in the event of the merger, consolidation, or transfer or sale of all or
substantially all of the assets of the Company with or to any other individual
or entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations hereby
created between the parties hereto shall be governed by and construed under and
in accordance with the internal laws of the State of Utah, which internal laws
exclude any law or rule of the State of Utah, or any interpretation thereof,
that would require or call for the application of the laws of any other state or
jurisdiction hereto.
15. ENTIRE AGREEMENT. Except with respect to final agreement regarding
those open incentive compensation matters described in Section 3(b)
("Compensation-Incentive Compensation") and the equity plan or arrangement
contemplated under Section 4(b) ("Fringe Benefits-Equity Plan"), this Agreement
embodies the entire agreement of the parties hereto respecting the matters
within its scope. This Agreement supersedes all prior agreements of the parties
hereto on the subject matter hereof. Any prior negotiations, correspondence,
agreements, proposals, or understandings relating to the subject matter hereof
shall he deemed to be merged into this Agreement and to the extent inconsistent
herewith, such negotiations, correspondence, agreements, proposals, or
understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as set forth
herein.
This Agreement shall not be modified by any oral agreement, either
express or implied, and all modifications hereof shall be in writing and be
signed by the parties hereto. The provisions of this and the immediately
preceding sentence themselves may not be modified, either orally or by conduct,
either express or implied, and it is the declared intention of the parties
hereto that no provision of this Agreement, including said two sentences, shall
be modifiable in any way or manner whatsoever other than through a written
document signed by the parties hereto.
16. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
17. NUMBER AND GENDER. Where the context requires, the singular shall
include the plural, the plural shall include the singular, and any gender shall
include all other genders.
18. SECTION HEADINGS. The section headings in this Agreement are for
the purpose of convenience only and shall not limit or otherwise affect any of
the terms hereof.
<PAGE>
19. DISPUTE RESOLUTION.
(a) NEGOTIATION AND MEDIATION. In the event any dispute arises
hereunder, the parties shall first attempt to resolve the dispute by negotiation
in good faith. If the dispute cannot be timely resolved through negotiation, the
parties will, before resorting to any of their remedies at law or in equity, try
to settle the dispute in good faith by mediation in Salt Lake City, Utah or such
other location as the parties may agree, under the then operative mediation
rules of the American Arbitration Association or such other mediation tribunal
or private mediator or medication services provider as the parties agree. The
mediator shall be such person as the parties mutually agree, but if the parties
have failed to agree on a mediator within seven (7) days after the date on which
any party demands that the parties proceed to mediation, the mediator shall be
selected by the American Arbitration Association or such other mediation
services provider as the parties agree.
(b) OTHER REMEDIES. Failing settlement of the dispute by
negotiation or mediation, the parties shall, unless they mutually agree to
resolve the dispute finally by arbitration, be entitled to pursue their legal
and equitable remedies (subject to the provisions of Section 20 ("Liquidated
Damages-Breach by the Company") in any court having jurisdiction.
20. LIQUIDATED DAMAGES-BREACH BY THE COMPANY. Because the damages
suffered by Employee in such an event would be difficult or impossible to
estimate, establish, ascertain, or prove, and in order to provide Employee with
a remedy in such an event without the necessity and associated cost of Employee
having to establish or prove the damages suffered by Employee as a result
thereof (which remedy the parties hereto have and do agree would be appropriate
and adequate compensation to Employee in such event), in the event that this
Agreement and Employee's employment hereunder shall be terminated (whether by
the Company or Employee) and thereafter Employee shall prevail in any dispute
between Employee and the Company relative to, involving, or concerning the
legality of or justification for the termination of this Agreement and
Employee's employment hereunder and any other issues or matters directly or
indirectly arising out of or in connection with such termination and Employee's
employment by the Company, subject to Section 12 ("Non Competition") Employee
shall be entitled to the continued payment of the Base Salary as provided in
Section 8(b) ("Termination by the Company-Termination Without Cause") as
liquidated and exclusive damages and not as a penalty, and in such case this
Agreement and Employee's employment hereunder, shall for all purposes be treated
as having been terminated by the Company without "cause" pursuant to Section
8(b) ("Termination by the Company-Termination Without Cause").
In the event Employee files any claim, complaint, charge, action, or
lawsuit against the Company or its employees, agents, officers, directors, or
any other person affiliated or associated with the Company, with any
governmental agency, any state or federal court, or any mediation or arbitration
body or group, for or with respect to a matter, claim, or incident, known or
unknown, which has occurred or arisen or which shall hereafter occur or arise
relative to, involving, or concerning the termination of this Agreement and
Employee's employment hereunder (whether as a result of action of Employee or
the Company) and any other issues or matters directly or indirectly arising out
of or in connection with such termination and Employee's employment by the
Company, and in such claim, complaint, action, charge, or lawsuit, Employee
alleges or asserts the right to recover, receive, or be awarded damages from the
Company or its employees, agents, officers, directors, or any other person
affiliated or associated with the Company in addition to or in lieu of the
liquidated damages expressly provided for in this Section 20, Employee hereby
stipulates, agrees, and consents to the dismissal or withdrawal, with prejudice,
of any such claim, complaint, action, charge, or lawsuit (collectively, a
"Dismissable Claim"). In the event that Employee files any Dismissable Claim,
Employee shall be liable to the party or parties against whom the Dismissable
Claim is filed (the "Nonfiling Party") and shall indemnify and save the
Nonfiling Party harmless from all costs and expenses, including, but not limited
to, attorneys fees, incurred by the Nonfiling Party and/or the Nonfiling Party s
officers, agents, employees, directors, and/or any other person affiliated or
associated with the Nonfiling Party, if any, in defending or responding to any
such Dismissable Claim, regardless of whether such defense or response is before
a state or federal court or administrative agency or a mediation or arbitration
body and regardless of who might ultimately be deemed to be the prevailing party
as to any such Dismissable Claim.
21. ATTORNEY'S FEES. Employee and the Company agree that in any dispute
resolution proceedings arising out of this Agreement, the prevailing party shall
be entitled to its or his reasonable attorney's fees and costs incurred by it or
his in connection with resolution of the dispute in addition to any other relief
granted.
22. INDEMNIFICATION. If Employee is made a party to, is threatened to
be made a party to, or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding") by
reason of the fact that he is or was a director, officer, or employee of the
Company or is or was serving at the request of the Company as a director,
officer, employee, or agent of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to employee
benefit plans, whether before, during or after expiration or termination of this
Agreement, the Company shall indemnify and hold Employee harmless to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than such law permitted the Company to provide prior to
such amendment), against all expense, liability, and loss (including attorneys
fees, judgment fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by Employee in connection therewith,
and such indemnification shall continue after Employee ceases to be a director,
officer, employee, or agent of the Company and shall inure to the benefit of
Employee's heirs, executors, and administrators. The right to indemnification
conferred hereby shall include the right to be paid by the Company the
reasonable expenses incurred in defending any Proceeding in advance of its final
disposition as such expenses are incurred. The indemnification provided herein
shall not be deemed exclusive of any other rights to which Employee may be
entitled under the Certificate of Incorporation, Bylaws, any agreement, or vote
of stockholders or disinterested directors of the Company, or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office or position, and shall continue with respect to action in
such capacities even if Employee has thereafter ceased to be a director,
officer, employee, or agent of the Company, and shall inure to the benefit of
Employee's heirs, executors and administrators. Except in the case of fraudulent
conduct or theft, embezzlement, or other criminal misappropriation of funds by
Employee, then nothing in this Agreement waives the Company's obligations under
this paragraph, even if Employee is terminated.
<PAGE>
23. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, then only the portions of this Agreement which violate such
statute or public policy shall be stricken, All portions of this Agreement which
do not violate any statute or public policy shall continue in full force and
effect. Furthermore, any court order striking any portion of this Agreement
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Agreement.
24. NOTICES. All notices under this Agreement shall be in writing and
shall be either personally delivered or mailed postage prepaid, by certified
mail, return receipt requested, (a) if to the Company, to it at 462 West Bearcat
Drive, Salt Lake City, Utah 84115 Attention: President or (b) if to Employee to
him at 462 West Bearcat Drive, Salt Lake City, Utah 84115 by the same means, or
in either party's case to such other address or to the attention of such person
as the party has specified by prior written notice to the other party. Notice
shall be effective when personally delivered, or five (5) business days after
being so mailed.
25. COUNTERPARTS. This Agreement may be executed in counterparts
collectively containing the signatures of each of the parties.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and Employee has hereunto signed this
Agreement, on the date first written above.
MRS. FIELDS' ORIGINAL COOKIES, INC.,
a Delaware Corporation (the "Company")
By:/s/Larry A. Hodges
Name:Larry A. Hodges
Its:President/CEO
/s/L. Tim Pierce
L. TIM PIERCE ("Employee")
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 1st day of July, 1996, by and between LAWRENCE HODGES ("Employee") and MRS.
FIELDS' ORIGINAL COOKIES, INC., a Delaware corporation (the "Company").
RECITAL
This Agreement is made and entered into with reference to the following
facts and objectives:
The Company desires to establish its right to the services of Employee
in the capacities described below, on the terms and conditions hereinafter set
forth, and Employee is willing to accept such employment on such terms and
conditions.
The Company is proposing to acquire certain assets from Mrs. Fields
Inc., a Delaware corporation ("MFI'), and certain of its subsidiaries (the
"Acquisition"), and conditional upon the closing of such acquisition, Employee
will be appointed the President and Chief Executive Officer of the Company.
Therefore, in consideration of the mutual agreements hereinafter set
forth, Employee and the Company have agreed and do hereby agree as follows:
AGREEMENT
1. DUTIES. The Company does hereby hire, engage, and employ the
Employee as the President and Chief Executive Officer of the Company, and
Employee does hereby accept and agree to such hiring, engagement, and
employment. Employee shall serve the Company in such positions fully,
diligently, competently, and in conformity with provisions of this Agreement and
the corporate policies of the Company as they presently exist, and as such
policies may be amended, modified, changed, or adopted during the Period of
Employment, as hereinafter defined.
During the Period of Employment Employee shall also serve as the Chief
Executive Officer and President of each subsidiary or affiliate of the
Company that is now or that becomes a part of the Mrs. Fields Company
Group. As used in this Agreement, the term the
"Mrs. Fields Company Group" shall mean and refer to the Company and the
Company's subsidiaries and affiliates from time to time.
Subject to specific elaboration by the Board of Directors of the
Company as to the duties (which shall be consistent herewith and with Employee's
offices provided for hereunder) that are to be performed by Employee and the
manner in which such duties are to be performed, the duties of Employee shall
entail those duties customarily performed by a president and chief executive
officer of a company with a sales volume and the number of employees
commensurate with those of the Company. Provided, however, that at all times
during the Period of Employment, Employee shall perform those duties and fulfill
those responsibilities and refrain from those activities that are reasonably
prescribed or proscribed by the Board of Directors of the Company to be
performed or refrained from by him consistent with his positions with the
Company.
<PAGE>
Employee shall be responsible and report only to the Company's full
Board of Directors and to said Board's Executive Committee.
During the Period of Employment, the Company shall use its best efforts
to cause Employee to be elected a member of the Company's Board of Directors,
provided Employee is legally qualified to so serve, and Employee shall, if so
elected serve as a member of the Company's Board of Directors for no additional
consideration.
Throughout the Period of Employment, Employee shall devote his full
time, energy, and skill to the performance of his duties for the Company and for
the benefit of the Company and the Mrs. Fields Company Group, vacations and
other leave authorized under this Agreement excepted. The foregoing
notwithstanding, Employee shall be permitted to (i) engage in charitable and
community affairs, (ii) act as a director of any corporations or organizations
outside the Mrs. Fields Company Group not in competition with the Company or any
member of the Mrs. Fields Company Group and to manage such investments, not to
exceed three (3) in number, and receive compensation therefore, and (iii) to
make investments of any character in any business or businesses not in
competition with the Company or any member of the Mrs. Fields Company Group and
to manage such investments (but not be involved in the day to day operations of
any such business), provided, in each case and collectively, that the same does
or do not constitute or involve Employee in a conflict of interest vis-a-vis the
Company or any member of the Mrs. Fields Company Group or interfere with the
performance of Employee's duties under this Agreement.
Employee shall exercise due diligence and care in the performance of
his duties for and the fulfillment of his obligations to the Company under this
Agreement.
2
The Company shall furnish Employee with office, secretarial and other
facilities and services as are reasonably necessary or appropriate for the
performance of Employee's duties hereunder and consistent with his positions as
the President and Chief Executive Officer of the Company.
2. PERIOD OF EMPLOY'MENT. The Period of Employment shall, unless sooner
terminated as provided herein, be three (3) years commencing on the closing of
the Acquisition and ending with the close of business on the third anniversary
of the closing of the Acquisition (the "Period of Employment"). Employee hereby
acknowledges and agrees that effective as of, and conditional upon the closing
of, the Acquisition, he shall have no rights or claims under his existing
employment agreement with MFI.
<PAGE>
No later than three hundred and sixty (360) days prior to the end of the
Period of Employment, the Company and the Employee shall commence discussions
concerning a possible extension or modification of this Agreement. Upon the
mutual agreement of Company and Employee, Employee's employment with Company may
be continued beyond the Period of Employment on an "at will" basis on such terms
and conditions as Company and Employee may then agree.
3. COMPENSATION.
(a) BASE SALARY. During the Period of Employment, the Company
shall pay Employee, and Employee agrees to accept from the Company, in payment
for his services a base salary of Three Hundred Thousand Dollars ($300,000) per
year ("Base Salary"), payable in equal semi-monthly installments or at such
other time or times as Employee and the Company shall agree. Upward adjustment
to the Base Salary shall be considered by the Company's Board of Directors not
less frequently than annually. The Company's Board of Directors at any time or
times may, but shall have no obligation to, supplement Employee's salary by such
bonuses and/or other special payments and benefits as the Board of Directors of
the Company in its sole and absolute discretion may determine.
(b) INCENTIVE COMPENSATION. During the Period of Employment,
Employee shall:
(i) participate in any incentive compensation plan adopted by the
Company in replacement for the Fiscal 1994 Incentive Compensation
Plan of MFI (the "1994 Incentive Plan"); or
(ii) if the Company, for any reason, shall not adopt and implement an
incentive compensation plan in replacement of the 1994 Incentive
Plan for eligible
3
<PAGE>
employees of the Company (including Employee), Company and Employee so that this
Agreement shall provide Employee with the opportunity to earn and be paid
incentive compensation to the same extent that he was eligible to earn and be
paid incentive compensation under the incentive compensation plan under which,
pursuant to the provisions of this Section 3(b), Employee was most recently
eligible to earn and be paid incentive compensation by MFI.
4. FRINGE BENEFITS. During the Period of Employment, Employee
shall be entitled to the following fringe benefits.
(a) BENEFIT PLANS. Employee shall be entitled to participate
in all benefit plans and programs generally available to all other senior
management employees of the Company or to all employees of the Company working
in Salt Lake City, Utah, subject to any restrictions specified in such plans and
to receive such other benefits and conditions of employment as are provided to
all other senior officers or executives of the Company as of the date of this
Agreement.
(b) EQUITY PLAN. Employee shall be entitled to participate in an
equity-based plan or arrangement, such as a stock option, stock appreciation
rights, or other equity incentive plan or arrangement for senior management
employees of the Company, including Employee (the "Equity Plan"). On or before
July 31, 1996, the Company shall propose the terms of the Equity Plan to the
Company's Board of Directors for its review and consideration. In the event that
(i) the Company fails to propose the terms of the Equity Plan on or before July
31, 1996, (ii) by not later than ninety (90) days after the date the terms of
the Equity Plan are proposed by the Company to its Board of Directors, the
Company's Board of Directors fails to approve implementation of the Company of
the Equity Plan on the terms so proposed or on terms that are at least as
favorable to senior management of the Company, including Employee, as those
proposed by the Company, or (iii) the Company fails to implement the Equity Plan
within sixty (60) days after the date on which the implementation thereof was
approved by Company's Board of Directors, Employee may terminate this Agreement
and his employment hereunder without Good Reason, as hereinafter defined, in
accordance with the provisions of Section 9(a) ("Termination by Employee
Termination With Good Reason"). Employee's right to terminate this Agreement and
his employment hereunder without Good Reason in accordance with said Section
9(a) shall be Employee's sole and exclusive remedy for or resulting from the
failure, for any reason, of the Company or its Board of Directors to create or
implement the Equity Plan or to take any other action specified in this Section
4(b), and, therefore, Employee shall not, in any such case, have any right to
terminate this Agreement or his employment hereunder with Good Reason.
<PAGE>
Anything in this Agreement or in such plan or arrangement to the
contrary notwithstanding, the inclusion in such plan or arrangement of any
provision(s) addressing participation by Employee in such plan or arrangement
for a period of years shall not be interpreted as a promise of continued
employment by the Company for such period of years or any other period of time.
The plan or arrangement to be proposed by Employee shall provide that
any payments made thereunder, in conjunction with any other payments that
constitute "parachute payments" (as defined in Section 28OG(b)(A) of the
Internal Revenue Code) (the "Code"), shall be limited such that no such payments
or portions thereof constitute an "excess parachute payment" (as defined in
Section 28OG(b)(1) of the Code) or are otherwise nondeductible by the Company
for tax purposes under any other provision of the Code.
(c) VACATION AND OTHER LEAVE. Employee shall be entitled to
such amounts of paid vacation and other leave, but not less than three (3) weeks
vacation per twelve-month period of employment, as from time to time may be
allowed to the Company' s senior management personnel generally, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies applicable to such personnel.
(d) VESTING ON DEATH OR DISABILITY. Upon any termination of
this Agreement and Employee's employment hereunder by reason of Employee's death
or Permanent Disability, as defined in Section 7(b) ("Death or Disability -
Definition of Permanently Disabled and Permanent Disability"), provided that the
terms and provisions of such plan and applicable law permit, any theretofore
deferred or unvested portion of any award made to Employee in respect of any
retirement, pension, profit sharing, long term incentive, and similar plans
automatically shall become fully vested in Employee shall be nonforfeitable, and
shall continue in effect and be redeemable by or payable to Employee (or his
designated beneficiary or estate) at the time and on the same conditions as
would have applied had Employee's employment not been so terminated. It is
expressly provided, however, that nothing in this Section 4(d) shall obligate
the Company to provide full vesting upon death or disability in connection with
participation by Employee in the equity plan or arrangement contemplated under
Section 4(b) ("Fringe Benefits-Equity Plan"), further, the provisions governing
payment of any incentive compensation payable to Employee pursuant to the
incentive compensation plan(s) referred to in Section 3(b)
("Compensation-Incentive Compensation") shall govern any payment of incentive
compensation due thereunder in the event of Employee's death or disability.
5. BUSINESS EXPENSES AND AUTOMOBILE ALLOWANCE. During the Period of Employment,
the Company shall pay, or in case paid by Employee in the first instance,
reimburse Employee for, any and all necessary, customary, and usualexpenses
incurred by him in connection with the performance of his duties hereunder,
including, without limitation, all traveling expenses, and entertainment
expenses, upon submission of appropriate vouchers and documentation.
<PAGE>
To the extent provided to all other senior officers or executives of
the Company, during the Period of Employment, Employee shall be entitled to
receive an automobile allowance and reimbursement for expenses associated with
the operation and maintenance of an automobile which is comparable to Employee's
current automobile. The Company will reimburse Employee upon presentation of
vouchers and documentation for any such operational and maintenance expenses
which are consistent with the usual accounting procedures of the Company.
6. NO OTHER BENEFITS OR COMPENSATION. Employee, as a result of
his employment by the Company, shall be entitled to only the compensation and
benefits provided for in this Agreement, subject to the terms thereof, and no
others.
7. DEATH OR DISABILITY.
(a) TERMINATION OF EMPLOYMENT. If Employee dies
during the Period of Employment, Employee's employment shall automatically cease
and terminate as of the date of Employee's death.
If Employee becomes Permanently Disabled (as hereinafter
defined) while employed by the Company, (i) Employee's employment and the
Company 's obligations hereunder, including the payment of Base Salary pursuant
to Section 3(a) ("Compensation-Base Salary") shall continue for a period of
ninety (90) days from the date on which the Employee is determined to be
Permanently Disabled ("Employee's Disability Date"), and (ii) ninety (90) days
after the Employee's Disability Date, Employee's employment and all obligations
of the Company hereunder shall automatically cease and terminate.
In the case of Employee's death or Permanent Disability (as
hereinafter defined), the Company shall be obligated to pay to Employee (or to
Employee's estate in the case of Employee's death) any Base Salary and any
incentive compensation accrued to Employee as of the date of the Employee's
death, or in the case of Employee's Permanent Disability, as of the Employee's
Disability Date, In the event Employee's employment is terminated on account of
Employee's Permanent Disability, he shall, so long as his Permanent Disability
continues, remain eligible for all benefits provided under any long-term
disability programs of the Company in effect at the time of such termination,
subject to the terms and conditions of any such programs, as the same may be
changed, modified, or terminated for or with respect to all senior management
personnel of the Company.
(b) DEFINITION OF PERMANENTLY DISABLED AND PERMANENT DISABILITY. For
purposes of this Agreement(other than Sections 4 (a) ('Fringe
Benefits-Benefit Plans"), 4 (d) ("Fringe Benefits-Vesting on Death or
Disability"), and the provisions relating to disability insurance contained
in the last sentence of Section 7(a) ("Death or Disability-Termination of
Employment"), the terms `Permanently Disabled' and `Permanent Disability'
shall mean Employee's inability, because of physical or mental illness or
injury, to perform substantially all of his customary duties pursuant to
this Agreement, and the continuation of such disabled condition for a
period of ninety (90) continuous days, or for not less than one hundred
eighty (180) days during any continuous twenty-four (24) month period.
Whether Employee is Permanently Disabled shall be certified to the Company
by a Qualified Physician (as hereinafter defined), or if requested by
Employee a panel of three Qualified Physicians. If Employee requests such a
panel, Employee and the Company shall each select a Qualified Physician who
together shall then select a third Qualified Physician. The determination
of the individual Qualified Physician or the panel, as the case may be,
shall be binding and conclusive for all purposes. As used herein, the term
"Qualified Physician" shall mean any medical doctor who is licensed to
practice medicine in the State of Utah and is reasonably acceptable to each
of Employee and the Company. Employee and the Company may in any instance,
and in lieu of a determination by a Qualified Physician or panel of
Qualified Physicians, agree between themselves that Employee is Permanently
Disabled. The terms Permanent Disability and Permanently Disabled as used
herein may have meanings different from those used in any disability
insurance policy or program maintained by Employee or the Company.
<PAGE>
8. TERMINATION BY THE COMPANY.
(a) TERMINATION FOR CAUSE. The Company, by action of its Board of Directors,
may, by providing written notice to Employee, terminate the employment of
Employee under this Agreement for "cause" at any time. The term "cause" for
purpose of this Agreement shall mean:
(i) The refusal of Employee to implement or adhere to lawful policies
or directives of the Board of Directors of the Company consistent with this
Agreement; or
(ii) Employee's conviction of or entrance of a plea of nolo
contendere to (A) a felony, (B) to any other crime, which other crime
is punishable by incarceration for a period of one (1) year or longer,
or (C) other conduct of a criminal nature that may have an adverse
impact on the Company's reputation and standing in the community; or
(iii)conduct that is in violation of Employee's common law duty of
loyalty to the Company; or
(iv) fraudulent conduct by Employee in connection with the business affairs of
the Company, regardless of whether said conduct is designed to defraud the
Company or others; or
(v) theft, embezzlement, or other criminal misappropriation
of funds by Employee, whether from the Company or any other person; or
(vi) any breach of or Employee's failure to fulfill any of
Employee's obligations, covenants, agreements, or duties under this Agreement.
Provided, however, that "cause" pursuant to clause (i) or (vi) shall not be
deemed to exist unless the Company has given Employee written notice thereof
specifying in reasonable detail the facts and circumstances alleged to
constitute `cause', and thirty (30) days after such notice such conduct or
circumstances has not entirely ceased or been entirely remedied. If Employee's
employment is terminated for `cause', the termination shall take effect upon the
effective date (pursuant to Section 24 ("Notices")) of written notice of such
termination to Employee. In the event Employee's employment is terminated for
"cause," the Company shall have no obligation to pay Employee any amounts,
including, but not limited to Base Salary, for or with respect to any period
after the effective date of the termination of Employee's employment for
"cause," including any obligation under the replacement to the 1994 Incentive
Plan or the Equity Plan.
<PAGE>
If the Company attempts to terminate Employee's employment pursuant to
this Section 8(a) and it is ultimately determined that the Company lacked
"cause," the provisions of Section 8(b) ('Termination by the Company-Termination
Without Cause") shall apply, and Employee's sole and exclusive remedy for such
breach of this Agreement by the Company and/or any other damages that Employee
shall have suffered or incurred of any nature whatsoever, shall be to receive
the payments expressly called for by Section 8(b) ("Termination by the
Company-Termination Without Cause") with interest on any past due payments at
the rate of eight percent (8%) per year from the date on which the applicable
payment would have been made pursuant to Section 8(b) ("Termination by the
Company-Termination Without Cause") plus Employee's costs and expenses
(including but not limited to reasonable attorneys' fees) incurred in connection
with such dispute.
(b) TERMINATION WITHOUT CAUSE. The Company may, with or without reason,
terminate Employee's employment under this Agreement without "cause" at any
time, by providing Employee thirty (30) days prior written notice of such
8
termination. If Employee's employment is terminated pursuant to this Section
8(b), Employee shall not be obligated to render services to the Company
following the effective date of such notice (the "Notice Date") except such
services as are requested by the Company pursuant to Section 11 ("Transition
Period Services"), and as its sole and exclusive obligation and duty to Employee
resulting directly or indirectly from the termination of Employee's employment
with the Company and in full and complete settlement of any and all claims that
Employee may have or claim to have arising directly or indirectly out of the
termination of his employment with the Company, the Company shall, subject to
Section 12 ("Non Competition") pay Employee, as severance pay, an amount (the
"Severance Amount") equal to the product of multiplying the then current
semi-monthly base salary by the greater of the number of semi-monthly periods
from the Notice Date through the remainder of this Agreement or thirty-six (36)
semi-monthly periods (the `Severance Period'). The Severance Amount shall be
payable by the Company as follows: (i) Employee shall receive an amount equal to
the Base Salary payable in twelve (12) equally monthly installments commencing
on the Notice Date and (ii) the balance of the Severance Amount is payable on
the first anniversary of the Notice Date. The Company shall also pay to the
Employee a portion of any discretionary bonus (the "Bonus Portion"), as
determined by the Company's Board of Directors, referred to in Section 3(a)
("Compensation-Base Salary"), that, but for the termination of Employee's
employment, would have been paid to Employee for or with respect to the.
calendar year in which Employee's employment is terminated. The Bonus Portion
shall consist of that percentage of the said discretionary bonus determined by
dividing the number of full or partial calendar months during the calendar year
in which Employee's employment is terminated that Employee was in the employ of
the Company by twelve (12). Until the end of the Severance Period or until
Employee is gainfully employed by another employer, which ever time period is
less, the Company shall allow Employee to continue participation in the
Company's group health insurance plan at the Company's expense.
<PAGE>
9. TERMINATION BY EMPLOYEE.
(a) TERMINATION-WITHOUT GOOD REASON. Employee shall have the
right to terminate this Agreement and his employment hereunder at any time upon
thirty (30) days prior written notice of such termination to the Company. Except
as expressly set forth in Section 11 ("Transition Period Services"), upon the
effective date of any such termination all obligations and rights of Employee
and the Company hereunder shall terminate and cease.
(b) TERMINATION-WITH GOOD REASON. If the Company:
(i) requires Employee to relocate his home, without Employee's consent, to a
location which is more than 75 miles from Employee's current home located at #6
Parkside Law, Sandy Utah 84092; or
(ii) fails to provide Employee with the compensation and benefits called for by
this Agreement; or
(iii) assigns employee to a lower organization level than the level at which he
is on the date of this Agreement assigned, or substantially diminishes
Employee's assignment, duties, responsibilities, or operating authority from
those specified in Section 1 ('Duties'); or
(iv) fails to implement an incentive compensation plan required by Section 3(b)
("Compensation-Incentive Compensation" ); or
(v) fails to implement an equity plan or arrangement required by Section 4(b)
("Fringe Benefits-Equity Plan");
(vi) is divested, by sale, closure, liquidation, foreclosure, or other means, of
any substantial part of its assets or business as now held or conducted; or
<PAGE>
(vii) breaches this Agreement and such breach continues for a period of thirty
(30) days after written notice thereof given by Employee to the Company,
then any one or more of such circumstances shall constitute "Good Reason", and,
subject to the provisions of Section 10 ("Means and Effect of Termination").
Employee shall have the right to terminate this Agreement and his employment
hereunder for Good Reason, if, thirty (30) days after the effective date of
Employee's notice to the Company of such circumstances constituting Good Reason,
such circumstances continue to exist, and for all purposes of this Agreement any
such termination of this Agreement by Employee shall have the same effects under
this Agreement as the termination of the Employee's employment under this
Agreement by Company without "cause".
10. MEANS AND EFFECT OF TERMINATION. Any termination of Employee's
employment under this Agreement shall be communicated by written notice of
termination from the terminating party to the other party. The notice of
termination shall indicate the specific provision(s) of this Agreement relied
upon in effecting the termination and shall set forth in reasonable detail the
facts and circumstances alleged to provide a basis for termination, if any such
basis is required by the applicable provision(s) of this Agreement. Any notice
of termination by the Company shall be approved by a resolution
10
duly adopted by a majority of the directors of the Company then in office. The
burden of establishing the existence of "cause" or Good Reason shall be upon the
terminating party. If Employee's employment is terminated by either party, then
promptly after the effective date of such termination or in the manner and at
the time or times provided in the relevant Section of this Agreement, the
Company promptly shall provide and pay to Employee, or in case of his death his
estate or heirs, all compensation, benefits, and reimbursements due or payable
to Employee for the period to the effective date of the termination. To the
extent permitted by applicable law, the calendar month in which Employee's
employment is terminated shall be counted as a full month in determining amount
and vesting of any benefits under benefit plans of the Company.
11. TRANSITION PERIOD SERVICES. In the event Employee's employment is
terminated by the Company pursuant to section 8(b) ("Termination by the
Company-Termination Without Cause") or by Employee pursuant to Section 9(a)
("Termination by Employee-Without Good Reason'), if requested by the Company in
writing, Employee shall render such services, on a part-time basis for a period
not to exceed sixty (60) days after the effective date of the notice of
termination (whether given by the Company or by Employee), as the Company's
Board of Directors reasonably requests for transition purposes. Employee shall
receive no compensation for such services, other than the payment of Base Salary
as provided in Section 8(b) ("Termination by the Company-Termination Without
Cause") and .reimbursement for expenses incurred by Employee in providing such
services as provided in, and subject to the provisions of, Section 5 ("Business
Expenses and Automobile Allowance")
<PAGE>
12. Non Competition. (a) For a period of one year from the date of the
termination of Employee's employment hereunder, Employee shall not become an
employee, owner (except for passive investments of not more than three percent
(3%) of the outstanding shares of, or any other equity interest in, any company
or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent or director of any firm or
person which either directly competes with a line or lines of business of the
Company accounting for ten percent (10%) or more of the Company's gross sales,
revenues or earnings before taxes or derives ten percent (10%) or more of such
firm's or person's gross sales, revenues or earnings before taxes from a line or
lines of business which directly compete with the Company. If, in any judicial
proceeding, a court shall refuse to enforce all of the separate covenants deemed
included in this paragraph, the parties intend that those of such covenants
which, if eliminated, would permit the remaining separate covenants to be
enforced in such proceedings shall, for the purpose of such proceedings, be
deemed eliminated from the provisions of this Section 12.
(b) In addition to any other remedies that may otherwise be
available for a breach of Section 12 hereof by Employee, Employee agrees that in
the event of such breach
11
he shall irrevocably forfeit any right he may have to any remaining severance
payment to be made under Section 8(b) ('Termination by the Company-Termination
Without Cause") subsequent to such breach.
13. ASSIGNMENT. This Agreement is personal in its nature and neither of
the parties hereto shall, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; provided, however, that,
in the event of the merger, consolidation, or transfer or sale of all or
substantially all of the assets of the Company with or to any other individual
or entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants. duties, and obligations of
the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations hereby
created between the parties hereto shall be governed by and construed under and
in accordance with the internal laws of the State of Utah, which internal laws
exclude any law or rule of the State of Utah, or any interpretation thereof,
that would require or call for the application of the laws of any other state or
jurisdiction hereto.
15. ENTIRE AGREEMENT. Except with respect to final agreement regarding
those open incentive compensation matters described in Section 3(b)
("Compensation-Incentive Compensation") and the equity plan or arrangement
contemplated under Section 4(b) ("Fringe Benefits-Equity Plan"), this Agreement
embodies the entire agreement of the parties hereto respecting the matters
within its scope. This Agreement supersedes all prior agreements of the parties
hereto on the subject matter hereof. Any prior negotiations, correspondence,
agreements, proposals, or understandings relating to the subject matter hereof
shall he deemed to be merged into this Agreement and to the extent inconsistent
herewith, such negotiations, correspondence, agreements, proposals, or
understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as set forth
herein.
This Agreement shall not be modified by any oral agreement, either
express or implied, and all modifications hereof shall be in writing and he
signed by the parties hereto. The provisions of this and the immediately
preceding sentence themselves may not be modified, either orally or by conduct,
either express or implied, and it is the declared intention of the parties
hereto that no provision of this Agreement, including said two sentences, shall
be modifiable in any way or manner whatsoever other than through a written
document signed by the parties hereto.
<PAGE>
16. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
17. NUMBER AND GENDER. Where the context requires, the singular shall
include the plural, the plural shall include the singular, and any gender shall
include all other genders.
18. SECTION HEADINGS. The section headings in this Agreement are for the
purpose of convenience only and shall not limit or otherwise affect any of the
terms hereof.
19. DISPUTE RESOLUTIONS.
(a) NEGOTIATION AND MEDIATION. In the event any dispute arises
hereunder, the parties shall first attempt to resolve the dispute by negotiation
in good faith. If the dispute cannot be timely resolved through negotiation, the
parties will, before resorting to any of their remedies at law or in equity, try
to settle the dispute in good faith by mediation in Salt Lake City, Utah or such
other location as the parties may agree, under the then operative mediation
rules of the American Arbitration Association or such other mediation tribunal
or private mediator or medication services provider as the parties agree. The
mediator shall be such person as the parties mutually agree, but if the parties
have failed to agree on a mediator within seven (7) days after the date an which
any party demands that the parties proceed to mediation, the mediator shall be
selected by ft American Arbitration Association or such other mediation services
provider as the parties agree.
(b) OTHER REMEDIES. Failing settlement of the dispute by negotiation or
mediation, the parties shall, unless they mutually agree to resolve the dispute
finally by arbitration, be entitled to pursue their legal and equitable remedies
(subject to the provisions at Section 20 ("Liquidated Damages,-Breach by the
Company")) in any court having jurisdiction.
20. LIQUIDATED DAMAGES-BREACH BY THE COMPANY. Because the
damages suffered by Employee in such an event would be difficult or impossible
to estimate, establish, ascertain, or prove, and in order to provide Employee
with a remedy in such an event without the necessity and associated cost of
Employee having to establish or prove the damages suffered by Employee as a
result thereof (which remedy the parties hereto have and do agree would be
appropriate and adequate compensation to Employee in such event), in the event
that this Agreement and Employee's employment hereunder shall be terminated
13
(whether by the Company or Employee) and thereafter Employee shall prevail in
any dispute between Employee and the Company relative to, involving, or
concerning the legality of or justification for the termination of this
Agreement and Employee's employment hereunder and any other issues or matters
directly or indirectly arising out of or in connection with such termination and
Employee's employment by the Company, subject to Section 12 ("Non Competition")
Employee shall he entitled to the continued payment of the Base Salary as
provided in Section 8(b) ("Termination by the Company-Termination Without
Cause") as liquidated and exclusive damages and not as a penalty, and in such
case this Agreement and Employee's employment hereunder, shall for all purposes
be treated as having been terminated by the Company without "cause" pursuant to
Section 8(b) ("Termination by the Company-Termination Without Cause").
<PAGE>
In the event Employee files any claim, complaint, charge, action, or
lawsuit against the Company or its employees, agents, officers, directors, or
any other person affiliated or associated with the Company, with any
governmental agency, any state or federal court, or any mediation or arbitration
body or group, for or with respect to a matter, claim, or incident, known or
unknown, which has occurred or arisen or which shall hereafter occur or arise
relative to, involving, or concerning the termination of this Agreement and
Employee's employment hereunder (whether as a result of action of Employee or
the Company) and any other issues or matters directly or indirectly arising out
of or in connection with such termination and Employee's employment by the
Company, and in such claim, complaint, action, charge, or lawsuit, Employee
alleges or asserts the right to recover, receive, or be awarded damages from the
Company or its employees, agents, officers, directors, or any other person
affiliated or associated with the Company in addition to or in lieu of the
liquidated damages expressly provided for in this Section 20, Employee hereby
stipulates, agrees, and consents to the dismissal or withdrawal, with prejudice,
of any such claim, complaint, action, charge, or lawsuit (collectively, a
"Dismissable Claim"). In the event that Employee files any Dismissable Claim,
Employee shall be liable to the party or parties against whom the Dismissable
Claim is filed (the 'Nonfiling Party") and shall indemnify and save the
Nonfiling Party harmless from all costs and expenses, including, but not limited
to, attorneys fees, incurred by the Nonfiling Party and/or the Nonfiling Party's
officers, agents, employees, directors, and/or any other person affiliated or
associated with the Nonfiling Party, if any, in defending or responding to any
such Dismissable Claim, regardless of whether such defense or response is before
a state or federal court or administrative agency or a mediation or arbitration
body and regardless of who might ultimately be deemed to be the prevailing party
as to any such Dismissable Claim.
21. ATTORNEY'S FEES. Employee and the Company agree that in any dispute
resolution proceedings arising out of this Agreement, the prevailing party shall
be entitled to
14
its or his reasonable attorney's fees and costs incurred by it or him in
connection with resolution of the dispute in addition to any other relief
granted.
22. INDEMNIFICATION. If Employee is made a party to, is threatened to be
made a party to, or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding") by
reason of the fact that he is or was a director, officer, or employee of the
Company or is or was serving at the request of the Company as a director,
officer, employee, or agent of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to employee
benefit plans, whether before, during or after expiration or termination of this
Agreement, the Company shall indemnify and hold Employee harmless to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than such law permitted the Company to provide prior to
such amendment), against all expense, liability, and loss (including attorneys'
fees, judgment fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by Employee in connection therewith,
and such indemnification shall continue after Employee ceases to be a director,
officer, employee, or agent of the Company and shall inure to the benefit of
Employee's heirs, executors, and administrators. The right to indemnification
conferred hereby shall include the right to be paid by the Company the
reasonable expenses incurred in defending any Proceeding in advance of its final
disposition as such expenses are incurred. The indemnification provided herein
shall not be deemed exclusive of any other rights to which Employee may be
entitled under the Certificate of Incorporation, Bylaws, any agreement, or vote
of stockholders or disinterested directors of the Company, or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office or position, and shall continue with respect to action in
such capacities even if Employee has thereafter ceased to be a director,
officer, employee, or agent of the Company, and shall inure to the benefit of
Employee's heirs, executors and administrators.
<PAGE>
23. SEVERABIIITY - In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, then only the portions of this Agreement which violate such
statute or public policy shall be stricken, All portions of this Agreement which
do not violate any statute or public policy shall continue in full force and
effect. Furthermore, any court order striking any portion of this Agreement
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Agreement.
24. NOTICES. All notices under this Agreement shall be in writing and
shall be either personally delivered or mailed postage prepaid, by certified
mail, return receipt
15
requested, (a) if to the Company, to it at c/o Capricorn Investors II, L.P., 72
Cummings Point Road, Stamford, Connecticut 06902 or (b) if to Employee to him at
# 6 Parkside Lane, Sandy Utah 84092 by the same means, or in either party's case
to such other address or to the attention of such person as the party has
specified by prior written notice to the other party. Notice shall be effective
when personally delivered, or five (5) business days after being so mailed.
25. COUNTERPARTS. This Agreement may be executed in counterparts
collectively containing the signatures of each of the parties.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer, and Employee has hereunto signed this Agreement,
on the date first written above.
MRS. FIELDS' ORIGINAL COOKIES, INC.,
A Delaware Corporation (the "Company")
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:President
/s/ Larry A. Hodges
LAWRENCE HODGES ("EMPLOYEE")
TABLE OF CONTENTS
Lease Summary
ARTICLE I Description-Term-Rent-Use
ARTICLE II Covenant to Pay Rent
ARTICLE III Expenses
ARTICLE IV Insurance
ARTICLE V Landlord's Right to Perform Tenant's Covenants ARTICLE VI Repairs and
Maintenance of Premises -
Surrender of Premises - Waste ARTICLE VII Compliance with Law
and Insurance Requirements ARTICLE VIII Changes and Alterations by Tenant
ARTICLE IX Damage or Destruction ARTICLE X Condemnation ARTICLE XI Conditions of
Work Repairs-Alterations ARTICLE XII Mechanics' Liens ARTICLE XIII Landlord's
Right to Enter Premises ARTICLE XIV Assignment and Subletting ARTICLE XV Rights
of Mortgagee ARTICLE XVI Indemnification of Landlord-
No Representation by Landlord
ARTICLE XVII Default Provisions-Remedies of Landlord
ARTICLE XVIII Holding Over
ARTICLE XIX Invalidity of Particular Provisions
ARTICLE XX Notices
ARTICLE XXI Quiet Enjoyment
ARTICLE XXII Limitation of Landlord's Liability
ARTICLE XXIII Estoppel Certificate by Tenant
ARTICLE XXIV Cumulative Remedies-No Waiver-No Oral Change
ARTICLE XXV Brokerage
ARTICLE XXVI Security Deposit
ARTICLE XXVII Miscellaneous Provisions
Rider
Certified Copy of Resolution
Rules and Regulations
Exhibit A
Exhibit A-1
(Rev. 1/91)
THIS INDENTURE, made the 23rd day of February 1993 between THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation, having its
principal place of business at 1285 Avenue of the Americas, New York, New York
10019 ("the Landlord"), and MRS. FIELD'S COOKIES, a California corporation,
having a place of business at 333 Main Street, Park City, Utah 84060 ("the
Tenant").
Section 1.1- Building Location: 321 Lawndale Drive
Salt Lake City, Utah 84115
- - Unit #/ Sq. Ft: 9,828 square feet
- - Lease Term: Five (5) Years, Zero (0) Months
- - Commencement: May 1, 1993
- - Expiration: April 30, 1998
- - Base Rent: per square foot $ 4.92
per month $ 4,029.48
per annum $ 48,353.76
- - Cancellation Terms: After three (3) years with six months written notice, six
months rent penalty and the cost of unamortized tenant improvements and
commissions.
(see rider for additional provisions)
Section 1. 2 - Use of Premises: manufacturing and distribution of cookies
Section 3.1 - Pro rata share of expenses: 2.5%
Section 4.1 - Insurance: $1,000,000 in respect to injury or death to a
single person. $2,000,000 in respect to any one occurrence, and, $1,000,000 in
respect to property damage.
Section 20.1 - Property Manager Address:
Compass Management & Leasing
215 South State Street, Suite 950
Salt Lake City, Utah 84111
Section 25.1 - Brokerage: COMPASS Management and Leasing, Inc.
Section 26.1 - Security Deposit: None
Section 27.11 - Parking Spaces: Tenant has the privilege of using the
parking areas to the east And north of 321 Lawndale Drive.
Exhibits 2 and Riders 1, attached hereto become part of this lease, consisting
of 3 pages
<PAGE>
WITNESSETH:
ARTICLE I
Description-Term-Rent-Use
Section 1.1. The Landlord, in consideration of the rents and agreements
hereinafter reserved on the part of the Tenant to be paid and performed, does
lease unto the Tenant, and the Tenant does hereby take, subject to the covenants
and conditions hereinafter expressed which the Tenant agrees to keep and
perform, the space ("the Premises") described on Exhibit A attached hereto in
the building located at the place specified on Page One of this Lease Document,
(the "Building") with the privilege to the Tenant of using (subject to such
rules and regulations as the Landlord may from time to time prescribe) the
necessary entrances and appurtenances,
TOGETHER with all machinery, apparatus, equipment, and fixtures now or
hereafter owned by the Landlord and located on the Premises and used exclusively
for the operation and maintenance of the Premises (the "Building Equipment").
SUBJECT, however, to any and all existing ground leases, encumbrances,
conditions, covenants, easements, restrictions and rights-of-way, whether or not
of record, and other matters of record, if any, and to such matters as may be
disclosed by inspection or survey.
TO HAVE AND TO HOLD the Premises and Building Equipment unto the
Tenant, for the term as specified on Page One of this Lease Document (unless
this lease shall sooner terminate as hereinafter provided) yielding and paying
therefor during the term an annual basic rental, (Said annual basic rental is
hereinafter sometimes referred to as the "Basic Rent"), over and above the other
and additional payments to be made by the Tenant as specified on Page One of
this Lease Document.
Said Basic Rent shall be paid in equal monthly installments in advance on the
first day of each and every calendar month during the term of this lease, except
that the first month's rent shall be due and payable when this lease is
executed. If the term does not commence on the first day of a month, the monthly
installment of Basic Rent payable for the period from the commencement of the
term of this lease to the last day of the month in which such commencement
occurs shall be prorated and paid on the date of such commencement. Interest at
the rate of one percent (1%) per month will be charged retroactive to the first
day of the month for rents not paid by the tenth (10th) of the calendar month
until all monies due are paid.
Section 1.2. The Tenant agrees that it will use and occupy the Premises for
the following purposes: sales, storage, distribution, office, production,
processing, etc.
Production or Processing Uses are further defined as follows:
(General Description)
The Tenant will not make or permit to be made any use of the Premises or any
part thereof which would violate any of the covenants, agreements, terms,
provisions and conditions of this lease or which directly or indirectly is
forbidden by public law, ordinance or governmental regulation; or generate,
treat, store or dispose of hazardous waste, as defined in the Resource
Conservation and Recovery Act; or dispose of petroleum or any hazardous
substance, as defined in the Comprehensive Environmental Response Compensation
and Liability Act; or make or permit any use of the Premises which may be
dangerous, noxious or offensive or create or maintain any nuisance in, at or on
the Premises; or make or permit any use of the Premises which may invalidate, or
increase the premium cost of any policy of insurance carried on the Building and
Environs and their operation, or any use which, in Landlord's sole judgment,
shall impair the character, reputation or appearance of the Building and
Environs.
ARTICLE II
Covenant to Pay Rent
Section 2.1. The Tenant covenants to pay, without notice or demand and
without deduction or set-off for any reason whatsoever, the Basic Rent and all
other sums to be paid by Tenant as herein provided.
ARTICLE III
Expenses
Section 3.1. With regard to the expenses of the Landlord for (i) taxes
or assessments payable by Landlord upon or with respect to the Building and the
land upon which it is located, or any government levies or taxes imposed in lieu
thereof, and taxes, water and sewer charges and other governmental charges
relating to the maintenance and operation of the Building or any occupancy, use
or possession of or activity conducted thereon or on any part thereof (excluding
income, franchise, inheritance or capital stock taxes), including Landlord's
cost of protesting taxes, and (ii) insurance for fire, rental, public liability,
property damage and any other type of insurance which may be carried by Landlord
with respect to the Building, or any part thereof, and the land on which it is
located, and (iii) any and all other expenses for the operation and maintenance
of the Building and land on which it is located including by way of example but
without limiting the generality of the foregoing exterior grounds clean-up,
landscaping maintenance, snowplowing, ice removal, common area utilities, common
area maintenance and management costs, tenant agrees to pay Landlord, as
additional rent hereunder, within ten days after written demand therefor pro
rata share of all such expenses, such pro rata share to be the percentage shown
on page one of this Lease. Late payments are subject to a one percent (1%) per
month service charge until all monies are paid.
Section 3.2. In order to provide for current payments on account of the
additional rent which may be payable to Landlord pursuant to clauses
(i) through (iii) of Section 3.1, the Tenant agrees, at Landlord's
request, to make payments on account of said additional rent due for
the ensuing twelve (12) months, as estimated by Landlord from time to
time, in twelve (12) monthly installments, each in an amount equal to
1/12th of the amount
of additional rent so estimated by Landlord commencing on the first day of the
month following the month in which Landlord notifies Tenant of the amount of
such estimated additional rent. If, as finally determined, the amount of
additional rent payable by Tenant pursuant to clauses (i) through (iii) of
Section 3.1 shall be greater than or be less than the aggregate of all
installments so paid on account to the Landlord for such twelve (12) month
period, then Tenant shall pay to Landlord the amount of such underpayment or the
Landlord shall credit Tenant with the amount of any overpayment, to apply
against similar payments due for the next succeeding period or, at the end of
the lease term, refund any such overpayment to Tenant.
Section 3.3. Tenant agrees to pay, in the same manner as set forth in
Section 3.2, as additional rent, an amount equal to any additional tax levied
with respect to improvements made to Premises by Tenant, as the value of such
improvements is shown on the assessment records.
Section 3.4. The obligations of Tenant to pay the additional rent
provided for in Section 3.1 shall survive the termination of this lease.
ARTICLE IV
Insurance
Section 4.1. The Tenant, at the Tenant's sole cost and expense, shall
maintain (a) for the mutual benefit of the Landlord and the Tenant, general
public liability insurance against claims for personal injury, death or property
damage occurring upon, in or about the Premises or any elevators or escalators
therein and on, in or about the adjoining streets and passageways, if any, such
insurance to afford protection to the limits of not less than the amounts as
specified on Page One of this Lease Document.
Section 4.2. All policies of insurance shall be in form and substance
satisfactory to the Landlord, shall be written with companies satisfactory to
the Landlord, in amounts satisfactory to the Landlord, and shall provide that
they shall not be cancelable on less than thirty (30) days' notice to the
Landlord or holder of any mortgage. Certificates of insurance shall be furnished
to the Landlord. Tenant's policies shall name Landlord, its agents, servants and
employees as additional insureds.
ARTICLE V
Landlord's Right to Perform Tenant's Covenants
Section 5.1. The Tenant covenants that if the Tenant shall at any time
fail to make any payment or perform any other act on its part to be made or
performed under this lease, the Landlord may, but shall not be obligated to, and
without notice or demand and without waiving or releasing the Tenant from any
obligation of the Tenant under this lease, make such payment or perform such
other act to the extent the Landlord may deem desirable, and in connection
therewith to pay expenses and employ counsel. All sums so paid by the Landlord
and all expenses in connection therewith, together with interest thereon at the
rate of one percent (1%) per month until all monies are paid, shall be deemed
additional rent hereunder and be payable to the Landlord on demand.
ARTICLE VI Repairs and Maintenance of Premises-Surrender of Premises-Waste
Section 6.1. The Tenant covenants at the Tenant's sole expense to take
good care of the Premises and Building Equipment including by way of example but
without limiting the generality of the foregoing ceilings, floors, walls,
woodwork, paint, doors, glass, plumbing, plumbing fixtures, heating/air
conditioning, hot water systems, electrical systems, mechanical systems and
equipment, and agrees to keep the same in good order and condition and to make
promptly all repairs, replacements or renewals. The Tenant covenants to keep the
Premises in a clean and orderly condition and free of debris, merchandise,
materials and rubbish. Landlord has the right to maintain the above items and
charge back tenant for these expenses.
Section 6.2. The Tenant covenants that upon termination of this lease
for any reason whatsoever the Tenant will surrender to the Landlord the
Premises, together with all improvements, alterations, replacements thereto, and
the Building Equipment in good order, condition and repair, except for
reasonable wear and tear, provided, however, that if Landlord requests Tenant to
remove any such improvements, alterations or replacements, the Tenant shall
remove same and restore the Premises to their condition prior to the
installation thereof. Upon such termination, Tenant shall remove, to Landlord's
satisfaction, all petroleum, hazardous wastes and hazardous substances from the
Premises (including soil and groundwater) and from any adjacent property upon
which any such petroleum, hazardous wastes and hazardous substances generated or
disposed of by the Tenant may be located. Only those substances which were
placed there or disposed of by the tenant, with the burden of proof residing
with the tenant.
Section 6.3. The Tenant covenants not to do or suffer any waste or
damage, disfigurement or injury to the Premises or permit or suffer any
overloading of the floors of the Premises.
Section 6.4. Tenant shall, at its own cost and expense, enter into a
regularly scheduled preventive maintenance/service contract with a maintenance
contractor for servicing all hot water, heating and air conditioning systems and
equipment within the Premises. The maintenance contractor and the contract must
be approved by Landlord. The service contract must include all services
suggested by the equipment manufacturer within the operation/maintenance manual
and must become effective (and a copy thereof delivered to Landlord) within
thirty (30) days of the date Tenant takes possession of the Premises.
Section 6.5. Tenant agrees to store waste, scrap, garbage, etc. in
enclosed metal containers with lids and agrees not to permit any motor vehicle
to be stored on the Premises. Waste containers are to be stored within the
leased portion of the building.
Section 6.6. Tenant acknowledges that it will be doing business with
various business entities which may deliver, or cause to be delivered, various
materials to Tenant. Accordingly, Tenant covenants and agrees that it will make
all necessary repairs of damages to foundation, roof, overhead doors, jambs,
entryways, and exterior walls of the Building within which the Demised Premises
is located, which damages were caused or occasioned by the act, omission or
negligence of Tenant, Tenant's agents, employees, customers, invitees and
suppliers, their agents, employees or delivery services, during delivery or any
other pursuance of Tenant's business of any nature whatsoever, within forty-five
(45) days of the occurrence of said damages.
Section 6.7. Tenant shall be responsible for removal of any stain or
deposits of grease, oil, tar, paint, or any other material or storage vessel
which may be used in the course of business or stored by Tenant during Tenant's
occupancy, and restoration thereof to any part of the Premises, parking lot area
assigned to the tenant or other outside area to its original condition.
ARTICLE VII
Compliance with Law and Insurance Requirements
Section 7.1. The Tenant covenants, at the Tenant's sole expense, to
comply with all laws and ordinances and requirements of all governmental
agencies, legislative bodies and courts of competent jurisdiction, of whatever
kind and nature, whether now existing or hereafter enacted, amended or modified
(and specifically including, without limiting the generality of the foregoing,
any and all such laws, ordinances and requirements as relate to protection of
the environment and environmental policy) and the recommendations of any
insurer, foreseen or unforeseen, ordinary as well as extraordinary, which may be
applicable to the Premises or the sidewalks, curbs, tunnels, bridges or
sub-sidewalk space, if any, adjoining the Premises, by reason of the Tenant's
use thereof. In the event Tenant does not comply with the recommendations of any
insurer, Tenant shall be liable for the payment of any increase on the amount of
any insurance premium raised by such non-compliance. If any permitted use
hereunder becomes uninsurable, Tenant shall cause such use to become insurable,
at Tenant expense, or Landlord may cancel and terminate this lease upon written
notice.
Section 7.2. Tenant agrees not to store any materials, engage in any
activity or discharge any matter in the air, sewers or on the property contrary
to the laws and ordinances of the Corporate Municipality or Fire Protection
District or other governmental bodies having authority or jurisdiction and shall
hold Landlord harmless for any cost involved due to Tenant's activity or
discharge.
Section 7.3 The Tenant covenants that it will not use or permit to be
used any part of the Premises for any dangerous, noxious or offensive trade or
business; will not cause or maintain any nuisance in, at or on the Premises; and
will not use or permit to be used any part of the Premises for the generation,
treatment, storage or disposal of hazardous waste, as defined in the Resource
Conservation and Recovery Act, or the disposal of petroleum or any hazardous
substance, as defined in the Comprehensive Environmental Response Compensation
and Liability Act.
Section 7.4 Tenant agrees to indemnify and save harmless the Landlord against
and from any and all claims by or on behalf of any persons, firms, corporations,
or governmental entities arising from the conduct or management of, or from any
work or thing whatsoever done in or about, the Premises during the term of this
Lease, arising or resulting from Tenant's violation of any of the covenants,
terms, conditions or agreements contained herein.
Section 7.5 Tenant covenants to deliver to the Landlord, (a) copies of
any documents received from the United States Environmental Protection Agency
and/or any state, county or municipal environmental or health agency concerning
the Tenant's operations upon the Premises; and (b) copies of any document
submitted by the Tenant to the United States Environmental Protection Agency
and/or any state, county or municipal environmental or health agency concerning
its operations on the Premises.
ARTICLE VIII
Changes and Alterations by Tenant
Section 8.1. The Tenant shall not make any changes or alterations,
structural or otherwise, to the Premises without the Landlord's prior written
consent.
Section 8.2. Subject to the provisions of Section 6.2, all repairs,
improvements, changes or alterations, made or installed by the Tenant shall
immediately upon completion or installation thereof be and become the property
of the Landlord without payment therefor by the Landlord.
ARTICLE IX
Damage or Destruction
Section 9.1. The Tenant covenants and agrees that in case of damage to
or destruction of the Premises by fire or other casualty, the Tenant will
promptly give written notice thereof to Landlord, and the Landlord, at the
Landlord's expense, will repair, and rebuild the same as nearly as possible to
the condition the Premises were in immediately prior to such damage or
destruction, except that Landlord shall not be required to rebuild, repair or
replace any part of the partitions, fixtures, additions and other improvements
which may have been placed in, on or about the Premises by Tenant.
Notwithstanding the foregoing, in the event that there is less than twelve (12)
months remaining on the lease term, Landlord shall have the option to cancel
this lease, unless Tenant exercises any existing renewal options so as to
provide for a term in excess of twelve (12) months.
Section 9.2. Rent shall abate proportionately on such part of the
Premises as may have been rendered wholly untenantable until such time as such
part shall be fit for occupancy, and after which time the full amount of rent
reserved in this lease shall be payable as hereinbefore set forth. The Tenant
hereby waives the provisions of any law now or hereafter in effect which would
relieve the Tenant from any obligation to pay rent or additional rent under this
lease, except to the extent provided by this Section.
Section 9.3. Anything in Section 9.1 to the contrary notwithstanding, if
the Premises or Building shall be substantially damaged or destroyed by fire or
otherwise, as determined by Landlord, the Landlord shall have the option of
terminating this lease as of the date of such damage or destruction by written
notice to Tenant given within thirty (30) days after such damage or destruction,
in which event Landlord shall make a proportionate refund to Tenant of such rent
as may have been paid in advance.
ARTICLE X
Condemnation
Section 10.1. If the whole or any part of the Premises shall be taken
under the power of eminent domain, or shall be sold by the Landlord under threat
of condemnation proceedings, then this lease shall terminate as to the part so
taken or sold on the day when Tenant is required to yield possession thereof,
and the Landlord shall make such repairs and alterations as may be necessary in
order to restore the part not taken or sold to useful condition, and the rental
hereinbefore specified shall be reduced proportionately as to the portion of the
Premises so taken or sold. If the amount of the Premises so taken or sold is
such as to impair substantially the usefulness of the Premises for the purposes
for which the same are hereby leased, then Tenant shall have the option to
terminate this lease as of the date when Tenant is required to yield possession.
In any and all events, all compensation awarded or paid for any such taking or
sale of the fee and the leasehold, or any part thereof, shall belong to and be
the property of the Landlord. Landlord shall notify Tenant of receipt of notice
of condemnation.
Section 10.2. Anything in this Article X to the contrary
notwithstanding, if a portion of the Premises shall be taken in any proceeding
the Landlord shall have the option of terminating this lease as of the date of
vesting of title in the proceeding by written notice to Tenant given within
thirty (30) days after such vesting of title, in which event Landlord shall make
a proportionate refund to Tenant of such rent as may have been paid in advance.
ARTICLE XI
Conditions of Work for Repairs-Alterations
Section 11.1. All work for the making of repairs as required by Section
6.1, for complying with laws, ordinances, order, regulations or requirements as
required by Section 7.1, and for making changes or alterations as permitted by
Section 8.1, shall be done in all cases subject to the conditions which the
Landlord may impose, and shall in all cases be done in a good and workmanlike
manner.
ARTICLE XII
Mechanics' Liens
Section 12.1. The Tenant shall not suffer or permit any mechanics' or other
liens to be filed against the Building or Premises nor against the
Tenant's leasehold interest in the Premises by reason of work, labor, services
or materials supplied or claimed to have been supplied to the Tenant or anyone
holding the Premises or any part thereof through or under the Tenant. The
Landlord shall have the right at all reasonable times to post and keep posted on
the Premises any notices which the Landlord may deem to be necessary or
advisable for the protection of the Landlord and the Building or any part
thereof from mechanics' liens. If any such mechanics' lien shall at any time be
filed against the Premises, the Tenant shall cause the same to be discharged of
record within twenty (20) days after the date of filing or post a bond in the
amount of the lien.
If the Tenant shall fail to discharge such mechanics' lien within such period,
then, in addition to any other right or remedy of the Landlord, the Landlord
may, but shall not be obligated to, procure its discharge by paying the amount
claimed to be due, or by deposit in court, or by bonding, and in any such event
the Landlord shall be entitled, if the Landlord so elects, to compel the
prosecution of an action for the foreclosure of such mechanics' lien by the
lienor and to pay the amount of the judgment, if any, in favor of the lienor
with interest, costs and allowances. Any amount paid by the Landlord for any of
the aforesaid purposes, and all reasonable legal and other expenses of the
Landlord, including reasonable counsel fees, with interest thereon at the rate
of one percent (1%) per month until all monies are paid, shall be deemed
additional rent hereunder and be payable by the Tenant to the Landlord on
demand.
ARTICLE XIII
Landlord's Right to Enter Premises
Section 13.1. The Tenant agrees to permit the Landlord and any
authorized representatives of the Landlord to enter the Premises at all times
during usual business hours or at any other time in case of emergency, to
inspect the same and if the Landlord shall desire, but without implying any
obligation on the Landlord so to do, to make any repairs deemed necessary or
desirable by the Landlord and to perform any work in the Premises deemed
necessary by the Landlord to comply with any laws, ordinances, orders,
regulations or requirements of any governmental authority or the recommendations
of any insurer. During the progress of any such work, the Landlord may keep and
store upon the Premises all necessary materials, tools and equipment. The
Landlord shall not in any event be liable for inconvenience, annoyance,
disturbance, loss of business or other damage to the Tenant.
Section 13.2. The Tenant agrees to permit the Landlord and any
authorized representatives of the Landlord to enter the Premises at all times
during usual business hours to exhibit the same for the purpose of sale,
mortgage or lease. During the final six (6) months of the term of this lease, or
in the case of default, for purposes of lease or sale, the Landlord may display
on the Premises, usual "For Sale" or "For Lease" signs.
ARTICLE XIV
Assignment & Subletting
Section 14.1. The Tenant shall not, without the Landlord's prior
written consent, (a) assign, convey, mortgage, pledge, encumber or otherwise
transfer (whether voluntarily or otherwise) this lease or any interest under it;
(b) allow any transfer thereof or any lien upon the Tenant's interest by
operation of law; (c) sublet the Premises or any part thereof, or (d) permit the
use or occupancy of the Premises or any part thereof by any one other than the
Tenant.
Section 14.2. Tenant agrees to pay to Landlord, on demand, reasonable
fees incurred by Landlord in connection with any request by Tenant for Landlord
to consent to any assignment or subletting by Tenant.
Section 14.3. If this lease be assigned or if the Premises or any part
thereof be sublet or occupied by anybody other than Tenant, Landlord may, after
default by Tenant, collect rent from assignee, subtenant or occupant, and apply
the net amount collected to the Rent herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of any of Tenant's
covenants contained in this lease or the acceptance of the assignee, subtenant
or occupant as Tenant, or a release of Tenant from further performance by Tenant
of covenants on the part of Tenant herein contained.
Section 14.4. Notwithstanding anything contained herein to the
contrary, in the event that at any time during the term of this lease Tenant
desires to sublet all or part of the Premises, Tenant shall notify the Landlord
in writing (hereinafter referred to as "Sublet Notice") of the terms of the
proposed subletting and the area so proposed to be sublet and shall give the
Landlord the option to sublet from Tenant such space (hereinafter referred to as
"Sublet Space") at the same rent and additional rent as Tenant is required to
pay the Landlord under this lease for the same space or, at Landlord's option,
to terminate the lease with respect to the Sublet Space. If the Sublet Space
does not constitute the entire Premises and Landlord exercises its option to
terminate this lease with respect to the Sublet Space, then as to that portion
of the Premises which is not part of the Sublet Space, this lease shall remain
in full force and effect except that the Rent shall be reduced by a fraction,
the numerator of which shall be the rentable square feet of the sublet space and
the denominator of which shall be the rentable square feet of the Premises. The
option to sublet, or to terminate the lease, shall be exercisable by Landlord in
writing for a period of thirty (30) days after receipt of the Sublet Notice.
Section 14.5. In the event Landlord exercises its option to sublease
the Sublet Space, the term of the subletting from the Tenant to the Landlord for
the Sublet Space shall be the term set forth in the Sublet Notice and shall be
on such other terms and conditions as are contained in this lease to the extent
applicable.
Section 14.6. In the event Landlord does not exercise either of its
options specified above and Tenant with Landlord's prior written consent
completes a sublease with a third party, the subtenant shall be subject to and
comply with requirements of this section.
ARTICLE XV
Rights of Mortgagee
Section 15.1. In the event of any act or omission by the Landlord which
would give the Tenant the right to terminate this lease, the Tenant shall not
exercise any such right (a) until it shall have given written notice, by
certified mail, of such act or omission to the holder of any deed of trust or
mortgage encumbering the Premises whose name and address shall have been
furnished to the Tenant in writing, at the last address so furnished, and (b)
until a reasonable period of time for remedying such act or omission shall have
elapsed following the giving of such notice, provided that following the giving
of such notice, the Landlord or said holder shall, with reasonable diligence,
have commenced and continued to remedy such act or omission or to cause the same
to be remedied.
Section 15.2. In the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under, any
mortgage or deed of trust now or hereafter encumbering the Premises, or any part
thereof, Tenant shall agree to and shall attorn to the purchaser upon such
foreclosure or sale or upon any grant of a deed in lieu of foreclosure, and
recognize such purchaser as the Landlord under this lease if so requested by
such purchaser.
ARTICLE XVI
Indemnification of Landlord-No Representations by Landlord
Section 16.1. The Tenant agrees to indemnify and save harmless the
Landlord against and from any and all claims by or on behalf of any persons,
firms, corporations, or Governmental Entities arising from the conduct or
management of, or from any work or thing whatsoever done in or about, the
Premises during the term of this lease, and will further indemnify and save the
Landlord harmless against and from any and all claims arising during the term of
this lease from any condition of the Premises, or any street, curb or sidewalk,
if any, adjoining the Premises, or of the passageways or spaces therein or
appurtenant thereto, or arising from any breach or default on the part of the
Tenant in the performance of any covenant or agreement on the part of the Tenant
to be performed pursuant to the terms of this lease, or arising from any act or
negligence of the Tenant, or any of its agents, contractors, servants, employees
or licensees, or arising from any accident, injury or damage whatsoever caused
to any person, firm or corporation occurring during the term of this lease, in
or about the Premises, or upon or under the sidewalks and the land adjacent
thereto, if any, and from and against all costs, counsel fees, expenses and
liabilities incurred in connection with any such claim or action or proceeding
brought thereon; and in case any action or proceeding be brought against the
Landlord by reason of any such claim, the Tenant upon notice from the Landlord
covenants to resist or defend such action or proceeding by counsel satisfactory
to the Landlord.
<PAGE>
Section 16.2. The Tenant covenants and agrees to pay, and to indemnify the
Landlord against, all legal costs and charges, including counsel fees, lawfully
and reasonably incurred in obtaining possession of the Premises after default by
the Tenant or upon expiration or earlier termination of the term of this lease
or in enforcing any covenant or agreement of the Tenant herein contained, or in
the defense of any suit arising out of the occupancy or operation of the
Premises by the Tenant.
Section 16.3. The Tenant is fully familiar with the physical condition
of the Premises and every part thereof. The Landlord has made no representations
of whatever nature in connection with the condition of the Premises or any part
thereof, and the Landlord shall not be liable for any latent or patent defects
therein.
ARTICLE XVII
Default Provisions-Remedies of Landlord
Section 17.1. The following events shall be deemed to be events of default by
Tenant under this lease:
(a) Tenant shall fail to pay any installments of Basic Rent or
additional rent when due, or any other payment or reimbursement to Landlord
required herein when due, and such failure shall continue for a period of ten
(10) days from the date such payment was due.
(b) Tenant shall (i) apply for or consent to the appointment
of a receiver, trustee or liquidator of the Tenant or of all or a substantial
part of its assets, (ii) become insolvent or admit in writing its inability to
pay its debts as they come due, (iii) make a general assignment for the benefit
of creditors, (iv) file a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any insolvency law, other
than the federal Bankruptcy Code, (v) file an answer admitting the material
allegations of a petition filed against the Tenant in any reorganization or
insolvency proceedings, other than a proceeding commenced pursuant to the
federal Bankruptcy Code, or if any order, judgment or decree shall be entered by
any court of competent jurisdiction, except for bankruptcy court or a federal
court sitting as a bankruptcy court, adjudicating the Tenant insolvent or
approving a petition seeking reorganization of the Tenant or appointing a
receiver, trustee or liquidator of the Tenant or of all or a substantial part of
its assets, or (vi) make a transfer in fraud of creditors.
(c) Tenant shall abandon or vacate any substantial portion of
the Premises.
(d) Tenant shall fail to comply with any term, provision or
covenant of this lease (other than the foregoing in this Section 17.1) and shall
not cure such failure within twenty (20) days after written notice thereof to
Tenant.
(e) Tenant shall fail to bond or discharge any lien placed
upon the Premises in violation of Section 12.1 hereof within twenty (20) days
after any such lien or encumbrance is filed against the Premises.
Section 17.2. Upon the occurrence of any of such events of default
described in Section 17.1 hereof, Landlord shall have the option to pursue any
or all of the following remedies:
(a) Landlord may terminate this lease by giving to the Tenant
a notice of intention to end the term of this lease specifying a day not earlier
than five (5) days thereafter, and upon the giving of such notice the term of
this lease and all right, title and interest of the Tenant hereunder shall
expire as fully and completely on the day so specified as if that day were the
date herein specifically fixed for the expiration of the term, whereupon, Tenant
shall immediately surrender the Premises to Landlord, and, if Tenant fails so to
do, Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, additional rent, or other charges, enter upon
and take possession of the Premises and expel or remove Tenant and any other
person who may be occupying such Premises or any part thereof, by force if
necessary, without being liable for prosecution or any claim of damages
therefor. Notwithstanding any terminations of this Lease as a result of Tenant's
default, the liability of Tenant for the rent and other charges provided for
herein shall not be extinguished for the balance of the term of this Lease, and
Tenant agrees to pay to Landlord on demand the amount of all loss and damage
which Landlord may suffer by reason of such termination, whether through
inability to relet the Premises on satisfactory terms or otherwise.
(b) Landlord may enter upon and take possession of the
Premises without terminating this lease and expel or remove Tenant and any other
person who may be occupying such Premises or any part thereof, by force if
necessary, without being liable for prosecution or any claim for damages
therefor, and without terminating this lease or releasing Tenant from its
obligations hereunder for the full term hereof.
(c) Whether or not this Lease is terminated as a result of
Tenant's is default, Landlord may endeavor to relet the Premises for its own
account or for the account of Tenant for such time and upon such terms as the
Landlord shall determine, and receive the rent therefor. In any case of
reletting hereunder, the Landlord may make repairs, alterations and additions in
or to the Premises, and redecorate the same to the extent deemed by Landlord
necessary or desirable, and the Tenant shall, upon demand, pay the cost thereof,
together with the Landlord's expenses of the reletting including but not limited
to real estate commissions, advertising, legal fees and expenses with the
Tenant's exposure limited to $50,000. If the consideration collected by the
Landlord upon any such reletting is not sufficient to pay monthly the full
amount of the rent, additional rent and other charges reserved in this lease,
together with the cost of repairs, alterations, additions, redecorating and the
Landlord's expenses, the Tenant shall pay to the Landlord the amount of each
monthly deficiency upon demand. In the event Landlord is successful in reletting
the Premises at a rental in excess of that agreed to be paid by Tenant pursuant
to the terms of this lease, Landlord and Tenant each mutually agree that Tenant
shall not be entitled, under any circumstances, to such excess rental, and
Tenant does hereby specifically waive any claim to such excess rental.
<PAGE>
(d) Landlord may pursue any remedy allowed by law.
Section 17.3. The Tenant hereby expressly waives the service of notice
of intention to re-enter provided for in any statute, or to institute legal
proceedings to that end, and also waives any and all right or redemption in case
the Tenant shall be dispossessed by a judgment or by warrant of any court or
judge. The Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either party against the other on any
matters arising out or in connection with this lease, the relationship of
Landlord and Tenant thereunder, the Premises or the Tenant's use or occupancy
thereof. The terms "enter", "entry" as used in this lease are not restricted to
their technical legal meaning. If, on account of any breach or default by Tenant
in Tenant's obligations under the terms and conditions of this lease, it shall
become necessary or appropriate for Landlord to employ or consult with an
attorney concerning, or to enforce or defend, any of Landlord's rights or
remedies hereunder, Tenant agrees to pay any attorney's fees so incurred by
Landlord.
ARTICLE XVIII
Holding Over
Section 18.1. Tenant covenants that it will vacate the Premises
immediately upon the expiration or sooner termination of this lease. If the
Tenant retains possession of the Premises or any part thereof after the
termination of the term, the Tenant shall pay the Landlord rent at double the
monthly rate specified in section 1 for the time the Tenant thus remains in
possession and, in addition thereto, shall pay the Landlord for all damages,
consequential as well as direct, sustained by reason of the Tenant's retention
of possession. If the Tenant remains in possession of the Premises, or any part
thereof, after the termination of the term, such holding over shall, at the
election of the Landlord expressed in a written notice to the Tenant and not
otherwise, constitute a renewal of this lease for one year. The provisions of
this Section do not exclude the Landlord's rights of re-entry or any other right
hereunder, including without limitation, the right to refuse double the monthly
rent and instead to remove Tenant through summary proceedings for holding over
beyond the expiration of the term of this lease.
ARTICLE XIX
Invalidity of Particular Provisions
Section 19.1. If any covenant, agreement or condition of this lease or
the application thereof to any person, firm or corporation or to any
circumstances shall to any extent be invalid or unenforceable, the remainder of
this lease, or the application of such covenant, agreement or condition to
persons, firms or corporations or to circumstances other than those as to which
it is invalid or unenforceable, shall not be affected thereby. Each covenant,
agreement or condition of this lease shall be valid and enforceable to the
fullest extent permitted by law.
<PAGE>
ARTICLE XX
Notices
Section 20.1. All notices, demands and requests which may or are
required to be given by either party to the other shall be in writing and shall
be deemed given when personally delivered (including by courier service) to the
party in question at the following addresses) or two days after being sent by
United States Certified Mail, postage prepaid, (a) if for the Tenant, addressed
to the Tenant at the Premises or at such other place as the Tenant may from time
to time designate by written notice to the Landlord, or (b) if for the Landlord,
addressed to the Landlord, Attention Property Management Center, 3414 Peachtree
Road, N.E., Atlanta, Georgia 30326-1162 with a copy, addressed to the Landlord,
Attention Property Manager, at Equitable Real Estate, 1225 Seventeenth Street,
Suite 2525, Denver, Colorado 80202 or at such other places as the Landlord may
from time designate by written notice to the Tenant. Copy of all notices to
Landlord shall also be sent to:
Property Manager, at address specified on Page one of this Lease Document.
Section 20.2 Tenant will deliver to the Landlord, (i) copies of any
documents received from the United States Environmental Protection Agency and/or
any state, county or municipal environmental or health agency concerning the
Tenant's operations upon the premises; and (ii) copies of any documents
submitted by the Tenant to the United States Environmental Protection Agency
and/or any state, county or municipal environmental or health agency concerning
its operations on the premises.
ARTICLE XXI
Quiet Enjoyment
Section 21.1. The Landlord covenants and agrees that the Tenant upon
paying the Basic Rent, additional rent and all other charges herein provided for
and performing and fulfilling covenants, agreements and conditions of this lease
on the Tenant's part to be performed and fulfilled, shall lawfully and quietly
hold, occupy and enjoy the Premises during the term of this lease without
hindrance or molestation by the Landlord or any person or persons claiming under
the Landlord, subject, however, to the matters herein set forth.
ARTICLE XXII
Limitation of Landlord's Liability
Section 22.1. The term "Landlord" as used in this lease shall be
limited to, mean and include only the owner or owners of the Landlord's interest
in this lease at the time in question, and in the event of any transfer or
transfers of such interest, the Landlord herein named (and in case of any
subsequent transfer, the then transferor) shall be automatically freed and
relieved from and after the date of such transfer of all personal liability as
respects the performance of any covenants or agreements on the part of the
Landlord contained in this lease thereafter to be performed, provided that any
funds in the hands of such Landlord or
the then transferor at the time of such transfer, in which the Tenant has an
interest shall be turned over to the transferee and provided further that upon
any such transfer, the transferee shall be deemed to have assumed, subject to
the limitations of this Section, all of the covenants, agreements and conditions
in this lease contained to be performed on the part of the Landlord, it being
intended hereby that the covenants and agreements contained in this lease on the
part of the Landlord to be performed shall, subject as aforesaid, be binding on
the Landlord, its successors and assigns, only during and in respect of their
respective periods of ownership. Anything in this Lease to the contrary
notwithstanding, Tenant agrees that it will look solely to the estate and
property of Landlord in the Building and underlying land for the collection of
any judgment requiring the payment of money by Landlord in the event of any
default or breach by Landlord with respect to the terms of this Lease, and no
other assets of Landlord shall be subject to levy, execution or other procedures
for the satisfaction of Tenant's remedies.
ARTICLE XXIII
Estoppel Certificate by Tenant
Section 23.1. At any time and from time to time upon not less than ten
(10) days' prior request by the Landlord, the Tenant agrees to execute,
acknowledge and deliver to the Landlord a statement in writing certifying (a)
that this lease is unmodified and in full force and effect or if there have been
modifications, that the same is in full force and effect as modified and
identifying the modifications, (b) the dates to which the Basic Rent, additional
rent and other charges have been paid, and (c) that, so far as the person making
the certificate knows, the Landlord is not in default under any provisions of
this lease. It is intended that any such statement may be relied upon by any
person proposing to acquire the Landlord's interest in this lease or any
prospective mortgagee of, or assignee of any mortgage upon, such interest.
ARTICLE XXIV
Cumulative Remedies-No Waiver-No Oral Change
Section 24.1. The specified remedies to which the Landlord may resort
under the terms of this lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which the Landlord may be
entitled, either at law or in equity, in case of any breach or threatened breach
by the Tenant of any covenant, agreement or condition of this lease. The failure
of the Landlord to insist in any one or more cases upon the strict performance
or observance of any of the covenants, agreements or conditions of this lease or
to exercise any option herein contained shall not be construed as a waiver for
the future of such covenant, agreement, condition or option. A receipt by the
Landlord of rent with knowledge of the breach of any covenant, agreement or
condition hereof shall not be deemed a waiver of such breach, and no waiver by
the Landlord of any covenant, agreement or condition of this lease shall be
deemed to have been made unless expressed in writing and signed by the Landlord.
In addition to the other remedies in this lease provided, the Landlord shall be
entitled to the restraint by
<PAGE>
injunction of the violation, or attempted or threatened violation, of any of the
covenants, agreements or conditions of this lease. No receipt of monies by
Landlord from Tenant after the termination or cancellation hereof in any lawful
manner shall reinstate, continue or extend the term hereof, or affect any notice
theretofor given to Tenant, or operate as a waiver of the right of the Landlord
to enforce the payment of rent or additional rent or other charges then due or
thereafter falling due, or operate as a waiver of the right of Landlord to
recover possession of the Premises by proper suit, action, proceedings or
remedy; it being agreed that, after the service of notice to terminate or cancel
this lease, and the expiration of the time therein specified, if the default has
not been cured in the meantime, or after the commencement of suit, action or
summary proceedings or of any other remedy, or after a final order, warrant or
judgment for the possession of the Premises, Landlord may demand, receive and
collect any moneys then due, or thereafter becoming due, without in any manner
affecting such notice, proceeding, suit, action, order, warrant or judgment and
any and all such moneys so collected shall be deemed to be payments on account
for the use and occupation of the Premises, or at the election of Landlord, on
account of Tenant's liability hereunder. Acceptance of the keys to the Premises
or any similar act, by Landlord, or any agent or employee of Landlord during the
term hereof, shall not be deemed to be an acceptance of a surrender of the
Premises unless Landlord shall consent thereto in writing.
Section 24.2. This lease cannot be changed orally, but only by agreement in
writing signed by the party against whom enforcement of the change is sought.
ARTICLE XXV
Brokerage
Section 25.1. Tenant represents and warrants that it has dealt with no
broker, agent or other person in connection with this transaction and/or that no
other broker, agent or other person brought about this transaction, other than
those persons as specified on Page One of this Lease Document, and Tenant agrees
to indemnify and hold Landlord harmless from and against any claims by any other
broker, agent or other person claiming a commission or other form of
compensation by virtue of having dealt with Tenant with regard to this leasing
transaction. The provisions of this Article shall survive the termination of
this lease.
ARTICLE XXVI
Security Deposit
Section 26.1. Tenant has deposited with Landlord the sum as specified
on Page One of this Lease Document as security for the full performance of every
provision of this lease to be performed by Tenant. If Tenant defaults with
respect to any provision of this lease, Landlord may use, apply or retain all or
any part of this security deposit for the payment of any basic rent and
additional rent or any other sum in default, or for the
<PAGE>
payment of any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default, or to compensate Landlord for any other
loss, cost or damage which Landlord may suffer by reason of Tenant's default. If
any portion of said deposit is so used or applied, Tenant shall, within five (5)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount and Tenant's
failure to do so shall be a breach of this lease. Landlord shall not, unless
otherwise required by law, be required to keep this security deposit separate
from its general funds nor pay interest to its Tenant. For full security deposit
reimbursement the following conditions must be met:
(a) All walls must be clean and free of holes.
(b) overhead door must be free of any broken panels, cracked
lumber or dented panels. The overhead door springs, rollers,
tracks, motorized door operator, and all other items pertaining
to the overhead door must also be in good working condition.
(c) Heaters, air conditioning units must be in good working
order. Filters must be changed - all thermostats must be in working order.
Tenant must supply Landlord with maintenance records.
(d) All floors must be clean and free of excessive dust, dirt,
grease, oil and stains.
(e) Drop grid ceiling must be free of excessive dust from lack
of changing filters. (No ceiling tiles should be missing or
damaged.)
(f) All trash must be removed from both inside and outside of
the building.
(g) All light bulbs & ballasts must be working.
(h) All signs in front of building and on glass entry door and
rear door must be removed.
(i) Hot water heater must work.
(j) All plumbing fixtures, equipment & drains must be clean
and in working order.
(k) Warehouse floor must be clean and free of grease and
stains.
(1) Windows must be clean.
(m) All keys must be returned.
(n) All mechanical & electrical systems must be in good
working condition. (o) Tenant shall be in compliance with
surrender provisions of Section 6.2 of this lease.
ARTICLE XXVII
Miscellaneous Provisions
Section 27.1. Tenant shall be solely responsible for and promptly pay
all charges for heat, water, gas, electricity and other utilities used or
consumed on the Premises. Landlord shall not be liable to Tenant for
interference in or interruption of any utility service nor shall any curtailment
or interruption constitute a constructive eviction or grounds for rental
abatement in whole or in part hereunder. In the event utilities are not
separately metered to Tenant, then Tenant will reimburse Landlord, upon demand,
for the cost to Landlord of utilities used or consumed on the Premises.
Section 27.2. Tenant shall not place on the outside of the Building any
sign, advertisement, illumination or projection, unless the same shall first
have been approved in writing by Landlord. In multi-tenant buildings, tenant
shall pay for and comply with Landlord's uniform signage requirements.
Section 27.3. If the Landlord is unable to tender possession of the
Premises on the date of the commencement of the term hereof, the Landlord shall
not be liable for any damage caused thereby, nor shall this lease be void or
voidable by Tenant, but in such event unless the delay results from failure of
Tenant to provide plans or otherwise perform in accordance with the requirements
of the lease, no rental shall be payable by Tenant prior to actual tender to
Tenant of possession of the Premises. In any event, late delivery of the
Premises will not extend the term of this lease.
Section 27.4. This lease shall be construed and enforced in accordance with the
laws of the state in which Building is situated.
Section 27.5. The parties hereto agree that the covenants and
agreements herein contained shall bind and inure to the benefit of the Landlord,
its successors and assigns, and the Tenant, its successors and assigns.
Section 27.6. If any clause or provision of this lease is illegal,
invalid or unenforceable under present or future laws effective during the term
of this lease, then and in that event, it is the intention of the parties hereto
that the remainder of this lease shall not be affected thereby, and it is also
the intention of the parties to this lease that in lieu of each clause or
provision of this lease that is illegal, invalid or unenforceable, there be
added as a part of this lease contract a clause or provision as similar in terms
to such illegal, invalid, unenforceable clause or provision as may be possible
and be legal, valid and enforceable.
Section 27.7. The submission of this lease for examination, approval,
and/or negotiation does not constitute an offer or agreement to lease, or a
reservation of, or option for the demised premises. This lease shall be
effective and binding as a lease of the demised premises only upon execution and
delivery hereof, each to the other by both Landlord and Tenant.
Section 27.8. If any checks written during the lease term fail to clear
Tenant's Bank, Landlord may demand all future rent payments to be either in the
form of cash, certified check, money order, wire transfer or cash equivalent
funds.
Section 27.9. There will be a $50.00 service charge on all NSF checks
and interest will accrue on this amount at the rate of two percent (2%) per
month until all monies are paid.
Section 27.10. "Reasonable wear and tear" is hereby defined as that
degree of wear and tear which would normally occur in the general usage of a
demised Premises but shall not include any physical damages to the floors,
walls, and ceiling of the demised Premises, nor any damage caused through
operation of machinery, office equipment or other equipment used in the
operation of Tenant's business. Additionally, if Tenant's use, by reason of
fumes discharged or liquids used by Tenant, should cause damage to the Leased
Premises or other nearby premises, both interior or exterior, said damages shall
not be deemed as "reasonable wear and tear", and Tenant shall be liable for the
complete restoration of the Premises at Tenant's expense. Said damages shall
include, but not be limited to, damaged, rusting or corroded walls, floors,
ceilings, doors, windows, plumbing, heating and air conditioning units, metal
bar joists, steel decks, or roof vents or stacks.
Section 27.11. Landlord agrees to provide, for the use of Tenant and
Tenant's employees, agents, customers and invitees, sufficient parking space
adjacent to or reasonably near the Premises (together with necessary access
thereto) to accommodate not more than the number of parking spaces for passenger
automobiles as specified on Page One of this Lease Document. Tenant shall have
no interest in any parking area so furnished, as tenant or otherwise, but shall
have only a license to use the same during the term of this lease, in common
with others entitled to the use thereof. All rights herein granted with respect
to parking and driveway areas shall at all times be subject to reasonable
regulation by Landlord, but Landlord shall have no liability to any person for
any interference with, or obstruction of, any such rights.
Section 27.12. In the event rail side track service is provided to the
Premises, Tenant covenants and agrees to pay to the Landlord, as additional
rent, its pro rata share of all costs incurred by Landlord under rail agreements
for the provisions and maintenance of such rail side track service.
Section 27.13. The Rules and Regulations attached hereto are hereby
made a part of this Lease. Landlord shall have the right from time to time to
amend or delete any of such rules and regulations and to adopt and promulgate
new or additional rules and regulations applicable to the Building, the land
related thereto, and the use and operations thereof. Tenant agrees to comply
with and observe the attached and all such other rules and regulations. Tenant's
failure to do so shall constitute a default under the terms of this Lease just
as if such rules and regulations were contained herein as covenants. Landlord
shall not be responsible to
<PAGE>
Tenant for enforcement of any such rules and regulations against other parties,
including other Lessees of space to the Building. In the event of any
inconsistency between the provisions of such rules and regulations and the other
provisions of this Lease, the other provisions of this Leases shall control.
IN WITNESS WHEREOF, the Landlord and the Tenant have executed this agreement the
day and year first above written.
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
Landlord
By
Its
(Corporate Seal) MRS. FIELD'S COOKIES
Attest: Tenant
/s/E L Clissold By /s/ Charles B. Borash Secretary Its V. President
<PAGE>
RIDER
This Rider is attached hereto and made a part hereof, Lease dated the day of
February, 1993, by and between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES, hereinafter referred to as "LANDLORD" and FIELD'S ENTERPRISES,
hereinafter referred to as "TENANT", witnesseth:
1. Tenant shall have the right to terminate this lease after three (3)
full years with six months prior written notice, payment of $24,176.88
and payment of unamortized tenant improvements and commissions.
2. Tenant shall also have the option to extend this lease for three (3)
years at the end of the original five year term at then current market
rents.
3. Tenant Improvements: Landlord will pay up to $29,484 for tenant
finishes. All improvement, refurbishing, installations and items of
finish beyond the current "as is" condition of the Premises are referred
to as the Tenant Improvements. Tenant will be responsible for completing
all tenant finishes in the space after receiving Landlord approval for
plans and contractor. When the finishes are completed and all contractor
lien waivers are signed, the Landlord will release payment of up to
$29,484 for these improvements with proof of contractors invoices.
<PAGE>
CERTIFIED COPY OF RESOLUTION
I, , do hereby certify that I am the duly elected and acting Secretary of a
Corporation, and the custodian of the corporate books and records; that at a
Special Meeting of the Board of Directors of said company, held on , at which
all of the Directors were present, the following Resolution was unanimously
adopted:
RESOLVED, that the Corporation entered into a lease with
for the premises located at
and approved the lease submitted, and that the officers of the Corporation be
and are hereby authorized and directed to execute and deliver same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Corporation Seal
of said Corporation this day of , 1991.
Secretary
<PAGE>
RULES AND REGULATIONS
1. Landlord will furnish each Tenant with two keys to each door lock in the
Leased Premises, and Landlord may make a reasonable charge for any additional
keys requested by Tenant. No Tenant shall have any keys made for the Leased
Premises; nor shall any Tenant alter any lock, or install new or additional
locks or bolts, on any door without the prior written approval of Landlord. If a
lock alteration or installation is made, the new lock must accept the master key
for the Building. Each Tenant, upon the expiration or termination of its
tenancy, shall deliver to Landlord all keys in such Tenant's possession for all
locks and bolts in the Building.
2. Tenant shall refer all its contractors, contractor's representatives, and
installation technicians, rendering any service on or to the Premises, to the
Landlord for Landlord's approval and supervision prior to performance of any
work performed in the Building, including, but not limited to, installation of
telephones, telegraph equipment, electrical devices and attachments, and
installations of any nature affecting floors, walls, woodwork, trim, windows,
ceilings, equipment, or any other physical portion of the Building or the
Premises.
3. No Tenant shall, at any time, occupy any part of the Premises as sleeping or
lodging quarters.
4. No birds, fowl, or other animals shall be brought into or kept in or about
the Premises.
5. None of the entries, passages, doors, stairways, or vestibule shall be
blocked or obstructed, nor shall any rubbish, litter, trash, or materials of any
nature be placed, emptied, or thrown into such areas, nor shall such areas be
used at any time except for ingress and egress by Tenant, or the Tenant's
agents, employees, or business invitees.
6. The water closets and other water fixtures shall not be used for any purpose
other than those for which they were constructed, and any damage resulting to
such water closets and water fixtures from misuse shall be the responsibility of
the company or person who caused such damage. No person shall waste water by
interfering with the faucets or otherwise.
7. No person shall disturb the occupants of the Building by the use of any
musical instrument, the making of unseemly noises, or any unreasonable
use.
Page 1 of 2
<PAGE>
RULES & REGULATIONS
(Continued)
8. Tenant shall provide its own dumpster for trash storage and removal, and
agrees not to leave or store any materials, litter, or trash on the Common Areas
including parking areas. Landlord reserves the right to approve the type of
dumpster utilized by the Tenant.
9. The use of parking areas shall be subject to such reasonable rules and
regulations as the Landlord may promulgate uniformly for all Tenants. Tenant
agrees that it shall not use or permit the use by its employees of the parking
and loading dock areas for the overnight storage of automobiles or other
vehicles which would interfere with maintenance, snow removal, traffic flow,
emergency vehicles, or other intended uses of the Project. Landlord shall have
the right to tow any vehicle belonging to Tenant, its agents, employees, or
invitees which is improperly parked and which the Tenant fails to remove after
written notice by the Landlord.
10. No sign, advertisement, or other lettering shall be painted, affixed, or
exposed on the windows, doors, or any part of the outside of the Building or the
Premises other than as specifically permitted in writing by the Landlord.
11. Landlord shall not be responsible for lost or stolen personal property,
equipment, money, or jewelry from the Premises, regardless of whether such loss
occurs when an area is locked against entry or not.
12. Tenant shall be responsible for any damage to paving caused by the parking
or loading of trailers or trucks.
13. No drapes, curtains, blinds, or other window covering shall be installed by
the Tenant without the prior written approval of the Landlord.
It is the Landlord's desire to maintain in the Building the highest standard of
dignity and good taste, consistent with comfort and convenience for the Tenants.
Any action or condition not meeting with this standard should be reported
directly to the Landlord. Landlord's and Tenant's cooperation will be mutually
beneficial and sincerely appreciated. Landlord reserves the right to make such
other and further reasonable rules and regulations as in its judgment may from
time to time be needful for the safety, care, and cleanliness of the Premises,
and for the preservation of good order therein.
Page 2 of 2
EXTENSION AGREEMENT
THIS AGREEMENT made and entered into this the 10th day of October, 1995 (the
"Agreement"), by THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
("Landlord") and MRS. FIELDS COOKIES, a California corporation ("Tenant")
WITNESSETH
WHEREAS, the parties hereto have entered into a certain Lease Agreement (the
"Lease") dated July 1, 1993, demising certain premises in the building located
at 379 Lawndale Drive, Salt Lake City, Utah.
WHEREAS, it is the desire of the parties to extend said Lease.
NOW THEREFORE, effective July 1, 1995, the parties agree as follows, said
provisions to control whenever inconsistent with the original provisions of the
Lease:
1. TERM: The extension term of said lease shall be for an
additional thirty-four (34) months beginning on the first day
of July 1995 and expiring on the last day of April 1998.
2. PREMISES: 5,308 square feet located at 379 Lawndale Drive.
2. BASE RENT: Effective July 1, 1995 through April 30, 1998, the
annual base rent shall increase to Eighteen Thousand Four
Hundred Sixty-Eight and 00/100 Dollars ($18,468.00) to be paid
in equal monthly installments of One Thousand Five Hundred
Thirty-Nine and 00/100 Dollars ($1,539.00).
ALL OTHER PROVISIONS of the Lease shall remain unmodified and in full
force and effect, except as specifically set forth herein.
IN WITNESS WHEREOF, the parties have executed this Amendment by their
duly authorized officers or representatives.
LANDLORD: TENANT:
THE EQUITABLE LIFE ASSURANCE MRS. FIELDS COOKIES, a
SOCIETY OF THE UNITED STATES California corporation
By: By: /s/Randal A. Baker
Randal A. Baker
Its: Investment Officer Its: Vice President
Date: 10-10-95 Date: 10-2-95
<PAGE>
Table of Contents
Section Title
1. Industrial Park, Common Areas, and Parking Areas.................Page 1
------------------------------------------------
2. Leased Premises and Gross Leasable Area..........................Page 1
---------------------------------------
3. Improvement of Premises.........................................Page 2
-----------------------
4. Term............................................................Page 2
----
5. Rent............................................................Page 2
----
6. Prepaid Rent and Security Deposit...............................Page 3
---------------------------------
7. Operating Expenses..............................................Page 4
------------------
8. Taxes on Tenant's Property......................................Page 6
--------------------------
9. Rail Side Track Expenses........................................Page 6
------------------------
10. Parking.........................................................Page 6
-------
11. Use and Compliance with Law.....................................Page 7
---------------------------
12. Utilities............................................ ..........Page 7
---------
13. Maintenance and Cleaning........................................Page 7
------------------------
14. Alterations.....................................................Page 8
-----------
15. Signs...........................................................Page 9
-----
16. Rules and Regulations...........................................Page 9
---------------------
17. Landlord's Financing.................................. .........Page 10
--------------------
18. Tenant's Insurance and Indemnity................................Page 10
--------------------------------
19. Destruction....................................................Page 11
-----------
20. Condemnation...................................................Page 11
------------
21. Assignment and Subletting......................................Page 12
-------------------------
22. Default by Tenant..............................................Page 12
-----------------
23. Remedies for Tenant's Default..................................Page 13
-----------------------------
24. Late Charge............................................ .......Page 13
-----------
<PAGE>
25. Default by Landlord . . . . . . . . . . . . . . . . . . . Page 13
26. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . Page 14
27. Obligations upon Termination . . . . . . . . . . . . . . Page 14
28. Estoppel Certificate . . . . . . . . . . . . . . . . . . Page 14
29. Sale of Premises by Landlord . . . . . . . . . . . . . . Page 14
30. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . Page 14
31. Holding Over . . . . . . . . . . . . . . . . . . . . . . . Page 15
32. Access to Premises . . . . . . . . . . . . . . . . . . . . Page 15
33. Nonrecourse Provision . . . . . . . . . . . . . . . . . . Page 15
34. Waiver and Cumulative Remedies . . . . . . . . . . . . . . Page 15
35. Multiple Parties Tenant . . . . . . . . . . . . . . . . . Page 16
36. Prior Agreements, Lease Amendments, and Time Effective . . Page 16
------------------------------------------------------
37. Inability to Perform . . . . . . . . . . . . . . . . . . . Page 16
38. Authority . . . . . . . . . . . . . . . . . . . . . . . . Page 16
39. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . Page 16
40. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . Page 17
41. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . Page 17
42. Rider and Deadline . . . . . . . . . . . . . . . . . . . . . Page 17
Exhibits and Attachments:
Guaranty (If applicable]
Rider (If applicable]
Exhibit A Marked floor or building plan, showing location and configuration of
Premises
Exhibit B Improvement of Premises [If applicable]
Exhibit C Rules and Regulations
Exhibit D Certified Corporate Resolution
2-1-93
<PAGE>
LEASE
[Warehouse & Associated Space]
THIS LEASE, dated July 1, 1993, is made and entered into by
and between THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, a New
York corporation (hereinafter referred to as "Landlord"), and MRS. FIELDS
COOKIES, a California Corporation (hereinafter referred to as "Tenant," whether
one or more). Landlord and Tenant hereby agree as follows:
1. Industrial Park, Common Areas, and Parking Areas.
Landlord is the owner of one or more buildings, and associated land, located
within or comprising the complex or industrial park commonly known as
Interchange Business Park and situated at approximately or near I-15 and I-80
Freeway Interchange (South Salt Lake) in the County of Salt Lake, Utah. All of
such buildings and land that are from time to time owned by Landlord (as such
ownership may periodically expand or contract) are hereinafter collectively
referred to as the "Industrial Park." All of the vehicular parking areas,
streets, driveways, turnaround areas, and landscaped areas that from time to
time are part of the Industrial Park are hereinafter collectively referred to as
the "Common Areas." The vehicular parking 'areas that from time to time are
contained in the Common Areas are hereinafter referred to as the "Parking
Areas."
2 . Leased Premises and Gross Leasable Area. Landlord hereby
leases to Tenant, and Tenant rents from Landlord, all or part of one of the
buildings included in the Industrial Park. The space hereby leased by Landlord
to Tenant is hereinafter referred to as the "Premises." The address of the
Premises is 379 Lawndale Drive, Salt Lake City, Utah, and the location and
configuration of the Premises is outlined or cross-hatched on the floor or
building plan attached hereto as Exhibit A and incorporated herein by this
reference. During the term of this Lease Tenant shall have such nonexclusive
licenses with respect to the Common Areas as may be reasonably necessary for
access to the Premises.
The "Gross Leasable Area" of the Premises is 5,308 square
feet. As used in this Lease as regards either the Premises or other leasable
space in the Industrial Park, "Gross Leasable Area" shall mean the square
footage of the area in question, determined by measurements running from the
outside surfaces of perimeter building walls and from the center of any interior
demising wall that may separate spaces leased to different lessees, without
deduction for any areas lying within the perimeter of the space in question. Any
mezzanine space shall be ignored in determining Gross Leasable Area.
3 . Improvement of Premises. The arrangement, if any, that is
to apply relative to improvement or refurbishing of the
"Standard Form" 2-1-93
Premises is described in Exhibit B attached hereto and incorporated herein by
this reference. Except for whatever work by Landlord may be called for by such
Exhibit B, the Premises are leased to Tenant "as is," and Landlord shall have no
responsibility for further improving or modifying the Premises to meet Tenant's
requirements. Such Exhibit B is [_] is not [X] part of this Lease.
4. Term. If there is no Exhibit B to this Lease, or if under
the provisions of Exhibit B Landlord has no responsibility for accomplishing any
improvements to or refurbishing of the Premises, then the term of this Lease
shall commence on the first to occur of the following dates: (i) July 1, 1993;
or (ii) The date on which Tenant, with the consent of Landlord, moves any of its
equipment or personnel into the Premises. If under Exhibit B hereto Landlord
does have such responsibility, then such term shall commence on the first to
occur of the following dates: (a) The date that falls 10 days after the
"Construction Completion Date" referred to in Exhibit B hereto; or (b) The date
on which Tenant, with the consent of Landlord, moves any of its equipment or
personnel into the Premises. The commencement date of the term which is
applicable under the foregoing provisions is hereinafter referred to as the
"Commencement Date." When the Commencement Date can be fixed, the parties shall,
upon the written request of either, enter into a writing which memorializes such
Date. Notwithstanding the foregoing provisions, if the Commencement Date has not
arrived prior to the expiration of three years after the date of this Lease,
this Lease shall thereupon automatically cease to be of any force or effect.
Unless such term is prematurely terminated pursuant to the provisions of this
Lease, the term hereof shall consist of the Two (2) year period following the
Commencement Date plus, if the Commencement Date falls on other than the first
day of a month, the balance of such partial calendar month (and any such partial
month shall, for purposes of rent adjustments and the like, be considered to be
part of the first year of the term hereof).
Those provisions of this Lease which govern the general
relationship of the parties and do not relate specifically to the payment of
rent or the use and occupancy of the Premises shall be effective immediately
upon execution of this Lease.
5. Rent. During the term hereof Tenant shall pay to Landlord
as monthly rent, in addition to any other charge to be paid by Tenant under this
Lease, the following amounts:
a. During the First year of the term, $1,428.00 per month;
then,
b. During the Second year of the term, $1,428.00 per month;
then,
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The applicable rent shall be paid in advance on the first day of each month
throughout the term hereof (if the Commencement Date of the term is other than
the first day of a month, Tenant shall pay to Landlord, on such Date, a pro rata
share of the monthly rent, as rent for the fractional calendar month with which
the term hereof begins). Each rental payment and other sum required to be paid
by Tenant under this Lease shall be delivered to Landlord at such place as
Landlord may from time to time designate in writing. Each installment of rent or
other sum required under this Lease to be paid by Tenant shall be paid to
Landlord without any offset or deduction whatsoever.
6 . Prepaid Rent and Security Deposit. Upon execution of
this Lease, Tenant shall deposit with Landlord the sum of $-O- (the "Deposit")
as prepaid rent and a security deposit. The Deposit shall be allocated as
follows:
a. Prepaid Rent:
$ N/A of the Deposit shall be applied to rent due for the
month of the Lease term.
$ N/A of the Deposit shall be applied to rent due for the
month of the Lease term.
b. Security Deposit:
$ N/A of the Deposit shall be applied to a security deposit
for the performance by Tenant of the provisions of this Lease.
If Tenant is in default, Landlord shall have the right to use the security
deposit, or any portion thereof, to cure the default or to compensate Landlord
for damage sustained by it resulting from Tenant's default. Tenant shall on
demand immediately pay to Landlord the sum necessary to replenish the security
deposit to that initially deposited with Landlord. If Tenant is not in default
at the expiration or termination of this Lease, Landlord shall return the
security deposit to Tenant within a reasonable period of time following the end
of the term hereof. Landlord's obligations with respect to the security deposit
are those of a secured party and not a trustee. Landlord shall have the right to
maintain the security deposit separate and apart from Landlord's general funds
or may commingle the security deposit with Landlord's general and other funds.
Landlord shall not be required to pay to Tenant any interest on the security
deposit.
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In the event that this Lease is for any reason terminated
before the end of the full term, any rent paid for any period beyond the
termination date shall be considered to be an additional security deposit.
In the event of an assignment or transfer of Landlord's
interest under this Lease, Landlord shall have the right to transfer the
security deposit to its assignee or transferee, and Landlord shall thereupon be
released from all liability for the return of such deposit. In the event of any
permitted assignment of this Lease by Tenant, the security deposit shall be
deemed to be held by Landlord as a deposit made by the assignee, and Landlord
shall have no further liability with respect to return of said deposit to the
assignor.
7. Operating Expenses. As used herein the term "Operating
Expenses" shall mean and include the aggregate cost and expense of each of the
following which is incurred by Landlord during or is allocable to the period in
question, with such cost and expense to be determined through the method of
accounting (cash, accrual, or a combination thereof) that Landlord determines
will most fairly and simply allocate the costs and expenses in question to the
separate periods involved and to be determined in accordance with the accounting
procedures and business practices customarily employed by Landlord: real estate
taxes and installments on special assessments attributable to the Industrial
Park or any portion thereof (real estate taxes shall be deemed to include all
taxes, assessments, impositions, charges, and fees that are or may be levied,
assessed, imposed, and/or charged upon, against, based upon, or in any way in
relation to or in connection with the Industrial Park, or the use, occupancy,
ownership, or leasing of the Industrial Park, or any income or money produced by
the Industrial Park, including, without limitation, any taxes or charges which
may be levied on or measured by rents); costs incurred by Landlord in connection
with any contest or protest regarding such real estate taxes or related
assessment values; any tax or other charge levied or assessed upon Landlord or
upon the rent payable under this Lease or under other leases of space in the
Industrial Park in lieu, in whole or in part, of real estate taxes or special
assessments; all insurance covering the Industrial Park or any portion thereof
which Landlord deems necessary or advisable to obtain and maintain; management
fees; reasonable reserves for replacement or repair of components of the Common
Areas; and the following, but only to the extent that the following occur or are
provided in connection with the Common Areas: landscaping care and gardening,
cleanup, security, painting, repair and maintenance, refurbishing, resurfacing,
pest control, snow removal, sweeping, lighting, utilities, repair of mechanical,
plumbing, HVAC systems, repair and replacement of parking lot and roofs, and any
other services or matters. In the event the exact amount of any ingredient of
Operating Expenses is not known at the time it is necessary to
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determine such Expenses, Landlord's reasonable estimate of the amount of such
ingredient shall be used.
As used herein the term "Proportionate Share" shall mean a
fraction whose numerator is the Gross Leasable Area of the Premises and whose
denominator is the Gross Leasable Area of all buildings which during the period
in question are included in the Industrial Park.
In addition to all other payments by Tenant to Landlord
required by this Lease, Tenant shall pay to Landlord Tenant's Proportionate
Share of Operating Expenses for each calendar year or portion thereof during the
term of this Lease. Estimated monthly payments toward Tenant's Proportionate
Share of Operating Expenses, in an amount to be established and from time to
time modified by Landlord, shall be made by Tenant in advance throughout the
term hereof , on or before the same date that rent is due from Tenant. By April
1 of each year Landlord shall give Tenant a statement showing the total
Operating Expenses for the prior calendar year and Tenant's Proportionate Share
thereof. In the event the total of the monthly Operating Expense payments which
Tenant has made for the prior calendar year is less than Tenant's Proportionate
Share of the actual Operating Expenses, then Tenant shall pay the difference in
a lump sum within 10 days after receipt of such statement from Landlord. Any
overpayment by Tenant shall be credited towards the monthly Operating Expense
payments next coming due. Failure by Landlord to submit any statement
contemplated hereby shall not be deemed to be a waiver of the requirement that
Tenant pay its Proportionate Share of Operating Expenses. Landlord shall not be
required to segregate the monthly operating Expense payments received from
Tenant from Landlord's own funds or from similar payments received from other
lessees of the Industrial Park.
Tenant shall be required to make the annual payment called for
in this Section even though the term of this Lease has expired or terminated
prior to the time Landlord renders a statement for such payment. However, if the
term of this Lease has not been in effect for the entirety of the annual or
other period covered by a statement contemplated hereby, the amount required to
be paid by Tenant shall be determined through a proration which takes into
account the length of time that the term has been or was in effect.
Each of the final statements and determinations provided for
above shall become absolutely binding on Tenant, and not subject to challenge by
Tenant, one year after the time the statement in question is furnished to
Tenant.
8 . Taxes on Tenant's Property. Tenant shall pay or cause to
be paid, before delinquency, any and all taxes payable during or attributable to
any period during the term hereof which are levied or assessed upon Tenant's
leasehold improvements, equipment, fixtures, or personal property located in the
Premises In
Page 5
the event any or all of Tenant's leasehold improvements, equipment, fixtures,
and personal property are assessed and taxed with the realty, Tenant shall pay
to Landlord its share of such taxes within 10 days after Landlord's delivery to
Tenant of a written statement setting forth the amount of such taxes applicable
to Tenant's property.
9. Rail Side Track Expenses. This Section shall apply only in
the event railroad side track service is provided to the Premises. Tenant shall
from time to time, each time within 10 days after being invoiced therefor by
Landlord, pay a pro rata portion of all costs incurred by Landlord in connection
with the provision, repair, and maintenance of such railroad side track,
including costs incurred by Landlord under agreements with railroad companies
relating to such track. Tenant's pro rata portion of such costs shall be a
fraction whose numerator is the Gross Leasable Area of the Premises and whose
denominator is the Gross Leasable Area of all space in the Industrial Park whose
occupants make use of railroad service on such side track.
10. Parking. During the term of this Lease Tenant shall have a
license to use, as parking (for itself and its employees and visitors), the
parking spaces situated within such portion or portions of the Parking Areas as
Landlord may from time to time designate for that purpose. Unless and except
during such periods as Landlord designates the specific parking spaces that are
to be used by Tenant, Tenant shall not have the exclusive right to use any
particular parking spaces. Rather, Tenant shall have a license to use the Number
of Spaces situated within the portion or portions of the Parking Areas then
designated by Landlord for such purpose. Tenant and its employees and visitors
shall park vehicles only within the area or areas (or in the specific parking
spaces, in the event Landlord designates specific spaces) in the Parking Areas
that are from time to time designated for use by Tenant, and shall not park
elsewhere within the Parking Areas. At no time shall Tenant and its employees
and visitors use, in the aggregate, more than the Number of Spaces.
The rules and regulations referred to in and contemplated by Section 16
hereof may include provisions designed to promote and provide for Landlord's
control, operation, and administration of the Parking Areas and of the use
rights regarding the same that are held by lessees of space in the Industrial
Park. Landlord shall have no obligation to ensure that the parking rights of
Tenant provided for in this Section are not impaired or violated by other
parties, including lessees, occupants, or users of the Industrial Park.
11. Use and compliance with Law. Tenant shall use the Premises
only as space for warehousing, distribution, and/or sales and for purposes
ordinarily incidental to such use, for lawful and proper purposes which are
permissible under applicable law. Tenant shall not make any use of the Premises
which would in any way
Page 6
increase the cost of fire or other insurance on the building containing the
Premises or limit any portion of the coverage thereunder. Tenant shall not
commit any waste upon the Premises and shall not conduct or allow any business,
activity, or thing on the Premises which is or becomes unlawful, prohibited, or
a nuisance, or which may be an annoyance or cause damage to Landlord or other
lessees, occupants, or users of the Industrial Park. Tenant shall at its own
expense comply with and abide by all laws, ordinances, regulations, and
directives of all municipal, county, state, and federal authorities which are
now in force or which may hereafter become effective or be issued with respect
to the condition, use, or occupancy of the Premises. Tenant shall not obstruct
or use for other than their intended purposes any part of the Common Areas.
Without limiting the generality of the foregoing requirements,
all activities in or about the Premises by Tenant or other occupants or users of
the Premises shall be accomplished in compliance with all applicable federal,
state, and local statutes, regulations, and ordinances pertaining to
environmental matters or hazardous substances and shall not impair access per
A.D.A. law. Tenant shall not use or permit any other person to use the Premises
for the presence, storage, use, treatment, or disposal of asbestos, petroleum,
petroleum-related substances, or any hazardous, toxic, or other substance or
material the presence, use, storage, handling, release, or cleanup of which is
or becomes prohibited or regulated by any local governmental authority, the
State in which the Premises are located, the United States of America, or any
governmental or quasi-governmental body or agency, except for the proper and
lawful storage and use of those substances or materials customarily and lawfully
stored and used in normal commercial operations of the type contemplated by the
first paragraph of this Section.
12. Utilities. Tenant shall arrange for, and shall pay all
costs, charges, and amounts required for the Premises to be furnished with, such
utility services as may be required by Tenant or for the use and occupancy of
the Premises, including telephone, electricity, water, gas, and sewer service.
In the event any utility service to the Premises is interrupted or discontinued
for any reason whatsoever, Landlord shall not be liable therefor to Tenant and
such interruption or discontinuation shall not be deemed to be an eviction or
interference with Tenant's use and occupancy of the Premises.
13. Maintenance and Cleaning. By execution of this Lease,
Tenant accepts the Premises as properly constructed and as being in good order,
condition, and repair, subject only to any work required to be performed by
Landlord pursuant to Exhibit B hereto, if applicable. Throughout the term hereof
Tenant shall, at is sole cost and expense, provide and accomplish such
janitorial, cleaning, trash removal, and other services as may be necessary to
keep the Premises and every part thereof in a clean, safe, usable, and
attractive condition. Until any trash or refuse generated by Tenant
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<PAGE>
is removed from the Industrial Park, Tenant shall cause such material to be
stored, in containers and locations approved by Landlord, so as not to
constitute a health or fire hazard, or be an annoyance to other occupants of the
Industrial Park, or be visible to visitors to the Industrial Park. Tenant at its
own cost shall regularly sweep and remove snow and ice from any sidewalks or
walkways adjoining the Premises or extending from the Premises to Parking Areas.
Tenant shall also, at its sole cost and expense, keep the Premises and all
fixtures, mechanical and electrical equipment, and appurtenances therein or
serving the Premises (including, without limitation, the HVAC equipment serving
the Premises, irrespective of where such equipment may be located) in good,
safe, functional, and proper order, condition, maintenance, and repair. Tenant
shall obtain, and throughout the term hereof shall keep in force and pay for, a
service contract, covering the HVAC equipment serving the Premises, from a
licensed contractor specified or approved by Landlord for repairs and
maintenance of said equipment and for regular periodic inspection and service
not less frequently than once every three months, said maintenance contract to
conform to the requirements under the warranty, if any, on the HVAC equipment.
Such contract shall be entered into by Tenant and a copy thereof furnished to
Landlord within 10 days after the Commencement Date of the term. Tenant shall
permit only the contractors specified or approved by Landlord to go on the roof
of the Premises. Tenant shall, upon the expiration or earlier termination of
this Lease, deliver to Landlord all keys to the Premises and surrender the
Premises to Landlord in good condition, thoroughly cleaned, and with all
equipment, facilities, and items therein or serving the Premises properly
maintained and in good working order.
Notwithstanding the foregoing provisions, Landlord shall
maintain in good condition and repair the foundations of the Premises and the
structural portions of the exterior walls of the Premises. The cost of such
maintenance shall be borne by Landlord unless the need for the maintenance in
question is due to the act of Tenant or its agents, employees, contractors, or
invitees, in which event such cost shall be paid by Tenant upon the demand of
Landlord. Tenant shall notify Landlord as soon as Tenant discovers or observes
any condition requiring corrective action on the part of Landlord hereunder.
14. Alterations. Subsequent to any initial improvement that
may occur pursuant to Exhibit B, if such Exhibit applies, Tenant at its sole
cost and expense may make changes, additions, and improvements to the Premises
to better adapt the Premises for its use and occupancy; provided, however, that
any such change, addition, or improvement shall: (a) Not diminish Landlord's
flexibility of use of the Premises with respect to subsequent lessees or
occupants thereof; (b) Be in conformity with all applicable laws and ordinances;
(c) Be made only with the prior written consent of Landlord (which consent shall
not be unreasonably
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withheld) ; (d) Be made pursuant to plans and specifications approved in writing
by Landlord, and upon obtaining any required permits and licenses; (e) Be made
only after Tenant has provided to Landlord such indemnification and/or bonds, in
such form and amount as may be satisfactory to Landlord, to protect against
claims and liens for labor performed and materials furnished; and (f) Be carried
out only by Landlord's construction management persons or entities approved in
writing by Landlord, who, if required by Landlord, shall deliver to Landlord
before commencement of the work proof of such insurance coverage as Landlord may
require, with Landlord named as an additional insured. Any such change,
addition, or improvement shall be done only at such time and in such manner as
Landlord may specify. Tenant shall promptly pay the cost thereof. Tenant shall
indemnify, defend, and hold Landlord harmless from and against any and all
liens, claims, and liabilities, including attorneys' fees, which may arise out
of or be connected in any way with any such change, addition, or improvement.
Any increase in property taxes or insurance cost attributable to such change,
addition, or improvement shall be borne by Tenant and shall be paid by Tenant to
Landlord within 30 days after receipt by Tenant of Landlord's invoice therefor.
Any change, addition, or improvement made by Tenant shall immediately become a
part of the realty and belong to Landlord, but upon the expiration or
termination of this Lease Landlord shall have the right, with respect to each
such change, addition, or improvement, to retain the item or change concerned or
to require Tenant at its expense to restore to its original condition that part
of the Premises involved. Landlord shall not have the right to retain removable
equipment or other personal property furnished by Tenant, but Tenant at its
expense shall repair any damage to the Premises which may have been caused by
such property.
15. Signs. Tenant shall not place any sign on the exterior of
the Premises unless it has first been approved in writing by Landlord. If Tenant
wishes to obtain Landlord's approval of a proposed sign, Tenant shall supply
Landlord with a detailed description and drawing of such sign and of its
proposed location. Landlord shall not unreasonably withhold its approval of a
sign proposed for use by Tenant so long as the sign is attractive and of the
same type, style, and relative size as other signs then being displayed by
lessees of space in the Industrial Park.
16. Rules and Regulations. The rules and regulations set forth
on Exhibit C attached hereto are hereby made a part of this Lease, and Tenant
shall comply therewith. Landlord shall have and reserves the right from time to
time to amend or delete any of such rules and regulations and to adopt and
promulgate new or additional rules and regulations applicable to the Industrial
Park and the use and operation thereof. Provided that any such changed rules and
regulations are reasonable and do not discriminate against Tenant in favor of
other lessees of space in the Industrial Park, Tenant agrees to comply with and
observe them. Tenant's failure to comply with rules and regulations in effect
under this Lease shall consti-
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<PAGE>
tute a default under the terms hereof just as if such rules and regulations were
contained herein as covenants. Landlord shall not be responsible to Tenant for
enforcement of any such rules and regulations against other parties, including
other lessees of space in the Industrial Park. In the event of any inconsistency
between the provisions of such rules and regulations and the other provisions of
this Lease, the other provisions of this Lease shall control.
17. Landlord's Financing. Tenant agrees that this Lease shall
automatically be subordinate to the lien of any first-position mortgage or deed
of trust now or hereafter placed against the realty of which the Premises
comprise a part and to all renewals, modifications, supplements, consolidations,
and extensions thereof; provided, however, in the event that the holder of any
such mortgage or deed of trust shall so elect, its mortgage or deed of trust
shall, upon the terms required by such holder, be subordinate to this Lease.
Notwithstanding any of the foregoing, so long as Tenant is not in default
hereunder, Tenant shall not be disturbed in its possession of the Premises
during the full term of this Lease. Tenant agrees to execute such further
documents in addition to this Lease as may be desired by Landlord or by the
holder of any first-position mortgage or deed of trust with respect to the
subordination arrangement that is provided for above.
In the event any proceedings are brought for foreclosure of,
or in the event of the exercise of the power of sale under, any mortgage or deed
of trust covering the Premises, Tenant shall attorn to the purchaser and shall
recognize such purchaser as the landlord under this Lease.
18. Tenant's Insurance and Indemnity. Tenant shall provide and
at all times maintain a commercial general liability insurance policy in force
insuring against bodily injury, property damage, and personal injury claims
arising from the use, ownership, or operation of the Premises, with a combined
single limit of at least $1,000,000.00 per occurrence and a general annual
aggregate limit of at least $2,000,000.00. Such insurance shall include
contractual liability coverage specifically insuring the indemnity obligations
of Tenant contained herein. The policy shall include Landlord and Landlord's
agents and representatives as additional insureds. The liability insurance
maintained by Tenant pursuant to this Section shall be primary coverage, without
right of contribution from any similar insurance that may be maintained by
Landlord. The insurance policy required by this Section to be maintained by
Tenant shall be issued by an insurer and on forms and terms acceptable to
Landlord. Such policy shall be endorsed to provide that no cancellation,
non-renewal, or material reduction in coverage can take place unless at least 30
days prior written notice is furnished to Landlord by the insurer. A certificate
of insurance acceptable to Landlord and issued by the insurer involved shall be
delivered to Landlord promptly following the execution of this Lease
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and prior to the expiration or termination of any prior or lapsing policy.
Tenant shall defend, indemnify, and hold harmless Landlord and
its agents and representatives from and against any and all claims, costs, and
liabilities, including attorneys' fees, arising in whole or in part from use or
occupancy of the Premises, from the conduct of Tenant's business, from any
activity, work, or thing done or permitted by Tenant or by any of its agents,
contractors, employees, or visitors, or from any failure by Tenant to perform or
comply with any of the provisions of this Lease requiring compliance or
observance on the part of Tenant.
19. Destruction. Tenant shall immediately notify Landlord if
the Premises are damaged to any extent by fire, earthquake, or other casualty.
Landlord shall have the right to terminate this Lease in the event the building
containing the Premises is destroyed or damaged by fire, earthquake, or other
casualty to such an extent that such building is untenantable in whole or in
part. Any such right of termination must be exercised through written notice
given by Landlord to Tenant within 60 days following the date of destruction or
damage.
In the event of any other destruction or damage, or in the
event Landlord does not exercise the above-mentioned right of termination,
Landlord shall proceed with reasonable diligence to repair and reconstruct such
building. During the period from destruction or damage until restoration, rent
hereunder shall be abated in the same ratio as the portion of the Premises which
is unfit for occupancy bears to the whole Premises. However, if damage is due to
the fault or neglect of Tenant or its agents, contractors, or employees there
shall be no abatement of rent.
Landlord shall not be required to repair any damage by fire or
other cause to, or to make any repairs or replacements of, any changes to or
property installed in the Premises by Tenant. Tenant shall not be entitled to
any compensation or damages from Landlord f or loss of the use of the whole or
any part of the Premises, Tenant's personal property, or any inconvenience or
annoyance occasioned by such damage, repair, reconstruction, or restoration.
20. Condemnation. As used in this Section the term
"Condemnation Proceeding" means any action or proceeding in which any interest
in the Industrial Park is taken for any public or quasi-public purpose by any
lawful authority through exercise of the power of eminent domain or by purchase
or otherwise in lieu thereof. If the whole of the Premises is taken through
Condemnation Proceedings, this Lease shall automatically terminate as of the
date of taking. If part, but not all, of the Premises is taken, either Landlord
or Tenant may terminate this Lease. Landlord shall have the right to terminate
this Lease in the event any portion of the
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Industrial Park (whether or not including the Premises) is taken which, in
Landlord's judgment, substantially interferes with the ability to operate or use
the Industrial Park for the purposes for which it was intended. Any such right
of termination must be accomplished through written notice to the other party
given no later than 60 days after the later of the date of taking or the date on
which the condemning authority takes possession. In all other cases, or if
neither party exercises its right to terminate, this Lease shall remain in
effect. If a portion of the Premises is taken, the rent payable hereunder shall
be reduced in the proportion that the Gross Leasable Area taken bears to the
original Gross Leasable Area of the Premises. Whether or not this Lease is
terminated as a consequence of Condemnation Proceedings, all-damages or
compensation awarded for a partial or total taking, including any award for
severance damage and any sums compensating for diminution in the value of or
deprivation of the leasehold estate under this Lease, shall be the sole and
exclusive property of Landlord; provided, however, that Tenant shall be entitled
to any award for the loss of or damage to Tenant's trade fixtures and removable
personal property.
21. Assignment and Subletting. Tenant shall not, either
voluntarily or by operation of law, assign, transfer, mortgage, or encumber this
Lease or any interest herein, or sublet the Premises or any part thereof,
without first obtaining the written consent of Landlord, which consent Landlord
may grant or withhold in its sole and absolute discretion. A consent to one such
transaction shall not be deemed to be a consent to any subsequent transaction.
Consent to any assignment or subletting shall in no way relieve Tenant of any of
its obligations under this Lease, and Tenant shall remain primarily liable for
such obligations. Any assignment or subletting without Landlord's consent shall
constitute a default under this Lease.
22. Default by Tenant. The occurrence of any one or more of
the following events shall constitute a default and breach of this Lease by
Tenant: (a) The vacating or abandonment of the Premises; (b) The failure by
Tenant to make any payment of rent within five days after such payment falls
due; (c) The failure by Tenant to make any other payment required to be made by
Tenant hereunder, as and when due, where such failure shall continue for a
period of 10 days after notice from Landlord that said payment is due and
payable; or (d) The failure by Tenant to observe or perform any of the
covenants, conditions, or provisions of this Lease to be observed or performed
by the Tenant, other than those described above, where such failure shall
continue for a period of 30 days after written notice thereof by Landlord to
Tenant.
23. Remedies for Tenant's Default. In the event of any default
or breach by Tenant, Landlord may at any time, without waiving or limiting any
other right or remedy available to it, terminate Tenant's rights under this
Lease by written notice or by
Page 12
any lawful means, or reenter and take possession of the Premises (with or
without terminating this Lease), or itself pay or perform the obligation as to
which Tenant is in default (in which event Landlord's cost of so doing shall be
immediately reimbursed to it by Tenant), or pursue any remedy allowed by law.
Tenant agrees to pay to Landlord the cost of recovering possession of the
Premises, all expenses of reletting, and any other costs or damages arising out
of Tenant's default. Tenant's monetary obligations under this Lease shall
continue regardless of whether Tenant's right to possession has been terminated;
notwithstanding any reentry or termination, the liability of Tenant for the rent
and other charges provided for herein shall not be extinguished for the balance
of the term of this Lease, and Tenant agrees to make good to Landlord any
deficiency arising from reletting the Premises for less rent and other
consideration than applies under this Lease. Any rent or other charges under
this Lease not paid by Tenant when due shall bear interest from the due date
thereof at the rate of 18% per annum.
24. Late Charge. Tenant hereby acknowledges that late payment
by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges and late charges which may be imposed upon
Landlord under the terms of any mortgage or deed of trust affecting realty that
includes the Premises. Accordingly, if any payment of rent or any other sum due
from Tenant is not received by Landlord or Landlord's designee within five days
after said amount is due, Tenant shall pay to Landlord a late charge equal to
the greater of $200.00 or 10% of such overdue amount. The parties hereby agree
that such late charge represents a fair and reasonable estimate of the cost that
Landlord will incur by reason of the late payment by Tenant. Such late charge
shall be in addition to, and not in lieu of, 18% interest on any delinquent
amounts owing in connection with this Lease and any and all costs and expenses,
including attorneys' fees, incurred by Landlord in collecting or attempting to
collect any such delinquent amounts.
25. Default by Landlord. Landlord shall not be in default
under this Lease unless Landlord fails to perform an obligation required of it
within 30 days after written notice by Tenant to Landlord and to the holder of
any first mortgage or deed of trust covering the realty of which the Premises
are a part whose name and address have theretofore been furnished to Tenant in
writing, specifying the respects in which Landlord has failed to perform such
obligation; provided, however, that if the nature of Landlord's obligation is
such that more than 30 days are reasonably required for performance or cure,
then Landlord shall not be in default if Landlord or such holder commences
performance within such 30-day period and thereafter diligently prosecutes the
same to completion. In no event shall Tenant have the right to terminate
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this Lease or to withhold the payment of rent or other charges provided for
herein as a result of Landlord's default.
26. Attorneys' Fees. If any action is brought to recover any
rent or other amount under this Lease, or because of any default under or to
enforce or interpret any of the provisions of this Lease, or for recovery of
possession of the Premises, the party prevailing in such action shall be
entitled to recover from the other reasonable attorneys' fees (including those
incurred in connection with any appeal), the amount of which shall be fixed by
the court and made a part of any judgment rendered.
27. Obligations upon Termination. Notwithstanding any
termination of this Lease or the term hereof, Tenant shall be and remain liable
to fully perform and fulfill all of its obligations under this Lease relating to
events occurring, circumstances existing, or obligations or claims arising or
attributable to, the period prior to the date of termination.
28. Estoppel Certificate. Tenant shall at any time and from
time to time, within three days after receiving written request therefor from
Landlord, execute, acknowledge, and deliver to Landlord a statement in writing
(a) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease as so modified is in full force and effect) , and the date to which the
rental and other charges hereunder have been paid, and (b) certifying that there
are not, to Tenant's knowledge, any defaults on the part of Landlord hereunder,
or specifying such defaults if any are claimed, and (c) setting forth the date
of commencement and the date of expiration of the term hereof, and (d) setting
forth such other matters as Landlord may request. Any such statement may be
relied upon by any prospective purchaser or encumbrancer of the realty of which
the Premises are a part.
29. Sale of Premises by Landlord. In the event of any sale or
transfer by Landlord of the realty of which the Premises are a part, the
transferring Landlord shall be entirely freed and relieved of all liability
under any and all of its covenants and obligations contained in this Lease
arising out of any act, occurrence, or omission occurring after the consummation
of such sale or transfer.
30. Notices. Any notice required or permitted hereunder to be
given or transmitted between the parties shall be either personally delivered
(including by courier service) or mailed postage prepaid addressed, if to
Landlord, at 215 South State, Suite 950, Salt Lake City, Utah 84111, with a copy
to Landlord at 1225 17th Street, Suits 2525, Denver, Colorado 80202 (or at such
other address for notice purposes as Landlord may hereafter designate in
writing), and, if to Tenant, at 333 South Main Street, Park City, Utah 84060 (or
at such other address for notice purposes as Tenant
Page 14
may hereafter designate in writing). Any notice which is mailed shall be
effective on the second business day following its date of mailing.
31. Holding Over. If Tenant remains in possession of the
Premises after the expiration of the term hereof without objection by Landlord,
such occupancy shall be a tenancy from month to month at a rental in the amount
of 150% of the last monthly rent that applied hereunder, plus all other charges
payable hereunder, and upon all of the other terms hereof, insofar as the same
are applicable to a month-to-month tenancy.
32. Access to Premises,. Tenant shall permit Landlord to enter
the Premises at reasonable times for the purpose of inspecting the same,
discharging its obligations under this Lease, and ascertaining compliance with
the provisions of this Lease by Tenant. Landlord may also show the Premises to
prospective purchasers, lessees, or mortgagees at reasonable times.
33. Nonrecourse Provision. Anything in this Lease to the
contrary notwithstanding, Tenant agrees that it shall look solely to the estate
and property of Landlord in the Industrial Park, subject to prior rights of the
holder of any mortgage or deed of trust, for the collection of any judgment (or
other judicial process) requiring the payment of money by Landlord in the event
of any default or breach by Landlord with respect to any of the terms,
covenants, and conditions of this Lease to be observed and/or performed by
Landlord, and no other assets of Landlord shall be subject to levy, execution,
or other procedures f or the satisfaction of Tenant's remedies.
34. Waiver and Cumulative Remedies. The waiver by Landlord of
the breach of any term, covenant, or condition herein contained shall not be
deemed to be a waiver of such term, covenant, or condition or any subsequent
breach of the same or any other term, covenant, or condition. The subsequent
acceptance by Landlord of rent or other charges hereunder shall not be deemed to
be a waiver of any preceding default by Tenant of any term, covenant, or
condition of this Lease, other than the failure of Tenant to pay the particular
rent or charge so accepted, regardless of Landlord's knowledge of such preceding
default at the time of such acceptance. No remedy or election hereunder shall be
deemed exclusive but shall, whenever possible, be cumulative with all other
remedies at law or in equity.
35. Multiple Parties Tenant. If there is or comes to be more
than one party that constitutes Tenant hereunder: (a) Their obligations shall be
joint and several; and (b) Any notice required or permitted to be given by or to
Tenant may be given by or to any one of such parties and shall have the same
force and effect as if given by or to all of such parties.
Page 15
36. Prior Agreements, Lease Amendments, and Time Effective.
This Lease contains all of the agreements of the parties hereto with respect to
any matter covered or mentioned in this Lease, and no prior agreements or
understandings pertaining to any of such matters shall be effective for any
purpose. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective successors
in interest. This Lease shall not be effective or binding on either party until
fully executed by both.
37. Inability to Perform. In the event that either party
hereto shall be delayed or hindered in or prevented from the performance of any
act required hereunder by reason of strikes, lockouts, other labor troubles,
inability to procure materials, failure of power, restrictive governmental laws
or regulations, riots, insurrection, war, or other reason not the fault of the
party delayed, then performance of the action in question shall be excused for
the period of delay and the period for the performance of such act shall be
extended for a period equivalent to the period of such delay. The provisions of
this Section shall not, however, operate to excuse Tenant from the prompt
payment of rent or any other charges required by the terms of this Lease.
38. Authority. Each person executing this Lease on behalf of
Tenant individually and personally represents and warrants that he or she is
duly authorized to execute and deliver the same on behalf of the entity for
which he or she is signing (whether it be a corporation, general or limited
partnership, or otherwise), and that this Lease is binding upon said entity in
accordance with its terms. If Tenant is a corporation, then at the time this
Lease is signed Tenant shall provide Landlord with a certified copy of a
resolution, adopted by the Board of Directors of Tenant, authorizing Tenant to
enter into this Lease. Such certified resolution must be in the form of the one
appended to this Lease as Exhibit D or in such other form as may be acceptable
to Landlord's legal counsel.
39. Brokers. Tenant warrants that it has had no dealings with
any real estate brokers or agents in connection with this Lease, excepting only
Compass Management and Leasing, Inc., and that it knows of no other real estate
broker or agent who may be entitled to a commission in connection with this
Lease. Tenant agrees to indemnify Landlord from and against any and all
commissions, fees, and compensation that may be due to or claimed by any real
estate broker or agent (other than the one named in the preceding sentence, if
the same was retained by Landlord) in connection with this Lease, and from and
against all costs, expenses, and attorneys' fees which Landlord may incur as a
result of any such claim.
40. Ouiet Enjoyment. Landlord covenants that so long as Tenant performs all of
its obligations hereunder it shall have,
Page 16
hold, and enjoy the Premises for the term of this Lease free from interference
by anyone claiming by, through, or under Landlord.
41. Miscellaneous. All Exhibits, addenda, riders, and
provisions, if any, attached to this Lease are a part hereof. Tenant shall not
record this Lease or any memorandum or short form hereof without the written
consent of Landlord. Any provision of this Lease which may prove to be invalid
shall in no way affect or invalidate any other provision hereof, and such other
provision shall be valid to the maximum extent permitted by law. The headings
and titles of the various provisions of this Lease shall have no effect upon the
construction or interpretation of any part hereof. As used in this Lease the
singular shall include the plural, the plural shall include the singular, the
whole shall include each part thereof, and any gender shall include both other
genders. The covenants and conditions herein contained shall, subject to the
provisions of Section 21 hereof, apply to and bind the heirs, personal
representatives, successors, and assigns of the parties hereto. Time is the
essence of this Lease and of each and all of its provisions in which performance
is a factor. This Lease shall be governed by the laws (excluding the
choice-of-laws rules) of the State in which the Premises are located.
42. Rider and Deadline. The attached Rider, consisting of N/A
page (s), is hereby made a part hereof and supersedes and controls over any
conflicting provisions elsewhere in this Lease.
IN WITNESS WHEREOF, the parties hereto have caused this Lease
to be executed on or as of the day and year first above written.
"Landlord": "Tenant":
THE EQUITABLE LIFE ASSURANCE MRS. FIELDS COOKIES, a
SOCIETY OF THE UNITED STATES California Corporation
By By /s/L. Tim Pierce
L.Tim Pierce
Title: Title: Snr. V.P.
By /s/E L Clissold
E L Clissold
Title: Sec.
Page 17
UAL CONTRACT #114510
UNITED AIRLINES, INC.
1200 East Algonquin Road
Elk Grove Village, IL 60007
(708) 952-5204
October 1, 1992
Mr. William E. Mapes
Purchasing Manager
MRS. FIELDS DEVELOPMENT CORPORATION
333 Main Street
Park City, Utah 84060-4000
LETTER OF AGREEMENT
Dear Mr. Mapes:
This letter of agreement (the "Agreement") evidences the agreement between
United Air Lines, Inc. ("United") and Mrs. Fields Development Corporation ("Mrs.
Fields") concerning purchase and use of Mrs. Fields chocolate chip cookies for
first class passengers on United's flights within or between the 50 states of
the United States of America (the "50 States").
1. Product: Mrs. Fields agrees to provide fully baked and frozen 1.75 oz.
semi-sweet chocolate chip cookies (the "product") for use in serving first class
passengers on United's flights. These cookies will be of the same recipe and
overall product quality as the cookies sold in Mrs. Fields retail stores.
2. Distribution: United has designated Michael Lewis Company ("Michael Lewis")
under United contract number 112246 to provide shipping, warehousing,
distribution and inventory management services related to United's use of Mrs.
Fields cookies. United has the right to change distributors during the term of
this Agreement and United will provide reasonable advance notice to Mrs. Fields
if such a change is desired.
3. Price and Delivery: Mrs. Fields will sell cookies to Michael Lewis on
United's behalf at a price of $60.10 per case of 192 cookies. Product will be
sold on an F.O.B. factory basis, currently Smith Food and Drug Company's plant
in Layton, Utah. Risk of loss passes upon delivery to Michael Lewis which
currently takes place at such Layton, Utah plant. United will bear the cost of
shipping to Michael Lewis' warehouses and the cost associated with warehousing,
distribution and inventory management by Michael Lewis. The product will be
packed, using generally acceptable industry standard packaging designed for
routine shipping of
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October 1, 1992
<PAGE>
Mr. William E. Mapes
Mrs. Fields Development Corporation
October 1, 1992
Page 2
the type contemplated herein, in such a manner so as to reasonably limit damage
to the product during shipping, warehousing and distribution.
4. Ordering and_Invoicing: Orders for product will be placed by Michael Lewis
using their standard Purchase Order and will be confirmed and invoiced by Mrs.
Fields using its standard Order Confirmation and Invoice (the "Invoice") in the
form attached hereto as Exhibit A. Pursuant to Mrs. Fields pricing policies,
invoices not paid within a 30 day period shall be subject to interest at 1 % per
month. If any Invoice from Mrs. Fields to Michael Lewis remains unpaid after 90
days (and United has received prior notice that such Invoice remained unpaid
after 60 days from date of invoice) then United will: (a) cause Michael Lewis to
pay such Invoice with interest; (b) pay such Invoice, with interest, itself, or
(c) deduct the amount due and owing, including interest, by Michael Lewis to
Mrs. Fields from the next regular payment made by United to Michael lewis and
remit such funds to Mrs. Fields.
5. Term of Agreement: This Agreement will be effective for one year starting
September 1, 1992 and ending August 31, 1993. Either party may propose extending
this Agreement for a longer period at any time prior to the termination of this
Agreement. Either party shall have the right to terminate this Agreement upon 30
days written notice to the other party.
6. Volumes: United agrees that in order to maintain the exclusivity set forth in
Paragraph 8 hereof, United must purchase a minimum of 100,000 cookies per month.
Except as indicated specifically herein, there are no minimum or maximum
purchases or inventory requirements. United will notify Mrs. Fields if any
significant increases or decreases in volumes are expected.
7. Inventory: Mrs. Fields will maintain reasonable inventory of product so as to
provide an adequate supply of product to fill orders from Michael Lewis. In the
event of early termination of this Agreement pursuant to Paragraph 5 hereof,
United will assume responsibility for reasonable inventories held by Mrs.
Fields, not to exceed 60 days usage at the minimum volume set forth in Paragraph
6 hereof, and United may continue to use product for 60 days following such
termination in order to deplete inventories purchased by it.
8. Exclusive Use: During the term of this Agreement, but only so long as the
minimum volume set forth in Paragraph 6 hereof is maintained, Mrs. Fields shall
not enter into an agreement with any other scheduled airline for use of, and
will not otherwise provide, Mrs. Fields branded cookies on any airlines' flights
within or between the 50 States. In addition, during the term of this Agreement,
United will not enter into an agreement with any other supplier of cookies for
distribution to first class customers on United flights within or between
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October 1, 1992
<PAGE>
Mr. William E. Mapes
Mrs. Fields Development Corporation
October 1, 1992
Page 3
the 50 states and will not otherwise provide any other cookies to first class
passengers on United flights within or between the 50 States other than in
situations where Mrs. Fields Cookies are not available due to shortage of
product (in which case United will insure that the source of the substitute
cookies is clearly identified).
9. Advertising and Promotion: During the term of this Agreement United may use
the Licensed Names and Marks set forth in Exhibit B, attached hereto and
incorporated herein, (the "Licensed Names and Marks"), in accordance with the
terms of this Agreement on all of its inflight menus on flights on which product
is served. In addition, United shall take such steps as may be necessary within
the terms of this Agreement to inform all first class passengers on United's
flights within or between the 50 States that the cookies being served to them
are Mrs. Fields products. All advertising and promotion with respect to the
product shall be subject to Mrs. Fields approval of copy in a reasonably timely
fashion.
10. Grant of License: Mrs. Fields hereby grants to United, and United hereby
accepts from Mrs. Fields, upon the terms and conditions hereinafter specified, a
license to employ the Licensed Names and Marks in connection with the service of
Mrs. Fields products to first class passengers on flights within or between the
50 States. The license granted hereby shall be exclusive only as regards other
airline carriers on travel within or between the 50 states, and only for so long
as this Agreement remains in full force and effect. Unless Mrs. Fields consents
in writing, United shall use the Licensed Names and Marks only for the purposes
of and pursuant to this Agreement, only in a manner consistent with the scope of
the relevant registration of Licensed Names and Marks, only for applications in
a manner permitted and prescribed herein, and only with respect to product.
United recognizes the value of the good will associated with the Licensed Names
and Marks and acknowledges that the Licensed Names and Marks, and all rights
therein and in the good will pertaining thereto, belong exclusively to Mrs.
Fields. United shall notify Mrs. Fields in writing of any infringements or
imitations by others of the Licensed Names and Marks which may come to United's
attention; and United will assist Mrs. Fields at Mrs. Fields cost and expense,
to the extent necessary, in the procurement of any protection or to protect any
of Mrs. Fields rights to the Licensed Names and Marks. United will so conduct
itself in serving products so as to preserve the business integrity and good
reputation of Mrs. Fields. For the protection of the consumer public and for the
further protection of the goodwill and trade reputation of Mrs. Fields, United
covenants that it will only prepare and serve the product in accordance with the
procedures designated by Mrs. Fields in writing. United will not at any time or
in any manner whatsoever claim or take any advantage from, or benefit of, any
state or federal franchise law which may arise from or affect the terms of this
Agreement and United hereby expressly waives, to the extent permitted by law,
all
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October 1, 1992
<PAGE>
Mr. William E. Mapes
Mrs. Fields Development Corporation
October 1, 1992
Page 4
benefit of, or cause of action under, any such state or federal franchise law.
Upon termination or expiration of this Agreement, United shall forthwith
discontinue all use of the Licensed Names and Marks other than in connection
with the use of inventory as provided in Paragraph 7.
11. Indemnification:
a. Mrs. Fields will indemnify and hold harmless United, its
officers, employees, and agents (for purposes of this Paragraph 9
collectively referred to as "United") for, from and against any and all
liability, claims, suits, judgments, losses, damages, or costs
(including reasonable attorneys fees and expenses) by third parties for
injuries to or deaths of persons or loss of or damage to property found
to have been caused by (i) the provision of any product by Mrs. Fields
under this Agreement, or (ii) any negligence, or willful misconduct of
Mrs. Fields under this Agreement, all except to the extent caused by the
negligence or willful misconduct of United.
b. United will indemnify and hold harmless Mrs. Fields, its
officers, employees, and agents (for purposes of this Paragraph 9
collectively referred to as "Mrs. Fields") for, from and against any and
all liability, claims, suits, judgments, losses, damages, or costs
(including reasonable attorneys fees and expenses) by third parties for
injuries to or deaths of persons or loss of or damage to property found
to have been caused by (i) the provision of any equipment or services by
United under this Agreement, or (ii) any failure of supervision,
negligence, or willful misconduct of United under this Agreement, all
except to the extent caused by the negligence or willful misconduct of
Mrs. Fields.
c. Defense of Suits: If a lawsuit or other legal proceeding is
instituted by any third party arising out of the serving of Mrs. Fields
products under this Agreement and any count of such legal proceeding
includes a claim that a Mrs. Fields product was inedible, unwholesome,
or unfit for human consumption, then Mrs. Fields will assume the defense
for both Mrs. Fields and United and will defend or settle same in its
discretion and at its sole cost and expense. United reserves the right
to represent itself, at its expense, during trial. Liability for any
judgments will be as provided above.
12. Consequential Damages: NEITHER PARTY WILL BE LIABLE FOR, AND EACH PARTY
WAIVES AND RELEASES ANY CLAIMS AGAINST THE OTHER PARTY FOR, ANY SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST
REVENUES, LOST PROFIT, OR LOSS OF PROSPECTIVE
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October 1, 1992
<PAGE>
Mr. William E. Mapes
Mrs. Fields Development Corporation.
October 1, 1992
Page 5
ECONOMIC ADVANTAGE, RESULTING FROM ANY PERFORMANCE OR FAILURE TO
PERFORM UNDER THIS AGREEMENT.
13. Force Majeure: Neither party will be responsible for delays in or suspension
of performance caused by acts of God or governmental authority, strikes or labor
disputes, fires, or other loss of manufacturing facilities, breach by suppliers
of supply agreements, or other similar or dissimilar cause beyond the reasonable
control of that party.
14. Binding Effect, Assignment:
a. The terms, covenants and conditions of this Agreement shall
inure to the benefit of, and shall be binding upon, the parties hereto
and their respective successors and permitted assigns, which permitted
assigns have been agreed to in writing, duly executed by the other
party.
b. Notwithstanding subparagraph (a) above, Mrs. Fields and
United may each assign their rights and obligations under this Agreement
to any subsidiary, parent company, or subsidiary of a parent company.
15. Notices:
All notices provided by this Agreement shall be in writing and shall be given by
overnight courier, facsimile transmission, or by personal delivery, by one party
to the other, addressed to such other party at the applicable address set forth
below, or to such other address as may be given for such purpose by such other
party by notice duly given hereunder. Notice shall be deemed properly given on
the date of delivery:
To United: United Airlines, Inc.
1200 East Algonquin Road
Elk Grove Village, Illinois 60007
Attention: Bill Wallenbecker
FAX: (708) 952-5204
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October 1, 1992
<PAGE>
Mr. William E. Mapes
Mrs. Fields Development Corporation
October 1, 1992
Page 6
To Mrs. Fields: Mrs. Fields Development Corporation
333 Main Street
Park City, Utah 84060
Attention: Corporate Secretary
FAX (801) 649-3639
16. General Provisions:
a. Notwithstanding anything to the contrary contained herein, Mrs.
Fields and United shall each have the right in a proper case to obtain temporary
restraining orders and temporary or preliminary injunctive relief from a court
of competent jurisdiction. United agrees that Mrs. Fields may have such
temporary or preliminary injunctive relief without bond.
b. The rights of Mrs. Fields and United hereunder are cumulative and no
exercise or enforcement by Mrs. Fields or United of any right or remedy
hereunder shall preclude the exercise or enforcement by Mrs. Fields or United of
any other right or remedy hereunder to which Mrs. Fields or United is entitled
by law to enforce.
c. If Mrs. Fields or United is required to enforce this Agreement in a
judicial proceeding or appeal thereof, the party prevailing in such proceeding
shall be entitled to reimbursement of its costs and expenses, including
reasonable 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.
d. Except to the extent governed by the United States Trademark Act of
1946 (Lanham Act, 15 U.S.C. ss.ss. 1051 et seq.) or other federal law, this
Agreement, and the relationship between United and Mrs.
Fields, shall be governed by the laws of the State of Utah.
e. United and Mrs. Fields hereby irrevocably consent, regarding any
legal action, suit or proceeding arising out of or in any way connected with
this Agreement, or which is an appeal therefrom, to the non-exclusive
jurisdiction and venue of the Federal District Court for the District of Utah.
Further, United and Mrs. Fields irrevocably consent to actual receipt of any
summons and/or legal process at their respective addresses as set forth in this
Agreement (and as to United with a copy to
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October 1, 1992
<PAGE>
Mr. William E. Mapes
Mrs. Fields Development Corporation
October 1, 1992
Page 7
Prentice-Hall) as constituting in every respect sufficient and effective service
of process in any such legal action or proceeding. United and Mrs. Fields
further agree that final non-appealable judgment in any such legal action, suit
or proceeding shall be conclusive and may be enforced in any other jurisdiction,
whether within or outside the United States of America, by suit under judgment,
a certified or exemplified copy of which will be conclusive evidence of the fact
and the amount of the liability.
f. Each party irrevocably waives trial by jury in any action,
proceeding or counterclaim, whether at law or in equity, brought by either
party.
g. The headings of the paragraphs hereof are for convenience only and
do not define, limit or construe the contents of such sections or paragraphs.
h. All Exhibits hereto form part of this Agreement.
i. This Agreement, together with the Exhibits hereto, supersedes all
prior oral or written representations, communications, or agreements between the
parties regarding the subject matter of the Agreement and, together with such
Exhibits, constitutes the entire understanding of the parties, regarding the
subject matter of this Agreement. This Agreement may be modified or amended only
in writing duly executed by both parties.
17. Counterparts: This Agreement may be executed simultaneously in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same agreement, binding upon both parties
hereto, notwithstanding that both parties are not signatories to the original or
the same counterpart.
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October 1, 1992
<PAGE>
Mr. William E. Mapes
Mrs. Fields Development Corporation
October 1, 1992
Page 8
Please indicate your agreement to and acceptance of this proposal by signing
both copies of this letter in the space indicated and return one copy for our
files.
Very truly yours,
UNITED AIR LINES, INC.
/s/ James V. Sines
James V. Sines
Vice President of Purchasing
Agreed to and accepted this 2nd day of October, 1992.
MRS. FIELDS DEVELOPMENT CORPORATION
By: /s/ William E. Mapes
William E. Mapes
Title: Purchasing Manager
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October 1, 1992
<PAGE>
EXHIBIT B
LIST OF LICENSED TRADE NAMES, TRADEMARKS AND SERVICE MARKS
Mrs. Fields Cookies and Design
Reg. No. 1, 241, 619 and
Reg. No. 1, 256, 315
Mrs. Fields (Stylized)
Reg. No. 1, 299, 149
All attached hereto and incorporated herewith
LEASE AGREEMENT BETWEEN
2855 E. COTTONWOOD PARKWAY, L.C., as
Landlord
and
MRS. FIELDS= ORIGINAL COOKIES, INC., as
Tenant
DATED January 18, 1998
<PAGE>
ii
TABLE OF CONTENTS
Page
PART I SUMMARY OF BASIC LEASE INFORMATION....................................1
A. PREMISES (Lease Provisions, Paragraph 2)....................................1
- ----------------------------------------
B. LEASE TERM (Lease Provisions, Paragraph 3)..................................1
- ------------------------------------------
C. BASE RENT (Lease Provisions, Paragraph 5) ..................................1
- ------------------------------------------
D. ADDITIONAL RENT (Lease Provisions, Paragraph 5.3............................2
- -------------------------------------------------
E. SECURITY DEPOSIT (Glossary of Defined Terms).... ..........................2
- --------------------------------------------
F. PARKING CHARGE (Lease Provisions, Paragraph 5.5)............................2
- ------------------------------------------------
G. ADDRESSES FOR NOTICES (Lease Provisions, Paragraph 27.7)....................2
- --------------------------------------------------------
H. TENANT IMPROVEMENT ALLOWANCE AND SPACE PLAN
(Work Letter Agreement)........................................................2
PART II LEASE PROVISIONS......................................................3
1. DEFINITIONS.................................................................3
- -----------
2. PREMISES....................................................................3
- --------
3. TERM........................................................................3
- ----
4. USE.........................................................................3
- ---
5. RENT........................................................................3
- ----
5.1 Base Rent............................................... ..................3
- ---------
5.2 No Other Adjustment of Base Rent...........................................3
- --------------------------------
5.3 Additional Rent............................................................3
- ---------------
5.4 Operating Expenses.........................................................5
- ------------------
5.5 Parking Charge.............................................................6
- --------------
5.6 Payment of Rent............................................................7
- ---------------
5.7 Delinquent Payments and Handling Charge....................................7
- ---------------------------------------
5.8 Left Blank Intentionally................................. .................7
- ------------------------
5.9 Holding Over...............................................................7
- ------------
6. CONSTRUCTION OF IMPROVEMENTS................................................8
- ----------------------------
6.1 General....................................................................8
- -------
6.2 Access by Tenant Prior to Commencement of Term.............................8
- ----------------------------------------------
6.3 Commencement Date; Adjustments to Commencement Date........................8
- ---------------------------------------------------
7. SERVICES TO BE FURNISHED BY LANDLORD........................................9
- ------------------------------------
7.1 General....................................................................9
- -------
7.2 Keys and/or Access Cards...................................................9
- ------------------------
7.3 Tenant Identity, Signs and Other Matters..................................10
- ----------------------------------------
7.4 Charges...................................................................10
- -------
7.5 Operating Hours...........................................................10
- ---------------
8. REPAIR AND MAINTENANCE.....................................................10
8.1 By Landlord...............................................................10
8.2 By Tenant.................................................................11
9. TAXES ON TENANT'S PROPERTY.................................................11
10. TRANSFER BY TENANT........................................................11
10.1 General..................................................................11
- -------
10.2 Conditions............................................... ...............11
- ----------
10.3 Liens....................................................................12
- -----
10.4 Assignments in Bankruptcy................................. ..............12
- -------------------------
11. ALTERATIONS...............................................................12
12. PROHIBITED USES............................................. ............13
12.1 General...................................................... ...........13
- -------
12.2 Hazardous Materials......................................................13
- -------------------
12.3 Overstandard Tenant Use....................................... ..........13
- -----------------------
13. ACCESS BY LANDLORD........................................................14
14. CONDEMNATION..............................................................14
15. CASUALTY..................................................................14
15.1 General..................................................................14
- -------
15.2 Acts of Tenant...........................................................15
- --------------
16. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT.............................15
16.1 General..................................................................15
16.2 Attornment...............................................................15
<PAGE>
17. INSURANCE.................................................................15
17.1 General..................................................................15
17.2 Waiver of Subrogation....................................................16
18. TENANT'S INDEMNITY........................................................16
- ------------------
19. THIRD PARTIES; ACTS OF FORCE MAJEURE; EXCULPATION.........................17
- -------------------------------------------------
20. SECURITY INTEREST.........................................................17
- -----------------
21. CONTROL OF COMMON AREAS...................................................17
- -----------------------
22. RIGHT TO RELOCATE.........................................................17
- -----------------
23. QUIET ENJOYMENT...........................................................17
- ---------------
24. DEFAULT BY TENANT.........................................................17
- -----------------
24.1 Events of Default........................................................17
- -----------------
24.2 Remedies of Landlord.....................................................18
- --------------------
24.3 Payment by Tenant........................................................19
- -----------------
24.4 Reletting................................................................19
- ---------
24.5 Landlord's Right to Pay or Perform............................. .........19
- ----------------------------------
24.6 No Waiver; No Implied Surrender..........................................19
- -------------------------------
25. DEFAULTS BY LANDLORD......................................................20
26. RIGHT OF REENTRY..........................................................20
27. MISCELLANEOUS.............................................................20
27.1 Independent Obligations; No Offset.......................................20
- ----------------------------------
27.2 Time of Essence..........................................................20
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27.3 Applicable Law...........................................................20
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27.4 Assignment by Landlord...................................................20
- ----------------------
27.5 Estoppel Certificates; Financial Statements..............................21
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27.6 Signs, Building Name and Building Address................................21
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27.7 Notices..................................................................21
- -------
27.8 Entire Agreement, Amendment and Binding Effect...........................21
- ----------------------------------------------
27.9 Severability.............................................................21
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27.10 Number and Gender, Captions and References..............................21
- ------------------------------------------
27.11 Attorneys' Fees.........................................................22
- ---------------
27.12 Brokers.................................................................22
- -------
27.13 Interest on Tenant's Obligations........................................22
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27.14 Authority...............................................................22
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27.15 Recording...............................................................22
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27.16 Exhibits................................................................22
- --------
27.17 Multiple Counterparts...................................................22
- ---------------------
27.18 Survival of Indemnities.................................................22
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27.19 Miscellaneous...........................................................22
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EXHIBITS
Exhibit A: Glossary of Defined Terms
Exhibit B: Description of Premises
Exhibit C: Building Rules and Regulations
Exhibit D: Work Letter Agreement
Exhibit D1: Pricing Agreement Letter
Exhibit D2: Building Standard Tenant Improvements
Exhibit E: Legal Description of Land
Exhibit F: Lease Extension Addendum (if any)
Exhibit G: Acknowledgment of Lease Commencement Date
Exhibit H: Estoppel Certificate, Subordination, Non-Disturbance and
Attornment Agreement
Exhibit I: Cleaning Specifications
Building Sign Addendum
Monument Sign Addendum
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (the AAgreement@) is entered into as of the ______ day
of January, 1998, between 2855 E. COTTONWOOD PARKWAY, L.C. as Landlord, and MRS.
FIELDS= ORIGINAL COOKIES, INC., as Tenant.
PART I
SUMMARY OF BASIC LEASE INFORMATION
Each reference in this Summary of Basic Lease Information to the Lease
Provisions contained in PART II shall be construed to incorporate all the terms
provided in said Lease Provisions, and reference in the Lease Provisions to the
Summary contained in this PART I shall be construed to incorporate the
provisions of this Summary. In the event of any conflict between the provisions
of this Summary and the provisions in the balance of the Lease, the latter shall
control. The basic terms of this Lease are as follows:
A. PREMISES (Lease Provisions, Paragraph 2):
1. Premises Location: (i) Suite 400, consisting of approximately 30,700
square feet of Rentable Area (28,124 usable square feet), located on the third
floor and the fourth floor of the Building (as outlined on the floor plan
attached to this Lease as Exhibit B), the street address of which is 2855 E.
Cottonwood Parkway, as constructed on the Land which is further described on
Exhibit E hereto.
2. Number of Approximate Square Feet of Rentable Area in the Building:
Approximately One Hundred Four Thousand Nine Hundred Seventy-Four (104,974)
square feet.
B. LEASE TERM (Lease Provisions, Paragraph 3):
1. Duration: Ten (10) years.
2. Lease Commencement Date (Lease Provisions, Paragraph 6.3): The
earliest to occur of the following events: (a) the date of Substantial
Completion (as defined in the Work Letter Agreement) of the Landlord=s Work, or
(b) the date on which Landlord would have substantially completed the Landlord=s
Work and tendered possession of the Premises to Tenant but for certain delays
attributable to Tenant as provided in Paragraph 6.3, or (c) the date on which
Tenant takes possession of the Premises. The Lease Commencement Date is
scheduled to be May 1, 1998.
3. Lease Expiration Date (Lease Provisions, Paragraph 3): The day
immediately preceding the tenth (10th) anniversary of the Commencement Date,
2008, at 5:00 p.m., unless earlier terminated as provided in this Lease.
C. BASE RENT (Lease Provisions, Paragraph 5) :
- ---------------- ----------------------------------------------
Total
Lease Year Monthly Base Rent Annual Base Rent
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 1 $53,725.00 $644,700.00
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 2 $55,004.17 $660,050.00
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 3 $55,643.75 $667,725.00
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 4 $56,283.33 $675,400.00
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 5 $56,922.92 $683,075.00
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 6 $57,562.50 $690,750.00
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 7 $58,841.67 $706,100.00
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 8 $59,481.25 $713,775.00
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 9 $60,120.83 $721,450.00
- ---------------- ----------------------------------------------
- ---------------- ----------------------------------------------
Year 10 $61,400.00 $736,800.00
- ---------------- ----------------------------------------------
<PAGE>
23
D. ADDITIONAL RENT (Lease Provisions, Paragraph 5.3):
1. Base Year (Lease Provisions, Paragraph 5.3.1): The Fiscal Year
commencing January 1 through December 31, 1998.
2. Tenant=s Share (Lease Provisions, Paragraph 5.3.1): Tenant=s Share
for Tenant=s payment of Operating Expenses means twenty-six and 20/100 percent
(26.2%).
E. SECURITY DEPOSIT (Glossary of Defined Terms):
Means Zero Dollars ($-0-).
F. PARKING CHARGE (Lease Provisions, Paragraph 5.5):
Tenant shall throughout the Term, lease from Landlord up to a total of
one hundred thirteen (113) automobile parking spaces, of which total Tenant will
have twenty-eight (28) assigned and covered automobile parking spaces at an
initial cost of Twenty-five Dollars ($25.00) per month per space; provided,
however, that for the first five years of the initial Term of the Lease, twelve
(12) of the assigned and covered automobile parking spaces shall be at no
charge. The remainder of the automobile parking spaces leased by Tenant which
Tenant does not elect to have assigned and covered shall be unassigned parking
spaces at a cost of Zero Dollars ($-0-) per month per space for the first five
years of the initial Term of the Lease.
G. ADDRESSES FOR NOTICES (Lease Provisions, Paragraph 27.7):
1. Tenant=s Address:
(a) Before Lease Commencement Date:
462 West Bearcat Drive
Salt Lake City, Utah 84115
(b) After Lease Commencement Date:
2855 E. Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
2. Landlord=s Address:
2855 E. Cottonwood Parkway, L.C.
c/o John L. West
2855 E. Cottonwood Parkway, Suite 560
Salt Lake City, Utah 84121
3. Address of Landlord=s Lender or Mortgagee:
U.S. Bank National Association
107 South Main Street
Salt Lake City, Utah 84111
H. TENANT IMPROVEMENT ALLOWANCE AND SPACE PLAN (Work Letter Agreement):
1. Space Plan Delivery Date: The initial Space Plan of Tenant=s Premises
was delivered to
Landlord on or before October 23, 1997.
2. Tenant Improvement Allowance and Tenant Moving Allowance: A Tenant
Improvement Allowance, as defined and limited on Exhibit AD@ attached hereto,
shall be in the maximum amount of SEVEN HUNDRED FIFTY-NINE THOUSAND THREE
HUNDRED FORTY-EIGHT DOLLARS ($759,348.00) for the design, modification and
construction of the Tenant Improvements. In addition, Tenant shall have a Tenant
Moving Allowance, as defined and limited on Exhibit AD@ attached hereto, in the
maximum amount of ONE HUNDRED TWELVE THOUSAND FOUR HUNDRED NINETY-SIX DOLLARS
($112,496.00).
<PAGE>
PART II
LEASE PROVISIONS
1. DEFINITIONS. The definitions of certain of the capitalized terms used in
this Lease are set
forth in the Glossary of Defined Terms attached as Exhibit A.
2. PREMISES. Subject to the provisions of this Lease, Landlord hereby
leases to Tenant, and Tenant hereby leases from Landlord, the premises described
in the Summary of Basic Lease Information, Section AA@, as outlined on the floor
plan attached hereto as Exhibit B (the "Premises"). In connection with such
demise and subject to paragraph 21 herein, Landlord hereby grants to Tenant the
nonexclusive right to use during the Term, all Common Areas designed for the use
of all tenants in the Building, in common with all tenants in the Building and
their invitees, for the purposes for which the Common Areas are designed and in
accordance with all Legal Requirements. Landlord, however, has the sole
discretion to determine the manner in which the Common Areas are maintained and
operated, and the use of the Common Areas shall be subject to the Building Rules
and Regulations. Tenant acknowledges that Landlord has made no representation or
warranty regarding the Building or Premises except as specifically stated in
this Lease. By occupying the Premises, Tenant accepts the Premises as being
suitable for Tenant's intended use of the Premises.
3. TERM. The provisions of this Lease shall be effective only as of the
date this Lease is executed by both Landlord and Tenant. The duration of the
term of this Lease shall be for the period stated in the Summary of Basic Lease
Information, Section AB,@ commencing on the Commencement Date set forth in
paragraph 6.3 below, and expiring at 5:00 p.m. on the day stated in Section AB@
of the Summary of Basic Lease Information, unless earlier terminated as provided
herein (the "Term").
4. USE. Tenant shall occupy and use the Premises solely for lawful,
general business office purposes in strict compliance with the Building Rules
and Regulations from time to time in effect. Tenant shall, and Tenant agrees to
cause its agents, servants, employees, invitees and licensees to observe and
comply fully and faithfully with the Building Rules and Regulations attached
hereto as Exhibit C, and incorporated herein by this reference, or such
modifications, rules and regulations which may be hereafter adopted by Landlord
for the care, protection, cleanliness and operation of the Premises and Complex.
Tenant shall also comply with all Legal Requirements and other restrictions on
use of the Premises as provided in this Lease, including, without limitation,
paragraph 12 hereof.
.. RENT
. In consideration of Landlord's leasing the Premises to
Tenant, Tenant shall pay to Landlord the base rent (ABase Rent@) at the
time(s) and in the manner stated in paragraph 5.6 below, as stated in
Section AC@ of the Summary of Basic Lease Information.
. The stipulation of Rentable Area set forth in paragraph 2
above and in the Summary of Basic Lease Information, shall be
conclusive and binding on the parties. Notwithstanding the foregoing,
the Base Rent set forth in paragraph 5.1 above and in the Summary of
Basic Lease Information is a negotiated amount and there shall be no
adjustment to the Base Rent or Additional Rent without the prior
written consent of Landlord. Tenant shall have no right to withhold,
deduct or offset any amount of the monthly Base Rent, Additional Rent
or any other sum due hereunder even if the actual rentable square
footage or Rentable Area of the Premises is less than set forth in
paragraph 2 hereof.
. In addition to paying the Base Rent specified in paragraph
5.1 above, Tenant shall pay as additional rent the Tenant=s Share (as
defined in subparagraph 5.3.1(b) below) of the Operating Expenses (as
defined in subparagraph 5.4 below) for each Fiscal Year, or portion
thereof, that are in excess of the amount of Operating Expenses
applicable to the Base Year (as defined in subparagraph 5.3.1(a)
below). Said additional rent, together with other amounts of any kind
(other than Base Rent) payable by Tenant to Landlord under the terms of
this Lease, shall be collectively referred to in this Lease as
AAdditional Rent.@ All amounts due under this paragraph 5.3 as
Additional Rent are payable for the same periods and in the same
manner, time and place as the Base Rent as provided in paragraph 5.6
below. Without limitation on any other obligation of Tenant that may
survive the expiration of the Lease Term, Tenant=s obligations to pay
the Additional Rent provided for in this paragraph 5.3 shall survive
the expiration of the Lease Term.
<PAGE>
5.3.1Additional Rent Definitions. The following definitions apply
to this paragraph 5.3:
(a) Base Year. ABase Year@ means the Fiscal Year
commencing January 1 through December 31 of the year stated in
Section AD@ of the Summary of Basic Lease Information (with
Operating Expenses for 1997 being annualized); provided,
however, that real property taxes levied on the Building and
Parking Facility included in the Operating Expenses applicable
to the Base Year shall be determined as set forth in paragraph
5.3.2(a) below.
(b) Tenant=s Share. ATenant=s Share@ for Tenant=s
payment of Operating Expenses means the percentage stated in
Section AD@ of the Summary of Basic Lease Information. If the
Premises or the Building is expanded or reduced with the
written consent of Landlord, the Tenant=s Share shall be
adjusted by written notice from Landlord to Tenant.
5.3.2 Calculation and Payment of Additional Rent. Tenant=s
Share of Operating Expenses for any Fiscal Year, or portion thereof,
shall be calculated and paid as follows:
(a) Calculation of Excess. If Tenant=s Share of
Operating Expenses for any Fiscal Year, commencing with the
Fiscal Year immediately following the Base Year, exceeds
Tenant=s Share of the amount of Operating Expenses applicable
to the Base Year (with Operating Expenses for the Base Year
1997 being annualized), Tenant shall pay as Additional Rent to
Landlord an amount equal to that excess (the AExcess@) in the
manner stated in subparagraphs 5.3.2(b) and (c) below.
Notwithstanding the foregoing, the Landlord acknowledges that
the Building and Parking Facility may not be fully assessed
for property taxes levied during the Base Year because of
incomplete construction. Therefore, for purposes of
calculating the Additional Rent, the Landlord will make an
adjustment to the property taxes applicable to the Base Year
at the time the Building and Parking Facility are fully
assessed. It is anticipated that the Building and Parking
Facility will be fully assessed in 1998, at which time the
Landlord will make the adjustment as described herein.
(b) Statement of Estimated Operating Expenses and
Payment by Tenant. On or before the last day of the Fiscal
Year in which the Lease Commencement Date occurs and for each
Fiscal Year thereafter, Landlord shall endeavor to deliver to
Tenant an estimate statement (the AEstimate Statement@) of
Additional Rent to be due by Tenant for the forthcoming Fiscal
Year. Thereafter, unless Landlord delivers to Tenant a
revision of the Estimate Statement, Tenant shall pay to
Landlord monthly, coincident with Tenant=s payment of Base
Rent, an amount equal to the estimated Additional Rent set
forth on the Estimate Statement for such Fiscal Year divided
by twelve (12) months. From time to time during any Fiscal
Year, Landlord may estimate and re-estimate the Additional
Rent to be due by Tenant for that Fiscal Year and deliver a
copy of the revised Estimate Statement to Tenant. Thereafter,
the monthly installments of Additional Rent payable by Tenant
shall be appropriately adjusted in accordance with the revised
Estimate Statement so that, by the end of any Fiscal Year,
Tenant shall have paid all of the Additional Rent as estimated
by Landlord on the revised Estimate Statement. Landlord=s
failure to furnish the Estimate Statement for any Fiscal Year
in a timely manner shall not preclude Landlord from enforcing
its rights to collect any Additional Rent.
(c) Statement of Actual Operating Expenses and
Payment by Tenant. Landlord shall endeavor to give to Tenant
within eight (8) months following the end of each Fiscal Year
a statement (the AStatement of Actual Operating Expenses@)
stating the Operating Expenses incurred or accrued for that
preceding Fiscal Year and indicating the amount, if any, of
any Excess due to Landlord or overpayment by Tenant. On
receipt of the Statement of Actual Operating Expenses for each
Fiscal Year for which an Excess exists, Tenant shall pay, with
its next installment of Base Rent due, the full amount of the
Excess, less the estimated amounts (if any) paid during the
Fiscal Year pursuant to an Estimate Statement (as defined in
subparagraph 5.3.2(b) above). In the event there is an
overpayment of Additional Rent set forth on a Statement of
Actual Operating Expenses for any Fiscal Year, the amount of
overpayment shall be credited against payments of Additional
Rent as they become due. Landlord=s failure to furnish the
Statement of Actual Operating Expenses for any Fiscal Year in
a timely manner shall not prejudice Landlord from enforcing
its rights hereunder. Even if the Lease Term is expired and
Tenant has vacated the Premises, if an Excess exists when
final determination is made of Tenant=s Share of the Operating
Expenses for the Fiscal Year in which the Lease terminates,
Tenant shall immediately pay to Landlord the amount calculated
under this subparagraph (c). Provisions of this subparagraph
(c) shall survive the expiration or earlier termination of the
Lease Term.
shall mean all costs and expenses which Landlord pays or
accrues by virtue of the ownership, use, management, leasing,
maintenance, service, operation, insurance or condition of the Land and
all improvements thereon, including, without limitation, the Building
and Parking Facility, during a particular Fiscal Year or portion
thereof as determined by Landlord or its accountant in accordance with
generally accepted accounting principles.
5.4.1 Examples. "Operating Expenses" shall include, but shall
not be limited to, the following to the extent they relate to the
Complex or are chargeable to the Complex in connection with the
operation and maintenance of the Cottonwood corporate Center generally:
(a) all Impositions and other governmental charges;
(b) all insurance premiums charged for policies
obtained by Landlord, which may include without limitation, at
Landlord's election, (i) fire and extended coverage insurance,
including earthquake, windstorm, hail, explosion, riot,
strike, civil commotion, aircraft, vehicle and smoke
insurance, (ii) public liability and property damage
insurance, (iii) elevator insurance, (iv) workers'
compensation insurance for the employees covered by clause
(h), (v) boiler, machinery, sprinkler, water damage, and legal
liability insurance, (vi) rental loss insurance, and (vii)
such other insurance as Landlord may elect to obtain;
(c) all deductible amounts incurred in any Fiscal Year
relating to an insurable loss;
(d) all maintenance, repair, replacement, restoration
and painting costs, including, without limitation, the cost of
operating, managing, maintaining and repairing the following
systems: utility, mechanical, sanitary, drainage, escalator
and elevator;
(e) all janitorial, snow removal, custodial,
cleaning, washing, landscaping, landscape maintenance, access
systems, trash removal, pest control costs and environmental
compliance costs;
(f) all security costs;
(g) all electrical, energy monitoring, water, water
treatment, gas, sewer, telephone and other utility and
utility-related charges;
(h) all wages, salaries, salary burdens, employee
benefits, payroll taxes, Social Security and insurance for all
persons engaged by Landlord or an Affiliate of Landlord in
connection with the Complex;
(i) all costs of leasing or purchasing supplies, tools,
equipment and materials;
(j) all fees and assessments of the Cottonwood Corporate
Center park applicable to the Complex;
(k) The cost of licenses, certificates, permits and
inspections;
(l) The cost of contesting the validity or applicability of
any governmental
enactments that may affect the Operating Expenses;
(m) The costs incurred in connection with the
implementation and operation of a transportation system
management program or similar program;
(n) The cost of Parking Facility maintenance, repair
and restoration, including, without limitation, resurfacing,
repainting, restriping and cleaning;
(o) all fees and other charges paid under all
maintenance and service agreements, including but not limited
to window cleaning, elevator and HVAC maintenance;
(p) All fees, charges, management fees (or amounts in
lieu of such fees), consulting fees, legal fees and accounting
fees of all persons engaged by Landlord, together with all
other associated costs or other charges reasonably incurred by
Landlord in connection with the management office and the
operation, management, maintenance and repair of the Complex;
(q) all costs of monitoring services, including,
without limitation, any monitoring or control devices used by
Landlord in regulating the Parking Facility;
(r) amortization of the cost of acquiring, financing
and installing capital items which are intended to reduce (or
avoid increases in) operating expenses or which are required
by a governmental authority. Such costs shall be amortized
over the reasonable life of the items in accordance with
generally accepted accounting principles, but not beyond the
reasonable life of the Building; and
(s) any other costs or expenses reasonably incurred
by Landlord under this Lease which are not otherwise
reimbursed directly by Tenants.
5.4.2Adjustments. Operating Expenses shall be adjusted as
follows:
(a) Exclusions. "Operating Expenses" shall not
include (i) expenditures classified as capital expenditures
for federal income tax purposes except as set forth in clause
5.4.1(r), (ii) costs for which Landlord is entitled to
specific reimbursement by Tenant, by any other tenant of the
Building or by any other third party, (iii) allowances
specified in the Work Letter for expenses incurred by Landlord
for improvements to the Premises, (iv) leasing commissions,
and all noncash expenses (including depreciation), except for
the amortized costs specified in clause 5.4.1(r), (v) land or
ground rent, if applicable, (vi) debt service on any
indebtedness secured by the Complex (except debt service on
indebtedness to purchase or pay for items specified as
permissible "Operating Expenses"), and (v) amounts expended by
Landlord in connection with its efforts to obtain EDA tax
increment financing.
(b) Gross-Up Adjustments. If the occupancy of the
Building during any part of any Fiscal Year (including the
Base Year) is less than ninety-five percent (95%), Landlord
shall make an appropriate adjustment of the Operating Expenses
for that Fiscal Year, as reasonably determined by Landlord
using sound accounting and management principles, to determine
the amount of Operating Expenses that would have been incurred
had the Building been ninety-five percent (95%) occupied. This
amount shall be considered to have been the amount of
Operating Expenses for that Fiscal Year.
5.4.3 Landlord=s Books and Records. If Tenant disputes the
amount of the Additional Rent due hereunder, Tenant may designate,
within sixty (60) days after receipt of the Statement of Actual
Operating Expenses, an independent public certified accountant or
qualified third-party management company to inspect Landlord=s records.
Tenant is not entitled to request that inspection, however, if Tenant
is then in default under this Lease. The accountant must be a member of
a nationally recognized accounting firm and must not charge a fee based
on the amount of Additional Rent that the accountant is able to save
Tenant by the inspection. Any inspection must be conducted in
Landlord=s offices at a reasonable time or times. If, after such an
inspection, Tenant still disputes the Additional Rent, a certification
of the proper amount shall be made, at Tenant=s sole expense, by
Landlord=s independent certified public accountant. That certification
shall be final and conclusive.
. Tenant shall throughout the Term, lease from Landlord the
number of unassigned and assigned automobile parking spaces, at such
prices per month, as stated in Section AF@ of the Summary of Basic
Lease Information. Such monthly parking charges shall be considered
Additional Rent and shall be due and payable without notice or demand,
on or before the first day of each calendar month. Landlord shall have
the right from time to time during the Lease Term and during each
Extension Renewal Term (if applicable), to increase the monthly parking
charges for assigned parking spaces to the then prevailing market rate.
From time to time after five (5) years from the Commencement Date, the
Landlord shall also have the right to increase the monthly parking
charges for unassigned parking spaces to the prevailing market rate.
Notwithstanding the foregoing, the monthly parking charges for either
assigned parking spaces or unassigned parking spaces shall not be in
excess of the parking charges for such items imposed or collected from
any other tenant in the Building. Landlord shall also have the right to
establish such reasonable rules and regulations as may be deemed
desirable, at Landlord=s reasonable discretion, for the proper and
efficient operation and maintenance of said Parking Facility. Such
rules and regulations may include, without limitation, (i) subject to
the provisions of this paragraph 5.5 above, the establishment of
charges for parking therein, and (ii) the use of parking gates, cards,
permits and other control devices to regulate the use of the parking
areas. The rights of Tenant and its employees, customers, service
suppliers and invitees to use the Parking Facility shall, to the extent
such rules and regulations are not inconsistent with the other terms of
this Lease, at all times be subject to (a) Landlord=s right to
establish rules and regulations applicable to such use and to exclude
any person therefrom who is not authorized to use the same or who
violates such rules and regulations; (b) the rights of Landlord and
other tenants in the Building to use the same in common with Tenant;
(c) other than with respect to Tenant=s assigned parking spaces, the
availability of parking spaces in said Parking Facility; and (d)
Landlord=s right to change the configuration of the parking areas and
any unassigned parking spaces as shall be determined at Landlord=s
reasonable discretion. Tenant agrees to limit its use of the Parking
Facility to the number and type of parking spaces specified in this
paragraph above. Notwithstanding the foregoing, nothing contained
herein shall be deemed to impose liability upon Landlord for personal
injury or theft, for damage to any motor vehicle, or for loss of
property from within any motor vehicle, which is suffered by Tenant or
any of its employees, customers, service suppliers or other invitees in
connection with their use of the Parking Facility. Tenant understands
and agrees that, while the Parking Facility will be open to Tenant on a
24-hour basis, other than spaces that are assigned for Tenant and other
tenants, all parking spaces in the parking area may be leased to
members of the general public between the hours of 6:30 p.m. through
7:00 a.m. Monday through Saturday morning, after 1:30 p.m. on Saturday,
and all day on Sunday.
. Except as otherwise expressly provided in this Lease, all
Base Rent and Additional Rent shall be due in advance monthly
installments on the first day of each calendar month during the Term.
Rent shall be paid to Landlord at its address recited in Section 27.7,
or to such other person or at such other address as Landlord may from
time to time designate in writing. Rent shall be paid without notice,
demand, abatement, deduction or offset in legal tender of the United
States of America. The Base Rent for the first full calendar month of
the Lease Term shall be paid upon execution by Tenant of this Lease. In
addition, if the Term commences or ends on other than the first or the
last day of a calendar month, the Base Rent for the partial month shall
be prorated on the basis of the number of days during the applicable
month and paid on or before the Lease Commencement Date. If the Lease
Term commences or ends on other than the first or the last day of a
Fiscal Year, the Additional Rent for the partial Fiscal Year calculated
as provided in paragraph 5.3 above shall be prorated on the basis of
the number of days during the applicable Fiscal Year. All payments
received by Landlord from Tenant shall be applied to the oldest payment
obligation owed by Tenant to Landlord. No designation by Tenant, either
in a separate or on a check or money order, shall modify this clause or
have any force or effect.
. All Rent and other payments required of Tenant hereunder
shall bear interest from the date due until the date paid at the rate
of interest specified in Section 27.13. In addition, if any Base Rent,
Additional Rent or other payments required of Tenant hereunder are not
received by Landlord when due or within five (5) days thereafter,
Tenant shall pay to Landlord a late charge of five percent (5%) of the
delinquent payment to reimburse Landlord for its costs and
inconvenience incurred as a consequence of Tenant=s delinquency (other
than interest, attorneys= fees and costs). Tenant shall pay this amount
for each calendar month in which all or any part of any delinquent
payment remains delinquent after its due date. The parties agree that
this late charge represents a reasonable estimate of the expenses that
Landlord will incur because of any late payment (other than interest,
attorneys= fees and costs). Landlord=s acceptance of any late charge
shall not constitute a waiver of Tenant=s default with respect to the
overdue amount or prevent Landlord from exercising any of the rights
and remedies available to Landlord under this Lease. Tenant shall pay
the late charge as Additional Rent with the next installment of
Additional Rent. In no event, however, shall the charges permitted
under this Section 5.7 or elsewhere in this Lease, to the extent the
same are considered to be interest under applicable law, exceed the
maximum rate of interest allowable under applicable law. If any noncash
payment made by Tenant is not paid by the bank or other institution on
which it is drawn, Landlord shall have the right, exercised by notice
to Tenant, to require that Tenant make all future payments by certified
funds or cashier=s check.
. 8 Left Blank Intentionally
. Any holding over by Tenant in the possession of the
Premises, or any portion thereof, after the expiration of the Term,
with or without the consent of Landlord, shall require Tenant to pay
one hundred fifty percent (150%) of the Base Rent and Additional Rent
herein specified for the last month of the Term (prorated on a monthly
basis), unless Landlord shall specify a lesser amount for Rent in its
sole discretion. If Tenant holds over with Landlord=s consent, such
occupancy shall be deemed a month-to-month tenancy and such tenancy
shall otherwise be on the terms and conditions herein specified in this
Lease as far as applicable. Notwithstanding the foregoing provisions or
the acceptance by Landlord of any payment by Tenant, any holding over
without Landlord=s consent shall constitute a default by Tenant and
shall entitle Landlord to pursue all remedies provided in this Lease,
or otherwise, and Tenant shall be liable for any and all direct or
consequential damages or losses of Landlord resulting from Tenant=s
holding over without Landlord=s consent.
.. CONSTRUCTION OF IMPROVEMENTS
. Subject to events of Force Majeure, Landlord and Tenant
agree that Landlord shall construct, install, furnish, perform and
supply the Tenant Improvements in accordance with the parties=
respective payment and other obligations as specified in the Work
Letter Agreement (AWork Letter Agreement@) attached hereto as Exhibit D
and incorporated herein by this reference. The Tenant Improvements
shall meet or exceed the Building Standard Tenant Improvements as
specified in the Work Letter Agreement
. Provided that Tenant obtains and delivers to Landlord the
certificates or policies of insurance called for in Section 17.1,
Landlord, in its sole discretion, may permit Tenant and its employees,
agents, contractors and suppliers to enter the Premises before the
Lease Commencement Date (and such entry alone shall not constitute
Tenant's taking possession of the Premises for the purpose of Section
6.3(c) below), to perform certain work on the Premises on behalf of
Tenant not contrary to the provisions of the Work Letter Agreement.
Tenant and each other person or firm who or which enters the Premises
before the Commencement Date shall conduct itself so as to not
interfere with Landlord or other occupants of the Building. Landlord
may withdraw any permission granted under this Section 6.2 upon
twenty-four (24) hours' notice to Tenant if Landlord, in its sole
discretion, determines that any such interference has been or may be
caused. Any prior entry shall be under all of the terms of this Lease
(other than the obligation to pay Base Rent and Additional Rent) and at
Tenant's sole risk. Tenant hereby releases and agrees to indemnify
Landlord and Landlord=s contractors, agents, employees and
representatives from and against any and all personal injury, death or
property damage (including damage to any personal property which Tenant
may bring into, or any work which Tenant may perform in, the Premises)
which may occur in or about the Complex in connection with or as the
result of said entry by Tenant or its employees, agents, contractors
and suppliers.
. For purposes of this Lease, the "Commencement Date" shall
mean the earliest to occur of the following events (the ALease
Commencement Events@): (a) the date of Substantial Completion of the
Landlord=s Work, or (b) the date on which Landlord would have
substantially completed the Landlord's Work and tendered possession of
the Premises to Tenant but for (i) the delay or failure of Tenant to
furnish information, approvals or other matters required in the Work
Letter Agreement, (ii) Tenant's request for changes in the Space Plan
(as defined in the Work Letter Agreement) from Building Standard Tenant
Improvements, or (iii) any other action or inaction of Tenant, or any
person or firm employed or retained by Tenant, or (c) the date on which
Tenant takes possession of the Premises. The Lease Commencement Date is
scheduled to be as stated in Section AB@ of the Summary of Basic Lease
Information. Upon the occurrence of the Commencement Date, the parties
will execute and deliver a certificate in the form of Exhibit G
attached hereto stating and acknowledging the Commencement Date. If by
the scheduled Commencement Date specified in this paragraph there is
not Substantial Completion of the Tenant Improvements for any reason,
and such failure to substantially complete renders the Premises
untenantable for their intended purpose, all as reasonably determined
by Landlord, or Landlord is unable to tender possession of the Premises
to Tenant, then the Landlord may elect (in addition to all other
remedies available to Landlord) to postpone the Commencement Date until
the earliest to occur of the Lease Commencement Events. Such
postponement shall extend the scheduled expiration of the Term for a
number of days equal to the postponement. Whether or not Landlord makes
such an election and notwithstanding any provision in this Lease or any
exhibit to the contrary, the potential postponement of the payment of
Base Rent and Additional Rent shall be Tenant's sole and exclusive
remedy for Landlord's delay in completing the Landlord=s Work, the
Tenant Improvements or tendering possession of the Premises to Tenant.
The Landlord shall not be subject to any liability, including, without
limitation, lost profits or incidental or consequential damages for any
delay or inability to deliver possession of the Premises to the Tenant.
Such a delay or failure shall not affect the validity of this Lease or
the obligations of the Tenant hereunder, other than the postponement of
the Lease Term.
.. SERVICES TO BE FURNISHED BY LANDLORD
. Subject to applicable Legal Requirements, governmental
standards for energy conservation, and Tenant's performance of its
obligations hereunder, Landlord shall use all reasonable efforts to
furnish the following services:
(a) HVAC to the Premises during Building Operating
Hours, at such temperatures and in such amounts as are
considered by Landlord to be suitable and standard [thus
excluding air conditioning or heating for electronic data
processing or other specialized equipment or specialized
(nonstandard) Tenant requirements];
(b) hot and cold water at those points of supply common to
all floors for lavatory and drinking purposes only;
(c) janitorial service in and about the Building and
the Premises to be accomplished in accordance with the
Cleaning Specifications attached as Exhibit AI@ hereto and
periodic window washing, anticipated to be accomplished
approximately every 3 or 4 months for outside windows and
every 2 or 3 months for inside windows;
(d) elevator service, if necessary, to provide access to
and egress from the Premises;
(e) electric current during Building Operating Hours
for normal office machines and other machines of low
electrical consumption (which shall exclude electric current
for electronic data processing equipment, lighting in excess
of Building Standard, or any other item of electrical
equipment which singly consumes more than 0.5 kilowatts per
hour at rated capacity or requires a voltage other than 120
volts single phase); and
(f) replacement of fluorescent lamps in Building
Standard light fixtures installed by Landlord and of
incandescent bulbs or fluorescent lamps in all public rest
rooms, stairwells and other Common Areas in the Building.
If any of the services described above or elsewhere in this
Lease are interrupted, Landlord shall use reasonable diligence to
promptly restore the same. However, neither the interruption nor
cessation of such services, nor the failure of Landlord to restore
same, shall render Landlord liable for damages to person or property,
or be construed as an eviction of Tenant, or work an abatement of Rent
or relieve Tenant from fulfilling any of its other obligations
hereunder.
If not previously installed, Landlord may cause an electric
and/or water meter(s) to be installed in the Premises of the Tenant in
order to measure the amount of electricity and/or water consumed for
any such use, and the cost of such meter(s) shall be paid promptly by
Tenant.
Certain security measures (both by electronic equipment and
personnel) may be provided by Landlord in connection with the Building.
However, Tenant hereby acknowledges that any such security is intended
to be solely for the benefit of the Landlord and protecting its
property, and while certain incidental benefits may accrue to the
Tenant therefrom, any such security is not for the purpose of
protecting either the property of Tenant or the safety of its
employees, agents or invitees. By providing any such security, Landlord
assumes no obligation to Tenant and shall have no liability arising
therefrom.
. Landlord shall furnish Tenant, at Landlord's expense, with
two keys and access cards, and at Tenant's expense in the amount of
Landlord=s cost for such additional keys and access cards as Tenant may
request, to unlock or allow access to the Building and each corridor
door entering the Premises. Tenant shall not install, or permit to be
installed, any additional lock (except for the check stock room) on any
door into or in the Premises or make, or permit to be made, any
duplicates of keys or access cards to the Premises without Landlord=s
prior consent. Landlord shall be entitled at all times to possession of
a duplicate of all keys and access cards to all doors to or inside of
the Premises. All keys and access cards referred to in this Section 7.2
shall remain the property of the Landlord. Upon the expiration or
termination of the Term, Tenant shall surrender all such keys and
access cards to Landlord and shall deliver to Landlord the combination
to all locks on all safes, cabinets and vaults which will remain in the
Premises. Landlord shall be entitled to install, operate and maintain a
card reader and after-hours access card system, security systems and
other control devices in or about the Premises and the Complex which
regulate entry into the Building (or portions thereof) and monitor, by
closed circuit television or otherwise, all persons leaving or entering
the Complex, the Building and the Premises.
. Landlord shall disburse a portion of the Tenant Improvement
Allowance, as defined in the Work Letter Agreement attached as Exhibit
D, to provide and install, in Building Standard graphics, letters or
numerals identifying Tenant's name and suite number adjacent to
Tenant=s entry door at one location per floor of the Building occupied
by Tenant. Tenant=s name, as set forth on the first page of this Lease,
or as otherwise provided by Tenant in writing upon execution of this
Lease, shall also be placed in the Building Directory located on the
main level of the Building. Any subsequent modification to the listing
of Tenant=s name in the Building Directory shall be at Tenant=s cost.
Without Landlord's prior written consent, no other signs, numerals,
letters, graphics, symbols or marks identifying Tenant shall be placed
on the exterior, or in the interior if they are visible from the
exterior, of the Premises.
Tenant shall not place or suffer to be placed on any exterior
door, wall or window of the Premises, on any part of the inside of the
Premises which is visible from outside of the Premises, or elsewhere on
the Complex, any sign, decoration, notice, logo, picture, lettering,
attachment, advertising matter or other thing of any kind, without
first obtaining Landlord's prior written approval, which Landlord may,
in its discretion, grant or withhold. Landlord may, at Tenant's cost,
and without notice or liability to Tenant, enter the Premises and
remove any item erected in violation of this Section. Landlord may
establish rules and regulations governing the size, type and design of
all such items and Tenant shall abide by such rules and regulations.
. Tenant shall pay to Landlord monthly as billed, as
Additional Rent, such charges as may be separately metered or as
Landlord may compute for (a) any utility services utilized by Tenant
for computers, data processing equipment or other electrical equipment
in excess of that agreed to be furnished by Landlord pursuant to
Section 7.1, (b) lighting installed in the Premises in excess of
Building Standard lighting, (c) HVAC and other services in excess of
that stated in Section 7.1(a) or provided at times other than Building
Operating Hours, and (d) janitorial services required with respect to
Above Standard Tenant Improvements within the Premises. If Tenant
wishes to use HVAC, services to the Premises during hours other than
Building Operating Hours or electrical or other utility services in
excess of that stated in Section 7.1, Landlord shall supply such HVAC,
electrical and utility services at an hourly cost to Tenant of $17.50
per Service Area (defined below), as adjusted from time to time by
Landlord consistent with prevailing market charges for such use. A
AService Area,@ as used in this Lease, shall be defined as the separate
portions of the Premises as outlined on Exhibit B hereto. Tenant will
not be required to pay the hourly cost for services set forth above for
any Service Area unless said services are separately utilized by Tenant
in the Service Area. Landlord may utilize a lighting and utility
occupancy sensor or other method or system in order to automatically
determine and control use of HVAC, electrical and other utility
services. Landlord may elect to estimate the charges to be paid by
Tenant under this Section 7.4 and bill such charges to Tenant monthly
in advance, in which event Tenant shall promptly pay the estimated
charges. When the actual charges are determined by Landlord, an
appropriate cash adjustment shall be made between Landlord and Tenant
to account for any underpayment or overpayment by Tenant.
. Subject to Building Rules and Regulations and such security
standards as Landlord may from time to time adopt, the Building shall
be open to the public during the Building Operating Hours and the
Premises shall be open to Tenant during hours other than Building
Operating Hours.
.. REPAIR AND MAINTENANCE
. Landlord shall provide the services to the Premises set
forth in paragraph 7.1 above and shall maintain the Building (excepting
the Premises and portions of the Building leased by persons not
affiliated with Landlord) in a good and operable condition, making such
repairs and replacements as may be required to maintain the Building in
such condition. This Section 8.1 shall not apply to damage resulting
from a Taking (as to which Section 14 shall apply), or damage resulting
from a casualty (as to which Section 15.1 shall apply), or to damage
for which Tenant is otherwise responsible under this Lease. Tenant
hereby waives and releases any right it may have to make repairs to the
Premises or Building at Landlord=s expense under any law, statute,
ordinance, rules and regulations now or hereafter in effect in any
jurisdiction in which the Building is located.
. Tenant, at Tenant's sole cost, shall maintain the Premises
and every part of the Premises (including, without limitation, all
floors, walls and ceilings and their coverings, doors and locks,
furnishings, trade fixtures, signage, leasehold improvements, equipment
and other personal property from time to time situated in or on the
Premises) in good order, condition and repair, and in a clean, safe,
operable, attractive and sanitary condition. Tenant will not commit or
allow to remain any waste or damage to any portion of the Premises.
Tenant shall repair or replace, subject to Landlord's direction and
supervision, any damage to the Complex caused by Tenant or Tenant's
agents, contractors or invitees. If Tenant fails to make such repairs
or replacements, Landlord may make the same at Tenant's cost. Such cost
shall be payable to Landlord by Tenant on demand as Additional Rent.
All contractors, workmen, artisans and other persons which or whom
Tenant proposes to retain to perform work in the Premises (or the
Complex, pursuant to the second sentence of this Section 8.2) pursuant
to this Section 8.2 or Section 11 shall be approved by Landlord, in
Landlord=s sole discretion, prior to the commencement of any such work.
. Tenant shall be liable for and shall pay, before they become
delinquent, all taxes and assessments levied against any personal property
placed by Tenant in the Premises (even if same becomes a fixture by operation of
law or the property of Landlord by operation of this Lease), including any
additional Impositions which may be assessed, levied, charged or imposed against
Landlord or the Building by reason of non-Building Standard Items in the
Premises. Tenant may withhold payments of any taxes and assessments described in
this Section 9 so long as Tenant contests its obligation to pay in accordance
with applicable law and the nonpayment thereof does not pose a threat of loss or
seizure of the Building or any interest of Landlord therein.
. TRANSFER BY TENANT
. Tenant shall not directly or indirectly, voluntarily or by
operation of law, sell, assign, encumber, pledge or otherwise Transfer
or hypothecate all or any part of the Premises or Tenant=s leasehold
estate hereunder, or permit the Premises to be occupied by anyone other
than Tenant or sublet the Premises or any portion thereof without
Landlord=s prior written consent in Landlord=s discretion (such consent
not to be unreasonably withheld), being obtained in each instance,
subject to the terms and conditions contained in this paragraph.
Notwithstanding the foregoing, but without waiving any other
requirement for a Transfer as contained in this Section 10, Landlord=s
prior written consent shall not be required in connection with (i) an
assignment of this Lease or sublet of all or part of the Premises to a
Transferee that is an Affiliate of Tenant, or (ii) an assignment of
this Lease in connection with a merger, consolidation or other
reorganization involving Tenant, a sale of all or substantially all of
the assets of Tenant, a sale of a controlling interest of the stock or
other ownership interest of Tenant, or a sale of any division occupying
the Premises. Any other attempted Transfer without such consent shall
be void. If Tenant desires to effect a Transfer, it shall deliver to
Landlord written notice thereof in advance of the date on which Tenant
proposes to make the Transfer, together with all of the terms of the
proposed Transfer and the identity of the proposed Transferee. Upon
request by Landlord, such notice shall contain financial information
concerning the proposed transferee and other reasonable information
regarding the transaction which Landlord may specify. Landlord shall
have thirty (30) days following receipt of the notice and information
within which to notify Tenant in writing whether Landlord elects (a) to
refuse to consent to the Transfer and to terminate this Lease as to the
space proposed to be Transferred as of the date so specified by Tenant,
in which event Tenant will be relieved of all further obligations
hereunder as to such space, (b) to refuse to consent to the Transfer
and to continue this Lease in full force as to the entire Premises, or
(c) to permit Tenant to effect the proposed Transfer. If Landlord fails
to notify Tenant of its election within said thirty (30) day period,
Landlord shall be deemed to have elected option (b). Notwithstanding
the foregoing, if Landlord elects option (a), Tenant may rescind its
request for consent or approval by giving written notice of such
rescission within five (5) days after receipt of notice of Landlord=s
election of option (a) and, in such event, Tenant=s request for consent
or approval will be withdrawn and Landlord=s election of option (a)
will be void and of no effect. The consent by Landlord to a particular
Transfer shall not be deemed a consent to any other Transfer. If a
Transfer occurs without the prior written consent of Landlord as
provided herein, Landlord may nevertheless collect rent from the
Transferee and apply the net amount collected to the Rent payable
hereunder, but such collection and application shall not constitute a
waiver of the provisions hereof or a release of Tenant from the further
performance of its obligations hereunder.
. The following conditions shall automatically apply to each
Transfer, without the necessity of same being stated or referred to in
Landlord's written consent:
(a) Tenant shall execute, have acknowledged and
deliver to Landlord, and cause the Transferee to execute, have
acknowledged and deliver to Landlord, an instrument in form
and substance acceptable to Landlord in which (i) the
Transferee adopts this Lease and agrees to perform, jointly
and severally with Tenant, all of the obligations of Tenant
hereunder, as to the space Transferred to it, (ii) the
Transferee grants Landlord an express first and prior security
interest in its personal property brought into the transferred
space to secure its obligations to Landlord hereunder, (iii)
Tenant subordinates to Landlord's statutory lien and security
interest any liens, security interests or other rights which
Tenant may claim with respect to any property of the
Transferee, (iv) Tenant agrees with Landlord that, if the rent
or other consideration due by the Transferee exceeds the Rent
for the transferred space, then Tenant shall pay Landlord as
Additional Rent hereunder all such excess Rent and other
consideration immediately upon Tenant's receipt thereof, (v)
Tenant and the Transferee agree to provide to Landlord, at
their expense, direct access from a public corridor in the
Building to the transferred space, (vi) the Transferee agrees
to use and occupy the Transferred space solely for the purpose
specified in Section 4 and otherwise in strict accordance with
this Lease, and (vii) Tenant acknowledges that,
notwithstanding the Transfer, Tenant remains directly and
primarily liable for the performance of all the obligations of
Tenant hereunder (including, without limitation, the
obligation to pay all Rent), and Landlord shall be permitted
to enforce this Lease against Tenant or the Transferee, or all
of them, without prior demand upon or proceeding in any way
against any other persons; and
(b) Tenant shall deliver to Landlord a counterpart of
all instruments relative to the Transfer executed by all
parties to such transaction (except Landlord).
(c) If Tenant requests Landlord to consent to a
proposed Transfer, Tenant shall pay to Landlord, whether or
not consent is given, Landlord's costs, including, without
limitation, reasonable attorneys' fees incurred in connection
with such request.
. Without in any way limiting the generality of the foregoing,
Tenant shall not grant, place or suffer, or permit to be granted,
placed or suffered, against the Complex or any portion thereof, any
lien, security interest, pledge, conditional sale contract, claim,
charge or encumbrance (whether constitutional, statutory, contractual
or otherwise) and, if any of the aforesaid does arise or is asserted,
Tenant will, promptly upon demand by Landlord and at Tenant's expense,
cause the same to be released by payment of money or posting of a
proper bond.
. If this Lease is assigned to any person or entity pursuant
to the provisions of the Bankruptcy Code, 11 U.S.C. ' 101 et seq. (the
ABankruptcy Code@), any and all monies or other consideration payable
or otherwise to be delivered in connection with such assignment shall
be paid or delivered to Landlord, shall be and remain the exclusive
property of Landlord and shall not constitute property of Tenant or of
the Estate of Tenant within the meaning of the Bankruptcy Code.
. Tenant shall not make (or permit to be made) any change, addition or
improvement to the Premises (including, without limitation, the attachment of
any fixture or equipment) unless such change, addition or improvement (a) equals
or exceeds the Building Standard and utilizes only new and first-grade
materials, (b) is in conformity with all Legal Requirements, and is made after
obtaining any required permits and licenses, (c) is made with the prior written
consent of Landlord, (d) is made pursuant to plans and specifications approved
in writing in advance by Landlord, (e) is made after Tenant has provided to
Landlord such indemnification and/or bonds requested by Landlord, including,
without limitation, a performance and completion bond in such form and amount as
may be satisfactory to Landlord to protect against claims and liens for labor
performed and materials furnished, and to insure the completion of any change,
addition or improvement, (f) is carried out by persons approved in writing by
Landlord who, if required by Landlord, deliver to Landlord before commencement
of their work proof of such insurance coverage as Landlord may require, with
Landlord named as an additional insured, and (g) is done only at such time and
in such manner as Landlord may reasonably specify. All such alterations,
improvements and additions (including all articles attached to the floor, wall
or ceiling of the Premises) shall become the property of Landlord and shall, at
Landlord's election, be (i) surrendered with the Premises as part thereof at the
termination or expiration of the Term, without any payment, reimbursement or
compensation therefor, or (ii) removed by Tenant, at Tenant's expense, with all
damage caused by such removal repaired by Tenant. Tenant may remove Tenant's
trade fixtures, office supplies, movable office furniture and equipment not
attached to the Building, provided such removal is made prior to the expiration
of the Term, no uncured Event of Default has occurred and Tenant promptly
repairs all damage caused by such removal. Tenant shall indemnify, defend and
hold harmless Landlord from and against all liens, claims, damages, losses,
liabilities and expenses, including attorneys' fees, which may arise out of, or
be connected in any way with, any such change, addition or improvement. Within
ten (10) days following the imposition of any lien resulting from any such
change, addition or improvement, Tenant shall cause such lien to be released of
record by payment of money or posting of a proper bond.
. PROHIBITED USES
. Tenant will not (a) use, occupy or permit the use or
occupancy of the Complex or Premises for any purpose or in any manner
which is or may be, directly or indirectly, violative of any Legal
Requirement, or contrary to Building Rules and Regulations, or
dangerous to life or property, or a public or private nuisance, or
disrupt, obstruct or unreasonably annoy the owners or any other tenant
of the Building or adjacent buildings, (b) keep or permit to be kept
any substance in, or conduct or permit to be conducted any operation
from, the Premises which might emit offensive odors or conditions into
other portions of the Building, or make undue noise or create undue
vibrations, (c) commit or permit to remain any waste to the Complex or
Premises, (d) install or permit to remain any improvements to the
Complex or Premises, window coverings or other items (other than window
coverings which have first been approved by Landlord) which are visible
from the outside of the Premises, or exceed the structural loads of
floors or walls of the Building, or adversely affect the mechanical,
plumbing or electrical systems of the Building, or affect the
structural integrity of the Building in any way, (e) permit the
occupancy of the Premises at any time during the Lease Term to exceed
one person (including visitors) per two hundred (200) square feet
Rentable Area of space in the Premises, (f) violate any recorded
covenants, conditions or restrictions that now or later affect the
Complex or Building, or (g) commit or permit to be committed any action
or circumstance in or about the Complex or Building which, directly or
indirectly, would or might justify any insurance carrier in cancelling
or increasing the premium on the fire and extended coverage insurance
policy maintained by Landlord on the Complex or Building or contents,
and if any increase results from any act of Tenant, then Tenant shall
pay such increase promptly upon demand therefor by Landlord.
. Without limiting the foregoing, Tenant shall not cause or
permit any Hazardous Material (defined below) to be brought upon, kept
or used in or about the Premises or Complex by Tenant, its agents,
employees, contractors or invitees, without the prior written consent
of Landlord. If Tenant breaches the obligations stated in the preceding
sentence, or if the presence of Hazardous Materials on the Premises or
Complex caused or permitted by Tenant results in contamination of the
Premises or Complex, or if contamination of the Premises or Complex by
Hazardous Material otherwise occurs for which Tenant is legally liable
to Landlord for damage resulting therefrom, then Tenant shall
indemnify, defend and hold Landlord harmless from any and all claims,
judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the Premises or
Complex, damages for the loss or restriction on use of rentable or
usable space or any amenity of the Premises or Complex, damages arising
from any adverse impact on marketing of space in the Building, and sums
paid in settlement of claims, attorneys= fees, consultant fees and
expert fees) which arise during or after the Lease Term as a result of
such contamination. This indemnification of Landlord includes, without
limitation, the obligation to reimburse Landlord for costs incurred in
connection with any cleanup, remedial, removal or restoration work
required by any federal, state or local governmental agency or
political subdivision. Without limiting the foregoing, if the presence
of any Hazardous Material in, on or about the Premises or Complex
caused by or permitted by Tenant results in any contamination of the
Premises or Complex, Tenant shall promptly take all actions at its sole
expense as are necessary to return the Premises or Complex to the
condition existing prior to the introduction of any Hazardous Material;
provided, however, that Landlord=s approval of such action shall first
be obtained. AHazardous Material@ shall mean, in the broadest sense,
any petroleum-based products, pesticides, paints, insolvents,
polychlorinated, biphenyl, lead, cyanide, DDT, acids, ammonium
compounds and other chemical products and any substance or material
defined or designated as a hazardous or toxic, or other similar term,
by any federal, state or local environmental statute, regulation or
ordinance affecting the Premises or Complex presently in effect or that
may be promulgated in the future, as such statutes, regulations and
ordinances may be amended from time to time.
. Tenant shall not, without Landlord=s prior written consent,
use heat-generating machines, other than standard equipment or
lighting, or machines other than normal fractional horsepower office
machines, in the Premises that may affect the temperature otherwise
maintained by the air conditioning system or increase the water
normally furnished to the Premises by Landlord.
. Landlord, its employees, contractors, agents and representatives,
shall have the right (and Landlord, for itself and such persons and firms,
hereby reserves the right) to enter the Premises at all hours (a) to inspect,
clean, maintain, repair, replace or alter the Premises or the Building, (b) to
show the Premises to prospective purchasers (or, during the last twelve (12)
months of the Term, to prospective tenants), (c) to determine whether Tenant is
performing its obligations hereunder and, if it is not, to perform same at
Landlord's option and Tenant's expense, or (d) for any other purpose deemed
reasonable by Landlord. In an emergency, Landlord (and such persons and firms)
may use any means to open any door into or in the Premises without any liability
therefor. Entry into the Premises by Landlord or any other person or firm named
in the first sentence of this Section 13 for any purpose permitted herein shall
not constitute a trespass or an eviction (constructive or otherwise), or entitle
Tenant to any abatement or reduction of Rent, or constitute grounds for any
claim (and Tenant hereby waives any claim) for damages for any injury to or
interference with Tenant's business, for loss of occupancy or quiet enjoyment,
or for consequential damages.
. If all of the Complex is Taken, or if so much of the Complex is Taken
that, in Landlord's opinion, the remainder cannot be restored to an economically
viable, quality office building, or if the awards payable to Landlord as a
result of any Taking are, in Landlord's opinion, inadequate to restore the
remainder to an economically viable, quality office building, Landlord may, at
its election, exercisable by the giving of written notice to Tenant within sixty
(60) days after the date of the Taking, terminate this Lease as of the date of
the Taking or the date Tenant is deprived of possession of the Premises
(whichever is later). If this Lease is not terminated as a result of a Taking,
Landlord shall restore the Premises remaining after the Taking to a Building
Standard condition. During the period of restoration, Base Rent shall be abated
to the extent the Premises are rendered untenantable and, after the period of
restoration, Base Rent and Tenant's Share shall be reduced in the proportion
that the area of the Premises Taken or otherwise rendered untenantable bears to
the area of the Premises just prior to the Taking. If any portion of Base Rent
is abated under this Section 14, Landlord may elect to extend the expiration
date of the Term for the period of the abatement. All awards, proceeds,
compensation or other payments from or with respect to any Taking of the Complex
or any portion thereof shall belong to Landlord, and Tenant hereby assigns to
Landlord all of its right, title, interest and claim to same. Whether or not
this Lease is terminated as a consequence of a Taking, all damages or
compensation awarded for a partial or total Taking, including any award for
severance damage and any sums compensating for diminution in the value of or
deprivation of the leasehold estate under this Lease, shall be the sole and
exclusive property of Landlord. Tenant may assert a claim for and recover from
the condemning authority, but not from Landlord, such compensation as may be
awarded on account of Tenant's moving and relocation expenses, and depreciation
to and loss of Tenant's moveable personal property. Tenant shall have no claim
against Landlord for the occurrence of any Taking, or for the termination of
this Lease or a reduction in the Premises as a result of any Taking.
.5. CASUALTY
. Tenant shall give prompt written notice to Landlord of any
casualty to the Complex of which Tenant is aware and any casualty to
the Premises. If (a) the Complex or the Premises are totally destroyed,
or (b) if the Complex or the Premises are partially destroyed but in
Landlord's opinion they cannot be restored to an economically viable,
quality office building, or (c) if the insurance proceeds payable to
Landlord as a result of any casualty are, in Landlord's opinion,
inadequate to restore the portion remaining to an economically viable,
quality office building, or (d) if the damage or destruction occurs
within twelve (12) months of the expiration of the Term, or (e)
Landlord=s Mortgagee requires insurance proceeds be applied to pay or
reduce indebtedness rather than repair the Premises, Landlord may, at
its election exercisable by the giving of written notice to Tenant
within sixty (60) days after the casualty, terminate this Lease as of
the date of the casualty or the date Tenant is deprived of possession
of the Premises (whichever is later). If this Lease is not terminated
as a result of a casualty, Landlord shall (subject to Section 15.2)
restore the Premises to a Building Standard condition. During the
period of restoration, Base Rent shall be abated to the extent the
Premises are rendered untenantable and, after the period of
restoration, Base Rent and Tenant's Share shall be reduced in the
proportion that the area of the Premises remaining tenantable after the
casualty bears to the area of the Premises just prior to the casualty.
If any portion of Base Rent is abated under this Section 15.1, Landlord
may elect to extend the expiration date of the Term for the period of
the abatement. Except for abatement of Base Rent, if any, Tenant shall
have no claim against Landlord for any loss suffered by reason of any
such damage, destruction, repair or restoration, nor may Tenant
terminate this Lease as the result of any statutory provision in effect
on or after the date of this Lease pertaining to the damage and
destruction of the Premises or the Building. The proceeds of all
insurance carried by Tenant on Tenant's furnishings, trade fixtures,
leasehold improvements, equipment, merchandise and other personal
property shall be held in trust by Tenant for the purpose of the repair
and replacement of the same. Landlord shall not be required to repair
any damage or to make any restoration or replacement of any
furnishings, trade fixtures, leasehold improvements, equipment,
merchandise and other personal property installed in the Premises by
Tenant or at the direct or indirect expense of Tenant.
. Notwithstanding any provisions of this Lease to the
contrary, if the Premises or the Complex are damaged or destroyed as a
result of a casualty arising from the acts or omissions of Tenant, or
any of Tenant's officers, directors, shareholders, partners, employees,
contractors, agents, invitees or representatives, (a) Tenant's
obligation to pay Rent and to perform its other obligations under this
Lease shall not be abated, reduced or altered in any manner, (b)
Landlord shall not be obligated to repair or restore the Premises or
the Complex, and (c) subject to Section 17.2, Tenant shall be
obligated, at Tenant's cost, to repair and restore the Premises or the
Complex to the condition they were in just prior to the damage or
destruction under the direction and supervision of, and to the
satisfaction of, Landlord and any Landlord's Mortgagee.
.6. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT
. This Lease, Tenant's leasehold estate created hereby, and
all of Tenant's rights, titles and interests hereunder and in and to
the Premises are hereby made subject and subordinate to any Mortgage
presently existing or hereafter placed upon all or any portion of the
Complex, and to any and all renewals, extensions, modifications,
consolidations and replacements of any Mortgage and all advances made
or hereafter to be made on the security of any Mortgage.
Notwithstanding the foregoing, Landlord and Landlord's Mortgagee may,
at any time upon the giving of written notice to Tenant and without any
compensation or consideration being payable to Tenant, make this Lease,
and the aforesaid leasehold estate and rights, titles and interests,
superior to any Mortgage. In order to confirm the subordination (or, at
the election of Landlord or Landlord=s Mortgagee, the superiority of
this Lease), upon the written request by Landlord or by Landlord's
Mortgagee to Tenant, and within seven (7) days of the date of such
request, and without any compensation or consideration being payable to
Tenant, Tenant shall execute, have acknowledged and deliver a
recordable instrument substantially in the form of Exhibit H hereto
confirming that this Lease, Tenant's leasehold estate in the Premises
and all of Tenant's rights, titles and interests hereunder are subject
and subordinate (or, at the election of Landlord or Landlord's
Mortgagee, superior) to the Mortgage benefiting Landlord's Mortgagee.
Tenant=s failure to execute and deliver such instrument(s) shall
constitute a default under this Lease.
. Upon the written request of any person or party succeeding
to the interest of Landlord under this Lease, Tenant shall
automatically become the tenant of and attorn to such successor in
interest without any change in any of the terms of this Lease. No
successor in interest shall be (a) bound by any payment of Rent for
more than one month in advance, except payments of security for the
performance by Tenant of Tenant's obligations under this Lease, or (b)
subject to any offset, defense or damages arising out of a default or
any obligations of any preceding Landlord. Neither Landlord's Mortgagee
nor its successor in interest shall be bound by any amendment of this
Lease entered into after Tenant has been given written notice of the
name and address of Landlord's Mortgagee and without the written
consent of Landlord's Mortgagee or such successor in interest. Any
transferee or successor-in-interest shall not be liable for any acts,
omissions or defaults of Landlord that occurred before the sale or
conveyance, or the return of any security deposit except for deposits
actually paid to the successor or transferee. Tenant agrees to give
written notice of any default by Landlord to the holder of any
Mortgage. Tenant further agrees that, before it exercises any rights or
remedies under the Lease, the holder of any Mortgage or other
successor-in-interest shall have the right, but not the obligation, to
cure the default within the same time, if any, given to Landlord to
cure the default, plus an additional thirty (30) days. The
subordination, attornment and mortgagee protection clauses of this
Section 16 shall be self-operative and no further instruments of
subordination, attornment or mortgagee protection need be required by
any Landlord's Mortgagee or successor in interest thereto.
Nevertheless, upon the written request therefor and without any
compensation or consideration being payable to Tenant, Tenant agrees to
execute, have acknowledged and deliver such instruments substantially
in the form of Exhibit H hereto to confirm the same. Tenant shall from
time to time, if so requested by Landlord and if doing so will not
materially and adversely affect Tenant's economic interests under this
Lease, join with Landlord in amending this Lease so as to meet the
needs or requirements of any lender that is considering making or that
has made a loan secured by all or any portion of the Complex.
. INSURANCE
. Tenant shall obtain and maintain throughout the Term
the following policies of insurance:
(a) commercial general liability insurance with a
combined single limit for bodily injury and property damage of
not less than One Million Dollars ($1,000,000) per occurrence,
including, without limitation, contractual liability coverage
for the performance by Tenant of the indemnity agreements set
forth in Section 18;
(b) hazard insurance with special causes of loss,
including theft coverage, insuring against fire, extended
coverage risks, vandalism and malicious mischief, and
including boiler and sprinkler leakage coverage, in an amount
equal to the full replacement cost (without deduction for
depreciation) of all furnishings, trade fixtures, leasehold
improvements, equipment, merchandise and other personal
property from time to time situated in or on the Premises;
(c) workers' compensation insurance satisfying Tenant's
obligations under the workers' compensation laws of the
State of Utah; and
(d) such other policy or policies of insurance as
Landlord may reasonably require or as Landlord is then
requiring from one or more other tenants in the Building.
Such minimum limits shall in no event limit the liability of Tenant
under this Lease. Such liability insurance shall name Landlord, and any
other person specified from time to time by Landlord, as an additional
insured; such property insurance shall name Landlord as a loss payee as
Landlord's interests may appear; and both such liability and property
insurance shall be with companies acceptable to Landlord, having a
rating of not less than A:XII in the most recent issue of Best's Key
Rating Guide, Property-Casualty. All liability policies maintained by
Tenant shall contain a provision that Landlord and any other additional
insured, although named as an insured, shall nevertheless be entitled
to recover under such policies for any loss sustained by Landlord and
Landlord's agents and employees as a result of the acts or omissions of
Tenant. Tenant shall furnish Landlord with certificates of coverage. No
such policy shall be cancelable or subject to reduction of coverage or
other modification except after thirty (30) days' prior written notice
to Landlord by the insurer. All such policies shall be written as
primary policies, not contributing with and not in excess of the
coverage which Landlord may carry, and shall only be subject to such
deductibles as may be approved in writing in advance by Landlord.
Tenant shall, at least ten (10) days prior to the expiration of such
policies, furnish Landlord with renewals of, or binders for, such
policies. Landlord and Tenant waive all rights to recover against each
other, against any other tenant or occupant of the Complex, and against
the officers, directors, shareholders, partners, joint venturers,
employees, agents, customers, invitees or business visitors of each
other, or of any other tenant or occupant of the Building, for any loss
or damage arising from any cause covered by any insurance carried by
the waiving party, to the extent that such loss or damage is actually
covered. Tenant shall cause all other occupants of the Premises
claiming by, through or under Tenant to execute and deliver to Landlord
a waiver of claims similar to the waiver contained in this Section and
to obtain such waiver of subrogation rights endorsements. Any
Landlord's Mortgagee may, at Landlord's option, be afforded coverage
under any policy required to be secured by Tenant under this Lease by
use of a mortgagee's endorsement to the policy concerned.
. Landlord and Tenant hereby waive all claims, rights of
recovery and causes of action that either party or any party claiming
by, through or under such party may now or hereafter have by
subrogation or otherwise against the other party or against any of the
other party's officers, directors, shareholders, partners or employees
for any loss or damage that may occur to the Complex, the Premises,
Tenant's improvements or any of the contents of any of the foregoing by
reason of fire or other casualty, or by reason of any other cause
except gross negligence or willful misconduct (thus including simple
negligence of the parties hereto or their officers, directors,
shareholders, partners or employees), that could have been insured
against under the terms of (a) in the case of Landlord, the standard
fire and extended coverage insurance policies available in the state
where the Complex is located at the time of the casualty, and (b) in
the case of Tenant, the fire and extended coverage insurance policies
required to be obtained and maintained under Section 17.1; provided,
however, that the waiver set forth in this Section 17.2 shall not apply
to any deductibles on insurance policies carried by Landlord or to any
coinsurance penalty which Landlord might sustain. Landlord and Tenant
shall cause an endorsement to be issued to their respective insurance
policies recognizing this waiver of subrogation.
. Subject to paragraph 17.2, Tenant agrees to indemnify, defend and
hold Landlord and its officers, directors, partners and employees entirely
harmless from and against all liabilities, losses, demands, actions, expenses or
claims, including reasonable attorneys= fees and court costs, and including
consequential damages, for injury to or death of any person or for damages to
any property or for violation of law arising out of or in any manner connected
with (i) the use, occupancy or enjoyment of the Premises and Complex by Tenant
or Tenant=s agents, employees or contractors, or the clients and other invitees
of Tenant, (ii) any work, activity or other thing allowed or suffered by Tenant
or Tenant=s agents, employees or contractors to be done in or about the Premises
or Complex, (iii) any breach or default in the performance of any obligation of
Tenant under this Lease, and (iv) any negligent or otherwise tortious act or
failure to act by Tenant or Tenant=s agents, employees or contractors on or
about the Premises or Complex.
. Landlord shall have no liability to Tenant, or to Tenant's officers,
directors, shareholders, partners, employees, agents, contractors or invitees,
for bodily injury, death, property damage, business interruption, loss of
profits, loss of trade secrets or other direct or consequential damages
occasioned by (a) the acts or omissions of any other tenant or such other
tenant's officers, directors, shareholders, partners, employees, agents,
contractors or other invitees within the Complex, (b) Force Majeure, (c)
vandalism, theft, burglary and other criminal acts (other than those committed
by Landlord and its employees), (d) water leakage, or (e) the repair,
replacement, maintenance, damage, destruction or relocation of the Premises.
Except to the extent that a final judgment of a court of competent jurisdiction
establishes that an injury, loss, damage or destruction was proximately caused
by Landlord=s fraud, willful act or violation of law, Tenant waives all claims
against Landlord arising out of injury to or death of any person or loss of,
injury or damage to, or destruction of any property of Tenant.
. As security for Tenant's payment of Rent and performance of all of
its other obligations under this Lease, Tenant hereby grants to Landlord a
security interest in all property of Tenant now or hereafter placed in the
Premises. Landlord, as secured party, shall be entitled to all of the rights,
remedies and recourses afforded to a secured party under the Utah Uniform
Commercial Code, which rights, remedies and recourses shall be cumulative of all
other rights, remedies, recourses, liens and security interests afforded
Landlord by law, equity or this Lease. Contemporaneously with the execution of
this Lease, Tenant shall execute and deliver, as debtor, promptly upon request
and without any compensation or consideration being payable to Tenant, such
additional financing statement or statements as Landlord may request. However,
Landlord may at any time file a copy of this Lease as a financing statement.
. Landlord shall have the exclusive control over the Common Areas.
Landlord may, from time to time, create different Common Areas, close or
otherwise modify the Common Areas, and modify the Building Rules and Regulations
with respect thereto.
. Landlord retains the right and power, to be exercised reasonably and
at Landlord's expense, to relocate Tenant within the Building to space which is
comparable in size to the Premises and is suited to Tenant's use, and all terms
of this Lease shall apply to the new space with equal force. Instances when the
exercise of Landlord's right and power to relocate Tenant shall be deemed
reasonable include, but shall not be limited to, instances where Landlord
desires to consolidate the rentable area in the Building to provide Landlord's
services more efficiently, or to provide contiguous vacant space for a
prospective tenant. Landlord shall not be liable to Tenant for any claims
arising in connection with a relocation permitted under this Section 22. The
parties shall execute an amendment to this Lease stating the relocation of the
Premises.
. Provided Tenant has performed all its obligations under this Lease,
Tenant shall and may peaceably and quietly have, hold, occupy, use and enjoy the
Premises during the Term subject to the provisions of this Lease. Landlord shall
warrant and forever defend Tenant's right to occupancy of the Premises against
the claims of any and all persons whosoever lawfully claiming the same or any
part thereof, by, through or under Landlord, but not otherwise, subject to the
provisions of this Lease.
.4. DEFAULT BY TENANT
. Each of the following occurrences shall constitute an Event
of Default (herein so called):
(a) the failure of Tenant to pay Base Rent,
Additional Rent or any other amount due under this Lease as
and when due hereunder and the continuance of such failure for
a period of ten (10) days after written notice from Landlord
to Tenant specifying the failure; provided, however, after
Landlord has given Tenant written notice pursuant to this
clause 24.1(a) on two separate occasions within any twelve
(12) month period, Landlord shall not be required to give
Tenant any further notice under this clause 24.1(a).
Notwithstanding the foregoing, the obligation of Tenant to pay
a late charge or interest pursuant to this Lease shall
commence as of the due date of the Rent or other monetary
obligation as provided in Section 5.7 above.
(b) the failure of Tenant to perform, comply with or
observe any other agreement, obligation or undertaking of
Tenant, or any other term, condition or provision in this
Lease, and the continuance of such failure for a period of
twenty (20) days after written notice from Landlord to Tenant
specifying the failure;
(c) The involuntary transfer by Tenant of Tenant=s
interest in this Lease or the voluntary attempt to or actual
transfer of its interest in this Lease, without Landlord=s
prior written consent;
(d) The failure of Tenant to discharge any lien
placed as a result of Tenant=s action or inaction upon the
Premises or Building as set forth hereunder;
(e) The occurrence of a Net Tenant Delay, as defined
in the Work Letter Agreement, of forty-five (45) calendar days
or more;
(f) the filing of a petition by or against Tenant
(the term "Tenant" also meaning, for the purpose of this
clause 24.1(d), any guarantor of the named Tenant's
obligations hereunder) (i) in any bankruptcy or other
insolvency proceeding, (ii) seeking any relief under the
Bankruptcy Code or any similar debtor relief law, (iii) for
the appointment of a liquidator or receiver for all or
substantially all of Tenant's property or for Tenant's
interest in this Lease, or (iv) to reorganize or modify
Tenant's capital structure; and
(g) the admission by Tenant in writing that it cannot
meet its obligations as they become due or the making by
Tenant of an assignment for the benefit of its creditors.
. Upon any Event of Default, Landlord may, at Landlord's
option in its sole discretion, and in addition to all other rights,
remedies and recourses afforded Landlord hereunder or by law or equity,
do any one or more of the following:
(a) terminate this Lease by the giving of written
notice to Tenant; reenter the Premises, repossess and enjoy
the Premises and all Tenant Improvements; and recover from
Tenant all of the following: (i) all Rent and other amounts
accrued hereunder to the date of termination, (ii) all amounts
due under Section 24.3, and (iii) liquidated damages in an
amount equal to (A) the total Rent that Tenant would have been
required to pay for the remainder of the Term discounted to
present value at the prime lending rate (or equivalent rate,
however denominated) in effect on the date of termination at
the largest national bank in the state where the Complex is
located, minus (B) the then-present fair rental value of the
Premises for such period, similarly discounted, plus any other
amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant=s failure to perform its
obligations under this Lease or which would be likely to
result therefrom, including, without limitation, attorneys=
fees, brokers= commissions or finder=s fees;
(b) terminate Tenant's right to possession of the
Premises without terminating this Lease by the giving of
written notice to Tenant, in which event Tenant shall pay to
Landlord (i) all Rent and other amounts accrued hereunder to
the date of termination of possession, (ii) all amounts due
from time to time under Section 24.3, and (iii) all Rent and
other sums required hereunder to be paid by Tenant during the
remainder of the Term, diminished by any net sums thereafter
received by Landlord through reletting the Premises during
said period. Reentry by Landlord in the Premises will not
affect the obligations of Tenant hereunder for the unexpired
Term. Landlord may bring action against Tenant to collect
amounts due by Tenant on one or more occasions, without the
necessity of Landlord's waiting until expiration of the Term.
If Landlord elects to proceed under this Section 24.2(b), it
may at any time elect to terminate this Lease pursuant to
Section 24.2(a);
(c) without notice, alter any and all locks and other
security devices at the Premises without being obligated to
deliver new keys to the Premises, unless Tenant has cured all
Events of Default before Landlord has terminated this Lease
under Section 24.2(a) or has entered into a lease to relet all
or a portion of the Premises; and/or
(d) if an Event of Default specified in Section
24.1(c) occurs, Landlord may remove and store any property
that remains on the Premises and, if Tenant does not claim
such property within ten (10) days after Landlord has
delivered to Tenant notice of such storage, Landlord may
appropriate, sell, destroy or otherwise dispose of the
property in question without notice to Tenant or any other
person, and without any obligation to account for such
property.
The abandonment of the Premises by Tenant or the failure of Tenant to
occupy the Premises or any significant portion thereof for a period of
in excess of thirty (30) calendar days shall not constitute an Event of
Default hereunder, but shall entitle Landlord, at its election, to
terminate the Lease upon written notice to Tenant. The termination
right of Landlord in such event shall be in addition to all other
rights, remedies and recourses afforded Landlord hereunder or by law or
equity upon the occurrence of an Event of Default. No taking possession
of the Premises by Landlord shall be construed as Landlord=s acceptance
of a surrender of the Premises by Tenant or an election of Landlord to
terminate this Lease unless written notice of such intention is given
to Tenant. Notwithstanding any leasing or subletting without
termination of the Lease, Landlord may at any time thereafter elect to
terminate the Lease for Tenant=s previous breach.
. Upon any Event of Default, Tenant shall also pay to Landlord
all costs and expenses incurred by Landlord, including court costs and
reasonable attorneys' fees, in (a) retaking or otherwise obtaining
possession of the Premises, (b) removing and storing Tenant's or any
other occupant's property, (c) constructing the Tenant Improvements or
otherwise incurred in connection with the Tenant Improvement Allowance
Items as defined in the Work Letter Agreement, (d) repairing,
restoring, altering, remodeling or otherwise putting the Premises into
condition acceptable to a new tenant or tenants, (e) reletting all or
any part of the Premises, (f) paying or performing the underlying
obligation which Tenant failed to pay or perform, and (g) enforcing any
of Landlord's rights, remedies or recourses arising as a consequence of
the Event of Default.
. Upon termination of this Lease or upon termination of
Tenant's right to possession of the Premises, Landlord shall use
reasonable efforts to relet the Premises on such terms and conditions
as Landlord in its sole discretion may determine (including a term
different than the Term, rental concessions, and alterations to and
improvements of the Premises); however, Landlord shall not be obligated
to relet the Premises before leasing other portions of the Building.
Landlord shall not be liable for, nor shall Tenant's obligations
hereunder be diminished because of, Landlord's failure to relet the
Premises or collect rent due with respect to such reletting. If
Landlord relets the Premises, rent Landlord receives from such
reletting shall be applied to the payment of: first, any indebtedness
from Tenant to Landlord other than Rent (if any); second, all costs,
including for maintenance and alterations, incurred by Landlord in
reletting; and third, Rent due and unpaid. In no event shall Tenant be
entitled to the excess of any rent obtained by reletting over the Rent
herein reserved.
. Upon an Event of Default, Landlord may, but without
obligation to do so and without thereby waiving or curing such Event of
Default, pay or perform the underlying obligation for the account of
Tenant, and enter the Premises and expend the Security Deposit and any
other sums for such purpose.
. Provisions of this Lease may only be waived by the party
entitled to the benefit of the provision evidencing the waiver in
writing. Thus, neither the acceptance of Rent by Landlord following an
Event of Default (whether known to Landlord or not), nor any other
custom or practice followed in connection with this Lease, shall
constitute a waiver by Landlord of such Event of Default or any other
Event of Default. Further, the failure by Landlord to complain of any
action or inaction by Tenant, or to assert that any action or inaction
by Tenant constitutes (or would constitute, with the giving of notice
and the passage of time) an Event of Default, regardless of how long
such failure continues, shall not extinguish, waive or in any way
diminish the rights, remedies and recourses of Landlord with respect to
such action or inaction. No waiver by Landlord of any provision of this
Lease or of any breach by Tenant of any obligation of Tenant hereunder
shall be deemed to be a waiver of any other provision hereof, or of any
subsequent breach by Tenant of the same or any other provision hereof.
Landlord's consent to any act by Tenant requiring Landlord's consent
shall not be deemed to render unnecessary the obtaining of Landlord's
consent to any subsequent act of Tenant. No act or omission by Landlord
(other than Landlord's execution of a document acknowledging such
surrender) or Landlord's agents, including the delivery of the keys to
the Premises, shall constitute an acceptance of a surrender of the
Premises.
. Landlord shall not be in default under this Lease, and Tenant shall
not be entitled to exercise any right, remedy or recourse against Landlord or
otherwise as a consequence of any alleged default by Landlord under this Lease,
unless Landlord fails to perform any of its obligations hereunder and said
failure continues for a period of thirty (30) days after Tenant gives Landlord
and (provided that Tenant shall have been given the name and address of
Landlord's Mortgagee) Landlord's Mortgagee written notice thereof specifying,
with reasonable particularity, the nature of Landlord's failure. If, however,
the failure cannot reasonably be cured within the thirty (30) day period,
Landlord shall not be in default hereunder if Landlord or Landlord's Mortgagee
commences to cure the failure within the thirty (30) days and thereafter pursues
the curing of same diligently to completion. If Tenant recovers a money judgment
against Landlord for Landlord's default of its obligations hereunder or
otherwise, the judgment shall be limited to Tenant's actual direct, but not
consequential, damages therefor and shall be satisfied only out of the interest
of Landlord in the Complex as the same may then be encumbered, and Landlord
shall not otherwise be liable for any deficiency. In no event shall Tenant have
the right to levy execution against any property of Landlord other than its
interest in the Complex. The foregoing shall not limit any right that Tenant
might have to obtain specific performance of Landlord's obligations hereunder.
. Upon the expiration or termination of the Term for whatever cause, or
upon the exercise by Landlord of its right to reenter the Premises without
terminating this Lease, Tenant shall immediately, quietly and peaceably
surrender to Landlord possession of the Premises in "broom clean" and good
order, condition and repair, except only for ordinary wear and tear, damage by
casualty not covered by Section 15.2 and repairs to be made by Landlord pursuant
to Section 15.1. If Tenant is in default under this Lease, Landlord shall have a
lien on such personal property, trade fixtures and other property as set forth
in Section 38-3-1, et seq., of the Utah Code Ann. (or any replacement
provision). Landlord may require Tenant to remove any personal property, trade
fixtures, other property, alterations, additions and improvements made to the
Premises by Tenant or by Landlord for Tenant, and to restore the Premises to
their condition on the date of this Lease. All personal property, trade fixtures
and other property of Tenant not removed from the Premises on the abandonment of
the Premises or on the expiration of the Term or sooner termination of this
Lease for any cause shall conclusively be deemed to have been abandoned and may
be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord
without notice to, and without any obligation to account to, Tenant or any other
person. Tenant shall pay to Landlord all expenses incurred in connection with
the disposition of such property in excess of any amount received by Landlord
from such disposition. Tenant shall not be released from Tenant's obligations
under this Lease in connection with surrender of the Premises until Landlord has
inspected the Premises and delivered to Tenant a written release. While Tenant
remains in possession of the Premises after such expiration, termination or
exercise by Landlord of its reentry right, Tenant shall be deemed to be
occupying the Premises as a tenant-at-sufferance, subject to all of the
obligations of Tenant under this Lease, except that the daily Rent shall be one
hundred fifty percent (150%) of the per-day Rent in effect immediately before
such expiration, termination or exercise by Landlord. No such holding over shall
extend the Term. If Tenant fails to surrender possession of the Premises in the
condition herein required, Landlord may, at Tenant's expense, restore the
Premises to such condition.
.7. MISCELLANEOUS
. The obligations of Tenant to pay Rent and to perform the
other undertakings of Tenant hereunder constitute independent
unconditional obligations to be performed at the times specified
hereunder, regardless of any breach or default by Landlord hereunder.
Tenant shall have no right, and Tenant hereby waives and relinquishes
all rights which Tenant might otherwise have, to claim any nature of
lien against the Complex or to withhold, deduct from or offset against
any Rent or other sums to be paid to Landlord by Tenant.
. Time is of the essence with respect to each date or time
specified in this Lease by which an event is to occur.
. This Lease shall be governed by, and construed in accordance
with, the laws of the State of Utah. All monetary and other obligations
of Landlord and Tenant are performable in the county where the Complex
is located.
. Landlord shall have the right to assign without notice or
consent, in whole or in part, any or all of its rights, titles or
interests in and to the Complex or this Lease and, upon any such
assignment, Landlord shall be relieved of all unaccrued liabilities and
obligations hereunder to the extent of the interest so assigned.
. From time to time at the request of Landlord or Landlord's
Mortgagee, Tenant will within seven (7) calendar days, and without
compensation or consideration execute, have acknowledged and deliver a
certificate substantially in the form of Exhibit H hereto, setting
forth the following: (a) a ratification of this Lease; (b) the
Commencement Date, expiration date and other Lease information; (c)
that this Lease is in full force and effect and has not been assigned,
modified, supplemented or amended (except by such writing as shall be
stated); (d) that all conditions under this Lease to be performed by
Landlord have been satisfied or, in the alternative, those claimed by
Tenant to be unsatisfied; (e) that no defenses or offsets exist against
the enforcement of this Lease by Landlord or, in the alternative, those
claimed by Tenant to exist; (f) whether within the knowledge of Tenant
there are any existing breaches or defaults by Landlord hereunder and,
if so, stating the defaults with reasonable particularity; (g) the
amount of advance Rent, if any (or none if such is the case), paid by
Tenant; (h) the date to which Rent has been paid; (i) the amount of the
Security Deposit; and (j) such other information as Landlord or
Landlord's Mortgagee may request. Landlord's Mortgagee and purchasers
shall be entitled to rely on any estoppel certificate executed by
Tenant. Tenant shall, within twenty (20) calendar days after Landlord's
request, furnish to Landlord current financial statements for Tenant,
prepared in accordance with generally accepted accounting principles
consistently applied and certified by Tenant to be true and correct.
. Landlord may, from time to time at its discretion, place any
and all signs anywhere in the Complex, and may change the name and
street address of the Complex. Tenant shall not, without Landlord=s
prior written consent, use the name of the Building for any purpose
other than as the address of the business to be conducted by Tenant
from the Premises.
. All notices and other communications given pursuant to this
Lease shall be in writing and shall either be sent by overnight courier
or mailed by first class United States mail, postage prepaid,
registered or certified with return receipt requested, and addressed as
set forth in Section AG@ of the Basic Lease Information, or delivered
in person to the intended addressee. Notice sent by overnight courier
shall become effective one (1) business day after being sent. Notice
mailed in the aforesaid manner shall become effective three (3)
business days after deposit. Notice given in any other manner, and any
notice given to Landlord, shall be effective only upon receipt by the
intended addressee. Notwithstanding the foregoing, after the
Commencement Date, notice may also be given at the following addresses:
(a) for Landlord, at the Building Manager=s office in the Building, and
(b) for Tenant, the Premises. Each party shall have the continuing
right to change its address for notice hereunder by the giving of
fifteen (15) days' prior written notice to the other party in
accordance with this Section 27.7.
. This Lease constitutes the entire agreement between Landlord
and Tenant relating to the subject matter hereof, and all prior
agreements relative hereto which are not contained herein are
terminated. This Lease may be amended only by a written document duly
executed by Landlord and Tenant (and, if a Mortgage is then in effect,
by the Landlord's Mortgagee entitled to the benefits thereof), and any
alleged amendment which is not so documented shall not be effective as
to either party. The provisions of this Lease shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors and assigns; provided, however, that this
Section 27.8 shall not negate, diminish or alter the restrictions on
Transfers applicable to Tenant set forth elsewhere in this Lease.
. This Lease is intended to be performed in accordance with
and only to the extent permitted by all Legal Requirements. If any
provision of this Lease or the application thereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, but the extent of the invalidity or unenforceability
does not destroy the basis of the bargain between the parties as
contained herein, the remainder of this Lease and the application of
such provision to other persons or circumstances shall not be affected
thereby, but rather shall be enforced to the greatest extent permitted
by law.
. As the context of this Lease may require, pronouns shall
include natural persons and legal entities of every kind and character,
the singular number shall include the plural, and the neuter shall
include the masculine and the feminine gender. Section headings in this
Lease are for convenience of reference only and are not intended, to
any extent and for any purpose, to limit or define any section hereof.
Whenever the terms "hereof," "hereby," "herein," "hereunder" or words
of similar import are used in this Lease, they shall be construed as
referring to this Lease in its entirety rather than to a particular
section or provision, unless the context specifically indicates to the
contrary. Any reference to a particular "Section" shall be construed as
referring to the indicated section of this Lease.
<PAGE>
. In the event either party commences a legal proceeding to
enforce any of the terms of this Lease, the prevailing party in such
action shall have the right to recover reasonable attorneys' fees and
costs from the other party, to be fixed by the court in the same
action. "Legal proceedings" includes appeals from a lower court
judgment as well as proceedings in the Federal Bankruptcy Court
("Bankruptcy Court"), whether or not they are adversary proceedings or
contested matters. The "prevailing party" (i) as used in the context of
proceedings in the Bankruptcy Court means the prevailing party in an
adversary proceeding or contested matter, or any other actions taken by
the non-bankrupt party which are reasonably necessary to protect its
rights under this Lease, and (ii) as used in the context of proceedings
in any court other than the Bankruptcy Court means the party that
prevails in obtaining a remedy or relief which most nearly reflects the
remedy or relief which the party sought.
. Tenant and Landlord hereby warrant and represent unto the
other that it has not incurred or authorized any brokerage commission,
finder's fees or similar payments in connection with this Lease, other
than that which is due pursuant to a separate written agreement between
the Landlord and Landlord=s agents and subagents. Each party shall
defend, indemnify and hold the other harmless from and against any
claim for brokerage commission, finder's fees or similar payment
arising by virtue of authorization of such party, or any Affiliate of
such party, in connection with this Lease.
. Any amount due from Tenant to Landlord which is not paid
when due shall bear interest at the lesser of ten percent (10%) per
annum or the maximum rate allowed by law from the date such payment is
due until paid, but the payment of such interest shall not excuse or
cure the default in payment.
. Each person executing this Lease on behalf of Tenant
represents that (a) Tenant is a duly organized and existing legal
entity, in good standing in the State of Utah, (b) Tenant has full
right and authority to execute, deliver and perform this Lease, (c)
this Lease is binding upon and enforceable against Tenant in accordance
with its terms, (d) the person executing and delivering this Lease on
behalf of Tenant was duly authorized to do so, and (d) upon request of
Landlord, such person will deliver to Landlord satisfactory evidence of
his or her authority to execute this Lease on behalf of Tenant.
. Neither this Lease (including any Exhibit hereto) nor any
memorandum hereof shall be recorded without the prior written consent
of Landlord.
. All Exhibits and written addenda hereto are incorporated
herein for any and all purposes.
. This Lease may be executed in two or more counterparts, each
of which shall be an original, but all of which shall constitute but
one instrument.
. The indemnity obligations of Tenant contained in this Lease
shall survive the expiration or earlier termination of this Lease to
and until the last to occur of (a) the last day permitted by law for
the bringing of any claim or action with respect to which
indemnification may be claimed, or (b) the date on which any claim or
action for which indemnification may be claimed under such provision is
fully and finally resolved and any compromise thereof or judgment or
award thereon is paid in full. Payment shall not be a condition
precedent to recovery upon any indemnification provision contained
herein.
. Any guaranty delivered in connection with this Lease is an
integral part of this Lease and constitutes consideration given to
Landlord to enter into this Lease. No amendment to this Lease shall be
binding on Landlord or Tenant unless reduced to writing and signed by
both parties. Each provision to be performed by Tenant shall be
construed to be both a covenant and a condition. Venue on any action
arising out of this Lease shall be proper only in the District Court of
Salt Lake County, State of Utah. Landlord and Tenant waive trial by
jury in any action, proceeding or counterclaim brought by either of
them against the other on all matters arising out of this Lease or the
use and occupancy of the Premises. The submission of this Lease to
Tenant is not an offer to lease the Premises or an agreement by
Landlord to reserve the Premises for Tenant. Landlord shall not be
bound to Tenant until Tenant has duly executed and delivered duplicate
original copies of this Lease to Landlord and Landlord has duly
executed and delivered one of those duplicate original copies to
Tenant.
EXECUTED as of the date and year above first written.
TENANT ACKNOWLEDGES THAT LANDLORD HAS MADE NO WARRANTIES TO TENANT, EITHER
EXPRESS OR IMPLIED, AND LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED
WARRANTY THAT THE PREMISES ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL
PURPOSE.
TENANT: MRS. FIELDS= ORIGINAL COOKIES, INC.,
a Delaware corporation
By:
Name:
Title:
January 18, 1998
LANDLORD: 2855 E. COTTONWOOD PARKWAY, L.C., a Utah limited
liability company, by its following Managing Member
COTTONWOOD CORPORATE CENTER, L.C., a Utah limited liability
company, by its following member
C&E HOLDINGS PARTNERSHIP, a Utah general partnership, by its
Managing General Partner
COTTONWOOD EQUITIES, LTD., a Texas limited partnership, by
Cottonwood Realty Services, L.L.C., its general partner
By: JOHN L. WEST, Managing Director S:\INVEST\CCC\Building
11\Leases\Mrs. Fields\Mrs. Fields lease.wpd
<PAGE>
A-3
EXHIBIT A
GLOSSARY OF DEFINED TERMS
a. "Addendum" shall mean all the addenda, exhibits and attachments, if
any, attached to the Lease or to any exhibit to the Lease. All addenda
are by definition incorporated into the Lease Agreement. Unless
otherwise specifically provided, terms and phrases in any Addendum
shall have the meaning of such terms and phrases as provided in the
Lease Agreement and this Glossary of Defined Terms.
b. "Affiliate" shall mean a person or party who or which controls, is
controlled by or is under common control with, another person or party.
c. "Building" shall mean that certain office building and garage structure
constructed on the Land, the -------- street address of which is 2855 E.
Cottonwood Parkway, Salt Lake County, Utah. The term "Building" shall include,
without limitation, all fixtures and appurtenances in and to the aforesaid
structure, including specifically but without limitation all above-grade
walkways and all electrical, mechanical, plumbing, security, elevator, boiler,
HVAC, telephone, water, gas, storm sewer, sanitary sewer and all other utility
systems and connections, all life support systems, sprinklers, smoke detection
and other fire protection systems, and all equipment, machinery, shafts, flues,
piping, wiring, ducts, duct work, panels, instrumentation and other
appurtenances relating thereto.
d. "Building Operating Hours" shall mean 7:30 a.m. to 6:00 p.m. Monday through
Friday, and Saturday 8:00 a.m. to 1:00 p.m., exclusive of Sundays and Holidays.
e. "Building Rules and Regulations" shall mean the rules and regulations
governing the Complex promulgated by Landlord from time to time. The
current Building Rules and Regulations maintained by Landlord are
attached as Exhibit C hereto.
f. "Building Standard", when applied to an item, shall mean such item as
has been designated by Landlord (orally or in writing) as generally
applicable throughout the leased portions of the Building, as more
fully set forth on Exhibit D2 hereto.
g. "Commencement Date" shall mean the date of the commencement of the Term
as determined pursuant to Section 6.3.
h. "Common Areas" shall mean all areas and facilities within the Complex
which have been constructed and are being maintained by Landlord for
the common, general, nonexclusive use of all tenants in the Building,
as revised from time to time in Landlord=s discretion, and shall
include rest rooms, lobbies, corridors, service areas, elevators,
stairs and stairwells, the Parking Facility, driveways, loading areas,
ramps, walkways and landscaped areas.
i. "Complex" shall mean the Land and all improvements thereon, including
the Building and the Parking Facility.
j. "Fiscal Year" shall mean each fiscal year (or portion thereof) as
designated by Landlord, in which any portion of the Lease Term falls,
through and including the Fiscal Year in which the Lease Term expires.
The Fiscal Year currently commences on January 1; however, Landlord may
change the Fiscal Year at any time or times.
k. "Force Majeure" shall mean the occurrence of any event which hinders,
prevents or delays the performance by Landlord of any of its
obligations hereunder and which is beyond the reasonable control of
Landlord.
l. "Holidays" shall mean (a) New Year's Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day, (b) other days on
which national or state banks located in the state where the Complex is
located must or may close for ordinary operations, and (c) other days
which are commonly observed as Holidays by the majority of tenants of
the Building. If the Holiday occurs on a Saturday or Sunday, the Friday
preceding or the Monday following may, at Landlord's discretion, be
observed as a Holiday.
m. "HVAC" shall mean the heating, ventilation and air conditioning systems
in the Building.
n. "Impositions" shall mean (a) all real estate, personal property, rental,
water, sewer, transit, use, ----------- occupancy and other taxes,
assessments, charges, excises and levies (including any interest, costs or
penalties with respect thereto), general and special, ordinary and
extraordinary, foreseen and unforeseen, of any kind and nature whatsoever
which are assessed, levied, charged or imposed upon or with respect to the
Complex, or any portion thereof, or the sidewalks, streets or alleyways
adjacent thereto, or the ownership, use, occupancy or enjoyment thereof
(including but not limited to mortgage taxes and other taxes and
assessments passed on to Landlord by Landlord's Mortgagee), and (b) all
charges for any easement, license, permit or agreement maintained for the
benefit of the Complex. "Impositions" shall not include income taxes,
estate and inheritance taxes, excess profit taxes, franchise taxes, taxes
imposed on or measured by the income of Landlord from the operation of the
Complex, and taxes imposed on account of the transfer of ownership of the
Complex or the Land. If any or all of the Impositions shall be discontinued
and, in substitution therefor, taxes, assessments, charges, excises or
impositions shall be assessed, levied, charged or imposed wholly or
partially on the Rents received or payable hereunder (a "Substitute
Imposition"), then the Substitute Imposition shall be
---------------------- deemed to be included within the term "Impositions."
o. "Land" shall mean the real property on which the Building is constructed
and which is further described in Exhibit E hereto.
p. "Landlord=s Consent or Landlord=s Approval" as used in this Agreement,
shall mean the prior written consent or written approval of Landlord to
the particular item or request. Where provided in the Lease, the
Landlord=s consent or approval shall be determined in Landlord=s sole
discretion, but shall otherwise not be unreasonably withheld.
q. "Landlord's Mortgagee" shall mean the mortgagee of any mortgage, the
beneficiary of any deed of trust, the pledgee of any pledge, the
secured party of any security interest, the assignee of any assignment
and the transferee of any other instrument of transfer (including the
ground lessor of any ground lease on the Land) now or hereafter in
existence on all or any portion of the Complex, and their successors,
assigns and purchasers. "Mortgage" shall mean any such mortgage, deed
of trust, pledge, security agreement, assignment or transfer
instrument, including all renewals, extensions and rearrangements
thereof and of all debts secured thereby.
r. "Landlord's Work" shall mean all improvements, components, assemblies,
installations, finish, labor, materials and services that Landlord is
required to furnish, install, perform, provide or apply to the Premises
as specified in the Work Letter Agreement.
s. "Legal Requirements" shall mean any and all (a) judicial decisions,
orders, injunctions, writs, statutes, rulings, rules, regulations,
promulgations, directives, permits, certificates or ordinances of any
governmental authority in any way applicable to Tenant or the Complex,
including but not limited to the Building Rules and Regulations,
zoning, environmental and utility conservation matters, (b)
requirements imposed on Landlord by any Landlord's Mortgagee, (c)
insurance requirements, and (d) other documents, instruments or
agreements (written or oral) relating to the Complex or to which the
Complex may be bound or encumbered.
t. "Parking Facility" shall mean (a) any parking garage and any other
parking lot or facility adjacent to or in the Complex servicing the
Building, and (b) any parking area, open or covered, leased by Landlord
to service the Building.
u. "Permitted Use" means lawful, general business office purposes only,
and no other purpose, in strict compliance with the Building Rules and
Regulations from time to time in effect and all other Legal
Requirements.
v. "Premises" shall mean the area leased by Tenant pursuant to this Lease
as outlined on the floor plan drawing attached as Exhibit B hereto and
all other space added to the Premises pursuant to the terms of this
Lease. The Premises includes the space between the interior surface of
the walls and the top surface of the floor slab of the outlined area
and the finished surface of the ceiling immediately above.
w. "Rentable Area" shall mean the Rentable Area of the Premises and the
Rentable Area of the Building as stated in Section AA@ of the Summary
of Basic Lease Information.
x. "Rent" shall mean Base Rent, Additional Rent, the parking charge called
for in Section 5.4 and all other amounts provided for under this Lease
to be paid by Tenant, whether as Additional Rent or otherwise. "Base
Rent" shall mean the base rent specified in Section 5.1 as adjusted in
accordance with Section 5.2. "Base Rent Adjustment" shall mean the
increase in the annual Base Rent as set forth in Section 5.2.
"Additional Rent" shall mean the additional rent specified in Section
5.3.
y. "Security Deposit" means the amount stated in Section AF@ of the Summary
of Basic Lease Information.
z. ASubstantial Completion@ shall mean the completion of construction upon
the Premises of the Tenant Improvements pursuant to the approved
Working Drawings, with the exception of any punch list items and any
tenant fixtures, work-stations, built-in furniture or equipment to be
installed by Tenant or under the supervision of Tenant.
aa. "Taking" or "Taken" shall mean the actual or constructive condemnation,
or the actual or constructive acquisition by or under threat of condemnation,
eminent domain or similar proceeding, by or at the direction of any governmental
authority or agency.
bb. "Tenant's Share" shall mean the percentage of Operating Expenses to be
paid by Tenant in accordance with the provisions of the Lease. "Tenant's
Share" may be adjusted by Landlord from time to time to reflect adjustments
to the then-current Rentable Area of the Building or the Premises. Landlord
and Tenant stipulate that "Tenant's Share" shall initially mean the
percentage stated in Section AD@ of the Summary of Basic Lease Information.
cc. "Transfer" shall mean (a) an assignment (direct or indirect, absolute
or conditional, by operation of -------- law or otherwise) by Tenant of all
or any portion of Tenant's interest in this Lease or the leasehold estate
created hereby, (b) a sublease of all or any portion of the Premises, or
(c) the grant or conveyance by Tenant of any concession or license within
the Premises. If Tenant is a corporation, then any transfer of this Lease
by merger, consolidation or dissolution, or by any change in ownership or
power to vote a majority of the voting stock (being the shares of stock
regularly entitled to vote for the election of directors) in Tenant
outstanding at the time of execution of this Lease shall constitute a
Transfer. If Tenant is a partnership having one or more corporations as
general partners, the preceding sentence shall apply to each corporation as
if the corporation alone had been the Tenant hereunder. If Tenant is a
general or limited partnership, joint venture or other form of association,
the Transfer of a majority of the ownership interests therein shall
constitute a Transfer. "Transferee" ---------- shall mean the assignee,
sublessee, pledgee, concessionaire, licensee or other transferee of all or
any portion of Tenant's interest in this Lease, the leasehold estate
created hereby or the Premises.
dd. "Work Letter Agreement" shall mean the agreement, if any, attached as
Exhibit D hereto between Landlord and Tenant for the construction of
improvements in the Premises.
<PAGE>
B-1
EXHIBIT B
PREMISES
Attach floor plan of the Premises.
<PAGE>
C-3
EXHIBIT C
RULES AND REGULATIONS
Tenant shall comply with the following Rules and Regulations.
Landlord shall not be responsible to Tenant for the nonperformance of any of
these Rules and Regulations by Tenant, any other tenant, or any visitor,
licensee, agent, or other person or entity.
1. Security; Admission to Building. Landlord may from time to time
adopt appropriate systems and procedures for the security or safety of the
Building, any persons occupying, using or entering the Building, or any
equipment, finishings or contents of the Building, and each tenant shall comply
with such systems and procedures. Landlord shall in no case be liable for
damages for any error with regard to the admission to or exclusion from the
Building of any person. In the event of an invasion, mob, riot, public
excitement or other commotion, Landlord reserves the right to prevent access to
the Building during the continuance of the same by closing of the doors of the
Building or any other reasonable method, for the safety of the tenants and
protection of the Building and property in the Building.
2. Conduct and Exclusion or Expulsion. Tenant's employees, visitors,
and licensees shall not loiter in or interfere with the use of the Parking
Facility or the Complex's driveway or parking areas, nor consume alcohol in the
Common Areas of the Complex or the Parking Facility. The sidewalks, halls,
passages, exits, entrances, elevators, escalators, and stairways of the Building
will not be obstructed by any tenants or used by any of them for any purpose
other than for ingress to and egress from their respective premises. The halls,
passages, exits, entrances, elevators, escalators, and stairways are not for the
general public, and Landlord may control and prevent access to them by all
persons whose presence, in the reasonable judgment of Landlord, would be
prejudicial to the safety, character, reputation and interests of the Building
and its tenants. In determining whether access will be denied, Landlord may
consider attire worn by a person and its appropriateness for an office building,
whether shoes are being worn, use of profanity, either verbally or on clothing,
actions of a person (including without limitation spitting, verbal abusiveness,
and the like), and such other matters as Landlord may reasonably consider
appropriate.
3. Signs, Notices and Decorations. No sign, placard, picture,
decoration, name, advertisement or notice (collectively AMaterial@) visible from
the exterior of any tenant's premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant on any part of the Building without the prior
written consent of Landlord. All approved signs or lettering will be printed,
painted, affixed or inscribed at the expense of the tenant desiring such by a
person approved by Landlord. Material visible from outside the Building will not
be permitted. Landlord may remove such Material without any liability, and may
charge the expense incurred by such removal to the tenant in question.
4. Curtains and Decorations. No awnings, curtains, draperies, blinds,
shutters, shades, screens, or other coverings, hangings or decorations will be
attached to, hung or placed in, or used in connection with any window of the
Building or the Premises without Landlord=s prior written consent.
5. Non-obstruction of Light. The sashes, sash doors, skylights,
windows, heating, ventilating, and air conditioning vents and doors that reflect
or admit light and air into the halls, passageways, tenant premises, or other
public places in the Building shall not be covered or obstructed by any tenant,
nor will any bottles, parcels or other articles or decorations be placed on any
window sills.
6. Showcases. No showcases or other articles will be put in front of or
affixed to any part of the exterior of the Building, nor placed in the public
halls, corridors or vestibules without the prior written consent of Landlord.
7. Cooking; Use of Premises for Improper Purposes. No tenant will
permit its Premises to be used for lodging or sleeping. No cooking will be done
or permitted by any tenant on its Premises, except in areas of the Premises
which are specially constructed for cooking as specifically provided in working
drawings approved by Landlord, so long as such use is in accordance with all
applicable federal, state, and city laws, codes, ordinances, rules and
regulations. Microwave ovens and other Underwriters= Laboratory (UL)Bapproved
equipment may be used in the Premises for heating food and brewing coffee, tea,
and similar beverages for employees and visitors. The Premises shall not be used
for the storage of merchandise or for any improper, reasonably objectionable, or
immoral purpose.
8. Janitorial Service. No tenant will employ any person or persons
other than the cleaning service of Landlord for the purpose of cleaning the
premises, unless otherwise agreed by Landlord in writing. If any tenant's
actions result in any increased expense for any required cleaning, Landlord may
assess such tenant for such expenses. Janitorial service will not be furnished
on nights to offices which are occupied after business hours on those nights
unless, by prior written agreement of Landlord, service is extended to a later
hour for specifically designated offices.
9. Use of Restrooms. The toilets, urinals, wash bowls and other
plumbing fixtures will not be used for any purposes other than those for which
they were constructed, and no sweepings, rubbish, rags or other foreign
substances will be thrown in them. All damages resulting from any misuse of the
fixtures will be borne by the tenant who, or whose servants, employees, agents,
visitors or licensees, have caused the damage.
10. Defacement of Premises or Building. No tenant will deface any part
of the Premises or the Building. Without the prior written consent of Landlord,
no tenant will lay linoleum or other similar floor covering so that it comes in
direct contact with the floor of such tenant's premises. If linoleum or other
similar floor covering is to be used, an interlining of builder's deadening felt
will be first affixed to the floor by a paste or other material soluble in
water. The use of cement or other similar adhesive material is expressly
prohibited. Except as permitted by Landlord by prior written consent, Tenant
shall not mark on, paint signs on, cut, drill into, drive nails or screws into,
or in any way deface the walls, ceilings, partitions or floors of the Premises
or of the Building, and any defacement, damage or injury directly or indirectly
caused by Tenant shall be paid for by Tenant. Pictures or diplomas shall be hung
on tacks or small nails; Tenant shall not use adhesive hooks for such purposes.
11. Locks; Keys. No tenant will alter, change, replace or rekey any
lock or install a new lock or a knocker on any door of the Premises. Landlord,
its agent or employee will retain a master key to all door locks on the
Premises. Any new door locks required by a tenant or any change in keying of
existing locks will be installed or changed by Landlord following such tenant's
written request to Landlord and will be at such tenant's expense. All new locks
and rekeyed locks will remain operable by Landlord's master key. Landlord will
furnish to each tenant, free of charge, two (2) keys to each door lock on its
premises, and two (2) Building access cards. Landlord will have the right to
collect a reasonable charge for additional keys and cards requested by any
tenant. Each tenant, upon termination of its tenancy, will deliver to Landlord
all keys and access cards for the Premises and Building which have been
furnished to such tenant. Tenant shall keep the doors of the Premises closed and
securely locked when Tenant is not at the Premises.
12. Furniture, Freight and Equipment. No furniture, freight, packages,
merchandise, or equipment of any kind may be brought into the Building or
carried up or down in the elevators, except between those hours and in that
specific elevator designated by Landlord or otherwise upon consent of the
Landlord, without prior notice to and consent of Landlord. Landlord may at any
time restrict the elevators and areas of the Building into which deliveries or
messengers may enter. The elevator designated for freight by Landlord will be
available for use by all tenants in the Building during the hours and pursuant
to such procedures as Landlord may determine from time to time. The persons
employed to move Tenant's equipment, material, furniture or other property in or
out of the Building must be acceptable to Landlord; such persons must be a
locally recognized professional mover whose primary business is the performing
of relocation services, and must be bonded and fully insured. A certificate or
other verification of such insurance must be received and approved by Landlord
prior to the start of any moving operations. Insurance must be sufficient, in
Landlord's sole opinion, to cover all personal liability, theft or damage to the
Building, including without limitation floor coverings, doors, walls, elevators,
stairs, foliage and landscaping. All moving operations will be conducted at such
times and in such a manner as Landlord may direct, and all moving will take
place during nonbusiness hours unless Landlord otherwise agrees in writing. The
moving tenant shall be responsible for the provision of Building security during
all moving operations, and shall be liable for all losses and damages sustained
by any party as a result of the failure to supply adequate security. Landlord
may prescribe the weight, size and position of all equipment, materials,
furniture or other property brought into the Building. Heavy objects will, if
considered necessary by Landlord, stand on wood strips of such thickness as is
necessary to distribute the weight properly. Landlord will not be responsible
for loss of or damage to any such property from any cause, and all damage done
to the Building by moving or maintaining such property will be repaired at the
expense of the moving tenant. Landlord may inspect all such property to be
brought into the Building and to exclude from the Building all such property
which violates any of these rules and regulations or the lease of which these
rules and regulations are a part. Supplies, goods, materials, packages,
furniture and all other items of every kind delivered to or taken from the
Premises will be delivered or removed through the entrance and route designated
by Landlord.
13. Inflammable or Combustible Fluids or Materials; Noninterference of
Others. No tenant will use or keep in the Premises or the Building any kerosene,
gasoline, inflammable, combustible or explosive fluid or material, or chemical
substance other than limited quantities of them reasonably necessary for the
operation or maintenance of office equipment or limited quantities of cleaning
fluids and solvents required in the normal operation of the Premises. Without
Landlord's prior written approval, no tenant will use any method of heating or
air conditioning other than that supplied by Landlord. Tenant shall not waste
electricity, water, or air conditioning and shall cooperate fully with Landlord
to insure the most effective operation of the Building=s heating and air
conditioning system. No tenant will keep any firearms within the Premises. No
tenant will use or keep, or permit to be used or kept, any foul or noxious gas
or substance in the Premises, or permit or suffer the Premises to be occupied or
used in any manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors or vibrations, nor interfere in any way
with other tenants or those having business in the Building.
14. Address of Building. Landlord may, without notice and without
liability to any tenant, change the name and street address of the Building.
15. Use of Building Name or Likeness. Landlord will have the right to
prohibit any advertising by Tenant mentioning the Building which, in Landlord's
reasonable opinion, tends to impair the reputation of the Building or its
desirability as a Building for offices and, upon written notice from Landlord,
Tenant will discontinue such advertising.
16. Animals, Birds and Vehicles. Tenant will not bring any animals or
birds into the Premises or Building, and will not permit bicycles or other
vehicles inside or on the sidewalks outside the Building, except in areas
designated from time to time by Landlord for such purposes.
17. Off-Hour Access. All persons entering or leaving the Building at
any time other than the Building's business hours shall comply with such
off-hour regulations as Landlord may establish and modify from time to time.
Landlord may limit or restrict access to the Building during such periods and
shall not be liable for any error with regard to the admission or exclusion of
any person.
18. Disposal of Trash. Each tenant will store all its trash and garbage
within its premises. No material will be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed of in
the ordinary and customary manner of removing and disposing of trash and garbage
without being in violation of any law or ordinance governing such disposal. All
garbage and refuse disposal will be made only through entryways and elevators
provided for such purposes and at such times as Landlord may designate. No
furniture, appliances, equipment or flammable products of any type may be
disposed of in the Building trash receptacles.
19. Disturbance of Tenants. Canvassing, peddling, soliciting and
distribution of handbills or any other written materials in the Building or
Parking Facility are prohibited, and each tenant will cooperate to prevent same.
20. Doors to Public Corridors. Each tenant shall keep the doors of the
Premises closed and locked, and shall shut off all water faucets, water
apparatus, and utilities before tenant or tenant's employees leave the Premises,
so as to prevent waste or damage, and for any default or carelessness in this
regard Tenant shall be liable for all injuries sustained by other tenants or
occupants of the Building or Landlord. On multiple-tenancy floors, all tenants
will keep the doors to the Building corridors closed at all times except for
ingress and egress.
21. Concessions. Tenant shall not grant any concessions, licenses or
permission for the sale or taking of orders for food or services or merchandise
in the Premises, install or permit the installation or use of any machine or
equipment for dispensing food or beverage in the Building, nor permit the
preparation, serving, distribution or delivery of food or beverages in the
Premises, without the prior written approval of Landlord and only in compliance
with arrangements prescribed by Landlord. Only persons approved by Landlord
shall be permitted to serve, distribute or deliver food and beverage within the
Building or to use the public areas of the Building for that purpose.
22. Telecommunication and Other Wires. Tenant may not introduce
Telecommunication wires or other wires into the Premises without first obtaining
Landlord=s approval of the method and location of such introduction.
23. Rules Changes; Waivers. Landlord reserves the right at any time to
change or rescind any one or more of these Rules and Regulations or to make any
additional reasonable Rules and Regulations that, in Landlord=s judgment, may be
necessary or helpful for the management, safety or cleanliness of the Premises
or Building; the preservation of good order; or the convenience of occupants and
tenants of the Building generally. Landlord may waive any one or more of these
Rules and Regulations for the benefit of any particular tenant. No waiver by
Landlord shall be construed as a waiver of those Rules and Regulations in favor
of any other tenant, and no waiver shall prevent Landlord from enforcing those
Rules and Regulations against a tenant or any other tenant in the future. Tenant
shall be considered to have read these Rules and Regulations and to have agreed
to abide by them as a condition of Tenant=s occupancy of the Premises.
<PAGE>
D-5
EXHIBIT D
WORK LETTER AGREEMENT
This Work Letter Agreement is attached to and made a part of the Lease.
All terms used in this Work Letter Agreement which have been defined in the
Lease have the same meaning as set forth in the Lease. This Work Letter
Agreement shall set forth the terms and conditions relating to the construction
of Tenant Improvements in the Premises.
II. Landlord and Tenant Construction Obligations
A. Space Plan Preparation. Tenant shall assist and fully cooperate with
the space planner/architect (the ASpace Planner@) designated by Landlord to
prepare a detailed space plan (ASpace Plan@) containing all information listed
in Section II of this Work Letter Agreement for all tenant improvements ("Tenant
Improvements") proposed by Tenant in the Premises. The Space Plan shall be
delivered to Landlord on or before the date specified in the Summary of Basic
Lease Information, Section AH.@ If the Space Plan is not delivered by the date
listed above, then each calendar day of delay in delivery shall constitute one
day of "Tenant Delay" hereunder.
B. Space Plan Approval and Tenant Improvement Allowance. Landlord will
review the Space Plan upon receipt from Tenant and shall thereafter meet with
Tenant and advise Tenant as to the matters set forth in this Section IB below.
In connection with construction of the Tenant Improvements, and as limited
hereby, Tenant shall be entitled to a one-time maximum tenant improvement
allowance (the ATenant Improvement Allowance@) in the amount specified in the
Summary of Basic Lease Information, Section AH@ for the costs relating to the
design, modification and construction of the Tenant Improvements as provided
herein. In addition, Tenant shall have a Tenant Moving Allowance (the ATenant
Moving Allowance@) in the amount specified in the Summary of Basic Lease
Information, Section AH@ for the cost of moving expenses and the cost of
furniture, fixtures and equipment for the Premises actually incurred by Tenant
during the period beginning upon execution of the Lease until sixty (60) days
following the Commencement Date. No portion of the Tenant Improvement Allowance
can be applied to, or utilized for, Tenant moving expenses or Tenant furniture,
fixtures and equipment and Tenant shall not be entitled to a credit for any
amounts of the Tenant Improvement Allowance not applied to the cost of the
Tenant Improvements. No portion of the Tenant Moving Allowance can be applied
to, or utilized for, the cost of the Tenant Improvements and Tenant shall not be
entitled to a credit for any amounts of the Tenant Moving Allowance not applied
to moving expenses or Tenant furniture, fixtures and equipment as set forth
hereinabove.
The Tenant Improvement Allowance shall be disbursed by Landlord
(pursuant to Landlord=s disbursement process) for the following items, each of
which shall be applied against and reduce the Tenant Improvement Allowance: (i)
the cost of materials, labor and other costs related to the construction of the
Tenant Improvements, (ii) the cost of preparation and one modification of the
Space Plan at a fee of seventeen cents ($.17) per usable square foot of the
Premises, together with additional charges for any additional modifications,
(iii) the cost of the preparation of construction plans or Working Drawings at a
fee of fifty-two cents ($.52) per usable square foot of the Premises, together
with additional charges for any additional modifications, (iv) a construction
management and administration fee of fifty cents ($.50) per usable square foot
of the Premises, (v) the cost of providing and installing Tenant=s name and
suite number adjacent to Tenant=s entry door, and (vi) payment of architectural
and engineering fees associated with the Space Plan and Working Drawings not
otherwise included within the items specified above (collectively the ATenant
Improvement Allowance Items@). In no event shall Landlord be obligated to make
disbursements for Tenant Improvements pursuant to this Work Letter Agreement in
excess of the Tenant Improvement Allowance, plus sums paid by Tenant in
accordance with the Pricing Agreement Letter (defined below).
If the Landlord determines that the Space Plan does not conform to the
requirements of Section II below, or Tenant determines that the estimated costs
of Tenant Improvements which are in excess of the Tenant Improvement Allowance
are not within the scope of its budget, the Space Plan will be returned to
Tenant for review by Tenant with the Space Planner and for corrections or
revisions. The cost of any correction or revision to the Space Plan subsequent
to execution of the Lease by Tenant shall be included within the Tenant
Improvement Allowance and borne by Tenant. Tenant will deliver a corrected Space
Plan within the scope of its budget to Landlord no later than ten (10) calendar
days after the initial proposed Space Plan has been returned to Tenant. Each
calendar day after the day the initial proposed Space Plan is returned to Tenant
until a revised and corrected Space Plan is redelivered to Landlord shall
constitute one day of Tenant Delay. This process will be repeated, as required,
until mutual approval of Tenant=s Space Plan and estimated Tenant Improvement
costs. Upon approval of the final Space Plan and estimated Tenant Improvement
costs, Tenant will notify Landlord in writing of such approval and that the
preparation of working drawings may commence.
C. Preparation of Working Drawings. Upon final approval of the Space
Plan and estimated Tenant Improvement costs, Landlord shall direct the Space
Planner to prepare working drawings (AWorking Drawings@) based on the approved
Space Plan. When prepared, the Working Drawings consistent with the Space Plan
shall be delivered by the Space Planner to the Tenant for approval. If the
Tenant fails to deliver the Working Drawings, together with its written approval
thereof, to the Landlord within ten (10) calendar days after delivery of the
Working Drawings by the Space Planner to Tenant, then each day of delay in
delivery of the approved Working Drawings shall constitute one day of Tenant
Delay.
D. Pricing Agreement Letter. Upon receipt of Working Drawings approved
by Tenant, Landlord shall price the cost of the Tenant Improvements in
accordance with the Working Drawings, and furnish Tenant a Pricing Agreement
Letter in the form of Exhibit D1 hereto (APricing Agreement Letter@) within
fourteen (14) calendar days from the receipt of approved Working Drawings. The
Pricing Agreement Letter shall provide for the Tenant Improvement Allowance to
be paid by the Landlord and all Tenant Improvement costs in excess of the Tenant
Improvement Allowance to be paid by the Tenant. If a Pricing Agreement Letter is
not delivered to Tenant on or before such date, then each day of delay in
delivery shall constitute one day of "Landlord Delay" hereunder; provided,
however, that if a Pricing Agreement Letter cannot be delivered within fourteen
(14) calendar days due to the complexity or amount of Above Standard Tenant
Improvements, Landlord shall so notify Tenant, and any delay associated
therewith shall not constitute a Landlord Delay.
E. Tenant Approval of Pricing Agreement Letter. Tenant shall promptly
review the Pricing Agreement Letter and shall approve, execute and return same
to Landlord within ten (10) calendar days after delivery thereof to Tenant. If
the Tenant fails to execute and deliver the Pricing Agreement Letter within said
ten (10) calendar day period, then each day of delay in delivery shall
constitute one day of Tenant Delay. The Pricing Agreement Letter shall require
that Tenant pay fifty percent (50%) of all Tenant Improvement costs in excess of
the Tenant Improvement Allowance presented in the Pricing Agreement Letter upon
execution of the Pricing Agreement Letter. Landlord reserves the right to bill
Tenant up to ninety-five percent (95%) of the Tenant Improvement costs in excess
of the Tenant Improvement Allowance during the construction period in proportion
to the amount of work completed or materials purchased, with the final five
percent (5%) due upon acceptance of the completed Premises and in any event no
later than one (1) day before occupancy by Tenant.
F. Installation of Tenant Improvements. Upon approval and execution of
the Pricing Agreement Letter by Tenant, Landlord or Landlord=s designee shall
install the Tenant Improvements in the Premises in accordance with the Lease
Agreement, this Work Letter Agreement, the executed Pricing Agreement Letter and
the Working Drawings. Landlord shall meet with Tenant and advise Tenant which
Tenant Improvements in the Working Drawings are in excess of Building Standard
Tenant Improvements as set forth in Exhibit D2 attached hereto and incorporated
herein by this reference. Any Tenant Improvements which are determined by
Landlord to be in excess of the Building Standard Tenant Improvements shall be
referred to as AAbove Standard Tenant Improvements.@
G. Payment by Tenant for All Costs in Excess of Tenant Improvement
Allowance. Tenant shall pay all costs incurred in connection with the Tenant
Improvements in excess of the Tenant Improvement Allowance, including, without
limitation, the costs of labor and materials.
H. Change Orders. In the event that Tenant desires to change the Tenant
Improvements as provided in the approved Working Drawings, Tenant shall deliver
notice of the same to Landlord, setting forth in detail the changes Tenant
desires to make. Landlord may disapprove of said Tenant Changes in the event
that Landlord, in its sole discretion, determines that the changes would
constitute design problems for the Premises or Building. In the event that
Landlord approves of the proposed Tenant Changes, Landlord shall provide Tenant
with an amendment to the Pricing Agreement Letter setting forth the costs and
the period of Tenant Delay necessitated by the Tenant Changes. Thereafter, the
Tenant shall, within five (5) calendar days of receipt of Landlord=s approval,
deliver written notice to Landlord stating whether or not Tenant elects to cause
Landlord to make such Tenant Changes. Tenant shall bear the full costs for any
and all such changes in the Tenant Improvements and any delays associated with
such changes shall constitute Tenant Delay.
I. Net Tenant Delay. Net Tenant Delay shall mean the total number of
days of Tenant Delay minus the total number of days of Landlord Delay; provided,
however, and notwithstanding any other provision in the Lease or this Work
Letter Agreement to the contrary, the parties agree that there have been no days
of Tenant Delay as of the execution date of the Lease by Tenant. If the Premises
are not ready for occupancy on or before the scheduled date specified in
paragraph 6 of this Lease, and there exists Net Tenant Delay, then,
notwithstanding anything to the contrary set forth in the Lease or this Work
Letter Agreement, and regardless of the actual date of the Substantial
Completion of the Premises, the Lease Commencement Date of the Lease shall be
deemed to be the date the Lease Commencement Date would have occurred without
the Net Tenant Delay. In such event, Tenant shall pay to Landlord a sum equal to
one day=s Rent (including Base Rent and all other charges provided for in the
Lease) multiplied by the Net Tenant Delay. Said sum shall be paid by Tenant
within seven (7) calendar days of receipt of invoice. In addition, a Net Tenant
Delay of thirty (30) calendar days or more shall constitute a default and breach
by Tenant of the Lease.
J. Warranties and Guaranties. In connection with the construction of
the Tenant Improvements, but limited as provided herein, Landlord shall warrant
for a period of one (1) year from the Lease Commencement Date that the Tenant
Improvements will be free from material defects in workmanship or materials and
will be constructed in a good and workmanlike manner in compliance with the
approved Working Drawings. Notwithstanding the foregoing, the warranty of
Landlord shall be limited to the warranty received by Landlord in connection
with such Tenant Improvements. Except as specifically set forth above, Tenant
acknowledges that Landlord has made no warranties to Tenant, either express or
implied. Tenant further acknowledges and agrees that any claim which may arise
pursuant to this paragraph will not constitute a default hereunder or under the
Lease Agreement and Tenant shall not be able to exercise any remedy or recourse
which may otherwise be available upon a default of the Lease Agreement. Tenant
hereby waives and releases Landlord from all loss, damages, delays and claims
relating to the design and other like matters contained in the Working Drawings,
lost profits and all incidental or consequential damages.
III. Tenant Space Plan Must Contain, as a Minimum, the Following Information:
A. Floor plan showing:
1. Partitions: indicate location and type of all
partitions.
2. Doors: indicate location, swing and type of all doors.
Also indicate hardware.
3. Standard Electrical Items: indicate the location of all
building standard electrical items listed herein
(wall-mounted 110 volt duplex outlets, single-pole
light switches and building standard light fixtures).
4. Standard Telephone Outlets: indicate the location of
all building standard telephone wall outlets, as listed
herein.
5. "Above Standard" Electrical Items: indicate the
location and type of all "above standard" electrical
items, including lighting.
6. Special Electrical Equipment and Requirements: indicate
the location and type of equipment that will have
special requirements and indicate the location and type
of special electrical equipment to be purchased.
7. Telephone and Data Equipment Location: indicate
location of telephone equipment room, if any.
8. Glass Items: indicate location, dimensions and type of
glass partitions, windows and doors. Include details if
not building standard.
9. Heavy Items: indicate location, dimensions, weight per
square foot and description of any heavy equipment or
filing system exceeding fifty (50) pounds per square
foot live load.
10. Special HVAC Requirements: Indicate location and
specific requirements for any special and/or
concentrated heating and/or air conditioning
requirements beyond that provided by the building
HVAC system and/or distribution network.
11. Floor Covering: indicate location, type and color of
all floor covering.
12. Wall Covering: indicate location, type and color of all
wall coverings.
13. Paint: indicate location, type and color of paint
finishes.
14. Millwork: indicate location, type and basic dimensions
of all cabinets, shelving and other millwork items.
15. Plumbing: indicate location and type of all plumbing
items.
16. Appliances: indicate location, type, dimensions and
special requirements of all appliances.
17. Critical Dimensions: indicate all critical dimensions
necessary for construction.
18. Fire Sprinkler Requirements: indicate location and type
of all fire sprinkling and/or special fire suppression
requirements.
19. Ceiling System and Finishes: indicate location, type
and color of all ceiling finishes and/or systems.
20. Security Requirements: indicate the location, type and
special requirements for any security system and/or
requirements.
21. Furniture System Requirements: indicate all
interfacing requirements with furniture systems
(i.e., electrical, telephone, data, anchoring, etc.).
IV. Other Provisions.
A. Substantial Completion. For purposes of this Lease, ASubstantial
Completion@ of the Premises shall occur upon the completion of construction of
the Tenant Improvements in the Premises pursuant to the approved Working
Drawings, with the exception of any punch list items and any tenant fixtures,
work-stations, built-in furniture, or equipment to be installed by Tenant under
the supervision of Landlord.
B. Time of the Essence. Unless otherwise indicated, all references
herein to Anumber of days@ shall mean and refer to calendar days. In all
instances where Tenant is required to approve or deliver an item, if no written
notice of approval is given or the item is not delivered within the stated time
period, at Landlord=s sole option, at the end of such period the item shall
automatically be deemed approved or delivered by Tenant and the next succeeding
time period shall commence.
C. Tenant=s Lease Default. Notwithstanding any provision to the
contrary contained in the Lease or this Work Letter Agreement, if an event of
default has occurred as set forth in the Lease or in this Work Letter Agreement
at any time on or before the Substantial Completion of the Premises, then, (i)
in addition to all other rights and remedies granted to Landlord pursuant to the
Lease, Landlord shall have the right to cease the construction of the Premises
(in which case, Tenant shall be responsible for any delay in the Substantial
Completion of the Premises caused by such work stoppage), (ii) all other
obligations of Landlord under the terms of this Work Letter Agreement shall be
forgiven until such time as such default is cured pursuant to the terms of the
Lease, and (iii) Landlord shall have the right to recover from Tenant the costs
incurred for the Tenant Improvement Allowance Items, and otherwise in connection
with the construction of the Tenant Improvements.
D. Construction of Certain Improvements. The construction of certain Tenant
Improvement items specified below shall be completed in accordance with the
following provisions:
1. AAbove Standard@ Electrical Items: Tenant shall advise
Landlord of locations and types of all Aabove standard@
electrical items, including lighting.
2. Special Electrical Equipment and Requirements: Tenant
shall advise Landlord of locations and types of all
special electrical equipment.
3. Appliances: Tenant shall advise Landlord of locations,
types, dimensions and special requirements of all
appliances.
4. Telephone and Data Equipment Location: Tenant shall
advise Landlord of location of telephone equipment
room, if any.
5. Heavy Items: Tenant shall advise Landlord of location,
dimensions, weight per square foot and description of
heavy equipment or filing systems exceeding 50
pounds/SF live load.
6. Millwork: Tenant shall advise Landlord of location,
type and basic dimensions of all cabinets, shelving and
other millwork items. Standard Plastic Laminate
Specifications: Countertops: Wilsonart #1573-60.
Cabinets: Pionite #AT301-S.
7. Plumbing: Tenant shall advise Landlord of location and
type of all plumbing fixtures. Standard Sink
Specification: Kohler, stainless #K-3287-H with
stainless faucet #K-15176.
8. Special HVAC: Tenant shall advise Landlord of special
HVAC requirements.
9. Critical Dimensions: Tenant shall advise Landlord of
all critical dimensions necessary for construction.
10. Security Requirements: Tenant shall advise Landlord of
the location, type and any special requirements.
11. Furniture Systems: Tenant shall advise Landlord of all
interfacing requirements between furniture and systems
for electrical, telephones, data, anchoring, etc.
<PAGE>
D1 - 3
EXHIBIT D1
PRICING AGREEMENT LETTER
This Pricing Agreement Letter dated ___________, 19___, is entered into by
and between 2855 E. Cottonwood Parkway, L.C. (ALandlord@) and Mrs. Fields=
Original Cookies, Inc. (ATenant@).
R E C I T A L S :
A. Pursuant to that certain Lease Agreement between Landlord and
Tenant, and the Work Letter Agreement which is an Exhibit thereto (collectively
the ALease Agreement@), Tenant has leased from Landlord commercial office space
in the building (ABuilding@) constructed on certain real property owned by
Landlord, as more particularly described in the Lease Agreement.
B. Landlord and Tenant have agreed to construct certain Tenant
Improvements in the Building as set forth in the Lease Agreement, and more
particularly in the Work Letter Agreement and this Pricing Agreement Letter
which are exhibits thereto.
C. Landlord and Tenant now agree as to the pricing and payment of the
construction of the Tenant Improvements as set forth in this Pricing Agreement
Letter and the Itemization of Tenant Improvement Costs (hereinafter defined)
attached hereto as Exhibit AA.@
NOW, THEREFORE, for and in consideration of the parties=
covenants and agreements contained herein and in the Lease Agreement, Landlord
and Tenant covenant and agree as follows:
1. Landlord and Tenant have approved the Working Drawings for
the Tenant Improvements, dated ___________, 19___, signed copies of which have
been delivered to Landlord and Tenant. Landlord agrees to construct the Tenant
Improvements in accordance with the approved Working Drawings; provided,
however, the costs of Tenant Improvements shall be paid as provided herein.
2. If the actual cost of the Tenant Improvements exceeds the
Tenant Improvement Allowance (as defined in the Work Letter Agreement between
the parties), Tenant shall pay Landlord all amounts in excess of the Tenant
Improvement Allowance. The Tenant and Landlord acknowledge and agree that the
Tenant Improvement Allowance shall be disbursed for the Tenant Improvement
Allowance Items as set forth in the Work Letter Agreement. In the event the
actual cost of the Tenant Improvements is less than the Tenant Improvement
Allowance, Tenant shall not be entitled to any credit for any amounts not
applied to the cost of the Tenant Improvements.
3. Attached to this Pricing Agreement Letter is an itemization
of Tenant Improvement costs (AItemization of Tenant Improvement Costs@) which
sets forth the cost of all Tenant Improvement Allowance Items and other costs to
be incurred in connection with the initial design and construction of the Tenant
Improvements in accordance with the Working Drawings. Concurrent with the
execution of this Pricing Agreement Letter, Tenant shall provide its written
consent and approval to the Itemization of Tenant Improvement Costs and deliver
the same to the Landlord. Upon receipt of the Itemization of Tenant Improvement
Costs and this Pricing Agreement Letter, executed by Tenant, Landlord shall be
released by Tenant to commence the construction of the Tenant Improvements in
accordance with the Working Drawings, this Pricing Agreement Letter and the
Itemization of Tenant Improvement Costs attached hereto.
4. Concurrently with the approval and execution by Tenant of
this Pricing Agreement Letter and the Itemization of Tenant Improvement Costs,
Tenant shall pay fifty percent (50%) of all Tenant Improvement costs in excess
of the Tenant Improvement Allowance as presented on the Itemization of Tenant
Improvement Costs. Landlord reserves the right to bill Tenant up to ninety-five
percent (95%) of the costs in excess of the Tenant Improvement Allowance during
the construction period in proportion to the amount of work completed or
materials purchased, with the final five percent (5%) due upon acceptance of the
completed Premises and in any event no later than one (1) day before occupancy
by Tenant. In the event that any revisions, changes or substitutions shall be
made to the Working Drawings or the Tenant Improvements after execution by
Tenant of this Pricing Agreement Letter and the Itemization of Tenant
Improvement Costs, any additional costs which arise in connection with such
revisions, changes or substitutions, or any other additional costs, shall be
paid by Tenant to Landlord immediately upon Landlord=s request.
<PAGE>
DATED effective as of the date first above written.
LANDLORD:
2855 E. COTTONWOOD PARKWAY, L.C., a Utah limited
liability company, by its following Managing Member
COTTONWOOD CORPORATE CENTER, L.C., a Utah limited liability
company, by its following member
C&E HOLDINGS PARTNERSHIP, a Utah general partnership, by its
Managing General Partner
COTTONWOOD EQUITIES, LTD.,
a Texas limited
partnership, by Cottonwood
Realty Services, L.L.C.,
its general partner
By:
JOHN L. WEST, Managing Director
TENANT:
MRS. FIELDS= ORIGINAL COOKIES, INC.,
a Delaware corporation
By:
Title:
<PAGE>
EXHIBIT "A"
TO PRICING AGREEMENT LETTER
ITEMIZATION OF TENANT IMPROVEMENT COSTS
<PAGE>
D2 - 1
EXHIBIT D2
BUILDING STANDARD TENANT IMPROVEMENTS
II. The ABuilding Standard Tenant Improvements@ (herein so called) are the
following:
A. Flooring: Grade and quality of carpeting to be selected by Landlord,
with color to be selected by Tenant from those offered by Landlord.
Standard Specification: Shaw Contract Group, Madison Heights 30,
#60178-78330 or Skyline II30, #60143-45560.
B. Base: Grade and quality of rubber base to be selected by Landlord.
Standard Specification: Flexco, Wallflowers, 4" rubber base.
C. Partitions: Demising Walls: 3-5/8" metal studs on 24" centers, blanket
sound insulation, 5/8" gypsum board on one side. Studs and one layer of gypsum
board extend to bottom of steel deck on floor above.
Interior Walls: 3-5/8" metal studs on 24" centers, 5/8" gypsum board on
each side. Walls to be ceiling height and braced as per code requirements.
All walls to be finished with tape, texture and paint.
Standard Paint Specification: Sherwin Williams #SW1025, #SW1032 or #SW1030.
Eggshell finish.
D. Doors/Side Lights: 3'-0" x 8'-0", or 8'-10" solid core flush wood doors
with mahogany stained red oak veneer and metal frames. Glass manufactured as per
code requirements, with metal frames. Standard hardware is Schlage, 626 series
in bright chrome.
E. Ceiling: Armstrong Scored Cirrus II #510 (for use with 15/16" exposed
tee grid).
F. Electrical Outlets: Standard 110v duplex wall outlets.
G. Light Switches: Single pole switches.
H. Lighting Occupancy Sensor: Automatic lighting control device-Uneco
conserver series.
I. Light Fixtures: 2' x 4', (3) lamp, recessed ceiling fixture with
parabolic lense. Grade and quality of fixture selected by Landlord.
J. Fire Sprinkler Requirements: Design build per Landlord, except special
requirements, of which the Tenant shall advise the Landlord.
K. Window Coverings: Grade and quality of window coverings to be selected
by Landlord.
<PAGE>
E-1
EXHIBIT E
LEGAL DESCRIPTION OF LAND
Beginning at a point which is North 0E08'51" East along the Quarter
Section line 908.56 feet, and North 89E04'36" East 740.83 feet, and
North 55E02'48" East 206.85 feet from the West Quarter Corner of
Section 23, Township 2 South, Range 1 East, Salt Lake Base and
Meridian; and running thence North 34E55'16" West 67.93 feet to a point
on the South Right-of-Way line of I-215 and a point on a 2076.90 foot
radius curve to the left the chord of which bears North 62E36'26" East;
thence Northeasterly along said South line and curve through a central
angle of 5E57'01" a distance of 215.69 feet; thence North 67E29'16"
East along said South line 183.64 feet; thence South 31E38'10" East
111.32 feet; thence South 70E30'09" East 57.70 feet; thence South
34E39'50" East 284.29 feet; thence South 11E06'23" East 28.44 feet;
thence South 42E36'15" East 63.15 feet; thence South 64E43'27" East
71.26 feet; thence South 32E54'51" West 100.16 feet to a point on a
210.00 foot radius curve to the left the chord of which bears South
88E59'48" West; thence Westerly along said curve through a central
angle of 67E50'08" a distance of 248.63 feet; thence South 55E04'44"
West 161.13 feet to a point of a 835.00 foot radius curve to the right
the chord of which bears South 55E10'54" West; thence Southwesterly
along said curve through a central angle of 0E12'21" a distance of 3.00
feet; thence North 34E55'16" West 499.58 feet to the point of
beginning. Contains 234,930 square feet or 5.3932 acres.
<PAGE>
F-2
EXHIBIT F
LEASE EXTENSION ADDENDUM
THIS LEASE EXTENSION ADDENDUM (AAddendum@) is entered into as
of ______________, 19____, between Landlord and Tenant (as those terms are
defined in that certain Lease Agreement between Landlord and Tenant, dated
____________, 19___ (the ALease@). Subject to the provisions of the Lease,
Landlord hereby grants to Tenant the option (AExtension Option@) to extend the
term of the Lease for __________ successive extension terms of _________ years
each in accordance with the provisions set forth in this Addendum (an AExtension
Renewal Term@). If the Term of the Lease is so extended, such extension shall be
on the same terms and conditions as are applicable during the initial Term as
set forth in the Lease, except that the Base Rent during the Extension Renewal
Term shall be at the APrevailing Rental Rate@ which shall mean the rental rate
determined for the most comparable office space located in the Cottonwood
Corporate Center Project as of the date of the Extension Notice (defined below),
but in no event less than the Rent under the Lease as of the date of the
Extension Notice.
2. Exercise. If Tenant desires to exercise an Extension
Option, it shall send notice thereof (an AExtension Notice@) to Landlord no more
than three hundred (300) nor less than two hundred seventy (270) calendar days
prior to the expiration of the Term or Extension Renewal Term of the Lease then
in effect. Landlord and Tenant shall endeavor in good faith to determine the
Prevailing Rental Rate within thirty (30) calendar days after Landlord=s receipt
of Tenant=s Extension Notice. If they cannot agree within thirty (30) calendar
days, each shall appoint an appraiser who shall arrive at an estimate of the
Prevailing Rental Rate within thirty (30) calendar days. If such estimates are
within five percent (5%) of each other, the average of the two shall be the new
Base Rent for the Extension Renewal Term. If the estimates are more than five
percent (5%) apart, each appraiser shall select a third appraiser within five
(5) calendar days or, if they fail to do so, Landlord shall select a third
appraiser. The third appraiser shall prepare an estimate of the Prevailing
Rental Rate as provided above within thirty (30) calendar days and the two
closest of the three estimates shall be averaged to determine the new Base Rent
for the new Extension Renewal Term. No later than one hundred fifty (150)
calendar days prior to the expiration of the Lease Term then in effect, Landlord
and Tenant shall execute an amendment to the Lease (an AExtension Amendment@)
stating the new Base Rent and expiration date of the Lease Term. If such an
Extension Amendment is not fully executed for any reason as provided above, the
Term shall not be extended and all Extension Option(s) hereunder shall
terminate. Notwithstanding the foregoing, Tenant shall not be entitled to extend
this Lease if an Event of Default has occurred under any term or provision
contained in the Lease Agreement or a condition exists which with the passage of
time or the giving of notice, or both, would constitute an Event of Default
pursuant to the Lease Agreement. The rights contained in this Addendum shall be
personal to the originally named Tenant and may be exercised only by the
originally named Tenant (and not any assignee, sublessee or other Transferee of
Tenant=s interest in this Lease) and only if the originally named Tenant
occupies the entire Premises as of the date it exercises the Extension Option in
accordance with the terms of this Addendum. If Tenant properly exercises the
Extension Option and is not in default under this Lease at the end of the
initial Term of the Lease, the Lease Term, as it applies to the entire Premises
then leased by Tenant, shall be extended for the Extension Renewal Term.
3. Other Provisions. If Tenant fails to deliver a timely
Extension Notice, Tenant shall be considered to have elected not to exercise the
Extension Option. Any termination of the Lease during the initial or applicable
Lease Term or Extension Renewal Term shall terminate all renewal or lease
extension rights hereunder. The extension rights of Tenant hereunder shall not
be severable from the Lease, nor may such rights be assigned or otherwise
conveyed in connection with any permitted assignment of the Lease. During any
Extension Renewal Term (a) no rent abatement or other concession, if any,
applicable to the initial Lease Term or preceding Extension Renewal Term shall
apply to the Extension Renewal Term, and (b) all leasehold improvements within
the Premises shall be provided in their then-existing condition (on an Aas-is@
basis) at the time the Extension Renewal Term commences.
<PAGE>
DATED this ______ day of _______________, 19___.
LANDLORD:
2855 E. COTTONWOOD PARKWAY, L.C., a Utah limited
liability company, by its following Managing Member
COTTONWOOD CORPORATE CENTER, L.C., a Utah limited liability
company, by its following member
C&E HOLDINGS PARTNERSHIP, a Utah general partnership, by its
Managing General Partner
COTTONWOOD EQUITIES, LTD.,
a Texas limited
partnership, by Cottonwood
Realty Services, L.L.C.,
its general partner
By:
JOHN L. WEST, Managing Director
TENANT:
MRS. FIELDS= ORIGINAL COOKIES, INC.,
a Delaware corporation
By:
Title:
<PAGE>
G-1
EXHIBIT G
ACKNOWLEDGMENT OF LEASE COMMENCEMENT DATE
STATEMENT OF CONFIRMATION AND
ACKNOWLEDGMENT OF LEASE COMMENCEMENT DATE
In accordance with that certain Lease Agreement between 2855 E.
Cottonwood Parkway, L.C., as Landlord and the undersigned, as Tenant (the
ALease@), the Tenant hereby confirms the following:
1. Construction of the Tenant Improvements is Substantially Complete,
and the Lease Term shall commence as of _________________, for a term of
_________ years, _________ months, and _________ days, ending on
- ----------------.
2. In accordance with the Lease, Base Rent shall begin to accrue on
____________, in the amount of
____________________________________________________ DOLLARS ($____________).
LANDLORD:
2855 E. COTTONWOOD PARKWAY, L.C., a Utah limited liability
company, by its following Managing Member
COTTONWOOD CORPORATE CENTER, L.C., a Utah limited liability
company, by its following member
C&E HOLDINGS PARTNERSHIP, a Utah general partnership, by its
Managing General Partner
COTTONWOOD EQUITIES, LTD.,
a Texas limited
partnership, by Cottonwood
Realty Services, L.L.C.,
its general partner
By:
JOHN L. WEST, Managing Director
TENANT:
MRS. FIELDS= ORIGINAL COOKIES, INC.,
a Delaware corporation
By:
Title:
<PAGE>
H-6
EXHIBIT H
WHEN RECORDED, RETURN TO:
U.S. Bank National Association
107 South Main Street
Salt Lake City, Utah 84111
Attn: Commercial Real Estate Division
ESTOPPEL CERTIFICATE,
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the ______ day of
__________, 19___, by and between U.S. BANK NATIONAL ASSOCIATION, with its
principal office at 107 South Main Street, Salt Lake City, Utah 84111 ("Bank"),
2855 E. COTTONWOOD PARKWAY, L.C., a Utah general limited liability company, with
its principal office at 2855 E. Cottonwood Parkway, Suite 560, Salt Lake City,
Utah 84121 ("Lessor"), and MRS. FIELDS= ORIGINAL COOKIES, INC., a Delaware
corporation, with its principal office at
_______________________________________________________________ ("Lessee").
R E C I T A L S:
A. Lessee has by a written lease dated January ____, 1998, and any
future amendments and extensions approved by Bank (the "Lease") leased from
Lessor commercial office space in the improvements constructed on certain real
property owned by Lessor located in Salt Lake County, Utah, as more particularly
described in Exhibit "A" attached to and incorporated in this Agreement by
reference (the "Premises").
B. Lessor has executed in favor of Bank a Deed of Trust which encumbers
the Premises as security for a loan from Bank to Lessor (the "Deed of Trust").
C. Lessee, Lessor and Bank have agreed to the following with respect to
their mutual rights and obligations pursuant to the Lease and the Deed of Trust.
NOW, THEREFORE, for and in consideration of Ten Dollars
($10.00) paid by each party to the other and the mutual covenants and agreements
herein contained and for other good and valuable consideration, the receipt of
which is hereby acknowledged, Bank, Lessor and Lessee covenant and agree as
follows:
1. Lessee represents to and covenants with the Bank that:
(a) Lessee is the tenant under the Lease and the same
has not been modified, changed, altered, or amended in any respect and
is the only lease agreement between Lessee and Lessor relating to the
Premises, and the Lease represents the entire understanding between
Lessee and Lessor with respect to the Premises.
(b) Lessee is not in default under any provision of
the Lease, nor is there any fact or condition which, with notice or
lapse of time, would constitute a default.
(c) The Lease is in full force and effect, and,
except as otherwise provided in the Lease, Lessee is not entitled to
any lien, credit, offset, or reduction in rent.
(d) Lessee's initial monthly installment of rent
under the Lease is to be a minimum of $48,125.00.
(e) Except for a security deposit of $20,000.00 and
prepaid rent in the amount of $-0-, Lessee has no other claim against
Lessor for any deposit or prepaid rent.
(f) Except as otherwise permitted under the Lease,
Lessee has not transferred, hypothecated or assigned Lessee's interest
under the Lease. Except for assignments or sublettings which do not
require Lessor's consent under the Lease, Lessee shall not authorize or
consent to any assignment or subletting of the Premises without the
prior written consent of the Bank, which consent shall not be
unreasonably withheld.
(g) There are no actions or proceedings, whether
voluntary or otherwise, pending or threatened against Lessee under any
bankruptcy or insolvency laws or under any other laws providing relief
to debtors.
(h) To the best of Lessee's knowledge, Lessor is not
in default in any respect of its obligations under the Lease, nor is
there now any fact or condition which, with notice or lapse of time,
would constitute a default.
(i) Other than the possessory rights arising under
the Lease, Lessee has no option to purchase the Premises or otherwise
acquire title to or an interest in the Premises.
(j) Other than the assignment to the Bank described
herein, Lessee has no knowledge of any other assignment, hypothecation,
mortgage or pledge of Lessor's interest in the Lease or the rents
payable thereunder, except as may be disclosed by other recorded
instruments.
2. Lessee's interest in the Lease and all rights of Lessee
thereunder, including any purchase option, shall be and are hereby declared
subject and subordinate to the lien and encumbrance of the Deed of Trust. The
term "Deed of Trust" as used in this Agreement shall also include any amendment,
supplement, modification, renewal, refinance or replacement thereof.
3. In the event of any foreclosure of the Deed of Trust or any
conveyance in lieu of foreclosure, provided that the Lessee shall not then be in
default beyond any grace period under the Lease and that the Lease shall then be
in full force and effect, Bank shall neither terminate the Lease nor join Lessee
in foreclosure proceedings, nor disturb Lessee's possession, and the Lease shall
continue in full force and effect as a direct lease between Lessee and Bank.
4. After the receipt by Lessee of notice from Bank of any
foreclosure of the Deed of Trust or any conveyance of the Premises in lieu of
foreclosure, Lessee will thereafter attorn to and recognize Bank or any
purchaser from Bank at any foreclosure sale or otherwise as Lessee's substitute
lessor on the terms and conditions set forth in the Lease.
5. Lessee shall not prepay any of the rents under the Lease
more than one month in advance (except as provided otherwise in the Lease)
without the prior written consent of Bank.
6. In no event shall Bank be liable for any act or omission of
the Lessor, nor shall Bank be subject to any offsets or deficiencies which
Lessee may be entitled to assert against the Lessor as a result of any act or
omission of Lessor occurring prior to Bank's obtaining possession of the
Premises.
7. The Lease may not be terminated (except as permitted in the
Lease and except for Landlord's default) without the prior written consent of
Bank. No amendment of the Lease will be binding on Bank unless consented to by
Bank which consent shall not be unreasonably withheld.
8. If the Lease is cancelled or terminated for any reason, if
any purchase option contained in the Lease is exercised, or if the Lessee is
required to pay to Lessor any payment in excess of one calendar month in
advance, including, but not limited to lease termination or purchase option
payments, refund of any type, prepayments of rents, litigation settlements or
settlements of past-due rents (all of which shall be referred to herein
collectively as "Extraordinary Rental Payments"), Lessor and Lessee will notify
Bank and Lessor consents to Lessee remitting and Lessee agrees to remit any
Extraordinary Rental Payments to Bank directly and immediately.
9. This Agreement and its terms shall be binding upon and
inure to the benefit of Bank, Lessor, Lessee and their respective successors and
assigns, including, without limitation, any purchaser at any foreclosure sale.
10. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, and such counterparts when taken
together, shall constitute but one agreement.
<PAGE>
DATED effective as of the date first above written.
BANK:
U.S. BANK NATIONAL ASSOCIATION
By:
ROBERT M. BOWEN, Vice President
LESSOR:
2855 E. COTTONWOOD PARKWAY, L.C., a Utah limited liability
company, by its following Managing Member
COTTONWOOD CORPORATE CENTER, L.C., a Utah limited liability
company, by its following member
C&E HOLDINGS PARTNERSHIP, a Utah general partnership, by its
Managing General Partner
COTTONWOOD EQUITIES, LTD.,
a Texas limited
partnership, by Cottonwood
Realty Services, L.L.C.,
its general partner
By:
JOHN L. WEST, Managing Director
LESSEE:
MRS. FIELDS= ORIGINAL COOKIES, INC.,
a Delaware corporation
By:
Title:
<PAGE>
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this _____ day of
_____________, 199__, by ROBERT M. BOWEN, who is a Vice President of U.S. BANK
NATIONAL ASSOCIATION.
NOTARY PUBLIC
Residing at Salt Lake County, Utah
My Commission Expires:
- ---------------------
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this
______ day of ______________, 199__, by JOHN L. WEST, the Managing Director of
COTTONWOOD REALTY SERVICES, L.L.C., General Partner of COTTONWOOD EQUITIES,
LTD., Managing General Partner of C&E HOLDINGS PARTNERSHIP, member of COTTONWOOD
CORPORATE CENTER, L.C., which is the Managing Member of 2855 E. COTTONWOOD
PARKWAY, L.C., a Utah limited liability company.
NOTARY PUBLIC
Residing at Salt Lake County, Utah
My Commission Expires:
- ---------------------
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The foregoing instrument was acknowledged before me this _____ day of
_____________, 19___, by _______________________________, who is a
_____________________________________ of MRS. FIELDS= ORIGINAL COOKIES, INC., a
Delaware corporation.
NOTARY PUBLIC
Residing at Salt Lake County, Utah
My Commission Expires:
- ---------------------
<PAGE>
EXHIBIT "A"
TO ESTOPPEL CERTIFICATE, SUBORDINATION,
NON-DISTURBANCE AND ATTORNMENT AGREEMENT
DEMISED PREMISES
The following described real property is located in Salt Lake County,
Utah:
PARCEL 1 ("COTTONWOOD CORPORATE CENTER PARCEL 11"):
BEGINNING at a point which is North 0E08'51" East along the Quarter
Section line 908.56 feet and North 89E04'36" East 740.83 feet and North
55E02'48" East 206.85 feet from the West Quarter Corner of Section 23,
Township 2 South, Range 1 East, Salt Lake Base and Meridian, and
running thence North 34E55'16" West 67.93 feet to a point on the South
Right-of-Way line of I-215 and a point on a 2076.90 foot radius curve
to the left, the chord of which bears North 62E36'26" East; thence
Northeasterly along said South line and curve through a central angle
of 5E57'01" a distance of 215.69 feet; thence North 67E29'16" East
along said South line 183.64 feet; thence South 31E38'01" East 111.32
feet; thence South 70E30'09" East 57.70 feet; thence South 34E39'50"
East 284.29 feet; thence South 11E06'23" East 28.44 feet; thence South
42E36'15" East 63.15 feet; thence South 64E43'27" East 71.26 feet;
thence South 32E54'51" West 100.16 feet to a point on a 210.00 foot
radius curve to the left, the chord of which bears South 88E59'48"
West; thence Westerly along said curve through a central angle of
67E50'08" a distance of 248.63 feet; thence South 55E04'44" West 161.13
feet to a point of a 835.00 foot radius curve to the right, the chord
of which bears South 55E10'54" West; thence Southwesterly along said
curve through a central angle of 0E12'21" a distance of 3.00 feet;
thence North 34E55'16" West 499.58 feet to the point of BEGINNING.
PARCEL 2 ("COMMON ROADWAY"):
A perpetual, nonexclusive right-of-way and easement for vehicular and
pedestrian ingress and egress, appurtenant to PARCEL 1, as established
by a Declaration of Easements, Covenants and Restrictions recorded
January 17, 1996, as Entry No. 6259074, in Book 7311, at page 821 of
the official records of the Salt Lake County Recorder, as amended by a
First Amendment to Declaration of Easements, Covenants and
Restrictions, recorded July 3, 1996, as Entry No. 6398547, in Book
7437, at page 265 of the official records of the Salt Lake County
Recorder, over the following described property:
<PAGE>
BEGINNING at a point which is North 0E08'51" East along the Section
line 447.50 feet and South 89E49'13" East 50.00 feet from the West
Quarter Corner of Section 23, Township 2 South, Range 1 East, Salt Lake
Base and Meridian, and running thence North 0E08'51" East 71.00 feet;
thence South 89E49'13" East 669.22 feet; thence North 0E10'47" East
12.00 feet to a point of a 787.50 foot radius curve to the left, the
chord of which bears North 72E37'45" East; thence Easterly along the
arc of said curve and through a central angle of 35E06'03" a distance
of 482.44 feet to a point of tangency; thence North 55E04'44" East
161.13 feet to a point of a 257.50 foot radius curve to the right, the
chord of which bears South 81E12'57" East; thence Easterly along the
arc of said curve and through a central angle of 87E24'39" a distance
of 392.84 feet to a point of tangency; thence South 37E30'37" East
388.28 feet to a point of a 282.50 foot radius curve to the left, the
chord of which bears South 57E30'40" East; thence Southeasterly along
the arc of said curve and through a central angle of 40E00'07" a
distance of 197.23 feet to a point of tangency; thence South 77E30'44"
East 203.08 feet; thence South 35E38'28" East 52.78 feet to the West
right-of-way line of 3000 East Street; thence South 12E27'22" West
along said West line 71.77 feet; thence North 77E30'44" West 147.86
feet to a point of a 693.16 foot radius curve to the right, the chord
of which bears North 71E09'19" West; thence Northwesterly along the arc
of curve and through a central angle of 13E28'28" a distance of 163.01
feet to a point of a compound curve to the right, the radius point of
which is North 22E43'23" East 377.50 feet; thence Northwesterly along
the arc of said curve and through a central angle of 29E46' a distance
of 196.12 feet to a point of tangency; thence North 37E30'37" West
388.28 feet to a point of a 162.50 foot radius curve to the left, the
chord of which bears North 81E12'57" West; thence Westerly along the
arc of said curve and through a central angle of 87E24'39" a distance
of 247.91 feet to a point of tangency; thence South 55E04'44" West
161.13 feet to a point of a 882.50 foot radius curve to the right, the
chord of which bears South 72E37'45" West; thence Westerly along the
arc of said curve and through a central angle of 35E06'03" a distance
of 540.64 feet to a point of tangency; thence North 89E49'13" West
441.91 feet; thence North 0E10'47" East 12.00 feet; thence North
89E49'13" West 227.27 feet to the point of BEGINNING.
<PAGE>
I-7
EXHIBIT I
CLEANING SPECIFICATIONS
Cleaning services shall be rendered in accordance with the following:
Note: Cleaning Company agrees to provide to Cottonwood Management Services
a schedule of the days Aweekly, monthly and quarterly services@ are to be
performed. Notice of any changes are to be provided to Cottonwood in a
timely manner.
COMMON AREA:
II. Rest Room Specifications
A. Nightly Services
1. Restock all restrooms including, but not limited to, paper
towels, toilet tissue and hand soap, as required.
2. Restock all sanitary napkin and tampon dispensers.
3. Wash, polish and sanitize all mirrors, dispensers, faucets,
flushometers and bright work with non-scratch disinfectant cleaners as approved
by Owner.
4. Wash and sanitize all toilets, toilet seats (wash both
sides of seats), urinals and sinks with non-scratch disinfectant cleaner. Wipe
dry all sinks.
5. Remove stains, detail toilets, urinals and sinks as
required. Clean all corners and edges to prevent dirt buildup. Do not leave
standing water on floor.
6. Mop all restroom floors with disinfectant germicidal
solution. 7. Remove all restroom trash from building to
designated area. 8. Spot clean all partitions, tile walls and
doors. Spot clean around light fixtures.
9. Remove graffiti.
B. Weekly Services
1. Dust all low reach and high reach areas, including ledges, mirror tops,
partition tops and edges, air condition diffusers, return air grills and light
fixtures. 2. Dump at least one gallon of water down restroom floor drains and
wipe clean drain grill.
C. Monthly Services
1. Wipe down all walls, vinyl covered walls and metal
partitions. Partitions and walls shall be left in an unstreaked condition after
this work.
2. Dust all door jambs and louvers.
3. Scrub the floors with the intent to prevent buildup of dirt
in grout.
D. Quarterly Services
1. Clean air vent and grills.
2. Dust all walls.
E. Annually
1. Clean light fixtures.
2. Wash all walls
III. Main Lobby and Public Corridors
A. Nightly Services
1. Thoroughly wash all glass doors, side lights and glass
panels including top of revolving door.
2. Spot clean all metal plates, base, tops, waste paper
receptacles, drinking fountains, planters, elevator call button plates and all
visible hardware.
3. Spot clean all walls, columns and directory to include
security desk area. 4. Thoroughly clean all door thresholds of
dirt and debris.
5. Spot clean and damp mop all flooring.
6. Vacuum all carpets and spot clean as necessary.
7. Remove from planters all debris.
8. Buff flooring (flooring to be maintained in accordance with
maintenance specifications provided by manufacturer).
9. Clean pay phones.
B. Weekly Services
1. Spot clean, sweep, mop and buff all flooring.
2. Clean all lobby level glass.
3. Clean all air diffusers/grills.
C. Monthly Services
1. Thoroughly clean all aluminum interior and entrance metal work.
IV. Service Areas
A. Nightly Services
1. Remove trash from all areas.
2. Maintain an orderly arrangement of janitorial supplies and
paper products in storage rooms and service sink areas.
3. Maintain an orderly arrangement of all equipment stored in
service areas such as mops, buckets, brooms, vacuum cleaners, scrubbers and like
materials.
4. Clean and disinfect service sinks and floors in service
areas.
B. Weekly Service
1. Damp mop all floors.
C. Monthly Services
1. Clean and reseal floors as necessary.
2. High dusting of all areas including exposed pipes, ducts,
conduit, diffusers, grills and all mechanical and electrical equipment.
V. Passenger Elevators
A. Nightly Services
1. Spot clean interior surfaces of cab walls and doors.
2. Thoroughly clean all metal surfaces.
3. Spot clean, dry mop and edge all elevator flooring.
4. Vacuum and polish if necessary all elevator thresholds and tracks.
5. Report all burned out lights or damage to cleaning
supervisor who will report to Owner. 6. Spot clean hall side
of doors, frame and hall call button(s).
B. Weekly Services
1. Dust ceilings, including incandescent cab lamps.
2. Thoroughly clean and polish all elevator thresholds and tracks.
VI. Exterior Service
A. Nightly Services
1. Police entire perimeter of building to include parking area.
2. Empty all trash receptacles and ash urns.
3. Spot clean all exterior glass at building entrance.
4. Police trash dumpster areas.
5. Remove gum.
6. Straighten furniture.
B. As Necessary
1. Clean chairs and trash receptacles.
VII. Loading Area
A. Nightly Services
1. Spot clean inside and outside of door.
2. Clean around card reader area.
3. Sweep entire area.
4. Hose down or mop entire trash areas and disinfect and
deodorize as required.
B. Weekly Services
1. Thoroughly clean all floor surfaces, including truck area and ramp.
2. Clean all doors, hardware, pipes, duct work and ledges.
VIII. Stairways - Nightly and Periodic Services
A. Public stairways, keep free from debris nightly.
B. Sweep stairs and landings, once per week.
C. Dust handrails, spindles, newels and stair stringers, once per week.
D. Wash stairs and landings, once per month.
E. Do high dusting, once per month.
IX. Mail Room/Vending Machine Area
A. Nightly Service
1. Sweep/vacuum floor/mop any canned pop spills.
2. Spot clean walls and dust as necessary.
3. Spot clean mail boxes.
4. Spot clean fronts of vending machines.
B. Weekly Service
1. Clean fronts of mailboxes and vending machines.
C. Monthly Service
1. Clean all air diffusers/grills.
2. Clean all floors in accordance with maintenance
specifications.
OFFICE AREA:
PART II
Office Area Specifications
A. Nightly Services
1. Secure all doors and lights as soon as possible each night.
2. Vacuum all carpets. Broom sweep all oriental antique rugs. (Do not
pull vacuum cords around corners).
3. Dust mop all resilient and composition floors with treated dust
mops. Damp mop to remove spills and water stains as required.
4. Dust all desks and office furniture with treated dust cloths. 5.
Papers and folders on desks are not to be moved.
6. Empty all wastepaper baskets and other trash containers and replace
plastic trash liners as needed.
7. Remove all trash from floors to areas designated by owner.
8. Remove finger prints, dirt smudges, graffiti, etc., from all doors,
frames, glass partitions, windows, light switches, walls, elevator door jams,
call buttons and elevators.
9. Return chairs and wastebaskets to proper position.
10. Clean, sanitize and polish drinking fountains.
11. Police all service stairwells.
12. Police all interior public corridor planters.
13. Dust and remove debris from all metal door thresholds.
14. Wipe clean smudged bright work.
15.Spot-clean all carpets, resilient and composition floors as required.
16. Service all walk-off mats as required.
17.Clean and sanitize all kitchen counters and sinks in employee breakrooms.
B. Weekly Services
1. Dust all high reach areas including, but not limited to, picture
frames, charts, graphs, wood paneling, molding and similar wall hangings not
cleaned nightly.
2. Dust inside of all door jambs. 3. Clean and polish all metal door
thresholds. 4. Wipe clean and polish all bright work. 5. Dust all vinyl
base, remove all black marks.
6. Edge all carpeted areas.
7. Clean and spray buff all resilient and composition flooring. 8. Dust
and spot clean all fire extinguisher cabinets.
C. Monthly Services
1. Dust all high reach areas including, but not limited to, tops of
door frames, structural and furniture ledges, air conditioning diffusers, return
grills, light fixtures and blinds.
2. Vacuum all upholstered furniture and fabric wallcovering.
3. Move all plastic carpet protectors and thoroughly vacuum under and
around all desks and office furniture.
D. Quarterly Services
1. Wash all chair pads and arm pads using approved cleaning material.
GENERAL ITEMS:
A. Report nightly any burned out lights to Cottonwood Management.
<PAGE>
Day Service Specifications (Specific written job descriptions will be developed
for day person=s position. The tasks below are meant to only serve as
guidelines).
The basic building day staff shall consist of the following:
1 day porter 40 hours per week
Duties of the day staff shall include, but not necessarily be limited
to the following:
Police lobby and maintain flooring in a clean condition. Clean out all
sand urns at least three times daily. Dust mop as necessary.
Police and maintain elevator cabs. Spot clean elevator cabs, vacuum
and/or remove surface litter as required.
Police all restrooms at least twice per day. Check and fill toilet
tissue, soap, towel and other dispensers as necessary.
Set out mats during rainy or inclement weather; maintain mats in clean
condition.
Remove snow from sidewalks and entry way as needed.
Keep entrance doors, door glass, door frames, etc. clean and free from
finger marks, smudges, etc.
Replace burned out lights as needed.
Police exterior walls, plaza and north and south parking garages and
keep free from debris.
Police parking area and trash receptacles.
Maintain loading area in clean and neat condition.
Any other duties as directed by COTTONWOOD MANAGEMENT.
<PAGE>
BUILDING SIGN ADDENDUM
THIS BUILDING SIGN ADDENDUM (AAddendum@), dated as of even date with, and
as an addendum to, that certain Lease Agreement between 2855 E. Cottonwood
Parkway, L.C. (ALandlord@) and Mrs. Fields= Original Cookies, Inc. (ATenant@),
dated as of the ______ day of January, 1998 (ALease Agreement@).
R E C I T A L S :
B. Pursuant to the Lease Agreement, Tenant has leased from Landlord
certain commercial office space in the building (ABuilding@)
constructed on real property owned by Landlord located in Salt Lake
County, Utah, as more particularly described in the Lease Agreement.
C. Landlord and Tenant have agreed as set forth in this Addendum to the
nonexclusive consent of Landlord for Tenant to have its name displayed
on the top fascia of the north and west sides of the Building in
accordance with the blue line drawing attached hereto as Exhibit AA@
and incorporated herein by this reference (the ABuilding Signs@).
NOW, THEREFORE, for and in consideration of the parties=
covenants and agreements contained herein and in the Lease Agreement, Landlord
and Tenant covenant and agree as follows:
1. Upon execution of this Addendum concurrent with the execution by
Tenant of the Lease Agreement, together with the nonrefundable payment to
Landlord of the sum of Forty-Five Thousand Dollars ($45,000.00), Tenant shall
have the nonexclusive consent of Landlord for Tenant to have its name displayed
on the Building Signs in accordance with Exhibit AA@ hereto and as provided
herein, subject to each of the following continuing requirements and conditions,
each of which is a condition precedent to Tenant=s rights and Landlord=s
obligations hereunder:
1.1 The parties acknowledge and agree that the payment to
Landlord of $45,000.00 is nonrefundable, constituting consideration for
the consent of Landlord as provided herein to the placement by Tenant
of the Building Signs and is not conditioned upon Tenant obtaining
governmental permits, licenses, authorizations and approvals for
placement of the Building Signs on both the north and west sides of the
Building. Notwithstanding the foregoing, the $45,000.00 will be
returned to Tenant in the event Tenant is unable with reasonable
diligence to obtain governmental approval to place any sign on the
Building.
1.2 Obtaining all required governmental permits, licenses,
authorizations and approvals
for the Building Signs;
1.3 The occupancy by Tenant of no less than the number of
square feet of Rentable Area in the Building during the Lease Term as
set forth in the Summary of Lease Information, Section AA;@
1.4 Compliance with all applicable governmental laws,
statutes, regulations, rules, codes and ordinances;
1.5 Compliance with the provisions of the Lease Agreement;
1.6 All expenses in connection with the design, construction,
installation, repair and maintenance of the Building Signs, and
Tenant=s name thereon, shall be paid by Tenant;
1.7 The design, size, location, materials, colors and lighting
of the Building Signs shall be approved in writing by Landlord, in
Landlord=s sole discretion; and
1.8 Tenant=s signage rights under this Addendum may not be
assigned to any assignee of the Lease or any subtenant of Tenant
without Landlord=s prior written consent, exercised in its reasonable
discretion.
2. The Lease Agreement as modified hereby shall remain in full force
and effect, enforceable in accordance with its terms.
3. Upon termination or expiration of the Term of the Lease Agreement,
or upon expiration of Tenant=s sign rights under this Addendum, Landlord shall
have the right to permanently remove Tenant=s Building Signs from the Building.
Tenant shall bear all expenses relating to the costs associated with the removal
of Tenant=s Building Signs, repair of any damage caused by such removal, and
restoration of the site of Tenant=s Building Signs on the Building to the
condition in which those portions of the Building existed before the
installation of Tenant=s Building Signs. Tenant=s obligations under this
paragraph, as well as other provisions of this Addendum, shall survive the
expiration or earlier termination of the Lease Term.
4. Tenant shall at all times during the Lease Term maintain Tenant=s
Building Signs in working order and first-class condition.
DATED effective as of even date with the Lease Agreement.
LANDLORD:
2855 E. COTTONWOOD PARKWAY, L.C., a Utah limited
partnership, by its following Managing Member
COTTONWOOD CORPORATE CENTER, L.C.,
a Utah limited liability company
By:
JOHN L. WEST, Managing Member
TENANT:
MRS. FIELDS= ORIGINAL COOKIES, INC.
By:/s/Michael R. Ward
Name:Michael R. Ward
Title:VP
S:\INVEST\CCC\Building 11\Leases\Mrs. Fields\Mrs. Fields lease.wpd
<PAGE>
I-1
EXHIBIT "A"
BUILDING SIGNS
<PAGE>
I-3
MONUMENT SIGN ADDENDUM
THIS ADDENDUM (AAddendum@), dated as of even date with, and as
an addendum to, that certain Lease Agreement between 2855 E. Cottonwood Parkway,
L.C. (ALandlord@) and Mrs. Fields= Original Cookies, Inc.
(ATenant@), dated as of the _____ day of January, 1998 (ALease Agreement@).
R E C I T A L S :
D. Pursuant to the Lease Agreement, Tenant has leased from Landlord
certain commercial office space in the building (ABuilding@)
constructed on real property owned by Landlord located in Salt Lake
County, Utah, as more particularly described in the Lease Agreement.
E. Landlord and Tenant have agreed as set forth in this Addendum to the
nonexclusive right of Tenant to have its name displayed on a monument
sign to be located by Landlord in front of the Building in accordance
with the drawing attached hereto as Exhibit AA@ and incorporated herein
(the AMonument Sign@).
NOW, THEREFORE, for and in consideration of the parties=
covenants and agreements contained herein and in the Lease Agreement, Landlord
and Tenant covenant and agree as follows:
1. Tenant shall have the nonexclusive right to have its name displayed
on the Monument Sign in accordance with Exhibit AA@ hereto to be located in
front of the Building. Tenant=s right to have its name on the Monument Sign
shall be subject to the following requirements and conditions:
1.1 Obtaining all required governmental permits, licenses,
authorizations and approvals
for the Monument Sign;
1.2 The occupancy by Tenant of no less than the number of
square feet of Rentable Area in the Building during the Lease Term as
set forth in the Summary of Lease Information, Section AA;@
1.3 Tenant shall bear the cost of acquisition and/or
preparation of the panel containing Tenant=s name for placement on the
Monument Sign;
1.4 Compliance with all applicable governmental laws,
statutes, regulations, rules, codes and ordinances;
1.5 Compliance with the provisions of the Lease Agreement;
1.6 The design, size, location, materials and colors of the
Monument Sign shall be determined by Landlord in Landlord=s sole
discretion;
1.7 Landlord shall have the right to relocate, redesign and/or
reconstruct the Monument Sign from time to time in its sole discretion;
and
1.8 Tenant=s signage rights under this Addendum may not be
assigned to any assignee of this Lease or any subtenant of Tenant
without Landlord=s prior written consent, exercised in its sole
discretion.
2. The Lease Agreement, as modified hereby, shall remain in full force
and effect, enforceable in accordance with its terms.
3. Upon termination or expiration of the Term of the Lease Agreement,
or upon expiration of Tenant=s sign rights under this Addendum, Landlord shall
have the right to permanently remove Tenant=s name from the Monument Sign.
DATED effective as of even date with the Lease Agreement.
LANDLORD:
2855 E. COTTONWOOD PARKWAY, L.C., a Utah limited
partnership, by its following Managing Member
COTTONWOOD CORPORATE CENTER, L.C.,
a Utah limited liability company
By:
JOHN L. WEST, Managing Member
TENANT:
MRS. FIELDS= ORIGINAL COOKIES, INC.
By:
Title:
<PAGE>
I-1
EXHIBIT "A"
MONUMENT SIGN
AMENDMENT TO SUPPLY AGREEMENT
DATED JUNE 19,1995
The parties amend their June 19, 1995 Supply Agreement (copy attached)
as follows:
A. Paragraph 4 and Exhibit A of the Supply Agreement are deleted in their
entirety and the following language and attached exhibit is substituted:
4. Price.
a. Raw Material and Packaging Price Adjustments. The price to
be paid for the Products shall be an amount equal to the sum
of (a) the total per pound price for the Product listed on
attached Exhibit A (Revised), and (b) an amount reasonably
determined by Seller immediately prior to the beginning of
each calendar year during the term that represents Seller's
current increase or decrease in the cost for raw materials and
packaging over the ensuing twelve (12) month period, except
(a) in the case of the raw materials and packaging items
listed on attached Exhibit D, costs adjustments shall be made
thirty (30) days before the start of each calendar quarter
during the term (and, in connection with "flour" and "sugar",
cost adjustments shall be based on the current market price
for "bagged sugar" and "bagged flour"), and (b) each periodic
adjustment shall be made, based on Buyer's forecasted
purchases under Paragraph 7(b) below, only if it exceeds one
thousand dollars ($1000) in the aggregate.
b. Price Rebates. Within thirty (30) days following the end of
each calendar quarter during the term Seller shall rebate to
Buyer $0.046 for each pound of Product sold by Seller during
the calendar quarter.
The price under this Paragraph 4 shall not apply to purchases by any of Buyer's
franchisees or licensees to the extent inconsistent with any separate agreement
between Seller and any such franchisee or licensees.
B. The following language is added as new Paragraph 22:
22. Representation/Indemnity. Buyer represents that it has made and
will continue to make all required disclosures to its franchisees
concerning rebates or other payments by Seller to Buyer or its
affiliates, and Buyer agrees to defend, indemnify and hold Seller
harmless from any claims, liabilities, or damages, including attorneys'
fees, arising out of any breach by Buyer of this representation.
C. This amendment will be effective when signed by both parties.
MRS. FIELDS, INC., a VAN DEN BERGH FOODS COMPANY,
Delaware Corporation a division of Conopco, Inc., a New York
Corporation
By: /s/ Larry Hodges By: /s/ Gerald W. Hanna
Larry Hodges Gerald W. Hanna
Its: President Its: Vice President and General Manager -
Bakery Products Group
Date: 3-12-96 Date: January 30, 1996
<PAGE>
<TABLE>
<CAPTION>
PRICE
LIST
Exhibit A (Revised)
<S> <C> <C> <C> <C>
Raw Material Conversion Total
PROD & Packaging & Delivery Price
# DESCRIPTION ($ Perlb.) ($ Per lb.) ($ Per lb.)
7250 MFC PLAIN BAGEL 0.1520 0.3371 0.4891
7253 MFC FIBRE PLUS BAGEL 0.2296 0.3335 0.5631
7255 MFC CHOC CHIP BAGEL 0.2387 0.3371 0.5758
7256 MFC CINN RAISIN BAGEL 0.2219 0.3371 0.5590
7257 MFC BLUEBERRY BAGEL 0.3751 0.3338 0.7089
7500 MFC EGG TWIST 0.1811 0.3019 0.4830
7501 MFC NINE GRAIN 0.1972 0.2705 0.4677
7502 MFC PANETTONE (See 2102) 0.4163 0.2986 0.7149
7503 MFO RAISIN NUT 0.3870 0.2711 0.6581
7505 MFC RYE REGULAR 0.1811 0.2763 0.4574
7506 MFC HONEYWHEAT BERRY 0.2068 0.2740 0.4808
7552 MFC NEW SWT BAG'T 0.1389 0.2746 0.4135
7553 MFC NEW SWEET REGULAR 0.1362 0.2695 0.4057
7570 MFC SOUR REGULAR O.1779 0.2795 0.4574
7571 MFC SOUR ROUND 0.1840 0.2792 0.4632
2910 MFC DOUBLE FUDGE BROWNIE 0.5705 0.2705 0.8410
2911 MFC WALNUT FUDGE BROWNIE 0.6131 0.2705 0.8836
2912 MFC PECAN FUDGE BROWNIE 0.7107 0.2705 0.9812
2913 MFC MACADAMIA FUDGE BROWNIE 0.7401 0.2705 1.0106
2915 MFC PECAN PIE BROWNIE 0.8653 0.2705 1.1412
3050 MFC CHOC CHIP COOKIE 0.5917 0.3309 0.9226
3052 MFC MILK CHOC CHIP COOKIE 0.6020 0.3313 0.9333
3054 MFC BUTTER TOFFEE COOKIE 0.9156 0.3219 1.2375
3057 MFC PUMPLIN HARVEST COOKIE 0.8635 0.3418 1.2053
3060 MFC BUTTER COOKIE 0.4352 0.3288 0.7640
3061 MFC CHOC CHIP W/WALNUT COOKIE 0.6941 0.3264 1.0205
3062 MFC WHITE CHUNK W/MAC COOKIE 1.1279 0.3255 1.4534
3063 MFC COCO MAC COOKIE 1.0889 0.3402 1.4291
3064 MFC TRIPLE CHOC COOKIE 0.6884 0.3313 1.0197
3065 MFC OATMEAL RAISIN NUT COOKIE 0.6095 0.3416 0.9511
3069 MFC MLK CHOC W/WALNUT COOKIE 0.7015 0.3280 1.0295
3075 MFC PEANUT BUTTER COOKIE 0.5105 0.3409 0.8514
3079 MFC CHEWY CHOC COOKIE 0.7300 0.3235 1.0535
3080 MFC RED. FAT SEMI-SWT CHC CHP COOKIE 0.5258 0.3666 0.8924
3081 MFC RED. FAT MILK CHOC COOKIE 0.5290 0.3673 0.8963
3082 MFC RED. FAT WHITE CHUNK COOKIE 0.8425 0.3673 1.2098
3083 MFC OATMEAL NUT RAISIN COOKIE 0.5726 0.3673 0.9399
3091 MFC MLK CHC CHP W/MC COOKIE 1.0210 0.3279 1.1930
3092 MFC SMI-SWT CHNK PECAN COOKIE 0.8645 0.3285 1.1930
3150 MFC H/A CHOC CHIP COOKIE 0.5869 0.3304 0.9173
3312 MFC OLD FSHN SHRTBRD COOKIE 0.4052 0.3258 0.7310
3650 MFC CHOC CHP NIB COOKIE 0.5917 0.3315 0.9232
3652 MFC MLK CHOC CHP NIB COOKIE 0.5991 0.3315 0.9306
3660 MFC BUTTER NIB COOKIE 0.4483 0.3384 0.7867
3661 MFC CHOC CHP W/WLNT NIB COOKIE 0.6980 0.3280 1.0260
3662 MFC WHITE CHNK W/MAC NIB COOKIE 1.0069 0.3250 1.3319
3665 MFC OATMEAL RSN NUT NIB COOKIE 0.6087 0.3418 0.9505
3669 MFC MLK CHOC WLNT NIB COOKIE 0.7054 0.3280 1.0334
3675 MFC PENT BTTR NIB COOKIE 0.5143 0.3504 0.8647
3679 MFC CHEWY CHOC NIB COOKIE 0.7338 0.3235 1.0573
3850 MFC HI-ALT CHOC CHP COOKIE 0.5847 0.3307 0.9154
3852 MFC HI-ALT MLK CHOC CHP COOKIE 0.5920 0.3311 0.9231
3861 MFC HI-ALT CHOC CHP W/WLNT COOKIE 0.6941 0.3279 1.0220
3869 MFC HI-ALT MLK CHOC W/WLNT COOKIE 0.7015 0.3279 1.0294
3891 MFC HI-ALT MLK CHOC W/MAC COOKIE 0.9248 0.3278 1.2526
3950 MFC HI-ALT SS CH CH NIB COOKIE 0.5919 0.3317 0.9236
3952 MFC HI-ALT CH CH NIB COOKIE 0.5994 0.3317 0.9311
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICE
LIST
Exhibit A (Revised)
<S> <C> <C> <C> <C>
Raw Material Conversion Total
PROD & Packaging & Delivery Price
# DESCRIPTION ($ Perlb.) ($ Per lb.) ($ Per lb.)
7401 MFC APPLE CROISSANT 0.5784 0.3451 0.9235
7403 MFC BUTTER CROISSANT 0.3681 0.3671 0.7352
7404 MFC CHOCOLATE CROISSANT 0.5651 0.3583 0.9234
7405 MFC CROISSANT SQUARE 0.3559 0.3805 0.7364
7410 MFC CHEESE CROISSANT 0.5705 0.3687 0.9392
1553 MFC P.B. FILLING 0.6690 0.3307 0.9997
1557 MFC LEMON CREAM CHEESE FILLING 0.9509 0.3124 1.2633
1560 MFC BRAN MUFFIN 4X5 LB CHUB 0.5541 0.2972 0.8513
1561 MFC ORNGE MFFN 4X5 LB CHUB 0.6470 0.3378 0.9848
1563 MFC CORN MUFN 4X5 LB CHUB 0.4360 0.2998 0.7358
1564 MFC PLAIN MUFN BATTR 4X5 CHUB 0.4561 0.2819 0.7380
1565 MFC PUMPKIN MFN 4X5 CHUB 0.5696 0.3160 0.8856
1566 MFC BANANA NUT MUFFIN 4X5 CHUB 0.6967 0.3034 1.0001
1589 MFC CARROT CAKE ICING 0.8099 0.2884 1.0983
2929 MFC CARROT CAKE BATTER 0.6675 0.3026 0.9701
7750 MFC ALMOND PASTE 1.2080 0.3059 1.5139
7751 MFC MAPLE TOPPING 0.4345 0.2839 0.7184
7754 MFC NEW STREUSEL 0.4019 0.2650 0.6669
7755 MFC COBLER TOPPING 0.4122 0.2811 0.6933
7782 MFC BUTTER CREME ICING 0.5748 0.3034 0.8782
7200 MFC DINNER ROLL 0.2557 0.3308 0.5865
7201 MFC SWEET FRENCH ROLL 0.3642 0.3159 0.6801
7203 MFC SWEET FRENCH ROLL 0.1251 0.3169 0.4410
7450 MFC CINNAMON ROLL 0.2917 0.3553 0.6470
</TABLE>
<PAGE>
VAN DEN BERGH
FOODS COMPANY
2200 Cabot Drive Gerald W. Hanna
Lisle. Illinois60532
Vice President & General Manager
(708) 505-5300 Bakery Products
Group
June 19, 1995
Mrs. Fields, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Re: Supply Agreement.
Ladies and Gentlemen:
This letter sets forth the terms of the agreement between Mrs. Fields,
Inc., a Delaware corporation ("Buyer"), and Van den Bergh Foods Company, a
division of Conopco, Inc., a New York corporation ("Seller"), relating to the
purchase by Buyer, and the sale by Seller, of cookie dough and other bakery
products, having the item codes and names listed on attached Exhibit A, and "new
products" designated as such under Paragraph 5 below (collectively, "Products").
1. Minimum Annual Purchase and Sale of the Products. Buyer agrees to
buy, and Seller agrees to sell, an amount not less than 16,730,000 pounds of the
Products during each of calendar years 1996, 1997, and 1998 ("the term").
2. Volume Incentives and Penalties.
(a) Rebate to Buyer. Within sixty (60) days after the end of each calendar
year during the term, Seller shall pay to Buyer a rebate for purchases of the
Products that exceed the minimum annual purchase obligation in Paragraph 1
above. The amount of the rebate shall be determined by multiplying the actual
total pounds of the products purchased by Buyer during the year by the
corresponding incentive payment rate listed in attached Exhibit B.
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 2
(b) Penalty Payment by Buyer. If Buyer fails to meet its minimum annual
purchase obligation under Paragraph 1, then, within sixty (60) days after the
end of the applicable calendar year during the term, Buyer shall pay to Seller a
penalty in an amount determined by multiplying 16,730,000 by the per pound
penalty rate listed in attached Exhibit C corresponding to the volume of
Products actually purchased by Buyer. The penalty is intended to compensate
Seller for its incremental unit cost of producing the lesser volume actually
purchased by the Buyer.
(c) Remedies For Failure to Meet Minimum. If Buyer's failure to purchase
the minimum annual quantities of the Products required under Paragraph 1 (i) is
attributable to a decrease in requirements for the Products due to declines in
Buyer's business, then the penalty payment by Buyer under Paragraph 2(b) is the
Seller's exclusive remedy, or (ii) is attributable to Buyer's purchase of like
products from an alternative supplier, then, in addition to the penalty payment
by Buyer under Paragraph 2(b), Buyer shall pay Seller a sum determined by
multiplying the volume shortfall by an amount equal to the Seller's average
conversion charge for the Products, as set forth on Exhibit A, less Seller's
variable manufacturing costs not incurred.
3. Distributor Purchases. Distributors designated by Buyer, who are
approved by Seller and who meet Seller's normal standards of creditworthiness,
may order and purchase the Products and otherwise act on Buyer's behalf pursuant
to this Agreement. Any such distributor purchases, or any purchases by or on
behalf of Buyer's franchisees or licensees shall be governed by the terms of
this Supply Agreement (except to the extent inconsistent with any separate
agreement between Seller and any such franchisee or licensee) and shall be
counted towards Buyer's minimum annual purchase obligation under Paragraph 1.
4. Price. The price to be paid for the Products shall be an amount
equal to the sum of (a) the total per pound price for the Product listed on
attached Exhibit A, and (b) an amount reasonably determined by Seller
immediately prior to the beginning of each calendar year during the term that
represents Seller's current increase or decrease in the cost for raw materials
and packaging over the ensuing
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 3
twelve (12) month period, except (a) in the case of the raw materials and
packaging items listed on attached Exhibit D, costs adjustments shall be made
thirty (30) days before the start of each calendar quarter during the term (and,
in connection with "flour" and "sugar", cost adjustments shall be based on the
current market price for "bagged sugar" and "bagged flour"), and (b) each
periodic adjustment shall be made, based on Buyer's forecasted purchases under
Paragraph 7(b) below, only if it exceeds one thousand dollars ($1000) in the
aggregate. The price under this Paragraph 4 shall not apply to purchases by any
of Buyer's franchisees or licensees to the extent inconsistent with any separate
agreement between Seller and any such franchisee or licensee.
5. New Bakery Products. If compatible with the normal operation of
Seller's business, Seller agrees to manufacture any new bakery products
designated as such by Buyer (whereupon they will be deemed "Products" for all
purposes under this agreement) pursuant to the directions, formulations and
recipes communicated by Buyer to Seller. Seller's obligation to supply new
bakery products to Buyer under this Paragraph 5 is subject to agreement between
Buyer and Seller on the initial price to be charged Buyer for the same. For
purposes of computing the price to be paid by Buyer under Paragraph 4, such
initial price shall be deemed to be the price as if listed on attached Exhibit
A. Seller agrees to cooperate and offer reasonable assistance to Buyer in the
development of new bakery products, provided in each case that Buyer agrees to
compensate Seller for costs incurred.
6. Signing Bonus and Refunds.
(a) Signing Bonus. In consideration for Buyer's agreements hereunder,
Seller shall, within five (5) business days after mutual execution of this
agreement, pay to Buyer the sum of Five Hundred Sixty Thousand Dollars
($560,000), which amount is intended to provide Buyer with the benefit of the
pricing mechanism established under this agreement in respect of purchases by or
on behalf of Buyer, between April 1, 1995 and December 31, 1995 ("the bonus
period"), under the existing Amended and Restated Supply Agreement between Buyer
and Seller.
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 4
(b) Pro Rata Refund of Signing Bonus. If Buyer fails during the bonus
period to purchase at least 12,173,913 pounds of Products from the Seller, then
Buyer shall be obligated, on or before February 29, 1996 to refund to Seller an
amount determined by multiplying the poundage shortfall by $0.046 per pound.
7. Quantities and Orders
(a) Buyer shall, prior to September 30 of each Calendar year during the
term, furnish Seller with a schedule forecasting monthly estimated quantities of
the specific Products to be purchased by Buyer during the following calendar
year.
(b) Buyer and Seller shall meet on or about December 15, 1995, and on
or about the 15th day of the last month of each quarter of each calendar year
during the term, to establish a schedule for production of the Products during
the following quarter. Such schedule shall include the types and quantities of
Products expected to be ordered during the upcoming quarter.
(c) Buyer shall submit an order to Seller on or prior to Wednesday of
each week for Products to be produced by Seller during the following week.
Seller may decline to accept and actual orders for Products during any quarter
to the extent that such order exceeds by more than twenty (20) percent the
amount of Products scheduled for production pursuant to the quarterly updates in
Paragraph 7(b) hereof. Each order submitted by Buyer for Products shall state
that it is submitted pursuant to this Agreement, shall be transmitted to Seller
in writing, and shall include the quantity, description, and item number of
Products ordered, delivery points, delivery schedules, shipping instructions,
and such other information as Seller may reasonably require. Each order shall be
for a minimum of one batch of the Products ordered, and shipping instructions
shall correspond with the regional delivery schedule provided from time to time
by Seller. Seller shall confirm in writing receipt of each order.
8. Delivery. Seller shall ship products ordered by Buyer pursuant to
Paragraph 7(c) hereof such that the Products are delivered to the destination
designated by Buyer by the dates specified for delivery, except that the date
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 5
specified for delivery shall be an approximate date for unloading Products and
shall allow for normal transportation delays. Seller shall notify Buyer in
writing of the date on which Products ordered have been shipped and all related
shipping information. Delivery of products shall be C.I.F. the destination
(within the 48 contiguous states) designated by Buyer in the notice given
pursuant to Paragraph 7(c). Seller shall ship Products in refrigerated
containers.
9. Payment. The price for the products shall be payable net cash within
30 days from the date of invoice or shipment, whichever is earlier. Buyer may
dispute any invoice in good faith as long as Buyer shall pay all undisputed
amounts in a timely manner. Buyer shall pay interest on all overdue accounts at
the lessor of (i) the "Prime Rate" (or any successor rate) as then published in
the Wall Street Journal plus 1% or (ii) the highest applicable legal rate (the
"Penalty Rate").
10. Sale of Products to Others. Seller will not sell or offer to sell
the Products or any bakery items produced from the Licensed Trade Secrets (as
hereinafter defined) or derived therefrom to any persons, entities, or parties
other than Buyer or any Licensee of Buyer. Nothing in this Agreement shall be
construed to limit Seller's right to sell to other customers items which are of
a similar type to the Products but which do not use the Licensed Trade Secrets
in their manufacture, production, formulation, or otherwise.
11. Purchase of Supplies. If Seller acquires raw materials or supplies
pursuant to the schedule agreed to in Paragraph 7(b) which are unique to the
production of Products and which are not customarily used in the production of
other bakery items by Seller (the "Supplies"), and the Supplies are not used in
the production of Products ordered by Buyer during the shelf life of the
Supplies, and the Supplies cannot be used by Seller in the manufacture of other
bakery items in the normal course of Seller's business, Buyer shall pay to
Seller the actual costs of the Supplies not used by Seller and all expenses
incurred by Seller in the storage
and any disposal thereof. In addition, if Seller has produced Products to fill
an order received from Buyer pursuant to Paragraph 7(c) hereof, and Buyer does
not call for delivery of the same before the expiration of the shelf life
thereof, Seller shall destroy the same and invoice Buyer for the price with
respect thereto.
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 6
12. Duty To Examine. Upon receipt of the Products at their destination,
Buyer shall examine the Products for impurities, damage, spoilage, and any and
all other defects to such Products. Promptly upon discovery thereof by Buyer,
but in any event no later than thirty (30) days after receipt, Buyer shall
notify Seller of any products which are damaged, defective, opened or improperly
packaged. If Buyer has previously paid for defective Products, Buyer shall be
entitled to a refund of the portion of the Price attributable to such defective
Products within ten (10) days after the notice of the defect, unless the same is
disputed by Seller in good faith, except that if the amount to be refunded does
not exceed $ 1,000, such amount shall be a credit against the next invoice.
Seller shall pay Buyer interest on all overdue accounts calculated at the
Penalty Rate. If requested by Seller, Buyer shall promptly return defective
Products to Seller at Seller's expense. Buyer further agrees to take reasonable
steps at Seller's expense, for a period not exceed ten (10) days after notice to
Seller of the defect, to preserve the rejected Products pending Seller's
instructions.
13. Replacement of Damaged Goods. If Seller discovers, upon examination
pursuant to Paragraph 12 hereof, that any of the Products delivered to Buyer are
spoiled, damaged or otherwise defective, Buyer shall have the right to require
Seller to replace such defective Products, provided that at least five (5)
percent (by price) of the total shipment of Products is spoiled, damaged or
otherwise defective. If Buyer so elects to have such Products replaced, the
shipment of any replacement products will have priority over shipments by Seller
to other customers of Seller, and will be affected within seventy-two (72) hours
(or three working days, if later). Seller shall, if requested by Buyer, cause
such replacement Products to be delivered to Buyer, at Seller's expense, by the
most rapid means of commercially feasible ground transportation available.
14. Rotation of Finished Products. Seller agrees to rotate all finished
Products stored by Seller after production on a "first in-first out" basis.
15. License. For purposes of this Agreement, "Licensed Trade Secrets" means
all transferable techniques, processes, methods of production and know-how
uniquely pertaining to and necessary for use in relation to the formulation,
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 7
composition and production of Products. Information which was already in the
possession of Seller, but which was not obtained in connection with this
transaction or past transactions with Buyer, or information which is or becomes
publicly available without breach of (i) this Agreement, (ii) any agreement or
instrument with Buyer to which Seller is a party or beneficiary, or (iii) any
duty owed Buyer by Seller or any other subsidiary of Seller, shall be excluded
from the definition of Licensed Trade Secrets. Buyer hereby grants to Seller,
and Seller accepts from Buyer, a non-exclusive license to employ the Licensed
Trade Secrets solely for the purpose of producing the Products for sale to Buyer
and Licensees of Buyer.
16. Confidentiality. Seller understands that the Licensed Trade Secrets
disclosed to Seller under this agreement are secret, proprietary and of value to
Buyer, which value may be impaired if the secrecy of such information is not
maintained. Seller will take reasonable security measures to preserve and
protect the secrecy of the Licensed Trade Secrets. Seller agrees to hold the
Licensed Trade Secrets in confidence and not to disclose any of the Licensed
Trade Secrets, either directly or indirectly, to any person or entity, including
any subsidiary or affiliate of Seller (or any director, officer, or employee
thereof) during the term of this agreement or at any time within five (5) years
following the expiration or termination hereof, except that Seller may disclose
the Licensed Trade Secrets to its key officers and employees to whom disclosure
is necessary for the manufacture of the Products pursuant to this agreement.
Seller shall exercise such other reasonable precautions to protect and safeguard
the secrecy of the Licensed Trade Secrets except that Seller shall not be
required to employ any more stringent measures that it employs in connection
with protection of its own confidential information.
17. Representations and Warranties of Seller. Seller represents,
warrants and agrees as follows:
(a) Conformity with Specifications. The Products will be
manufactured strictly in accordance with the standards, procedures,
specifications, formulations and recipes from time to time reasonably
established by Buyer. If at any time Buyer deems the quality of the Products to
be below such standards, Buyer may so notify Seller in writing, and Seller will
immediately bring such substandard
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 8
Products up to the quality standards required by this agreement. Buyer's right
to oversee the quality of the Products shall not in any way replace, supersede,
or substitute for the quality control required to be exercised by Seller
hereunder. The exercise of any action of quality control by Buyer shall be for
its sole and exclusive benefit. If at any time Seller adapts or modifies the
Products in accordance with a request from Buyer, Seller will produce and
manufacture such alternate or modified Products using the same quality control
standards and procedures with respect to such Products as Seller is required to
observe in the manufacture of the Products.
(b) Compliance with Law. Seller will manufacture the Products in compliance
with all applicable federal, state and local laws or regulations to which Seller
is subject, except that Seller shall not be liable to Buyer for any violation of
any such laws or regulations if arising from the adherence by Seller to the
instructions of Buyer.
18. Indemnification. Seller agrees to indemnify and hold Buyer harmless
from and against any and all demands, liabilities, damages, expenses, causes of
action, suits, claims or judgments (including reasonable attorneys' fees)
arising out of or in connection with (i) any damage to property, injuries,
illness or loss of life which occur on account of, or in connection with the use
or consumption of Products which were defective in condition, quality or purity
as of delivery to Buyer, whether such condition was discovered at the time of
delivery or at a later date, and (ii) any default by Seller in the observation
or performance of its covenants and agreements contained herein. Buyer agrees to
indemnify and hold Seller harmless from and against any and all demands,
liabilities, damages, expenses, causes of actions, suits or judgments (including
reasonable attorneys' fees) arising out of or in connection with (i) the sale,
distribution, handling or misuse of the Products after delivery to Buyer except
to the extent to which Buyer is indemnified by Seller under this Paragraph 18,
and (ii) any default by Buyer in the observance, payment or performance of its
covenants and agreements contained herein. Any amounts payable by one party to
the other pursuant to this Paragraph 18 shall be limited to actual damages, and
shall not include any amounts attributable to incidental or consequential
damages.
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 9
19. Termination.
(a) Seller's Right. Seller, at its option, shall have the
right by notice to Buyer, in addition to any other remedy available at law, in
equity or pursuant to this agreement (including but not limited to an
injunction, specific performance and damages) to suspend or terminate Buyer's
right to purchase, and Seller's obligation to supply Buyer with Products and any
other future right of Buyer pursuant to this agreement upon the happening and
during the continuance of any one or more of the following events:
(i) Buyer fails to pay any amount owing to Seller hereunder
within thirty (30) days from the date Buyer receives notice of a default
hereunder; and
(ii) Buyer defaults in the performance of any other term,
covenant, agreement or condition of this agreement, and if within sixty (60)
days after notice from Seller describing the specific activities constituting
such default, Buyer shall fail to cure default, or if such default cannot be
cured with the exercise of due diligence within said sixty (60) day period,
shall fail thereafter to proceed to cure the same diligently and in good faith,
and in any case, to cure such default within one hundred-twenty (120) days.
(b) Buyer's Right. Buyer, at its option, shall have the right by notice to
Seller, in addition to any other remedy available by law, in equity or pursuant
to this agreement (including but not limited to the right to an injunction,
specific performance and damages) to terminate Buyer's obligation to purchase
Products from Seller, and any other future right of Seller pursuant to this
agreement, if Seller defaults in the performance of any term, covenant,
agreement or condition of this agreement, and if within sixty (60) days after
notice from Buyer describing the specific activities constituting such default,
Seller shall fail to cure the default, or if such default cannot be cured with
the exercise of due diligence within a sixty (60) days period, shall fail
thereafter to proceed to cure the same diligently and in good faith, and in any
case, to cure such default within one hundred-twenty (120) days;
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 10
(c) Remaining Obligations. The termination of this agreement by either
party pursuant to this Paragraph 19 shall not relieve (1) either party of its
obligation to pay all such sums owed to the other hereunder, (ii) Seller of its
obligation of confidentiality under Paragraph 16, and (iii) either party of its
respective obligations of indemnity contained herein.
20. Assignment. Buyer and Seller may, without the consent of the other
party, with notice to the other party, assign its rights and obligations
hereunder to a related entity, but shall remain liable therefor. For purposes of
this Paragraph 20, the term "related entity" shall mean any corporation,
partnership or joint venture which is fifty percent (50%) or more owned by Buyer
or Seller, as the case may be. Except as provided in this Paragraph 20, Buyer
and Seller may not assign their rights or obligations hereunder without the
prior written consent of the other party. Subject to the foregoing limitation,
all the terms and provisions of this agreement shall be binding upon, and shall
inure to the benefit of, the successors in interest or the assigns of the
parties hereto with the same effect as is mentioned in each instance, or the
party hereto is named or referred to, except that no assignment, transfer,
pledge or mortgage and violation of the provisions of this agreement shall vest
any rights and any assignee, transferee, pledgee, or mortgagee.
21. Miscellaneous.
(a) Force Majeure. Neither party shall be deemed to be in default under
this agreement because of delays or inability to perform occasion by war, civil
disturbance, strikes, boycotts, lock-outs, shortages, transportation and
communication problems, natural calamities such as fire, flood, earthquake,
storm, acts of God, governmental regulations or actions, inability to obtain
labor or materials from usual sources of supply, or other means beyond the
parties' control (a "Force Majeure Event"). In case of a Force Majeure Event
affecting production of Products by Seller, (i) deliveries of Products by Seller
hereunder shall be allocated among Buyer and Seller's other customers on a fair
and reasonable basis and (ii) (a) Buyer's minimum annual purchase obligation
under paragraph 1 shall be reduced, for each month (or fraction thereof) that
such Force Majeure Event continues, by an amount that represents Buyer's monthly
average purchases of Products during the
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 11
preceding twelve (12) months under this (or a predecessor) agreement; and (b)
the amount by which Buyer's minimum annual purchase obligation is decreased
under clause (a) of this subparagraph (ii) shall be added to the amount of
Products actually purchased by Buyer for purposes of determining any rebates due
Buyer or penalties payable by Buyer under paragraphs 2(a) or 2(b), respectively.
(b) Headings. Headings in this agreement are included for
convenience of reference only, and shall not constitute a part of this agreement
for any other purpose.
(c) Notices. All notices provided by this agreement shall be
in writing and shall be given by facsimile transmission with the copy thereof
mailed by first class mail, postage prepaid, or by personal delivery, by one
party to the other, addressed to such other party at the applicable address set
forth, or to such other address as may be given for such purpose by such other
party by notice duly given hereunder. Notice shall be deemed properly given on
the date of facsimile transmission or on the date of delivery whichever applies.
To order Products:
Van den Bergh Foods Co.
2200 Cabot Drive
Lisle, Illinois 60532
Facsimile No.: (708) 955-2969
For all other purposes:
Van den Bergh Foods Co.
Attn: General Counsel
2200 Cabot Drive
Lisle, Illinois 60532
Facsimile No.: (708) 955-5531
Mrs. Fields, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Facsimile No.: (801) 463-2223
<PAGE>
Mrs. Fields Inc.
June 19, 1995
Page 12
(d) Applicable Law. This agreement shall be construed and
enforced in accordance with, and governed by the laws of the State of
California.
(e) Integration. This agreement represents the only agreement
and understanding between the parties and their affiliates with respect to the
subject matter hereof, and supersedes all prior negotiations, representations
and agreements made by the parties and their affiliates with respect to the
subject matter hereof. This agreement may be amended, supplemented or changed,
and any provision hereof waived, only by a written instrument making specific
reference to this agreement signed by the party against whom enforcement of any
such amendment, supplement or change or waiver is sought. Waiver by either party
of any breach or default hereunder by the other party shall not operate as a
waiver of any other breach or default, whether similar to or different from the
breach or default waived.
(f) Counterparts. This agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one of the same agreement,
binding upon all parties thereto, notwithstanding that all parties are not
signatories to the original or the same counterpart.
(g) Severability. In the event any provision of this agreement
is found to be unenforceable or invalid, such provision shall be severable from
this agreement if it is capable of being identified with and apportioned to
reciprocal consideration or to the extent it is a provision which is not
essential and the absence of which would not have prevented the parties from
entering into this agreement. The unenforceability or invalidity of a provision
which has been performed shall not be grounds for invalidation of this agreement
under circumstances in which the true controversy between the parties does not
involve any such provision.
(h) Extension. This agreement may be extended beyond the term
upon such terms and conditions as the parties shall agree upon in writing.
<PAGE>
Mrs. Field's Inc.
June 19, 1995
Page 13
If the foregoing accurately reflects our agreement, please so indicate
by having the original of this letter signed in the spaces provided below and
returning it to me; a copy is enclosed for your files.
Very truly yours,
VAN DEN BERGH FOODS, CO., a
division of Conopco, Inc., a New York corporation
By: /s/ Gerald W. Hanna
Gerald W. Hanna
Its: Vice President & General Manager-Bakery
Products Division
AGREED TO AND ACCEPTED.
MRS. FIELDS, INC., a
Delaware corporation
By: /s/ Larry Hodges
Its: /s/ President CEO
<PAGE>
EXHIBIT A
<PAGE>
<TABLE>
<CAPTION>
PRICE
LIST
Exhibit A
<S> <C> <C> <C> <C>
Raw Material Conversion Total
PROD & Packaging & Delivery Price
# DESCRIPTION ($ Perlb.) ($ Per lb.) ($ Per lb.)
7250 MFC PLAIN BAGEL 0.1520 0.2911 0.4431
7253 MFC FIBRE PLUS BAGEL 0.2296 0.2875 0.5172
7255 MFC CHOC CHIP BAGEL 0.2387 0.2911 0.5298
7256 MFC CINN RAISIN BAGEL 0.2219 0.2911 0.5131
7257 MFC BLUEBERRY BAGEL 0.3751 0.2878 0.6629
7500 MFC EGG TWIST 0.1811 0.2559 0.4370
7501 MFC NINE GRAIN 0.1972 0.2245 0.4217
7502 MFC PANETTONE (See 2102) 0.4163 0.2526 0.6689
7503 MFO RAISIN NUT 0.3870 0.2251 0.6121
7505 MFC RYE REGULAR 0.1811 0.2303 0.4114
7506 MFC HONEYWHEAT BERRY 0.2068 0.2280 0.4348
7552 MFC NEW SWT BAG'T 0.1389 0.2286 0.3675
7553 MFC NEW SWEET REGULAR 0.1362 0.2235 0.3597
7570 MFC SOUR REGULAR O.1779 0.2335 0.4114
7571 MFC SOUR ROUND 0.1840 0.2332 0.4173
2910 MFC DOUBLE FUDGE BROWNIE 0.5705 0.2245 0.7950
2911 MFC WALNUT FUDGE BROWNIE 0.6131 0.2245 0.8376
2912 MFC PECAN FUDGE BROWNIE 0.7107 0.2245 0.9352
2913 MFC MACADAMIA FUDGE BROWNIE 0.7401 0.2245 0.9646
2915 MFC PECAN PIE BROWNIE 0.8653 0.2299 1.0953
3050 MFC CHOC CHIP COOKIE 0.5917 0.2849 0.8766
3052 MFC MILK CHOC CHIP COOKIE 0.6020 0.2853 0.8873
3054 MFC BUTTER TOFFEE COOKIE 0.9156 0.2759 1.1915
3057 MFC PUMPLIN HARVEST COOKIE 0.8635 0.2958 1.1593
3060 MFC BUTTER COOKIE 0.4352 0.2828 0.7179
3061 MFC CHOC CHIP W/WALNUT COOKIE 0.6941 0.2804 0.9746
3062 MFC WHITE CHUNK W/MAC COOKIE 1.1279 0.2795 1.4073
3063 MFC COCO MAC COOKIE 1.0889 0.2942 1.3831
3064 MFC TRIPLE CHOC COOKIE 0.6884 0.2853 0.9736
3065 MFC OATMEAL RAISIN NUT COOKIE 0.6095 0.2956 0.9051
3069 MFC MLK CHOC W/WALNUT COOKIE 0.7015 0.2820 0.9835
3075 MFC PEANUT BUTTER COOKIE 0.5105 0.2949 0.8054
3079 MFC CHEWY CHOC COOKIE 0.7300 0.2775 1.0075
3080 MFC RED. FAT SEMI-SWT CHC CHP COOKIE 0.5258 0.3206 0.8464
3081 MFC RED. FAT MILK CHOC COOKIE 0.5290 0.3213 0.8503
3082 MFC RED. FAT WHITE CHUNK COOKIE 0.8425 0.3213 1.1639
3083 MFC OATMEAL NUT RAISIN COOKIE 0.5726 0.3213 0.8939
3091 MFC MLK CHC CHP W/MC COOKIE 1.0210 0.2819 1.3028
3092 MFC SMI-SWT CHNK PECAN COOKIE 0.8645 0.2825 1.1470
3150 MFC H/A CHOC CHIP COOKIE 0.5869 0.2844 0.8713
3312 MFC OLD FSHN SHRTBRD COOKIE 0.4052 0.2798 0.6850
3650 MFC CHOC CHP NIB COOKIE 0.5917 0.2855 0.8772
3652 MFC MLK CHOC CHP NIB COOKIE 0.5991 0.2855 0.8847
3660 MFC BUTTER NIB COOKIE 0.4483 0.2924 0.7407
3661 MFC CHOC CHP W/WLNT NIB COOKIE 0.6980 0.2820 0.9800
3662 MFC WHITE CHNK W/MAC NIB COOKIE 1.0069 0.2790 1.2859
3665 MFC OATMEAL RSN NUT NIB COOKIE 0.6087 0.2958 0.9045
3669 MFC MLK CHOC WLNT NIB COOKIE 0.7054 0.2820 0.9874
3675 MFC PENT BTTR NIB COOKIE 0.5143 0.3044 0.8188
3679 MFC CHEWY CHOC NIB COOKIE 0.7338 0.2775 1.0113
3850 MFC HI-ALT CHOC CHP COOKIE 0.5847 0.2847 0.8694
3852 MFC HI-ALT MLK CHOC CHP COOKIE 0.5920 0.2851 0.8771
3861 MFC HI-ALT CHOC CHP W/WLNT COOKIE 0.6941 0.2819 0.9761
3869 MFC HI-ALT MLK CHOC W/WLNT COOKIE 0.7015 0.2819 0.9834
3891 MFC HI-ALT MLK CHOC W/MAC COOKIE 0.9248 0.2818 1.2066
3950 MFC HI-ALT SS CH CH NIB COOKIE 0.5919 0.2857 0.8776
3952 MFC HI-ALT CH CH NIB COOKIE 0.5994 0.2857 0.8851
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRICE
LIST
Exhibit A
<S> <C> <C> <C> <C>
Raw Material Conversion Total
PROD & Packaging & Delivery Price
# DESCRIPTION ($ Perlb.) ($ Per lb.) ($ Per lb.)
7401 MFC APPLE CROISSANT 0.5784 0.2991 0.8775
7403 MFC BUTTER CROISSANT 0.3681 0.3211 0.6891
7404 MFC CHOCOLATE CROISSANT 0.5651 0.3123 0.8774
7405 MFC CROISSANT SQUARE 0.3559 0.3345 0.6903
7410 MFC CHEESE CROISSANT 0.5705 0.3227 0.8932
1553 MFC P.B. FILLING 0.6690 0.2847 0.9537
1557 MFC LEMON CREAM CHEESE FILLING 0.9509 0.2664 1.2173
1560 MFC BRAN MUFFIN 4X5 LB CHUB 0.5541 0.2512 0.8053
1561 MFC ORNGE MFFN 4X5 LB CHUB 0.6470 0.2918 0.9388
1563 MFC CORN MUFN 4X5 LB CHUB 0.4360 0.2538 0.6898
1564 MFC PLAIN MUFN BATTR 4X5 CHUB 0.4561 0.2359 0.6920
1565 MFC PUMPKIN MFN 4X5 CHUB 0.5696 0.2700 0.8395
1566 MFC BANANA NUT MUFFIN 4X5 CHUB 0.6967 0.2574 0.9541
1589 MFC CARROT CAKE ICING 0.8099 0.2424 1.0523
2929 MFC CARROT CAKE BATTER 0.6675 0.2566 0.9241
7750 MFC ALMOND PASTE 1.2080 0.2599 1.4678
7751 MFC MAPLE TOPPING 0.4345 0.2379 0.6724
7754 MFC NEW STREUSEL 0.4019 0.2190 0.6209
7755 MFC COBLER TOPPING 0.4122 0.2351 0.6472
7782 MFC BUTTER CREME ICING 0.5748 0.2574 0.8322
7200 MFC DINNER ROLL 0.2557 0.2848 0.5405
7201 MFC SWEET FRENCH ROLL 0.3642 0.2699 0.6341
7203 MFC SWEET FRENCH ROLL 0.1251 0.2699 0.3950
7450 MFC CINNAMON ROLL 0.2917 0.3093 0.6010
</TABLE>
<PAGE>
EXHIBIT B
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
REBATE TO BUYER
Annual Volume Rebate
<S> <C> <C>
(000'S lbs.) ($ per lb.)
16,999 or less 0.0000
17,000 - 17,999 0.0025
18,000 - 19,999 0.0050
20,000 - 21,999 0.0075
22,000 - 23,999 0.0100
24,000 - 25,999 0.0125
26,000 - 27,999 0.0150
28,000 - 29,999 0.0175
30,000 - 31,999 0.0200
32,000 - 33,999 0.0225
34,000 - 35,999 0.0250
36,000 - 37,999 0.0275
38,000 - 39,999 0.0300
40,000 - 41,999 0.0325
42,000 - 43,999 0.0350
44,000 - 45,999 0.0375
46,000 - 47,999 0.0400
48,000 - 49,999 0.0425
50,000 or more 0.0450
</TABLE>
<PAGE>
EXHIBIT C
<PAGE>
EXHIBIT C
PENALTY PAYMENT BY BUYER
<TABLE>
<CAPTION>
Annual Volume Penalty
<S> <C> <C>
(000's lbs.) ($ per lb.)
0 - 1,999 0.0200
2,000 - 3,999 0.0175
4,000 - 5,999 0.0150
6,000 - 7,999 0.0125
8,000 - 9,999 0.0100
10,000 - 11,999 0.0075
12,000 - 13,999 0.0050
14,000 - 15,999 0.0025
16,000 or more 0.0000
</TABLE>
<PAGE>
EXHIBIT D
<PAGE>
EXHIBIT D
Butter
Eggs
Vanilla
Chocolate
Walnuts
Pecans
Macadamia Nuts
Raisins
Shortening/Oils
Milk/Milk Products
Corrugated
Roll Stock Film
Flour (bag)
Sugar(bag)
<PAGE>
<TABLE>
<CAPTION>
Volume Rebate to Buyer
OCC Bid
Per Exhibit B of MFC Contract
<S> <C> <C>
Annual Volume Rebate Rebate
(000's lbs) ($ per lb) (Total $$)
16,999 or less 0.0000 ---
17,000 - 17,999 0.0025 42,500 - 45,000
18,000 - 19,999 0.0050 90,000 - 100,000
20,000 - 21,999 0.0075 150,000 - 165,000
22,000 - 23,999 0.0100 220,000 - 240,000
24,000 - 25,999 0.0125 300,000 - 325,000
26,000 - 27,999 0.0150 390,000 - 420,000
28,000 - 29,999 0.0175 490,000 - 525,000
30,000 - 31,999 0.0200 600,000 - 640,000
32,000 - 33,999 0.0225 720,000 - 765,000
34,000 - 35,999 0.0250 850,000 - 900,000
36,000 - 39,999 0.0275 990,000 - 1,045,000
38,000 - 39,999 0.0300 1,140,000 - 1,200,000
40,000 - 41,999 0.0325 1,300,000 - 1,365,000
42,000 - 43,999 0.0350 1,470,000 - 1,540,000
44,000 - 45,999 0.0375 1,650,000 - 1,725,000
46,000 - 47,999 0.0400 1,840,000 - 1,920,000
48,000 - 49,999 0.0425 2,040,000 - 2,125,000
50,000 or more 0.0450 2,250,000
</TABLE>
-------------------------------
THE MRS. FIELDS' BRAND, INC.
-------------------------------
STOCKHOLDERS' AGREEMENT
among
THE MRS. FIELDS' BRAND, INC.
and
ITS STOCKHOLDERS
--------------------------------
Dated as of September 19, 1996
--------------------------------
<PAGE>
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of September 19,
1996, among THE MRS. FIELDS' BRAND, INC., a Delaware corporation (the
"Company"), MRS. FIELDS' HOLDING COMPANY, INC., a Delaware corporation
("Holdco"), HARVARD PRIVATE CAPITAL HOLDINGS, INC., a Massachusetts corporation
("Harvard"), such other persons to become parties to this Agreement as described
herein, and, for the purposes of Section 4.4 and Section 5 only, Capricorn
Investors II, L.P., a Delaware limited partnership ("Capricorn").
W I T N E S S E T H:
WHEREAS, pursuant to a Licensing Assets Purchase Agreement, dated as of
August 7, 1996, among Mrs. Fields Development Corporation, a Delaware
corporation ("MFD"), the Company and Capricorn, the Company has purchased
certain assets specified therein;
WHEREAS, pursuant to a Common Stock and Senior Subordinated Note
Purchase Agreement (the "Harvard Agreement"), dated September 19, 1996, Harvard
has as of the date of this Agreement purchased 249.9 shares of common stock par
value $.01 per share of the Company (the "Common Stock");
WHEREAS, as of the date of this Agreement, Holdco owns 50.1% of the
outstanding shares of Common Stock and all of the shares of Series A 10%
Cumulative Accruing Preferred Stock, par value $.01 per share of the Company
(the "Preferred Stock"), and Harvard owns 49.9% of the outstanding shares of
Common Stock;
WHEREAS, the parties hereto deem it in their best interests and in the
best interests of the Company to provide consistent and uniform management for
the Company and desire to enter into this Agreement in order to effectuate that
purpose and to set forth their respective rights and obligations in connection
with their investment in the Company; and
WHEREAS, the parties hereto also desire to restrict the sale,
assignment, transfer, encumbrance or other disposition of the shares of Common
Stock, and to provide for certain rights and obligations in respect thereto as
hereinafter provided;
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
Section 1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Affiliate" means as to any Person (a) any Person which directly or
indirectly controls, is controlled by, or is under common control with such
Person, (b) any Person who is a director, officer, partner or principal of such
Person or of any Person which directly or indirectly controls, is controlled by,
or is under common control with such Person, and (c) any individual who is a
member of the immediate family of any Person described in clause (a) or clause
(b) above. For purposes of this definition, "control" of a Person shall mean the
power, direct or indirect, (i) to vote or direct the voting of 5% or more of the
Voting Stock of such Person or (ii) to direct or cause the direction of the
management and policies of such Person whether by ownership of Capital Stock, by
contract or otherwise.
"Agreement" means this Agreement as in effect on the date hereof and as
hereafter from time to time amended, modified or supplemented in accordance with
the terms hereof.
"Board of Directors" means the Board of Directors of the Company as
from time to time hereafter constituted.
"By-Laws" means the By-Laws of the Company in effect on the date
hereof, substantially in the form of Exhibit A hereto, and as hereafter further
amended in accordance with the terms hereof and pursuant to applicable law.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock of any Person, including, without limitation, shares of
preferred or preference stock, (ii) all partnership interests (whether general
or limited) in any Person which is a partnership, (iii) all membership interests
or limited liability company interests in any limited liability company, and
(iv) all equity or ownership interests in any Person of any other type.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company as in effect on the date hereof, substantially in the form of
Exhibit B hereto, and as hereafter from time to time amended, modified,
supplemented or restated in accordance with the terms hereof and pursuant to
applicable law.
<PAGE>
"Fair Market Value" means the fair market value of shares of Common
Stock as determined from time to time by the Board of Directors as evidenced by
a resolution thereof.
"New Securities" shall mean any authorized but unissued equity
securities and any treasury shares of the Company and all rights, options, or
warrants to purchase equity securities of any type whatsoever; provided,
however, that the term "New Securities" does not include (i) securities
outstanding as of the date hereof; (ii) equity securities issued pursuant to any
stock split or stock dividend; (iii) equity securities or other securities
exercisable for or convertible into equity securities issued pursuant to any
public offering or issuable upon exercise or conversion of such securities; and
(iv) equity securities or other securities exercisable for or convertible into
equity securities issued pursuant to a business combination involving the
Company but not involving Capricorn, Holdco or any of their Affiliates.
"Offered Securities" has the meaning specified in Section 4.l(a).
"Person" means an individual or a corporation, association,
partnership, limited liability company, joint venture, organization, business,
trust or any other entity or organization, including a government or any
subdivision or agency thereof.
"Pro Rata Portion" means, with reference to any Shareholder at any
time, a fraction, the numerator of which is the number of shares of Common Stock
then issued and outstanding and held by such Shareholder, and the denominator of
which is the aggregate number of shares of Common Stock then issued and
outstanding and held by the Shareholders taken together.
"Securities Act" means, as of any date, the Securities Act of 1933, as
amended, or any similar Federal statute then in effect and superseding such act,
and any reference to a particular section thereof shall include a reference to
the comparable section, if any, of any such similar Federal statute, and the
rules and regulations thereunder.
"Shareholder" means, (i) Harvard, (ii) Holdco and (iii) each transferee
who becomes a party to or bound by the provisions of this Agreement in
accordance with the terms hereof, in each case for so long as such person
continues to hold shares of Common Stock.
"Subsidiary" means, as to any Person, another Person of which
outstanding Voting Stock having the power to elect a majority of the members of
the board of directors (or comparable body or authority performing similar
functions) of such other Person are at the time owned, directly or indirectly
through one or more intermediaries, or both, by such first Person.
"Voting Stock" means Capital Stock of any class or classes, the holders
of which are ordinarily, in the absence of contingencies, entitled to vote for
the election of corporate directors (or Persons performing similar functions).
Section 2. Management.
Section 2.1. Board of Directors; Shareholders.
(a) Subject to the terms of this Agreement and the Certificate of
Incorporation and the By-Laws, the business and affairs of the Company shall be
managed by the Board of Directors, which will initially consist of four
directors designated as follows: (i) Holdco shall be entitled to designate two
directors (the "Holdco Directors"); and (ii) Harvard shall be entitled to
designate two directors (the "Harvard Directors"). For so long as Harvard owns
shares of Common Stock, the Board of Directors shall consist of four members.
(b) Each Shareholder agrees to vote its shares of Voting Stock of the
Company for the removal of any director upon the request of the person who
designated such director and shall not vote any of its shares of Voting Stock of
the Company for the removal of any director under any other circumstance. In the
event that any director is unwilling or unable (by reason of death, resignation
or otherwise) to serve as such or is removed in accordance with the terms of
this Section 2.1(b), then the Shareholders, prior to the transaction of any
other business by the Shareholders or the Board of Directors, shall elect the
successor or replacement to such director upon the nomination of the person who
designated such director.
<PAGE>
(c) A quorum for any meeting of the Board of Directors shall consist of
two directors (a "Quorum of the Board"), one of which shall be a Holdco Director
and one of which shall be a Harvard Director. No action may be taken by the
Board of Directors at any meeting unless a Quorum of the Board is present at the
time such action is taken. Resolutions of the Board of Directors shall be
adopted only by the affirmative vote of the majority of directors present at a
meeting at which a Quorum of the Board is present. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting if all members of the Board of Directors
or of such committee, as the case may be, consent in writing to the taking of
such action.
Section 2.2. Authority of Board of Directors. The Board of Directors
shall have and exercise all of the powers belonging or pertaining to the
Company, excepting only as to such matters as by law, or the Certificate of
Incorporation or the By-Laws, that require the action of the Shareholders.
Section 2.3. No Conflict with Agreement. Each Shareholder shall vote
its shares of Voting Stock of the Company, and shall take all actions necessary,
to ensure that the Certificate of Incorporation and By-Laws do not, at any time,
conflict with the provisions of this Agreement.
Section 3. Transfers of Shares of Common Stock and Preferred Stock.
Section 3.1. Restrictions on Transfer. Each Shareholder agrees that it
will not, directly or indirectly, offer, sell, transfer, assign or otherwise
dispose of (or make any exchange, gift, assignment or pledge of) (collectively,
for purposes of Sections 3 and 4 only, a "transfer") any of its shares of
Preferred Stock or Common Stock (or options, warrants or rights that may be
hereafter issued to such Shareholder) except as permitted under the Securities
Act and other applicable securities laws and such transferring Shareholder shall
furnish to the Company a certificate or, if reasonably requested by the Company,
an opinion of counsel, in either case reasonably satisfactory in form and
substance to the Company and its counsel, that such transfer is permitted under
the Securities Act and other applicable securities laws; provided, however, that
no such certificate or opinion of counsel shall be required in connection with a
transfer of shares of Common Stock pursuant to Sections 4.1, 4.4 or 4.5 hereof.
Each such transferee shall execute the agreement referred to in Section 3.2(b)
hereof. The provisions of this Agreement shall be applied to the shares of
Common Stock acquired by any such transferee in the same manner and to the same
extent as such provisions were applicable to such shares of Common Stock in the
hands of such transferring Shareholder. Any reference in this Agreement to a
Shareholder shall be deemed to include such Shareholder and his transferees.
Holdco shall not transfer any shares of Preferred Stock except (i) to any
Affiliate of Holdco or (ii) following the earlier to occur of (A) the payment in
full of the note (the "Note") issued by the Company pursuant to the Harvard
Agreement or (B) the exchange of the Note into a note issued by Holdco as
contemplated by the Harvard Agreement.
Section 3.2. Endorsement of Certificates.
(a) Upon the execution of this Agreement, in addition to any other
legend that the Company may deem advisable under the Securities Act and certain
state securities laws, all certificates representing shares of issued and
outstanding shares of Common Stock or Preferred Stock that are subject to any of
the provisions of this Agreement shall be endorsed at all times as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND ARE
TRANSFERABLE ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF A STOCKHOLDERS'
AGREEMENT DATED AS OF SEPTEMBER 19, 1996, AMONG THE COMPANY AND ITS
STOCKHOLDERS. A COPY OF THE ABOVE-REFERENCED AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT, OR AN EXEMPTION FROM REGISTRATION, UNDER SAID
ACT.
<PAGE>
(b) Except as otherwise expressly provided in this Agreement, all
certificates representing shares of Common Stock or Preferred Stock hereafter
issued to or acquired by any of the Shareholders or their successors or assigns
shall bear the legends set forth above, and the shares of Common Stock or
Preferred Stock represented by such certificates shall be subject to the
applicable provisions of this Agreement. The obligations of a party hereto shall
be binding upon any transferee to whom shares of Common Stock or Preferred Stock
are transferred by such party, whether or not such transfer is permitted under
the terms of this Agreement. Prior to consummation of any such transfer, such
party shall cause the transferee to execute an agreement in form and substance
reasonably satisfactory to the other parties hereto, providing that such
transferee shall be bound by and shall fully comply with the terms of this
Agreement. Prompt notice shall be given to the Company and each Shareholder by
the transferor of any transfer of any shares of Common Stock or Preferred Stock.
Section 3.3. Improper Transfer. Any attempt to transfer or encumber any
shares of Common Stock or Preferred Stock other than in accordance with the
terms of this Agreement shall be null and void and neither the Company nor any
transfer agent of such securities shall give any effect to such attempted
transfer or encumbrance in its stock records.
Section 4. Rights of First Refusal; Drag-Along Rights; Tag-Along Rights;
Preemptive Rights.
Section 4.1. Transfers by Shareholders.
(a) If, at any time following the date hereof, a Shareholder other than
Holdco (the "Selling Shareholder") receives a bona fide offer, which it desires
to accept (a "Transfer Offer"), to purchase any shares of Common Stock (or
options, warrants or rights to subscribe for or purchase shares of Common Stock)
owned by it, then the Selling Shareholder shall cause the Transfer Offer to be
reduced to writing and shall deliver written notice of such Transfer Offer (a
"Transfer Notice"), accompanied by a copy of such Transfer Offer, to the other
Shareholders (individually and collectively referred to as the "Other
Shareholders") and the Company, setting forth the identity of the offeror, the
number of shares of Common Stock (or options, warrants, or rights to subscribe
for or purchase shares of Common Stock) proposed to be transferred (the "Offered
Securities"), the price per security contained in the Transfer Offer (the
"Transfer Offer Price Per Security"), and all other terms applicable thereto.
The Transfer Notice shall also contain an irrevocable offer by the Selling
Shareholder to sell the Offered Securities to the Other Shareholders and the
Company at a price equal to the Transfer Offer Price Per Security and upon
substantially the same terms as contained in the Transfer Offer. In the event
that the form of consideration specified in the Transfer Offer is other than
cash, the Other Shareholders and the Company shall have the option of paying the
Transfer Offer Price Per Security in cash in an amount equal to the fair market
value of such consideration unless it is reasonably practicable to deliver
substantially identical consideration, in which case the purchaser may so
deliver. Fair market value shall be determined by a nationally recognized
investment banking firm mutually acceptable to the parties, unless they agree
otherwise.
(b) Upon receipt of the Transfer Notice, the Company shall then have
the irrevocable right to accept such offer at the Transfer Offer Price Per
Security and on the other terms specified in the Transfer Offer with respect to
all or any portion of the Offered Securities; provided, however, that in the
event the Company does not purchase any or all of the Offered Securities, the
Other Shareholders shall have the irrevocable right to purchase such unpurchased
Offered Securities (including any such Offered Securities not purchased by such
Other Shareholders hereunder) in proportion to each of such Other Shareholder's
Pro Rata Portion until all of such Offered Securities are purchased or until no
Other Shareholder desires to purchase any more Offered Securities. The rights of
each of the Other Shareholders and the Company pursuant to this Section 4.1(b)
shall be exercisable by the delivery of notice to the Selling Shareholder (the
"Notice of Exercise"), within 30 calendar days from the date of delivery of the
Transfer Notice. The Notice of Exercise shall state the total number of shares
of the Offered Securities as to which each of the Other Shareholders or the
Company, as the case may be, is accepting under the offer, without regard to
whether or not the Company purchases any Offered Securities. A copy of such
Notice of Exercise shall also be delivered by the Other Shareholders to the
Company. The rights of the Other Shareholders and the Company pursuant to this
Section 4.1(b) shall terminate if unexercised 30 calendar days after the date of
delivery of the Transfer Notice.
(c) In the event that the Other Shareholders or the Company exercise
their rights to purchase all of the Offered Securities in accordance with
Section 4.1(b) hereof, then the Selling Shareholder must sell such Offered
Securities to the Other Shareholders or the Company, as the case may be, at the
Transfer Offer Price Per Security and on the other terms specified in the
Transfer Offer.
<PAGE>
(d) For purposes of this Section 4, any Person who has failed to give
notice of the election of an option hereunder within the specified time period
will be deemed to have waived its rights with respect thereto on the day
immediately following the last day of such period.
Section 4.2. Transfer of Offered Securities to Third Parties. If all
notices required to be given pursuant to Section 4.1 hereof have been duly given
and the Other Shareholders and the Company offer to purchase fewer than all of
the Offered Securities pursuant to the provisions hereof, then the Selling
Shareholder shall have the right, subject to compliance by the Selling
Shareholder with the provisions of Section 3.2(b) hereof for a period of 120
calendar days from the earlier of (i) the expiration of the option period
pursuant to Section 4.1 hereof with respect to such Transfer Offer or (ii) the
date on which the Selling Shareholder receives notice from the Other
Shareholders and the Company that they will not exercise the option granted
pursuant to Section 4.1 hereof, to sell to any third party that is not an
Affiliate of the Selling Shareholder the Offered Securities at a price per
Offered Security of not less than 100% of the Transfer Offer Price Per Security
and on substantially the other terms specified in the Transfer Offer.
Section 4.3. Purchase of Offered Securities. The consummation of any
purchase and sale pursuant to Section 4.1 hereof shall take place on such date,
not later than 30 calendar days after the expiration of the option period
pursuant to Section 4.1 hereof with respect to such option, as the Other
Shareholders or the Company, as the case may be, shall select. Prior to the
consummation of any sale pursuant to Section 4.1 hereof, the Selling Shareholder
shall comply with Section 3.2(b) hereof. Upon the consummation of any such
purchase and sale, the Selling Shareholder shall deliver certificates
representing the Offered Securities sold duly endorsed, free and clear of any
liens, against delivery of the Transfer Offer Price Per Security for each of the
Offered Securities purchased by certified or bank check, wire transfer or, in
the case of non-cash consideration, such other manner reasonably acceptable to
the parties.
Section 4.4. Drag-Along Rights.
(a) If Holdco approves or authorizes a sale or exchange, whether
directly or pursuant to a merger, consolidation or otherwise (the "Company
Sale"), of at least a majority of the then outstanding Common Stock in a bona
fide arm's-length transaction to a third party that is not an Affiliate of
Holdco or of the Company (an "Independent Third Party"), then Holdco shall have
the right, subject to all the provisions of this Section 4.4 (the "Drag-Along
Right"), to require each of the other Shareholders to (i) if such Company Sale
is structured as a sale of stock, sell, transfer and deliver or cause to be
sold, transferred and delivered to such Independent Third Party all shares of
Common Stock, and other transferable options, warrants or rights to subscribe
for or purchase Common Stock (the "Other Rights"), owned by them; provided,
however, that if Holdco agrees to sell less than all (the "Amount") of its
shares of Common Stock to such Independent Third Party, each of the other
Shareholders shall only be required to sell, transfer and deliver to such
Independent Third Party an amount of shares of Common Stock and Other Interests
equal to the shares of Common Stock, and Other Interests, owned by it multiplied
by a fraction the numerator of which is the Amount and the denominator of which
is the total amount of shares of Common Stock, and Other Interests, owned by
Holdco, or (ii) if such Company Sale is structured as a merger, consolidation or
other transaction requiring the consent or approval of the Company's
shareholders, vote such Shareholder's shares of Voting Stock in favor thereof,
and otherwise consent to and raise no objection to such transaction, and waive
any dissenters' rights, appraisal rights or similar rights that such Shareholder
may have in connection therewith; and, in any such event, except to the extent
otherwise provided in subsection (c) of this Section 4.4, each such other
Shareholder shall agree to and shall be bound by the same terms, provisions and
conditions (including, without limitation, provisions in respect of
indemnification) in respect of the Company Sale as are applicable to Holdco. The
provisions of Sections 4.1 through 4.3 hereof, inclusive, shall not apply to any
transactions to which this Section 4.4 applies.
<PAGE>
(b) If Holdco desires to exercise Drag-Along Rights, it shall give
written notice to the other Shareholders (the "Drag-Along Notice") of the
Company Sale, setting forth the name and address of the transferee, the date on
which such transaction is proposed to be consummated (which shall be not less
than 30 days after the date such Drag-Along Notice is given), and the proposed
amount and form of consideration and terms and conditions of payment offered by
such transferee, including, without limitation, the material terms of any debt
or equity securities proposed to be included as part of such consideration,
identifying the issuer or issuers thereof. If such consideration includes any
non-cash consideration, such notice shall also state the fair market value of
such non-cash consideration and shall describe in reasonable detail the method
by which such value shall have been determined.
(c) Except as contemplated by Section 4.4(d) hereof, the obligations of
the Shareholders in respect of a Company Sale under this Section 4.4 are subject
to the satisfaction of the following conditions: (i) upon the consummation of
the Company Sale, the same form of consideration and the same portion of the
aggregate consideration realized upon such Company Sale shall be paid or
distributed in respect of each share of Common Stock then issued and outstanding
(except as contemplated by the proviso to Section 4.4 (a) hereof); (ii) if any
Shareholder is given an option as to the form and amount of consideration to be
received, each Shareholder will be given the same option; (iii) each holder of
then currently exercisable rights to acquire shares of Common Stock will be
given a reasonable opportunity to exercise such rights prior to the consummation
of the Company Sale and thereby to participate in such sale as a holder of such
Common Stock; (iv) the maximum liability of any Shareholder for indemnification
in respect of all matters arising pursuant to or in connection with the Company
Sale shall not exceed the net proceeds received by such Shareholder from such
Company Sale; and (v) no Shareholders shall be required to make general
representations or warranties regarding the financial condition, business,
assets or affairs of the Company and its Subsidiaries.
(d) Any Drag-Along Notice given to Harvard shall include a valuation of
the fair market value of each of the Company and Holdco. Such valuation shall be
made by a nationally recognized investment banking firm. Harvard shall have the
right to exercise its right to exchange its shares of Common Stock into shares
of common stock of Holdco (the "Holdco Common Stock")for 20 days following
receipt by Harvard of a Drag-Along Notice.
(e) If Capricorn approves or authorizes a sale or exchange, whether
directly or pursuant to a merger, consolidation or otherwise, of at least a
majority of the then outstanding Holdco Common Stock (the "Holdco Company Sale")
in a bona fide arm's-length transaction to a third party that is not an
Affiliate of Capricorn or of Holdco (the "Holdco Independent Third Party"), then
Capricorn shall have the right (the "Exchange Right") to require Harvard and its
direct or indirect transferees to exchange all of their shares of Common Stock
into shares of Holdco Common Stock. If Capricorn desires to exercise the
Exchange Right, it shall give written notice to Harvard and such transferees
(the "Exchange Notice") of the Holdco Company Sale in addition to any drag-along
notice required under the Stockholders' Agreement among Holdco and its
Stockholders. Harvard and such transferees shall be required to exchange their
Common Stock into Holdco Common Stock immediately upon receipt by Harvard and
such transferees of the Exchange Notice; provided, however, that the exchange
rate shall be increased to the extent that the fair market value of the shares
of Holdco Common Stock issuable to Harvard and such transferees upon the
exercise of the Exchange Right (before such increase) is less than the fair
market value of the shares of Common Stock of the Company to be exchanged by
Harvard and such transferees pursuant to the Exchange Right, in each case
determined by reference to Harvard's or such transferees' proportionate Common
Stock interest in Holdco or the Company, as the case may be, without any
minority discount.
<PAGE>
(f) Any Exchange Notice given to Harvard and its direct or indirect
transferees shall include a valuation of the fair market value of the shares of
Common Stock to be exchanged by Harvard and such transferees pursuant to the
Exchange Right and the fair market value of the shares of Holdco Common Stock to
be acquired by Harvard and such transferees pursuant to the Exchange Right, in
each case determined by reference to Harvard's or such transferees'
proportionate Common Stock interest in Holdco or the Company, as the case may
be, without any minority discount or discount relating to lack of free
transferability. Such valuation shall be made by a nationally recognized
investment banking firm which shall value the enterprise value of the Company.
Section 4.5. Tag-Along Rights.
(a) Notwithstanding anything in this Agreement to the contrary, except
in the case of (i) transfers by Holdco to an Affiliate of Holdco, and (ii)
transactions where Drag-Along Rights are exercised pursuant to Section 4.4
hereof, Holdco shall refrain from effecting any transfer of the Common Stock
unless, prior to the consummation thereof, the other Shareholders shall have
been afforded the opportunity to join in such sale on a pro rata basis and the
holder or holders of the Senior Subordinated Note of the Company initially
issued to Harvard on September 19, 1996 (the "Note") have been afforded an
opportunity to sell such Note, as hereinafter provided in this Section 4.5.
(b) Prior to consummation of such proposed transfer, Holdco shall cause
the person or group that proposes to acquire such shares (the "Proposed
Purchaser") to offer in writing (the "Purchase Offer") to purchase shares of
Common Stock (or shares of Common Stock into which any employee stock options
are then exercisable) owned by the other Shareholders, such that the number of
shares of such Common Stock (or shares of Common Stock into which any employee
stock options are then exercisable) so offered to be purchased from the other
Shareholders shall be equal to the product obtained by multiplying the aggregate
number of shares of Common Stock proposed to be purchased by the Proposed
Purchaser by such other Shareholder's Pro Rata Portion. If the Purchase Offer is
accepted by any other Shareholder, then the number of shares of Common Stock to
be sold to the Proposed Purchaser by Holdco, shall be reduced by the aggregate
number of shares of Common Stock to be purchased by the Proposed Purchaser from
such other Shareholder pursuant thereto. Such purchase shall be made on the same
terms and conditions as the Proposed Purchaser shall have offered to purchase
shares of Common Stock to be sold by Holdco (net, in the case of any options,
warrants or rights, of any amounts required to be paid by the holder upon
exercise thereof). The other Shareholders shall have 30 days from the date of
receipt of the Purchase Offer during which to accept such Purchase Offer, and
the closing of such purchase shall occur within 30 days after such acceptance or
at such other time as the other Shareholders and the Proposed Purchaser may
agree. Prior to consummation of such proposed transfer, Holdco shall also cause
the Proposed Purchaser to offer in writing to purchase the Note from the holder
or holders thereof for a cash purchase price equal to the principal amount of
such Note then outstanding and all accrued and unpaid interest thereon.
Section 4.6. Preemptive Rights.
(a) The Company hereby grants to Harvard and its direct or indirect
transferees a preemptive right to purchase any New Securities that the Company
may, from time to time, propose to issue and sell. Such preemptive right shall
allow Harvard and such transferees to purchase their respective Pro Rata
Portions (determined immediately prior to such issuance and sale of New
Securities) of the New Securities proposed to be issued. The preemptive right
granted hereunder shall terminate if unexercised within 30 days after receipt of
the notice described in Section 4.6(b) below.
(b) In the event that the Company proposes to undertake an issuance of
New Securities, it shall give Harvard and its direct or indirect transferees'
written notice of its intention ("New Issue Notice"), describing the number of
New Securities, the purchase price therefor (which shall be payable solely in
cash), and the terms upon which the Company proposes to issue the same. Harvard
and such transferees shall have 30 calendar days from the date the New Issue
Notice is received by it to determine whether to purchase all or any portion of
their respective Pro Rata Portions of such New Securities for the purchase price
and upon the terms specified in the New Issue Notice by giving written notice to
the Company, stating therein the quantity of New Securities to be purchased.
<PAGE>
Section 5. Miscellaneous.
Section 5.1. Inspection Rights. Each Shareholder that holds 5% or more
of the shares of Common Stock at the time outstanding, shall have the right,
upon reasonable prior notice to the Company, to visit and inspect the properties
of the Company and its Subsidiaries and to examine and copy (at its own expense)
their books of record and accounts, and to discuss their affairs, finances, and
accounts with their officers and their current and prior independent public
accountants, all at such times (during normal business hours) as such
Shareholder may reasonably request. The foregoing rights are in addition to, and
are not intended to limit, any rights that the Shareholders may have under the
law of the State of Delaware, including Sections 219 and 220 of the Delaware
General Corporation Law.
Section 5.2. Confidentiality. All materials and information obtained by
any Shareholder pursuant to Section 5.1 hereof shall be kept confidential and
shall not be disclosed to any third party except (a) as has become generally
available to the public (other than through disclosure by such Shareholder in
contravention of this Agreement), (b) to such Shareholder's directors, officers,
trustees, partners, employees, agents, and professional consultants on a need to
know basis, (c) to any other holder of shares of Common Stock, (d) to any Person
to which such Shareholder offers to sell or transfer any shares of Common Stock,
provided that the prospective transferee shall agree to be bound by the
provisions of this Section 5.2, (e) in any report, statement, testimony or other
submission to any governmental authority having or claiming to have jurisdiction
over such Shareholder, or (f) in order to comply with any law, rule, regulation,
or order applicable to such Shareholder, or in response to any summons, subpoena
or other legal process or formal or informal investigative demand issued to such
Shareholder in the course of any litigation, investigation or administrative
proceeding.
Section 5.3. Successors and Assigns. Except as otherwise provided
herein, all the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by the respective
successors and assigns of the parties hereto. No Shareholder may assign any of
its rights hereunder to any Person other than a transferee that has complied in
all respects with the requirements of this Agreement (including, without
limitation, Section 3.2 hereof). The Company may not assign any of its rights
hereunder to any other Person. If any transferee of any Shareholder shall
acquire any shares of Common Stock or Preferred Stock in any manner, whether by
operation of law or otherwise, such shares shall be held subject to all of the
terms of this Agreement, and by taking and holding such shares such Person shall
be entitled to receive the benefits of and be conclusively deemed to have agreed
to be bound by and to comply with all of the terms and provisions of this
Agreement.
Section 5.4. Amendment and Modification: Waiver of Compliances; Conflicts.
(a) This Agreement may be amended only by a written instrument duly
executed by all of the Shareholders. In the event of the amendment or
modification of this Agreement in accordance with its terms, the Shareholders
shall cause the Board of Directors to meet within 30 calendar days following
such amendment or modification or as soon thereafter as is practicable for the
purpose of adopting any amendment to the Certificate of Incorporation and
By-Laws that may be required as a result of such amendment or modification to
this Agreement, and, if required, proposing such amendments to the Shareholders
entitled to vote thereon, and the Shareholders agree to vote in favor of such
amendments.
<PAGE>
(b) Except as otherwise provided in this Agreement, any failure of any
of the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
(c) In the event of any conflict between the provisions of this
Agreement and the provisions of any other agreement, the provisions of this
Agreement shall govern and prevail.
Section 5.5. Notices. All notices and other communications provided for
hereunder shall be in writing and delivered by hand or sent by first class mail
or sent by telecopy (with such telecopy to be confirmed promptly in writing sent
by first class mail), sent as follows:
(i) If to Holdco, addressed to:
Mrs. Fields' Holding Company, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(ii) If to the Company, addressed to:
The Mrs. Fields' Brand, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(iii) If to Harvard, addressed to:
Harvard Private Capital Holdings, Inc.
600 Atlantic Avenue, 26th Floor
Boston, Massachusetts 02210-2203
Attention: John M. Sallay
Telecopy: (617) 523-1063
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: Larry Rowe
Telecopy: (617) 951-7050
or to such other address or addresses or telecopy number or numbers as any of
the parties hereto may most recently have designated in writing to the other
parties hereto by such notice. All such communications shall be deemed to have
been given or made when so delivered by hand or sent by telecopy, or three
business days after being so mailed.
<PAGE>
Section 5.6. Entire Agreement: Governing Law.
(a) This Agreement and the other writings referred to herein or
delivered pursuant hereto which form a part hereof contain the entire agreement
among the parties hereto with respect to the subject transactions contemplated
hereby and supersede all prior oral and written agreements and memoranda and
undertakings among the parties hereto with regard to this subject matter. The
Company represents to the Shareholders that the rights granted to the holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted or obligations accepted under any other agreement (including the
Certificate of Incorporation) to which the Company is a party. Neither the
Company nor any Subsidiary of the Company will hereafter enter into any
agreement with respect to its equity or debt securities which is inconsistent
with the rights granted to any Shareholder under this Agreement without
obtaining the prior written consent of such Shareholder.
(b) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO THE CHOICE OF
LAW PRINCIPLES THEREOF).
Section 5.7. Injunctive Relief. The Shareholders acknowledge and agree
that a violation of any of the terms of this Agreement will cause the
Shareholders irreparable injury for which an adequate remedy at law is not
available. Therefore, the Shareholders agree that each Shareholder shall be
entitled to, an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any Shareholder from committing any
violations of the provisions of this Agreement.
Section 5.8. Availability of Agreement. For so long as this Agreement
shall be in effect, this Agreement shall be made available for inspection by any
Shareholder upon request at the principal executive offices of the Company.
Section 5.9. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 5.10. Recapitalizations, Exchanges, Etc. Affecting the Shares
of Common Stock; New Issuances. The provisions of this Agreement shall apply, to
the full extent set forth herein with respect to the shares of Common Stock and
to any and all equity or debt securities of the Company or any successor or
assign of the Company (whether by merger, consolidation, sale of assets, or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of, such equity or debt securities and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
reclassifications, recapitalizations, reorganizations and the like occurring
after the date hereof.
Section 5.11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
Section 5.12. Arbitration.
(a) Any disagreement, dispute, controversy or claim arising
out of or relating to this Agreement or the transactions contemplated hereby,
including, without limitation, the interpretation hereof and any breach,
termination or invalidity hereof, shall be settled exclusively and finally (i)
through good faith negotiation of the parties for a period not in excess of 30
days and (ii) in the event such negotiations do not yield a settlement within
such 30-day period, by arbitration (irrespective of the magnitude thereof, the
amount in controversy or whether such matter would otherwise be considered
justiciable or ripe by a court or arbitral tribunal).
(b) The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association (the
?Arbitration Rules?), except as those rules conflict with the provisions of this
Section 5.12, in which event the provisions of this Section 5.12 shall control.
(c) The arbitral tribunal shall consist of three arbitrators
chosen in accordance with the Arbitration Rules. The arbitration shall be
conducted in New York City. Any submission of a matter for arbitration shall
include joint written instructions of the parties requiring the arbitral
tribunal to render a decision resolving the matters submitted within 60 days
following the submission thereof.
(d) Any decision or award of the arbitral tribunal shall be
final and binding upon the parties to the arbitration proceeding. The parties
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having jurisdiction
thereof.
(e) All out-of-pocket costs and expenses incurred by any party
in connection with the resolution of any disagreement, dispute, controversy or
claim pursuant to this Section 5.12, including, but not limited to, reasonable
attorney?s fees and disbursements, shall be borne by the party incurring the
same; provided, however, that the arbitral tribunal shall have the discretion to
declare any party as the ?prevailing party? with respect to one or more of the
issues that were the subject of the arbitration and to require the other parties
to the arbitration to reimburse such ?prevailing party? for some or all of its
costs and expenses incurred in connection with such proceeding.
(f) The costs of the arbitral tribunal shall be divided evenly
between the parties, unless there is a ?prevailing party,? in which case the
arbitral tribunal may allocate more or all of such costs to the party thereto
that is not the ?prevailing party?.
(g) This Section 5.12 shall not prohibit or limit in any way
any party from seeking or obtaining preliminary or interim injunctive or other
equitable relief from a court for a breach or alleged breach of any of the
covenants and agreements of another party contained in this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
THE MRS. FIELDS' BRAND, INC.
By:/s/Larry A. Hodges
Name:Larry A. Hodges
Title:President/CEO
HARVARD PRIVATE CAPITAL
HOLDINGS, INC.
By:/s/
Name:
Title:
By:
Name:
Title:
MRS. FIELDS' HOLDING COMPANY,INC.
acting on behalf agent, bailee, or ot
<PAGE>
CAPRICORN INVESTORS II, L.P.
By Capricorn Holdings L.L.C,
General Partner
By:/s/Herbert S. Winokur
Name:Herbert S. Winokur
Title:Manager
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
(Not Part of Agreement)
Section Heading Page
1. Certain Definitions...................................................................... 2
2. Management............................................................................... 4
2.1. Board of Directors; Shareholders.............................................. 4
2.2. Authority of Board of Directors............................................... 5
2.3. No Conflict with Agreement.................................................... 5
3. Transfers of Shares of Common Stock and Preferred Stock.............................. 5
3.1. Restrictions on Transfer........................................................5
3.2 Endorsement of Certificates................................................... 6
3.3. Improper Transfer.............................................................. 7
4. Rights of First Refusal; Drag-Along Rights; Tag-Along Rights; Preemptive Rights........... 7
4.1. Transfers by Shareholders..................................................... 7
4.2. Transfer of Offered Securities to Third Parties................................ 9
4.3. Purchase of Offered Securities................................................. 9
4.4. Drag-Along Rights............................................................. 10
4.5. Tag-Along Rights.............................................................. 13
4.6. Preemptive Rights............................................................. 14
5.
Miscellaneous
14
5.1. Inspection Rights............................................................. 14
5.2. Confidentiality............................................................... 15
5.3. Successors and Assigns........................................................ 15
5.4. Amendment and Modification: Waiver of Compliances; Conflicts.................. 16
5.5. Notices....................................................................... 16
5.6. Entire Agreement: Governing Law............................................... 18
5.7. Injunctive Relief............................................................. 18
5.8. Availability of Agreement..................................................... 18
5.9. Headings...................................................................... 18
5.10. Recapitalizations, Exchanges, Etc. Affecting the Shares of Common
Stock; New Issuances.......................................................... 19
5.11. Counterparts.................................................................. 19
5.12. Arbitration 19
</TABLE>
01/21/98
STOCK ACQUISITION AGREEMENT
AMONG
MRS. FIELDS' HOLDING COMPANY, INC.,
PRETZEL TIME, INC.,
AND
MARTIN E. LISIEWSKI
September 2, 1997
<PAGE>
227839.4
01/21/98
TABLE OF CONTENTS
Page
1. Definitions......................................................... 1
"Adverse Consequences".............................................. 1
"Affiliate"......................................................... 1
"Affiliated Group".................................................. 1
"Basis"......................................... ................... 2
"Closing"........................................................... 2
"Closing Date"...................................................... 2
"Code".............................................................. 2
"Company"........................................................... 2
"Company Share"..................................................... 2
"Controlled Group of Corporations".................................. 2
"Deferred Intercompany Transaction"................................. 2
"Disclosure Schedule"............................................... 2
"Employee Benefit Plan"............................................. 2
"Employee Pension Benefit Plan"..................................... 2
"Employee Welfare Benefit Plan"..................................... 2
"Environmental, Health, and Safety Laws"............................ 2
"ERISA"............................................................. 3
"Excess Loss Account"............................................... 3
"Extremely Hazardous Substance"..................................... 3
"Fiduciary"......................................................... 3
"Fields"............................................................ 3
"Financial Statement"............................................... 3
"Franchise Agreements".............................................. 3
"GAAP".............................................................. 3
"Intellectual Property"............................................. 3
"Knowledge"......................................................... 4
"Liability"......................................................... 4
"MFOC".............................................................. 4
"Most Recent Balance Sheet"......................................... 4
"Most Recent Financial Statements".................................. 4
"Most Recent Fiscal Month End"...................................... 4
"Most Recent Fiscal Year End"....................................... 4
"Multiemployer Plan"................................................ 4
"Ordinary Course of Business"....................................... 4
"Parties"........................................................... 4
"PBGC".............................................................. 4
"Person"............................................................ 4
"Preferred Shares".................................................. 5
"Principal Shareholder"............................................. 5
"Prohibited Transaction"............................................ 5
"Purchase Proceeds"................................................. 5
"Related Transactions".............................................. 5
"Related Transactions Documents".................................... 5
"Reportable Event".................................................. 5
"Shares"............................................................ 5
"Securities Act".................................................... 5
"Security Interest"................................................. 5
"Subsidiary"........................................................ 5
"Tax"............................................................... 5
"Tax Return"........................................................ 6
"Third Party Claim"................................................. 6
2. Transaction Terms................................................... 6
(a) Purchase of Shares......................................... 6
(b) The Closing................................................ 6
3. Representations and Warranties of the Principal Shareholder......... 6
(a) Authorization of Transaction............................... 6
(b) Principal Shareholders Company Shares...................... 7
(c) Noncontravention........................................... 7
(d) Brokers' Fees.............................................. 7
(e) Information Accurate and Complete.......................... 7
4. Representations and Warranties of Fields............................ 7
(a) Organization of Fields..................................... 8
(b) Authorization of Transaction............................... 8
(c) Noncontravention........................................... 8
(d) Investment................................................. 8
(e) Broker's Fees.............................................. 8
(f) Information Accurate and Complete.......................... 8
5. Representations and Warranties Concerning the Company and Its Subsidiaries 8
(a) Organization, Qualification, and Corporate Power........... 9
(b) Capitalization............................................. 9
(c) The Shares................................................. 10
(d) Noncontravention........................................... 10
(e) Brokers' Fees.............................................. 11
(f) Title to Assets............................................ 11
(g) Subsidiaries............................................... 11
(h) Financial Statements....................................... 12
(i) Events Subsequent to Most Recent Fiscal Year End........... 12
(j) Undisclosed Liabilities.................................... 15
(k) Legal Compliance........................................... 15
(l) Tax Matters................................................ 16
(m) Real Property.............................................. 18
(n) Intellectual Property...................................... 21
(o) Tangible Assets............................................ 24
(p) Inventory; Company......................................... 24
(q) Contracts.................................................. 24
(r) Franchise Agreements....................................... 26
(s) Notes and Accounts Receivable.............................. 26
(t) Powers of Attorney......................................... 26
(u) Insurance.................................................. 26
(v) Litigation................................................. 27
(w) Product Warranty........................................... 28
(x) Product Liability.......................................... 28
(y) Employees.................................................. 28
(z) Employee Benefit........................................... 29
(aa) Guaranties................................................. 31
(ab) Environment, Health, and Safety............................ 31
6. Pre-Closing Covenants............................................... 32
(a) General.................................................... 32
(b) Notices and Consents....................................... 32
(c) Operation of Business...................................... 33
(d) Preservation of Business................................... 33
(e) Full Access................................................ 33
(f) Notice of Developments..................................... 33
(g) Exclusivity................................................ 33
7. Further Assurances.................................................. 34
8. Conditions to Obligation to Close................................... 34
(a) Conditions to Obligation of Fields.................................... 34
(b) Conditions to Obligation of the Company and the Principal Shareholder. 36
9. Remedies for Breaches of This Agreement............................. 37
(a) Survival of Representations and Warranties................. 37
(b) Indemnification Provisions for Benefit of Fields........... 37
(c) Matters Involving Third Parties............................ 39
(d) Determination of Adverse Consequences...................... 41
(e) Other Indemnification Provisions........................... 41
(f) Rights of Offset........................................... 42
(g) Limitation of Rights of Offset............................. 42
10. Termination......................................................... 42
(a) Termination of Agreement................................... 42
(b) Effect of Termination..................................... 43
11. Miscellaneous....................................................... 43
(a) Nature of Certain Obligations.............................. 43
(b) Press Releases and Public Announcements.................... 43
(c) No Third-Party Beneficiaries............................... 43
(d) Entire Agreement........................................... 43
(e) Succession and Assignment.................................. 44
(f) Counterparts............................................... 44
(g) Headings................................................... 44
(h) Notices.................................................... 44
(i) Governing Law.............................................. 45
(j) Amendments and Waivers..................................... 46
(k) Severability............................................... 46
(l) Expenses................................................... 46
(m) Construction............................................... 46
(n) Incorporation of Exhibits, Annexes, and Schedules.......... 46
(o) Specific Performance....................................... 47
(p) Submission to Jurisdiction................................. 47
(q) Arbitration................................................ 47
<PAGE>
EXHIBITS
A List of Related Transactions and Related Transaction Documents
B Financial Statements of the Company
C Debt Reduction Schedule
ANNEXES
I Exceptions to Company's and Principal Shareholder's Representations and
Warranties Concerning Transaction
II Exceptions to Fields' Representations and Warranties Concerning Transaction
SCHEDULES
2(a) Obligations of Company to be Retired from Proceeds at Closing
5(a) Officers and Directors of Company and Subsidiaries
5(b) Capitalization of Company
5(g) Subsidiaries and Subsidiary Information
5(l)(iii) Federal, State and Local Tax Returns
5(l)(iv) Basis of Company and Subsidiary in Assets; Stockholder's Basis; Net
Operating Loss, etc.;
Deferred Gain or Loss
5(m)(i) Real Property Owned by the Company
5(m)(ii) Real Property Leased or Subleased by the Company, and/or Leased or
Subleased to Third Parties,
including Franchisees and Area Developers
5(n)(iii) Intellectual Property of the Company and Licenses Thereof
5(n)(iv) Licenses Held by the Company From Third Parties
5(q) Contracts
5(u) Insurance
5(v) Litigation
5(w) Product Warranty
5(z) Employee Benefit Plans
<PAGE>
227839.4
01/21/98
27
227839.4
01/21/98
STOCK ACQUISITION AGREEMENT
This Agreement is entered into as of September ____, 1997, by and among
Mrs. Fields' Holding Company, Inc. a Delaware corporation ("Fields"), Pretzel
Time, Inc., a Delaware corporation (the "Company") and Martin E. Lisiewski, the
principal shareholder of the Company ("Principal Shareholder"). Fields, the
Company and the Principal Shareholder are referred to collectively herein as the
"Parties."
WHEREAS, the Principal Shareholder is the principal shareholder of
the Company, owning forty-four (44) Company Shares, that being forty-four
percent (44%) of the outstanding common stock of the Company; and
WHEREAS, there are currently, or on the Closing Date (defined
herein) there will be, fourteen (14) shares of the Company's authorized common
stock held in treasury (the "Shares"); and
WHEREAS, the Company is prepared to sell all of the Shares to Fields on the
terms and conditions set forth herein; and
WHEREAS, concurrently or in conjunction with the transaction
described herein, Fields or its affiliated company are entering into a Stock
Purchase Agreement with other holders of Company Shares, together with the
Related Transactions described on Exhibit A hereto.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
. 1. Definitions
means all actions, suits, proceedings, hearings, investigations, charges,
complaints, claims, demands, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, amounts
paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys'
fees and expenses.
has the meaning set forth in Rule 12b-2 of the regulations promulgated
under the Securities Exchange Act.
means any affiliated group within the meaning of Code Sec. 1504 or any
similar group defined under a similar provision of state, local or
foreign law.
means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
has the meaning set forth in Section 2(b) below.
has the meaning set forth in Section 2(b) below.
means the Internal Revenue Code of 1986, as amended.
has the meaning set forth in the preface above.
means any share of the Common Stock, par value $10.00 per share, of the
Company.
has the meaning set forth in Code Sec. 1563.porations"
has the meaning set forth in Treas. Reg. Section 1. 1502-13.
has the meaning set forth in Section 5 below.
means any (a) nonqualified deferred compensation or retirement plan or
arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which
is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit
Plan (including any Multiemployer Plan), or (d) Employee Welfare
Benefit Plan or
has the meaning set forth in ERISA Sec. 3(2).t Plan"
has the meaning set forth in ERISA Sec. 3(1).t Plan"
means the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Resource Conservation and Recovery Act of 1976, and the
Occupational Safety and Health Act of 1970, each as amended, together with all
other laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or employee health and
safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
means the Employee Retirement Income Security Act of 1974, as amended.
has the meaning set forth in Treas. Reg. Section 1.1502-19.
has the meaning set forth in Sec. 302 of the Emergency Planning and
Community Right-to-Know Act of 1986, as amended.
has the meaning set forth in ERISA Sec. 3(21).
has the meaning set forth in the preface above.
has the meaning set forth in Section 5(h) below.
has the meaning set forth in Section 5(q) below.
means United States generally accepted accounting principles as in effect from
time to time.
means (a) all inventions (whether patentable or unpatentable and whether or
not reduced to practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(e) all computer software (including data and related documentation), (f) all
other proprietary rights, and (g) all copies and tangible embodiments thereof
(in whatever form or medium).
means actual knowledge after reasonable investigation.
means any liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or
to become due), including any liability for Taxes.
means Mrs. Fields' Original Cookies, Inc.
means the balance sheet contained within the Most Recent Financial Statements.
has the meaning set forth in Section 5(h) below.ements"
has the meaning set forth in Section 5(h) below.nd"
has the meaning set forth in Section 5(h) below.d"
has the meaning set forth in ERISA Sec. 3(37).
means the ordinary course of business consistent with past custom and
practice (including with respect to quantity and frequency).
has the meaning set forth in the preface above.
means the Pension Benefit Guaranty Corporation.
means an individual, an entity including a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
has the meaning set forth in Section 5(b)(1)(B).
has the meaning set forth in the preface above.
has the meaning set forth in ERISA Sec. 406 and Code Sec. 4975.
has the meaning set forth in Section 2(a) below
means the transactions that are the subject of the Related Transactions
Documents to be closed concurrently or in conjunction with the
transactions that are the subject of this Agreement.
means the documents listed on Exhibit A, executed or to be executed in
connection with the Related Transactions.
has the meaning set forth in ERISA Sec. 4043.
has the meaning set forth in the preface above.
means the Securities Act of 1933, as amended.
means any mortgage, pledge, lien, encumbrance, charge, or other security
interest, other than (a) mechanic's, materialmen's, and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes
that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental
payments under capital lease arrangements, and (d) other liens
arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
means any corporation with respect to which a specified Person (or a
Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to
elect a majority of the directors.
means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under
Code Sec. 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
has the meaning set forth in Section 9(c) below.
. 2. Transaction Terms
. In consideration for One Million Fifty Thousand Dollars
($1,050,000) (the "Purchase Proceeds"), or Seventy Five Thousand
Dollars ($75,000) for each of the Shares, the Company and the
Principal Shareholder shall issue and deliver to Fields the Shares.
The Shares shall be fully paid and nonassessable, free and clear of
all liens, encumbrances and claims of every kind and nature.
Following the Closing of the transaction described herein and the
Related Transactions, Fields shall own no less than fifty-six
percent (56%) of the issued and outstanding Company Shares on a
fully diluted basis. Fields shall deliver to the Company the
Purchase Proceeds by certified check, bank check, wire transfer, or
other immediately available funds on the Closing Date. All of the
Purchase Proceeds shall be used by the Company to retire the
Company obligations as set forth in the Debt Reduction Schedule
attached hereto as Exhibit C.
. Following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions
the respective Parties will take at the Closing itself), the
closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Mette, Evans &
Woodside, 3401 North Front Street, Harrisburg, Pennsylvania, on or
before September 2, 1997, commencing at a time agreed upon by the
Parties, or such other date as Fields and the Company may mutually
determine (the "Closing Date").
. The Principal Shareholder hereby represents and warrants to Fields that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 3) with respect to himself.
. The Principal Shareholder has full power and authority to execute
and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of the Principal Shareholder, enforceable in accordance
with its terms and conditions. The Principal Shareholder need not
give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any third-party including
any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
. The Principal Shareholder owns as of the date hereof and upon
Closing shall own forty-four (44) Company Shares (equalling
forty-four percent (44%) of the outstanding Company Shares on a
fully diluted basis. The Principal Shareholder does not own or
hold, directly or indirectly, any options, warrants, or other
instruments convertible into Company Shares or into any other
security of the Company.
. Neither the execution and the delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (A)
violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Principal
Shareholder is subject or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Principal Shareholder is
a party or by which he is bound or to which any of his assets is
subject.
. The Principal Shareholder has no Liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement for which Fields
could become liable or obligated.
. Without limiting the specific language of any other representation
or warranty herein, all information furnished or to be furnished by
the Principal Shareholder in this Agreement, in exhibits or
schedules attached hereto is or will be accurate and complete in
all material respects.
. Fields represents and warrants to the Company that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in Annex II attached hereto.
. Fields is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its
incorporation.
. Fields has full power and authority (including full corporate power
and authority) to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of Fields, enforceable in accordance
with its terms and conditions. Fields need not give any notice to,
make any filing with, or obtain any authorization, consent, or
approval of any third party including any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
. Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to
which Fields is subject or any provision of its charter or bylaws
or, (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which Fields is a party or by
which it is bound or to which any of its assets is subject.
. Fields is not acquiring the Shares with a view to or for sale in
connection with any distribution thereof within the meaning of the
Securities Act.
. Fields has no Liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Principal
Shareholder or Company could become liable or obligated.
. Without limiting the specific language of any representation or
warranty herein, all information furnished or to be furnished by
Fields in this Agreement, in exhibits or schedules attached hereto,
is or will be accurate and complete in all material respects.
. The Company and the Principal Shareholder hereby represent and warrant,
jointly and severally, to and with Fields that the statements contained in this
Section 5 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 5), except as set forth in the disclosure schedule delivered by the
Company and the Principal Shareholder to Fields on the date hereof and initialed
by the Parties (the "Disclosure Schedule"). Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, however, unless the Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
5. For purposes of this Section 5 references to the Company shall be deemed to
include officers, directors, and employees of the Company (excluding, however,
the Principal Shareholder) having responsibilities for the matter to which the
representation pertains.
. Each of the Company and its Subsidiaries is a corporation or other
entity duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation or formation.
Each of the Company and its Subsidiaries is duly authorized to
conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. Each of the
Company and its Subsidiaries has full corporate power and authority
and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the
properties owned and used by it. Section 5(a) of the Disclosure
Schedule lists the directors and officers of each of the Company
and its Subsidiaries. The Company and the Principal Shareholder
have delivered to Fields correct and complete copies of the charter
and bylaws of each of the Company and its Subsidiaries (as amended
to date). The minute books (containing the records of meetings of
the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock
record books of each of the Company and its Subsidiaries are
correct and complete. None of the Company and its Subsidiaries is
in default under or in violation of any provision of its charter or
bylaws.
. (b) Capitalization
(i) The entire authorized capital stock of the Company consists
of
(A) one thousand (1,000) Company Shares,
of which ninety-one (91) Company Shares are issued
and outstanding and nine (9) Company Shares are
held in treasury and,
(B) five hundred (500) shares of
nonvoting preferred shares, par value $10,000 per
share (the "Preferred Shares"), of which one
hundred forty-four and one-half (144.5) shares are
issued and outstanding, having the rights and
privileges set forth in Section 5(b)(1)(B) of the
Disclosure Schedule.
(ii) all of the issued and outstanding Company
Shares and Preferred Shares have been duly authorized, are
validly issued, fully paid, and nonassessable, and are
held of record as set forth in Section 5(b) of the
Disclosure Schedule. Section 5(b) sets forth each of the
rights and preferences of the Preferred Shares (other than
rights and preferences) under the Pennsylvania Business
Corporation law and common law of the Commonwealth of
Pennsylvania) and all agreements, by and among the Company
and any of the owners or holders of the Preferred Shares,
concerning the Preferred Shares, including without
limitation the redemption thereof or the payment of
dividends with respect thereto.
(iii) There are no outstanding or authorized
options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, preference rights or
other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with
respect to the Company. Section 5(b) of the Disclosure
Schedule describes all of the voting trusts, proxies, or
other agreements or understandings with respect to the
voting of the capital stock of the Company, all of which
shall be terminated, relinquished and of no further force
or effect on or before the Closing.
. The Shares, when issued and delivered to Fields at the Closing,
shall be duly authorized, fully paid, nonassessable, validly
issued, and free and clear of all Security Interests, charges,
pledges, claims and encumbrances of any kind or nature whatsoever.
The Shares shall constitute no less than nine percent (9%) of the
issued and outstanding Company Shares on a fully diluted basis.
. To the Knowledge of the Principal Shareholder, neither the
execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i)
violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which any of the
Company and its Subsidiaries is subject or any provision of the
charter or bylaws of any of the Company and its Subsidiaries or
(ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument,
or other arrangement to which any of the Company and its
Subsidiaries is a party or by which it is bound or to which any
of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). None of the Company
and its Subsidiaries needs to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
. None of the Company and its Subsidiaries has any Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this
Agreement.
. The Company and its Subsidiaries have good and marketable title to,
or a valid leasehold interest in, the properties and assets used by
them, located on their premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of
all Security Interests, except for properties and assets disposed
of in the Ordinary Course of Business since the date of the Most
Recent Balance Sheet.
. Section 5(g) of the Disclosure Schedule sets forth for
each Subsidiary of the Company (i) its name and jurisdiction of
incorporation or formation, (ii) the number of shares of
authorized capital stock of each class of its capital stock,
(iii) the number of issued and outstanding shares of each class
of its capital stock, the names of the holders thereof, and the
number of shares held by each such holder, and (iv) the number of
shares of its capital stock held in treasury. All of the issued
and outstanding shares of capital stock of each Subsidiary of the
Company have been duly authorized and are validly issued, fully
paid, and nonassessable. The Company holds of record and owns
beneficially all of the outstanding shares of each Subsidiary of
the Company, free and clear of any restrictions on transfer
(other than restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and
demands. There are no outstanding or authorized options,
warrants, purchase rights, conversion rights, exchange rights, or
other contracts or commitments that could require any of the
Company and its Subsidiaries to sell, transfer, or otherwise
dispose of any capital stock of any of its Subsidiaries or that
could require any Subsidiary of the Company to issue, sell, or
otherwise cause to become outstanding any of its own capital
stock. There are no outstanding stock appreciation, phantom
stock, profit participation, or similar rights with respect to
any Subsidiary of the Company. There are no voting trusts,
proxies, or other agreements or understandings with respect to
the voting of any capital stock of any Subsidiary of the Company.
None of the Company and its Subsidiaries controls directly or
indirectly or has any direct or indirect equity participation in
any corporation, partnership, trust, or other business
association which is not a Subsidiary of the Company. Section
5(g) of the Disclosure Schedule lists any subsidiary sold by the
Company or merged into the Company, including the date of and
parties to any such transaction and the documents executed by the
Company in connection therewith.
. Attached hereto as Exhibit B are the following financial statements
(collectively the "Financial Statements"): (i) unaudited
consolidated and consolidating balance sheets and statements of
income, changes in stockholders' equity, and cash flow as of and
for the fiscal years ended December 27, 1992, December 26, 1993,
December 25, 1994, and December 31, 1995 for the Company and its
Subsidiaries; (ii) audited consolidated balance sheets and
statements of income, changes in shareholders' equity, and cash
flow as of and for the fiscal year ended December 29, 1996 (the
"Most Recent Fiscal Year End") for the Company and its
Subsidiaries; and (iii) unaudited consolidated and consolidating
balance sheets and statements of income, changes in stockholders'
equity, and cash flow (the "Most Recent Financial Statements") as
of and for the six months ended July 13, 1997 (the "Most Recent
Fiscal Month End") for the Company and its Subsidiaries. The
Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the
financial condition of the Company and its Subsidiaries as of such
dates and the results of operations of the Company and its
Subsidiaries for such periods, are correct and complete, and are
consistent with the books and records of the Company and its
Subsidiaries (which books and records are correct and complete);
provided, however, that the Most Recent Financial Statements are
subject to normal year-end adjustments (which will not be material
individually or in the aggregate) and lack footnotes and other
presentation items.
. Since the Most Recent Fiscal Year End, there has not been any
material adverse change in the business, financial condition,
operations, results of operations, or future prospects of any of
the Company and its Subsidiaries. Without limiting the generality
of the foregoing, except as set forth in the Related Transactions
Documents, since that date:
(i) none of the Company and its Subsidiaries has
sold, leased, transferred, or assigned any of its assets,
tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) none of the Company and its Subsidiaries has
entered into any agreement, contract, lease, or license
(or outside series of related agreements, contracts,
leases, and licenses) outside the Ordinary Course of
Business;
(iii) no party (including any of the Company and
its Subsidiaries) has accelerated, terminated, modified,
or cancelled any agreement, contract, lease, or license
(or series of related agreements, contracts, leases, and
licenses) involving more than $1,000 to which any of the
Company and its Subsidiaries is a party or by which any of
them is bound;
(iv) none of the Company and its Subsidiaries has
imposed any Security Interest upon any of its assets,
tangible or intangible;
(v) none of the Company and its Subsidiaries has
made any capital expenditure (or series of related capital
expenditures) either involving more than $10,000 or
outside the Ordinary Course of Business;
(vi) none of the Company and its Subsidiaries has
made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans,
and acquisitions) either involving more than $5,000 or
outside the Ordinary Course of Business;
(vii) none of the Company and its Subsidiaries has
issued any note, bond, or other debt security or created,
incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either
involving more than [$5,000 singly or $10,000 in the
aggregate;] Rich has requested changing to 10K and 50k.
Why?
(viii) none of the Company and its Subsidiaries
has delayed or postponed the payment of accounts payable
and other Liabilities outside the Ordinary Course of
Business;
(ix) none of the Company and its Subsidiaries has
cancelled, compromised, waived, or released any right or
claim (or series of related rights and claims) either
involving more than $10,000 or outside the Ordinary Course
of Business;
(x) none of the Company and its Subsidiaries has
granted any license or sublicense of any rights under or
with respect to any Intellectual Property except as set
forth in Schedule 5(n)(iii) setting forth each of the
Company's franchise area developer agreements and other
similar documents;
(xi) there has been no change made or authorized
in the charter or bylaws of any of the Company and its
Subsidiaries;
(xii) none of the Company and its Subsidiaries has
issued, sold, or otherwise disposed of any of its capital
stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(xiii) none of the Company and its Subsidiaries
has declared, promised, committed to, set aside, or paid
any dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired, or promised or committed
to redeem, purchase or otherwise acquire, any of its
capital stock;
(xiv) none of the Company and its Subsidiaries has
experienced any damage, destruction, or loss (whether or
not covered by insurance) to its property;
(xv) none of the Company and its Subsidiaries has
made any loan to, or entered into any other transaction
with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) none of the Company and its Subsidiaries has
entered into any employment contract or collective
bargaining agreement, written or oral, or modified the
terms of any such existing contract or agreement;
(xvii) none of the Company and its Subsidiaries
has granted any increase in the base compensation of any
of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) none of the Company and its Subsidiaries
has adopted, amended, modified, or terminated any bonus,
profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such
action with respect to any other Employee Benefit Plan);
(xix) none of the Company and its Subsidiaries has
made any other change in employment terms for any of its
directors, officers, and employees outside the Ordinary
Course of Business;
(xx) none of the Company and its Subsidiaries has
made or pledged to make any charitable or other capital
contribution outside the Ordinary Course of Business;
(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or
transaction outside the Ordinary Course of Business
involving any of the Company and its Subsidiaries; and
(xxii) none of the Company and its Subsidiaries
has committed to any of the foregoing.
. None of the Company and its Subsidiaries has any Liability (and to
the Knowledge of the Principal Shareholder, there is no Basis for
any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of
them giving rise to any Liability), except for (i) Liabilities set
forth on the face of the Most Recent Balance Sheet (rather than in
any notes thereto), and (ii) Liabilities which have arisen after
the Most Recent Fiscal Month End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
. To the Knowledge of the Principal Shareholder, each of the Company,
its Subsidiaries, and their respective predecessors and Affiliates
has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them
alleging any failure so to comply.
. (l) Tax Matters
(i) To the Knowledge of the Principal Shareholder,
each of the Company and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns
were correct and complete in all respects. All Taxes owed
by any of the Company and its Subsidiaries (whether or not
shown on any Tax Return) have been paid. None of the
Company and its Subsidiaries currently is the beneficiary
of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a
jurisdiction where any of the Company and its Subsidiaries
does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security
Interests on any of the assets of any of the Company and
its Subsidiaries that arose in connection with any failure
(or alleged failure) to pay any Tax.
(ii) To the Knowledge of the Principal
Shareholder, each of the Company and its Subsidiaries has
withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder,
or other third party.
(iii) Neither the Principal Shareholder, nor the
Company and its Subsidiaries expects any authority to
assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim
concerning any Tax Liability of any of the Company and its
Subsidiaries either (A) claimed or raised by any authority
in writing or (B) as to which the Principal Shareholder or
the Company or its Subsidiaries has Knowledge based upon
personal contact with any agent of such authority. Section
5(l) of the Disclosure Schedule lists all federal, state,
local, and foreign income Tax Returns filed with respect
to any of the Company and its Subsidiaries, indicates
those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit.
The Company has delivered to Fields correct and complete
copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against
or agreed to by any of the Company and its Subsidiaries.
(iv) None of the Company and its Subsidiaries has
waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) None of the Company and its Subsidiaries has
filed a consent under Code Sec. 341(f) concerning
collapsible corporation. None of the Company and its
Subsidiaries has made any payments, is obligated to make
any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any
payments that will not be deductible under Code Sec.
280G(a). None of the Company and its Subsidiaries has been
a United States real property holding corporation within
the meaning of Code Sec. 897(c)(2) during the applicable
period specified in Code Sec. 897(c)(1)(A)(ii). Each of
the Company and its Subsidiaries has disclosed on its
federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Sec. 6662.
None of the Company and its Subsidiaries is a party to any
Tax allocation or sharing agreement. None of the Company
and its Subsidiaries (A) has been a member of an
Affiliated Group filing a consolidated federal income Tax
Return (other than a group the common parent of which was
the Company) or (B) has any Liability for the Taxes of any
Person (other than any of the Company and its
Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(vi) Section 5(l) of the Disclosure Schedule sets
forth the following information with respect to each of
the Company and its Subsidiaries (or, in the case of
clause (B) below, with respect to each of the
Subsidiaries) as of the most recent practicable date (as
well as on an estimated pro forma basis as of the Closing
giving effect to the consummation of the transactions
contemplated hereby):
(A) the basis of the Company or Subsidiary in its assets;
(B) the basis of the stockholders of the
Subsidiary in its stock (or the amount of any
Excess Loss Account);
(C) the amount of any net operating loss,
net capital loss, unused investment or other
credit, unused foreign tax, or excess charitable
contribution allocable to the Company or
Subsidiary; and
(D) the amount of any deferred gain or
loss allocable to the Company or Subsidiary
arising out of any Deferred Intercompany
Transaction.
(vii) The unpaid Taxes of the Company and its Subsidiaries
(A) did not, as of the Most Recent Fiscal
Month End, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes
established to reflect timing differences between
book and Tax income) set forth on the face of the
Most Recent Balance Sheet (rather than in any
notes thereto); and
(B) do not exceed that reserve as
adjusted for the passage of time through the
Closing Date in accordance with the past custom
and practice of the Company and its Subsidiaries
in filing their Tax Returns.
. (m) Real Property
(i) Section 5(m)(i) of the Disclosure Schedule
lists and describes briefly all real property that any of
the Company and its Subsidiaries owns. With respect to
each such parcel of owned real property:
(A) the identified owner has good and
marketable title to the parcel of real property,
free and clear of any Security Interest, easement,
covenant, or other restriction, except for
installments of special assessments not yet
delinquent and recorded easements, covenants, and
other restrictions which do not impair the current
use, occupancy, or value, or the marketability of
title, of the property subject thereto;
(B) there are no pending or threatened
condemnation proceedings, lawsuits, or
administrative actions relating to the property or
other matters affecting materially and adversely
the current use, occupancy, or value thereof;
(C) the legal description for the parcel
contained in the deed thereof describes such
parcel fully and adequately, the buildings and
improvements are located within the boundary lines
of the described parcels of land, are not in
violation of applicable setback requirements,
zoning laws, and ordinances (and none of the
properties or buildings or improvements thereon
are subject to "permitted non-conforming use" or
"permitted non-conforming structure"
classifications), and do not encroach on any
easement which may burden the land, and the land
does not serve any adjoining property for any
purpose inconsistent with the use of the land, and
the property is not located within any flood plain
or subject to any similar type restriction for
which any permits or licenses necessary to the use
thereof have not been obtained;
(D) all facilities have received all
approvals of governmental authorities (including
licenses and permits) required in connection with
the ownership or operation thereof and have been
operated and maintained in accordance with
applicable laws, rules, and regulations;
(E) there are no leases, subleases,
licenses, concessions, or other agreements,
written or oral, granting to any party or parties
the right of use or occupancy of any portion of
the parcel of real property;
(F) there are no outstanding options or
rights of first refusal to purchase the parcel of
real property, or any portion thereof or interest
therein;
(G) there are no parties (other than the
Company and its Subsidiaries) in possession of the
parcel of real property, other than tenants under
any leases disclosed in Section 5(m)(ii) of the
Disclosure Schedule who are in possession of space
to which they are entitled;
(H) all facilities located on the parcel
of real property are supplied with utilities and
other services necessary for the operation of such
facilities, including gas, electricity, water,
telephone, sanitary sewer, and storm sewer, all of
which services are adequate in accordance with all
applicable laws, ordinances, rules, and
regulations and are provided via public roads or
via permanent, irrevocable, appurtenant easements
benefitting the parcel of real property; and
(I) each parcel of real property abuts on
and has direct vehicular access to a public road,
or has access to a public road via a permanent,
irrevocable, appurtenant easement benefitting the
parcel of real property, and access to the
property is provided by paved public right-of-way
with adequate curb cuts available.
(ii) Section 5(m)(ii) of the Disclosure Schedule
lists and describes briefly all real property:
(A) leased or subleased to any of the Company and its
Subsidiaries; and
(B) leased or subleased by any of the
Company and its subsidiaries to third parties,
including Company's franchisees and area
developers. The Company has delivered or made
available to Fields correct and complete copies of
the leases and the subleases listed in Section
5(m)(ii) of the Disclosure Schedule (as amended to
date). With respect to each lease and sublease
listed in Section 5(m)(ii) of the Disclosure
Schedule:
(C) the lease or sublease is legal,
valid, binding, enforceable, and in full force and
effect;
(D) the lease or sublease will continue
to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following
the consummation of the transactions contemplated
hereby;
(E) no party to the lease or sublease is
in breach or default, and no event has occurred
which, with notice or lapse of time, would
constitute a breach or default or permit
termination, modification, or acceleration
thereunder;
(F) no party to the lease or sublease has
repudiated any provision thereof;
(G) there are no disputes, oral
agreements, or forbearance programs in effect as
to the lease or sublease;
(H) with respect to each sublease, the
representations and warranties set forth in
subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(I) none of the Company and its
Subsidiaries has assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(J) all facilities leased or subleased
thereunder have received all approvals of
governmental authorities (including licenses and
permits) required in connection with the operation
thereof and have been operated and maintained in
accordance with applicable laws, rules, and
regulations;
(iii) all facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
. (n) Intellectual Property
(i) The Company and its Subsidiaries own or have
the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the
Company and its Subsidiaries as presently conducted. Each
item of Intellectual Property owned or used by any of the
Company and its Subsidiaries immediately prior to the
Closing hereunder will be owned or available for use by
the Company or the Subsidiary on identical terms and
conditions immediately subsequent to the Closing
hereunder. Each of the Company and its Subsidiaries has
taken all necessary action to maintain and protect each
item of Intellectual Property that it owns or uses.
(ii) To the Knowledge of the Principal
Shareholder, none of the Company and its Subsidiaries has
interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual
Property rights of third parties, and the Company and its
Subsidiaries has never received any charge, complaint,
claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including
any claim that any of the Company and its Subsidiaries
must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of
the Company and the Principal Shareholder, no third party
has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual
Property rights of any of the Company and its
Subsidiaries.
(iii) Section 5(n)(iii) of the Disclosure Schedule
identifies each patent, trademark or registration which
has been issued to any of the Company and its Subsidiaries
with respect to any of its Intellectual Property,
identifies each pending patent and trademark application
or application for registration which any of the Company
and its Subsidiaries has made with respect to any of its
Intellectual Property, and identifies each license,
agreement, or other permission which any of the Company
and its Subsidiaries has granted to any third party with
respect to any of its Intellectual Property (together with
any exceptions). The Company has delivered to Fields
correct and complete copies of all such patents,
trademarks, registrations, applications, licenses,
agreements, and permissions (as amended to date) and have
made available to Fields correct and complete copies of
all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. Section
5(n)(iii) of the Disclosure Schedule also identifies each
trade name or unregistered trademark used by any of the
Company and its Subsidiaries in connection with any of its
businesses. With respect to each item of Intellectual
Property required to be identified in Section 5(n)(iii) of
the Disclosure Schedule:
(A) the Company and its Subsidiaries
possess all right, title, and interest in and to
the item, free and clear of any Security Interest,
license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree,
ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand
is pending or to the Knowledge of any of the
Company or the Principal Shareholder (and
employees with responsibility for Intellectual
Property matters) of the Company and its
Subsidiaries, is threatened which challenges the
legality, validity, enforceability, use, or
ownership of the item; and
(D) none of the Company and its
Subsidiaries has ever agreed to indemnify any
Person for or against any interference,
infringement, misappropriation, or other conflict
with respect to the item.
(iv) Section 5(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any
third party owns and that any of the Company and its
Subsidiaries uses pursuant to license, sublicense,
agreement, or permission. The Company has delivered to
Fields correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property
required to be identified in Section 5(n)(iv) of the
Disclosure Schedule:
(A) subject to and limited by applicable
bankruptcy and insolvency laws and principles of
equity, the license, sublicense, agreement, or
permission covering the item is legal, valid,
binding, enforceable, and in full force and
effect;
(B) subject to and limited by applicable
bankruptcy and insolvency laws and principles of
equity, the license, sublicense, agreement, or
permission will continue to be legal, valid,
binding, enforceable, and in full force and effect
on identical terms following the Closing;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default,
and no event has occurred which with notice or
lapse of time would constitute a breach or default
or permit termination, modification, or
acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any
provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in
subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual
Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand
is pending or is threatened which challenges the
legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(H) none of the Company and its
Subsidiaries has granted any sublicense or similar
right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of the Company and the
Principal Shareholder, the Company and its Subsidiaries
will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the
continued operation of its business as presently
conducted.
(vi) Neither the Company nor the Principal
Shareholder has any Knowledge of any new products,
inventions, procedures, or methods of manufacturing or
processing that any competitors or other third parties
have developed which reasonably could be expected to
supersede or make obsolete any product or process of any
of the Company and its Subsidiaries.
. The Company and its Subsidiaries own or lease all buildings,
machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted.
. The Company and its Subsidiaries have no inventory
other than inventory in the Company-owned stores.
. Section 5(q) of the Disclosure Schedule lists the following
contracts and other agreements to which any of the Company and its
Subsidiaries is a party:
(i) each contract or agreement of any kind or
nature entered into by any of the Company Subsidiaries and
the Principal Shareholders, with any franchisee or area
developer of the Company or its Subsidiaries or any
officer, principal, owner shareholders, representative of
any such franchisee or area developer (collectively, the
"Franchise Agreements");
(ii) any agreement (or group of related
agreements) for the lease of personal property to or from
any Person providing for lease payments;
(iii) any agreement (or group of related
agreements) for the purchase or sale of raw materials,
commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services,
the performance of which will extend over a period of more
than one year, result in a material loss to any of the
Company and its Subsidiaries;
(iv) any agreement concerning a partnership or joint
venture;
(v) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or
guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation, or under which it has
imposed a Security Interest on any of its assets, tangible
or intangible;
(vi) any agreement concerning confidentiality or
noncompetition;
(vii) any profit sharing, stock option, stock
purchase, stock appreciation, deferred compensation,
severance, or other plan or arrangement for the benefit of
its current or former directors, officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any
individual on a full-time, part-time, consulting, or other
basis;
(x) any agreement under which it has advanced or
loaned any amount to any of its directors, officers, and
employees outside the Ordinary Course of Business;
(xi) any agreement under which the consequences of
a default or termination could have a material adverse
effect on the business, financial condition, operations,
results of operations, or future prospects of any of the
Company and its Subsidiaries; or
(xii) any other agreement (or group of related
agreements) the performance of which involves
consideration in excess of $5,000.
The Company and the Principal Shareholder have delivered to Fields a correct and
complete copy of each written agreement listed in Section 5(q) of the Disclosure
Schedule (as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 5(q) of the Disclosure
Schedule. With respect to each such agreement, subject to and limited by
applicable bankruptcy and insolvency laws and principles of equity: (A) the
agreement is legal, valid, binding, enforceable, and in full force and effect;
(B) the agreement will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
. Subject to and limited by applicable bankruptcy and insolvency laws
and principles of equity, all Franchise Agreements are in full
force and effect, enforceable in accordance with their terms, and
free of defaults. Without limiting the generality of the foregoing:
(i) each of the Franchise Agreements are in full force and
effect and has not been amended or modified;
(ii) no default or threatened default exist under any
Franchise Agreement;
(iii)each Franchise developer is, in fact, complying with
its obligations under its Franchise Agreement;
(iv) each Franchise Agreement has been prepared in
accordance with, and does not violate any, applicable
federal or state law (including Franchise and business
opportunity laws; and
(v) the Company has not received notices of any breach by
it of any Franchise Agreement from any party thereto.
. All notes and accounts receivable of the Company and its
Subsidiaries are reflected properly on their books and records, are
valid receivables subject to no setoffs or counterclaims, are
current and collectible, and will be collected in accordance with
their terms at their recorded amounts, subject only to the reserve
for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the
past custom and practice of the Company and its Subsidiaries.
. There are no outstanding powers of attorney executed on
behalf of any of the Company and its Subsidiaries.
. Section 5(u) of the Disclosure Schedule sets forth the following
information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which
any of the Company and its Subsidiaries has been a party, a named
insured, or otherwise the beneficiary of coverage at any time
within the past four (4) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other
basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements,
To the Knowledge of the Principal Shareholder, with respect to each such
insurance policy: (A) the policy is legal, valid, binding, enforceable, and in
full force and effect; (B) the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) neither any of the
Company and its Subsidiaries nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. Each of the Company and its Subsidiaries has been covered
during the past four (4) years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. Section 5(u) of the Disclosure Schedule describes any self-insurance
arrangements affecting any of the Company and its Subsidiaries.
. Section 5(v) of the Disclosure Schedule sets forth each
instance in which any of the Company and its Subsidiaries (i) is
subject to any outstanding injunction, judgment, order, decree,
ruling, or charge or (ii) is a party or is threatened to be made
a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator (including any state or
regulatory authority in connection with the Company's role as a
Franchisor). None of the actions, suits, proceedings, hearings,
and investigations set forth in Section 5(v) of the Disclosure
Schedule could result in any material adverse change in the
business, financial condition, operations, results of operations,
or future prospects of any of the Company and its Subsidiaries.
Neither the Company nor the Principal Shareholder has any reason
to believe that any action, suit, proceeding, hearing, or
investigation described in the preceding sentence may be brought
or threatened against any of the Company and its Subsidiaries.
. Each product manufactured, sold, leased, or delivered by any of the
Company and its Subsidiaries has been in conformity with all
applicable contractual commitments and all express and implied
warranties, and none of the Company and its Subsidiaries has any
Liability (and to the Knowledge of the Principal Shareholder, there
is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) for replacement or repair
thereof or other damages in connection therewith, subject only to
the reserve for product warranty claims set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and its
Subsidiaries. No product manufactured, sold, leased, or delivered
by any of the Company and its Subsidiaries is subject to any
guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease. Section 5(w) of the
Disclosure Schedule includes copies of the standard terms and
conditions of sale or lease for each of the Company and its
Subsidiaries (containing applicable guaranty, warranty, and
indemnity provisions).
. None of the Company and its Subsidiaries has any Liability (and to
the Knowledge of the Principal Shareholder, there is no Basis for
any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of
them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession,
or use of any product manufactured, sold, leased, or delivered by
any of the Company and its Subsidiaries.
. None of the Company and its Subsidiaries is a party to or bound by
any collective bargaining agreement, nor has any of them
experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. Neither the
Company nor its Subsidiaries has committed any unfair labor
practice. Neither the Company nor the Principal Shareholder has any
Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to
employees of any of the Company and its Subsidiaries.
. (z) Employee Benefit
(i) Section 5(z) of the Disclosure Schedule lists
each Employee Benefit Plan that any of the Company and its
Subsidiaries maintains or to which any of the Company and
its Subsidiaries contributes.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund)
complies in form and in operation in all respects
with the applicable requirements of ERISA, the
Code, and other applicable laws.
(B) All required reports and descriptions
(including Form 5500 Annual Reports, Summary
Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed
appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Sec.
4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(C) All contributions (including all
employer contributions and employee salary
reduction contributions) which are due have been
paid to each such Employee Benefit Plan which is
an Employee Pension Benefit Plan and all
contributions for any period ending on or before
the Closing Date which are not yet due have been
paid to each such Employee Pension Benefit Plan or
accrued in accordance with the past custom and
practice of the Company and its Subsidiaries. All
premiums or other payments for all periods ending
on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which
is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan meets the
requirements of a "qualified plan" under Code Sec.
401(a) and has received, within the last two
years, a favorable determination letter from the
Internal Revenue Service.
(E) The market value of assets under each
such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all
vested and nonvested Liabilities thereunder
determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for
determination.
(F) The Company has delivered to Fields
correct and complete copies of the plan documents
and summary plan descriptions, the most recent
determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual
Report, and all related trust agreements,
insurance contracts, and other funding agreements
which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan
that any of the Company, its Subsidiaries, and the
Controlled Group of Corporations which includes the
Company and its Subsidiaries maintains or ever has
maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than
any Multiemployer Plan) has been completely or
partially terminated or been the subject of a
Reportable Event as to which notices would be
required to be filed with the PBGC. No proceeding
by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan)
has been instituted or threatened.
(B) There have been no Prohibited
Transactions with respect to any such Employee
Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to
act or comply in connection with the
administration or investment of the assets of any
such Employee Benefit Plan. No action, suit,
proceeding, hearing, or investigation with respect
to the administration or the investment of the
assets of any such Employee Benefit Plan (other
than routine claims for benefits) is pending or
threatened. Neither the Company nor the Principal
Shareholder has any Knowledge of any Basis for any
such action, suit, proceeding, hearing, or
investigation.
(C) None of the Company and its
Subsidiaries has incurred, and neither of the
Company or the Principal Shareholder has any
reason to expect that any of the Company and its
Subsidiaries will incur, any Liability to the PBGC
(other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any
such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(iii) None of the Company, its Subsidiaries, and
the other members of the Controlled Group of Corporations
that includes the Company and its Subsidiaries contributes
to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer
Plan.
(iv) None of the Company and its Subsidiaries
maintains or ever has maintained or contributes, ever has
contributed, or ever has been required to contribute to
any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits
for current or future retired or terminated employees,
their spouses, or their dependents (other than in
accordance with Code Sec. 4980B).
. None of the Company and its Subsidiaries is a guarantor or
otherwise is liable for any Liability or obligation (including
indebtedness) of any other Person.
. (ab) Environment, Health, and Safety
(i) To the Knowledge of the Principal Shareholder,
each of the Company, its Subsidiaries, and their
respective predecessors and Affiliates has complied with
all Environmental, Health, and Safety Laws, and no action,
suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to
comply. Without limiting the generality of the preceding
sentence, to the Knowledge of the Principal Shareholder,
each of the Company, its Subsidiaries, and their
respective predecessors and Affiliates has obtained and
been in compliance with all of the terms and conditions of
all permits, licenses, and other authorizations which are
required under, and has complied with all other
limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental,
Health, and Safety Laws.
(ii) To the Knowledge of the Principal
Shareholder, none of the Company and its Subsidiaries has
any Liability (and none of the Company, its Subsidiaries,
and their respective predecessors and Affiliates has
handled or disposed of any substance, arranged for the
disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or
operated any property or facility in any manner that could
form the Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of the Company and its
Subsidiaries giving rise to any Liability) for damage to
any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any
employee or other individual, or for any reason under any
Environmental, Health, and Safety Law.
(iii) To the Knowledge of the Principal
Shareholder, all properties and equipment used in the
business of the Company, its Subsidiaries, and their
respective predecessors and Affiliates have been free of
asbestos, PCBs, methylene chloride, trichloroethylene,
1,2-transdichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances.
. The Parties agree as follows with respect to the period
between the execution of this Agreement and the Closing.
. Each of the Parties will use his or its best efforts to take all
action and to do all things necessary in order to consummate and
make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions
set forth in Section 8 below).
. The Company will cause each of the Company and its Subsidiaries to
give any notices to third parties, and will cause each of the
Company and its Subsidiaries to use its best efforts to obtain any
third-party consents, that Fields may request. Each of the Parties
will give any notices to, make any filings with, and use its best
efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies as may be required hereunder.
. Neither the Company nor its Subsidiaries will engage in any
practice, take any action, or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of
the foregoing, neither the Company nor its Subsidiaries will (i)
declare, promise, commit to, set aside, or pay any dividend or make
any distribution with respect to its capital stock or redeem,
purchase, or otherwise acquire any of its capital stock, (ii)
acquire additional indebtedness or enter into any loans; or (iii)
otherwise engage in any practice, take any action, or enter into
any transaction of the sort described in Section 5(i) above.
. The Company and its Subsidiaries will keep its business and
properties substantially intact, including its present operations,
physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, franchisees and area
developers.
. The Company and its Subsidiaries will permit representatives of
Fields to have full access to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of
or pertaining to each of the Company and its Subsidiaries.
. The Company and the Principal Shareholder will give prompt
written notice to Fields of any material adverse development
causing a breach of any of the representations and warranties in
Section 5 above. Each of the Parties will give prompt written
notice to the others of any material adverse development causing
a breach of any of his or its own representations and warranties
in Sections 3 and 4 above. No disclosure by any of the Parties
pursuant to this Section 6(f), however, shall be deemed to amend
or supplement Annex I, Annex II, or the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
. The Principal Shareholder will not, except with Fields or its
Affiliates, cause or permit any of the Company and its Subsidiaries
to (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of
any capital stock or other voting securities, or any substantial
portion of the assets of, any of the Company and its Subsidiaries
(including any acquisition structured as a merger, consolidation,
or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing.
The Principal Shareholder will not vote his Company Shares in favor
of any such acquisition structured as a merger, consolidation, or
share exchange. The Principal Shareholder will notify Fields
immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
. For so long as this Agreement and the Related Transaction Documents remain in
force, the Company and the Principal Shareholder shall take such further actions
as Fields deems necessary or desirable to carry out the purposes of this
Agreement.
. 8. Conditions to Obligation to Close
. The obligation of Fields to consummate the transactions to be
performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the representations and warranties set forth
in Section 3 and Section 5 above shall be true and correct
in all material respects at and as of the Closing Date;
(ii) the Principal Shareholder and the Company
shall have performed and complied with all of its their
covenants hereunder in all material respects through the
Closing;
(iii) the Company and its Subsidiaries shall have
procured all of the third-party consents specified in
Section 6(b) above;
(iv) there shall have been no material adverse
changes in the Company and its Subsidiaries;
(v) Fields shall have concluded its due diligence
review of the Company and its Subsidiaries to Fields' sole
satisfaction;
(vi) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial
or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling,
or charge would
(A) prevent consummation of any of the transactions
contemplated by this Agreement;
(B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation;
(C) affect adversely the right of Fields to own the Company
Shares and to control the Company and its Subsidiaries;
or
(D) affect adversely the right of any of the Company and
its Subsidiaries to own its assets and to operate its
businesses (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(vii) the Company and the principal Shareholder
shall have delivered to Fields a certificate to the effect
that each of the conditions specified above in Section
8(a)(i), (ii), (iii), (iv) and (vi) is satisfied in all
respects;
(viii) Fields shall have received from counsel to
the Company and from counsel to the Principal Shareholder
written opinions addressed to Fields, dated as of the
Closing Date and in form and substance acceptable to
Fields and its counsel;
(ix) the Related Transaction Documents shall have
been executed by each of the parties thereto, and each of
the Related Transactions shall have been closed or each of
the conditions for the closing of the Related Transactions
concurrently with the Closing of the transaction
contemplated by this Agreement shall have been satisfied
or waived to Fields' satisfaction;
(x) the Company shall have delivered a share
certificate to Fields evidencing the Shares;
(xi) following the Closing of the transaction
described herein and the Related Transactions, Fields
shall own fifty-six (56%) of the outstanding Company
Shares on a fully diluted basis, and there shall be no
other shareholders of the Company except the Principal
Shareholder;
(xii) all actions to be taken by the Company and
the Principal Shareholder in connection with consummation
of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby
will be satisfactory in form and substance to Fields.
Fields may waive any condition specified in this Section 8(a) if it
executes a writing so stating at or prior to the Closing.
. The obligation of the Company and the Principal Shareholder to
consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth
in Section 4 above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) Fields shall have performed and complied with
all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial
or administrative agency of any federal, state, local, or
foreign jurisdiction for before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause
any of the transactions contemplated by this Agreement to
be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(iv) Fields shall have delivered to the Company
and the Principal Shareholder a certificate to the effect
that each of the conditions specified above in Section
8(b) is satisfied in all respects;
(v) the Related Transactions Documents, including
a developer agreement between the Company and the
Principal Shareholder whereby the Principal Shareholder
receives the area development rights for Vermont, New
Hampshire, Massachusetts, Maine and the Greater Dallas/Ft.
Worth, Texas area shall have been executed by all of the
parties thereto, and each of the Related Transactions
shall have occurred or each of the conditions for the
closing of the Related Transactions concurrently with the
closing of the transactions contemplated by this Agreement
shall have been satisfied or waived to the Company and
Principal Shareholder's satisfaction;
(vi) Fields shall be prepared to deliver the
Purchase proceeds upon compliance with the matters set
forth in Section 8(a); and
(vii) all actions to be taken by Fields in
connection with consummation of the transactions
contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Company.
The Company and the Principal Shareholder may waive any condition specified in
this Section 8(b) if they execute a writing so stating at or prior to the
Closing.
. 9. Remedies for Breaches of This Agreement
. (a) Survival of Representations and Warranties
All of the representations and warranties of the Parties contained
in this Agreement shall survive the Closing hereunder (even if the damaged Party
knew or had reason to know of any misrepresentation or breach of warranty at the
time of Closing) and continue in full force and effect
(i) forever after the Closing Date (subject to any
applicable statutes of limitations) with respect to the
representations and warranties set forth in Sections 5(k),
(1), (r) and (z), and,
(ii) otherwise for a period of one (1) year from
the Closing Date.
. (b) Indemnification Provisions for Benefit of Fields
(i) In the event the Company or the Principal
Shareholder breaches any of the representations,
warranties, and covenants contained in Sections 5 and 6
above, provided that Fields makes a written claim for
indemnification against the Principal Shareholder pursuant
to this Section 9, then the Principal Shareholder agrees
to indemnify Fields from and against the entirety of any
Adverse Consequences Fields may suffer through and after
the date of the claim for indemnification (including any
Adverse Consequences Fields may suffer after the end of
any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the
breach.
(ii) In the event the Principal Shareholder
breaches any of his representations and warranties in
Section 3 above or any of his covenants in Section 6
above, provided that Fields makes a written claim for
indemnification against the Principal Shareholder pursuant
to this Section 9, then the Principal Shareholder agrees
to indemnify Fields from and against the entirety of any
Adverse Consequences Fields may suffer through and after
the date of the claim for indemnification (including any
Adverse Consequences Fields may suffer after the end of
any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the
breach.
(iii) Provided that Fields makes a written claim
for indemnification against the Principal Shareholder, the
Principal Shareholder agrees to indemnify Fields from and
against the entirety of any Adverse Consequences Fields
may suffer resulting from, arising out of, relating to, in
the nature of, or caused by:
(A) any Liability of any of the Company
and its Subsidiaries for unpaid Taxes, including
the unpaid Taxes of any Person under Treas. Reg.
Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or
successor, by contract, or otherwise; or
(B) any violation prior to the Closing by
any of the Company, its Subsidiaries and its past
or present officers, directors, employees, agents
and representatives (including the Principal
Shareholder) of any state or federal securities
laws or regulations;
(C) the failure of any of the Company and
its Subsidiaries to have qualified to transact
business in any jurisdiction;
(D) any breach, prior to the Closing, by
any of the Company and the Subsidiaries of any of
the Franchise Agreements;
(E) any violation, prior to the Closing,
by any of the Company, its Subsidiaries and their
respective officers, directors, employees, agents
and representatives and the Principal Shareholder,
of any state or federal franchise laws or
regulations; or
(F) any violation by any of the Company,
its Subsidiaries and the Principal Shareholders of
ERISA or any regulation adopted pursuant thereto.
The Principal Shareholder's obligation to indemnify Fields
pursuant to this Section 9(b)(iii) shall not in any way
depend or be conditioned upon any inaccuracy, the
incompleteness or the breach by the Company or the
Principal Shareholder, of any representation, warranty or
covenant in this Agreement (or in any of the Related
Transactions Documents), and shall not be barred,
impaired, limited or adverseley affected by any
investigation at any time made by or on behalf of, or any
disclosure made at any time to, Fields.
. (c) Matters Involving Third Parties
(i) If any third party shall notify any Fields
with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against the
Principal Shareholder under this Section 9, then Fields
shall promptly notify the Principal Shareholder thereof in
writing; provided, however, that no delay on the part of
Fields in notifying the Principal Shareholder shall
relieve the Principal Shareholder from any obligation
hereunder unless (and then solely to the extent) the
Principal Shareholder thereby is prejudiced.
(ii) The Principal Shareholder will have the right
to defend Fields against the Third Party Claim with
counsel of its choice satisfactory to the Fields so long
as
(A) the Principal Shareholder notifies
Fields in writing within 15 days after Fields has
given notice of the Third Party Claim that the
Principal Shareholder will indemnify Fields from
and against the entirety of any Adverse
Consequences Fields may suffer resulting from,
arising out of, relating to, in the nature of, or
caused by the Third Party Claim;
(B) the Principal Shareholder provides
Fields with evidence acceptable to Fields that the
Principal Shareholder will have the financial
resources to defend against the Third Party Claim
and fulfill its indemnification obligations
hereunder;
(C) the Third Party Claim involves only
money damages and does not seek an injunction or
other equitable relief;
(D) the settlement of, or an adverse
judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Fields,
likely to establish a precedential custom or
practice materially adverse to the continuing
business interests of Fields; and
(E) the Principal Shareholder conducts
the defense of the Third Party Claim actively and
diligently.
(iii) The party not conducting the defense of the
Third Party Claim above may retain separate co-counsel at
its sole cost and expense and participate in the defense
of the Third Party Claim;
(iv) The party conducting the defense
(A) will not consent to the entry of any
judgment or enter into any settlement with respect
to the Third Party Claim without the prior written
consent of the other party (not to be withheld
unreasonably); and
(B) will not consent to the entry of any
judgment or enter into any settlement with respect
to the Third Party Claim without the prior written
consent of the other party (not to be withheld
unreasonably).
(v) In the event any of the conditions in Section
9(c)(ii) above is or becomes unsatisfied, however,
(A) Fields may defend against, and
consent to the entry of any judgment or enter into
any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem
appropriate (and Fields need not consult with, or
obtain any consent from, any Principal Shareholder
in connection therewith);
(B) the Principal Shareholder will
reimburse Fields promptly and periodically for the
costs of defending against the Third Party Claim
(including reasonable attorneys' fees and
expenses); and
(C) the Principal Shareholder will remain
responsible for any Adverse Consequences Fields
may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided
in this Section 8.
. The indemnity payment to Fields by the Principal Shareholder with
respect to any claim indemnifified under Sections 9(b)(i) or (ii),
but not with respect to any Third Party Claim under Section 9(c)
hereof, shall be limited to:
(i) any loss or reduction, arising from or by
reason of such claim, of amounts the Company paid,
distributed, or that would have otherwise been available
for the Company's payment or distribution to Fields by
reason of its status as a shareholder of the Company, or
otherwise, which loss or reduction arises from or by
reason of a claim for which the Principal Shareholder is
obligated to indemnify Fields pursuant to this Agreement;
and
(ii) all professional fees (including without
limitation attorney's fees) and costs, and out of pocket
expenses reasonably incurred by Fields in connection with
such claims; and
(iii) additional amounts necessary to compensate
the Fields for the time cost of money (using the
Applicable Rate as the discount rate) in determining the
amount of the indemnity payment pursuant to this Section
9(d).
. The foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory,
equitable, or common law remedy Fields may have for
breach of representation, warranty, or covenant. The
Company and the Principal Shareholder hereby agree that
he or it will not make any claim for indemnification
against any of the Company and its Subsidiaries by
reason of the fact that he or it was a director,
officer, employee, or agent of any such entity or was
serving at the request of any such entity as a partner,
trustee, director, officer, employee, or agent of
another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in
settlement, losses, expenses, or otherwise and whether
such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect
to any action, suit, proceeding, complaint, claim, or
demand brought by Fields against the Company or the
Principal Shareholder (whether such action, suit,
proceeding, complaint, claim, or demand is pursuant to
this Agreement, applicable law, or otherwise). For
purposes of determining the amount of the indemnity
payment due from the Principal Shareholder, the term
"Fields" in Section 9(d) above shall include Mrs.
Fields' Original Cookies, Inc., a Fields' affiliate
("MFOC"), which entered into that certain Management
Agreement of even date with the Company, for purposes
of determining any such payable by the Principal
Shareholder under this Agreement.
. In the event of any claim by Fields under this Section 9, the
Fields shall be entitled to exercise rights of offset against any
amounts due the Principal Shareholder from the Company in the form
of a bonus payable to him in connection with his employment by the
Company, or as a dividend by reason of his status as a shareholder
of the Company.
. No exercise of the rights of offset under Section 9(f) shall be
permitted with respect to claims made under this Section 9 unless
and until the Adverse Consequences (determined in accordance with
Section 9 (d) above) suffered by Fields, in the aggregate for
claims asserted under this Section 9, exceeds $100,000; but once
such amount is exceeded, Fields may recover the initial $100,000
together with amounts in excess of $100,000.
. 10. Termination
. Certain of the Parties may terminate this Agreement as provided below:
(i) Fields, the Principal Shareholder, and the
Company may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(ii) Fields may terminate this Agreement by giving
written notice to the Company and the Principal
Shareholder on or before the Closing if Fields is not
satisfied with the results of its continuing business,
legal, and accounting due diligence regarding the Company
and its Subsidiaries;
(iii) Fields may terminate this Agreement by
giving written notice to the Company and the Principal
Shareholder any time prior to the Closing (A) in the event
any of the Company or the Principal Shareholder has
breached any material representation, warranty, or
covenant contained in this Agreement in any material
respect, Fields has notified the Company of the breach,
and the breach has continued without cure for a period of
seven (7) business days after the notice of breach; or (B)
if the Closing shall not have occurred on or before
October 1, 1997, by reason of the failure of any condition
precedent under Section 8(a) hereof (unless the failure
results primarily from Fields itself breaching any
representation, warranty, or covenant contained in this
Agreement); and
(iv) the Company may terminate this Agreement by
giving written notice to Fields and the Principal
Shareholder at any time prior to the Closing (A) in the
event Fields has breached any material representation,
warranty, or covenant contained in this Agreement in any
material respect, any of the Company or the Principal
Shareholder has notified Fields of the breach, and the
breach has continued without cure for a period of seven
(7) business days after the notice of breach or (B) if the
Closing shall not have occurred on or before October 1,
1997 by reason of the failure of any condition precedent
under Section 8(b) hereof (unless the failure results
primarily from any of the Company or the Principal
Shareholder themselves breaching any representation,
warranty, or covenant contained in this Agreement).
. If any Party terminates this Agreement pursuant to Section 10(a)
above, all rights and obligations of the Parties under this
Agreement and under the Related Transactions Documents shall
terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach).
. 11. Miscellaneous
. The representations and warranties of each of the Principal
Shareholder and the Company in Section 3 and Section 5 above
concerning the transaction are several obligations. This means that
each will be solely responsible to the extent provided in Section 9
above for any Adverse Consequences Fields may suffer as a result of
any breach thereof.
. None of the Parties shall issue any press release or make any
public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval
of Fields and the Company provided, however, that any of the
Parties may make any public disclosure it believes in good faith is
required by applicable law (in which case the disclosing Party will
use its best efforts to advise the other Parties prior to making
the disclosure).
. This Agreement shall not confer any rights or remedies upon any
Person other than the Parties and their respective successors and
permitted assigns.
. This Agreement (including the documents referred to herein)
together with the Related Transaction Documents constitutes the
entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the
Parties, written or oral, to the extent they related in any way to
the subject matter hereof.
. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective
successors and permitted assigns. None of the Parties may assign
either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of
Fields and the Company; provided, however, that Fields may (i)
assign any or all of its rights and interests hereunder to one or
more of its Affiliates and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of
which cases Fields nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will
constitute one and the same instrument.
. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below:
If to the Company: Pretzel Time, Inc.
ATTN: Martin E. Lisiewski, President
4800 Linglestown Road, Suite 202
Harrisburg, PA 17112
With a copy to: Timothy T. Mitchell
4422 Ridgeside Drive
Dallas, Texas 75244
If to the Principal
Shareholder: Martin Lisiewski
6605 Dorset Way
Harrisburg, PA 17111
With a copy to: Mette, Evans & Woodside
ATTN: Elyse E. Rogers
3401 North Front Street
Harrisburg, PA 17110
If to Fields: Mrs. Fields' Holding Company, Inc.
ATTN: Larry A. Hodges, President
462 West Bearcat Drive
Salt Lake City, UT 84115
With a copy to: Jones, Waldo, Holbrook
& McDonough
ATTN: Glen D. Watkins
1500 First Interstate Plaza
170 So. Main Street
Salt Lake City, UT 84145
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
. This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Utah without giving effect to any
choice or conflict of law provision or rule (whether of the State of
Utah or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Utah.
. No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by Fields and the Company. No
waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation,
or breach of warranty or covenant hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such occurrence.
. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof
or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
. Each of the Parties, the Company, and its Subsidiaries will bear his or
its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the transactions contemplated
hereby. The Principal Shareholder agrees that none of the Company and
its Subsidiaries has borne or will bear any of the Principal
Shareholder's costs and expenses (including any of his legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
. The Parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal,
state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" shall mean including without
limitation. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any
Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject
matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that
the Party is in breach of the first representation, warranty, or
covenant.
. The Exhibits, Annexes, and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
. Each of the Parties acknowledges and agrees that the other Parties
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state
thereof having jurisdiction over the Parties and the matter (subject to
the provisions set forth in Section 11(p)(d) below), in addition to any
other remedy to which they may be entitled, at law or in equity.
. Each of the Parties submits to the jurisdiction of any state or federal
court sitting in Salt Lake City, Utah, in any action or proceeding
arising out of or relating to this Agreement and agrees that all claims
in respect of the action or proceeding may be heard and determined in
any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other
court. Each of the Parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any
bond, surety, or other security that might be required of any other
Party with respect thereto. Each Party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be
enforced by suit on the judgment or in any other manner provided by law
or at equity.
. All disputes hereunder shall be resolved by binding arbitration in
accordance with the terms of this arbitration clause. Arbitrations
conducted pursuant to this Agreement, including selection of
arbitrators, shall be administered by the American Arbitration
Association (the "Administrator") pursuant to the Commercial
Arbitration rules of the Administrator. Judgment upon any award
rendered hereunder may be entered in any court having jurisdiction. Any
party who fails to submit to binding arbitration following a lawful
demand by the opposing party shall bear all costs and expenses,
including reasonable attorney's fees, incurred by the opposing party in
compelling arbitration of any dispute hereunder.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
FIELDS: Mrs. Fields' Holding Company, Inc.
By:/s/Larry A. Hodges
Larry A. Hodges, President
COMPANY: Pretzel Time, Inc.
By:/s/Martin E. Lisiewski
Martin E. Lisiewski, President
PRINCIPAL
SHAREHOLDER:
/s/Martin E. Lisiewski
Martin E. Lisiewski, individually
<PAGE>
EXHIBIT A
RELATED TRANSACTIONS DOCUMENT LIST
RELATED TRANSACTIONS DOCUMENTS
<PAGE>
1. Stock Purchase Agreement Between Fields and Nonprincipal Shareholders
2. Stock Purchase Agreement Between Fields and the Principal Shareholder
(Exhibit A to the Shareholders' Agreement Among Fields, the Company and the
Principal Shareholder)
3. Employment Agreement Between the Company and Principal Shareholder
4. Management Agreement Between Mrs. Fields' Original Cookies, Inc. and
Company
5. Promissory Note from Principal Shareholder to Fields
6. Shareholders' Agreement Among Fields, the Company and Principal
Shareholder
7. Franchise Agreement and Area Developer Agreement (and installment
payment and security agreements), Between Pretzel Time, Inc. and New England
Concepts, Inc.
8. Letter Agreement from MFDC re franchise relationship with Principal
Shareholders
9. Exchange Agreement
10. Amended and Restated Bylaws and Consent
11. Settlement Agreement and Release Between Pretzel Time, Inc. and John
Schaible et al, and Stock Certificates (endorsed in blank, or delivered
with an executed Stock Power, evidencing 5 shares of PTI stock issued to
John Schaible).
<PAGE>
ANNEX I
Exceptions to Company's and Principal Shareholder's Representations
and Warranties Concerning Transaction
<PAGE>
ANNEX II
Exceptions to Fields' Representations and Warranties
Concerning Transaction
<PAGE>
SCHEDULE 2(a)
List of Company Obligations to be Retired at Closing
<PAGE>
SCHEDULE 5(a)
Officers and Directors of Company and Subsidiaries
<PAGE>
SCHEDULE 5(b)
Capitalization of Company
<PAGE>
SCHEDULE 5(g)
Subsidiaries and Subsidiary Information
<PAGE>
SCHEDULE 5(l)(iii)
Federal, State and Local Tax Returns
<PAGE>
SCHEDULE 5(l)(vi)
Basis of Company and Subsidiary in Assets; Stockholder's Basis;
Net Operating Loss, etc.; Deferred Gain or Loss
<PAGE>
SCHEDULE 5(m)(i)
Real Property Owned by the Company
<PAGE>
SCHEDULE 5(m)(ii)
Real Property Leased or Subleased by the Company,
and/or Leased or Subleased to Third Parties, including Franchisees
and Area Developers
<PAGE>
SCHEDULE 5(n)(iii)
Intellectual Property of the Company and Licenses Thereof
<PAGE>
SCHEDULE 5(n)(iv)
Intellectual Property used by Company pursuant to
License, Sublicense, Agreement or Permission
<PAGE>
SCHEDULE 5(p)
List of Company-Owned Stores
<PAGE>
SCHEDULE 5(q)
Contracts and Agreements to which the Company is a Party
<PAGE>
SCHEDULE 5(u)
Insurance Policies of Company
<PAGE>
SCHEDULE 5(v)
Outstanding Judgments, Liens, Judicial Orders and Litigation
<PAGE>
SCHEDULE 5(w)
Product Warranty
<PAGE>
SCHEDULE 5(z)
Employee Benefit Plans
LICENSE AGREEMENT
between
MRS. FIELDS DEVELOPMENT CORPORATION
a Delaware corporation
and
MARRIOTT CORPORATION
a Delaware corporation
DATED March 1, 1992
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS . . . . . . . . . . . . . . . . . 1
2. GRANT OF LICENSE; EXCLUSIVITY . . . . . . . . . . . 4
3. TRANSFER OF LICENSED TRADE SECRETS AND ASSISTANCE . . 6
4. CONFIDENTIALITY . . . . . . . . . . . . . . 7
5. PUBLICITY . . . . . . . . . . . . . . ...........7
6. DEVELOPMENT OBLIGATIONS . . . . . . . . . . . . . 8
7. NO COMPETITIVE BUSINESS . . . . . . . . . . . . .10
8. SYSTEM STANDARDS . . . . . . . . . . . . . .. 11
9. UNDERTAKINGS BY LICENSEE . . . . . . . . . . . . 12
10. UNDERTAKINGS OF LICENSOR.......................................18
11. PRODUCT PURCHASES, PAYMENTS AND ROYALTIES......................21
12. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS...................22
13. TERM AND TERMINATION...........................................22
14. INDEMNIFICATION................................................25
15 . BINDING EFFECT, ASSIGNMENT.....................................25
16. ADVERTISING AND PROMOTIONAL DOCUMENTATION AND EXPENSES.........26
17. NOTICES........................................................27
18. GENERAL PROVISIONS.............................................28
EXHIBIT A LICENSED PRODUCTS . . . . . . . . . . . . . . .. 33
EXHIBIT B LIST OF LICENSED TRADENAMES, TRADEMARKS AND SERVICE
MARKS. . . . . . . . . . . . . . . . . . . 34
<PAGE>
i
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made this 1st day of March,
1992, by and between MRS. FIELDS DEVELOPMENT CORPORATION ("Licensor"), a
Delaware corporation and MARRIOTT CORPORATION ("Licensee"), a Delaware
corporation.
WITNESSETH:
WHEREAS, Licensor has invented and acquired and will continue to
develop and acquire certain proprietary knowledge, trade secrets, techniques,
recipes, formulations of ingredients and processes related to the composition,
production, marketing and sale of bakery products, cookies and other food
products commonly sold at Mrs. Fields bakery and cookie stores;
WHEREAS, Mrs. Fields Inc. ("MFI"), the parent company of Licensor,
previously licensed to Licensee certain proprietary knowledge, trade secrets,
techniques, and trademarks necessary for the production and sale of cookie and
bakery products under the name "Mrs. Fields" at locations operated by Licensee,
pursuant to an Amended and Restated License Agreement dated December 31, 1989
("Original License");
WHEREAS, Licensee manages and operates restaurants and related
facilities on tollroads and in airports;
WHEREAS, Licensor desires to license to Licensee the right, and
Licensee desires to obtain a license from Licensor, to utilize Licensor's
techniques and processes to produce and sell the Licensed Products (as defined
below) at certain locations as specified herein under certain of the tradenames
and trademarks used by Licensor and upon the terms and conditions hereafter set
forth;
WHEREAS, Licensor has also agreed to make available to Licensee certain
assistance, in accordance with the terms and provisions hereof;
WHEREAS, upon execution hereof, Licensee and MFI have agreed to rescind
the Original License with respect to the operation of Mrs. Fields Stores (as
defined below) at airports and/or on tollroads, and Licensee, MFI and Licensor
have agreed that this License shall supersede the Original License with respect
to such locations;
NOW THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS
(a) "Bakery Store" means any retail outlet (or unit operating within
such retail outlet) which sells fresh baked breads, croissants, pastries or
other bakery products, and/or one or more of the Cookie Products under the
Licensed Names and Marks at which more than fifty-one percent (51 %) of such
outlet's or unit's gross sales of products per annum (determined in accordance
with United States generally accepted accounting principles) results from sales
of products other than Cookie Products.
<PAGE>
(b) "Cookie Products" means those products listed as such on Exhibit A
hereto.
(c) "Cookie Store" means any retail outlet (or unit operating within a
retail outlet) of Licensor, or any licensee of Licensor, which is not a Bakery
Store.
(d) "Competitive Business" means any business operating or granting
franchises or licenses to others to operate outlets which sell fresh baked
breads, croissants, pastries, cookies, brownies, muffins or other bakery
products. Notwithstanding the foregoing, the term "Competitive Business" shall
not be deemed to preclude Licensee, or its officers, directors, employees,
shareholders or partners, or members of their immediate families, from (i)
owning securities in a company if such securities are listed on a stock exchange
or traded on the over-the-counter market and represent two percent (2%) or less
of that class of securities, (ii) operating outlets or selling products under
the name "Cinnabon" or "Dunkin' Donuts", (iii) selling fresh baked products
under various tradenames and trademarks, provided Licensee is not a franchisee
or licensee of such trademarks or tradenames, or (iv) selling fresh baked
products, other than cookies, brownies and muffins under other tradenames or
trademarks at tollroad locations.
(e) "Control", "Controlled" and "Controlling" means the power to
exercise a controlling influence over the management, policies or personnel of a
person, company, partnership, joint venture, corporation or other group of
organized persons.
(f) "Development Obligation" shall have the meaning set forth in
paragraph 6(a,) hereof.
(g) "Development Fee" shall have the meaning set forth in paragraph
6(g) hereof.
(h) "Development Period" means the period of time commencing upon the
execution hereof, and continuing through December 31, 1996.
(i) "Gross Sales" shall have the meaning set forth in paragraph 11 (d)
hereof.
(j) "Licensed Location" or "Licensed Locations" means the tollroad or
airport locations of the Original Stores and such future limited access tollroad
locations and airport locations developed by Licensee and approved in writing by
Licensor, as provided in this Agreement.
(k) "Licensed Names and Marks" means the tradenames, trademarks and
service marks listed and described in Exhibit B.
<PAGE>
(l) "Licensed Products" means the items, articles or food products
described on Exhibit A attached hereto or any other bakery goods or cookies
which, pursuant to the terms of this Agreement, become "Licensed Products".
(m) "Licensed Territory" means the United States, Canada and Mexico.
(n) "Licensed Trade Secrets" means all transferable techniques,
processes, methods of production and commercialization, training methods, and
know-how pertaining to and necessary or useful in relation to the composition,
production and sale of Licensed Products. Licensed Trade Secrets shall be deemed
to include, as and when available, all additional techniques, processes, methods
of production and commercialization and other know-how and/or improvements
thereto, whether acquired or reduced to practice by Licensor before or after the
date hereof which relate to the Licensed Trade Secrets and which are necessary
or useful for the formulation, composition, production and sale of Licensed
Products. Licensed Trade Secrets shall not include, and Licensee shall have no
right, title, interest or license in, the recipes or formulations for the
Licensed Products.
(o) "Mrs. Fields In-Line Display Case" means a 21/2 to 6 linear foot
counter display case located within an existing food operation which sells
Licensed Products from such display case under the Licensed Names and Marks, the
plans and specifications of which have been approved by Licensor, and which has
either (i) a visible oven, or (ii) a dedicated employee "sampling" the Licensed
Products in front of such Case during all peak periods, as agreed to with
Licensor on a site-by-site basis. Further, Licensee agrees that any employee of
Licensee engaged in the sale of Licensed Products from each Mrs. Fields In-Line
Display Case shall be identified by a badge approved by Licensor bearing one of
the Licensed Names and Marks.
(p) "Mrs. Fields Mini Store" means a 40 to 100 square foot Cookie Store
which operates as an independent, stand-alone retail unit which may be moved or
is modular and which sells Licensed Products under the Licensed Names and Marks,
and the plans and specifications of which have been approved by Licensor.
(q) "Mrs. Fields Store" or "Mrs. Fields Stores" means the Mrs. Fields
In-Line Display Cases, Mrs. Fields Mini Stores, Mrs. Fields Traditional
Cookie Stores and all other sections or areas of Licensed Locations owned
and operated by Licensee which are operated by Licensee as Cookie Stores
and sell Licensed Products under the Licensed Names and Marks.
(r) "Mrs. Fields Traditional Cookie Store" means a built in 350 to 650
square foot Cookie Store which operates as an independent, stand-alone retail
unit which sells Licensed Products under the Licensed Names and Marks, and the
plans and specifications of which have been approved by Licensor.
(s) "Original License" shall have the meaning set forth in the recitals
hereof.
<PAGE>
(t) "Operating Manual" means Licensee's operating manual for Cookie and
Bakery Stores as modified and revised from time to time.
(u) "Original Stores" means the nine (9) existing Mrs. Fields Stores
opened and operated by Licensee pursuant to the Original License
(v) "Phantom Payment" shall have the meaning set forth in paragraph
6(h) hereof.
(w) "Protected Information" means the Licensed Trade Secrets and
Licensor's recipes, formulations, systems, programs, procedures, manuals,
confidential reports and communications, marketing techniques and arrangements,
purchasing information, pricing policies, quoting procedures, financial
information, employee, customer, supplier and distributor data, all of the
materials or information relating to the business or activities of Licensor
which are not generally known to others engaged in similar businesses or
activities, and all modifications, improvements and enhancements which are
derived from or relate to Licensee's access to or knowledge of any of the above
enumerated materials or information (whether or not any of the above are reduced
to writing or whether or not patentable or protectable by copyright) which
Licensee receives, receives access to, conceives or develops or has received,
received access to, conceived or developed, in whole or in part, directly or
indirectly, in connection with Licensee's license hereunder. Information which
is independently developed by Licensee or which was already in the possession of
Licensee prior to the date of the Original License and which was not obtained in
connection with the transactions contemplated by the Original License or this
Agreement, or information which is or becomes publicly available without breach
of (i) this Agreement, (ii) any other agreement or instrument to which Licensee
is a party or a beneficiary, or (iii) any duty owed to Licensor by Licensee,
shall not be considered Protected Information hereunder.
(x) "Restricted Person" means Licensee, any subsidiary, parent, or
affiliate of Licensee, or any officer or director of the same.
(y) "Store Units" shall have the meaning set forth in paragraph 6(b)
hereof.
(z) "System Standards" shall have the meaning set forth in paragraph 8
hereof.
(aa) "Term" shall have the meaning set forth in paragraph 13 (a) hereof.
2. GRANT OF LICENSE; EXCLUSIVITY
(a) Licensor hereby grants to Licensee and Licensee hereby accepts from
Licensor, upon the terms and conditions hereinafter specified, a license to
employ the Licensed Trade Secrets and the Licensed Names and Marks during the
Term to produce and sell the Licensed Products from Mrs. Fields Stores at
Licensed Locations in the Licensed Territory.
(b) Subject to paragraph 2(c) below, the license granted pursuant to
this Agreement shall be exclusive to Licensee for the development and operation
of Cookie Stores and Bakery Stores at airports and Cookie Stores on limited
access tollroads in the Licensed Territory, and Licensor agrees not to operate
and not to enter into any franchise, trademark, license, or other arrangement
permitting any person or entity to operate a Cookie Store or Bakery Store at any
such airport or a Cookie Store on any such limited access tollroad in the
Licensed Territory. Notwithstanding the foregoing, Licensor shall not be
precluded from, and expressly retains the right to open, operate and license to
others the right to open and operate, Bakery Stores on any limited access
highways within the Licensed Territory. Further, except to the extent set forth
above, Licensor shall not be precluded from, and hereby expressly retains the
right to, offer for sale and sell, and license others to offer for sale and
sell, any products or services under the Licensed Names and Marks in the
Licensed Territory.
<PAGE>
(c) Notwithstanding anything to the contrary in this Agreement,
Licensor shall also have the right to bid for and subsequently operate Cookie
Stores at airports that are granting or bidding a lease for a cookie store
operation only, as opposed to a master airport food concession agreement, if
Licensor has first offered such opportunity to Licensee by written notice
designating the proposed airport location which is granting or bidding a lease
for such cookie store operation and Licensee has not notified Licensor, within
fifteen (15) days, of Licensee's intent to enter a bid for such cookie store
operation. Furthermore, Licensor shall also have the right to continue the
operation of any Cookie Stores operated by Licensor as of the date hereof at any
airport location.
(d) Licensee may propose by written notice to Licensor that Licensee
open a Bakery Store in any Licensed Location hereunder, and Licensor shall
notify Licensee of Licensor's approval or disapproval of such proposal within
thirty (30) days of receiving such notice. Licensor may approve or disapprove
such proposal in its sole unfettered discretion. If Licensor approves such
proposal, such Bakery Store will become a Mrs. Fields Store hereunder and
Licensee and Licensor hereby agree to amend this Agreement to include as
Licensed Products those products commonly sold by Licensor at Bakery Stores.
(e) Licensee may propose by written notice to Licensor that Licensee
open a Cookie Store at an airport or tollroad plaza located outside of the
Licensed Territory, which notice shall include a description of the location of
the proposed Mrs. Fields Store, a projection of Gross Sales on a monthly and
annual basis from such location, and such other information as Licensor may
require, and Licensor shall notify Licensee of Licensor's approval or
disapproval of such proposal within thirty (30) days of receiving such notice.
Licensor may approve or disapprove such proposal in its sole unfettered
discretion. If Licensor approves such proposal, Licensor will not authorize any
other person or entity bidding against Licensee for the right to operate
multiple food and/or beverage concessions at such airport or tollroad location
to include in its proposal a concept which operates under the Licensed Names and
Marks. Upon acceptance of Licensee's bid, the Cookie Store (as approved by
Licensor and presented in Licensee's bid) will become a Mrs. Fields Store
hereunder, and the location at which such Cookie mariotla.008 5
Store is located shall become a Licensed Location hereunder; provided, however,
that (i) the country in which such Cookie Store is located shall not become part
of the Licensed Territory, and (ii) Licensee shall have no rights of exclusivity
with respect to such airport or country, except that Licensor shall not open a
Cookie Store, or license or authorize a third party to open a Cookie Store, at
any international airport wherein Licensee has a master food and/or beverage
concession agreement and is operating a Mrs. Fields Store under such agreement.
Licensor and Licensee hereby further agree that the first ten (10) Store Units
allocated to any Mrs. Fields Stores opened pursuant to this paragraph 2(e) shall
be counted toward Licensee's Development Obligation as set forth in paragraph 6
hereof, and that after the first ten (10) Store Units have been so counted,
Store Units attributable to any Mrs. Fields Stores opened thereafter shall not
count toward Licensee's Development Obligation.
<PAGE>
3. TRANSFER OF LICENSED TRADE SECRETS AND ASSISTANCE
(a) Licensor agrees to transmit the Licensed Trade Secrets to Licensee
by any reasonable means upon request.
(b) Licensor will provide a training program on the operation of Mrs.
Fields Stores to one manager for each Mrs. Fields Store for the first ten (10)
Mrs. Fields Stores to be opened and operated by Licensee hereunder. Each manager
attending such training program shall be required to complete all phases of the
training program to Licensor's satisfaction, and to participate in all other
activities required to open a Mrs. Fields Store. The training program so
furnished shall be similar to the training program utilized to train Licensor's
own store managers, and shall be conducted at Licensor's facilities in Park
City, Utah, or upon Licensee's request, and at Licensee's expense, at one of the
Licensed Locations. Licensee shall be responsible for all out of pocket costs,
including all traveling and living expenses, which Licensor or Licensee, their
managers or employees incur in connection with the training program. After
Licensor has trained the first ten managers as provided above, Licensee hereby
agrees that Licensor may thereafter charge a training fee, which fee shall be
equivalent to the fees charged to other franchisees or licensees for such
training.
(c) Licensee may establish its own training program for Mrs. Fields
Store managers and Mrs. Fields Store employees; provided that such training
program is conducted strictly in accordance with the policies, procedures and
methods of Licensor; and provided further that Licensor shall have the right at
any time to attend and inspect such training program to ensure that it complies
with the procedures, methods and qualifications of Licensor. Upon notice from
Licensor that Licensee's training program does not meet the standards required
by Licensor, Licensee will immediately take such action as is required to bring
its training program into compliance with the training requirements of Licensor.
<PAGE>
4. CONFIDENTIALITY
(a) Licensee understands that the Protected Information disclosed to
Licensee by Licensor under this Agreement is secret, proprietary and of great
value to Licensor, which value may be impaired if the secrecy of the Protected
Information is not maintained.
(b) Licensor has taken and will continue to take reasonable security
measures to preserve and protect the secrecy of the Protected Information and
Licensee agrees to take all measures reasonably necessary, including, without
limitation, the measures hereinafter specified, to protect the secrecy of such
information in order to prevent it from falling into the public domain or into
the possession of persons not bound to maintain the secrecy of such information.
(c) Licensee agrees not to disclose the Protected Information obtained
pursuant to this Agreement, either directly or indirectly, to any person or
entity, including any subsidiary or affiliate of Licensee (other than Licensee's
key officers and employees to whom disclosure is necessary for employment of the
Licensed Trade Secrets), during the term of this Agreement or at any time
following the expiration or termination of this Agreement.
(d) Licensee shall exercise all other necessary precautions to
safeguard the secrecy of the Protected Information disclosed pursuant hereto and
to prevent the unauthorized disclosure thereof to anyone other than Licensee's
key officers and employees to whom it is necessary to disclose the same for
production and sale of the Licensed Products.
(e) If Licensor sustains its burden of proof that Licensee has
disclosed, divulged, revealed, reported, published, transferred or used, for any
purpose whatsoever, except as authorized herein, any Protected Information, and
Licensee shall assert as a defense that such information (i) was already known
to Licensee prior to the execution of the Original License, (ii) was
independently developed by Licensee, (iii) was disclosed to or by third parties
without violation of this Agreement or similar agreements, (iv) was already in
the public domain prior to the execution of the Original License, or (v) entered
the public domain without violation of this Agreement or the Original License,
Licensee shall bear the burden of proof in establishing such defense.
5. PUBLICITY
Licensee and Licensor agree not to issue any press release or other public
announcement of this Agreement or the transactions contemplated herein without
the prior written approval by each party hereto of the issuance of such
announcement and the text thereof. In the event any such press release or other
public announcement shall be required by law, Licensee and Licensor agree to
issue such release or announcement only after consulting in good faith with one
another with respect to the form and substance of such release or announcement.
<PAGE>
6. DEVELOPMENT OBLIGATIONS
(a) During the five (5) year period which commences January 1, 1992,
Licensee agrees to equip, open and operate, at Licensed Locations, a minimum of
one hundred sixty five and six-tenths (165.60) "Store Units" (as described in
(b) below), in accordance with the following schedule:
<TABLE>
<CAPTION>
<S> <C>
Calendar Number of
Year Store Units
1992 79.2
1993 28.8
1994 28.8
1995 14.4
1996 14.4
</TABLE>
Licensor and Licensee hereby agree that the Original Stores shall count toward
fulfillment of the 1992 Development Obligation in an amount equal to 21.6 Store
Units.
(b) For purposes of this Agreement, the following types of Cookie Stores will
count as the number of Store Units indicated:
Store Configuration Store Units
Mrs. Fields Traditional Cookie Store 2.40
Mrs. Fields Mini Store 1.80
Mrs. Fields In-line Display Case 1.00
Licensee may develop new concepts for retail outlets, which concepts shall be
approved in writing by Licensor prior to any use or test of such concepts, and
will be assigned a number of Store Units based on the estimated annual Gross
Sales of such concept, with one Store Unit being assigned for each $125,000 of
annual Gross Sales from such concept. Licensee shall base such estimated annual
Gross Sales on actual sales from the operations of such concept over a 90 day
test period at the location where such concept will be implemented. If, at the
end of the first year of operations following the 90 day test period, the annual
Gross Sales from the test site(s) of such concepts are greater than or less than
the estimated Gross Sales by more than 10%, the number of Store Units allocated
to such retail concept shall be reallocated based on the actual Gross Sales for
such period.
(c) From and after December 31, 1996, Licensee shall open and operate a
Mrs. Fields Store at not less than ninety percent (90%) of all airport and
tollroad contracts within the Licensed Territory wherein Licensee thereafter
opens or acquires a multiple unit food and/or beverage operation unless (i)
Licensee is prevented from opening such Mrs. Fields Store because the landlord
of such facility precludes the offer and sale of any "branded" products thereat
and/or (ii) the remaining term of any lease or
mariolla.008 8 operating agreement with respect to such multiple food and/or
beverage operation is less than two (2) years.
(d) For purposes of this paragraph 6, Licensee shall not have opened
any Mrs. Fields Store, if such Mrs. Fields Store is not open for business for a
continuous period of one year or more, not including periods of time such Mrs.
Fields Store is closed due to (1) strikes, lockouts or other labor difficulties,
acts of God, the requirements of any law, rule or regulation, fire or other
casualty, condemnation, war, riot, insurrection or, any other reason (except
financial) beyond Licensee's reasonable control, or (2) the temporary closure of
such Mrs. Fields Store due to relocation, restoration, construction, expansion,
alterations, modification, or remodeling. With respect to Mrs. Fields Stores
opened in addition to the Mrs. Fields Stores required to be opened pursuant to
the Development Obligation, Licensee agrees to open and operate any such other
Mrs. Fields Stores so approved pursuant to this Agreement for a period of at
least one year from the opening date of such Mrs. Fields Store. Notwithstanding
anything to the contrary herein, Licensee may close a Mrs. Fields Store, at any
time, in its discretion, provided that such Mrs. Fields Store when closed, will
not count toward the aggregate number of Mrs. Fields Stores required to be
opened under Licensee's Development Obligation, unless such Store has been
opened and operating for at least one (1) year, as described above.
<PAGE>
(e) Licensee further agrees that, during the term of this Agreement, it
will at all times faithfully, honestly and diligently perform its Development
Obligation hereunder, and continuously exert its best efforts to promote and
enhance the development of Licensed Products within the Licensed Territory.
(f) The obligation of Licensee to open Mrs. Fields Stores as set forth
in this paragraph shall be referred to herein as the "Development Obligation".
(g) If Licensee fails to meet its Development Obligation for 1992,
Licensee shall pay to Licensor a fee ("Development Fee") of $2,500 for each
Store Unit not opened pursuant to its Development Obligation. Payment of such
fee shall be made to Licensor no later than January 31, 1993, and such payment
shall be deemed to cure Licensee's failure to meet its Development Obligation
for 1992, however, it shall not relieve Licensee of its obligation under the
Development Obligation to have open and operating by the end of calendar year
1993, one hundred eight (108) Store Units.
(h) If Licensee is in default of its Development Obligation under
paragraph 6(c) at the end of calendar year 1993, or at any other time
thereafter, it may elect to pay a monthly fee ("Phantom Payment") for each
unopened Store Unit equal to $786.50, on or before the first day of each month,
commencing on the first day of the month following the date on which such Store
Unit was required to be opened pursuant to the Development Obligation and
continuing each month thereafter during the remainder of the Development Period,
until Licensee complies with the Development Obligation. Upon such payment,
Licensee will not be deemed to be in default of its Development Obligation for
the period such payment is made. The monthly fee for each unopened Store Unit
shall be increased by 5 % per annum. Each Store Unit opened shall first be
applied mariotla.008 9 toward curing any deficiencies in the number of Store
Units required to be opened pursuant to the Development Obligation, thereby
reducing the number of Mrs. Fields Stores for which the Phantom Payment
described in this paragraph may be paid. Notwithstanding the foregoing, if
Licensee is not in compliance with its Development Obligation (i) at the end of
each year or at the end of the Development Period, or (ii) has made Phantom
Payments during any two consecutive years of the Development Period, Licensor
shall be entitled to terminate Licensee's rights of exclusivity hereunder, as
provided in paragraph 13(d) hereof.
(i) If Licensee has opened the aggregate number of Store Units
required to be opened pursuant to paragraph 6(a) of its Development Obligation,
but has thereafter not opened the Mrs. Fields Stores required to be opened
pursuant to paragraph 6(c) of its Development Obligation, Licensee, at its
option, may pay Phantom Payments for each unopened Store Unit, on or before the
first day of each month, commencing on the first day of the month following the
date on which such Store Unit was required to be opened pursuant to the
Licensee's Development Obligation under paragraph 6(c) above, and continuing
each month thereafter until the earlier of the opening of the Mrs. Fields Store
at such location or one year, and Licensee will not be deemed to be in breach of
its Development Obligation hereunder, so long as such payments are made;
provided, however, that Licensee shall not be allowed to make Phantom Payments
hereunder with respect to any Mrs. Fields Stores for a period of time in excess
of one (1) year from the date such Mrs. Fields Stores were required to be opened
pursuant to paragraph 6(c) hereof, and thereafter Licensee shall no longer have
the option to pay Phantom Payments with respect to such Mrs. Fields Stores, and
Licensor shall be entitled to terminate Licensee's rights of exclusivity
hereunder, as provided in paragraph 13(d) hereof. For purposes of this
paragraph, a Mrs. Fields Store required to be opened pursuant to paragraph 6(c)
hereof, shall be considered to consist of 1.8 Store Units.
<PAGE>
7. NO COMPETITIVE BUSINESS
In consideration for the License granted hereunder, and the disclosure
of the Protected Information, Licensee agrees that, during the term of this
Agreement and for two (2) years thereafter, in and with respect to tollroad
locations and airport locations in the Licensed Territory, neither Licensee, nor
any Restricted Person, shall:
(i) have any direct or indirect Controlling interest as a
disclosed or beneficial owner in a Competitive
Business, except other Mrs. Fields Stores operated
under license agreements with Licensor;
(ii) perform services as a director, officer, manager,
employee, consultant, representative, agent or
otherwise for a Competitive Business, except other Mrs.
Fields Stores operated under license agreements with
Licensor;
(iii)become a licensee or franchisee of a Competitive
Business; or
(iv) operate, or allow others to operate, a Competitive
Business at a tollroad or airport facility owned or
operated by, or under a master concession agreement
or other agreement with, Licensee.
8. SYSTEM STANDARDS
Licensee acknowledges and agrees that the operation of the Mrs. Fields Stores in
accordance with the specifications, standards, operating procedures and rules
Licensor prescribes from time to time for the operation of Mrs. Fields Stores
(the "System Standards") is the essence of this Agreement and essential to
preserve the goodwill of the Licensed Names and Marks. Therefore, Licensee will
maintain and operate each Mrs. Fields Store in accordance with each and every
System Standard, as periodically modified and supplemented by Licensor in its
discretion during the term of this Agreement. System Standards may regulate any
one or more of the following with respect to a Mrs. Fields Store:
(i) within the confines of the Mrs. Fields Store within a
Licensed Location, the 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;
<PAGE>
(ii) types, models, brands, maintenance and replacement of
required equipment, fixtures, furnishings and signs;
(iii) approved, disapproved and required Licensed Products;
(iv) designated and approved suppliers (including Licensor
and/or its affiliates) of equipment, fixtures,
furnishings, signs, products, raw materials and
supplies;
(v) use and operation of a point of sale register which
accurately accounts for gross sales;
(vi) marketing, advertising and promotional activities and
materials authorized for use,
(vii) use of the Licensed Names and Marks;
(viii) qualifications, training, dress, appearance and
staffing of employees;
(ix) participation in reasonable market research and testing
of new products and service development programs
prescribed by Licensor;
(x) management by managers who have successfully
completed Licensor's training program; communication
to Licensor of the identities of such managers;
replacement of managers whom Licensor determines to
be unqualified to manage a Mrs. Fields Store; and
other matters relating to the management of the Mrs.
Fields Stores and their management personnel;
(xi) with respect to each Mrs. Fields Store, the
bookkeeping, reporting formats and content of reports
to Licensor of sales, revenues, and related financial
information;
(xii) compliance with applicable laws; obtaining required
licenses and permits; and notification of Licensor in
the event any action, suit or proceeding is commenced
against Licensee in relation to or concerning any
Mrs. Fields Store or the operation thereof;
(xiii) payment of vendors; terms and conditions of sale and
delivery of any payment for products, raw materials,
supplies and services sold by Licensor, its
affiliates or unaffiliated suppliers.
<PAGE>
Licensee agrees that the System Standards may be periodically modified
by Licensor and that such modifications may obligate Licensee to invest
additional capital in each Mrs. Fields Store and/or incur higher operating
costs, provided that such modifications are made on a system-wide basis.
Licensor will not obligate Licensee to invest additional capital at a time when
such investment cannot in Licensor's reasonable judgment be amortized during the
remaining term of this Agreement. Licensee hereby agrees that System Standards
prescribed from time to time in the Operating Manual, or otherwise communicated
to Licensee in writing, shall constitute provisions of this Agreement as if
fully set forth herein. All references to this Agreement shall include all
System Standards as periodically modified.
9. UNDERTAKINGS BY LICENSEE
Licensee represents, acknowledges, agrees, covenants and warrants as follows:
(a) Unless Licensor consents in writing, Licensee shall use the Licensed
Trade Secrets and the Names and Marks:
(i) only for the purposes of and pursuant to this
Agreement,
(ii) only in a manner consistent with the scope of the
relevant registration of the Licensed Names and Marks
or applications therefor in the Licensed Territory,
(iii)only in the manner permitted and prescribed by
Licensor as set forth herein, mariotla.008 12
(iv) only with respect to Licensed Products, and
(v) only to sell Licensed Products at Mrs. Fields Stores.
(b) Licensee has no claim, option, or other right whatsoever, direct or
implied, to any like license for any geographic area or location, other than the
Mrs. Fields Stores within the Licensed Territory.
(c) Licensee recognizes the value of the good will associated with the
Licensed Products, Names and Marks and acknowledges that the Licensed Trade
Secrets, Products, Names and Marks and all rights therein and good will
pertaining thereto belong exclusively to Licensor.
(d) Licensee will not, during the term of this Agreement or thereafter,
attack the title or any rights of Licensor in and to the Licensed Trade Secrets,
Products, Names and Marks or attack the validity of this Agreement, any other
license agreement to which Licensor is a party and/or the Licensed Trade
Secrets, Products, Names and Marks.
(e) Licensee will assist Licensor, at Licensor's cost and expense, to
the extent necessary in the procurement of any protection or to protect any of
Licensor's rights to the Licensed Names and Marks, and Licensor, if it so
desires, may commence or prosecute any claims or suits in its own name or in the
name of Licensee or join Licensee as a party thereto. Licensee shall notify
Licensor in writing of any infringements or imitations by others of the Licensed
Names and Marks which may come to Licensee's attention, and Licensor shall have
the sole right to determine whether or not any action shall be taken on account
of any such infringements or imitations at Licensor's cost and expense. Licensee
shall not institute any suit or take any action on account of any such
infringements or imitations without first obtaining the written consent of
Licensor so to do.
<PAGE>
(f) Licensee will do nothing to destroy, impair or in any way impede
the effect and validity of the Licensed Names and Marks.
(g) Licensee will so conduct and operate each Mrs. Fields Store so as
to preserve the business integrity and good reputation of Licensor; and Licensee
will refrain from all activity involving any significant risk of bringing any of
the Licensed Names and Marks into disrepute or in any way damaging any of the
Licensed Names and Marks.
(h) For the protection of the consumer public and for the further
protection of the good will and trade reputation of Licensor, Licensee will only
sell at Mrs. Fields Stores, Licensed Products, non-alcoholic beverages and other
condiments consistent with the good quality, reputation and business integrity
of Licensor and in accordance with the System Standards and Operating Manual
(unless Licensor consents in writing to the sale of other goods or products) and
that all Licensed Products manufactured, advertised, and sold by Licensee under
the Licensed Names and Marks shall be subject to and in compliance with the
quality control standards, procedures, specifications, formulations mariotla.008
13 and recipes of Licensor as set forth in the Operating Manual and System
Standards, as such may be varied by Licensor in order to accommodate the
functioning of the Mrs. Fields Stores at Licensed Locations.
(i) The Licensed Products and other products produced and sold by
Licensee at each Mrs. Fields Store shall be of high quality and standard,
comparable with that of Licensor's own stores, and of such style, appearance and
quality as to be adequate for the protection and enhancement of the Licensed
Names and Marks and the good will pertaining thereto; will be prepared and sold
in accordance with all applicable laws; and shall not reflect adversely upon the
good name of Licensor or the Licensed Names and Marks.
(j) Licensor may request representative samples of Licensed Products
from Licensee and if, at any time, Licensor deems the quality of such products
to be below the standards of quality historically and currently observed by
Licensor, Licensor may so notify Licensee, in writing, and Licensee will
promptly bring such sub-standard products up to the quality standards set by
Licensor. Licensor's right to oversee the quality of the Licensed Products
herein shall not in any way replace, supersede, or substitute for the quality
control required to be exercised by Licensee hereunder. The exercise of any
action of quality control by Licensor shall be for its sole and exclusive
benefit. Licensor shall not be responsible to Licensee or any other person or
entity for any liability arising out of the exercise or failure to exercise
quality control with respect to the operation of the Mrs.
Fields Stores.
(k) All employees of Licensee, while engaged in the operation of each
Mrs. Fields Store, shall at all times during said employment present a neat and
clean appearance and render competent and courteous service to all patrons.
<PAGE>
(l) Licensor shall have the right to inspect each Mrs. Fields Store at
any reasonable time with the right to determine whether Licensee's operations in
connection with the use of the Licensed Names and Marks are consistent with the
standards set forth in this Agreement. All inspections shall be made in a manner
so as to minimize any disruption to the Mrs. Fields Store subject to such
inspection. If Licensor determines such operations do not comply with such
standards and so notifies Licensee of the same, Licensee shall immediately
thereafter take such steps, actions or activities necessary to bring its
operations into compliance with such standards.
(m) Licensor shall have the right to inspect any of the artwork, signs,
logos, packaging and advertising using the Licensed Names and Marks
(collectively the "Signs") to determine whether the Signs are consistent with
the Licensed Names and Marks and are being used in a manner which promotes the
good reputation and business integrity of Licensor. If Licensor determines that
such Signs or the use thereof are not consistent with the Licensed Names and
Marks or do not promote the good reputation or business integrity of Licensor,
and Licensor so notifies Licensee of the same, Licensee shall thereafter take
such steps or actions as may be necessary to correct the Signs. At Licensee's
request, Licensor will inspect the Signs and approve or disapprove the use of
<PAGE>
such Signs, as the case may be, prior to their use. Once Licensee has received
approval of any Signs by Licensor, Licensor agrees not to revoke or withdraw
such approval. Such approval will be deemed only to extend to the Sign as
submitted to Licensor for approval by Licensee, and any material change,
alteration, or other revision to such Sign shall require further approval by
Licensor.
(n) Licensee will cause exterior signage to be placed on the outside of
each Licensed Location at each tollroad plaza wherein a Mrs. Fields Store is
located. Licensee shall also cause signage to be placed prior to each tollroad
plaza exit wherein a Mrs. Fields Store is located indicating that a Mrs. Fields
Store is located at the upcoming tollroad plaza. Such signage shall be
illuminated and shall conform in all respects to the requirements contained in
paragraph 9(m) above. Notwithstanding the foregoing, Licensee shall not have the
obligation to place signage at a tollroad plaza or prior to a tollroad exit if
Licensee is legally precluded from so doing by its lease agreement or operating
agreement with respect to such tollroad location.
(o) That any modification, improvement or enhancement by Licensee to
the Licensed Trade Secrets, Products, Names and Marks (whether or not approved
or developed with the advice or support of Licensor), shall be the exclusive
property of Licensor, and that any Licensed Products so modified, enhanced or
improved shall be sold only with the prior approval of Licensor.
(p) Each Mrs. Fields Store shall have a manager trained and certified by
Licensor (or Licensee in accordance with Licensor's standards as provided in
paragraph 3 (c) hereof) as a manager and shall also be certified by Licensor (or
in accordance with Licensor's standards as provided in paragraph 3 (c) hereof)
regarding training and quality control procedures.
(q) Licensee will not develop and operate a Mrs. Fields Store at any
Licensed Location without first receiving the written approval of Licensor,
which approval or disapproval will be given by Licensor within ten (10) business
days of Licensee's written request, and if Licensor does not so respond, the
Mrs. Fields Store at the proposed Licensed Location shall be deemed approved.
Licensee agrees to give at least ninety (90) days prior written notice of a
planned opening of any Mrs. Fields Store. The approval by Licensor with respect
to the Mrs. Fields Stores required to be opened pursuant to Licensee's
Development Obligation, shall be granted by Licensor unless Licensor reasonably
disapproves of the proposed location due to the design or location of such Mrs.
Fields Store within the facility where such Store is to be located, or due to
the proximity of such Mrs. Fields Store to that of another Cookie Store.
(r) Licensee will comply with all laws and regulations to which it is
subject in the opening and operation of each Mrs. Fields Store at its expense,
and that it will cooperate with Licensor in complying with all applicable state
franchising laws and regulations, and will not open a Mrs. Fields Store in any
state until Licensor has complied with applicable franchising laws or
regulations.
<PAGE>
(s) Licensee shall be responsible for obtaining all carts, kiosks
and/or in-line display cases and/or otherwise constructing and developing each
Mrs. Fields Store, as the case may be, however, Licensor will furnish to
Licensee prototypical plans and specifications for a Mrs. Fields Store,
including requirements for exterior and interior materials and finishes,
dimensions, design, image, interior layout, decor, fixtures, equipment, signs,
furnishings and color scheme. Licensee shall prepare all required construction
plans and specifications to suit the shape and dimensions of the proposed
premises for each Mrs. Fields Store, and will ensure that such plans and
specifications comply with all applicable ordinances, building codes, permit
requirements and with lease requirements and restrictions. Licensee shall
further submit any cart design or construction plans and specifications to
Licensor for its approval prior to the commencement of the manufacture of a
cart, kiosk, in-line display case or other construction of a Mrs. Fields Store.
Licensee will manufacture (or have manufactured), construct and decorate each
Mrs. Fields Store only in accordance with the plans, specifications, designs and
equipment specifications submitted to and approved by Licensor. Once a cart,
kiosk, or in-line display case or other Mrs. Fields Store design or modification
is approved, such design shall be deemed approved for future use in all stores.
Licensee hereby agrees that the plans and specifications for any cart, kiosk,
in-line display case or other Mrs. Fields Store developed and approved pursuant
to this paragraph, may be used by Licensor, its affiliates and any licensee or
franchisee of Licensor and its affiliates, without any further consideration
other than the license granted to Licensee pursuant to this Agreement; provided
that the use of such carts, kiosks, In-line Display Cases or other concepts
developed and approved pursuant to this Agreement are used by Licensor, its
affiliates or licensees and franchisees in a manner which is consistent with the
good quality, reputation and business integrity of Licensor and in accordance
with Licensor's standards and operating procedures for similar types of
locations.
(t) Licensee will, at its sole expense, do or cause to be done the
following with respect to the development of each Mrs. Fields Store:
(i) Obtain all required building, utility, sign, health,
sanitation, business, environmental and other permits
and licenses required for construction and operation of
each Mrs. Fields Store;
(ii) Purchase and install all required carts, fixtures,
furnishings, equipment and signs required for operation
of each Mrs. Fields Store; and
(iii)Purchase all required inventory for the opening of
each Mrs. Fields Store.
(u) Licensee will only use ingredients, formulas and supplies that
conform to the standards and specifications designated by Licensor. Any
non-proprietary products or ingredients purchased by Licensee shall be purchased
and shall comply with all of Licensor's specifications with respect to such
products.
<PAGE>
(v) Licensee represents that it has made its own investigation with
respect to the licenses granted hereunder and is not relying on any
representations or warranties of Licensor other than those made expressly
herein. Licensee hereby affirms that Licensor, its agents, employees and/or
attorneys have not made nor has Licensee relied upon any representation,
warranty or promise with respect to the subject matter of this Agreement not
expressly contained herein. Without limiting the foregoing, Licensee
acknowledges that no warranties or representations, express or implied, have
been made by Licensor, its agents, employees and/or attorneys, or will be relied
upon by Licensee, as to the economic consequences of this Agreement, or any
other fact or matter relating to the relationship of the parties except as set
forth in this Agreement.
(w) Licensee will only sell Licensed Products, drinks and condiments
from Mrs. Fields Stores under the Licensed Names and Marks.
(x) Licensee will operate each Mrs. Fields Store opened hereunder in
accordance with the Operating Manual furnished to Licensee pursuant to this
Agreement. Licensee shall keep one copy of the Operating Manual at each Mrs.
Fields Store, shall keep each such manual current and, in the event of a dispute
relating to the contents of the Operating Manual, the master copy that Licensor
maintains at its principal office shall be controlling, provided that all
updates have been given to Licensee. Licensee hereby agrees that it will only
copy the Operating Manual so as to provide each Mrs. Fields Store with one copy
thereof, and will not at any time otherwise copy any part of the Operating
Manual.
(y) Upon the execution hereof, and for at least one (1) year
thereafter, that Licensee, or one or more of its current directors or executive
officers, has and will continue to have more than two years of prior management
experience in the operation of food service establishments.
(z) Licensee reasonably anticipates that the sale of food and beverages
from the Mrs. Fields Stores operated pursuant to this Agreement will not exceed
twenty percent (20%) of the dollar volume of Licensee's projected gross sales
from all operations in the foreseeable future.
(aa) Licensee sells products, supplies and performs services which are
not supplied to Licensee by Licensor pursuant to this Agreement, and which are
not utilized with any equipment, products, supplies or services provided to
Licensee by Licensor pursuant to this Agreement.
(ab) Licensee will not at any time or in any manner whatever, claim or
take any advantage from or benefit of any state or federal franchise law which
may arise from, or affect the terms of, this Agreement, and Licensee hereby
expressly waives, to the extent permitted by law, all benefit of, or cause of
action under any such state or federal franchise law.
<PAGE>
(ac) Upon notice from Licensor not to open a Mrs. Fields Store because
such opening would violate a state's applicable franchise laws, Licensee will
not open any Mrs. Fields Store until Licensor has complied with all applicable
franchise laws for the state in which such Mrs. Fields Store is to be located,
or until Licensor has determined that the opening of such Mrs. Fields Store is
exempt from that state's applicable franchise laws.
(ad) Licensee has full power and authority under its Articles of
Incorporation and Bylaws to enter into this Agreement and the transactions
contemplated hereby, and that the entering into of this Agreement does not
contravene, infringe upon or constitute a default under any agreement or
covenant to which Licensee is a party or violate or conflict with any law or
regulation by which it is bound.
(ae) No filing, registration, approval or consent heretofore not
obtained of any governmental agency or instrumentality or of any stock exchange
authority is required for the authorization, delivery or performance by Licensee
of this Agreement.
10. UNDERTAKINGS OF LICENSOR
Licensor represents, acknowledges, agrees, covenants, and warrants as follows:
(a) That the Licensed Trade Secrets constitute and shall always
constitute all processes, procedures and rights which are necessary or useful to
make, have made and to sell the Licensed Products;
(b) That Licensor has the full right and power under its Bylaws and
Certificate of Incorporation to grant Licensee the license as contemplated
herein, and perform the same and that execution of this Agreement by Licensor
does not infringe or constitute a default under any agreement or covenant
(subject to any lease or radius restrictions with respect to Mrs. Fields Stores)
to which Licensor is a party or violate or conflict with any law or regulation
by which it is bound;
(c) That Licensor will take (or cause to be taken) at its cost, all
steps necessary to:
(i) maintain the confidentiality of the Licensed Trade
Secrets in accordance with all relevant laws,
(ii) prepare, execute, and file all documents, notices,
applications, registrations and timely renewals hereof
or other documents required or necessary for the
protection of the Licensed Names and Marks; and
(iii) defend the Licensed Names and Marks.
<PAGE>
(d) No filing, registration, approval or consent heretofore not
obtained from any governmental agency or instrumentality or of any stock
exchange authority is required for the authorization, execution, delivery or
performance by Licensor or this Agreement.
(e) Licensor will loan to Licensee during the term of this Agreement
one copy of the Operating Manual. The Operating Manual shall contain mandatory
and suggested specifications, standards and operating procedures that Licensor
prescribes from time to time for Mrs. Fields Stores, and information relating to
Licensee's other obligations under this Agreement. The Operating Manual may be
modified from time to time to reflect changes in the image, specifications,
standards, procedures, Licensed Products and System Standards for Mrs. Fields
Stores. Licensor shall timely furnish all updates to Licensee.
(f) Licensor will make available to Licensee Licensor's prototypical
plans for Mrs. Fields Stores (including carts).
(g) Licensor agrees to allow Licensee to contract directly with
Licensor's approved vendors, manufacturers and suppliers and that Licensee shall
have the option of negotiating distribution systems directly with said approved
vendors, manufacturers and suppliers.
(h) None of the Licensed Trade Secrets, Licensed Names and Marks, or
Protected Information violate or infringe upon any trademark, tradename, patent
or other property right held by any third party.
(i) Licensor will use commercially reasonable efforts to cause
sufficient ingredients and/or frozen dough products to be made available to
Licensee to enable each Mrs. Fields Store to operate as herein contemplated and
to meet the reasonably anticipated demand of patrons and customers of
Licensee-operated Mrs. Fields Stores. Licensor further agrees that it will use
commercially reasonable efforts to cause such frozen dough to be of the same
type and quality as the frozen dough used by Licensor to manufacture similar
products in its own Mrs. Fields Stores.
(j) Licensee may use frozen dough to produce Licensed Products,
provided that the specifications for such dough and the supplier thereof are
approved in writing by Licensor.
(k) Licensee shall have the right to present to Licensor other
manufacturers or distributors of frozen dough products for Licensor's
consideration for the manufacture of frozen dough used to produce Licensed
Products. If Licensor is supplying Licensee with its needs of frozen dough
products for Licensed Products, Licensor, in its sole discretion, may thereafter
decide whether to designate such manufacturers as approved manufacturers of
frozen dough products hereunder. If Licensor is unable to cause sufficient
ingredients and/or frozen dough products to be made available to Licensee to
enable each Mrs. Fields Store to operate as herein contemplated and to meet the
reasonably anticipated demand of patrons and customers of such Mrs. Fields
Stores, Licensor shall reasonably approve or mariotla.008 19 disapprove the
manufacturer presented to Licensor as provided above, subject to Licensor
entering into a supply agreement with such proposed manufacturer wherein such
manufacturer agrees to manufacture frozen dough products in accordance with the
quality standards, specifications, procedures and other standards of Licensor.
(1) That as of the date of this Agreement, it has not granted any
rights to the Licensed Trade Secrets or the Licensed Names and Marks to any
third party for the operation of Cookie Stores on limited access tollroads or in
airports located within the Licensed Territory;
(m) That, except as otherwise provided in this Agreement, during the
Term hereof, Licensor shall refrain from disclosing or making available the
Licensed Trade Secrets and/or the Names and Marks or any portion thereof, to any
third party for use at the Licensed Locations;
(n) Licensor will cooperate with Licensee in Licensee's obtaining any
necessary consents with respect to leases, operating agreements, management
agreements, or other agreements giving Licensee the right to possession of the
Licensed Locations from any toll road or airport authority, landlord or client,
or other person or entity controlling the Licensed Location.
(o) Licensor acknowledges that each Mrs. Fields Store may be one of
several food service and related businesses operated by Licensee at a tollroad
rest stop facility or airport constituting a Licensed Location. Each Mrs. Fields
Store may be under a lease, operating agreement, management agreement, or other
agreement giving Licensee the right to possession of the Licensed Location (the
"Lease") from a tollroad or airport authority, or other person or entity
controlling the Licensed Location (the "Landlord"), and consent of the Landlord
may be required prior for any refurbishing, renovation, menu changes, signage
changes, or changes to the Licensed Location or the Mrs. Fields Store. Licensor
will cooperate with Licensee in obtaining any necessary Landlord consents.
(p) Licensor acknowledges that presently and in the future Licensee may
operate and/or license others to operate restaurant operations or other food
service outlets under various tradenames including, without limitation, Roy
Rogers, Hot Shoppes, Gino's, Popeyes, Farrells, Howard Johnson, Burger King,
Dunkin' Donuts, Tim Horton Donuts, Nathans, TCBY Yogurt, Sbarro's, Allie's,
Wags, Bickfords, Nathan's and Big Boy, and that nothing in this Agreement shall
be deemed to restrict Licensee from operating or licensing any restaurant or
other operation under any tradename or at any location. Licensor also
acknowledges that Licensee has independently developed, and will continue to
independently develop, recipes for cookies, brownies and other food items which
are similar to those which also happen to be normally sold as a part of
Licensor's system. Licensor further acknowledges that Licensee shall continue to
develop and sell such independently developed recipes, provided that Licensee
shall at all times adhere to the provisions of paragraph 4 hereof.
<PAGE>
11. PRODUCT PURCHASES, PAYMENTS AND ROYALTIES
As part of the consideration for the disclosure of the Licensed Trade Secrets
and the license of the Licensed Names and Marks hereunder and for the right and
license to use the same:
(a) Licensee agrees to purchase all ingredients and/or frozen dough
products that are proprietary to Licensor from Licensor, a supplier designated
by Licensor or distributors designated by Licensor.
(b) The purchase price for all Licensed Products purchased by Licensee
shall be equal to the price billed by Licensor (or its supplier or distributor)
to its own stores for such Products (not including shipping and handling) (the
"Product Price"). The Product Price may be adjusted on a monthly basis by
Licensor, its suppliers or distributors upon notice, effective upon the first
day of the succeeding month. Licensee shall pay the Product Price to Licensor,
or its distributor, in accordance with such selling parties then current selling
practices.
(c) Payment of the initial setup license fee of $1,360,000, pursuant to
the Original License, shall be credited toward payment of the site license fees
hereunder for the first 153.6 Store Units to be opened pursuant to the
Development Obligation hereunder. For each Store Unit opened by Licensee after
the initial 153.6 Store Units, Licensee shall pay to Licensor an additional
setup license fee of $8,333 per Store Unit, payable upon the opening of the Mrs.
Fields Store for which such Store Unit is allocated; provided that a Mrs. Fields
Store which is opened within the same airport terminal or in the same tollroad
plaza within two (2) months of the closure of a Mrs. Fields Store at such
airport or tollroad plaza shall not be deemed the opening of a new Mrs. Fields
Store hereunder. Licensee hereby acknowledges and agrees that each such fee is
fully earned when paid and that Licensee shall not be entitled to a refund of
all or any portion thereof under any circumstances.
(d) Commencing on the date hereof, and continuing throughout the Term
of this Agreement, Licensee shall pay to Licensor a royalty fee (the "Royalty
Payment"), Determined separately with respect to each Mrs. Fields Store, equal
to seven and fifty five one Hundredths percent (7.55%) of all Gross Sales
derived from each Mrs. Fields Store opened
and operated by Licensee hereunder. For purposes hereof, the term "Gross Sales"
shall include, at the actual selling price, all sales of Licensed Products from
each Mrs. Fields Store, all sales, at the actual selling price, of drinks and
other products sold from beverage units, display cases, or refrigeration or
other units which are otherwise contained within a Mrs. Fields Store, but shall
not include the cost of food and beverages provided to employees as an incident
of their employment, the sales price of beverages sold from beverage dispensing
units which are not contained within a Mrs. Fields Store and are also used to
supply beverages to other retail concepts within a Licensed Location, monies
refunded upon return of merchandise, nor any sales taxes or similar taxes
collected from customers and turned over to the governmental authority imposing
the tax.
(e) Licensee shall pay the Royalty Payment to Licensor within twenty
(20) days after the close of each of Licensee's four week accounting periods
during each of Licensee's fiscal years. Along with such Royalty Payments,
Licensee shall furnish to mariotla.008 21 Licensor an accurate statement of the
Gross Sales from each Mrs. Fields Store at each Licensed Location for the
preceding period for which such sales occurred.
(f) Licensee shall pay interest on all overdue amounts (whether for
Royalty Payments, Phantom Payments, license fees or otherwise) (the "Interest
Rate") at the lesser of (i) the annual rate from time to time publicly announced
by Citibank, N.A. as its "base rate" (or any successor rate) plus two percent
(2%) or (ii) the highest applicable legal rate, from the due date of such
amounts until paid; provided that, Licensee shall not be required to pay such
interest at the Interest Rate on overdue amounts in the event such overdue
amounts are paid in full within five (5) days of the due date.
12. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS
(a) Licensee shall keep true and accurate books of account with respect
to each Mrs. Fields Store, in accordance with United States generally accepted
accounting principles, consistently applied. Within twenty (20) days after the
end of each of Licensee's four week accounting periods, Licensee shall deliver
to Licensor a written statement, prepared, signed and certified to be true and
correct by Licensee's chief financial officer, or his designee, setting forth
the Gross Sales of each Mrs. Fields Store, including sufficient information and
detail to confirm the calculations. In addition, Licensee shall furnish to
Licensor, on such forms as Licensor may prescribe from time to time, annual
reports showing each Mrs. Fields Store's Gross Sales, and all Royalty Payments,
Phantom Payments and license fees paid (or, if not paid, that such fees are
owed) pursuant to this Agreement, and such other information as Licensor may
reasonably request. Each report and financial statement shall be signed and
verified by an authorized officer of Licensee in the manner Licensor prescribes.
Licensor shall have the right to disclose data derived from such reports.
(b) Licensor shall have the right at any time during business hours,
and without prior notice to Licensee, to inspect and audit, or cause to be
inspected and audited, the business records, bookkeeping and accounting records,
sales and other records of each Mrs. Fields Store and the books and records of
Licensee as they pertain to each Mrs. Fields Store. Licensee shall fully
cooperate with Licensor's representatives and independent accountants to conduct
any such inspection or audit.
13. TERM AND TERMINATION
(a) The initial term of this Agreement shall commence on the date
hereof and continue through December 31, 1996. The term of this Agreement shall
be extended and will automatically renew for one three (3) year term on December
31, 1996 and three (3) consecutive five (5) year terms thereafter upon ninety
(90) days written notice by Licensee of its intent to so renew this Agreement,
unless Licensee is not in compliance with its Development Obligation at the time
of renewal or this Agreement is otherwise terminated as provided below.
<PAGE>
(b) If Licensee defaults in the payment of any Product Price, Royalty
Payment, Development Fee or other material obligation to Licensor when the same
becomes due and payable hereunder, and such default continues unremedied for
three (3) business days from the date such obligation is due, then this
Agreement and the license granted hereunder may be terminated upon notice by
Licensor effective upon receipt of such notice, without prejudice to any and all
other rights and remedies Licensor may have hereunder or by law provided, and
all rights of Licensee hereunder shall cease.
(c) If Licensee fails to perform in accordance with any other material
terms or conditions contained in this Agreement and such default continues for
thirty (30) days after Licensee receives written notice of default, then this
Agreement and the license granted hereunder may be terminated upon notice by
Licensor effective upon receipt of such notice, without prejudice to any and all
other rights and remedies Licensor may have hereunder or by law provided, and
all rights of Licensee hereunder shall cease.
(d) If Licensee (i) fails to have open and operating a minimum of 165.6
Store Units at any time after the Development Period for a period of six (6)
consecutive months, (ii) fails to meet its Development Obligation as set forth
in paragraph 6(a) hereof and make Phantom Payments as provided in paragraph 6(h)
hereof during any calendar year or as of the end of the Development Period, or
(iii) fails to meet its Development Obligation as set forth in paragraph 6(c)
hereof and make Phantom Payments as provided in paragraph 6(i) hereof, and such
failure continues for thirty (30) days after Licensee receives written notice of
default, then Licensor, at its sole option and in its sole discretion, may
terminate any exclusive rights or rights of first offer granted to Licensee
pursuant to paragraph 2 hereof, and upon such termination Licensor shall be free
to enter into licensing arrangements with any other party for the development
and operation of Cookie Stores in airports and at tollroad locations, and the
exercise of such termination of exclusivity shall be the exclusive remedy of
Licensor with respect to such failure, but shall not prejudice any and all other
rights and remedies Licensor may have hereunder or at law for any other breach
of this Agreement.
(e) If Licensee fails to perform in accordance with any material System
Standard which adversely affects the quality of any Licensed Product, or the
health and safety of employees or customers, and such default is not remedied
immediately upon notice (and in no event later than 24 hours after receipt of
such notice), then this Agreement may be terminated upon notice by Licensor
effective upon receipt of such notice, without prejudice to any and all other
rights and remedies Licensor may have hereunder, or by law provided, and all
rights of Licensee hereunder shall cease.
(f) If Licensee is determined to be insolvent, or files a petition in
bankruptcy or for reorganization, or takes advantage of any insolvency statute,
or makes an assignment for the benefit of creditors, or undertakes any similar
action, under any federal, state or foreign bankruptcy, insolvency or similar
law, then in any such event this Agreement shall immediately terminate as to
Licensee and the license herein granted shall not constitute an asset in
reorganization, bankruptcy, or insolvency which may be mariotla.008 23 assigned
or which may accrue to any court or creditor appointed referee, receiver, or
committee.
(g) If Licensor becomes insolvent or bankrupt or fails to perform in
accordance with any material term or condition of this Agreement, and such
default continues for thirty (30) days after Licensor receives written notice of
default, then this Agreement and the License granted hereunder may be terminated
upon notice by Licensee effective upon receipt of such notice, without prejudice
to any and all other rights and remedies Licensee may have hereunder or by law
provided.
(h) If Licensor fails to perform in accordance with any material term
or condition of this Agreement and such default precludes Licensee from meeting
its Development Obligation, Licensee shall be relieved of its obligations
thereunder until such default shall be cured so that Licensee can proceed to
fulfil its Development Obligation and the Development Period shall be extended
by the amount of time during which Licensee was so precluded from meeting the
Development Obligation.
(i) On any cancellation, termination or expiration of this Agreement as to
Licensee, Licensee agrees to immediately pay to Licensor all amounts due and
owing hereunder (including, but not limited to, all Royalty Payments, Phantom
Payments, if any, licensee fees and payments for Licensed Products) and to
return all Protected Information, confidential documents and other material
supplied by Licensor to Licensee, and Licensee agrees never to use, disclose to
others, nor assist others in using the Licensed Trade Secrets or other Protected
Information. Further, Licensee agrees to return the Operating Manual and all
copies thereof to Licensor. Licensee agrees to cooperate fully with Licensor in
the return of all such documents and materials, and to take all reasonable steps
requested by Licensor to prevent the disclosure or use of such documents or
materials by unauthorized persons following termination of this Agreement.
(j) Upon cancellation, termination or expiration of this Agreement,
Licensee will be deemed to have automatically and irrevocably assigned,
transferred, and conveyed to Licensor any rights, equities, good will, titles or
other rights in and to the Licensed
Trade Secrets, Products, Names and Marks which may have been obtained by
Licensee or which may have vested in Licensee in pursuance of any endeavors
covered hereby, and Licensee will execute any instruments requested by Licensor
to accomplish or confirm the foregoing. Any such assignment, transfer or
conveyance shall be without other consideration than the mutual covenants and
considerations of this Agreement. Licensee further agrees that it shall
forthwith discontinue the use of all Licensed Names and Marks and the use of any
and all Signs, paper goods and other objects bearing any Licensed Names and
Marks and shall make such modifications or alterations to each Mrs. Fields Store
as may be necessary to de-identify such Mrs. Fields Store so that each location
operated as a Mrs. Fields Store will not be confusingly similar to its former
appearance as a Mrs. Fields Store.
<PAGE>
14. INDEMNIFICATION
(a) Licensor agrees to indemnify, defend and hold Licensee harmless
from any claims, liabilities, lawsuits, demands, actions, damages and expenses
(including reasonable attorneys fees) (collectively, "Damages") arising from or
out of any breach of the agreements, covenants, representations or warranties of
Licensor contained in this agreement or arising out of or attributable to the
negligence of Licensor.
(b) Licensee agrees to indemnify, defend and hold Licensor harmless
from and against any and all Damages arising from or out of (i) any breach of
the agreements, covenants, representations, or warranties of Licensee contained
in this Agreement, (ii) any damages or injury to any person, including, but not
limited to customers, employees of Licensee, employees of Licensor and members
of the public, suffered and incurred in or about any Licensed Location or its
premises wherein Licensee produces or sells the Licensed Products or otherwise
utilizes the Licensed Names and Marks, (iii) products, liabilities or defective
manufacturing of the Licensed Products, other than any such claims to the extent
attributable to the negligence of Licensor, or (iv) the activities hereunder of
Licensee, other than any such Damages to the extent attributable to the
negligence of Licensor.
15. BINDING EFFECT, ASSIGNMENT
(a) The terms, covenants and conditions of this Agreement shall inure
to the benefit of, and shall be binding upon, the parties hereto and their
respective successors and permitted assigns.
(b) Except as provided in paragraph 15 (d) below, neither Licensor nor
Licensee may assign, sublicense or otherwise transfer their rights under this
Agreement without the prior written consent of the other party, which consent
may be withheld in such party's sole discretion.
(c) Any assignment, sublicense or other transfer by Licensee of any of
its rights under this Agreement without the prior written consent of Licensor
(which consent shall be in Licensor's sole discretion) is prohibited and will be
deemed to be null and void.
(d) Licensee or Licensor may assign their respective rights and
obligations hereunder to any parent corporation which owns at least eighty
percent (80%) of such assigning party, an eighty percent (80%) owned subsidiary
corporation of such assigning party, an eighty percent (80%) owned subsidiary of
a parent of such assigning party if such parent owns at least eighty percent
(80%) of the subsidiary to which such agreement is to be assigned, or to such
other business organization which shall succeed to substantially all of the
assets and business of Licensee or Licensor, respectively, provided that, in the
case of any assignment by Licensee, the assignee is not owned or controlled by a
Competitive Business. Licensee shall further be permitted to perform its
obligations hereunder through a wholly owned subsidiary of Licensee or a wholly
owned subsidiary
<PAGE>
thereof, or through a partnership which has Licensee (or a wholly owned direct
or indirect subsidiary) as the managing general partner thereof (provided that
none of the other partners of such partnership own, operate or are licensees or
partners of a Competitive Business.
(e) Nothing contained herein shall be construed to limit Licensor's
ability and right to assign any royalties or payments received hereunder as
security for indebtedness; provided that any such assignment shall not affect
Licensee's rights under this Agreement.
16. ADVERTISING AND PROMOTIONAL DOCUMENTATION AND EXPENSES
(a) Licensor shall have the right to approve or disapprove any and all
advertising and promotional materials used, or proposed to be used, by Licensee
in the advertising and promotion of any of the Licensed Products. Prior to the
use of any material, whether written for in-store promotions, print media or for
television or radio spots, Licensee will submit such material to Licensor for
its approval. In that regard, Licensor shall approve, prior to the development
of final television, radio or printed advertisements, the final "story boards"
with respect to television advertising, the final "script" with respect to radio
spots, and the final "layouts" with respect to printed advertisements. Licensor
shall also approve the actors or actresses used in connection with any such
advertising campaigns; provided, that Licensee shall have the right to make
minor variations in promotional, marketing and advertising materials used in
connection with the approved promotional campaigns. All advertisements and
advertising campaigns shall conform in all material respects to the approvals
given by Licensor. If Licensor has not disapproved of such advertising within
five (5) business days from its receipt of such advertising material, such
advertising material will be deemed approved.
(b) Licensor agrees to make available to Licensee all master
advertising documents developed and used by Licensor in the United States in
relation to the sale of the Licensed Products and/or the promotion of the
Licensed Names and Marks. Licensee agrees to pay the cost of reproducing such
advertising documents so provided.
(c) Licensee agrees that all advertising, promotion and marketing by
Licensee shall be completely clear and factual and not misleading and shall
conform to the highest standards of ethical marketing and promotion policies
which may be prescribed from time to time by Licensor. Licensee further agrees
to use the registration symbol of "(R)" in connection with its use of the
Licensed Names and Marks. Licensee agrees to refrain from any business or
marketing practice which may be injurious to the business of Licensor, and the
good will associated with the Licensed Names and Marks.
(d) If, during the term of this Agreement or any extension thereof,
Debra J. Fields is not in the active full time employment of Licensor, and
Licensee thereafter compensates Debra J. Fields for any services performed by
her in the promotion, marketing or advertising of any Licensed Products, any
Royalties or other amounts payable to Licensor may be reduced by Licensee by the
amount of compensation so paid to Debra J. Fields, to the extent that such
compensation is fair and reasonable in light of mariotla.008 26 the value of the
services provided. Licensee may not reduce the Royalties for any contract year
by more than fifteen percent (1 5 %) of the aggregate Royalties for such
contract year multiplied by a fraction, the numerator of which is the number of
days remaining in such contract year following the earlier of the day on which
Debra J. Fields executes an Agreement to provide services as contemplated by
this paragraph or the first day on which she provides such services and the
denominator of which is the number of days in such contract year.
(e) Licensee agrees that each Mrs. Fields Store shall participate in
promotional
activities designated by Licensor and relating to the sale of the Licensed
Products and the promotion of the Licensed Names and Marks which promotions
require Licensee to provide Licensed Products to customers at no charge in
exchange for a coupon, card or other voucher (e.g., cookie cards). Licensor
shall reimburse Licensee the direct costs of goods sold by Licensee in
connection with such promotional activities up to one-tenth of one percent (0. 1
%) of gross sales of each Mrs. Fields Store which participates in such
promotional activities and shall reimburse Licensee for the retail value for
goods sold above such amount; provided that Licensee complies with the
reasonable requests of Licensor to document Licensee's request for reimbursement
(e.g., furnishing to Licensor of the cookie cards received by Licensee at each
Mrs. Fields Store for which reimbursement is requested). Licensor may, in
Licensor's sole discretion, exempt from participation in the above-described
promotional activities one or more Mrs. Fields Stores. Other than as provided in
this paragraph, Licensee shall have no obligation to expend monies for
advertising or promotional activities with respect to the Mrs. Fields Stores.
<PAGE>
17. NOTICES
All notices provided by this Agreement shall be in writing and shall be
given by overnight courier, facsimile transmission, or by personal delivery, by
one party to the other, addressed to such other party at the applicable address
set forth below, or to such other address as may be given for such purpose by
such other party by notice duly given hereunder. Notice shall be deemed properly
given on the date of delivery:
To Licensee: Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Law Department
FAX (301) 380-6727
To Licensor: Mrs. Fields Development Corporation
333 Main Street
P. 0. Box 4000
Park City, Utah 84060-4000
Attention: Corporate Secretary
FAX (801) 649-3639
<PAGE>
18. GENERAL PROVISIONS
(a) It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that Licensor
and Licensee are and shall be independent contractors and that 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 whatsoever. Licensee
shall conspicuously identify itself in all dealings with customers, suppliers,
public officials, Mrs. Fields Store personnel and others as the owner of the
Mrs. Fields Store under a license granted by Licensor and shall place such other
notices of independent ownership on such forms, business cards, stationery,
marketing and other materials as Licensor may require from time to time.
(b) Licensee shall not employ any of the Licensed Names and Marks in
signing any contract or applying for any license or permit or in a manner that
may result in Licensor's liability for any of Licensee's indebtedness or
obligations, nor may Licensee use the Licensed Names and Marks in any way not
expressly authorized by Licensor. Except as expressly authorized in writing,
neither Licensor nor Licensee shall make any express or implied agreements,
warranties, guarantees or representations or incur any debt in the name or on
behalf of the other, represent that their relationship is other than licensor
and licensee or be obligated by or have any liability under any agreements or
representations made by the other that are not expressly authorized in writing.
Licensor shall not be obligated for any damages to any person or property
directly or indirectly arising out of the operation of a Mrs. Fields Store or
Licensee's business authorized by or conducted pursuant to this Agreement.
(c) Except as expressly provided to the contrary herein, each
paragraph, term and provision of this Agreement, and any portion thereof, shall
be considered severable and if, for any reason, any such 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 Licensor is a party, that ruling shall not impair the operation of, or
have any other effect upon, such other portions of this Agreement as may remain
otherwise intelligible, which shall continue to be given full force and effect
and bind the parties hereto, although any portion held to be invalid shall be
deemed not to be a part of this Agreement from the date the time for appeal
expires, if Licensee is a party thereto, otherwise upon Licensee's receipt of a
notice of non-enforcement thereof from Licensor. If any covenant herein 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 thereof, Licensee and Licensor agree
that the same shall be enforced to the fullest extent permissible under the laws
and public policies applied in the jurisdiction in which enforcement is sought.
(d) If any applicable and binding law or rule of any jurisdiction
requires a greater prior notice of the termination of this Agreement than is
required hereunder, or the taking of some other action not required hereunder,
or if, under any applicable and binding law or rule of any jurisdiction, any
provision of this Agreement or any System mariotla.008 28 Standard is invalid or
unenforceable, the prior notice and/or other action required by such law or rule
shall be substituted for the comparable provisions hereof, and Licensor shall
have the right, in its sole discretion, to modify such invalid or unenforceable
System Standard to the extent required to be valid and enforceable. Licensee and
Licensor each 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
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, or
any System Standard, any portion or portions which a court may hold to be
unenforceable in a final decision to which Licensor is 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 shall
be effective only in such jurisdiction, unless Licensor elects to give them
greater applicability, and shall be enforced as originally made and entered into
in all other jurisdictions.
(e) Licensor and Licensee 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 thereof to the other or such other
effective date stated in the notice of waiver. Any waiver granted by either
party shall be without prejudice to any other rights such party may have, will
be subject to continuing review by the waiving party and may be revoked, in such
party's sole discretion, at any time and for any reason, effective upon delivery
to such party of ten (10) days' prior written notice.
(f) Licensor and Licensee shall 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 herein or to declare any breach thereof to be a default
and to terminate this Agreement prior to the expiration of its term) by virtue
of any custom or practice of the parties at variance with the terms hereof; any
failure, refusal or neglect of Licensor or Licensee to exercise any right under
this Agreement or to insist upon exact compliance by the other with its
obligations hereunder, including, without limitation, any System Standard; any
waiver, forbearance, delay, failure or omission by Licensor to exercise any
right, power or option, whether of the same, similar or different nature, with
respect to other Cookie or Bakery Stores; or Licensor's acceptance of any
payments due from Licensee after any breach of this Agreement.
(g) Neither Licensor nor Licensee shall be liable for loss or damage or
deemed to be in breach of this Agreement if their failure to perform obligations
results from:
(i) compliance with any law, ruling, order, regulation,
requirement or instruction of any federal, state,
municipal or foreign government or any department or
agency thereof;
(ii) acts of God;
<PAGE>
(iii) fires, strikes, embargoes, war or riot; or
(iv) any other similar event or cause.
Any delay resulting from any of said causes shall extend performance accordingly
or excuse performance, in whole or in part, as may be reasonable, except that
said causes shall not excuse payments of amounts owed at the time of such
occurrence (including payment of any Phantom Payments, Royalty Payments or
Product Price payments) or payments due for Royalty Payments or the Product
Price for Licensed Products on any sales thereafter.
(h) Notwithstanding anything to the contrary contained in this
Agreement, Licensor and Licensee shall each have the right in a proper case to
obtain temporary restraining orders and temporary or preliminary injunctive
relief from a court of competent jurisdiction. Licensee agrees that Licensor may
have such temporary or preliminary injunctive relief without bond.
(i) The rights of Licensor and Licensee hereunder are cumulative and no
exercise or enforcement by Licensor or Licensee of any right or remedy hereunder
shall preclude the exercise or enforcement by Licensor or Licensee of any other
right or remedy hereunder to which Licensor or Licensee is entitled by law to
enforce.
(j) If a claim for amounts owed by Licensee to Licensor or its
affiliates is asserted in any judicial proceeding or appeal thereof, or if
Licensor or Licensee is required to enforce this Agreement in a judicial
proceeding or appeal thereof, the party prevailing in such proceeding shall be
entitled to reimbursement of its costs and expenses, including reasonable
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 Licensor incurs
expenses in connection with Licensee's failure to pay when due amounts owing to
Licensor, to submit when due any reports, information or supporting records or
otherwise to comply with this Agreement, including, but not limited to legal and
accounting fees, Licensee shall reimburse Licensor for any such costs and
expenses which it incurs.
(k) Except to the extent governed by the United States Trademark Act of
1946 (Lanham Act, 15 U.S.C. ss.ss. 1051 et seq.) or other federal law, this
Agreement, and the relationship between Licensee and Licensor, shall be governed
by the laws of the State of Utah.
(l) Licensee and Licensor hereby irrevocably consent and agree that any
legal action, suit or proceeding arising out of or in any way in connection with
this Agreement, or which is an appeal therefrom, may be instituted or brought in
the Federal District Court for the District of Utah and Licensee and Licensor
hereby irrevocably consent and submit to, for themselves and in respect of their
property, generally and unconditionally, the jurisdiction of such Court, and to
all proceedings in such Court. Further, Licensee and Licensor irrevocably
consent to actual receipt of any summons and/or legal process at
<PAGE>
their respective addresses as set forth in this Agreement as constituting in
every respect sufficient and effective service of process in any such legal
action or proceeding. Licensee and Licensor further agree that final judgment in
any such legal action, suit or proceeding shall be conclusive and may be
enforced in any other jurisdiction, whether within or outside the United States
of America, by suit under judgment, a certified or exemplified copy of which
will be conclusive evidence of the fact and the amount of the liability.
(m) Except with respect to the indemnification obligations contained
herein, 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 shall be limited
to recovery of any actual damages it sustains.
(n) Each party irrevocably waives trial by jury in any action,
proceeding or counterclaim, whether at law or in equity, brought by either
party.
(o) Except for claims for which Licensee or Licensor are entitled to
indemnification herein, any and all claims arising out of or relating to this
Agreement or the relationship among the parties hereto shall be barred unless an
action or legal proceeding is commenced within one (1) year from the date
Licensee or Licensor knew or should have known the fact giving rise to such
claims.
(p) Except where this Agreement expressly obligates Licensor reasonably
to approve or not unreasonably to withhold its approval of any action or request
by Licensee, Licensor has the absolute right to refuse any request by Licensee
or to withhold its approval of any action by Licensee that requires Licensor's
approval.
(q) The headings of the several sections and paragraphs hereof are for
convenience only and do not define, limit or construe the contents of such
sections or paragraphs.
(r) All Exhibits hereto form part of this Agreement.
(s) This Agreement and the Exhibits hereto represent the entire
agreement between Licensor and Licensee with respect to the subject matter
hereof and supersede any prior agreements and negotiations between the parties.
(t) This Agreement may be executed simultaneously in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same agreement, binding upon both parties hereto,
notwithstanding that both parties are not signatories to the original or the
same counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
"LICENSEE"
MARRIOTT CORPORATION
By:/s/
Its: Vice President
"LICENSOR"
MRS. FIELDS DEVELOPMENT CORPORATION
By:/s/
Its: Ex. Vice President
<PAGE>
EXHIBIT A
LICENSED PRODUCTS
[See Attached]
<PAGE>
EXHIBIT A
LICENSED PRODUCTS
COOKIES NON-BAKERY ITEMS
ROYAL PECAN COOKIE TINS
SEMI SWEET CHUNK PECAN COOKIE JARS
MILK CHOCOLATE MACADAMIA OTHER ITEMS WHICH BEAR THE LICENSED
SEMI SWEET CHOCOLATE MACADAMIA NAMES AND MARKS,
CINNAMON SUGAR APPROVED IN WRITING BY LICENSOR
CHEWY FUDGE
HAND-DIPPED CHEWY FUDGE
COCOMAC
RAISIN SPICE
MILK CHOCOLATE CHIP
CHOCO MAC
MILK CHOCOLATE CHIP W/WALNUTS
OATMEAL GRANOLA
SHORTBREAD JEWELS
OATMEAL RAISIN NUT
PEANUT BUTTER
HAND DIPPED PEANUT BUTTER
SHORTBREAD
SEMI SWEET CHOCOLATE CHIP
SEMI SWEET CHOCOLATE CHIP W/NUTS
TRIPLE CHOCOLATE
WHITE CHUNK MACADAMIA
BROWNIES
GERMAN CHOCOLATE
PECAN PIE
MACADAMIA FUDGE
WALNUTFUDGE
ROCKY ROAD
PEANUT BUTTER BAR
PECAN FUDGE
MUFFINS
PUMPKIN (SEASONAL)
BANANA WALNUT
BRAN RAISIN WALNUT
MANDARIN ORANGE
CORNBREAD
BLUEBERRY
RASPBERRY
CHOCOLATE CHIP
BANANA CHOCOLATE CHIP
COFFEE
<PAGE>
EXHIBIT B
LIST OF LICENSED TRADENAMES, TRADEMARKS AND SERVICE MARKS
[SEE ATTACHED]
LICENSE AGREEMENT
between
MRS. FIELDS DEVELOPMENT CORPORATION
a Delaware corporation
and
MARRIOTT MANAGEMENT SERVICES CORP.
a Delaware corporation
DATED: October 28, 1993
<PAGE>
TABLE OF CONTENTS
DEFINITIONS................................................................ 1
GRANT OF LICENSE.............................................................3
TRANSFER OF LICENSED TRADE SECRETS AND ASSISTANCE............................4
CONFIDENTIALITY..............................................................4
PUBLICITY....................................................................5
NO COMPETITIVE BUSINESS......................................................5
SYSTEM STANDARDS.............................................................6
UNDERTAKINGS BY LICENSEE.....................................................7
UNDERTAKINGS OF LICENSOR....................................................13
PRODUCT PURCHASES, PAYMENTS AND ROYALTIES...................................15
ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS................................16
TERM AND TERMINATION........................................................17
INDEMNIFICATION.............................................................19
BINDING EFFECT, ASSIGNMENT..................................................20
ADVERTISING AND PROMOTIONAL DOCUMENTATION AND EXPENSES......................20
NOTICES.....................................................................22
GENERAL PROVISIONS..........................................................22
EXHIBIT A - LICENSED PRODUCTS
EXHIBIT B - LIST OF LICENSED TRADENAMES,TRADEMARKS AND SERVICE MARKS
EXHIBIT C - MARRIOTT LOCATION REQUEST FORM
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made this 28th day of
October, 1993, by and between MRS. FIELDS DEVELOPMENT CORPORATION ("Licensor"),
a Delaware corporation and MARRIOTT MANAGEMENT SERVICES CORP. ("Licensee"), a
Delaware corporation.
WITNESSETH:
WHEREAS, Licensor has invented and acquired and will continue to
develop and acquire certain proprietary knowledge, trade secrets, techniques,
recipes, formulations of ingredients and processes related to the composition,
production, marketing and sale of bakery products, cookies and other food
products commonly sold at Mrs. Fields cookie stores;
WHEREAS, Licensee manages and operates restaurants and food service
facilities at universities, colleges, health care, corporate and other
commercial complexes;
WHEREAS, Licensor desires to license to Licensee the right, and
Licensee desires to obtain a license from Licensor, to utilize Licensor's
techniques and processes to produce and sell the Licensed Products (as defined
below) at certain locations as specified herein under certain of the tradenames
and trademarks used by Licensor and upon the terms and conditions hereafter set
forth;
WHEREAS, Licensor has also agreed to make available to Licensee certain
assistance, in accordance with the terms and provisions hereof;
NOW THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS
(a) "Competitive Business" means any business operating or
granting franchises or licenses to others to operate outlets which sell
fresh baked breads, croissants, pastries, cookies, brownies, muffins or
other bakery products. Notwithstanding the foregoing, the term
"Competitive Business" shall not be deemed to preclude Licensee, or its
officers, directors, employees, shareholders or partners, or members of
their immediate families, from (i) owning securities in a company if
such securities are listed on a stock exchange or traded on the
over-the-counter market and represent two percent (2%) or less of that
class of securities, (ii) operating outlets or selling products under
the name "Cinnabon" or "Dunkin' Donuts", (iii) selling fresh baked
products under various tradenames and trademarks, provided Licensee is
not a franchisee or licensee of such trademarks or tradenames, or (iv)
selling fresh baked products, other than cookies, brownies and muffins
under other tradenames or trademarks at Licensed Locations.
<PAGE>
(b) "Control", "Controlled" and "Controlling" means the power to
exercise a controlling influence over the management, policies or personnel of a
person, company, partnership, joint venture, corporation or other group of
organized persons.
(c) "Gross Sales" shall have the meaning set forth in paragraph 10(c)
hereof.
(d) "Licensed Location" or "Licensed Locations" means any university,
college, commercial building or office complex, or other location whereat
Licensee has contracted with the owner or manager thereof to provide food
service, which location has been approved in writing by Licensor (in its sole
discretion) as a location at which Licensee may sell Licensed Products under the
Licensed Names and Marks, pursuant to the approval form attached hereto as
Exhibit C.
(e) "Licensed Names and Marks" means the tradenames, trademarks and
service marks listed and described in Exhibit B.
(f) "Licensed Products" means the items, articles or food products
described on Exhibit A attached hereto or any other bakery goods or cookies
which, pursuant to the terms of this Agreement, become "Licensed Products".
(g) "Licensed Territory" means the United States.
(h) "Licensed Trade Secrets" means all transferable techniques,
processes, methods of production and commercialization, training methods, and
know-how pertaining to and necessary or useful in relation to the composition,
production and sale of Licensed Products. Licensed Trade Secrets shall be deemed
to include, as and when available, all additional techniques, processes, methods
of production and commercialization and other know-how and/or improvements
thereto, whether acquired or reduced to practice by Licensor before or after the
date hereof which relate to the Licensed Trade Secrets and which are necessary
or useful for the formulation, composition, production and sale of Licensed
Products. Licensed Trade Secrets shall not include, and Licensee shall have no
right, title, interest or license in, the recipes or formulations for the
Licensed Products.
(i) "Mrs. Fields Store" or "Mrs. Fields Stores" means the sections or
areas of Licensed Locations owned and operated by Licensee as a retail cookie
outlet under the Licensed Names and Marks, and approved in writing by Licensor
(in its sole discretion).
(j) "Operating Manual" means Licensor's operating manual for Mrs.
Fields Cookie Stores as modified and revised from time to time.
(k) "Protected Information" means the Licensed Trade Secrets and
Licensor's recipes, formulations, systems, programs, procedures, manuals,
confidential reports and communications, marketing techniques and arrangements,
purchasing information, pricing policies, quoting procedures, financial
information, employee, customer, supplier and distributor data, all of the
materials or information relating to the SLC1 - GIBBSW - 3443.5 2 business or
activities of Licensor which are not generally known to others engaged in
similar businesses or activities, and all modifications, improvements and
enhancements which are derived from or relate to Licensee's access to or
knowledge of any of the above enumerated materials or information (whether or
not any of the above are reduced to writing or whether or not patentable or
protectable by copyright) which Licensee receives, receives access to, conceives
or develops or has received, received access to, conceived or developed, in
whole or in part, directly or indirectly, in connection with Licensee's license
hereunder. Information which is independently developed by Licensee or which was
already in the possession of Licensee prior to the date of the Original License
and which was not obtained in connection with the transactions contemplated by
the Original License or this Agreement, or information which is or becomes
publicly available without breach of (i) this Agreement, (ii) any other
agreement or instrument to which Licensee is a party or a beneficiary, or (iii)
any duty owed to Licensor by Licensee, shall not be considered Protected
Information hereunder.
<PAGE>
(1) "Restricted Person" means Licensee, any subsidiary, parent, or
affiliate of Licensee, or any officer or director of the same.
(m) "Royalty Payment" shall have the meaning set forth in paragraph
10(c) hereof.
(n) "System Standards" shall have the meaning set forth in paragraph 7
hereof.
(o) "Term" shall have the meaning set forth in paragraph 12(a) hereof.
2. GRANT OF LICENSE
(a) Licensor hereby grants to Licensee and Licensee hereby accepts from
Licensor, upon the terms and conditions hereinafter specified, a license to
employ the Licensed Trade Secrets and the Licensed Names and Marks during the
Term to produce and sell the Licensed Products from Mrs. Fields Stores at
Licensed Locations in the Licensed Territory.
(b) The license granted pursuant to this Agreement shall not be
exclusive to Licensee and Licensor shall not be precluded from, and hereby
expressly retains the right to: (i) offer for sale and sell, and license others
to offer for sale and sell, the Licensed Products under the Licensed Names and
Marks and other trademarks and service marks, including, without limitation, at
retail outlets similar to or in competition with the Licensor's Stores, through
similar or dissimilar channels of distribution, and pursuant to any terms and
conditions Licensor deems appropriate; (ii) offer for sale and sell, and license
others to offer for sale and sell, any other products or services under the
Licensed Names and Marks; and (iii) own, operate and grant to others the right
to operate cookie
<PAGE>
stores or other stores or outlets selling Licensed Products under the Licensed
Names and Marks on such terms and conditions as Licensor, in its sole
discretion, deems appropriate.
(c) Notwithstanding the foregoing, Licensor shall not own, operate, of
license others to own or operate (other than Licensee) any business utilizing
the Licensed Names and Marks at any Licensed Location.
3. TRANSFER OF LICENSED TRADE SECRETS AND ASSISTANCE
(a) Licensor agrees to transmit the Licensed Trade Secrets to Licensee
by any reasonable means upon request.
(b) Licensor will provide a training program at such locations as
Licensor shall select, for up to five (5) designated staff members of Licensee
who are to be store managers at Licensed Locations. Licensee shall pay all of
Licensee's out-of-pocket expenses incurred for such training program, including
travel and lodging, and Licensor shall pay for its out-of-pocket expenses
incurred in providing such training. Thereafter, Licensee shall establish its
own training program for store managers and other supervisory personnel for each
Mrs. Fields Store opened and operated by Licensee hereunder, which training
program shall be conducted strictly in accordance with the policies, procedures
and methods of Licensor. Each manager attending such training program shall be
required to complete all phases of the training program, and to participate in
all other activities required to open a Mrs. Fields Store. The training program
so furnished shall be similar to the training program utilized to train
Licensor's own store managers.
(c) Licensor shall have the right at any time to attend and inspect
Licensee's training program to ensure that it complies with the procedures,
methods and qualifications of Licensor. Upon notice from Licensor that
Licensee's training program does not meet the standards required by Licensor,
Licensee will immediately take such action as is required to bring its training
program into compliance with the training requirements of Licensor.
4. CONFIDENTIALITY
(a) Licensee understands that the Protected Information disclosed to
Licensee by Licensor under this Agreement is secret, proprietary and of great
value to Licensor, which value may be impaired if the secrecy of the Protected
Information is not maintained.
(b) Licensor has taken and will continue to take reasonable security
measures to preserve and protect the secrecy of the Protected Information and
Licensee agrees to take all measures reasonably necessary, including, without
limitation, the measures hereinafter specified, to protect the secrecy of such
information in order to prevent it
<PAGE>
from failing into the public domain or into the possession of persons not bound
to maintain the secrecy of such information.
(c) Licensee agrees not to disclose the Protected Information obtained
pursuant to this Agreement, either directly or indirectly, to any person or
entity, including any subsidiary or affiliate of Licensee (other than Licensee's
key officers and employees to whom disclosure is necessary for employment of the
Licensed Trade Secrets), during the term of this Agreement or at any time
following the expiration or termination of this Agreement.
(d) Licensee shall exercise all other necessary precautions to
safeguard the secrecy of the Protected Information disclosed pursuant hereto and
to prevent the unauthorized disclosure thereof to anyone other than Licensee's
key officers and employees to whom it is necessary to disclose the same for
production and sale of the Licensed Products.
(e) If Licensor sustains its burden of proof that Licensee has
disclosed, divulged, revealed, reported, published, transferred or used, for any
purpose whatsoever, except as authorized herein, any Protected Information, and
Licensee shall assert as a defense that such information (i) was already known
to Licensee prior to the execution of the Original License, (ii) was
independently developed by Licensee, (iii) was disclosed to or by third parties
without violation of this Agreement or similar agreements, (iv) was already in
the public domain prior to the execution of the Original License, or (v) entered
the public domain without violation of this Agreement or the Original License,
Licensee shall bear the burden of proof in establishing such defense.
5. PUBLICITY
Licensee and Licensor agree not to issue any press release or other public
announcement of this Agreement or the transactions contemplated herein without
the prior written approval by each party hereto of the issuance of such
announcement and the text thereof. In the event any such press release or other
public announcement shall be required t)y law, Licensee and Licensor agree to
issue such release or announcement only after consulting in good faith with one
another with respect to the form and substance of such release or announcement.
6. NO COMEPETITIVE BUSINESS
In consideration for the License granted hereunder, and the disclosure
of the Protected Information, Licensee agrees that, during the term of this
Agreement and for one (1) year thereafter, in and with respect to Licensed
Locations in the Licensed Territory, neither Licensee, nor any Restricted
Person, shall:
(i) have any direct or indirect Controlling interest as a
disclosed or beneficial owner in a Competitive
Business, except other Mrs. Fields Stores operated
under license agreements with Licensor;
<PAGE>
(ii) perform services as a director, officer, manager,
employee, consultant, representative, agent or
otherwise for a Competitive Business, except other Mrs.
Fields Stores operated under license agreements with
Licensor;
(iii)become a licensee or franchisee of a Competitive
Business; or
(iv) operate, or allow others to operate, a Competitive
Business at a Licensed Location owned, operated by or
under contract with Licensee.
7. SYSTEM STANDARDS
Licensee acknowledges and agrees that the operation of the Mrs. Fields
Stores in accordance with the specifications, standards, operating procedures
and rules Licensor prescribes from time to time for the operation of Mrs. Fields
Stores (the "System Standards") is the essence of this Agreement and essential
to preserve the goodwill of the Licensed Names and Marks. Therefore, Licensee
will maintain and operate each Mrs. Fields Store in accordance with each and
every System Standard, as periodically modified and supplemented by Licensor in
its discretion during the term of this Agreement. System Standards may regulate
any one or more of the following with respect to a Mrs. Fields Store:
(i) within the confines of the Mrs. Fields Store within a
Licensed Location, the 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;
(ii) types, models, brands, maintenance and replacement of
required equipment, fixtures, furnishings and signs;
(iii) approved and disapproved Licensed Products;
(iv) designated and approved suppliers (including Licensor
and/or its affiliates) of equipment, fixtures,
furnishings, signs, products, raw materials and
supplies;
(v) use and operation of a point of sale register which
accurately accounts for gross sales;
(vi) marketing, advertising and promotional activities and
materials authorized for use; (vii) use of the Licensed
Names and Marks;
<PAGE>
(viii) qualifications, training, dress, appearance and
staffing of employees;
(ix) participation in reasonable market research and testing
of new products and service development programs
prescribed by Licensor;
(x) management by managers who have successfully completed
Licensee's training program; communication to Licensor
of the identities of such managers; replacement of
managers whom Licensor determines to be unqualified to
manage a Mrs. Fields Store; and other matters relating
to the management of the Mrs. Fields Stores and their
management personnel;
(xi) with respect to each Mrs. Fields Store, the
bookkeeping, reporting formats and content of reports
to Licensor of sales, revenues, and related financial
information necessary to confirm gross sales;
(xii) compliance with applicable laws; obtaining required
licenses and permits; and notification of Licensor in
the event any action, suit or proceeding is commenced
against Licensee in relation to or concerning any
Mrs. Fields Store or the operation thereof;
(xiii) payment of vendors; terms and conditions of sale and
delivery of any payment for products, raw materials,
supplies and services sold by Licensor, its affiliates
or unaffiliated suppliers.
Licensee agrees that the System Standards may be periodically modified
by Licensor and that such modifications may obligate Licensee to invest
additional capital in each Mrs. Fields Store and/or incur higher operating
costs, provided that such modifications are made on a system-wide basis.
Licensor will not obligate Licensee to invest additional capital at a time when
such investment cannot in Licensor's reasonable judgment be amortized during the
remaining term of this Agreement. Licensee hereby agrees that System Standards
prescribed from time to time in the Operating Manual, or otherwise communicated
to Licensee in writing, shall constitute provisions of this Agreement as if
fully set forth herein; provided, however, that if any conflict between the
terms of this Agreement and any System Standard shall arise, the terms of this
Agreement shall control. All references to this Agreement shall include all
System Standards as periodically modified.
8. UNDERTAKINGS BY LICENSEE
Licensee represents, acknowledges, agrees, covenants and warrants as
follows:
(a) Unless Licensor consents in writing, Licensee shall use
the Licensed Trade Secrets and the Names and Marks:
<PAGE>
(i) only for the purposes of and pursuant to this
Agreement,
(ii) only in a manner consistent with the scope of the
relevant registration of the Licensed Names and Marks
or applications therefor in the Licensed Territory,
(iii)only in the manner permitted and prescribed by
Licensor as set forth herein,
(iv) only with respect to Licensed Products, and
(v) only to sell Licensed Products at Mrs. Fields Stores.
(b) Licensee has no claim, option, or other right whatsoever, direct or
implied, to any like license for any geographic area or location, other than the
Mrs. Fields Stores within the Licensed Territory.
(c) Licensee recognizes the value of the good will associated with the
Licensed
Products, Names and Marks and acknowledges that the Licensed Trade Secrets,
Products, Names and Marks and all rights therein and good will pertaining
thereto belong exclusively to Licensor.
(d) Licensee will not, during the term of this Agreement or thereafter,
attack the title or any rights of Licensor in and to the Licensed Trade Secrets,
Products, Names and Marks or attack the validity of this Agreement, any other
license agreement to which Licensor is a party and/or the Licensed Trade
Secrets, Products, Names and Marks.
(e) Licensee will assist Licensor, at Licensor's cost and expense, to
the extent necessary in the procurement of any protection or to protect any of
Licensor's rights to the Licensed Names and Marks, and Licensor, if it so
desires, may continence or prosecute any claims or suits in its own name or in
the name of Licensee or join Licensee as a party thereto. Licensee shall notify
Licensor in writing of any infringements or imitations by others of the Licensed
Names and Marks which may come to Licensee's attention, and Licensor shall have
the sole right to determine whether or not any action shall be taken on account
of any such infringements or imitations at Licensor's cost and expense. Licensee
shall not institute any suit or take any action on account of any such
infringements or imitations without first obtaining the written consent of
Licensor so to do.
(f) Licensee will do nothing to destroy, impair or in any way impede
the effect and validity of the Licensed Names and Marks.
(g) Licensee will so conduct and operate each Mrs. Fields Store so as
to preserve the business integrity and good reputation of Licensor; and Licensee
will refrain
<PAGE>
from all activity involving any significant risk of bringing any of the Licensed
Names and Marks into disrepute or in any way damaging any of the Licensed Names
and Marks.
(h) For the protection of the consumer public and for the further
protection of the good will and trade reputation of Licensor, Licensee will only
sell at Mrs. Fields Stores, Licensed Products, non-alcoholic beverages and other
condiments consistent with the good quality, reputation and business integrity
of Licensor and in accordance with the System Standards and Operating Manual
(unless Licensor consents in writing to the sale of other goods or products) and
that all Licensed Products manufactured, advertised, and sold by Licensee under
the Licensed Names and Marks shall be subject to and in compliance with the
quality control standards, procedures, specifications, formulations and recipes
of Licensor as set forth in the Operating Manual and System Standards, as such
may be varied by Licensor in order to accommodate the functioning of the Mrs.
Fields Stores at Licensed Locations.
(i) The Licensed Products and other products produced and sold by
Licensee at each Mrs. Fields Store shall be of high quality and standard,
comparable with that of Licensor's own stores, and of such style, appearance and
quality as to be adequate for the protection and enhancement of the Licensed
Names and Marks and the good will pertaining thereto; will be prepared and sold
in accordance with all applicable laws; and shall not reflect adversely upon the
good name of Licensor or the Licensed Names and Marks.
(j) Licensor may request representative samples of Licensed Products
from Licensee and if, at any time, Licensor deems the quality of such products
to be below the standards of quality historically and currently observed by
Licensor, Licensor may so notify Licensee, in writing, and Licensee will
promptly bring such sub-standard products up to the quality standards set by
Licensor. Licensor's right to oversee the quality of the Licensed Products
herein shall not in any way replace, supersede, or substitute for the quality
control required to be exercised by Licensee hereunder. The exercise of any
action of quality control by Licensor shall be for its sole and exclusive
benefit. Licensor shall not be responsible to Licensee or any other person or
entity for any liability arising out of the exercise or failure to exercise
quality control with respect to the operation of the Mrs.
Fields Stores.
(k) All employees of Licensee, while engaged in the operation of each
Mrs. Fields Store, shall at all times during said employment present a neat and
clean appearance and render competent and courteous service to all patrons.
(l) Licensor shall have the right to inspect each Mrs. Fields Store at
any reasonable time with the right to determine whether Licensee's operations in
connection with the use of the Licensed Names and Marks are consistent with the
standards set forth in this Agreement. All inspections shall be made in a manner
so as to minimize any disruption to the Mrs. Fields Store subject to such
inspection. If Licensor determines such operations do not comply with such
standards and so notifies Licensee of the same,
<PAGE>
Licensee shall immediately thereafter take such steps, actions or activities
necessary to bring its operations into compliance with such standards.
(m) Licensor shall have the right to inspect any of the artwork, signs,
logos, packaging and advertising using the Licensed Names and Marks
(collectively the "Signs") to determine whether the Signs are consistent with
the Licensed Names and Marks and are being used in a manner which promotes the
good reputation and business integrity of Licensor. If Licensor determines that
such Signs or the use thereof are not consistent with the Licensed Names and
Marks or do not promote the good reputation or business integrity of Licensor,
and Licensor so notifies Licensee of the same, Licensee shall thereafter take
such steps or actions as may be necessary to correct the Signs. At Licensee's
request, Licensor will inspect the Signs and approve or disapprove the use of
such Signs, as the case may be, prior to their use. Once Licensee has received
approval of any Signs by Licensor, Licensor agrees not to revoke or withdraw
such approval. Such approval will be deemed only to extend to the Sign as
submitted to Licensor for approval by Licensee, and any material change,
alteration, or other revision to such Sign shall require further approval by
Licensor.
(n) Licensee will cause signage to be placed on the outside of each
Mrs. Fields Store. Such signage shall be illuminated and shall conform in all
respects to the requirements contained in paragraph 8(m) above.
(o) That any modification, improvement or enhancement by Licensee to
the Licensed Trade Secrets, Products, Names and Marks (whether or not approved
or developed with the advice or support of Licensor), shall be the exclusive
property of Licensor, and that any Licensed Products so modified, enhanced or
improved shall be sold only with the prior approval of Licensor.
(p) Each Mrs. Fields Store shall have a manager trained and certified
by Licensee in accordance with Licensor's standards as provided in paragraph 3
hereof, and each manager shall also be certified by Licensee in accordance with
Licensor's standards as provided in paragraph 3 hereof, regarding training and
quality control procedures.
(q) Licensee will not develop and operate a Mrs. Fields Store at any
Licensed Location without first receiving the written approval of Licensor,
which approval shall be in Licensor's sole discretion. Licensor will give such
approval or disapproval within ten (10) business days of Licensee's written
request. Licensee agrees to give at least ninety (90) days prior written notice
of a planned opening of any Mrs. Fields Store.
(r) Licensee will comply with all laws and regulations to which it is
subject in the opening and operation of each Mrs. Fields Store at its expense,
and that it will cooperate with Licensor in complying with all applicable state
franchising laws and regulations, and will not open a Mrs. Fields Store in any
state until Licensor has complied with applicable franchising laws or
regulations. The written approval by Licensor to Licensee with respect to the
development and operation of a particular Mrs. SLC1 - GIBBSW - 3443.5 10 Fields
Store shall constitute Licensor's representation that it has complied with
applicable franchising laws and regulations applicable to such Mrs. Fields Store
or there is an exemption therefrom.
(s) Licensee shall be responsible for obtaining all carts and/or kiosks
and/or otherwise constructing and developing each Mrs. Fields Store, as the case
may be, however, Licensor will furnish to Licensee prototypical plans and
specifications for a Mrs. Fields Store, including requirements for exterior and
interior materials and finishes, dimensions, design, image, interior layout,
decor, fixtures, equipment, signs, furnishings and color scheme. Licensee shall
prepare all required construction plans and specifications to suit the shape and
dimensions of the proposed premises for each Mrs. Fields Store, and will ensure
that such plans and specifications comply with all applicable ordinances,
building codes, permit requirements and with lease requirements and
restrictions. Licensee shall further submit any cart design or construction
plans and specifications to Licensor for its approval prior to the commencement
of the manufacture of a cart, kiosk, or other construction of a Mrs. Fields
Store. Licensee will manufacture (or have manufactured), construct and decorate
each Mrs. Fields Store only in accordance with the plans, specifications,
designs and equipment specifications submitted to and approved by Licensor. Once
a cart, kiosk, or other Mrs. Fields Store design or modification is approved,
such design shall be deemed approved for future use in all stores. Licensee
hereby agrees that the plans and specifications for any cart, kiosk, or other
Mrs. Fields Store developed and approved pursuant to this paragraph, may be used
by Licensor, its affiliates and any licensee or franchisee of Licensor and its
affiliates, without any further consideration other than the license granted to
Licensee pursuant to this Agreement; provided that the use of such carts,
kiosks, or other concepts developed and approved pursuant to this Agreement are
used by Licensor, its affiliates or licensees and franchisees in a manner which
is consistent with the good quality, reputation and business integrity of
Licensor and in accordance with Licensor's standards and operating procedures
for similar types of locations.
(t) Licensee will, at its sole expense, do or cause to be done the
following with respect to the development of each Mrs. Fields Store:
(i) Obtain all required building, utility, sign, health,
sanitation, business, environmental and other permits
and licenses required for construction and operation of
each Mrs. Fields Store;
(ii) Purchase and install all required carts, fixtures,
furnishings, equipment and signs required for operation
of each Mrs. Fields Store; and
(iii)Purchase all required inventory for the opening of
each Mrs. Fields Store.
<PAGE>
(u) Licensee will only use ingredients, formulas and supplies that
conform to the standards and specifications designated by Licensor. Any
non-proprietary products or ingredients purchased by Licensee shall be purchased
and shall comply with all of Licensor's specifications with respect to such
products.
(v) Licensee represents that it has made its own investigation with
respect to the licenses granted hereunder and is not relying on any
representations or warranties of Licensor other than those made expressly
herein. Licensee hereby affirms that Licensor, its agents, employees and/or
attorneys have not made nor has Licensee relied upon any representation,
warranty or promise with respect to the subject matter of this Agreement not
expressly contained herein. Without limiting the foregoing, Licensee
acknowledges that no warranties or representations, express or implied, have
been made by Licensor, its agents, employees and/or attorneys, or will be relied
upon by Licensee, as to the economic consequences of this Agreement, or any
other fact or matter relating to the relationship of the parties except as set
forth in this Agreement.
(w) Licensee will only sell Licensed Products, drinks and condiments
from Mrs. Fields Stores under the Licensed Names and Marks.
(x) Licensee will operate each Mrs. Fields Store opened hereunder in
accordance with the Operating Manual furnished to Licensee pursuant to this
Agreement. Licensee shall keep one copy of the Operating Manual at each Mrs.
Fields Store, shall keep each such manual current and, in the event of a dispute
relating to the contents of the Operating Manual, the master copy that Licensor
maintains at its principal office shall be controlling, provided that all
updates have been given to Licensee. Licensee hereby agrees that it will only
copy the Operating Manual so as to provide each Mrs. Fields Store with one copy
thereof, and will not at any time otherwise copy any part of the Operating
Manual.
(y) Upon the execution hereof, and for at least one (1) year
thereafter, that Licensee, or one or more of its current directors or executive
officers, has and will continue to have more than two years of prior management
experience in the operation of food service establishments.
(z) Licensee reasonably anticipates that the sale of food and beverages
from the Mrs. Fields Stores operated pursuant to this Agreement will not exceed
twenty percent (20%) of the dollar volume of Licensee's projected gross sales
from all operations in the foreseeable future.
(aa) In addition to operating any Mrs. Fields Stores hereunder,
Licensee sells products, supplies and performs services which are not supplied
to Licensee by Licensor pursuant to this Agreement, and which are not utilized
with any equipment, products, supplies or services provided to Licensee by
Licensor pursuant to this Agreement.
<PAGE>
(ab) Licensee will not at any time or in any manner whatever, claim or
take any advantage from or benefit of any state or federal franchise law which
may arise from., or affect the terms of, this Agreement, and Licensee hereby
expressly waives, to the extent permitted by law, all benefit of, or cause of
action under any such state or federal franchise law, except with respect to
Licensor's fraud or knowing misrepresentation.
(ac) Upon notice from Licensor not to open a Mrs. Fields Store because
such opening would violate a state's applicable franchise laws, Licensee will
not open any Mrs. Fields Store until Licensor has complied with all applicable
franchise laws for the state in which such Mrs. Fields Store is to be located,
or until Licensor has determined that the opening of such Mrs. Fields Store is
exempt from that state's applicable franchise laws.
(ad) Licensee has full power and authority under its Articles of
Incorporation and Bylaws to enter into this Agreement and the transactions
contemplated hereby, and that the entering into of this Agreement does not
contravene, infringe upon or constitute a default under any agreement or
covenant to which Licensee is a party or violate or conflict with any law or
regulation by which it is bound.
(ae) No filing, registration, approval or consent heretofore not
obtained of any governmental agency or instrumentality or of any stock exchange
authority is required for the authorization, delivery or performance by Licensee
of this Agreement.
9. UNDERTAKINGS OF LICENSOR
Licensor represents, acknowledges, agrees, covenants, and warrants as follows:
(a) That the Licensed Trade Secrets constitute and shall always
constitute all processes, procedures and rights which are necessary or useful to
make, have made and to sell the Licensed Products;
(b) That Licensor has the full right and power under its Bylaws and
Certificate of Incorporation to grant Licensee the license as contemplated
herein, and perform the same and that execution of this Agreement by Licensor
does not infringe or constitute a default under any agreement or covenant
(subject to any lease or radius restrictions with respect to Mrs. Fields Stores)
to which Licensor is a party or violate or conflict with any law or regulation
by which it is bound;
(c) That Licensor will take (or cause to be taken) at its
cost, all steps necessary to:
(i) maintain the confidentiality of the Licensed Trade
Secrets in accordance with all relevant laws;
<PAGE>
(ii) prepare, execute, and file all documents, notices,
applications, registrations and timely renewals hereof
or other documents required or necessary for the
protection of the Licensed Names and Marks; and
(iii) defend the Licensed Names and Marks.
(d) No filing, registration, approval or consent heretofore not
obtained from any governmental agency or instrumentality or of any stock
exchange authority is required for the authorization, execution, delivery or
performance by Licensor or this Agreement.
(e) Licensor will loan to Licensee during the term of this Agreement
one copy of the Operating Manual. The Operating Manual shall contain mandatory
and suggested specifications, standards and operating procedures that Licensor
prescribes from time to time for Mrs. Fields Stores, and information relating to
Licensee's other obligations under this Agreement. The Operating Manual may be
modified from time to time to reflect changes in the image, specifications,
standards, procedures, Licensed Products and System Standards for Mrs. Fields
Stores. Licensor shall timely furnish all updates to Licensee.
(f) Licensor will make available to Licensee Licensor's prototypical
plans for Mrs. Fields Stores (including carts).
(g) Licensor agrees to allow Licensee to contract directly with
Licensor's approved vendors, manufacturers and suppliers and that Licensee shall
have the option of negotiating distribution systems directly with said approved
vendors, manufacturers and suppliers.
(h) None of the Licensed Trade Secrets, Licensed Names and Marks, or
Protected Information violate or infringe upon any trademark, tradename, patent
or other property right held by any third party.
(i) Licensor will use commercially reasonable efforts to cause
sufficient ingredients and/or frozen dough products to be made available to
Licensee to enable each Mrs. Fields Store to operate as herein contemplated and
to meet the reasonably anticipated demand of patrons and customers of
Licensee-operated Mrs. Fields Stores. Licensor further agrees that it will use
commercially reasonable efforts to cause such frozen dough to be of the same
type and quality as the frozen dough used by Licensor to manufacture similar
products in its own Mrs. Fields Stores.
(j) Licensee may use frozen dough to produce Licensed Products,
provided that the specifications for such dough and the supplier thereof are
approved in writing by Licensor.
(k) Licensee shall have the right to present to Licensor other
manufacturers or distributors of frozen dough products for Licensor's
consideration for the manufacture of frozen dough used to produce Licensed
Products. If Licensor is supplying Licensee with
<PAGE>
its needs of frozen dough products for Licensed Products, Licensor, in its sole
discretion, may thereafter decide whether to designate such manufacturers as
approved manufacturers of frozen dough products hereunder. If Licensor is unable
to cause sufficient ingredients and/or frozen dough products to be made
available to Licensee to enable each Mrs. Fields Store to operate as herein
contemplated and to meet the reasonably anticipated demand of patrons and
customers of such Mrs. Fields Stores, Licensor shall reasonably approve or
disapprove the manufacturer presented to Licensor as provided above, subject to
Licensor entering into a supply agreement with such proposed manufacturer
wherein such manufacturer agrees to manufacture frozen dough products in
accordance with the quality standards, specifications, procedures and other
standards of Licensor.
(l) Licensor will cooperate with Licensee in Licensee's obtaining any
necessary consents with respect to leases, operating agreements, management
agreements, or other agreements giving Licensee the right to possession of the
Licensed Locations from any landlord, client, or other person or entity
controlling the Licensed Location.
(m) Licensor acknowledges that presently and in the future Licensee may
operate and/or license others to operate restaurant operations or other food
service outlets under various tradenames including, without limitation, Taco
Bell, Kentucky Fried Chicken, Domino's, Pizza Hut, The Beanery, Burger King,
Dunkin' Donuts and Tim Horton Donuts, Nathans, TCBY Yogurt and Sbarro's, and
that nothing in this Agreement shall be deemed to restrict Licensee from
operating or licensing any restaurant or other operation under any tradename or
at any location. Licensor also acknowledges that Licensee has independently
developed, and will continue to independently develop, recipes for cookies,
brownies and other food items which are similar to those which also happen to be
normally sold as a part of Licensor's system. Licensor further acknowledges that
Licensee shall continue to develop and sell such independently developed
recipes, provided that Licensee shall at all times adhere to the provisions of
paragraph 4 hereof. Licensor acknowledges that each Mrs. Fields Store may be one
of several food service and related businesses operated by Licensee at a
Licensed Location. Each Mrs. Fields Store may be operated by Licensee under an
operating agreement, management agreement, lease or other agreement giving
Licensee the right to possession of the Licensed Location and any consent of the
landlord, client or other person controlling the Licensed Location may be
required, prior to any refurbishing, renovation, menu changes, signage changes,
or changes to the Licensed Location or the Mrs. Fields Store.
10. PRODUCT PURCHASES, PAYMIENTS AND ROYALTIES
As part of the consideration for the disclosure of the Licensed Trade
Secrets and the license of the Licensed Names and Marks hereunder and for the
right and license to use the same:
<PAGE>
(a) Licensee agrees to purchase all ingredients and/or frozen dough
products that are proprietary to Licensor from Licensor, a supplier designated
by Licensor or distributors designated by Licensor.
(b) The purchase price for all Licensed Products purchased by Licensee
shall be equal to the price billed by Licensor (or its supplier or distributor)
to its own stores for such Products (not including shipping and handling) (the
"Product Price"). The Product Price may be adjusted on a monthly basis by
Licensor, its suppliers or distributors upon notice, effective upon the first
day of the succeeding month. Licensee shall pay the Product Price to Licensor,
or its distributor, in accordance with such selling parties then current selling
practices.
(c) Commencing on the date hereof, and continuing throughout the Term
of this Agreement, Licensee shall pay to Licensor a royalty fee (the "Royalty
Payment"), determined separately with respect to each Mrs. Fields Store, equal
to 10% of all Gross Sales derived from each Mrs. Fields Store opened and
operated by Licensee hereunder. For purposes hereof, the term "Gross Sales"
shall include, at the actual selling price, all sales of Licensed Products from
each Mrs. Fields Store, all sales, at the actual selling price, of drinks and
other products sold from beverage units, display cases, or refrigeration or
other units which are otherwise contained within a Mrs. Fields Store, but shall
not include the cost of food and beverages provided to employees as an incident
of their employment, the sales price of beverages sold from beverage dispensing
units which are not contained within a Mrs. Fields Store and are also used to
supply beverages to other retail concepts within a Licensed Location, monies
refunded upon return of merchandise, nor any sales taxes or similar taxes
collected from customers and turned over to the governmental authority imposing
the tax.
(d) Licensee shall pay the Royalty Payment to Licensor within twenty
(20) days after the close of each of Licensee's four week accounting periods
during each of Licensee's fiscal years. Along with such Royalty Payments,
Licensee shall furnish to Licensor an accurate statement of the Gross Sales from
each Mrs. Fields Store at each Licensed Location for the preceding period for
which such sales occurred.
(e) Licensee shall pay interest on all overdue amounts (whether for
Royalty Payments, or otherwise) (the "Interest Rate") at the lesser of (i) the
annual rate from time to time publicly announced by Citibank, N.A. as its "base
rate" (or any successor rate) plus two percent (2%) or (ii) the highest
applicable legal rate, from the due date of such amounts until paid.
11. ACCOUNTING, REPORTS AND FINANCIAL STATEMIENTS
(a) Licensee shall keep true and accurate books of account with respect
to each Mrs. Fields Store, in accordance with United States generally accepted
accounting principles, consistently applied. Within twenty (20) days after the
end of each of Licensee's four week accounting periods, Licensee shall deliver
to Licensor a written
<PAGE>
statement, prepared, signed and certified to be true and correct by Licensee's
chief financial officer, or his designee, setting forth the Gross Sales of each
Mrs. Fields Store, including sufficient information and detail to confirm the
calculations. In addition, Licensee shall furnish to Licensor, on such forms as
Licensor may prescribe from time to time, annual reports showing each Mrs.
Fields Store's Gross Sales, and all Royalty Payments and license fees paid (or,
if not paid, that such fees are owed) pursuant to this Agreement, and such other
information as Licensor may reasonably request. Each report and financial
statement shall be signed and verified by an authorized officer of Licensee in
the manner Licensor prescribes. Licensor shall have the right to disclose data
derived from such reports.
(b) Licensor shall have the right at any time during business hours,
and without prior notice to Licensee, to inspect and audit, or cause to be
inspected and audited, the business records, bookkeeping and accounting records,
sales and other records of each Mrs. Fields Store and the books and records of
Licensee to the extent necessary to confirm Gross Sales and Royalty Payments for
each Mrs. Fields Store. Licensee shall fully cooperate with Licensor's
representatives and independent accountants to conduct any such inspection or
audit.
12. TERM AND TERMINATION
(a) The initial term of this Agreement shall commence on the date
hereof and continue through December 31, 1996. The term of this Agreement shall
be extended and will automatically renew for one three (3) year term on December
31, 1996 and three (3) consecutive five (5) year terms thereafter upon ninety
(90) days written notice by Licensee of its intent to so renew this Agreement,
unless this Agreement is otherwise terminated as provided below.
(b) If Licensee defaults in the payment of any Product Price, Royalty
Payment, or other monetary obligation to Licensor when the same becomes due and
payable hereunder, and such default continues unremedied for ten (10) days from
the date Licensee receives written notice that such obligation is due, then this
Agreement and the license granted hereunder may be terminated upon written
notice by Licensor effective upon receipt of such notice, without prejudice to
any and all other rights and remedies Licensor may have hereunder or by law
provided, and all rights of Licensee hereunder shall cease.
(c) If Licensee fails to perform in accordance with any other material
terms or conditions contained in this Agreement and such default continues for
thirty (30) days after Licensee receives written notice of default, then this
Agreement and the license granted hereunder may be terminated upon notice by
Licensor effective upon receipt of such notice, without prejudice to any and all
other rights and remedies Licensor may have hereunder or by law provided, and
all rights of Licensee hereunder shall cease.
<PAGE>
(d) If Licensee fails to perform in accordance with any material System
Standard which adversely affects the quality of any Licensed Product, or the
health and safety of employees or customers, and such default is not remedied
immediately upon notice (and in no event later than 24 hours after receipt of
such notice), then this Agreement may be terminated upon notice by Licensor
effective upon receipt of such notice, without prejudice to any and all other
rights and remedies Licensor may have hereunder, or by law provided, and all
rights of Licensee hereunder shall cease.
(e) If Licensee is determined to be insolvent, or files a petition in
bankruptcy or for reorganization, or takes advantage of any insolvency statute,
or makes an assignment for the benefit of creditors, or undertakes any similar
action, under any federal, state or foreign bankruptcy, insolvency or similar
law, then in any such event this Agreement shall immediately terminate as to
Licensee and the license herein granted shall not constitute an asset in
reorganization, bankruptcy, or insolvency which may be assigned or which may
accrue to any court or creditor appointed referee, receiver, or committee.
(f) If Licensor becomes insolvent or bankrupt or fails to perform in
accordance with any material term or condition of this Agreement, and such
default continues for thirty (30) days after Licensor receives written notice of
default, then this Agreement and the License granted hereunder may be terminated
upon notice by Licensee effective upon receipt of such notice, without prejudice
to any and all other rights and remedies Licensee may have hereunder or by law
provided.
(g) On any cancellation, termination or expiration of this Agreement as
to Licensee, Licensee agrees to immediately pay to Licensor all amounts due and
owing Hereunder (including, but not limited to, all Royalty Payments, and
payments for Licensed Products) and to return all Protected Information,
confidential documents and other
material supplied by Licensor to Licensee, and Licensee agrees never to use,
disclose to others, nor assist others in using the Licensed Trade Secrets or
other Protected Information. Further, Licensee agrees to return the Operating
Manual and all copies thereof to Licensor. Licensee agrees to cooperate fully
with Licensor in the return of all such documents and materials, and to take all
reasonable steps requested by Licensor to prevent the disclosure or use of such
documents or materials by unauthorized persons following termination of this
Agreement.
(h) Upon cancellation, termination or expiration of this Agreement,
Licensee will be deemed to have automatically and irrevocably assigned,
transferred, and conveyed to Licensor any rights, equities, good will, titles or
other rights in and to the Licensed
Trade Secrets, Products, Names and Marks which may have been obtained by
Licensee or which may have vested in Licensee in pursuance of any endeavors
covered hereby, and Licensee will execute any instruments requested by Licensor
to accomplish or confirm the foregoing. Any such assignment, transfer or
conveyance shall be without other consideration than the mutual covenants and
considerations of this Agreement. Licensee further agrees that it shall
forthwith discontinue the use of all Licensed Names and Marks
<PAGE>
and the use of any and all Signs, paper goods and other objects bearing any
Licensed Names and Marks and shall make such modifications or alterations to
each Mrs. Fields Store as may be necessary to de-identify such Mrs. Fields Store
so that each location operated as a Mrs. Fields Store will not be confusingly
similar to its former appearance as a Mrs. Fields Store.
(i) Notwithstanding the foregoing, however, Licensee may remove
equipment, signs, fixtures, inventory, and supplies, including those bearing the
Licensed Names and Marks, for use at other Licensed Locations developed or to be
developed by Licensee hereunder.
(j) Licensor hereby acknowledges and agrees that Licensee may close any
Mrs. Fields Store operated hereunder upon thirty (30) days notice to Licensor,
which closure shall not constitute an event of default hereunder or otherwise
affect the other stores operated hereunder by Licensee; provided, however, that
upon such closure, Licensee immediately (A) pays to Licensor all amounts due and
owning with respect to such store (including, but not limited to, all Royalty
Payments) (B) discontinues the use of all Licensed Names and Marks and the use
of any and all Signs, paper goods and other objects bearing any Licensed Names
and Marks with respect to such store and (C) makes such modifications or
alterations to such Mrs. Fields Store as may be necessary to de-identify such
location as a Mrs. Fields Store.
13. INDEMNIFICATION
(a) Licensor agrees to indemnify, defend and hold Licensee harmless
from any claims, liabilities, lawsuits, demands, actions, damages and expenses
(including reasonable attorneys fees) (collectively, "Damages") arising from or
out of any breach of the agreements, covenants, representations or warranties of
Licensor contained in this agreement or arising out of or attributable to the
negligence of Licensor.
(b) Licensee agrees to indemnify, defend and hold Licensor harmless
from and against any and all Damages arising from or out of (i) any breach of
the agreements, covenants, representations, or warranties of Licensee contained
in this Agreement, (ii) any damages or injury to any person, including, but not
limited to customers, employees of Licensee, employees of Licensor and members
of the public, suffered and incurred in or about any Licensed Location or its
premises wherein Licensee produces or sells the Licensed Products or otherwise
utilizes the Licensed Names and Marks, (iii) products, liabilities or defective
manufacturing of the Licensed Products, other than any such claims to the extent
attributable to the negligence of Licensor, or (iv) the activities hereunder of
Licensee, other than any such Damages to the extent attributable to the
negligence of Licensor.
<PAGE>
14. BINDING EFFECT, ASSIGNMENT
(a) The terms, covenants and conditions of this Agreement shall inure
to the benefit of, and shall be binding upon, the parties hereto and their
respective successors and permitted assigns.
(b) Except as provided in paragraph 14(d) below, neither Licensor nor
Licensee may assign, sublicense or otherwise transfer their rights under this
Agreement without the prior written consent of the other party, which consent
may be withheld in such party's sole discretion.
(c) Any assignment, sublicense or other transfer by Licensee of any of
its rights under this Agreement without the prior written consent of Licensor
(which consent shall be in Licensor's sole discretion) is prohibited and will be
deemed to be null and void.
(d) Licensee or Licensor may assign their respective rights and
obligations hereunder to any parent corporation which owns at least eighty
percent (80%) of such assigning party, an eighty percent (80%) owned subsidiary
corporation of such assigning party, an eighty percent (80%) owned subsidiary of
a parent of such assigning party if such parent owns at least eighty percent
(80%) of the subsidiary to which such agreement is to be assigned, or to such
other business organization which shall succeed to substantially all of the
assets and business of Licensee or Licensor, respectively, provided that, in the
case of any assignment by Licensee, the assignee is not owned or controlled by a
Competitive Business. Licensee shall further be permitted to perform its
obligations hereunder through a wholly owned subsidiary of Licensee or a wholly
owned subsidiary thereof, or through a partnership which has Licensee (or a
wholly owned direct or indirect subsidiary) as the managing general partner
thereof (provided that none of the other partners of such partnership own,
operate or are licensees or partners of a Competitive Business.
(e) Nothing contained herein shall be construed to limit Licensor's
ability and right to assign any royalties or payments received hereunder as
security for indebtedness; provided that any such assignment shall not affect
Licensee's rights under this Agreement.
15. ADVERTISING AND PROMOTIONAL DOCUMENTATION AND
EXPENSES
(a) Licensor shall have the right to approve or disapprove any and all
advertising and promotional materials used, or proposed to be used, by Licensee
in the advertising and promotion of any of the Licensed Products. Prior to the
use of any material, whether written for in-store promotions, print media or for
television or radio spots, Licensee will submit such material to Licensor for
its approval. In that regard, Licensor shall approve, prior to the development
of final television, radio or printed advertisements, the final "story boards"
with respect to television advertising, the final
<PAGE>
"script" with respect to radio spots, and the final "layouts" with respect to
printed advertisements. Licensor shall also approve the actors or actresses used
in connection with any such advertising campaigns; provided, that Licensee shall
have the right to make minor variations in promotional, marketing and
advertising materials used in connection with the approved promotional
campaigns. All advertisements and advertising campaigns shall conform in all
material respects to the approvals given by Licensor. If Licensor has not
disapproved of such advertising within fourteen (14) business days from its
receipt, by certified or registered mail, to either the then current director of
marketing or the vice president of development, such advertising material will
be deemed approved.
(b) Licensor agrees to make available to Licensee all master
advertising documents developed and used by Licensor in the United States in
relation to the sale of the Licensed Products and/or the promotion of the
Licensed Names and Marks. Licensee agrees to pay the cost of reproducing such
advertising documents so provided.
(c) Licensee agrees that all advertising, promotion and marketing by
Licensee shall be completely clear and factual and not misleading and shall
conform to the highest standards of ethical marketing and promotion policies
which may be prescribed from time to time by Licensor. Licensee further agrees
to use the registration symbol of "a" in connection with its use of the Licensed
Names and Marks. Licensee agrees to refrain from any business or marketing
practice which may be injurious to the business of Licensor, and the good will
associated with the Licensed Names and Marks.
(d) Licensee agrees that each Mrs. Fields Store shall participate in
promotional activities designated by Licensor and relating to the sale of the
Licensed Products and the promotion of the Licensed Names and Marks which
promotions require Licensee to provide Licensed Products to customers at no
charge in exchange for a coupon, card or other voucher (e.g., cookie cards).
Licensor shall reimburse Licensee the direct costs of goods sold by Licensee in
connection with such promotional activities up to one-tenth of one percent (0. 1
%) of gross sales of each Mrs. Fields Store which participates in such
promotional activities and shall reimburse Licensee for the retail value for
goods sold above such amount; provided that Licensee complies with the
reasonable requests of Licensor to document Licensee's request for reimbursement
(e.g., furnishing to Licensor of the cookie cards received by Licensee at each
Mrs. Fields Store for which reimbursement is requested). Licensor may, in
Licensor's sole discretion, exempt from participation in the above-described
promotional activities one or more Mrs. Fields Stores. Other than as provided in
this paragraph, Licensee shall have no obligation to expend monies for
advertising or promotional activities with respect to the Mrs. Fields Stores.
<PAGE>
16. NOTICES
All notices provided by this Agreement shall be in writing and shall be
given by overnight courier, facsimile transmission, or by personal delivery, by
one party to the other, addressed to such other party at the applicable address
set forth below, or to such other address as may be SLC1 GIBBSW - 3443.5 21
given for such purpose by such other party by notice duly given Hereunder.
Notice shall be deemed properly given on the date of delivery:
To Licensee: Marriott Management Services Corp.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Law Department #923
FAX (301) 380-6727
To Licensor: Mrs. Fields Development Corporation
333 Main Street
P. 0. Box 4000
Park City, Utah 84060-4000
Attention: Corporate Secretary
FAX (801) 649-3639
17. GENERAL PROVISIONS
(a) It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that Licensor
and Licensee are and shall be independent contractors and that 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 whatsoever. Licensee
shall conspicuously identify itself in all dealings with customers, suppliers,
public officials, Mrs. Fields Store personnel and others as the owner of the
Mrs. Fields Store under a license granted by Licensor and shall place such other
notices of independent ownership on such forms, business cards, stationery,
marketing and other materials as Licensor may require from time to time.
(b) Licensee shall not employ any of the Licensed Names and Marks in
signing any contract or applying for any license or permit or in a manner that
may result in Licensor's liability for any of Licensee's indebtedness or
obligations, nor may Licensee use the Licensed Names and Marks in any way not
expressly authorized by Licensor. Except as expressly authorized in writing,
neither Licensor nor Licensee shall make any express or implied agreements,
warranties, guarantees or representations or incur any debt in the name or on
behalf of the other, represent that their relationship is other than licensor
and licensee or be obligated by or have any liability under any agreements or
representations made by the other that are not expressly authorized in writing.
Licensor shall not be obligated for any damages to any person or property
directly or indirectly arising out of the operation of a Mrs. Fields Store or
Licensee's business authorized by or conducted pursuant to this Agreement.
(c) Except as expressly provided to the contrary herein, each
paragraph, term and provision of this Agreement, and any portion thereof, shall
be considered severable and if, for any reason, any such 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, SLC1 - GIBBSW - 3443.5 22
unappealable ruling issued by any court, agency or tribunal with competent
jurisdiction in a proceeding to which Licensor is a party, that ruling shall not
impair the operation of, or have any other effect upon, such other portions of
this Agreement as may remain otherwise intelligible, which shall continue to be
given full force and effect and bind the parties hereto, although any portion
held to be invalid shall be deemed not to be a part of this Agreement from the
date the time for appeal expires, if Licensee is a party thereto, otherwise upon
Licensee's receipt of a notice of non-enforcement thereof from Licensor. If any
covenant herein 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 thereof, Licensee
and Licensor agree that the same shall be enforced to the fullest extent
permissible under the laws and public policies applied in the jurisdiction in
which enforcement is sought.
<PAGE>
(d) If any applicable and binding law or rule of any jurisdiction
requires a greater prior notice of the termination of this Agreement than is
required hereunder, or the taking of some other action not required hereunder,
or if, under any applicable and binding law or rule of any jurisdiction, any
provision of this Agreement or any System Standard is invalid or unenforceable,
the prior notice and/or other action required by such law or rule shall be
substituted for the comparable provisions hereof, and Licensor shall have the
right, in its sole discretion, to modify such invalid or unenforceable System
Standard to the extent required to be valid and enforceable. Licensee and
Licensor each 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
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, or
any System Standard, any portion or portions which a court may hold to be
unenforceable in a final decision to which Licensor is 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 shall
be effective only in such jurisdiction, unless Licensor elects to give them
greater applicability, and shall be enforced as originally made and entered into
in all other jurisdictions.
(e) Licensor and Licensee 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 thereof to the other or such other
effective date stated in the notice of waiver. Any waiver granted by either
party shall be without prejudice to any other rights such party may have, will
be subject to continuing review by the waiving party and may be revoked, in such
party's sole discretion, at any time and for any reason, effective upon delivery
to such party of ten (10) days' prior written notice.
(f) Licensor and Licensee shall 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 herein or to declare any breach thereof to be a default
and to terminate this Agreement prior to the expiration of its term) by virtue
of any custom or practice of the parties at variance with the terms SLC1 -
GIBBSW - 3443.5 23 hereof; any failure, refusal or neglect of Licensor or
Licensee to exercise any right under this Agreement or to insist upon exact
compliance by the other with its obligations hereunder, including, without
limitation, any System Standard; any waiver, forbearance, delay, failure or
omission by Licensor to exercise any right, power or option, whether of the
same, similar or different nature, with respect to other Cookie or Bakery
Stores; or Licensor's acceptance of any payments due from Licensee after any
breach of this Agreement.
<PAGE>
(g) Neither Licensor nor Licensee shall be liable for loss or damage or deemed
to be in breach of this Agreement if their failure to perform obligations
results from:
(i) compliance with any law, ruling, order, regulation,
requirement or instruction of any federal, state, municipal or
foreign government or any department or agency thereof;
(ii) acts of God;
(iii) fires, strikes, embargoes, war or riot; or
(iv) any other similar event or cause.
Any delay resulting from any of said causes shall extend performance accordingly
or excuse performance, in whole or in part, as may be reasonable, except that
said causes shall not excuse payments of amounts owed at the time of such
occurrence (including payment of any Royalty Payments or Product Price payments)
or payments due for Royalty Payments or the Product Price for Licensed Products
on any sales thereafter.
(h) Notwithstanding anything to the contrary contained in this
Agreement, Licensor and Licensee shall each have the right in a proper case to
obtain temporary restraining orders and temporary or preliminary injunctive
relief from a court of competent jurisdiction. Licensee agrees that Licensor may
have such temporary or preliminary injunctive relief without bond.
(i) The rights of Licensor and Licensee hereunder are cumulative and no
exercise or enforcement by Licensor or Licensee of any right or remedy hereunder
shall preclude the exercise or enforcement by Licensor or Licensee of any other
right or remedy hereunder to which Licensor or Licensee is entitled by law to
enforce.
(j) If a claim for amounts owed by Licensee to Licensor or its
affiliates is asserted in any judicial proceeding or appeal thereof, or if
Licensor or Licensee is required to enforce this Agreement in a judicial
proceeding or appeal thereof, the party prevailing in such proceeding shall be
entitled to reimbursement of its costs and expenses, including reasonable
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
<PAGE>
proceeding to enforce the obligations of this Agreement. If Licensor incurs
expenses in connection with Licensee's failure to pay when due amounts owing to
Licensor, to submit when due any reports, information or supporting records or
otherwise to comply with this Agreement, including, but not limited to legal and
accounting fees, Licensee shall reimburse Licensor for any such costs and
expenses which it incurs.
(k) Except to the extent governed by the United States Trademark Act of
1946 (Lanham Act, 15 U.S.C. ss.ss. 1051 et seq.) or other federal law, this
Agreement, and the relationship between Licensee and Licensor, shall be governed
by the laws of the State of Utah.
(l) Licensee and Licensor hereby irrevocably consent and agree that any
legal action, suit or proceeding arising out of or in any way in connection with
this Agreement, or which is an appeal therefrom, may be instituted or brought in
the Federal District Court for the District of Utah and Licensee and Licensor
hereby irrevocably consent and submit to, for themselves and in respect of their
property, generally and unconditionally, the jurisdiction of such Court, and to
all proceedings in such Court. Further, Licensee and Licensor irrevocably
consent to actual receipt of any summons and/or legal process at their
respective addresses as set forth in this Agreement as constituting in every
respect sufficient and effective service of process in any such legal action or
proceeding. Licensee and Licensor further agree that final judgment in any such
legal action, suit or proceeding shall be conclusive and may be enforced in any
other jurisdiction, whether within or outside the United States of America, by
suit under judgment, a certified or exemplified copy of which will be conclusive
evidence of the fact and the amount of the liability.
(m) Except with respect to the indemnification obligations contained
herein, 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 shall be limited
to recovery of any actual damages it sustains.
(n) Each party irrevocably waives trial by jury in any action,
proceeding or counterclaim, whether at law or in equity, brought by either
party.
(o) Except for claims for which Licensee or Licensor are entitled to
indemnification herein, any and all claims arising out of or relating to this
Agreement or the relationship among the parties hereto shall be barred unless an
action or legal proceeding is commenced within one (1) year from the date
Licensee or Licensor knew or should have known the fact giving rise to such
claims.
(p) Except where this Agreement expressly obligates Licensor reasonably
to approve or not unreasonably to withhold its approval of any action or request
by Licensee, Licensor has the absolute right to refuse any request by Licensee
or to withhold its approval of any action by Licensee that requires Licensor's
approval.
<PAGE>
(q) The headings of the several sections and paragraphs hereof are for
convenience only and do not define, limit or construe the contents of such
sections or paragraphs.
(r) All Exhibits hereto form part of this Agreement.
(s) This Agreement and the Exhibits hereto represent the entire
agreement between Licensor and Licensee with respect to the subject matter
hereof and supersede any prior agreements and negotiations between the parties.
(t) This Agreement may be executed simultaneously in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same agreement, binding upon both parties hereto,
notwithstanding that both parties are not signatories to the original or the
same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"LICENSEE"
MARRIOTT MANAGEMENT SERVICES CORP.
By:/s/
Its:
"LICENSOR"
MRS. FIELDS DEVELOPMENT CORPORATION
By: /s/ Thomas Fey
Thomas Fey
Its: Pres.
<PAGE>
EXHIBIT A
LICENSED PRODUCTS
[See Attached]
<PAGE>
EXHIBIT A
LICENSED PRODUCTS
COOKIES NON-BAKERY ITEMS
ROYAL PECAN COOKIE TINS
SEMI SWEET CHUNK PECAN COOKIE JARS
MILK CHOCOLATE MACADAMIA OTHER ITEMS WHICH BEAR THE LICENSED
SEMI SWEET CHOCOLATE MACADAMIA NAMES AND MARKS,
CINNAMON SUGAR APPROVED IN WRITING BY LICENSOR
CHEWY FUDGE
HAND-DIPPED CHEWY FUDGE
COCOMAC
RAISIN SPICE
MILK CHOCOLATE CHIP
CHOCO MAC
MILK CHOCOLATE CHIP W/WALNUTS
OATMEAL GRANOLA
SHORTBREAD JEWELS
OATMEAL RAISIN NUT
PEANUT BUTTER
HAND DIPPED PEANUT BUTTER
SHORTBREAD
SEMI SWEET CHOCOLATE CHIP
SEMI SWEET CHOCOLATE CHIP W/NUTS
TRIPLE CHOCOLATE
WHITE CHUNK MACADAMIA
BROWNIES
GERMAN CHOCOLATE
PECAN PIE
MACADAMIA FUDGE
WALNUT FUDGE
ROCKY ROAD
PEANUT BUTTER BAR
PECAN FUDGE
MUFFINS
PUMPKIN (SEASONAL)
BANANA WALNUT
BRAN RAISIN WALNUT
MANDARIN ORANGE
CORNBREAD
BLUEBERRY
RASPBERRY
CHOCOLATE CHIP
BANANA CHOCOLATE CHIP
COFFEE
<PAGE>
EXHIBIT B
LIST OF LICENSED TRADENAMES,TRADEMARKS AND SERVICE MARKS
[SEE ATTACHED]
<PAGE>
EXHIBIT C
Page 1 of 2
MARRIOTT LOCATION REOUEST FORM
1 . Marriott Location Name, Address, Telephone Number:
(Fax)
2. Marriott Food Service Director and District Manager
FSD Name:
Tel. No.:
DM Name:
Tel. No.:
3. Identify Entire Geographic Area Covered by Marriott's Client Contract:
4. Identify Proposed Site(s) of Mrs. Fields Outlet(s) at Marriott Location:
5. Identify Proposed Area of "Licensed Location": pursuant to the License
Agreement (for example, the campus, the building, etc.):
<PAGE>
EXHIBIT C
Page 2 of 2
MARRIOTT LOCATION REQUEST FORM
6. Estimate of Marriott Location Daily Population/Consumer Traffic:
7. Identify Other National/Regional Branded Programs at Site(s) at Marriott
Location:
8. Identify Licensor Menu Selection:
9. Day/Hours of Operation:
10. Identify Licensor Equipment to be Purchased:
Submitted for Approval on
behalf of Customer:
By:
Name:
Title:
Tel. No.
Date:
Approved by Licensor:
By:
Name:
Title:
Tel. No.
Date:
STOCK ACQUISITION AGREEMENT
AMONG
MRS. FIELDS' HOLDING COMPANY, INC.,
PRETZEL TIME, INC.,
AND
MARTIN E. LISIEWSKI
September 2, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions....................................................... 1
"Adverse Consequences"............................................ 1
"Affiliate"....................................................... 1
"Affiliated Group"................................................ 1
"Basis"........................................................... 2
"Closing"......................................................... 2
"Closing Date".................................................... 2
"Code"............................................................ 2
"Company"......................................................... 2
"Company Share"................................................... 2
"Controlled Group of Corporations"................................ 2
"Deferred Intercompany Transaction"............................... 2
"Disclosure Schedule"............................................. 2
"Employee Benefit Plan"........................................... 2
"Employee Pension Benefit Plan"................................... 2
"Employee Welfare Benefit Plan"................................... 2
"Environmental, Health, and Safety Laws".......................... 2
"ERISA"........................................................... 3
"Excess Loss Account"............................................. 3
"Extremely Hazardous Substance"................................... 3
"Fiduciary"....................................................... 3
"Fields".......................................................... 3
"Financial Statement"............................................. 3
"Franchise Agreements"............................................ 3
"GAAP"............................................................ 3
"Intellectual Property"........................................... 3
"Knowledge"....................................................... 4
"Liability"....................................................... 4
"MFOC"............................................................ 4
"Most Recent Balance Sheet"....................................... 4
"Most Recent Financial Statements"................................ 4
"Most Recent Fiscal Month End".................................... 4
"Most Recent Fiscal Year End"..................................... 4
"Multiemployer Plan".............................................. 4
"Ordinary Course of Business"..................................... 4
"Parties"......................................................... 4
"PBGC"............................................................ 4
"Person".......................................................... 4
"Preferred Shares"................................................ 5
"Principal Shareholder"........................................... 5
"Prohibited Transaction".......................................... 5
"Purchase Proceeds"............................................... 5
"Related Transactions"............................................ 5
"Related Transactions Documents".................................. 5
"Reportable Event"................................................ 5
"Shares".......................................................... 5
"Securities Act".................................................. 5
"Security Interest"............................................... 5
"Subsidiary"...................................................... 5
"Tax"............................................................. 5
"Tax Return"...................................................... 6
"Third Party Claim"............................................... 6
2. Transaction Terms................................................. 6
(a) Purchase of Shares....................................... 6
(b) The Closing.............................................. 6
<PAGE>
3. Representations and Warranties of the Principal Shareholder....... 6
(a) Authorization of Transaction............................. 6
(b) Principal Shareholders Company Shares.................... 7
(c) Noncontravention......................................... 7
(d) Brokers' Fees............................................ 7
(e) Information Accurate and Complete........................ 7
4. Representations and Warranties of Fields.......................... 7
(a) Organization of Fields................................... 8
(b) Authorization of Transaction............................. 8
(c) Noncontravention......................................... 8
(d) Investment............................................... 8
(e) Broker's Fees............................................ 8
(f) Information Accurate and Complete........................ 8
5.Representations and Warranties Concerning the Company and Its Subsidiaries 8
(a) Organization, Qualification, and Corporate Power......... 9
(b) Capitalization........................................... 9
(c) The Shares............................................... 10
(d) Noncontravention......................................... 10
(e) Brokers' Fees............................................ 11
(f) Title to Assets.......................................... 11
(g) Subsidiaries............................................. 11
(h) Financial Statements..................................... 12
(i) Events Subsequent to Most Recent Fiscal Year End......... 12
(j) Undisclosed Liabilities.................................. 15
(k) Legal Compliance......................................... 15
(l) Tax Matters.............................................. 16
(m) Real Property............................................ 18
(n) Intellectual Property.................................... 21
(o) Tangible Assets.......................................... 24
(p) Inventory; Company....................................... 24
(q) Contracts................................................ 24
(r) Franchise Agreements..................................... 26
(s) Notes and Accounts Receivable............................ 26
(t) Powers of Attorney....................................... 26
(u) Insurance................................................ 26
(v) Litigation............................................... 27
(w) Product Warranty......................................... 28
(x) Product Liability........................................ 28
(y) Employees................................................ 28
(z) Employee Benefit......................................... 29
(aa) Guaranties............................................... 31
(ab) Environment, Health, and Safety.......................... 31
6. Pre-Closing Covenants............................................. 32
(a) General.................................................. 32
(b) Notices and Consents..................................... 32
(c) Operation of Business.................................... 33
(d) Preservation of Business................................. 33
(e) Full Access.............................................. 33
(f) Notice of Developments................................... 33
(g) Exclusivity.............................................. 33
<PAGE>
7. Further Assurances................................................ 34
8. Conditions to Obligation to Close................................. 34
(a) Conditions to Obligation of Fields.................................... 34
(b) Conditions to Obligation of the Company and the Principal Shareholder. 36
9. Remedies for Breaches of This Agreement........................... 37
(a) Survival of Representations and Warranties............... 37
(b) Indemnification Provisions for Benefit of Fields......... 37
(c) Matters Involving Third Parties.......................... 39
(d) Determination of Adverse Consequences.................... 41
(e) Other Indemnification Provisions......................... 41
(f) Rights of Offset......................................... 42
(g) Limitation of Rights of Offset........................... 42
10. Termination....................................................... 42
(a) Termination of Agreement................................. 42
(b) Effect of Termination................................... 43
11. Miscellaneous..................................................... 43
(a) Nature of Certain Obligations............................ 43
(b) Press Releases and Public Announcements.................. 43
(c) No Third-Party Beneficiaries............................. 43
(d) Entire Agreement......................................... 43
(e) Succession and Assignment................................ 44
(f) Counterparts............................................. 44
(g) Headings................................................. 44
(h) Notices.................................................. 44
(i) Governing Law............................................ 45
(j) Amendments and Waivers................................... 46
(k) Severability............................................. 46
(l) Expenses................................................. 46
(m) Construction............................................. 46
(n) Incorporation of Exhibits, Annexes, and Schedules........ 46
(o) Specific Performance..................................... 47
(p) Submission to Jurisdiction............................... 47
(q) Arbitration.............................................. 47
<PAGE>
EXHIBITS
A List of Related Transactions and Related Transaction Documents
B Financial Statements of the Company
C Debt Reduction Schedule
ANNEXES
I Exceptions to Company's and Principal Shareholder's Representations and
Warranties Concerning Transaction
II Exceptions to Fields' Representations and Warranties Concerning Transaction
SCHEDULES
2(a) Obligations of Company to be Retired from Proceeds at Closing
5(a) Officers and Directors of Company and Subsidiaries 5(b) Capitalization of
Company
5(g) Subsidiaries and Subsidiary Information 5(l)(iii) Federal, State and Local
Tax Returns
5(l)(iv) Basis of Company and Subsidiary in Assets; Stockholder's Basis; Net
Operating Loss, etc.; Deferred Gain or Loss 5(m)(i) Real Property Owned by
the Company 5(m)(ii) Real Property Leased or Subleased by the Company,
and/or Leased or Subleased to Third Parties, including Franchisees and Area
Developers 5(n)(iii) Intellectual Property of the Company and Licenses
Thereof
5(n)(iv) Licenses Held by the Company From Third Parties
5(q) Contracts
5(u) Insurance
5(v) Litigation
5(w) Product Warranty
5(z) Employee Benefit Plans
<PAGE>
01/22/98
STOCK ACQUISITION AGREEMENT
This Agreement is entered into as of September ____, 1997, by and among
Mrs. Fields' Holding Company, Inc. a Delaware corporation ("Fields"), Pretzel
Time, Inc., a Delaware corporation (the "Company") and Martin E. Lisiewski, the
principal shareholder of the Company ("Principal Shareholder"). Fields, the
Company and the Principal Shareholder are referred to collectively herein as the
"Parties."
WHEREAS, the Principal Shareholder is the principal shareholder of the
Company, owning forty-four (44) Company Shares, that being forty-four percent
(44%) of the outstanding common stock of the Company; and
WHEREAS, there are currently, or on the Closing Date (defined herein) there
will be, fourteen (14) shares of the Company's authorized common stock held in
treasury (the "Shares"); and
WHEREAS, the Company is prepared to sell all of the Shares to Fields on the
terms and conditions set forth herein; and
WHEREAS, concurrently or in conjunction with the transaction
described herein, Fields or its affiliated company are entering into a Stock
Purchase Agreement with other holders of Company Shares, together with the
Related Transactions described on Exhibit A hereto.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
. 1. Definitions
means all actions, suits, proceedings, hearings, investigations, charges,
complaints, claims, demands, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, amounts
paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys'
fees and expenses.
has the meaning set forth in Rule 12b-2 of the regulations promulgated under
the Securities Exchange Act.
means any affiliated group within the meaning of Code Sec. 1504 or any
similar group defined under a similar provision of state, local or foreign law.
means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the
basis for any specified consequence.
has the meaning set forth in Section 2(b) below.
has the meaning set forth in Section 2(b) below.
means the Internal Revenue Code of 1986, as amended.
has the meaning set forth in the preface above.
means any share of the Common Stock, par value $10.00 per share, of the
Company.
has the meaning set forth in Code Sec. 1563.porations"
has the meaning set forth in Treas. Reg. Section 1. 1502-13.
has the meaning set forth in Section 5 below.
<PAGE>
means any (a) nonqualified deferred compensation or retirement plan or
arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which
is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit
Plan (including any Multiemployer Plan), or (d) Employee Welfare
Benefit Plan or
has the meaning set forth in ERISA Sec. 3(2).t Plan"
has the meaning set forth in ERISA Sec. 3(1).t Plan"
means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act
of 1976, and the Occupational Safety and Health Act of 1970, each
as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof) concerning pollution
or protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions,
discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes into ambient air, surface water, ground water,
or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
means the Employee Retirement Income Security Act of 1974, as amended.
has the meaning set forth in Treas. Reg. Section 1.1502-19.
has the meaning set forth in Sec. 302 of the Emergency Planning and Community
Right-to-Know Act of 1986, as amended.
has the meaning set forth in ERISA Sec. 3(21).
has the meaning set forth in the preface above.
has the meaning set forth in Section 5(h) below.
has the meaning set forth in Section 5(q) below.
means United States generally accepted accounting principles as in effect from
time to time.
<PAGE>
means (a) all inventions (whether patentable or unpatentable and whether
or not reduced to practice), all improvements thereto, and all
patents, patent applications, and patent disclosures, together with
all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (b) all trademarks, service
marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights,
and all applications, registrations, and renewals in connection
therewith, (d) all trade secrets and confidential business
information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (e) all computer
software (including data and related documentation), (f) all other
proprietary rights, and (g) all copies and tangible embodiments
thereof (in whatever form or medium).
means actual knowledge after reasonable investigation.
means any liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or
to become due), including any liability for Taxes.
means Mrs. Fields' Original Cookies, Inc.
means the balance sheet contained within the Most Recent Financial Statements.
has the meaning set forth in Section 5(h) below.ements"
has the meaning set forth in Section 5(h) below.nd"
has the meaning set forth in Section 5(h) below.d"
has the meaning set forth in ERISA Sec. 3(37).
means the ordinary course of business consistent with past custom and practice
(including with respect to quantity and frequency).
has the meaning set forth in the preface above.
means the Pension Benefit Guaranty Corporation.
means an individual, an entity including a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
<PAGE>
has the meaning set forth in Section 5(b)(1)(B).
has the meaning set forth in the preface above.
has the meaning set forth in ERISA Sec. 406 and Code Sec. 4975.
has the meaning set forth in Section 2(a) below
means the transactions that are the subject of the Related Transactions
Documents to be closed concurrently or in conjunction with the
transactions that are the subject of this Agreement.
means the documents listed on Exhibit A, executed or to be executed in
connection with the Related Transactions.
has the meaning set forth in ERISA Sec. 4043.
has the meaning set forth in the preface above.
means the Securities Act of 1933, as amended.
means any mortgage, pledge, lien, encumbrance, charge, or other security
interest, other than (a) mechanic's, materialmen's, and similar
liens, (b) liens for Taxes not yet due and payable or for Taxes
that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental
payments under capital lease arrangements, and (d) other liens
arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
means any corporation with respect to which a specified Person (or a
Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to
elect a majority of the directors.
means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under
Code Sec. 59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
<PAGE>
has the meaning set forth in Section 9(c) below.
. 2. Transaction Terms
. In consideration for One Million Fifty Thousand Dollars
($1,050,000) (the "Purchase Proceeds"), or Seventy Five Thousand
Dollars ($75,000) for each of the Shares, the Company and the
Principal Shareholder shall issue and deliver to Fields the Shares.
The Shares shall be fully paid and nonassessable, free and clear of
all liens, encumbrances and claims of every kind and nature.
Following the Closing of the transaction described herein and the
Related Transactions, Fields shall own no less than fifty-six
percent (56%) of the issued and outstanding Company Shares on a
fully diluted basis. Fields shall deliver to the Company the
Purchase Proceeds by certified check, bank check, wire transfer, or
other immediately available funds on the Closing Date. All of the
Purchase Proceeds shall be used by the Company to retire the
Company obligations as set forth in the Debt Reduction Schedule
attached hereto as Exhibit C.
. Following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions
the respective Parties will take at the Closing itself), the
closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Mette, Evans &
Woodside, 3401 North Front Street, Harrisburg, Pennsylvania, on or
before September 2, 1997, commencing at a time agreed upon by the
Parties, or such other date as Fields and the Company may mutually
determine (the "Closing Date").
. The Principal Shareholder hereby represents and warrants to Fields that the
statements contained in this Section 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 3) with respect to himself.
. The Principal Shareholder has full power and authority to execute
and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of the Principal Shareholder, enforceable in accordance
with its terms and conditions. The Principal Shareholder need not
give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any third-party including
any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
. The Principal Shareholder owns as of the date hereof and upon
Closing shall own forty-four (44) Company Shares (equalling
forty-four percent (44%) of the outstanding Company Shares on a
fully diluted basis. The Principal Shareholder does not own or
hold, directly or indirectly, any options, warrants, or other
instruments convertible into Company Shares or into any other
security of the Company.
<PAGE>
. Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A)
violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which the
Principal Shareholder is subject or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the
Principal Shareholder is a party or by which he is bound or to
which any of his assets is subject.
. The Principal Shareholder has no Liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement for which Fields
could become liable or obligated.
. Without limiting the specific language of any other representation
or warranty herein, all information furnished or to be furnished by
the Principal Shareholder in this Agreement, in exhibits or
schedules attached hereto is or will be accurate and complete in
all material respects.
. Fields represents and warrants to the Company that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4), except as set forth in Annex II attached hereto.
. Fields is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation.
. Fields has full power and authority (including full corporate power
and authority) to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of Fields, enforceable in accordance
with its terms and conditions. Fields need not give any notice to,
make any filing with, or obtain any authorization, consent, or
approval of any third party including any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
. Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A)
violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which Fields is
subject or any provision of its charter or bylaws or, (B) conflict
with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other
arrangement to which Fields is a party or by which it is bound or
to which any of its assets is subject.
. Fields is not acquiring the Shares with a view to or for sale in
connection with any distribution thereof within the meaning of the
Securities Act.
<PAGE>
. Fields has no Liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Principal
Shareholder or Company could become liable or obligated.
. Without limiting the specific language of any representation or
warranty herein, all information furnished or to be furnished by
Fields in this Agreement, in exhibits or schedules attached hereto,
is or will be accurate and complete in all material respects.
. The Company and the Principal Shareholder hereby represent and warrant,
jointly and severally, to and with Fields that the statements contained in this
Section 5 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 5), except as set forth in the disclosure schedule delivered by the
Company and the Principal Shareholder to Fields on the date hereof and initialed
by the Parties (the "Disclosure Schedule"). Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, however, unless the Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
5. For purposes of this Section 5 references to the Company shall be deemed to
include officers, directors, and employees of the Company (excluding, however,
the Principal Shareholder) having responsibilities for the matter to which the
representation pertains.
. Each of the Company and its Subsidiaries is a corporation or other
entity duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its incorporation or formation.
Each of the Company and its Subsidiaries is duly authorized to
conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. Each of the
Company and its Subsidiaries has full corporate power and authority
and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the
properties owned and used by it. Section 5(a) of the Disclosure
Schedule lists the directors and officers of each of the Company
and its Subsidiaries. The Company and the Principal Shareholder
have delivered to Fields correct and complete copies of the charter
and bylaws of each of the Company and its Subsidiaries (as amended
to date). The minute books (containing the records of meetings of
the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock
record books of each of the Company and its Subsidiaries are
correct and complete. None of the Company and its Subsidiaries is
in default under or in violation of any provision of its charter or
bylaws.
<PAGE>
. (b) Capitalization
(i) The entire authorized capital stock of the Company
consists of
(A) one thousand (1,000) Company Shares,
of which ninety-one (91) Company Shares are issued
and outstanding and nine (9) Company Shares are
held in treasury and,
(B) five hundred (500) shares of
nonvoting preferred shares, par value $10,000 per
share (the "Preferred Shares"), of which one
hundred forty-four and one-half (144.5) shares are
issued and outstanding, having the rights and
privileges set forth in Section 5(b)(1)(B) of the
Disclosure Schedule.
(ii) all of the issued and outstanding Company
Shares and Preferred Shares have been duly authorized, are
validly issued, fully paid, and nonassessable, and are
held of record as set forth in Section 5(b) of the
Disclosure Schedule. Section 5(b) sets forth each of the
rights and preferences of the Preferred Shares (other than
rights and preferences) under the Pennsylvania Business
Corporation law and common law of the Commonwealth of
Pennsylvania) and all agreements, by and among the Company
and any of the owners or holders of the Preferred Shares,
concerning the Preferred Shares, including without
limitation the redemption thereof or the payment of
dividends with respect thereto.
(iii) There are no outstanding or authorized
options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, preference rights or
other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with
respect to the Company. Section 5(b) of the Disclosure
Schedule describes all of the voting trusts, proxies, or
other agreements or understandings with respect to the
voting of the capital stock of the Company, all of which
shall be terminated, relinquished and of no further force
or effect on or before the Closing.
. The Shares, when issued and delivered to Fields at the Closing,
shall be duly authorized, fully paid, nonassessable, validly
issued, and free and clear of all Security Interests, charges,
pledges, claims and encumbrances of any kind or nature whatsoever.
The Shares shall constitute no less than nine percent (9%) of the
issued and outstanding Company Shares on a fully diluted basis.
<PAGE>
. To the Knowledge of the Principal Shareholder, neither the execution and
the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or
other restriction of any government, governmental agency, or court to which
any of the Company and its Subsidiaries is subject or any provision of the
charter or bylaws of any of the Company and its Subsidiaries or (ii)
conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which any of
the Company and its Subsidiaries is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). None of the Company and its
Subsidiaries needs to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transactions contemplated
by this Agreement.
. None of the Company and its Subsidiaries has any Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this
Agreement.
. The Company and its Subsidiaries have good and marketable title to,
or a valid leasehold interest in, the properties and assets used by
them, located on their premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of
all Security Interests, except for properties and assets disposed
of in the Ordinary Course of Business since the date of the Most
Recent Balance Sheet.
. Section 5(g) of the Disclosure Schedule sets forth for each
Subsidiary of the Company (i) its name and jurisdiction of
incorporation or formation, (ii) the number of shares of authorized
capital stock of each class of its capital stock, (iii) the number
of issued and outstanding shares of each class of its capital
stock, the names of the holders thereof, and the number of shares
held by each such holder, and (iv) the number of shares of its
capital stock held in treasury. All of the issued and outstanding
shares of capital stock of each Subsidiary of the Company have been
duly authorized and are validly issued, fully paid, and
nonassessable. The Company holds of record and owns beneficially
all of the outstanding shares of each Subsidiary of the Company,
free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws),
Taxes, Security Interests, options, warrants, purchase rights,
contracts, commitments, equities, claims, and demands. There are no
outstanding or authorized options, warrants, purchase rights,
conversion rights, exchange rights, or other contracts or
commitments that could require any of the Company and its
Subsidiaries to sell, transfer, or otherwise dispose of any capital
stock of any of its Subsidiaries or that could require any
Subsidiary of the Company to issue, sell, or otherwise cause to
become outstanding any of its own capital stock. There are no
outstanding stock appreciation, phantom stock, profit
participation, or similar rights with respect to any Subsidiary of
the Company. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of any
capital stock of any Subsidiary of the Company. None of the Company
and its Subsidiaries controls directly or indirectly or has any
direct or indirect equity participation in any corporation,
partnership, trust, or other business association which is not a
Subsidiary of the Company. Section 5(g) of the Disclosure Schedule
lists any subsidiary sold by the Company or merged into the
Company, including the date of and parties to any such transaction
and the documents executed by the Company in connection therewith.
<PAGE>
. Attached hereto as Exhibit B are the following financial statements
(collectively the "Financial Statements"): (i) unaudited
consolidated and consolidating balance sheets and statements of
income, changes in stockholders' equity, and cash flow as of and
for the fiscal years ended December 27, 1992, December 26, 1993,
December 25, 1994, and December 31, 1995 for the Company and its
Subsidiaries; (ii) audited consolidated balance sheets and
statements of income, changes in shareholders' equity, and cash
flow as of and for the fiscal year ended December 29, 1996 (the
"Most Recent Fiscal Year End") for the Company and its
Subsidiaries; and (iii) unaudited consolidated and consolidating
balance sheets and statements of income, changes in stockholders'
equity, and cash flow (the "Most Recent Financial Statements") as
of and for the six months ended July 13, 1997 (the "Most Recent
Fiscal Month End") for the Company and its Subsidiaries. The
Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the
financial condition of the Company and its Subsidiaries as of such
dates and the results of operations of the Company and its
Subsidiaries for such periods, are correct and complete, and are
consistent with the books and records of the Company and its
Subsidiaries (which books and records are correct and complete);
provided, however, that the Most Recent Financial Statements are
subject to normal year-end adjustments (which will not be material
individually or in the aggregate) and lack footnotes and other
presentation items.
. Since the Most Recent Fiscal Year End, there has not been any
material adverse change in the business, financial condition,
operations, results of operations, or future prospects of any of
the Company and its Subsidiaries. Without limiting the generality
of the foregoing, except as set forth in the Related Transactions
Documents, since that date:
(i) none of the Company and its Subsidiaries has
sold, leased, transferred, or assigned any of its assets,
tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) none of the Company and its Subsidiaries has
entered into any agreement, contract, lease, or license
(or outside series of related agreements, contracts,
leases, and licenses) outside the Ordinary Course of
Business;
(iii) no party (including any of the Company and
its Subsidiaries) has accelerated, terminated, modified,
or cancelled any agreement, contract, lease, or license
(or series of related agreements, contracts, leases, and
licenses) involving more than $1,000 to which any of the
Company and its Subsidiaries is a party or by which any of
them is bound;
<PAGE>
(iv) none of the Company and its Subsidiaries has
imposed any Security Interest upon any of its assets,
tangible or intangible;
(v) none of the Company and its Subsidiaries has
made any capital expenditure (or series of related capital
expenditures) either involving more than $10,000 or
outside the Ordinary Course of Business;
(vi) none of the Company and its Subsidiaries has
made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans,
and acquisitions) either involving more than $5,000 or
outside the Ordinary Course of Business;
(vii) none of the Company and its Subsidiaries has
issued any note, bond, or other debt security or created,
incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either
involving more than [$5,000 singly or $10,000 in the
aggregate;] Rich has requested changing to 10K and 50k.
Why?
(viii) none of the Company and its Subsidiaries
has delayed or postponed the payment of accounts payable
and other Liabilities outside the Ordinary Course of
Business;
(ix) none of the Company and its Subsidiaries has
cancelled, compromised, waived, or released any right or
claim (or series of related rights and claims) either
involving more than $10,000 or outside the Ordinary Course
of Business;
(x) none of the Company and its Subsidiaries has
granted any license or sublicense of any rights under or
with respect to any Intellectual Property except as set
forth in Schedule 5(n)(iii) setting forth each of the
Company's franchise area developer agreements and other
similar documents;
(xi) there has been no change made or authorized
in the charter or bylaws of any of the Company and its
Subsidiaries;
(xii) none of the Company and its Subsidiaries has
issued, sold, or otherwise disposed of any of its capital
stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(xiii) none of the Company and its Subsidiaries
has declared, promised, committed to, set aside, or paid
any dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired, or promised or committed
to redeem, purchase or otherwise acquire, any of its
capital stock;
(xiv) none of the Company and its Subsidiaries has
experienced any damage, destruction, or loss (whether or
not covered by insurance) to its property;
(xv) none of the Company and its Subsidiaries has
made any loan to, or entered into any other transaction
with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
<PAGE>
(xvi) none of the Company and its Subsidiaries has
entered into any employment contract or collective
bargaining agreement, written or oral, or modified the
terms of any such existing contract or agreement;
(xvii) none of the Company and its Subsidiaries
has granted any increase in the base compensation of any
of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) none of the Company and its Subsidiaries
has adopted, amended, modified, or terminated any bonus,
profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such
action with respect to any other Employee Benefit Plan);
(xix) none of the Company and its Subsidiaries has
made any other change in employment terms for any of its
directors, officers, and employees outside the Ordinary
Course of Business;
(xx) none of the Company and its Subsidiaries has
made or pledged to make any charitable or other capital
contribution outside the Ordinary Course of Business;
(xxi) there has not been any other material
occurrence, event, incident, action, failure to act, or
transaction outside the Ordinary Course of Business
involving any of the Company and its Subsidiaries; and
(xxii) none of the Company and its Subsidiaries
has committed to any of the foregoing.
. None of the Company and its Subsidiaries has any Liability (and to
the Knowledge of the Principal Shareholder, there is no Basis for
any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of
them giving rise to any Liability), except for (i) Liabilities set
forth on the face of the Most Recent Balance Sheet (rather than in
any notes thereto), and (ii) Liabilities which have arisen after
the Most Recent Fiscal Month End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the
nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
. To the Knowledge of the Principal Shareholder, each of the Company,
its Subsidiaries, and their respective predecessors and Affiliates
has complied with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof), and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them
alleging any failure so to comply.
<PAGE>
. (l) Tax Matters
(i) To the Knowledge of the Principal Shareholder,
each of the Company and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns
were correct and complete in all respects. All Taxes owed
by any of the Company and its Subsidiaries (whether or not
shown on any Tax Return) have been paid. None of the
Company and its Subsidiaries currently is the beneficiary
of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a
jurisdiction where any of the Company and its Subsidiaries
does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security
Interests on any of the assets of any of the Company and
its Subsidiaries that arose in connection with any failure
(or alleged failure) to pay any Tax.
(ii) To the Knowledge of the Principal
Shareholder, each of the Company and its Subsidiaries has
withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder,
or other third party.
(iii) Neither the Principal Shareholder, nor the
Company and its Subsidiaries expects any authority to
assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim
concerning any Tax Liability of any of the Company and its
Subsidiaries either (A) claimed or raised by any authority
in writing or (B) as to which the Principal Shareholder or
the Company or its Subsidiaries has Knowledge based upon
personal contact with any agent of such authority. Section
5(l) of the Disclosure Schedule lists all federal, state,
local, and foreign income Tax Returns filed with respect
to any of the Company and its Subsidiaries, indicates
those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit.
The Company has delivered to Fields correct and complete
copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against
or agreed to by any of the Company and its Subsidiaries.
(iv) None of the Company and its Subsidiaries has
waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) None of the Company and its Subsidiaries has
filed a consent under Code Sec. 341(f) concerning
collapsible corporation. None of the Company and its
Subsidiaries has made any payments, is obligated to make
any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any
payments that will not be deductible under Code Sec.
280G(a). None of the Company and its Subsidiaries has been
a United States real property holding corporation within
the meaning of Code Sec. 897(c)(2) during the applicable
period specified in Code Sec. 897(c)(1)(A)(ii). Each of
the Company and its Subsidiaries has disclosed on its
federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Sec. 6662.
None of the Company and its Subsidiaries is a party to any
Tax allocation or sharing agreement. None of the Company
and its Subsidiaries (A) has been a member of an
Affiliated Group filing a consolidated federal income Tax
Return (other than a group the common parent of which was
the Company) or (B) has any Liability for the Taxes of any
Person (other than any of the Company and its
Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
<PAGE>
(vi) Section 5(l) of the Disclosure Schedule sets
forth the following information with respect to each of
the Company and its Subsidiaries (or, in the case of
clause (B) below, with respect to each of the
Subsidiaries) as of the most recent practicable date (as
well as on an estimated pro forma basis as of the Closing
giving effect to the consummation of the transactions
contemplated hereby):
(A) the basis of the Company or Subsidiary in its assets;
(B) the basis of the stockholders of the
Subsidiary in its stock (or the amount of any
Excess Loss Account);
(C) the amount of any net operating loss,
net capital loss, unused investment or other
credit, unused foreign tax, or excess charitable
contribution allocable to the Company or
Subsidiary; and
(D) the amount of any deferred gain or
loss allocable to the Company or Subsidiary
arising out of any Deferred Intercompany
Transaction.
(vii) The unpaid Taxes of the Company and its
Subsidiaries
(A) did not, as of the Most Recent Fiscal
Month End, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes
established to reflect timing differences between
book and Tax income) set forth on the face of the
Most Recent Balance Sheet (rather than in any
notes thereto); and
(B) do not exceed that reserve as
adjusted for the passage of time through the
Closing Date in accordance with the past custom
and practice of the Company and its Subsidiaries
in filing their Tax Returns.
. (m) Real Property
(i) Section 5(m)(i) of the Disclosure Schedule
lists and describes briefly all real property that any of
the Company and its Subsidiaries owns. With respect to
each such parcel of owned real property:
(A) the identified owner has good and
marketable title to the parcel of real property,
free and clear of any Security Interest, easement,
covenant, or other restriction, except for
installments of special assessments not yet
delinquent and recorded easements, covenants, and
other restrictions which do not impair the current
use, occupancy, or value, or the marketability of
title, of the property subject thereto;
<PAGE>
(B) there are no pending or threatened
condemnation proceedings, lawsuits, or
administrative actions relating to the property or
other matters affecting materially and adversely
the current use, occupancy, or value thereof;
(C) the legal description for the parcel
contained in the deed thereof describes such
parcel fully and adequately, the buildings and
improvements are located within the boundary lines
of the described parcels of land, are not in
violation of applicable setback requirements,
zoning laws, and ordinances (and none of the
properties or buildings or improvements thereon
are subject to "permitted non-conforming use" or
"permitted non-conforming structure"
classifications), and do not encroach on any
easement which may burden the land, and the land
does not serve any adjoining property for any
purpose inconsistent with the use of the land, and
the property is not located within any flood plain
or subject to any similar type restriction for
which any permits or licenses necessary to the use
thereof have not been obtained;
(D) all facilities have received all
approvals of governmental authorities (including
licenses and permits) required in connection with
the ownership or operation thereof and have been
operated and maintained in accordance with
applicable laws, rules, and regulations;
(E) there are no leases, subleases,
licenses, concessions, or other agreements,
written or oral, granting to any party or parties
the right of use or occupancy of any portion of
the parcel of real property;
(F) there are no outstanding options or
rights of first refusal to purchase the parcel of
real property, or any portion thereof or interest
therein;
(G) there are no parties (other than the
Company and its Subsidiaries) in possession of the
parcel of real property, other than tenants under
any leases disclosed in Section 5(m)(ii) of the
Disclosure Schedule who are in possession of space
to which they are entitled;
(H) all facilities located on the parcel
of real property are supplied with utilities and
other services necessary for the operation of such
facilities, including gas, electricity, water,
telephone, sanitary sewer, and storm sewer, all of
which services are adequate in accordance with all
applicable laws, ordinances, rules, and
regulations and are provided via public roads or
via permanent, irrevocable, appurtenant easements
benefitting the parcel of real property; and
(I) each parcel of real property abuts on
and has direct vehicular access to a public road,
or has access to a public road via a permanent,
irrevocable, appurtenant easement benefitting the
parcel of real property, and access to the
property is provided by paved public right-of-way
with adequate curb cuts available.
<PAGE>
(ii) Section 5(m)(ii) of the Disclosure Schedule lists and
describes briefly all real property:
(A) leased or subleased to any of the Company and its
Subsidiaries; and
(B) leased or subleased by any of the Company and its
subsidiaries to third parties, including Company's
franchisees and area developers. The Company has delivered
or made available to Fields correct and complete copies of
the leases and the subleases listed in Section 5(m)(ii) of
the Disclosure Schedule (as amended to date). With respect
to each lease and sublease listed in Section 5(m)(ii) of the
Disclosure Schedule:
(C) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(D) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the
transactions contemplated hereby;
(E) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or
lapse of time, would constitute a breach or default or
permit termination, modification, or acceleration
thereunder;
(F) no party to the lease or sublease has repudiated
any provision thereof;
(G) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(H) with respect to each sublease, the
representations and warranties set forth in
subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(I) none of the Company and its Subsidiaries has
assigned, transferred, conveyed, mortgaged, deeded in trust,
or encumbered any interest in the leasehold or subleasehold;
(J) all facilities leased or subleased thereunder have
received all approvals of governmental authorities
(including licenses and permits) required in connection with
the operation thereof and have been operated and maintained
in accordance with applicable laws, rules, and regulations;
(iii) all facilities leased or subleased
thereunder are supplied with utilities and other services
necessary for the operation of said facilities; and
<PAGE>
. (n) Intellectual Property
(i) The Company and its Subsidiaries own or have
the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the
Company and its Subsidiaries as presently conducted. Each
item of Intellectual Property owned or used by any of the
Company and its Subsidiaries immediately prior to the
Closing hereunder will be owned or available for use by
the Company or the Subsidiary on identical terms and
conditions immediately subsequent to the Closing
hereunder. Each of the Company and its Subsidiaries has
taken all necessary action to maintain and protect each
item of Intellectual Property that it owns or uses.
(ii) To the Knowledge of the Principal
Shareholder, none of the Company and its Subsidiaries has
interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual
Property rights of third parties, and the Company and its
Subsidiaries has never received any charge, complaint,
claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including
any claim that any of the Company and its Subsidiaries
must license or refrain from using any Intellectual
Property rights of any third party). To the Knowledge of
the Company and the Principal Shareholder, no third party
has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual
Property rights of any of the Company and its
Subsidiaries.
(iii) Section 5(n)(iii) of the Disclosure Schedule
identifies each patent, trademark or registration which
has been issued to any of the Company and its Subsidiaries
with respect to any of its Intellectual Property,
identifies each pending patent and trademark application
or application for registration which any of the Company
and its Subsidiaries has made with respect to any of its
Intellectual Property, and identifies each license,
agreement, or other permission which any of the Company
and its Subsidiaries has granted to any third party with
respect to any of its Intellectual Property (together with
any exceptions). The Company has delivered to Fields
correct and complete copies of all such patents,
trademarks, registrations, applications, licenses,
agreements, and permissions (as amended to date) and have
made available to Fields correct and complete copies of
all other written documentation evidencing ownership and
prosecution (if applicable) of each such item. Section
5(n)(iii) of the Disclosure Schedule also identifies each
trade name or unregistered trademark used by any of the
Company and its Subsidiaries in connection with any of its
businesses. With respect to each item of Intellectual
Property required to be identified in Section 5(n)(iii) of
the Disclosure Schedule:
(A) the Company and its Subsidiaries possess all right,
title, and interest in and to the item, free and clear of
any Security Interest, license, or other restriction;
<PAGE>
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is
pending or to the Knowledge of any of the Company or the
Principal Shareholder (and employees with responsibility for
Intellectual Property matters) of the Company and its
Subsidiaries, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(D) none of the Company and its Subsidiaries has ever
agreed to indemnify any Person for or against any
interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) Section 5(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any
third party owns and that any of the Company and its
Subsidiaries uses pursuant to license, sublicense,
agreement, or permission. The Company has delivered to
Fields correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property
required to be identified in Section 5(n)(iv) of the
Disclosure Schedule:
(A) subject to and limited by applicable
bankruptcy and insolvency laws and principles of
equity, the license, sublicense, agreement, or
permission covering the item is legal, valid,
binding, enforceable, and in full force and
effect;
(B) subject to and limited by applicable
bankruptcy and insolvency laws and principles of
equity, the license, sublicense, agreement, or
permission will continue to be legal, valid,
binding, enforceable, and in full force and effect
on identical terms following the Closing;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default,
and no event has occurred which with notice or
lapse of time would constitute a breach or default
or permit termination, modification, or
acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any
provision thereof;
<PAGE>
(E) with respect to each sublicense, the
representations and warranties set forth in
subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual
Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand
is pending or is threatened which challenges the
legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(H) none of the Company and its
Subsidiaries has granted any sublicense or similar
right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of the Company and the
Principal Shareholder, the Company and its Subsidiaries
will not interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the
continued operation of its business as presently
conducted.
(vi) Neither the Company nor the Principal
Shareholder has any Knowledge of any new products,
inventions, procedures, or methods of manufacturing or
processing that any competitors or other third parties
have developed which reasonably could be expected to
supersede or make obsolete any product or process of any
of the Company and its Subsidiaries.
. The Company and its Subsidiaries own or lease all buildings,
machinery, equipment, and other tangible assets necessary for the
conduct of their businesses as presently conducted.
<PAGE>
. The Company and its Subsidiaries have no inventory other than inventory
in the Company-owned stores.
. Section 5(q) of the Disclosure Schedule lists the following
contracts and other agreements to which any of the Company and its
Subsidiaries is a party:
(i) each contract or agreement of any kind or nature
entered into by any of the Company Subsidiaries and the
Principal Shareholders, with any franchisee or area
developer of the Company or its Subsidiaries or any officer,
principal, owner shareholders, representative of any such
franchisee or area developer (collectively, the "Franchise
Agreements");
(ii) any agreement (or group of related agreements) for
the lease of personal property to or from any Person
providing for lease payments;
(iii) any agreement (or group of related agreements)
for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property, or for the
furnishing or receipt of services, the performance of which
will extend over a period of more than one year, result in a
material loss to any of the Company and its Subsidiaries;
(iv) any agreement concerning a partnership or joint
venture;
(v) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or
guaranteed any indebtedness for borrowed money, or any
capitalized lease obligation, or under which it has
imposed a Security Interest on any of its assets, tangible
or intangible;
(vi) any agreement concerning confidentiality or
noncompetition;
(vii) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or
other plan or arrangement for the benefit of its current or
former directors, officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual
on a full-time, part-time, consulting, or other basis;
<PAGE>
(x) any agreement under which it has advanced or loaned
any amount to any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xi) any agreement under which the consequences of a
default or termination could have a material adverse effect
on the business, financial condition, operations, results of
operations, or future prospects of any of the Company and
its Subsidiaries; or
(xii) any other agreement (or group of related
agreements) the performance of which involves consideration
in excess of $5,000.
The Company and the Principal Shareholder have delivered to Fields a correct and
complete copy of each written agreement listed in Section 5(q) of the Disclosure
Schedule (as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 5(q) of the Disclosure
Schedule. With respect to each such agreement, subject to and limited by
applicable bankruptcy and insolvency laws and principles of equity: (A) the
agreement is legal, valid, binding, enforceable, and in full force and effect;
(B) the agreement will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
. Subject to and limited by applicable bankruptcy and insolvency laws
and principles of equity, all Franchise Agreements are in full
force and effect, enforceable in accordance with their terms, and
free of defaults. Without limiting the generality of the foregoing:
(i) each of the Franchise Agreements are in full force
and effect and has not been amended or modified;
(ii) no default or threatened default exist under any
Franchise Agreement;
(iii) each Franchise developer is, in fact, complying
with its obligations under its Franchise Agreement;
(iv) each Franchise Agreement has been prepared in
accordance with, and does not violate any, applicable
federal or state law (including Franchise and business
opportunity laws; and
(v) the Company has not received notices of any breach
by it of any Franchise Agreement from any party thereto.
. All notes and accounts receivable of the Company and its
Subsidiaries are reflected properly on their books and records, are
valid receivables subject to no setoffs or counterclaims, are
current and collectible, and will be collected in accordance with
their terms at their recorded amounts, subject only to the reserve
for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the
past custom and practice of the Company and its Subsidiaries.
<PAGE>
. There are no outstanding powers of attorney executed on behalf of any of
the Company and its Subsidiaries.
. Section 5(u) of the Disclosure Schedule sets forth the following
information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which
any of the Company and its Subsidiaries has been a party, a named
insured, or otherwise the beneficiary of coverage at any time
within the past four (4) years:
(i) the name, address, and telephone number of the
agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis)
and amount (including a description of how deductibles and
ceilings are calculated and operate) of coverage; and
(v) a description of any retroactive premium
adjustments or other loss-sharing arrangements,
To the Knowledge of the Principal Shareholder, with respect to each such
insurance policy: (A) the policy is legal, valid, binding, enforceable, and in
full force and effect; (B) the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) neither any of the
Company and its Subsidiaries nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. Each of the Company and its Subsidiaries has been covered
during the past four (4) years by insurance in scope and amount customary and
reasonable for the businesses in which it has engaged during the aforementioned
period. Section 5(u) of the Disclosure Schedule describes any self-insurance
arrangements affecting any of the Company and its Subsidiaries.
. Section 5(v) of the Disclosure Schedule sets forth each instance in
which any of the Company and its Subsidiaries (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or
(ii) is a party or is threatened to be made a party to any action,
suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator
(including any state or regulatory authority in connection with the
Company's role as a Franchisor). None of the actions, suits,
proceedings, hearings, and investigations set forth in Section 5(v) of
the Disclosure Schedule could result in any material adverse change in
the business, financial condition, operations, results of operations,
or future prospects of any of the Company and its Subsidiaries.
Neither the Company nor the Principal Shareholder has any reason to
believe that any action, suit, proceeding, hearing, or investigation
described in the preceding sentence may be brought or threatened
against any of the Company and its Subsidiaries.
<PAGE>
. Each product manufactured, sold, leased, or delivered by any of the
Company and its Subsidiaries has been in conformity with all
applicable contractual commitments and all express and implied
warranties, and none of the Company and its Subsidiaries has any
Liability (and to the Knowledge of the Principal Shareholder, there
is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) for replacement or repair
thereof or other damages in connection therewith, subject only to
the reserve for product warranty claims set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and its
Subsidiaries. No product manufactured, sold, leased, or delivered
by any of the Company and its Subsidiaries is subject to any
guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease. Section 5(w) of the
Disclosure Schedule includes copies of the standard terms and
conditions of sale or lease for each of the Company and its
Subsidiaries (containing applicable guaranty, warranty, and
indemnity provisions).
. None of the Company and its Subsidiaries has any Liability (and to
the Knowledge of the Principal Shareholder, there is no Basis for
any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of
them giving rise to any Liability) arising out of any injury to
individuals or property as a result of the ownership, possession,
or use of any product manufactured, sold, leased, or delivered by
any of the Company and its Subsidiaries.
. None of the Company and its Subsidiaries is a party to or bound by
any collective bargaining agreement, nor has any of them
experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. Neither the
Company nor its Subsidiaries has committed any unfair labor
practice. Neither the Company nor the Principal Shareholder has any
Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to
employees of any of the Company and its Subsidiaries.
. (z) Employee Benefit
(i) Section 5(z) of the Disclosure Schedule lists
each Employee Benefit Plan that any of the Company and its
Subsidiaries maintains or to which any of the Company and
its Subsidiaries contributes.
(A) Each such Employee Benefit Plan (and
each related trust, insurance contract, or fund)
complies in form and in operation in all respects
with the applicable requirements of ERISA, the
Code, and other applicable laws.
(B) All required reports and descriptions
(including Form 5500 Annual Reports, Summary
Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed
appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Sec.
4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
<PAGE>
(C) All contributions (including all
employer contributions and employee salary
reduction contributions) which are due have been
paid to each such Employee Benefit Plan which is
an Employee Pension Benefit Plan and all
contributions for any period ending on or before
the Closing Date which are not yet due have been
paid to each such Employee Pension Benefit Plan or
accrued in accordance with the past custom and
practice of the Company and its Subsidiaries. All
premiums or other payments for all periods ending
on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which
is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which
is an Employee Pension Benefit Plan meets the
requirements of a "qualified plan" under Code Sec.
401(a) and has received, within the last two
years, a favorable determination letter from the
Internal Revenue Service.
(E) The market value of assets under each
such Employee Benefit Plan which is an Employee
Pension Benefit Plan (other than any Multiemployer
Plan) equals or exceeds the present value of all
vested and nonvested Liabilities thereunder
determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for
determination.
(F) The Company has delivered to Fields
correct and complete copies of the plan documents
and summary plan descriptions, the most recent
determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual
Report, and all related trust agreements,
insurance contracts, and other funding agreements
which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan
that any of the Company, its Subsidiaries, and the
Controlled Group of Corporations which includes the
Company and its Subsidiaries maintains or ever has
maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which
is an Employee Pension Benefit Plan (other than
any Multiemployer Plan) has been completely or
partially terminated or been the subject of a
Reportable Event as to which notices would be
required to be filed with the PBGC. No proceeding
by the PBGC to terminate any such Employee Pension
Benefit Plan (other than any Multiemployer Plan)
has been instituted or threatened.
<PAGE>
(B) There have been no Prohibited
Transactions with respect to any such Employee
Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to
act or comply in connection with the
administration or investment of the assets of any
such Employee Benefit Plan. No action, suit,
proceeding, hearing, or investigation with respect
to the administration or the investment of the
assets of any such Employee Benefit Plan (other
than routine claims for benefits) is pending or
threatened. Neither the Company nor the Principal
Shareholder has any Knowledge of any Basis for any
such action, suit, proceeding, hearing, or
investigation.
(C) None of the Company and its
Subsidiaries has incurred, and neither of the
Company or the Principal Shareholder has any
reason to expect that any of the Company and its
Subsidiaries will incur, any Liability to the PBGC
(other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any
such Employee Benefit Plan which is an Employee
Pension Benefit Plan.
(iii) None of the Company, its Subsidiaries, and
the other members of the Controlled Group of Corporations
that includes the Company and its Subsidiaries contributes
to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer
Plan.
(iv) None of the Company and its Subsidiaries
maintains or ever has maintained or contributes, ever has
contributed, or ever has been required to contribute to
any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits
for current or future retired or terminated employees,
their spouses, or their dependents (other than in
accordance with Code Sec. 4980B).
. None of the Company and its Subsidiaries is a guarantor or otherwise is liable
for any Liability or obligation (including indebtedness) of any other Person.
<PAGE>
. (ab) Environment, Health, and Safety
(i) To the Knowledge of the Principal Shareholder,
each of the Company, its Subsidiaries, and their
respective predecessors and Affiliates has complied with
all Environmental, Health, and Safety Laws, and no action,
suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to
comply. Without limiting the generality of the preceding
sentence, to the Knowledge of the Principal Shareholder,
each of the Company, its Subsidiaries, and their
respective predecessors and Affiliates has obtained and
been in compliance with all of the terms and conditions of
all permits, licenses, and other authorizations which are
required under, and has complied with all other
limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental,
Health, and Safety Laws.
(ii) To the Knowledge of the Principal
Shareholder, none of the Company and its Subsidiaries has
any Liability (and none of the Company, its Subsidiaries,
and their respective predecessors and Affiliates has
handled or disposed of any substance, arranged for the
disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or
operated any property or facility in any manner that could
form the Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of the Company and its
Subsidiaries giving rise to any Liability) for damage to
any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any
employee or other individual, or for any reason under any
Environmental, Health, and Safety Law.
(iii) To the Knowledge of the Principal
Shareholder, all properties and equipment used in the
business of the Company, its Subsidiaries, and their
respective predecessors and Affiliates have been free of
asbestos, PCBs, methylene chloride, trichloroethylene,
1,2-transdichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances.
. The Parties agree as follows with respect to the period between the execution
of this Agreement and the Closing.
. Each of the Parties will use his or its best efforts to take all
action and to do all things necessary in order to consummate and
make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions
set forth in Section 8 below).
<PAGE>
. The Company will cause each of the Company and its Subsidiaries to
give any notices to third parties, and will cause each of the
Company and its Subsidiaries to use its best efforts to obtain any
third-party consents, that Fields may request. Each of the Parties
will give any notices to, make any filings with, and use its best
efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies as may be required hereunder.
. Neither the Company nor its Subsidiaries will engage in any
practice, take any action, or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of
the foregoing, neither the Company nor its Subsidiaries will (i)
declare, promise, commit to, set aside, or pay any dividend or make
any distribution with respect to its capital stock or redeem,
purchase, or otherwise acquire any of its capital stock, (ii)
acquire additional indebtedness or enter into any loans; or (iii)
otherwise engage in any practice, take any action, or enter into
any transaction of the sort described in Section 5(i) above.
. The Company and its Subsidiaries will keep its business and
properties substantially intact, including its present operations,
physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, franchisees and area
developers.
. The Company and its Subsidiaries will permit representatives of
Fields to have full access to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of
or pertaining to each of the Company and its Subsidiaries.
. The Company and the Principal Shareholder will give prompt written
notice to Fields of any material adverse development causing a
breach of any of the representations and warranties in Section 5
above. Each of the Parties will give prompt written notice to the
others of any material adverse development causing a breach of any
of his or its own representations and warranties in Sections 3 and
4 above. No disclosure by any of the Parties pursuant to this
Section 6(f), however, shall be deemed to amend or supplement Annex
I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
. The Principal Shareholder will not, except with Fields or its Affiliates,
cause or permit any of the Company and its Subsidiaries to (i) solicit,
initiate, or encourage the submission of any proposal or offer from any
Person relating to the acquisition of any capital stock or other voting
securities, or any substantial portion of the assets of, any of the Company
and its Subsidiaries (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by
any Person to do or seek any of the foregoing. The Principal Shareholder
will not vote his Company Shares in favor of any such acquisition
structured as a merger, consolidation, or share exchange. The Principal
Shareholder will notify Fields immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
<PAGE>
. For so long as this Agreement and the Related Transaction Documents remain in
force, the Company and the Principal Shareholder shall take such further actions
as Fields deems necessary or desirable to carry out the purposes of this
Agreement.
. 8. Conditions to Obligation to Close
. The obligation of Fields to consummate the transactions to be
performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the representations and warranties set forth
in Section 3 and Section 5 above shall be true and correct
in all material respects at and as of the Closing Date;
(ii) the Principal Shareholder and the Company
shall have performed and complied with all of its their
covenants hereunder in all material respects through the
Closing;
(iii) the Company and its Subsidiaries shall have
procured all of the third-party consents specified in
Section 6(b) above;
(iv) there shall have been no material adverse
changes in the Company and its Subsidiaries;
(v) Fields shall have concluded its due diligence
review of the Company and its Subsidiaries to Fields' sole
satisfaction;
(vi) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial
or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling,
or charge would
<PAGE>
(A) prevent consummation of any of the transactions
contemplated by this Agreement;
(B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation;
(C) affect adversely the right of Fields to own the Company
Shares and to control the Company and its Subsidiaries;
or
(D) affect adversely the right of any of the Company and
its Subsidiaries to own its assets and to operate its
businesses (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(vii) the Company and the principal Shareholder
shall have delivered to Fields a certificate to the effect
that each of the conditions specified above in Section
8(a)(i), (ii), (iii), (iv) and (vi) is satisfied in all
respects;
(viii) Fields shall have received from counsel to
the Company and from counsel to the Principal Shareholder
written opinions addressed to Fields, dated as of the
Closing Date and in form and substance acceptable to
Fields and its counsel;
(ix) the Related Transaction Documents shall have
been executed by each of the parties thereto, and each of
the Related Transactions shall have been closed or each of
the conditions for the closing of the Related Transactions
concurrently with the Closing of the transaction
contemplated by this Agreement shall have been satisfied
or waived to Fields' satisfaction;
(x) the Company shall have delivered a share
certificate to Fields evidencing the Shares;
(xi) following the Closing of the transaction
described herein and the Related Transactions, Fields
shall own fifty-six (56%) of the outstanding Company
Shares on a fully diluted basis, and there shall be no
other shareholders of the Company except the Principal
Shareholder;
(xii) all actions to be taken by the Company and
the Principal Shareholder in connection with consummation
of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby
will be satisfactory in form and substance to Fields.
Fields may waive any condition specified in this Section 8(a) if it executes a
writing so stating at or prior to the Closing.
<PAGE>
. The obligation of the Company and the Principal Shareholder to
consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth
in Section 4 above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) Fields shall have performed and complied with
all of its covenants hereunder in all material respects
through the Closing;
(iii) no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial
or administrative agency of any federal, state, local, or
foreign jurisdiction for before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause
any of the transactions contemplated by this Agreement to
be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(iv) Fields shall have delivered to the Company
and the Principal Shareholder a certificate to the effect
that each of the conditions specified above in Section
8(b) is satisfied in all respects;
(v) the Related Transactions Documents, including
a developer agreement between the Company and the
Principal Shareholder whereby the Principal Shareholder
receives the area development rights for Vermont, New
Hampshire, Massachusetts, Maine and the Greater Dallas/Ft.
Worth, Texas area shall have been executed by all of the
parties thereto, and each of the Related Transactions
shall have occurred or each of the conditions for the
closing of the Related Transactions concurrently with the
closing of the transactions contemplated by this Agreement
shall have been satisfied or waived to the Company and
Principal Shareholder's satisfaction;
(vi) Fields shall be prepared to deliver the
Purchase proceeds upon compliance with the matters set
forth in Section 8(a); and
(vii) all actions to be taken by Fields in
connection with consummation of the transactions
contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Company.
The Company and the Principal Shareholder may waive any condition specified in
this Section 8(b) if they execute a writing so stating at or prior to the
Closing.
<PAGE>
. 9. Remedies for Breaches of This Agreement
. (a) Survival of Representations and Warranties
All of the representations and warranties of the Parties contained
in this Agreement shall survive the Closing hereunder (even if the damaged Party
knew or had reason to know of any misrepresentation or breach of warranty at the
time of Closing) and continue in full force and effect
(i) forever after the Closing Date (subject to any
applicable statutes of limitations) with respect to the
representations and warranties set forth in Sections 5(k),
(1), (r) and (z), and,
(ii) otherwise for a period of one (1) year from
the Closing Date.
. (b) Indemnification Provisions for Benefit of Fields
(i) In the event the Company or the Principal
Shareholder breaches any of the representations,
warranties, and covenants contained in Sections 5 and 6
above, provided that Fields makes a written claim for
indemnification against the Principal Shareholder pursuant
to this Section 9, then the Principal Shareholder agrees
to indemnify Fields from and against the entirety of any
Adverse Consequences Fields may suffer through and after
the date of the claim for indemnification (including any
Adverse Consequences Fields may suffer after the end of
any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the
breach.
(ii) In the event the Principal Shareholder
breaches any of his representations and warranties in
Section 3 above or any of his covenants in Section 6
above, provided that Fields makes a written claim for
indemnification against the Principal Shareholder pursuant
to this Section 9, then the Principal Shareholder agrees
to indemnify Fields from and against the entirety of any
Adverse Consequences Fields may suffer through and after
the date of the claim for indemnification (including any
Adverse Consequences Fields may suffer after the end of
any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the
breach.
(iii) Provided that Fields makes a written claim
for indemnification against the Principal Shareholder, the
Principal Shareholder agrees to indemnify Fields from and
against the entirety of any Adverse Consequences Fields
may suffer resulting from, arising out of, relating to, in
the nature of, or caused by:
(A) any Liability of any of the Company
and its Subsidiaries for unpaid Taxes, including
the unpaid Taxes of any Person under Treas. Reg.
Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or
successor, by contract, or otherwise; or
<PAGE>
(B) any violation prior to the Closing by
any of the Company, its Subsidiaries and its past
or present officers, directors, employees, agents
and representatives (including the Principal
Shareholder) of any state or federal securities
laws or regulations;
(C) the failure of any of the Company and
its Subsidiaries to have qualified to transact
business in any jurisdiction;
(D) any breach, prior to the Closing, by
any of the Company and the Subsidiaries of any of
the Franchise Agreements;
(E) any violation, prior to the Closing,
by any of the Company, its Subsidiaries and their
respective officers, directors, employees, agents
and representatives and the Principal Shareholder,
of any state or federal franchise laws or
regulations; or
(F) any violation by any of the Company,
its Subsidiaries and the Principal Shareholders of
ERISA or any regulation adopted pursuant thereto.
The Principal Shareholder's obligation to indemnify Fields
pursuant to this Section 9(b)(iii) shall not in any way
depend or be conditioned upon any inaccuracy, the
incompleteness or the breach by the Company or the
Principal Shareholder, of any representation, warranty or
covenant in this Agreement (or in any of the Related
Transactions Documents), and shall not be barred,
impaired, limited or adverseley affected by any
investigation at any time made by or on behalf of, or any
disclosure made at any time to, Fields.
. (c) Matters Involving Third Parties
(i) If any third party shall notify any Fields
with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against the
Principal Shareholder under this Section 9, then Fields
shall promptly notify the Principal Shareholder thereof in
writing; provided, however, that no delay on the part of
Fields in notifying the Principal Shareholder shall
relieve the Principal Shareholder from any obligation
hereunder unless (and then solely to the extent) the
Principal Shareholder thereby is prejudiced.
(ii) The Principal Shareholder will have the right
to defend Fields against the Third Party Claim with
counsel of its choice satisfactory to the Fields so long
as
(A) the Principal Shareholder notifies
Fields in writing within 15 days after Fields has
given notice of the Third Party Claim that the
Principal Shareholder will indemnify Fields from
and against the entirety of any Adverse
Consequences Fields may suffer resulting from,
arising out of, relating to, in the nature of, or
caused by the Third Party Claim;
<PAGE>
(B) the Principal Shareholder provides
Fields with evidence acceptable to Fields that the
Principal Shareholder will have the financial
resources to defend against the Third Party Claim
and fulfill its indemnification obligations
hereunder;
(C) the Third Party Claim involves only
money damages and does not seek an injunction or
other equitable relief;
(D) the settlement of, or an adverse
judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Fields,
likely to establish a precedential custom or
practice materially adverse to the continuing
business interests of Fields; and
(E) the Principal Shareholder conducts
the defense of the Third Party Claim actively and diligently.
(iii) The party not conducting the defense of the
Third Party Claim above may retain separate co-counsel at
its sole cost and expense and participate in the defense
of the Third Party Claim;
(iv) The party conducting the defense
(A) will not consent to the entry of any
judgment or enter into any settlement with respect
to the Third Party Claim without the prior written
consent of the other party (not to be withheld
unreasonably); and
(B) will not consent to the entry of any
judgment or enter into any settlement with respect
to the Third Party Claim without the prior written
consent of the other party (not to be withheld
unreasonably).
<PAGE>
(v) In the event any of the conditions in Section 9(c)(ii)
above is or becomes unsatisfied, however,
(A) Fields may defend against, and
consent to the entry of any judgment or enter into
any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem
appropriate (and Fields need not consult with, or
obtain any consent from, any Principal Shareholder
in connection therewith);
(B) the Principal Shareholder will
reimburse Fields promptly and periodically for the
costs of defending against the Third Party Claim
(including reasonable attorneys' fees and
expenses); and
(C) the Principal Shareholder will remain
responsible for any Adverse Consequences Fields
may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided
in this Section 8.
. The indemnity payment to Fields by the Principal Shareholder with
respect to any claim indemnifified under Sections 9(b)(i) or (ii),
but not with respect to any Third Party Claim under Section 9(c)
hereof, shall be limited to:
(i) any loss or reduction, arising from or by
reason of such claim, of amounts the Company paid,
distributed, or that would have otherwise been available
for the Company's payment or distribution to Fields by
reason of its status as a shareholder of the Company, or
otherwise, which loss or reduction arises from or by
reason of a claim for which the Principal Shareholder is
obligated to indemnify Fields pursuant to this Agreement;
and
(ii) all professional fees (including without
limitation attorney's fees) and costs, and out of pocket
expenses reasonably incurred by Fields in connection with
such claims; and
(iii) additional amounts necessary to compensate
the Fields for the time cost of money (using the
Applicable Rate as the discount rate) in determining the
amount of the indemnity payment pursuant to this Section
9(d).
. The foregoing indemnification provisions are in addition to, and
not in derogation of, any statutory, equitable, or common law
remedy Fields may have for breach of representation, warranty, or
covenant. The Company and the Principal Shareholder hereby agree
that he or it will not make any claim for indemnification against
any of the Company and its Subsidiaries by reason of the fact that
he or it was a director, officer, employee, or agent of any such
entity or was serving at the request of any such entity as a
partner, trustee, director, officer, employee, or agent of another
entity (whether such claim is for judgments, damages, penalties,
fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to
any action, suit, proceeding, complaint, claim, or demand brought
by Fields against the Company or the Principal Shareholder (whether
such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise). For
purposes of determining the amount of the indemnity payment due
from the Principal Shareholder, the term "Fields" in Section 9(d)
above shall include Mrs. Fields' Original Cookies, Inc., a Fields'
affiliate ("MFOC"), which entered into that certain Management
Agreement of even date with the Company, for purposes of
determining any such payable by the Principal Shareholder under
this Agreement.
<PAGE>
. In the event of any claim by Fields under this Section 9, the
Fields shall be entitled to exercise rights of offset against any
amounts due the Principal Shareholder from the Company in the form
of a bonus payable to him in connection with his employment by the
Company, or as a dividend by reason of his status as a shareholder
of the Company.
. No exercise of the rights of offset under Section 9(f) shall be
permitted with respect to claims made under this Section 9 unless
and until the Adverse Consequences (determined in accordance with
Section 9 (d) above) suffered by Fields, in the aggregate for
claims asserted under this Section 9, exceeds $100,000; but once
such amount is exceeded, Fields may recover the initial $100,000
together with amounts in excess of $100,000.
. 10. Termination
. Certain of the Parties may terminate this Agreement as provided below:
(i) Fields, the Principal Shareholder, and the
Company may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(ii) Fields may terminate this Agreement by giving
written notice to the Company and the Principal
Shareholder on or before the Closing if Fields is not
satisfied with the results of its continuing business,
legal, and accounting due diligence regarding the Company
and its Subsidiaries;
(iii) Fields may terminate this Agreement by
giving written notice to the Company and the Principal
Shareholder any time prior to the Closing (A) in the event
any of the Company or the Principal Shareholder has
breached any material representation, warranty, or
covenant contained in this Agreement in any material
respect, Fields has notified the Company of the breach,
and the breach has continued without cure for a period of
seven (7) business days after the notice of breach; or (B)
if the Closing shall not have occurred on or before
October 1, 1997, by reason of the failure of any condition
precedent under Section 8(a) hereof (unless the failure
results primarily from Fields itself breaching any
representation, warranty, or covenant contained in this
Agreement); and
(iv) the Company may terminate this Agreement by
giving written notice to Fields and the Principal
Shareholder at any time prior to the Closing (A) in the
event Fields has breached any material representation,
warranty, or covenant contained in this Agreement in any
material respect, any of the Company or the Principal
Shareholder has notified Fields of the breach, and the
breach has continued without cure for a period of seven
(7) business days after the notice of breach or (B) if the
Closing shall not have occurred on or before October 1,
1997 by reason of the failure of any condition precedent
under Section 8(b) hereof (unless the failure results
primarily from any of the Company or the Principal
Shareholder themselves breaching any representation,
warranty, or covenant contained in this Agreement).
<PAGE>
. If any Party terminates this Agreement pursuant to Section 10(a)
above, all rights and obligations of the Parties under this
Agreement and under the Related Transactions Documents shall
terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach).
. 11. Miscellaneous
. The representations and warranties of each of the Principal
Shareholder and the Company in Section 3 and Section 5 above
concerning the transaction are several obligations. This means that
each will be solely responsible to the extent provided in Section 9
above for any Adverse Consequences Fields may suffer as a result of
any breach thereof.
. None of the Parties shall issue any press release or make any
public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval
of Fields and the Company provided, however, that any of the
Parties may make any public disclosure it believes in good faith is
required by applicable law (in which case the disclosing Party will
use its best efforts to advise the other Parties prior to making
the disclosure).
. This Agreement shall not confer any rights or remedies upon any
Person other than the Parties and their respective successors and
permitted assigns.
. This Agreement (including the documents referred to herein)
together with the Related Transaction Documents constitutes the
entire agreement among the Parties and supersedes any prior
understandings, agreements, or representations by or among the
Parties, written or oral, to the extent they related in any way to
the subject matter hereof.
. This Agreement shall be binding upon and inure to the benefit of
the Parties named herein and their respective successors and
permitted assigns. None of the Parties may assign either this
Agreement or any of his or its rights, interests, or obligations
hereunder without the prior written approval of Fields and the
Company; provided, however, that Fields may (i) assign any or all
of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases
Fields nonetheless shall remain responsible for the performance of
all of its obligations hereunder).
. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will
constitute one and the same instrument.
. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified
mail, return receipt requested, postage prepaid, and addressed to
the intended recipient as set forth below:
If to the Company: Pretzel Time, Inc.
ATTN: Martin E. Lisiewski, President
4800 Linglestown Road, Suite 202
Harrisburg, PA 17112
With a copy to: Timothy T. Mitchell
4422 Ridgeside Drive
Dallas, Texas 75244
If to the Principal
Shareholder: Martin Lisiewski
6605 Dorset Way
Harrisburg, PA 17111
With a copy to: Mette, Evans & Woodside
ATTN: Elyse E. Rogers
3401 North Front Street
Harrisburg, PA 17110
If to Fields: Mrs. Fields' Holding Company, Inc.
ATTN: Larry A. Hodges, President
462 West Bearcat Drive
Salt Lake City, UT 84115
With a copy to: Jones, Waldo, Holbrook
& McDonough
ATTN: Glen D. Watkins
1500 First Interstate Plaza
170 So. Main Street
Salt Lake City, UT 84145
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
<PAGE>
. This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Utah without giving effect to any
choice or conflict of law provision or rule (whether of the State of
Utah or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Utah.
. No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by Fields and the Company. No
waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation,
or breach of warranty or covenant hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such occurrence.
. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof
or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
. Each of the Parties, the Company, and its Subsidiaries will bear his or
its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the transactions contemplated
hereby. The Principal Shareholder agrees that none of the Company and
its Subsidiaries has borne or will bear any of the Principal
Shareholder's costs and expenses (including any of his legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
. The Parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any federal,
state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" shall mean including without
limitation. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any
Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another
representation, warranty, or covenant relating to the same subject
matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that
the Party is in breach of the first representation, warranty, or
covenant.
. The Exhibits, Annexes, and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
<PAGE>
. Each of the Parties acknowledges and agrees that the other Parties
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state
thereof having jurisdiction over the Parties and the matter (subject to
the provisions set forth in Section 11(p)(d) below), in addition to any
other remedy to which they may be entitled, at law or in equity.
. Each of the Parties submits to the jurisdiction of any state or federal
court sitting in Salt Lake City, Utah, in any action or proceeding
arising out of or relating to this Agreement and agrees that all claims
in respect of the action or proceeding may be heard and determined in
any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other
court. Each of the Parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any
bond, surety, or other security that might be required of any other
Party with respect thereto. Each Party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be
enforced by suit on the judgment or in any other manner provided by law
or at equity.
. All disputes hereunder shall be resolved by binding arbitration in
accordance with the terms of this arbitration clause. Arbitrations
conducted pursuant to this Agreement, including selection of
arbitrators, shall be administered by the American Arbitration
Association (the "Administrator") pursuant to the Commercial
Arbitration rules of the Administrator. Judgment upon any award
rendered hereunder may be entered in any court having jurisdiction. Any
party who fails to submit to binding arbitration following a lawful
demand by the opposing party shall bear all costs and expenses,
including reasonable attorney's fees, incurred by the opposing party in
compelling arbitration of any dispute hereunder.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
FIELDS: Mrs. Fields' Holding Company, Inc.
By:/s/Larry A. Hodges
Larry A. Hodges, President
COMPANY: Pretzel Time, Inc.
By:/s/Martin E. Lisiewski
Martin E. Lisiewski, President
PRINCIPAL
SHAREHOLDER:
by:/s/Martin E. Lisiewski
Martin E. Lisiewski, individually
<PAGE>
EXHIBIT A
RELATED TRANSACTIONS DOCUMENT LIST
RELATED TRANSACTIONS DOCUMENTS
<PAGE>
1. Stock Purchase Agreement Between Fields and Nonprincipal Shareholders
2. Stock Purchase Agreement Between Fields and the Principal Shareholder
(Exhibit A to the Shareholders' Agreement Among Fields, the Company and the
Principal Shareholder)
3. Employment Agreement Between the Company and Principal Shareholder
4. Management Agreement Between Mrs. Fields' Original Cookies, Inc. and Company
5. Promissory Note from Principal Shareholder to Fields
6. Shareholders' Agreement Among Fields, the Company and Principal Shareholder
7. Franchise Agreement and Area Developer Agreement (and installment payment and
security agreements), Between Pretzel Time, Inc. and New England Concepts, Inc.
8. Letter Agreement from MFDC re franchise relationship with Principal
Shareholders
9. Exchange Agreement
10. Amended and Restated Bylaws and Consent
11. Settlement Agreement and Release Between Pretzel Time, Inc. and John
Schaible et al, and Stock Certificates (endorsed in blank, or delivered with an
executed Stock Power, evidencing 5 shares of PTI stock issued to John Schaible).
<PAGE>
ANNEX I
Exceptions to Company's and Principal Shareholder's Representations
and Warranties Concerning Transaction
<PAGE>
ANNEX II
Exceptions to Fields' Representations and Warranties
Concerning Transaction
<PAGE>
SCHEDULE 2(a)
List of Company Obligations to be Retired at Closing
<PAGE>
SCHEDULE 5(a)
Officers and Directors of Company and Subsidiaries
<PAGE>
SCHEDULE 5(b)
Capitalization of Company
<PAGE>
SCHEDULE 5(g)
Subsidiaries and Subsidiary Information
<PAGE>
SCHEDULE 5(l)(iii)
Federal, State and Local Tax Returns
<PAGE>
SCHEDULE 5(l)(vi)
Basis of Company and Subsidiary in Assets; Stockholder's Basis;
Net Operating Loss, etc.; Deferred Gain or Loss
<PAGE>
SCHEDULE 5(m)(i)
Real Property Owned by the Company
<PAGE>
SCHEDULE 5(m)(ii)
Real Property Leased or Subleased by the Company,
and/or Leased or Subleased to Third Parties, including Franchisees
and Area Developers
<PAGE>
SCHEDULE 5(n)(iii)
Intellectual Property of the Company and Licenses Thereof
<PAGE>
SCHEDULE 5(n)(iv)
Intellectual Property used by Company pursuant to
License, Sublicense, Agreement or Permission
<PAGE>
SCHEDULE 5(p)
List of Company-Owned Stores
<PAGE>
SCHEDULE 5(q)
Contracts and Agreements to which the Company is a Party
<PAGE>
SCHEDULE 5(u)
Insurance Policies of Company
<PAGE>
SCHEDULE 5(v)
Outstanding Judgments, Liens, Judicial Orders and Litigation
<PAGE>
SCHEDULE 5(w)
Product Warranty
<PAGE>
SCHEDULE 5(z)
Employee Benefit Plans
FRANCHISE AGREEMENT ADDENDUM NUMBER 2
AND AREA DEVELOPER AGREEMENT ADDENDUM NUMBER 2
This Agreement is made and entered into as of this 2 day of
September, 1997, by and between Pretzel Time, Inc., a Pennsylvania corporation
("Pretzel Time") and New England Concepts, Inc. a Texas corporation, ("Pretzel
Concepts").
W I T N E S S E T H:
WHEREAS, Pretzel Time, as franchisor, and Pretzel Concepts, as
franchisee, entered into a Franchise Agreement on or about ____________________,
1997 (hereinafter the "Franchise Agreement"); and
WHEREAS, Pretzel Time and Pretzel Concepts, as area developer, entered
into an Area Developer Agreement on or about ____________________, 1997
(hereinafter the "Area Developer Agreement"); and
NOW THEREFORE, in consideration of $10.00 and other good and valuable
consideration the mutual receipt and sufficiency of which is hereby
acknowledged, and in consideration of the parties mutual covenants and
conditions contained herein, the parties hereby agreed as follows:
1. Section 8(a) of the Franchise Agreement is hereby deleted in
its entirety and replaced with the following provision:
Area Developer shall pay to Pretzel Time a
development fee of One Hundred Thirty-Five Thousand Dollars
and No Cents ($135,000.00) which shall be deemed fully earned
by Pretzel Time and shall be non-refundable. Additionally,
Area Developer shall pay an initial franchise fee of Five
Thousand Dollars ($5,000.00) plus $1,000.00 if yogurt is
included) for each franchise for a Pretzel Time Store to be
developed after the date hereof. All payments required under
this paragraph shall be payable upon execution of the
franchise agreement (or an addendum thereto) for each Pretzel
Time Unit; provided that the aggregate amount payable under
this Section 8(a) as of September 2, 1997 shall be paid in two
interest-free installments of Ten Thousand Dollars ($10,000)
each, on or before September 2, 1998 and September 2, 1999,
with the remaining unpaid balance thereof due and payable on
or before September 2, 2000.
This addendum is hereby agreed to as witnessed by the signatures below
nd shall be effective on the date first written above.
WITNESSES: PRETZEL TIME, INC.,
a Pennsylvania corporation
By:/s/Martin E. Lisiewski
Name:Martin E. Lisiewski
Title:President
WITNESSES: MRS. FIELDS' ORIGINAL COOKIES, INC.
a dELAWARE corporation
By:/S/Michael R. Ward
Name:Michael R. Ward
Title:VP
MANAGEMENT AGREEMENT
This Management Agreement (this "Agreement") is made and entered into as of
August __, 1997, by and between Mrs. Fields' Original Cookies, Inc. (the
"Manager") and Pretzel Time, Inc., a Delaware corporation ("PTI"); "Party" in
the singular or "Parties" in the plural.
R E C I T A L S
WHEREAS, the Manager is engaged in the business of owning, operating
and franchising retail fast food stores, and possesses certain valuable
management and operational skills, experience and resources, and general
administrative skills and resources, including in the financial, accounting,
tax, franchising and legal compliance disciplines; and
WHEREAS, Mrs. Fields' Holding Company ("MFHC"), the parent company of
the Manager, pursuant to that certain Stock Acquisition Agreement of even date
by and between MFHC and PTI (the "Acquisition Agreement") and the Related
Transaction Documents (as defined in the Acquisition Agreement), has acquired,
or concurrently with the execution of this Agreement will acquire, majority
ownership of the capital stock of PTI; and
WHEREAS, the Parties desire to provide for the management of PTI by the
officers and employees of Manager; and
WHEREAS, the Manager is prepared to provide management services to PTI as
more fully described herein; and
WHEREAS, the directors and shareholders of the Parties have approved
and consented to the Parties entering into this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
1. Agreement to Perform Services.
1.1 Engagement of Manager. PTI hereby engages the Manager to
perform the Services (as defined in Section 3 of this Agreement), and
the Manager agrees to perform such Services in accordance with the
terms and conditions of this Agreement.
1.2 Performance of Manager.
(a) Manager covenants with PTI to use its reasonable
best efforts and diligent skill and judgment in the
performance of its duties and obligations hereunder. Manager
shall perform its duties and obligations under this Agreement
in accordance with the provisions of this Agreement, and shall
do so in an efficient, expeditious and economical manner.
(b) In providing the Services, Manager shall have a
duty to act, and to cause its agents to act, in a reasonably
prudent manner, but neither Manager nor any director, officer,
employee, member or agent of Manager shall be liable to PTI
for any error in judgment or mistake of law or for any loss
incurred by PTI in connection with the matters to which this
Agreement relates, except that the Manager shall be
responsible for a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of Manager.
1.3 Manager's Personnel. Manager shall cause the services of
its employees and officers to be made available as needed or requested
by PTI and its Board of Directors. In performing its obligations
hereunder, Manager and Manager's employees shall be independent
contractors and not employees of PTI. Manager shall comply with all
applicable laws, rules and regulations relating to the duties and
obligations of Manager under this Agreement, including those pertaining
to labor, employment and franchising.
<PAGE>
2. Budget. For each partial or full fiscal year of PTI, the Manager
shall prepare an operating budget and a capital budget (collectively the
"Budgets" and individually the "Operating Budget" and the "Capital Budget"
respectively). The Operating Budget shall set forth PTI's projected revenues and
estimated costs for the conduct of its business (including costs payable to the
Manager under this Agreement). The Capital Budget shall identify proposed
capital expenditures by type and amount and shall set forth the source and
estimated cost to acquire the funds. The Parties and the shareholders and
directors of PTI shall have prepared and approved Budgets for the partial fiscal
year ending on December 29, 1997 and for the fiscal year ending December 29,
1998, prior to execution of this Agreement, copies of which are attached hereto
as Exhibit "A" and by reference made a part hereof. Each Budget shall be
substantially in the same form and detail as Exhibit "A". Budgets for subsequent
fiscal years shall not require the approval of PTI's shareholders, but shall
require the approval of PTI's Board of Directors (including the approval of one
"Lisiewski Director" and one "Fields Director," as those terms are defined in
the Bylaws of PTI). If one Lisiewski Director and one Fields Director do not
agree to any proposed Budget, the Budget for the prior fiscal year shall be
applied to the next fiscal year.
3. Compensation of Manager. For the Services to be provided hereunder,
PTI shall pay to the Manager:
3.1 The amount of the "Management Costs" set forth in the Budget,
representing the estimated costs and expenses to be incurred by
Manager during the fiscal period covered by the Budget in performing
Manager's obligations under this Agreement, including, without
limitation, payment of all compensation to Manager's employees,
payroll burdens, taxes, withholding taxes, as well as accounting,
financial, legal and other overhead expenses of Manager attributable
to the performance of Manager's obligations under this Agreement;
3.2 The "Management Fee" set forth in the Budget, payable in equal monthly
installments;
3.3 The amount necessary to reimburse Manager for all out-of-pocket costs
incurred or paid to third parties for services provided to PTI
including, but not limited to, the outside services of attorneys,
auditors, trustees, financial institutions and consultants; and
3.4 The payments to Manager described in Sections 3.1, 3.2 and 3.3 shall
be in addition to any dividends or distributions paid or payable to
Manager as a shareholder of PTI, and any area developer or
subfranchising fees paid or payable by PTI to MFHC, Manager or any of
MFHC's and Manager's affiliated companies other than PTI.
4. Scope of Services. In compliance with all applicable federal, state
and local laws, rules and regulations, Manager shall perform all services
required for the management, conduct and administration of all of the business,
operations and affairs of PTI (the "Services"), including without limitation the
following:
<PAGE>
4.1 the present and future licensing of PTI franchises,
subfranchises and development rights;
4.2 the preparation, execution and administration of all
contracts, agreements and disclosure documents pertaining to PTI's
business, operations and affairs, including those described in Section
3.1;
4.3 the development of domestic and international markets for
PTI franchises and subfranchises, the opening of new PTI-franchised
stores and the development of new products and inventory related
thereto;
4.4 the marketing and advertising activities of PTI;
4.5 the collection and processing of all royalties and fees
payable to PTI in connection with the rights, licenses and operations
described in Section 3.1;
4.6 the provision of notices to, and correspondence with, the
franchisees, subfranchises, area developers, vendors, suppliers,
officers, directors, employees and agents of PTI;
4.7 the financial, tax and accounting services, including
reporting services related thereto required by PTI, Manager or third
parties;
4.8 the maintenance of all corporate records;
4.9 causing PTI to pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real and
personal, owed by or relating to PTI (including federal and state
income taxes), except such as PTI and Manager may in good faith contest
or as to which a bona fide dispute may arise;
4.10 giving notice in writing to each member of the Board of
Directors of PTI of: (a) any litigation pending or threatened against
PTI; (b) the occurrence of any breach or default in the payment or
performance of any obligation owing by PTI to any person or entity; (c)
any uninsured or partially uninsured loss through fire, theft,
liability damage having a material affect on the conduct of PTI's
business; or (d) any termination or cancellation of any insurance
policy which PTI maintains;
4.11 submitting to each member of the board of directors of
PTI a copy of all financial statements (whether internally or
externally prepared) of PTI and of Manager; provided that statements
will be prepared and provided no less often than quarterly;
4.12 causing PTI to maintain and keep in force insurance of
the types and in amounts customarily carried in lines of business
similar to PTI's, including but not limited to fire, extended coverage,
public liability, damage and workers' compensation, carried in
companies and in amounts satisfactory to Manager; and
4.13 such other services as are reasonably requested by PTI or
its board of directors.
<PAGE>
5. Franchising; Franchising to Manager. Anything herein to the contrary
notwithstanding, the Manager shall have full authority to grant area developer
rights and franchises to others for the ownership and operation, or
subfranchising, of PTI stores, and to manage and administer fully hereunder all
matters, agreements, contracts and business of PTI related thereto. Further, the
Manager shall have the authority to grant area developer rights and franchises
to itself and any of its affiliated companies for the ownership and operation,
or subfranchising to others, of PTI stores, and to manage and administer fully
hereunder all matters, agreements, contracts and business of PTI related
thereto, subject to (A) any restrictions or limitations thereof set forth in any
agreements between PTI and its existing franchisees or area developers; (B) the
provisions of the Acquisition Agreement and any Related Transaction Documents as
that term is defined in the Acquisition Agreement; and (C) the direction of the
Franchising Committee of the Board of Directors of PTI acting by authority of
its Articles of Incorporation and Bylaws. The Franchise Committee shall consist
of one Fields Director and one Lisiewski Director. If the Franchise Committee is
unable to act or decide any such matters, then such matter(s) shall be referred
to the Board of Directors for action by the Board of Directors.
6. Term; Termination.
6.1 Term of Agreement. The term of this Agreement shall
commence as of the date of execution of this Agreement and shall
continue until terminated pursuant to Section 5.2 below.
6.2 Termination. This Agreement may be terminated by the Parties only
(a) by the express written agreement of the Parties, or
(b) upon the termination of the Shareholder's Agreement (as described on
Exhibit A to the Acquisition Agreement).
6.3 Rights Upon Termination. Upon termination of this
Agreement, Manager shall provide to PTI all of the documentation,
materials, and records (in whatever form the foregoing may exist) it
possesses relating to PTI, and shall otherwise act in good faith to
allow for the continued, uninterrupted operation of PTI.
7. Dispute Resolution.
7.1 Initial Dispute Resolution. If a dispute arises out of or
relates to this Agreement or its breach, the Parties shall endeavor to
settle the dispute first through direct discussions. If the dispute
cannot be settled through direct discussions, and if both Parties
agree, the Parties shall endeavor to settle the dispute by mediation
with a third-party mediator before recourse to arbitration. The
location of the mediation shall be Salt Lake City, Utah.
7.2 Arbitration. Any controversy or claim arising out of or
relating to this Agreement or its breach not resolved by mediation,
except for claims which have been waived by the making or acceptance of
final payment, shall be decided by binding arbitration in accordance
with the applicable rules of the American Arbitration Association then
in effect unless the Parties mutually agree otherwise. Any such
arbitration shall be held in Salt Lake City, Utah. Judgment on the
award or decision rendered in arbitration may be entered in any court
having jurisdiction thereof.
<PAGE>
7.3 Work Continuance and Payment. Unless otherwise agreed by
the Parties in writing, the Manager shall continue to provide the
services covered hereby during any arbitration proceedings.
8. Indemnification. PTI shall indemnify and hold the Manager (including
its officers and employees) harmless from and against any and all losses,
liabilities, claims, damages, costs, and expenses (including reasonable
attorneys' fees and other expenses of litigation) to which the Manager (or its
officers and employees) may become subject arising out of the services provided
under this Agreement, provided that such agreement by PTI shall not protect
Manager (or its officers and employees) against any liability of which Manager
or (its officers and employees) would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence.
9. General Provisions.
9.1 Assignment. The obligations of Manager under this
Agreement are personal to Manager, and PTI is entering into this
Agreement in reliance upon Manager's expertise and knowledge in
performing Manager's obligations hereunder. For the foregoing reasons,
Manager shall not voluntarily or involuntarily, directly or indirectly,
sell, assign, hypothecate, pledge or otherwise transfer or dispose of
all or any portion of its interest in this Agreement to any third party
without the prior written consent of PTI; provided however, Manager may
assign this Agreement to any of its affiliated companies having the
expertise and resources necessary to perform the Manger's duties
hereunder.
9.2 Amendment. This Agreement may be amended from time to time
only by a writing executed by PTI and Manager, and consented to by
PTI's directors.
9.3 Notices. All notices, requests, demands, and other
communications hereunder by which either party is to be legally bound
shall be in writing and shall be given (I) by Federal Express (or other
established express delivery service which maintains delivery records),
(ii) by hand delivery, (iii) or by facsimile transmission, to the
Parties at their last known addresses. Notices shall be deemed
effective upon dispatch.
9.4 Costs and Attorneys' Fees. In the event either party
commences an arbitral or legal proceeding to enforce any of the terms
of this Agreement, the prevailing party in such action shall have the
right to recover reasonable attorneys' fees and costs from the other
party, to be fixed by the arbitral panel in the same action.
9.5 Entire Agreement. This Agreement constitutes the entire
agreement between the Parties with respect to the subject matter
hereof, and supersedes all prior agreements and negotiations between
the Parties with respect thereto.
9.6 Governing Law. This Agreement shall be enforced, governed by and
construed in accordance with the laws of the State of Utah.
<PAGE>
9.7 No Waiver. No failure or delay of a party in the exercise
of any right given to such party hereunder or by law shall constitute a
waiver thereof, nor shall any single or partial exercise of any such
right preclude the other or further exercise thereof or any other
right. The waiver by a party of any breach of any provision shall not
be deemed to be a waiver of any subsequent breach thereof, or of any
breach of any other provision hereof.
9.8 Additional Documents. Each party shall, whenever and as
often as reasonably requested by the other party, execute or cause to
be executed all such instruments or agreements as may be reasonably
necessary in order to carry out the purpose of this Agreement, and each
party shall do all other acts reasonably necessary or requested by the
other party to carry out the intent and purpose of this Agreement.
9.9 Ownership of Documents. All documents related to PTI shall
be and remain the sole and exclusive property of PTI, and Manager shall
acquire no rights in or to such documents.
9.10 No Third Party Beneficiary. Nothing set forth in this
Agreement is intended to create in or confer upon any person, firm or
entity not a party to this Agreement any rights under this Agreement.
9.11 Miscellaneous. The terms, covenants, conditions, and
benefits contained herein shall be binding upon and inure to the
benefit of the successors, transferees and permitted assigns of the
Parties. Time is expressly made of the essence of each and every
provision of this Agreement. This Agreement shall be interpreted and
construed only by the contents hereof, and there shall be no
presumption or standard of construction in favor of or against either
party. The individuals executing this Agreement represent and warrant
that they have the power and authority to do so, and to bind the
entities for whom they are executing this Agreement. If any term or
provision of this Agreement or the application of it to any person or
circumstance shall to any extent be held by a court to be invalid or
unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to
which it is invalid or unenforceable shall not be affected thereby, and
each term and provision of this Agreement shall be valid and shall be
enforced to the extent permitted by law.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
PRETZEL TIME, INC. MRS. FIELDS' ORIGINAL COOKIES, INC.
By:/s/Michael R. Ward
Michael R. Ward, Vice president
By:/s/Martin E. Lisiewski
Martin E. Lisiewski, President Its:
<PAGE>
EXHIBIT A
[Attach Budgets and make sure references are coordinated with Sections 3.1C3.4.]
STOCK PURCHASE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of January 2,
1998, by and among Mrs. Fields' Holding Company, Inc., a Delaware corporation
(the "Buyer"), and Martin E. Lisiewski, shareholder of Pretzel Time, Inc., a
Pennsylvania corporation (the "Company"), who becomes the "Seller". The Buyer
and the Seller are referred to collectively herein as the "Parties."
A. The Seller collectively owns forty-four (44) shares of the issued and
outstanding common stock of the Company;
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, four (4) shares
of the outstanding common stock (par value $10.00 per share) of the Company
owned by the Seller (the "Shares"), as part of a series of transactions in which
the Buyer is acquiring common stock in the Company, and is also entering into
other related transactions (collectively, the "Related Transactions");
WHEREAS, the Buyer will purchase the Shares of the Company in return
for cash as set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
<PAGE>
1. Purchase and Sale of Shares.
(a) Basic Transaction. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the
Seller, and the Seller agrees to sell to the Buyer, each of the Shares
for the consideration specified below in Section 1(b).
(b) Purchase Price. The Buyer agrees to pay to the Seller at
the Closing the sum of Seventy-Five Thousand Dollars ($75,000) per
Share (the "Purchase Proceeds") for a total of Three Hundred Thousand
Dollars ($300,000) (the "Purchase Price"), by delivery of certified
funds for the Purchase Price payable in accordance with this Agreement.
(c) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") will take place at the offices of the
Buyer in Salt Lake City, Utah, on a mutually agreeable date between
January 2 and January 9, 1998 (the "Closing Date"), unless extended by
written agreement of the Parties.
(d) Deliveries at the Closing. At Closing, the Seller will
deliver to the Buyer, the various documents referred to in Section 5(a)
below, including the stock certificate(s) representing each of the
Seller's Shares, endorsed in blank or accompanied by duly executed
assignment documents.
2. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Seller. The Seller
represents and warrants to the Buyer that the statements contained in
this Section 2(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Section 2(a)) with respect
to himself except as set forth on the Disclosure Schedule affixed
hereto.
(i) Organization of Certain Seller. If the Seller is
a corporation or other entity, the Seller is duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its organization.
(ii) Authorization of Transaction. The Seller has
full power and authority (including, if the Seller is an
entity, full power and authority) to execute and deliver this
Agreement and to perform his obligations hereunder. This
Agreement constitutes the valid and legally binding obligation
of the Seller, enforceable in accordance with its terms and
conditions. The Seller need not give any notice to, make any
filing with, or obtain any authorization, consent or approval
of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
<PAGE>
(iii) Noncontravention. To the best of Seller's
knowledge, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Seller is subject
or, if the Seller is a corporation, any provision of its
charter or bylaws, or (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to
which the Seller is a party or by which the Seller is bound or
to which any of the Seller's assets is subject.
(iv) Brokers' Fees. The Seller has no liability or
obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated
by this Agreement for which the Buyer could become liable or
obligated.
(v) Shares. The Seller holds of record and owns
beneficially the number of Shares (but no more or other shares
of the common stock of the Company than) set forth in
paragraph A above. The Seller holds and owns each of the
Shares free and clear of any restrictions on transfer, any
federal, state or local taxes of any kind, taxes, mortgage,
pledge, lien, encumbrance, charge or other security interests,
options, warrants, purchase rights, contracts, commitments,
equities, claims and demands. Other than this Agreement and
other written agreements with the Company and/or the Buyer,
the Seller is not a party to (A) any option, warrant, purchase
right, shareholders agreement, co-sale agreement, buy-sell
agreement or other contract or commitment that could require
the Seller to sell, transfer or otherwise dispose of any
capital stock of the Company (other than this Agreement), or
(B) any voting trust, proxy or other agreement or
understanding with respect to the voting of any capital stock
of the Company.
(vi) Legal Compliance/Litigation. To the best of his
knowledge, the Seller and his respective predecessors and
affiliates have complied with all applicable laws of federal,
state, local and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has
been filed or commenced against any of them alleging any
failure so to comply. To the best of his knowledge, there are
no outstanding injunctions, judgments, orders, decrees,
rulings or charges affecting their Shares. To the best of his
knowledge, there are no actions, suits, proceedings, hearings
or investigations, and the Seller does not have reason to
believe that any such action, suit, proceeding, hearing or
investigation may be brought or threatened, against the
Seller.
<PAGE>
(vii) Investigation. The Seller has investigated or
had full opportunity to investigate the terms and conditions
of the transactions contemplated by this Agreement, including
the Purchase Price, and deems them to be fair and appropriate.
3. Pre-Closing Covenants. With respect to the period between the
execution of this Agreement and the Closing, (A) each of the Parties will use
his reasonable best efforts to take all action and to do all things necessary,
proper or advisable in order to consummate and make effective the transactions
contemplated by this Agreement, (B) the Seller will use his best efforts to
obtain any third-party consents that the Buyer may request or to otherwise
consummate the transactions contemplated hereby, and (C) the Seller will give
prompt written notice to the Buyer of any material adverse development causing a
breach of any of the representations and warranties in Section 2 above.
4. Post-Closing Covenants. The Parties agree that if at any time after
the Closing any further action is necessary or desirable to carry out the
purposes of this Agreement, each of the Parties will take such further action
(including the execution and delivery of such further instruments and documents)
as any other Party reasonably may request.
5. Conditions to Closing.
(a) Conditions to Obligation of the Buyer. The obligation of
the Buyer to consummate the transactions to be performed by it in
connection with the Closing is subject to the satisfaction of the
following conditions:
(i) The representations and warranties set forth in
Section 2 above shall be true and correct in all material
respects at and as of the Closing Date.
(ii) The Seller shall have performed and complied
with all of their covenants hereunder in all material respects
through the Closing.
(iii) The Seller shall have procured any third party
consents required for the sale of the Shares.
(iv) No action, suit or proceeding shall be pending
or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling or charge would
(A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded
following consummation, or (C) affect adversely the right of
the Buyer to own the Shares.
(v) The Seller shall be prepared to deliver the
certificates and documents in the form and executed as
required by this Agreement.
(vi) All actions to be taken by the Seller in
connection with consummation of the transactions contemplated
by this Agreement, and all certificates, and other documents
required to effect the transactions contemplated hereby, will
be satisfactory in form and substance to the Buyer.
(vii) The Closing of the Related Transactions shall
have occurred.
<PAGE>
(viii) Neither the Company nor the Principal
Shareholder shall be in breach under the terms and conditions
of any of the Stock Acquisition Agreement (as defined in
Section 6 below) and the documents executed in connection with
the Related Transactions.
The Buyer may waive any condition specified in this Section 5(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of
the Seller to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) No action, suit or proceeding shall be pending
threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign
jurisdiction for before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling or charge would
(A) prevent consummation of any of the transactions
contemplated by this Agreement, or (B) cause any of the
transactions between the Buyer and the Seller contemplated by
this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling or charge
shall be in effect).
(ii) The Buyer shall be prepared to deliver the
Purchase Proceeds as required by Section 1(b).
(iii) The Closing of the Related Transactions shall
have occurred.
The Seller may waive any condition specified in this Section 5(b) if
they execute a writing so stating at or prior to the Closing.
6. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties.
All of the representations and warranties of the Seller contained in
this Agreement shall survive the Closing hereunder (even if the damaged
Party knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) and continue in full force and effect
forever thereafter (subject to any applicable statutes of limitations).
<PAGE>
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches any of its
representations, warranties, and covenants contained herein,
and, if the Buyer makes a written claim for indemnification
against any of the Seller therefor, then, the Seller agrees to
indemnify the Buyer from and against the entirety of any
Adverse Consequences that the Buyer may suffer through and
after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of any
applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach.
(ii) If any third party shall notify Fields with
respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against the Seller under
this ' 6, then Fields shall promptly notify the Seller thereof
in writing, provided, however, that no delay on the part of
Fields in notifying the Seller shall relieve the Seller from
any obligation hereunder unless (and then solely to the
extent) the Seller is prejudiced. The indemnification
procedure respecting a Third Party Claim hereunder shall be
the same as set forth in Section 9(c) of that certain Stock
Acquisition Agreement, dated as of September 2, 1997 (the
"Acquisition Agreement"), by and between Fields, the Company
and the Seller (therein referred to as the Principal
Shareholder).
(iii) All claims for indemnification made under this
Agreement shall be subject to the terms and conditions of
Sections 9(d) (Determination of Adverse Consequences), (f)
(Rights of Offset) and (g) (Limitation of Rights of Offset) of
the Stock Acquisition Agreement, and the indemnity payment
required of Principal Shareholder for such claims shall be
determined as if the claims were made under the Stock
Acquisition Agreement.
(iv) The foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory,
equitable, or common law remedy Fields may have for breach of
representation, warranty, or covenant.
7. Termination.
(a) Termination of Agreement. The Parties may terminate this
Agreement as provided below:
(i) The Buyer and the Seller may terminate this
Agreement by mutual written consent at any time prior to the
Closing.
<PAGE>
(ii) The Buyer or the Seller may terminate this
Agreement if the Closing does not occur on or before January
30, 1998.
(b) Effect of Termination. If any Party terminates this
Agreement pursuant to this Section, all rights and obligations of the
Parties hereunder shall terminate without any liability of any Party to
any other Party (except for any liability of any Party then in breach).
8. Miscellaneous.
(a) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties
and their respective successors and permitted assigns.
(b) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties
and supersedes any prior understandings, agreements or representations
by or among the Parties, written or oral, to the extent they relate in
any way to the subject matter hereof.
(c) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either
this Agreement or any of his or its rights, interests or obligations
hereunder without the prior written approval of the Buyer and the
Seller; provided, however, that the Buyer may (i) assign any or all of
its rights and interests hereunder to one or more of its affiliates,
and (ii) designate one or more of its affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(d) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(e) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
<PAGE>
(f) Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request,
demand, claim or other communication hereunder shall be deemed duly
given if (and then two business days after) it is sent by registered or
certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Seller: Martin E. Lisiewski
4800 Linglestown Road, Suite 202
Harrisburg, PA 17112
With a copy to: Mette, Evans & Woodside
Attention: Elyse E. Rogers
3401 North Front Street
Harrisburg, PA 17110
If to the Buyer: Mrs. Fields' Holding Company, Inc.
462 West Bearcat Drive
Salt Lake City, UT 84115
Attention: Larry A. Hodges, President
With a Copy to: Jones, Waldo, Holbrook & McDonough
170 South Main Street, Suite 1500
Salt Lake City, UT 84101
Attention: Glen D. Watkins
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Utah
without giving effect to any choice or conflict of law provision or
rule thereof.
(h) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and
signed by the Buyer and each of the Sellers. No waiver by any Party of
any default, misrepresentation or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of
any prior or subsequent such occurrence.
<PAGE>
(i) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall
not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
(j) Expenses. Each of the Parties will bear his or its own
costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated
hereby. The Seller agrees that none of the Company and its Subsidiaries
has borne or will bear any of the Seller's costs and expenses
(including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(k) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(l) Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached. Accordingly, each
of the Parties agrees that the other Parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United
States or any state thereof having jurisdiction over the Parties and
the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
<PAGE>
229744.1
August 31, 1997
8
229744.1
August 31, 1997
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER: MRS. FIELDS' HOLDING COMPANY, INC.
By:/s/Herbert S. Winokur
Its:Herbert S. Winokur, Manager
SELLER:
/s/martin E. Lisiewski
Martin E. Lisiewski
<PAGE>
August 31, 1997
10
DISCLOSURE SCHEDULE TO STOCK ACQUISITION AGREEMENT
Section 2(a):
None, unless otherwise stated below.
Buyer's Initials Seller's Initials
SHAREHOLDERS AGREEMENT
OF
PRETZEL TIME, INC.
THIS SHAREHOLDERS AGREEMENT (this "Agreement") is entered into as of
the 2nd day of September, 1997, by and among Mrs. Fields' Holding Company, Inc.,
a Delaware corporation ("Fields") and Martin E. Lisiewski, an individual
resident in the State of Pennsylvania ("Lisiewski"; Lisiewski and Fields
collectively hereafter referred to as the "Shareholders" and each individually,
a "Shareholder"), and Pretzel Time, Inc., a Pennsylvania corporation (the
"Corporation").
W I T N E S S E T H:
WHEREAS, the entire authorized capital stock of the Corporation
consists of 1,500 shares, comprised of 1,000 shares of common stock ("Common
Stock"), and 500 shares of non-voting preferred stock ("Preferred Stock";
together with the Common Stock, the "Stock"); and
WHEREAS, the shareholders identified in this recital constitute all of
the owners of all of the currently issued and outstanding shares of Common Stock
of the Corporation, each owning the number of shares of Common Stock set forth
below;
<TABLE>
<CAPTION>
<S> <C>
Shareholder Number of Shares
Lisiewski 44
Fields 56
Total 100
</TABLE>
WHEREAS, the parties believe that it is in the best interests of the
Shareholders and the Corporation to impose restrictions on the transfer or other
disposition of the capital stock of the Corporation and to grant options or
impose obligations to purchase or sell such stock upon the occurrence of certain
events; and
WHEREAS, the parties also desire to agree upon certain provisions
relating to the voting of Stock of the Corporation by the Shareholders, and to
certain significant corporate events of the Corporation.
NOW, THEREFORE, for and in consideration of the mutual covenants,
conditions, stipulations and agreements hereinafter contained, the parties have
agreed and do hereby agree as follows:
<PAGE>
ARTICLE I
RESTRICTIONS ON TRANSFER
I.1 Restrictions on Transfer. No sale, assignment, transfer, pledge,
hypothecation or other disposition, whether voluntary, involuntary, by operation
of law (not including by merger or consolidation of the Corporation), by gift or
otherwise ("Transfer of Stock"), by any Shareholder of his Stock of the
Corporation, whether now owned or hereafter acquired, or of any right or
interest therein, including, without limitation, any community interest in such
shares of Stock attributable to the spouse of a Shareholder, any separately held
Stock of the spouse of a Shareholder, any Stock held by the minor child or minor
children of a Shareholder and any Stock held in trust for a Shareholder, his
spouse, minor child or minor children, shall be valid unless made in accordance
with the terms and provisions of this Agreement. Notwithstanding the foregoing,
a Shareholder may Transfer to a (i) revocable grantor trust created for the
benefit of the transferring Shareholder, or (ii) a trust for the benefit of the
lineal descendants of the Shareholder or the spouse of the Shareholder, or (iii)
other similar transfers for legitimate estate planning purposes (each, a
"Permitted Transferee"); provided, that, all shares of Stock transferred shall
be subject to all terms and conditions of this Agreement as if still owned by
the Shareholder who made the transfer, and subject to the provisions of Section
12.1 hereof.
I.2 Method of Transfer. None of the Shareholders of the Corporation
shall make any Transfer of Stock in the Corporation unless such Shareholder
shall have first obtained the written consent of all of the other Shareholders
or unless he shall have first offered all of his shares of Stock subject to
transfer to the Corporation and to all the other Shareholders in the manner and
to the extent hereinafter set forth:
(a) Notice of Third-Party Offer. Any Shareholder desiring to
effect a Transfer of Stock in the Corporation ("Offeror") shall send to
the Corporation and to the other Shareholders a notice (the "Offer
Notice") that includes a true copy of a bona fide written offer
("Offer") for the purchase of all or any portion of the Stock of the
Offeror, together with reasonable information requested by the
Corporation or the other Shareholders from which a judgment may be made
as to the ability of the prospective purchaser to so purchase and as to
the desirability of permitting the prospective purchaser to be a
shareholder of the Corporation.
(b) Fields Option. If Fields is not the Offeror, Fields shall
have a first option to purchase, and the Offeror shall have the
obligation to sell to Fields, all or any portion of his Stock subject
to the Offer at the same price per share and upon substantially the
same terms and conditions contained in such Offer. Fields shall
exercise such option by sending written notice thereof to the Offeror,
with a copy to the other Shareholders. The Fields option shall
otherwise expire thirty (30) days after the Offer Notice is received by
Fields and the other Shareholders.
(c) Lisiewski Option. If Fields is the Offeror of Stock in the
Corporation, and: i) Prior to the exercise of Fields "come along"
rights set forth in Section 1.2(f), below, or (ii) if Fields does not
exercise or is not entitled to exercise its "come along" rights set
forth in Section 1.2(f), Lisiewski shall have a first option to
purchase, and Fields shall have the obligation to sell to Lisiewski,
all or any portion of the shares of Stock held by Fields in the
Corporation subject to the Offer at the same price per share and upon
substantially the same terms and conditions contained in the Offer.
Lisiewski shall exercise his option by sending written notice thereof
to Fields, with a copy to the other Shareholders. The Lisiewski option
shall otherwise expire thirty (30) days after the Offer Notice is
received by Lisiewski and the other Shareholders. The right set forth
in this Section shall not apply in the event of an initial public
offering of the Stock of the Corporation, Fields, or any Affiliate of
Fields (i.e., Lisiewski shall not have the right to acquire Fields'
Stock in the Corporation, or in any Affiliate of Fields, in the event
of an initial public offering of the Stock of the Corporation, Fields,
or any Affiliate of Fields). For purposes of this Agreement, an
"Affiliate" of a person (including Fields) shall mean a person that
directly, or indirectly through one or more intermediaries, controls or
is controlled by, or is under common control with, the person
specified.
<PAGE>
(d) Corporation and Shareholders' Option. Subject to Section
1.2(f), below, in the event that Fields or Lisiewski fails to exercise
its option to purchase all of the Stock subject to the Offer within the
30-day period referred to in Section 1.2(b) or 1.2(c), above, the
Shareholders (including Fields and Lisiewski) and the Corporation shall
have the option to purchase, and the Offeror shall have the obligation
to sell, all or any portion of any such Stock as Fields or Lisiewski
did not purchase, at the same price per share and upon substantially
the same terms and conditions contained in the Offer. Such Stock may be
purchased in such proportion as the Shareholders and the Corporation
may agree among themselves or, in the absence of an agreement, in the
same proportion in which the Stock owned by each of the Shareholders
bears to all of the issued and outstanding Stock held by all of the
Shareholders, excluding the Stock owned by the Offeror and any
non-purchasing Shareholders. In the event that all of the Shareholders
(including Fields and Lisiewski) desire to participate as described in
the previous sentence, resulting in their exercising the option to
purchase all of the Stock, the Corporation shall not participate in
purchasing the Stock. The Shareholders shall exercise their option to
so purchase by sending written notice thereof to the Offeror, the
Corporation and the other Shareholders within seventy (70) days after
the date the Offer Notice is received by the Corporation and the other
Shareholders.
(e) Right to Tag-Along. As an alternative to the rights of
first refusal set forth in this Section 1.2, a Shareholder shall have
the right to "tag along" and sell his Stock along with the Stock being
sold by the Offeror to a third party (including an Affiliate) as
described in Section 1.2(h) below. The preceding sentence shall not
apply to a tax free reorganization of a Shareholder with an Affiliate
or Affiliates of such Shareholder. Any Shareholder not exercising his
right of first refusal pursuant to Section 1.2(b) or 1.2(c) to acquire
some or all of the Stock of the Offeror subject to the Offer, may
alternatively give notice within eighty (80) days of the date of
receipt of the Offer Notice of his intention to sell his Stock if given
the opportunity pursuant to Section 1.2(h) below (such Shareholders are
hereafter referred to as the "Tag Along Shareholders").
(f) Obligation to Come Along. Subject to Section 1.2(c) above
(and the thirty (30) day time period set forth therein), in the event
that Fields is an Offeror with respect to any proposed Transfer of
Stock, then at Fields' election, notice of which shall be given as a
part of the Offer Notice, all other Shareholders (collectively, the
"Come-Along Shareholders") shall be required to "come along" with
Fields and sell, upon the terms of the Offer, their Stock along with
the Stock being sold by Fields to the prospective purchaser identified
in the Offer Notice; provided that Fields also delivers to the
Come-Along Shareholders an opinion that, based on the fair market value
of the Corporation (taking into account the Corporation's tangible and
intangible assets, including good will and the value of its brand as
well as the Corporation's liabilities), the Offer is fair to the
Come-Along Shareholders. The opinion shall be given by an independent
third party qualified to give such opinions, selected by agreement of
all of the Shareholders. If the Shareholders cannot agree upon the
selection of such third party within forty five (45) days of the date
of receipt of the Offer Notice by the Come-Along Shareholders, then the
Board of Directors of the Corporation shall select the appraiser within
sixty (60) days of the date the Offer Notice is received by the
Corporation and the Come-Along Shareholders. At least one (1) Fields
Director and one (1) Lisiewski Director (both as defined below) must
agree to the selected appraiser. The fairness opinion shall be
delivered within thirty (30) days after the appointment of the
appraiser required by this subsection and any costs associated with
procuring the opinion shall be paid by the Corporation. When issued,
the opinion shall be final and binding upon the Shareholders and the
Corporation. Fields shall have no right to make a come-along election
described in this Section 1.2(f) if the Offer is made by an Affiliate
of Fields.
<PAGE>
(g) Delivery of Stock. In the event the Corporation and/or the
Shareholders purchase any or all of the Stock pursuant to this Article
I, the purchase price shall be paid upon substantially the same terms
and conditions as contained in the Offer within ten (10) days after the
expiration of the last date of any option to purchase. Upon receipt of
the purchase price, the holder thereof or his representative shall
assign and deliver such Stock to the appropriate party.
(h) Sale to Third Party. In the event that Stock has been
offered for sale under and pursuant to this Section 1.2, and the
Corporation and/or the other Shareholders have not collectively
exercised their options to purchase all of the Stock subject to the
Offer, then the Offeror may sell or dispose of any remaining Stock, but
only to the original prospective purchaser upon the terms and
conditions contained in the Offer; provided that if any Shareholder has
elected to become a Tag-Along Shareholder pursuant to Section 1.2(e)
above, then each such Tag-Along Shareholder shall have the right to
sell a designated portion of his Stock along with the Stock of the
Offeror on the terms described in the Offer Notice in accordance with
the procedures set forth in this Section 1.2(h). Upon the expiration of
the eighty (80) day period described in Section 1.2(e), if there
remains any Stock subject to the Offer that has not been purchased by
the Corporation or by the other Shareholders, the Offeror shall use his
best efforts to interest the prospective purchaser in purchasing all of
the remaining Offered Stock held by the Offeror subject to the Offer,
as well as all of the Stock designated by the Tag-Along Shareholders
(the total of all of these shares is hereafter offered to as the
"Available Stock"). If the prospective purchaser does not desire to
purchase the entire number of shares of Available Stock, then the
Offeror and each of the Tag-Along Shareholders shall be entitled to
sell to the prospective purchaser their pro rata portion of the Stock
to be purchased by the prospective purchaser ("Adjusted Stock"),
calculated for the Offeror and the Tag-Along Shareholders, in
accordance with the following formula for the Offeror and each
Tag-Along Shareholder:
Offeror's (or Tag Along
Shareholder's) shares of Stock Adjusted
______________________________ x Stock
Available Stock
<PAGE>
Any sale or disposition under Section 1.2(h) must occur within sixty
(60) days after the expiration of the last date of any option or right
to purchase; provided, however, that such sale or disposition shall not
be in violation of any state or federal securities laws and, provided
further, that each purchaser who acquires the same shall agree in
writing to be bound by all of the terms and conditions of this
Agreement, shall hold the Stock subject to the terms and conditions of
this Agreement, and shall thereupon be considered a "Shareholder" as
that term is used and defined herein. Any shares of Stock that are not
sold or disposed of within such sixty (60) day period shall again
become fully subject to the terms of the Agreement.
I.3 Transfer Contrary to Agreement. Any purported transfer in violation
of any provisions of this Agreement shall be void and ineffectual, shall not
operate to transfer any interest or title in the purported transferee, and shall
give the Corporation and the other Shareholders an option to purchase such Stock
in the manner and on the terms and conditions provided for herein.
ARTICLE II
PURCHASE UPON DEATH
II.1 Redemption.
(a) On the death or permanent disability (as determined by a physician
selected by the Board of Directors of the Corporation with the
concurrence of one (1) Fields Director and one (1) Lisiewski Director)
of any Shareholder (each referred to herein as the "Deceased
Shareholder"), the Corporation will purchase from the Deceased
Shareholder, his estate or trustee of the trust referred to in Section
1.1 (the "Trustee") of the Deceased Shareholder, and the Deceased
Shareholder, his estate or the Trustee will sell to the Corporation
and/or Fields no less stock of the Deceased Shareholder at the purchase
price per share set forth in Section 2.3 and upon the terms and
conditions set forth in Section 2.3, than will result in the payment by
the Corporation of an aggregate amount equal to the maximum amount
which, to the Deceased Shareholder and his estate, may be treated as a
distribution in full payment in exchange for stock under Section 303 of
the Internal Revenue Code of 1986, as amended ("Code"). In addition,
the Corporation may elect to redeem the balance of the Deceased
Shareholder's stock in accordance with this Section 2.1(a). In the
event that subsequent to the redemption, there is an adjustment in the
federal estate taxes payable by the estate of the Deceased Shareholder,
which increases the amount of such taxes, then the Corporation will
redeem and the estate of the Deceased Shareholder will sell that number
of additional shares of Stock then owned by the estate of the Deceased
Shareholder, which may be treated as a distribution in full payment in
exchange for stock under Section 303 of the Code.
(b) Notwithstanding the provisions of Section 2.1(a), in the event that
the Deceased Shareholder is a Permitted Transferee of Lisiewski, then
the shares of Stock of such Deceased Shareholder may be transferred to
a Permitted Transferee of Lisiewski without triggering any first
refusal rights of the Corporation or the other Shareholders described
in this Agreement.
<PAGE>
II.2 Remaining Shareholders' Obligation. To the extent that the
Corporation does not purchase all of the Stock of the Deceased Shareholder, the
remaining Shareholders shall purchase from the Deceased Shareholder or his
estate, and from the Permitted Transferees of the Deceased Shareholder, and the
Deceased Shareholder, his estate and the Permitted Transferee's thereof shall
sell to the remaining Shareholders, all shares of Stock held by them on the same
price and terms as were available to the Corporation in Section 2.1(a). Such
Stock may be purchased in such proportion as the Shareholders may agree among
themselves or, in the absence of an agreement, in the same proportion in which
the Stock owned by each of the Shareholders bears to all of the Stock held by
all of the Shareholders, excluding the Stock owned by the Deceased Shareholder,
his estate and the Permitted Transferees.
II.3 Payment of Purchase Price. With respect to any Stock of the
Deceased Shareholder being acquired by the Corporation, in accordance with
Section 2.1(a), the purchase price shall be paid in full in cash or cash
equivalent within one hundred twenty (120) days after the death (or
determination of permanent disability) of the Deceased Shareholder. With respect
to the Stock of the Deceased Shareholder and the Permitted Transferees of the
Deceased Shareholder being acquired by the remaining Shareholders pursuant to
Section 2.2, a minimum of fifty percent (50%) of the Purchase Price of the Stock
of the Deceased Shareholder and his Permitted Transferees being acquired shall
be paid by the purchaser thereof to the estate of the Deceased Shareholder and
the Permitted Transferees within one hundred twenty (120) days after the later
of: (i) the date of the death of the Deceased Shareholder, or (ii) the date of
the determination of the Purchase Price (the "Payment Date"). The remaining
portion of the Purchase Price, if any, shall be paid in five (5) equal
consecutive annual installments of principal together with interest thereon each
payable on the anniversary of the Payment Date, with such unpaid portion of the
Purchase Price bearing annual interest at the prime rate set forth in the Wall
Street Journal on the date of issuance of the promissory note described below.
Such obligation shall be evidenced by a promissory note to be delivered with the
initial payment.
II.4 Additional Terms of Promissory Note. The promissory note to be
delivered by the Corporation and/or any surviving Shareholder under Section 2.3
shall provide that the maker shall have the privilege of prepaying all or any
part thereof at any time with interest to the date of prepayment, that a default
in any payment when due shall cause the remaining unpaid balance to become due
and payable forthwith and shall further provide for the maker to pay all costs
and expenses of collection, including reasonable attorneys' fees. The
obligations of the maker under the note shall be secured by the Stock being
purchased.
II.5 Delivery of Stock. To the extent that the Purchase Price for the
Stock of the Deceased Shareholder has been paid in full in cash, the certificate
or certificates representing such Stock shall be delivered to the purchaser at
the closing of the purchase and sale. To the extent that such Stock serve as
security for payment of a promissory note, the certificate or certificates
representing such shares shall be delivered to the seller thereof, duly endorsed
in blank for transfer or accompanied by a duly executed stock power to be held
by such seller as security for the payment of the note until such time as the
note has been paid in full.
<PAGE>
ARTICLE III
PURCHASE UPON TRANSFER BY OPERATION OF LAW
III.1 Purchase Upon Operation of Law. In the event a Transfer of Stock
of any Shareholder is effected (and is not void as otherwise provided in this
Agreement) by operation of law (other than death or divorce as specifically
provided for in this Agreement) including, but not limited to, any bankruptcy
proceedings or any appointment of a receiver of the assets of such Shareholder
("Transferring Shareholder"), which proceeding or appointment is not terminated
within ninety (90) days of the date of such commencement or appointment, the
Transferring Shareholder shall send to the Corporation and the other
Shareholders, within five (5) days after such transfer, notice of such transfer
("Transfer Notice") that includes the name and address of the transferee of such
Stock ("Transferee").
III.2 Fields Option. Fields shall have the option to purchase, and the
Transferring Shareholder and his legal representatives (including, but not
limited to, any receiver or trustee in bankruptcy) shall have the obligation to
sell to Fields, all or any portion of the Stock of the Transferring Shareholder
that were transferred ("Transferred Stock") to the Transferee under Section 3.1.
Such option shall be exercised by sending written notice to the Transferring
Shareholder (unless prohibited by applicable law, in which case such notice
shall be sent to the trustee of the bankruptcy estate or to such other party as
the bankruptcy court may direct) and to the Transferee, with a copy to the other
Shareholders, and shall expire ninety (90) days after the Transfer Notice is
received by the Corporation and the other Shareholders.
III.3 Corporation's and Shareholders' Option. Upon the failure of
Fields to exercise its option to purchase the Transferred Stock, the
Shareholders (including Fields) and the Corporation shall have the option to
purchase and the Transferring Shareholder and his legal representatives,
including, but not limited to, any receiver or trustee in bankruptcy, shall have
the obligation to sell, all or any portion of the Transferred Stock that Fields
did not purchase at the same price and terms available to Fields. Such Stock may
be purchased in such proportion as the Shareholders and the Corporation may
agree among themselves or, in the absence of an agreement, in the same
proportion in which the Stock owned by each of the Shareholders bears to all of
the issued and outstanding Stock owned by all of the Shareholders, excluding the
Stock owned by the Transferee and any non-purchasing Shareholders. In the event
that all of the Shareholders desire to participate as described in the previous
sentence, resulting in their exercising the option to purchase all of the Stock,
the Corporation shall not participate in purchasing the Stock. Such option shall
be exercised by sending written notice thereof to the Transferee and the
Corporation and shall expire one hundred and twenty (120) days after the
Transfer Notice is received by the Corporation and the Shareholders.
III.4 Determination of and Payment of Purchase Price. The Purchase
Price to be paid by Fields, the Corporation and/or the other Shareholders, as
the case may be, for the Transferred Stock acquired pursuant to this Article III
shall be determined and shall be paid as set forth in Article V hereof.
III.5 Expiration of Options. If the Corporation and/or the Shareholders
fail to exercise their options to purchase all (and not less than all) of the
Transferred Stock prior to the expiration of their respective options, then all
of the Transferred Stock shall be retained by the Transferee or his legal
representative subject to the terms and conditions of this Agreement and such
Transferee or his legal representative shall thereupon be considered a
"Shareholder" as that term is used and defined herein. Such Transferee shall
execute such documents as are reasonably requested by the Corporation or the
Shareholders to evidence the above.
<PAGE>
ARTICLE IV
PURCHASE UPON DIVORCE
IV.1 Purchase Upon Divorce. In the event that all or any interest in
the Stock of the Corporation is awarded, granted or otherwise partitioned to the
spouse or former spouse of a Shareholder ("Former Spouse") pursuant to the terms
of a decree of divorce or any agreement between the parties pursuant to the
terms of a decree of divorce or property settlement, division, separation, or
divorce action (collectively, "Property Division"), the divorced Shareholder
("Divorced Shareholder") shall have the option to purchase, and such Former
Spouse shall have the obligation to sell, all or any portion of the Stock so
awarded to his Former Spouse. Such option shall be exercised by sending written
notice to the Former Spouse and shall expire sixty (60) days after the date of
the Property Division. The Purchase Price to be paid by the Divorced Shareholder
to the Former Spouse for such Stock shall be determined and paid as set forth in
Article V hereof. If the Divorced Shareholder fails to exercise his option to
purchase all of the Stock of the Former Spouse within the time period set forth
above or earlier elects not to make such purchase, the Divorced Shareholder
shall send to the Corporation and the other Shareholders notice of the Property
Division ("Divorce Notice"). Such Divorce Notice shall be sent within five (5)
days after the earlier of: (i) expiration of the option, or (ii) the election by
the Divorced Shareholder not to make such purchase.
IV.2 Fields Option. In the event that the Divorced Shareholder fails to
purchase all of the Stock awarded to the Former Spouse in the Property Division,
Fields shall have an option to purchase, and such Former Spouse shall have the
obligation to sell to Fields, all or any portion of such Stock as the Divorced
Shareholder failed to purchase at the same price and terms available to the
Divorced Shareholder. Fields shall exercise its option to so purchase by sending
written notice thereof to the Former Spouse and the Divorced Shareholder, with a
copy to the Corporation and the other Shareholders, and such option shall expire
thirty (30) days after the Divorce Notice is received by the Corporation and the
other Shareholders.
IV.3 Corporation and Shareholders' Option. In the event that the
Divorced Shareholder and Fields together fail to exercise their options to
purchase all of the Stock of the Former Spouse, the Shareholders (including
Fields) and the Corporation shall have the option to purchase, and such Former
Spouse shall have the obligation to sell, all or any portion of such Stock of
the Former Spouse as the Divorced Shareholder and Fields did not purchase
pursuant at the same price and terms available to the Divorced Shareholder and
Fields. Such Stock may be purchased in such proportion as the Shareholders and
the Corporation may agree among themselves or, in the absence of an agreement,
in the same proportion in which the Stock owned by each of the Shareholders
bears to all of the issued and outstanding Stock owned by all of the
Shareholders, excluding the Stock owned by the Former Spouse and the
non-purchasing Shareholders. In the event that all of the Shareholders desire to
participate as described in the previous sentence, resulting in their exercising
the option to purchase all of the Stock, the Corporation shall not participate
in purchasing the Stock. Such option shall be exercised by sending written
notice thereof to the Former Spouse, the Corporation and the Divorced
Shareholder and shall expire fifty (50) days after the Divorce Notice is
received by the Corporation and the other Shareholders.
IV.4 Determination of and Payment of Purchase Price. The Purchase Price
to be paid by Fields, the Corporation and/or the other Shareholders, as the case
may be, for the Stock of the Former Spouse acquired pursuant to this Article IV
shall be determined and paid as set forth in Article V hereof.
IV.5 Former Spouse Subject to this Agreement. If the Divorced
Shareholder, the Corporation and/or the other Shareholders fail to purchase all
(and not less than all) of the Stock of the Former Spouse prior to the
expiration of their respective options, then all of such Stock shall be retained
by the Former Spouse subject to the terms and conditions of this Agreement, and
such Former Spouse shall thereupon be considered a "Shareholder" as that term is
used and defined herein. The Former Spouse shall execute such documents as are
reasonably requested by the Corporation or the Shareholders to evidence the
above.
<PAGE>
ARTICLE V
DETERMINATION AND PAYMENT OF PURCHASE PRICE
V.1 Determination of Purchase Price. The Corporation, the Shareholders,
the estate, the Trustee, or the Former Spouse, as the case may be, who desire or
who are obligated to purchase or sell Stock pursuant to Articles II, III, or IV
hereof shall attempt within thirty (30) days after the Option Expiration Date to
agree upon the purchase price (the "Purchase Price") per share to be paid. For
purposes of this Agreement, the "Option Expiration Date" shall mean the date on
which all options relating to Stock have been exercised in full (or, in the
event of partial option exercises, the date on which any remaining options
relating to such Stock have expired or the holders of such options have given
notice to all other parties hereto of their intent not to exercise such
options). If no such agreement is reached within such time period, then the
Purchase Price which the Corporation and/or the Shareholders shall pay for each
share of Stock which they purchase shall be determined by an appraiser selected
by the Board of Directors. Such appraiser shall be selected with the concurrence
of at least one (1) Fields Director and one (1) Lisiewski Director.
V.2 Payment. With respect to any Stock to be acquired by the
Corporation and/or the Shareholders under Articles III or IV hereof, the
Purchase Price for such Stock shall be paid as follows:
(a) Ten percent (10%) of the Purchase Price shall be paid in
cash within ninety (90) days after the Option Expiration Date (the
"Initial Payment Date").
(b) The remaining ninety percent (90%) of the Purchase Price
shall be paid in no more than five (5) equal consecutive annual
installments of principal together with interest thereon each payable
on the anniversary of the Initial Payment Date, with such unpaid
portion bearing interest at the prime rate plus one percent (1%) as
announced in the Wall Street Journal on the date of issuance of the
promissory note described below, commencing as of the Initial Payment
Date. Such obligation shall be evidenced by a promissory note to be
delivered by the applicable purchaser with the initial payment.
V.3 Terms of Promissory Note. The promissory note referred to in
Section 5.2 above shall provide that the maker shall have the privilege of
prepaying all or any part thereof at any time with interest to the date of
prepayment, that a default in any payment when due shall cause the remaining
unpaid balance to become due and payable forthwith and shall further provide for
the maker to pay all costs and expenses of collection, including reasonable
attorneys' fees. The obligations of the maker under the note shall be secured by
the Stock being purchased.
V.4 Delivery of Stock. To the extent that the Purchase Price for the
Stock being purchased under Articles III or IV hereof has been paid in full in
cash, the certificate or certificates representing such Stock shall be delivered
to the purchaser at the closing of the purchase and sale. To the extent that
such Stock serve as security for payment of a promissory note, the certificate
or certificates representing such Stock shall be delivered to the seller
thereof, duly endorsed in blank for transfer or accompanied by a duly executed
stock power, to be held by such seller as security for the payment of the note
until such time as the note has been paid in full.
<PAGE>
ARTICLE VI
INSURANCE
VI.1 Life Insurance. The Board of Directors of the Corporation shall
from time to time consider the need to carry insurance on the lives of the
Shareholders in order to fund its obligation to purchase their Stock upon their
death and to the extent the resolution of the Board of Directors references that
such policies are acquired pursuant to this Agreement such policies shall be
governed by this Article VI.
VI.2 Incidents of Ownership. The Corporation shall be the beneficiary
of all life insurance policies on the Shareholder's lives and shall retain
possession of such policies. The Corporation shall be the sole owner of such
policies subject to this Agreement and it is intended that the Corporation shall
have all incidents of ownership therein. Accordingly, the Corporation shall have
the exclusive right to receive all dividends from said policies, the right to
borrow on said policies and the right to exercise any other privilege or option
accruing to the owner of such policies. However, it is expressly understood and
agreed that the Corporation shall not exercise its right to change the
beneficiary arrangements under such policies or borrow on any policy owned by it
without giving thirty (30) days' prior written notice thereof to the appropriate
Shareholder.
VI.3 Payment of Premiums. The Corporation shall pay all premiums
falling due on all policies subject to this Article VI and, to the extent that
such premiums exceed the annual increase in the cash surrender value, the
Corporation shall treat such payments as a corporate expense, and such expense
shall enter into the determination of the net profit or loss of the Corporation
as would any other corporate expense. In case any premium is not paid within
twenty (20) days after its due date, the appropriate Shareholder shall have the
option to pay such premium on behalf of the Corporation. Such payment shall be
considered a loan to the Corporation and the Shareholder shall be entitled to
recover such loan from the Corporation. If such Shareholder does not exercise
such option within said period, the remaining Shareholders, joint or severally,
shall have the option to pay such premium on behalf of the Corporation. Such
payment shall constitute a loan to the Corporation, and such Shareholder(s)
shall be entitled to recover such loan from the Corporation.
VI.4 Right to Purchase Policies. In the event that a Shareholder ceases
to be a party to this Agreement by selling or otherwise disposing of all of his
Stock, the former Shareholder shall have the right to purchase from the
Corporation the insurance policies on his life for a price equal to the cash
surrender value of the policies at the date of such termination. The price shall
be paid by the former Shareholder contemporaneously with the delivery by the
Corporation of the policies to such Shareholder, and the Corporation shall
execute all necessary instruments of transfer. In the event any policies of
insurance subject to the foregoing option are not so purchased, such policies
will cease to be subject to the terms of this Agreement.
<PAGE>
ARTICLE VII
BOARD OF DIRECTORS; OFFICERS
VII.1 Number of Directors. The Shareholders agree that the number of
directors of the Corporation shall be five (5) and that such number may not be
increased or decreased without the affirmative vote of each Shareholder.
VII.2 Designated Directors. The Shareholders covenant and agree that
they shall vote their Stock in such a manner as to nominate and elect (i) two
persons designated by Fields (the "Fields Directors"), (ii) two persons
designated by Lisiewski (the "Lisiewski Directors"), and (iii) one person
recommended by the four chosen as aforesaid.
VII.3 Quorum of Directors. A majority of the directors shall constitute
a quorum at a meeting of the directors provided that one (1) Lisiewski Director
and one (1) Fields Director are present for purposes of determining quorum.
Business may be continued after withdrawal of enough directors to leave less
than a quorum present at any such meeting. The affirmative vote of a majority of
the directors at a meeting at which a quorum is present shall be the act of the
Board of Directors. This voting requirement shall apply to all matters before
the directors. Any action that may be taken at any meeting of the directors, may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing setting forth the action so taken is signed by
all of the directors.
VII.4 Appointment of Officers. The initial designated officers of the
Corporation, to serve until their successors have been duly elected and
qualified, shall be as follows:
President & CEO: Larry A. Hodges
Vice President: Pat Knotts
Treasurer: L. Tim Pierce
Vice President
and Secretary: Michael R. Ward
Each of the officers shall have the respective duties and responsibilities set
forth in the Corporation's Amended and Restated Bylaws.
VII.5 Management. Certain management functions of the Corporation shall be
performed by Mrs. Fields' Original Cookies, Inc. ("MFOC"), pursuant to that
certain Management Agreement of even date by and between MFOC and the
Corporation. Fields shall cause MFOC, one of its affiliated companies, to enter
into the Management Agreement.
ARTICLE VIII
EXTRAORDINARY CORPORATE ACTIONS
VIII.1 The following actions of the Corporation shall require the
affirmative vote of at least one of the Lisiewski Directors and one of the
Fields Directors:
(a) The Corporation or any subsidiary obtaining or permitting
to exist, any loan, advance, or other borrowing, whether secured or
unsecured or in the ordinary course of business of the Corporation.
(b) The Corporation or any subsidiary creating any security
interest or lien against itself or any of its assets.
(c) The issuance or sale of any security of the Corporation or
any subsidiary including, without limitation, any share, option,
warrant, bond, note, debenture, or other instrument convertible into
any of the foregoing.
(d) Any amendment to the articles of incorporation, bylaws, or
other organizational documents of the Corporation or any subsidiary.
<PAGE>
(e) The sale of all or substantially all of the assets of the
Corporation or any subsidiary, or the merger, consolidation, or other
corporate reorganization of the Corporation or any subsidiary of the
Corporation in any single or series of related transactions.
(f) The Corporation or any subsidiary thereof guaranteeing or
becoming liable in any way as a surety, endorser, or accommodation
endorser or otherwise for debts or obligations of any other person or
entity, other than in the ordinary course of business.
(g) The declaration or payment of any dividend either in cash,
stock of the Corporation or any subsidiary; or the redemption or
retirement or purchase of any shares of Stock, or any Subsidiary's
stock.
(h) The commencement of voluntary bankruptcy or insolvency
proceedings by the Corporation.
(i) Approval of the budgets of the Corporation.
(j) The dissolution, liquidation, cessation of business, or
winding up of the Corporation.
(k) The acquisition of the assets, stock or other equity of an
entity engaged in the selling or franchising of pretzels (whether
retail or wholesale).
VIII.2 In addition to the foregoing, the Corporation hereby grants to
each Shareholder a preemptive right to purchase additional shares of Stock or
other securities of the Corporation, prior to their issuance or sale to any
third party. Such right shall be senior to any other preemptive rights that may
be granted by the Corporation to any third party. To the extent that a
Shareholder does not elect to invoke his preemptive rights, the remaining
Shareholders shall be entitled to share pro rata in such Shareholder's
preemptive rights. This preemptive right shall terminate with respect to a
Shareholder when such Shareholder is no longer a shareholder of the Corporation.
ARTICLE IX
FIELDS AS FRANCHISOR
Fields hereby covenants and agrees on behalf of itself and its
Affiliates that it will only engage in the selling or franchising of pretzels
(whether retail or wholesale) through the Corporation. Notwithstanding the
forgoing, Fields and its Affiliates shall not be precluded from the continuation
of its pretzel franchise operations existing on or before the date of this
Agreement.
<PAGE>
ARTICLE X
ADDITIONAL SHAREHOLDER MATTERS
X.1 Loan to the Corporation. If the Board of Directors determines,
pursuant to Section 8.1(k) to acquire all or substantially all of the assets,
stock, or other equity of a retail pretzel business, and determines that the
Corporation has insufficient funds available for such an acquisition, then
Fields and Lisiewski hereby agree to loan such funds to the Corporation for the
purpose of the acquisition, subject to the following conditions:
(a) To the extent that third party financing is unavailable as
determined by the Board of Directors, each of Fields and Lisiewski
shall loan (a "Fields Loan" or a "Lisiewski Loan") to the Corporation
such funds as are required to make the acquisition, in proportion to
their ownership of Stock in the Corporation;
(b) To the extent that Lisiewski lacks the financial resources to make
the Lisiewski Loan, as reasonably determined by the Board of Directors
pursuant to Section 8.1(k), then Fields shall make the Lisiewski Loan
to the Corporation; and
(c) With respect to Fields making the Lisiewski Loan to the
Corporation, interest thereon shall be payable to Fields on the
Lisiewski Loan at the prime rate as announced in the Wall Street
Journal on the date of the loan plus 7%; provided, that repayment of
the principal of the loan shall be paid to Fields from dividends
payable on his Stock, and from bonuses payable pursuant to his
Employment Agreement with the Corporation.
X.2 Acquisition of Stock from Lisiewski. Lisiewski and Fields hereby
covenant and agree that Fields shall acquire 4 shares of Stock held by Lisiewski
in the Corporation on or before January 9, 1998, but no earlier that January 2,
1998. The purchase price shall be $75,000 per share and shall be evidenced by a
Stock Purchase Agreement, in the form attached hereto as Exhibit A. Lisiewski
and Fields acknowledge that performance of their obligations hereunder
constitutes sufficient consideration for agreement of Lisiewski and Fields set
forth in this section.
ARTICLE XI
PRINCIPAL OFFICE
Principal Office. No later than October 2, 1997, the principal office
of the Corporation shall be relocated to 462 West Bearcat Drive, Salt Lake City,
UT, 84115, and the present office of the Corporation in Pennsylvania shall be
closed.
<PAGE>
ARTICLE XII
MISCELLANEOUS
XII.1 Stock Acquired Under Agreement. So long as this Agreement is in
effect, any Stock acquired by any person shall be subject to the terms hereof,
and any party not presently a Shareholder receiving or purchasing Stock of the
Corporation shall be required, as a condition precedent to such receipt or
purchase, to agree in writing (by executing a counterpart of the document
attached hereto as Exhibit B) to be bound by all the terms of this Agreement in
the same manner and to the same extent as if he or she were a party hereto.
XII.2 Shareholder Representations. Lisiewski hereby represents and
warrants that: (i) he has delivered to Fields the resignations of all members of
the Board of Directors of the Corporation holding office immediately prior to
the execution hereof; (ii) the shares of Common Stock identified as issued and
outstanding in the second recital of this Agreement are the only shares of
Common Stock outstanding on the date hereof; (iii) there is not currently in
force any shareholders, co-sale, buy-sell or other similar agreement with
respect to capital stock of the Corporation (except for written agreements with
respect to Preferred Stock that have been made available to Fields); (iv) none
of the actions that the Corporation is authorized or required to take under this
Agreement shall, if taken by the Corporation, breach any agreement, contract,
regulation or law enforceable against Corporation, or its agents, successors or
assigns, by any third party, including, without limitation, any franchisee or
area developer of the Corporation. Each Shareholder hereby represents and
warrants that they have read and approved the Bylaws and Articles of
Incorporation of the Corporation, the Stock Acquisition Agreement entered into
among Lisiewski, Fields, and the Corporation dated September 2, 1997, and all
Related Transaction Documents identified therein.
XII.3 Share Certificates. There shall be included on the stock
certificates issued to each Shareholder (including any person who becomes a
Shareholder after the date hereof), in addition to any other legend required by
the Corporation, substantially the following provision:
The shares represented by this certificate are subject to certain
conditions and restrictions as to transfer under the terms of a
Shareholders Agreement entered into by this Corporation and its
shareholders, dated as of September 2, 1997, a true and correct copy of
which is on file at the principal place of business of the Corporation.
Thereafter, the certificates shall be delivered to the Shareholders, who shall,
subject to the terms of this Agreement, be entitled to exercise all rights of
ownership in such Stock. All Stock hereinafter issued to the Shareholders shall
bear the same legend.
<PAGE>
XII.4 Termination. The terms and provisions of this Agreement shall
terminate upon the occurrence of any of the following events:
(a) Upon the receivership, bankruptcy or dissolution of the
Corporation;
(b) Upon the mutual written agreement of all parties who are
then subject to the terms hereof;
(c) With respect to any single Shareholder, upon the transfer
by such Shareholder of all of his Stock in accordance with the terms
and conditions of this Agreement such that he no longer owns directly
or indirectly any Stock in the Corporation that are subject to this
Agreement; or
(d) Upon the happening of the following events as contemplated
by that certain Exchange Agreement between Fields and Lisiewski of even
date herewith: an exchange of Lisiewski's Common Stock in the
Corporation for securities of Fields or an Affiliate of Fields (the
"Exchange Shares"), which Exchange Shares shall be entitled to the
benefits of a Registration Rights Agreement between Fields and
Lisiewski of even date herewith.
In the event of the termination of this Agreement other than as set forth in
Section 8.3(c), the outstanding Stock of the Corporation shall be free of any
restrictions imposed by this Agreement. Each Shareholder shall surrender to the
Corporation the certificates for his Stock, and the Corporation shall issue to
him in lieu thereof new certificates for an equal number of Stock without the
legend set forth in Section 12.3.
XII.5 Benefit. This Agreement shall be binding upon and inure to the
benefit of the successors, assigns, personal representatives, heirs and legatees
of the respective parties hereto.
XII.6 Entire Agreement; Waiver. This Agreement contains the entire
agreement of the parties hereto with respect to the subject matter hereof and no
modification, amendment or change of any term or provision of this Agreement
shall be valid or binding unless the same is in writing and signed by all the
parties hereto. No waiver of any of the terms of this Agreement shall be valid
unless signed by the party against whom such waiver is asserted and a waiver at
any time of any of the terms of this Agreement shall not be construed as a
waiver at any subsequent time of the same terms.
XII.7 Notices. Any notice, demand, offer, or other written instrument
required or permitted to be given, made or sent hereunder shall be in writing
and may be sent by personal delivery, overnight courier, registered or certified
United States mail, postage prepaid, return receipt requested, to all required
parties simultaneously at the principal office of the Corporation and at their
respective addresses as set forth in the shareholder records of the Corporation.
Any notice required to be given, made or sent to the estate of any Deceased
Shareholder may be signed and sent, in like manner, to the address of such
Deceased Shareholder and the Trustee, (if applicable). Any person to receive a
notice hereunder shall have the right to change the place to which any such
notice shall be sent by a similar notice sent in like manner to all of the other
parties hereto. Except as otherwise provided herein, all notices sent in the
United States mail in the manner set forth above shall be deemed given or
received on the earlier of actual receipt or four (4) days after being placed in
the United States mail, or in the case of overnight courier, the day after
delivery to the courier service.
<PAGE>
XII.8Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Pennsylvania.
XII.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one agreement.
XII.10 Severability. In the event any one (1) or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
XII.11 Attorneys' Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and other
disbursements in addition to any other relief to which such party may be
entitled.
XII.12 Terminology. With respect to terminology in this Agreement, each
number (singular or plural) will include all numbers and each gender (male,
female or neuter) will include all genders. The title of the Sections and the
Articles in this Agreement will have no effect and will neither limit nor
amplify the provisions hereof.
XII.13 Submission to Jurisdiction. Each of the parties submits to the
jurisdiction of any state or federal court sitting in Salt Lake City, Utah, in
any action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other party with respect thereto. Each
party agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
XII.14 Arbitration. All disputes hereunder shall be resolved by binding
arbitration in Salt Lake City, Utah conducted in accordance with the terms of
this arbitration clause. Arbitrations conducted pursuant to this Agreement,
including selection of arbitrators, shall be administered by the American
Arbitration Association (the "Administrator") pursuant to the Commercial
Arbitration rules of the Administrator. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction. Any party who fails
to submit to binding arbitration following a lawful demand by the opposing party
shall bear all costs and expenses, including reasonable attorney's fees,
incurred by the opposing party in compelling arbitration of any dispute
hereunder.
<PAGE>
IN WITNESS WHEREOF, the Corporation and the Shareholders have executed
this Agreement personally or has caused this Agreement to be executed by its
duly authorized representative.
PRETZEL TIME, INC.
By:/s/Martin E. Lisiewski
Martin E. Lisiewski, President
MRS. FIELDS' HOLDING COMPANY, INC.,
/s/Herbert S. Winokur
Herbert S. Winokur, Manager
/s/Martin E. Lisiewski
Martin E. Lisiewski, Individually
<PAGE>
EXHIBIT B
Pretzel Time, Inc.
Shareholders Agreement
The undersigned hereby agrees to all of the terms and conditions of the
be bound by the terms and conditions of the Shareholders Agreement of Pretzel
Time, Inc., a Pennsylvania corporation, dated as of September 2, 1997.
Individual Shareholder [OR] Entity Shareholder
Signature Signature
Print Name Print Name
Date Print Title
Date
PRETZEL TIME, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of September 2, 1997,
by and between Pretzel Time, Inc., a Pennsylvania corporation (the "Company"),
and Martin E. Lisiewski (the "Employee").
In consideration of the promises and mutual covenants contained
herein, the parties hereto agree as follows:
<PAGE>
1. Employment; Location
The Company hereby employs Employee and Employee hereby accepts
such employment and agrees to perform his duties at such location(s) as may be
mutually agreed between the parties.
2. Term
The Company agrees to employ Employee and Employee agrees to accept
employment with the Company commencing on the date of this Agreement and
terminating on the earlier of any of the following events:
2.1 the termination of this Agreement pursuant to Section 6 below; or
2.2 the termination of the Shareholders Agreement of even date entered into by
and among
Employee, Mrs. Fields' Holding Company, Inc. and the Company.
3. Duties
Employee shall be an employee of the Company. Employee shall
diligently execute his duties to the Company. Those duties include attending
Board of Directors' meetings in person or by telephone, counseling with the
other executive officers of the Company and performing such other duties
assigned to him by the Board of Directors of the Company. No material change in
scope of employment shall occur after the date hereof without the mutual consent
of the Parties. Employee shall devote such time, attention, skills and efforts
as mutually agreed upon for the discharge of Employee's obligations in
accordance with this Agreement. Employee shall perform such duties subject to
the general supervision and control of the Company's Board of Directors.
4. Compensation and Benefits
The Company shall pay Employee, and Employee accepts as full
compensation for all services to be rendered to the Company, the following
compensation and benefits:
4.1 Salary. During the term of this Agreement, the Company shall
pay Employee a monthly salary of Sixteen Thousand Six Hundred Sixty-Six and
67/100 Dollars ($16,666.67). Employee's salary will be payable in equal
installments at least monthly on the last day of each month.
4.2 Bonus. The Company shall pay to Employee a monthly bonus
calculated in accordance with the formula therefore set forth in the Budget (as
defined in that certain Management Agreement of even date between Mrs. Fields'
Original Cookies, Inc. and the Company).
4.3 Additional Benefits. The Company at its expense shall continue
those benefits as Employee is currently receiving from the Company. The Company
shall satisfy any deficiency owed upon termination of the lease of Employee's
automobile, provided that this sentence will not apply in the event that
Employee will purchase the vehicle at the end of the lease term.
4.4 Vacation, Sick Leave, and Holidays. Employee shall be entitled
to an aggregate of up to three (3) weeks leave for vacation each calendar year
at full pay or such increased leave as may be allowed by the Company's Board of
Directors for members of management generally.
4.5 Deductions. The Company shall have the right to deduct from the
compensation due to Employee hereunder any and all sums required for social
security and withholding taxes and for any other federal, state, or local tax or
charge which may be hereafter enacted or required by law as a charge on the
compensation of Employee.
<PAGE>
5. Business Expenses
The Company shall promptly reimburse Employee for reasonable
out-of-pocket expenses he incurs for meals, lodging and travel incurred in
attending meetings of the Board of Directors or otherwise incurred at the
request of the Company. Such expenses shall be reimbursed to the extent they are
consistent with the Company's written travel policies. The Employee shall
furnish to the Company adequate records and other documentary evidence required
by all federal and state statutes and regulations issued by the appropriate
taxing authorities for the substantiation of each such business expense as a
deduction on the federal or state income tax returns of the Company.
6. Termination
6.1 Termination by Death or Disability. This Agreement and
Employee's employment hereunder shall terminate upon Employee's death or
permanent disability. Permanent disability shall be determined by a physician
selected by the board of directors of the Company (with the concurrence of one
(1) director previously selected by Employee, and director previously selected
by Mrs. Fields' Holding Company, Inc.).
6.2 Termination for Cause. This Agreement is immediately terminable
for "cause" (as defined below) upon written notice from the Company to Employee.
As used in this Agreement, "cause" shall include (i) Employee's material breach
of his duties and obligations under this Agreement, (ii) fraudulent, grossly
negligent or criminal activities, or (iii) any activity that causes substantial
harm to the Company, its reputation, or to its directors or employees. A
determination of whether Employee's actions justify termination for cause, and
the date on which such termination is effective, shall be made by arbitration
pursuant to Section 13 below.
6.3 Termination by Employee. Employee may terminate this Agreement
and his employment with the Company upon thirty (30) days prior written notice
to the Company.
6.4 Effect of Termination. In the event Employee's employment is
terminated hereunder, all obligations of the Company and Employee under this
Agreement shall cease except as provided in Sections 7 through 17 below. Upon
such termination, Employee or his representative or estate shall be entitled to
receive only the compensation, benefits, and reimbursement earned or accrued by
him under Sections 4 and 5 above prior to the date of termination, computed pro
rata up to and including the date of termination, but shall not be entitled to
any further compensation, benefits, or reimbursement from such date, other than
as required by law.
7. Covenant Not to Compete
7.1 Covenant. Employee hereby agrees that, while he is employed by
the Company pursuant to this Agreement, and, in any event, during the three-year
period following the termination of his employment hereunder, he will not
directly or indirectly compete (as defined in Section 7.2 below) with the
Company in the United States or internationally. The Parties hereby stipulate
that the three-year time period and the world-wide territorial restriction are
necessary to protect the Company's substantial investment in marketing,
feasibility studies, and servicing both current and expansion markets.
<PAGE>
7.2 Direct and Indirect Competition. As used herein, the phrase
"directly or indirectly compete" shall include owning, managing, operating or
controlling, or participating in the ownership, management, operation or control
of, or being connected with or having any interest in, as a stockholder,
director, officer, employee, agent, consultant, assistant, advisor, sole
proprietor, partner or otherwise, any business (other than the Company's) which
is the same as, or similar to, or competitive with any retail Pretzel and/or
cookie business conducted or to be conducted by the Company or any of the
Company's subsidiaries; provided, however, that this prohibition shall not apply
to ownership of less than one percent (1%) of the voting stock in companies
whose stock is traded on a national securities exchange or in the
over-the-counter market. "Directly or indirectly compete" shall also include:
(i) the hiring away of employees of the Company whether to work for or with
Employee, or otherwise, and (ii) inducing any customer of Company to terminate
its business relationship with Company in favor of a third party, whether or not
Employee is an employee, officer, director, consultant to, shareholder or
otherwise, of such third party. The parties agree that "directly or indirectly
compete" shall not include performance by Employee of his rights or obligations
pursuant to that certain Area Developer Agreement and Franchise Agreement
between the Parties of even date herewith.
7.3 Enforceability. If any of the provisions of this Section 7 is
held unenforceable, the remaining provisions shall nevertheless remain
enforceable, and the court making such determination shall modify, among other
things, the scope, duration, or geographic area of this Section to preserve the
enforceability hereof to the maximum extent then permitted by law. In addition,
the enforceability of this Section is also subject to the injunctive and other
equitable powers of a court as described in Section 11 below.
8. Confidential Information
8.1 Employee acknowledges that as a result of his past and
continuing employment or consultancy with the Company, he possesses and will
develop, discover, have access to, and become acquainted with, technical,
financial, operational, marketing, personnel, and other proprietary,
confidential or trade secret information relating to the present or contemplated
products or the conduct of business of the Company which is of a confidential
and proprietary nature ("Confidential Information"). Confidential Information
shall also include all "trade secrets" as defined in the Uniform Trade Secrets
Act, Utah Code Ann. " 13-24-1 et seq. (1996, as amended).
8.2 Employee agrees that all files, records, documents, and the
like relating to such Confidential Information, whether prepared by him or
otherwise coming into his possession, shall remain the exclusive property of the
Company, and Employee hereby agrees to promptly disclose such Confidential
Information to the Company upon request and hereby assigns to the Company any
rights which he may acquire in any Confidential Information. Employee further
agrees not to disclose or use any Confidential Information and to use his best
efforts to prevent the disclosure or use of any Confidential Information either
during the term of his employment or consultancy or at any time thereafter,
except as may be necessary in the ordinary course of performing his duties under
this Agreement. Upon termination of Employee's employment or consultancy with
the Company for any reason, Employee shall promptly deliver to the Company all
materials, documents, data, equipment, and other physical property of any nature
containing or pertaining to any Confidential Information, and Employee shall not
take from the Company's premises any such material or equipment or any
reproduction thereof.
<PAGE>
9. Inventions
9.1 Disclosure of Inventions. Employee hereby agrees that if, in
the scope of his employment relationship with the Company, he conceives, learns,
makes or first reduces to practice, either alone or jointly with others, any
"Employment Inventions" (as defined in Section 9.3 below) while he is employed
by the Company, he will promptly disclose such Employment Inventions to the
Company or to any person designated by it. Employee acknowledges the prior
invention of a pretzel twisting machine, the rights to which are owned by the
Company.
9.2 Ownership, Assignment, Assistance, and Power of Attorney. All
Employment Inventions (as defined in Section 9.3 below) shall be the sole and
exclusive property of the Company, and the Company shall have the right to use
and to apply for patents, copyrights, or other statutory or common law
protection for such Employment Inventions in any country. Employee hereby
assigns to the Company any rights which he may acquire in such Employment
Inventions. Furthermore, Employee agrees to assist the Company in every proper
way at the Company's expense to obtain patents, copyrights, and other statutory
common law protections for such Employment Inventions in any country and to
enforce such rights from time to time. Specifically, Employee agrees to execute
all documents as the Company may desire for use in applying for and in obtaining
or enforcing such patents, copyrights, and other statutory or common law
protections together with any assignments thereof to the Company or to any
person designated by the Company. Employee's obligations under this Section 9
shall continue beyond the termination of his employment under this Agreement,
but the Company shall compensate Employee at a reasonable rate after such
termination for the time which Employee actually spends at the Company's request
in rendering such assistance. In the event the Company is unable for any reason
whatsoever to secure Employee's signature to any lawful document required to
apply for or to enforce any patent, copyright, or other statutory or common law
protections for such Employment Inventions, Employee hereby irrevocably
designates and appoints the Company and its duly authorized officers and agents
as his agents and attorneys-in-fact to act in his stead to execute such
documents and to do such other lawful and necessary acts to further the issuance
and prosecution of such patents, copyrights, or other statutory or common law
protection, such documents or such acts to have the same legal force and effect
as if such documents were executed by or such acts were done by Employee.
<PAGE>
9.3 Employment Inventions. The definition of Employment Invention
as used in this Section 9 is the definition found in Section 2 of the Utah
Employment Inventions Act, Utah Code Ann. " 34-39-2 (1996 as amended) as
follows:
"Employment invention" means any invention or part thereof
conceived, developed, reduced to practice, or created by an
employee which is:
(a) conceived, developed, reduced to practice, or created by the employee:
(i) within the scope of his employment;
(ii) on his employer's time; or
(iii) with the aid, assistance, or use of any of his
employer's property, equipment, facilities,
supplies, resources, or intellectual property;
(b) the result of any work, services, or duties performed by an employee for his
employer;
(c) related to the industry or trade of the employer; or
(d) related to the current or demonstrably anticipated
business, research, or development of the employer.
9.4 No Prior Inventions. Employee hereby represents and warrants
that there are no inventions which he has conceived, learned, made, or first
reduced to practice, either alone or jointly with others, prior to his
employment with the Company which would be an Employment Invention if Employee
had worked for the Company in its business as presently contemplated at the time
such inventions were conceived, learned, made, or first reduced to practice,
other than as provided in Section 9.1, above.
9.5 Inventions of Third Parties. Employee shall not disclose to the
Company, use in the course of his employment, or incorporate into the Company's
products or processes any confidential or proprietary information or inventions
that belong to a third party, unless the Company has received authorization from
such third party and Employee has been directed by the President to do so.
10. No Conflicts
Employee hereby represents that, to the best of his knowledge, his
performance of all the terms of this Agreement and his work as an employee or
consultant of the Company does not breach any oral or written agreement which he
has made prior to his employment with the Company.
11. Equitable Remedies
Employee acknowledges and agrees that the breach or threatened
breach by him of certain provisions of this Agreement, including without
limitation Sections 7, 8, and 9 above, would cause irreparable harm to the
Company for which damages at law would be an inadequate remedy. Accordingly,
Employee hereby agrees that in any such instance the Company shall be entitled
to seek injunctive or other equitable relief in addition to any other remedy to
which it may be entitled.
12. Submission to Jurisdiction.
Each of the parties submits to the jurisdiction of any state or
federal court sitting in Salt Lake City, Utah, in any action or proceeding
arising out of or relating to this Agreement and agrees that all claims in
respect of the action or proceeding may be heard and determined in any such
court, to the extent such disputes are not resolved pursuant to Section 11 or
Section 13, hereof. Each party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other party with respect thereto. Each party
agrees that a final judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
<PAGE>
.3. Arbitration
Except for equitable relief pursuant to Section 11, all disputes
hereunder shall be resolved by binding arbitration in Salt Lake City, Utah
conducted in accordance with the terms of this arbitration clause. Arbitrations
conducted pursuant to this Agreement, including selection of arbitrators, shall
be administered by the American Arbitration Association (the "Administrator")
pursuant to the Commercial Arbitration rules of the Administrator. Judgment upon
any award rendered hereunder may be entered in any court having jurisdiction.
Any party who fails to submit to binding arbitration following a lawful demand
by the opposing party shall bear all costs and expenses, including reasonable
attorney's fees, incurred by the opposing party in compelling arbitration of any
dispute hereunder.
14. Assignment
This Agreement is for the unique personal services of Employee and
is not assignable or delegable in whole or in part by Employee without the
consent of the Board of Directors of the Company. This Agreement may be assigned
or delegated in whole or in part by the Company to an affiliate thereof and,
with the consent of the Employee, to a third party. In such case, the terms of
this Agreement shall inure to the benefit of, be assumed by, and be binding upon
the entity to which this Agreement is assigned.
15. Waiver or Modification
Any waiver, modification, or amendment of any provision of this
Agreement shall be effective only if in writing in a document that specifically
refers to this Agreement and such document is signed by the parties hereto.
16. Entire Agreement
This Agreement constitutes the full and complete understanding and
agreement of the parties hereto with respect to the subject matter covered
herein and supersedes all prior oral or written understandings and agreements
with respect thereto.
17. Severability
If any provision of this Agreement (other than Section 7) which
provides a separate mechanism in the event of unenforceability) is found to be
unenforceable by a court of competent jurisdiction, the remaining provisions
shall nevertheless remain in full force and effect.
18. Notices
Any notice required hereunder to be given by either party shall be
in writing and shall be delivered personally or sent by certified or registered
mail, postage prepaid, or by private courier, with written verification of
delivery, or by facsimile or other electronic transmission to the other party.
Notices to the Company shall be sent to the offices of the Company, and notices
to the Employee shall be sent to the address of the Employee shown in the
records of the Company, or to such other address or telephone number as either
party may designate from time to time according to this provision. A notice
delivered personally or by facsimile or electronic transmission shall be
effective upon receipt. A notice delivered by mail or by private courier shall
be effective on the third day after the day of mailing.
<PAGE>
19. Governing Law
This Agreement shall be governed by and construed in accordance
with the laws of the State of Utah.
IN WITNESS WHEREOF, Employee has signed this Agreement personally
and the Company has caused this Agreement to be executed by his duly authorized
representative.
PRETZEL TIME, INC., a Pennsylvania
corporation
By:/s/Larry A. Hodges
Larry A. Hodges, President
EMPLOYEE
By:/s/Martin E. Lisiewski
Martin E. Lisiewski
AREA DEVELOPER AGREEMENT
TABLE OF CONTENTS
l. Acknowledgements....................................................2
2. Organization........................................................3
3. Appointment and Acceptance of Area Developer........................4
4. Area Developer's Obligations, Duties and Responsibilities...........5
5. Pretzel Time's Responsibilities.....................................5
6. Territory...........................................................8
7. Reservation of Rights...............................................9
8. Area Developer's Fee...............................................11
9. Failure to Meet Development Obligations............................12
10. Establishment of Company-Owned Stores..............................13
11. Area Developer Expenses............................................14
12. Term...............................................................14
13. Execution of Franchise Agreement...................................14
14. Management of Area Developer Business..............................15
15. Insurance..........................................................16
16. Records and Reports................................................17
17. Change of Ownership................................................18
18. Termination........................................................19
19. Termination For No Cause...........................................21
20. Further Assurances.................................................22
21. Noncompetition.....................................................22
22. Confidentiality....................................................22
23. Restrictions.......................................................23
24. Exclusive Relationship.............................................24
25. Restricted Person..................................................26
26. Marks..............................................................26
27. Refrain from Disparagement.........................................28
28. Limitation of Liability............................................28
29. Independent Contractors............................................28
30. No Liability For Acts of Other Party...............................29
31. Taxes..............................................................29
32. Indemnification....................................................30
33. Injunctive Relief..................................................31
34. Rights of Parties are Cumulative...................................31
35. Costs and Attorneys' Fees..........................................31
36. Continuing Obligations.............................................32
37. Grant Of Franchisees...............................................32
38. Modification.......................................................32
39. Pretzel Time's Option To Purchase Pretzel Time Units...............32
40. Death or Disability of Franchisee. . . . . . . . . . . . . .. . .. 33
41. Public or Private Offerings . . . . . . . . . . . . . . . . . . . 33
42. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
<PAGE>
43. Restrictive Covenants. . . . . . . . . . . . . . . . . . . . . . ..35
44. No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 35
45. Rights of Parties are Cumulative . . . . . . . . . . . . . . . . 36
46. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . 36
47. Waiver of Punitive Damages . . . . . . . . . . . . . . . . . . . 37
48. Exclusive Jurisdiction . . . . . . . . . . . . . . . . . . . . . 37
49. Limitations of Claims . . . . . . . . . . . . . . . . . . . . . . 38
50. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 38
51. Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
52. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
53. Public and Private Offering . . . . . . . . . . . . . . . . . . . 38
54. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 39
55. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
56. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 40
57. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 40
58. Time Is of The Essence . . . . . . . . . . . . . . . . . . . . . 40
59. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 40
60. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
61. Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
62. Invalid or Unenforceable Provisions . . . . . . . . . . . . . . . 45
63. National Contracts . . . . . . . . . . . . . . . . . . . . . . . 46
64. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
PRETZEL TIME, INC.
AREA DEVELOPER AGREEMENT
This Area Developer Agreement (herein sometimes referred to as "Agreement") is
made effective , 1996 by and between Pretzel Time, Inc. a Pennsylvania
corporation with its principal place of business at 4800 Linglestown Road, Suite
202, Harrisburg, Pennsylvania 17112 (hereinafter referred to as"Pretzel Time")
and , an with the principal place of business at (herein referred to as "Area
Developer"). WITNESSETH: WHEREAS, Pretzel Time has developed a franchise system
for the retail manufacture and sale of hand-rolled, soft pretzels, and other
food items at Shopping Malls and other mall retail outlets; and WHEREAS, Area
Developer is desirous of marketing and servicing the franchise system developed
by Pretzel Time in Shopping Malls located in Area Developer's Territory; and
WHEREAS, the parties hereto desire that this Agreement shall not apply to the
sale of Pretzel Time Products and other related products at other venues other
than Shopping Malls and that this Agreement shall not apply to any other outlets
or means of sale (other than Shopping Malls) and that this Agreement shall not
apply to the manufacture of the Pretzel Time Products or any part thereof;
WHEREAS, the parties desire to set forth their mutual rights and obligations in
writing. NOW THEREFORE, in consideration of $10 and of the parties' mutual
promises and covenants and intending to be legally bound hereby it is agreed to,
by and between the parties as follows: l. Acknowledgements. Area Developer
acknowledges that Area Developer has read this Agreement and Pretzel Time's
Offering Circular and that Area Developer understands and accepts the terms,
conditions and covenants contained in this Agreement as being reasonably
necessary to maintain Pretzel Time's and Pretzel Time's Affiliates' standards of
quality and service and the uniformity of those standards at all Pretzel Time
Units franchised by Pretzel Time and thereby to protect and preserve the
goodwill of the Marks, as that term is defined in Section 59 of this Agreement.
Area Developer acknowledges that Area Developer has conducted an independent
investigation of the business venture contemplated by this Agreement and
recognizes that, like any other business, the nature of the business conducted
by Pretzel Time Units may evolve and change over time, largely dependent upon
Area Developer's business abilities, Area Developer's time devoted to the
business and Area Developer's efforts. Information relating to the sales,
profits or cash flows of Pretzel Times Units operated by Pretzel Time or Pretzel
Time's franchisees that is contained in Pretzel Time's Offering Circular, if
any, is intended only to be an indication of historical performance of Pretzel
Time, and NOT of potential future financial performance, Pretzel Time expressly
disclaims the making of, and Area Developer acknowledges that Area Developer has
not received or relied upon, any warranty or guarantee, express or implied, as
to the revenues, profits or success of the business venture contemplated by this
Agreement. Area Developer acknowledges and agrees that Pretzel Time's officers,
directors, employees and agents act only in a representative capacity and not a
personal capacity in connection with their dealings with Area Developer. Area
Developer further acknowledges that Area Developer has not received or relied on
any representations about Pretzel Time or Pretzel Time's franchising program or
policies made by Pretzel Time, or its officers, directors, employees or agents,
that are contrary to the statements made in Pretzel Time's Offering Circular or
to the terms of this Agreement. Area Developer further represents to Pretzel
Time, as an inducement to Area Developer's entry into this Agreement, that all
statements in Area Developer's application for the development rights granted
herein are accurate and complete and that Area Developer has made no
misrepresentations or material omissions in obtaining such development rights.
<PAGE>
2. Organization. If Area Developer is a corporation or general or limited
partnership, Area Developer represents and warrants to Pretzel Time the
following: (a) that Area Developer is duly organized or formed; (b) validly
existing in good standing under the laws of the state of its incorporation or
formation; (c) is qualified to do business in all states in which Area Developer
is required to qualify; and (d) has the authority to execute, deliver and carry
out all the terms of this Agreement. Each shareholder of or general partner in
Area Developer at the time of the signing of this Agreement or at any time
during the term of this Agreement shall execute an "Owner's and Guarantor's
Undertaking And Assumption of Obligations" (which is attached hereto as Exhibit
A and incorporated herein by reference) or such other agreement that Pretzel
Time prescribes from time to time, undertaking to be bound jointly and severally
by all provisions of this Agreement. Area Developer shall furnish to Pretzel
Time upon request, in such form as Pretzel Time may require, a list of Area
Developer's shareholders (of record and beneficially) (which is attached hereto
as Exhibit B and incorporated herein by reference ) reflecting their respective
interests in Area Developer. 3. Appointment and Acceptance of Area Developer.
Pretzel Time hereby appoints Area Developer and Area Developer hereby accepts
appointment, as the Area Developer for Pretzel Time for Shopping Malls in the
territory specified in Section 6 of this Agreement as further detailed in
Exhibit C attached hereto and incorporated herein by reference (which territory
is herein sometimes referred to as "Area Developer's territory", or
"Territory"). Area Developer hereby agrees to market the franchise system
developed by Pretzel Time for Shopping Malls within Area Developer's Territory
and shall not market to persons or entities located outside the Area Developer's
Territory for any reason. Further, Area Developer hereby agrees not to market to
persons located inside Area Developer's Territory unless they are located in
Shopping Malls. Area Developer herein acknowledges and agrees that Pretzel Time
is relying exclusively upon the Area Developer for the marketing, servicing and
support of its franchise system in Shopping Malls within the Area Developer's
Territory. Area Developer acknowledges that Pretzel Time may enter into other
agreements with respect to other territories on similar terms. Further, Area
Developer acknowledges that Pretzel Time may enter into other agreements with
respect to locations that are not in Shopping Malls but are located in Area
Developer's Territory. Simultaneous with the execution of this Agreement and
bearing even date herewith, Pretzel Time and the Area Developer shall enter into
an agreement for the purchase and sale of the area developer rights for Area
Developer's Territory. The sales and purchase agreement is incorporated herein
by reference. As used in this Agreement, the term "Shopping Mall(s)" shall
include and be limited to enclosed regional shopping malls (or enclosed super
regional shopping malls) that are anchored by at least three Anchor Tenants and
contain various other in line tenants. As used herein the term "Anchor Tenants"
includes such types of tenants as full service department stores (for example,
Sears, J.C. Penney, Dillards, etc...) and related anchor type tenants. 4. Area
Developer's Obligations, Duties and Responsibilities. The total number of
Pretzel Time Units which the Area Developer is obligated to open and operate in
Area Developer's Territory (referred to as "Development Obligations") and the
specific number of Pretzel Time Units the Area Developer must have open and in
operation in Area Developer's Territory and the required opening dates for each
of the Pretzel Time Units within a specified time (referred to as "Development
Schedule") is set forth in Exhibit "C" attached hereto and incorporated herein
by reference. Further, Area Developer shall have the obligations, duties and
responsibilities as hereafter set forth in this Section 4 and as otherwise set
forth in this Agreement. (a) Area Developer shall timely satisfy the Development
Obligations set forth on Exhibit "C." Area Developer agrees during the term of
this Agreement that Area Developer will at all times faithfully, honestly and
diligently perform Area Developer's obligations hereunder and continuously exert
Area Developer's best efforts to promote and enhance the development of Pretzel
Time Units within the Area Developer's Territory. Without limiting the foregoing
obligation, Area Developer agrees to open, and to operate in compliance with
Pretzel Time franchise agreements therefor, the cumulative number of Pretzel
Time Units set forth in Exhibit "C" by the end of each Development Period set
forth therein. If an operating Pretzel Time Unit at a Shopping Mall in Area
Developer's Territory is closed during the second (2nd) half of a Development
Period due to casualty, condemnation, loss of lease or other reason, without
fault of Area Developer, or with Pretzel Time's written approval, such Pretzel
Time Unit shall be deemed open and in operation as of the end of such
Development Period, but not thereafter. (b) Area Developer shall be responsible
for and shall use Area Developer's best efforts to promote, recommend, market
and develop the franchise system and to provide regular and consistent support
and service to franchisees and prospective franchisees in Shopping Malls in Area
Developer's Territory. Area Developer acknowledges that the development of
franchises shall be at the prices and terms specified by Pretzel Time as set
forth in the franchise agreements and offering circulars provided by Pretzel
Time from time to time. Area Developer's marketing and support efforts shall
include but not be limited to the compiling and filing of weekly written status
reports with Pretzel Time of all potential contacts made, current negotiations,
and monthly written status reports of projected units to open, status of units
under construction, franchisee operations' current status, and projected results
<PAGE>
of current contract negotiations. Area Developer shall further assist
franchisees with new unit openings and training programs as deemed reasonably
necessary by Pretzel Time. If the Area Developer fails to use Area Developer's
best efforts consistent with Area Developer's Territory and demand, then Pretzel
Time may terminate this Agreement in accordance with Section 18 of this
Agreement. The Area Developer agrees to maintain a strong market position by
promoting Pretzel Time and provide adequate support coverage to all franchisees
for Shopping Malls within Area Developer's Territory. (c) Area Developer shall
personally visit each franchise within Area Developer's Territory once per month
and on such further occasions as are deemed reasonably necessary by Pretzel Time
when circumstances so require. The mystery shopper program may be substituted
for certain locations at Area Developer's expense with Pretzel Time's prior
written approval; provided that Area Developer shall make monthly visits at
lease once per calendar quarter. Written evaluations of each visit shall be
forwarded to and received by Pretzel Time by the fifteenth day of each month for
the immediately preceding month. Area Developer shall also cause the Pretzel
Time "mystery shopper" program to be complied with within Area Developer's
Territory. Area Developer shall contact all franchisees in writing concerning
ongoing problems issues and violations and Area Developer shall cause copies of
all such written materials to be delivered to Pretzel Time at or near the time
said are delivered to the franchisee. (d) Area Developer shall coordinate with
Pretzel Time on all matters relevant to maintaining efficient sales and support
services. Area Developer agrees to also conduct other activities and perform
other duties as reasonably requested by Pretzel Time including but not limited
to those activities, duties, and responsibilities listed in Exhibit "D" attached
hereto and incorporated herein by this reference the same as if fully copied and
set forth at length. (e) Area Developer shall not be responsible to support,
assist, or visit company- owned units or any other unit from which Area
Developer is not earning fees unless otherwise agreed to in writing by the
parties hereto. (f) The Area Developer, (or, if the Area Developer is a
partnership or corporation, Area Developer's managing partner or chief operating
officer) and the Area Developer's senior management personnel shall attend such
training programs and sales and operations meetings as Pretzel Time may offer
during the term of this Agreement and any extensions. The Area Developer shall
be responsible for all expenses incurred in attending such meetings and
programs. Pretzel Time will not charge for the programs and meetings. However,
all incidental expenses relative to the required programs and meetings,
including travel expenses, hotel/motel expenses, and meals shall be the sole
responsibility of the Area Developer. (g) Area Developer shall be responsible
for training franchisees in Shopping Malls in Area Developer's Territory as
Pretzel Time may direct. 5. Pretzel Time's Responsibilities. Pretzel Time agrees
to train Area Developer in the Pretzel Time franchise system and to loan written
marketing materials, disclosures, franchise agreements, etc. to Area Developer.
Area Developer agrees not to use any other written documents or materials in
marketing Pretzel Time's franchises without the prior written consent of Pretzel
Time. Pretzel Time agrees to cooperate with the Area Developer to refer all
inquiries regarding franchise opportunities for Shopping Malls within Area
Developer's Territory to the Area Developer. Pretzel Time shall have the
ultimate approval rights over all franchises and sites within Shopping Malls in
the Area Developer's Territory. Area Developer hereby acknowledges that Area
Developer will take no action in the Area Developer's Territory without the
express written consent and approval of Pretzel Time (which consent and/or
approval shall be given or denied in Pretzel Time's sole discretion). 6.
Territory. Commencing on the effective date of this Agreement the Area
Developer's Territory shall include those traditional, franchised retail Pretzel
Time Units situated in Shopping Malls, (except as herein provided), located
within the areas of ________________________________ in the State of , or area
of (herein sometimes referred to as "Area Developer's Territory"). The Area
Developer's Territory shall not include: (a) company owned Pretzel Time Units
(stores, carts, or kiosks);
<PAGE>
(b) Pretzel Time Units licensed to the Marriott Corporation, its
affiliates, or subsidiaries;
(c) Pretzel Time Units licensed to any other corporation, national or
international or enterprise, in which Pretzel Time enters into a
national or international contract;
(d) Pretzel Time Units which are not located in super regional and
regional malls;
(e) Pretzel Time Units which are not located in Shopping Malls; and
(f) other Non-traditional Pretzel Time Units.
Accordingly, no fees shall be paid on the aforementioned Pretzel Time Units,
unless otherwise mutually agreed upon by Pretzel Time and Area Developer in a
written agreement executed by the parties.
7. Reservation of Rights.
Notwithstanding anything in this Agreement, Pretzel Time (directly or
through Pretzel Time's Affiliates) retains the right to: (a) offer for sale and
sell, either within or outside the Area Developer's Territory, and license and
franchise others to offer for sale and sell, either within or outside the Area
Developer's Territory, the products and services offered by Pretzel Time Units
under the Marks and other trademarks and service marks, through Pretzel Time
Units and through outlets in retail grocery, convenience, or other stores or
outlets, pursuant to any terms and conditions Pretzel Time deems appropriate;
(b) offer for sale and sell, and license and franchise others to offer for sale
and sell, any other products or services under the Marks (including such items
as refrigerated frozen pretzels, frozen bagels, other frozen products and other
food products sold through various outlets); (c) own, operate and grant to
others the right to own and operate Pretzel Time Units or other desert and snack
food businesses at such locations outside the Area Developer's Territory and on
such terms and conditions as Pretzel Time, in Pretzel Time's sole discretion,
deems appropriate; provided, however that Area Developer shall have the first
option to operate such kiosks and pretzel carts in Shopping Malls in the Area
Developer's Territory (other than Pretzel Time carts and kiosks associated with
Pretzel Time Units); (d) own, operate and grant to others the right to own and
operate kiosks and carts designed to prepare, offer for sale and sell the
Pretzel Time products at such locations within and outside the Area Developer's
Territory; (e) continue to own or operate any Pretzel Time outlets within the
Area Developer's Territory as are in existence on the date of this Agreement and
which are not purchased by Area Developer and to maintain license and franchise
agreements with others for Pretzel Time outlets within the Area Developer's
Territory as are in effect on the date of this Agreement (and to extend or renew
such licenses and franchises or grant successor licenses and franchises pursuant
to such license and franchise agreements); (f) own, operate and grant to others
the right to own and operate Pretzel Time stores or other businesses at such
locations within the Area Developer's Territory that are not located in Shopping
Malls; (g) enter into other agreements with respect to other territories on
similar terms; (h) enter into other agreements with respect to locations that
are not in Shopping Malls but are located in Area Developer's Territory; and (i)
establish Pretzel Time company- owned units and/or other franchisee-owned units
within Area Developer's Territory, provided that Area Developer is given a first
right of refusal for the franchise at that site described in this Subsection
7(i). The Area Developer shall have thirty (30) days to exercise his rights of
first refusal granted in Subsection 7(i) which shall begin when the Area
Developer receives written notice of its right to develop a site. If Area
Developer does not exercise Area Developer's right of first refusal described in
Subsection 7(i) within thirty (30) days, the Area Developer shall sign a waiver
releasing any rights to develop the site.
<PAGE>
8. Area Developer's Fee.
(a) Concurrently with the execution of this Agreement, Area Developer
shall pay to Pretzel Time a development fee of Dollars ($ ) which shall be
deemed fully earned by Pretzel Time upon execution of this Agreement and shall
be non-refundable. Additionally, Area Developer shall pay an initial franchise
fee of Twenty-Five Thousand Dollars ($25,000.00) for each franchise for a
Pretzel Time Store to be developed pursuant to Section 4 of the franchise
agreement, payable upon execution of the franchise agreement for each Pretzel
Time Unit.
(b) Pretzel Time agrees to pay Area Developer a sum equal to
two-sevenths (2/7) of the franchise royalty (not including the advertising fees)
received by Pretzel Time from all franchises operating in Shopping Malls within
Area Developer's Territory as defined in Section 6 of this Agreement. Pretzel
Time agrees to pay Area Developer a sum equal to 25% of the franchise royalty
(not including the advertising fees) received by Pretzel Time pursuant to the
Yogurt Product Addendum for all franchises operating in Shopping Malls within
Area Developer's Territory as defined in Section 6 of this Agreement. Area
Developer shall not be paid any fees for Pretzel Time Units that are not in
Shopping Malls.
(c) Pretzel Time also agrees to pay Area Developer Twenty-Five Percent
(25%) of the franchise fee for each new franchisee opening a new unit in
Shopping Malls in Area Developer's Territory and Twenty-Five Percent (25%) of
the franchise fees for each additional unit opened by existing franchisees in
Shopping Malls in Area Developer's Territory. Area Developer acknowledges that
all franchise fees paid pursuant to or relating to the Yogurt Product Addendum
shall be payable in full to Pretzel Time and Area Developer shall not receive a
percentage thereof. Area Developer shall not be paid any initial fees for units
owned and operated by Pretzel Time, in whole or in part. Area Developer shall
not be paid any initial fees for Pretzel Time Units that are not in Shopping
Malls.
(d) There is no other financial consideration agreed to by the parties,
except as may be otherwise provided for in any franchise agreement.
9. Failure to Meet Development Obligations.
Subject to the terms of Section 18 of this Agreement, if Area Developer
fails to meet Area Developer's Development Obligations as further set forth in
Section 4(a) and Exhibit C of this Agreement as of the end of a Development
Period, Area Developer will not be deemed to be in default of Area Developer's
Development Obligations under this Agreement for that Development Period if:
(a) Area Developer agrees that the royalty fee on all existing
franchise agreements and any future franchise agreements shall be increased by
one (l) percentage point, effective as of the end of that Development Period,
until such time as sufficient Pretzel Time Units have been opened to cure any
deficiencies in the number of Pretzel Time Units to be opened by Area Developer
during that Development Period; and,
<PAGE>
(b) Area Developer either:
i. offers to forfeit a contiguous portion of Area Developer's Territory and
Pretzel Time, in Pretzel Time's sole discretion, accepts such offer; or,
ii. pays to Pretzel Time:
A. the initial license fee due on each unopened
Pretzel Time Unit by the thirtieth (30th) day
following the expiration of such Development Period;
and, B. a monthly fee for each unopened Pretzel Time
Unit equal to Two Thousand Dollars ($2,000.00) on or
before the first day of each month, commencing with
the second (2nd) month following the expiration of
such Development Period and continuing each month
thereafter during the remaining term of this
Agreement until Area Developer complies with Area
Developer's Development Obligations under this
Agreement, or Pretzel Time elects to terminate the
Agreement pursuant to Section 18 of this Agreement.
The monthly fee for each unopened Pretzel Time Unit
shall be increased by four percent (4%) per annum.
Each Pretzel Time Unit opened during a Development
Period shall first be applied toward curing any
deficiencies in the number of Pretzel Time Units to
be opened by Area Developer in prior Development
Periods, thereby reducing the number of Pretzel Time
Units for which the monthly fee described in this
paragraph must be paid.
10. Establishment of Company-Owned Stores.
Area Developer acknowledges Pretzel Time shall have the right to
establish company- owned units within Area Developer's Territory. Any
company-owned units that Pretzel Time establishes within the Area Developer's
Territory shall be applied to the quota of Pretzel Time Units to be achieved by
Area Developer. A company-owned unit (or sometimes in this Agreement referred to
as "company owned stores") shall mean any Pretzel Time Unit owned, directly or
indirectly, by Pretzel Time or by a corporation in which Pretzel Time is the
majority shareholder. 11. Area Developer Expenses.
Area Developer acknowledges that Area Developer may incur no cost or
expenses on behalf of Pretzel Time without obtaining Pretzel Time's prior
written approval in each instance, if any.
12. Term.
The term of this Agreement shall be one year commencing on the
Effective Date and shall renew automatically from year to year thereafter unless
otherwise terminated in accordance with Sections 18 and/or 19 of this Agreement.
Each one year period shall be considered a Development Period as further set
forth on Exhibit "C." 13. Execution of Franchise Agreement.
Area Developer acknowledges that all franchisees in Shopping Malls in
the Area Developer's Territory shall execute a franchise agreement in form and
substance acceptable to Pretzel Time, as determined in Pretzel Time's sole
discretion. A copy of the Pretzel Time Franchise Agreement (including exhibits,
riders, shareholder guarantees, preliminary agreements and other agreements)
that Pretzel Time currently uses in granting franchises for the ownership and
operation of Pretzel Time Stores in the state in which Area Developer's
Territory is located is attached hereto as Exhibit "E" and incorporated herein
by reference the same as if fully copied and set forth at length. Further, Area
Developer hereby agrees to execute a franchise agreement for each Pretzel Time
unit that Area Developer opens, which form and substance of the franchise
agreement shall be acceptable to Pretzel Time in Pretzel Time's sole discretion.
Further, Area Developer hereby agrees to be bound by the terms, covenants,
conditions and provisions of each Pretzel Time franchise agreement executed by
the Area Developer.
<PAGE>
14. Management of Area Developer Business.
a. Area Developer (or, if Area Developer is a partnership or
corporation the managing partner or chief operating officer) shall devote
substantial efforts to the fulfillment of Area Developer's obligations hereunder
and shall not engage in any other business or activity, directly or indirectly,
that involves obligations, activities, management responsibility, or time
commitments that would conflict or interfere with Area Developer's obligations
hereunder. Area Developer (or if Area Developer is a partnership or corporation,
Area Developer's managing partner or chief operating officer) shall supervise
the development and operation of Pretzel Time Units franchised pursuant hereto.
b. Area Developer (or, if Area Developer is a partnership or
corporation the managing partner or chief operating officer) and Area
Developer's senior management personnel shall attend such training programs and
sales and operations meetings that Pretzel Time may offer during the term of
this Agreement. Area Developer must have at all times a certified supervisor or
person who is in charge of all units at all times for the Territory and such
person shall be required to attend training classes at least once every 24
months. Area Developers shall bear all expenses incurred in attending such
meetings and programs.
c. Area Developer shall hire and maintain the number and level of
management personnel required for adequate management and supervision of all
Pretzel Time Units operated by Area Developer pursuant to this Agreement in
accordance with guidelines Pretzel Time establishes from time to time. Area
Developer shall keep Pretzel Time advised of the identities of such personnel
and shall be responsible for ensuring that such personnel are properly trained
to perform their duties. Pretzel Time shall provide training free of charge to
the Area Developer and those multi-unit managers and/or manager hired by the
Area Developer to manage the Pretzel Time Units; provided that Area Developer
will be responsible for all salaries, and travel and living expenses incurred by
the managers in connection with Pretzel Time's training program. All unit
managers shall be required to complete all phases of the training program to
Pretzel Time's satisfaction. Area Developer shall replace management personnel
whom Pretzel Time determines to be unqualified to manage a Pretzel Time Unit.
d. Area Developer shall comply with such area developer's handbook as
Pretzel Time shall require. 15. Insurance.
During the term of this Agreement, in addition to insurance required
to be maintained pursuant to franchise agreements, Area Developer shall maintain
in force, under policies of insurance issued by carriers that Pretzel Time
approves, comprehensive public liability insurance against claims for bodily and
personal injury, death and property damage caused by or occurring in conjunction
with Area Developer's conduct of business pursuant to this Agreement, under one
or more policies of insurance containing such minimum liability coverage that
Pretzel Time prescribes from time to time. Each insurance policy shall name
Pretzel Time as an additional named insured, contain a waiver of all subrogation
rights against Pretzel Time and Pretzel Time's affiliates and their successors
and assigns, and provide for thirty (30) days' prior written notice to Pretzel
Time of any material modification, cancellation or expiration of such policy.
Area Developer shall furnish to Pretzel Time annually a copy of the certificate
of insurance or other evidence Pretzel Time requests that such insurance
coverage is in force. 16. Records and Reports.
<PAGE>
Area Developer agrees, at Area Developer's expense, to maintain and
preserve at Area Developer's principal office full, complete and accurate
records and reports pertaining to the development and operation of Pretzel Time
Units within the Area Developer's Territory and Area Developer's performance of
Area Developer's obligations under this Agreement, including, but not limited
to, records and information on the following: site reports, leases for Pretzel
Time Units, franchise agreements relating to all Pretzel Time Units located in
Area Developer's Territory, supervisory reports on the operation of Pretzel Time
Units, records reflecting Area Developer's financial condition and such other
records and reports as Pretzel Time may prescribe from time to time. Area
Developer shall deliver to Pretzel Time in the form Pretzel Time prescribes from
time to time:
a. Within thirty (30) days after the end of each quarter of
Area Developer's fiscal year, a quarterly balance sheet for Area Developer and
an income statement for such quarter and year to date;
b. Within ninety (90) days after the end of Area Developer's
fiscal year, a fiscal year end balance sheet for Area Developer and income
statement for such fiscal year (which Pretzel Time may require to be
independently audited or reviewed); and,
c. Upon Pretzel Time's request, such other date, reports,
information and supporting records as Pretzel Time may from time to time
prescribe.
Each such report and financial statement submitted by Area Developer
shall be verified as correct and signed by Area Developer in the manner Pretzel
Time prescribes. Area Developer shall immediately report to Pretzel Time any
events or developments which may have a material adverse impact on the operation
of any Pretzel Time Unit, Area Developer's performance under this Agreement or
the goodwill associated with the Marks and Pretzel Time Units. 17. Change of
Ownership.
(a) Area Developer has been determined by Pretzel Time to have
the unique qualifications necessary to adequately promote and sell Pretzel
Time's hand-rolled, soft pretzel franchise system in Shopping Malls in Area
Developer's Territory. When the ownership of Area Developer is to be changed, it
is necessary for Pretzel Time to determine whether the new party can and will
adequately represent Pretzel Time. Therefore, Pretzel Time retains the right,
without incurring any liability to Area Developer, to terminate Pretzel Time's
relationship with Area Developer in the event that there is a change in the
ownership or in the direct or indirect control of Area Developer without the
prior written approval of Pretzel Time.
(b) If Area Developer plans a change in ownership or in the direct or
indirect control of the Area Developer and the new owner or controlling parties
wish(es) to continue as a Area Developer, the existing Area Developer and the
proposed new owner or controlling party should each notify Area Developer in
writing at least sixty (60) days before the proposed change. This written notice
should describe the proposed change in ownership, control, and management and
should request that, following the change, the Area Developer be permitted to
continue as Pretzel Time's Area Developer. In the notice, the new owner or
controlling parties shall agree to follow the Pretzel Time's policies as
currently in effect and as changed from time to time by the Pretzel Time. The
new owner or controlling parties must also agree to execute the current area
developer agreement as provided by Pretzel Time. 18. Termination.
<PAGE>
This Agreement may be terminated in accordance with the following
provisions:
(a) By the Area Developer. If Area Developer is in compliance with this
Agreement, Area Developer may terminate this Agreement effective ten
(10) days after delivery to Pretzel Time of notice thereof, if Pretzel
Time materially breaches this Agreement and fails within thirty (30)
days after each written notice thereof is delivered to Pretzel Time,
either to correct such failure or, if such failure cannot reasonably be
corrected within thirty (30) days, to provide proof acceptable to Area
Developer of efforts which are reasonably calculated to correct such
failure within a reasonable time, which shall in no event be more than
sixty (60) days after such notice. A termination of this Agreement by
Area Developer for any other reason or without such notice shall be
deemed a termination by Area Developer without cause and in violation
of this Agreement. (b) By Pretzel Time. Pretzel Time may terminate this
Agreement, at Pretzel Time's option and without prejudice to any other
rights or remedies provided for hereunder or by law and without any
further responsibility or liability to the Area Developer under this
Agreement, except for any unpaid area developer fees due Area Developer
until the date of default: (i) pursuant to Section 17(a) and (ii) upon
the occurrence of an event of default, provided that Pretzel Time has
given Area Developer written notice of the default and remedies to be
undertaken to cure said default, and Area Developer fails to cure the
event of default within thirty (30) days after the date of receipt of
written notice from Pretzel Time of the event of default. Pretzel Time
may elect to be relieved from any obligations imposed on Pretzel Time
by this Agreement until such default is cured, including but not
limited to payment of Area Developer fees. Pretzel Time shall prior to
such termination, provide written notice setting forth the reasons, if
any, for such termination at least thirty (30) days in advance.
(c) An " event of default" is defined as the following:
(i) Area Developer's material breach or failure to perform any
provision of this Agreement by Area Developer including but
not limited to failure to perform any of Area Developer's
responsibilities as indicated on Exhibit D attached hereto;
(ii) Breach of any franchise agreement by Area Developer;
(iii) Area Developer's failure to fulfill duties to the
franchise community as indicated to Pretzel Time by a majority
of franchisees within Area Developer's Territory; (iv) Area
Developer's failure to timely submit the written reports
required herein on two occasions out of twelve consecutive
months; (v) If Area Developer is a corporation and is
dissolved by action of Area Developer's shareholders or forced
to liquidate by action of Area Developer's creditors; (vi) If
Area Developer without the prior written consent of Pretzel
Time changes ownership or control or assigns this Agreement;
(vii) Conviction of Area Developer in a court of competent
jurisdiction of an indictable offense directly related to the
business conducted pursuant to this Agreement and the
franchise system; (viii) Area Developer's insolvency, the
institution of voluntary bankruptcy or receivership
proceedings concerning Area Developer; (ix) Area Developer's
default in payment of any obligation under any sublease or
lease agreement in which Area Developer is a party; (x) Area
Developer's loss of the right to occupy the premises from
which the Area Developer operates a franchise; (xi) Area
Developer's failure to timely meet the Development Obligations
set forth as Exhibit "C" attached hereto; or (xii) If on three
(3) occasions during the term of this Agreement, Area
Developer fails to comply with this Agreement, whether or not
such failures to comply are corrected after notice thereof is
delivered to Area Developer.
<PAGE>
19. Termination For No Cause.
This Agreement may be terminated by Pretzel Time for any reason or no
reason at all by giving Area Developer written notice of termination to be
effective five (5) years after the Effective Date. Further, this Agreement may
be terminated by Pretzel Time for any reason or no reason at all giving Area
Developer written notice of termination to be effective on any subsequent
anniversary date of the effective date of this Agreement if this Agreement has
been renewed pursuant to Section 12 of this Agreement and the termination date
is at least five (5) years after the Effective Date.
20. Further Assurances. Each of the parties hereto hereby agrees to execute and
deliver any further instruments, certificates and documents as may be reasonably
requested by the other party hereto to carry out the terms, conditions and
responsibilities of this Agreement.
21. Noncompetition.
Area Developer agrees that for a term of one (1) year after the
termination or expiration of this Agreement, neither Area Developer nor Area
Developer's shareholders, directors or officers will engage directly or
indirectly, whether individually or in partnership or in conjunction with any
person, firm, associations, syndicate or corporation, as principal, agent,
shareholder, employee, consultant or in any other manner whatsoever, in any
business activity competitive with the business of Pretzel Time within three (3)
miles of any Pretzel Time Unit. Area Developer agrees that the limitations set
forth above are reasonable in time and geographic scope. If any provision hereof
is held invalid or unenforceable, the remainder shall nevertheless remain in
full force and effect. It is the intention of the parties that this Agreement
shall not be terminated thereby but shall be deemed to have been amended to the
extent required to render this Agreement valid and enforceable, such amendment
to apply only with respect to the jurisdiction of the court making such
adjucation.
22. Confidentiality.
Both Pretzel Time and the Area Developer recognize that during the
course of this Agreement, Pretzel Time may loan to the Area Developer, Area
Developer's shareholders, officers, employees and agents valuable, confidential
and proprietary information pertaining to Pretzel Time's operations. Area
Developer agrees to hold in a fiduciary capacity for the benefit of Pretzel
Time, Pretzel Time's subsidiaries, successors, and assigns all secret and
confidential information, including but not limited to: trade secrets;
knowledge; techniques of doing business; franchisee lists; legal agreements;
site selection criteria; disclosures; sales figures; manufacturers;
distributors; business plans; credit terms; manufacturing processes; methods,
techniques, formats, specifications, systems, procedures, sales and marketing
techniques and knowledge of and experience in the development and operation of
Pretzel Time Stores; marketing programs for Pretzel Time; knowledge of
specifications for and suppliers of certain products, materials, supplies,
equipment, furnishings and fixtures; knowledge of operating results and
financial performance of Pretzel Time Units; Products lists; methods for
preparation of the Products; Products; formulas; recipes or data involving
Pretzel Time and any of Pretzel Time's subsidiaries, successors and assigns
obtained by the Area Developer during the terms of this Agreement and will not
during the terms of this Agreement or after the termination of this Agreement,
communicate or divulge any such information, knowledge or data to any person,
firm or corporation other than the Pretzel Time or persons, firms, partnerships,
corporations, designated by the Pretzel Time. Area Developer further agrees not
to disclose the terms of this Agreement to any person during the term of this
Agreement or thereafter for eighteen months. Upon termination of this Agreement,
Area Developer shall return to Pretzel Time the originals and all copies of any
such information or materials. Nothing contained in this Agreement shall
restrict Area Developer's ability to disclose information during the term of
this Agreement with Pretzel Time where such disclosure is necessary for the
effective discharge of Area Developer's duties and responsibilities.
<PAGE>
23. Restrictions.
Area Developer acknowledges and agrees that Area Developer will not
acquire any interest in Confidential Information, other than the right to
utilize Confidential Information disclosed to Area Developer in the development
and operation of Pretzel Time Units during the term of this Agreement, and that
the use of duplication of any Confidential Information in any other business
would constitute an unfair method of competition. Area Developer acknowledges
and agrees that Confidential Information is proprietary, includes trade secrets
of Pretzel Time and is disclosed to Area Developer solely on the condition that
Area Developer agrees, and Area Developer does hereby agree, that Area
Developer:
(a) Will not use Confidential Information in any other business or capacity;
(b) Will maintain the confidentiality of Confidential Information during and
after the term of this Agreement;
(c) Will not make unauthorized copies of any portion of Confidential Information
disclosed in written or other tangible form; and,
(d) Will adopt and implement all reasonable procedures that Pretzel Time
prescribes from time to time to prevent unauthorized use or disclosure of
Confidential Information, including, without limitation, restrictions on
disclosure thereof to Area Developer's employees.
24. Exclusive Relationship.
Area Developer acknowledges and agrees that Pretzel Time would be
unable to protect Confidential Information against unauthorized use or
disclosure and would be unable to encourage a free exchange of ideas and
information among Pretzel Time Units if area developer and franchised owners of
Pretzel Time Units were permitted to hold interests in or perform services for a
competitive business. Area Developer further acknowledges that Pretzel Time has
granted development rights to Area Developer in consideration of and reliance
upon Area Developer's agreement to deal exclusively with Pretzel Time. Area
Developer therefore agrees that during the term of this Agreement, no Restricted
Person (as defined below) shall:
(a) Have any direct or indirect interest as a disclosed or
beneficial owner in a Competitive Business located or operating within
the Area Developer's Territory, except other Pretzel Time Units
operated under franchise agreements with Pretzel Time or Pretzel Time's
Affiliates;
(b) Have any direct or indirect interest as a disclosed or
beneficial owner in a Competitive Business located or operating within
three (3) miles of the boundaries of the Area Developer's Territory,
except other Pretzel Time Units operated under franchise agreements
with Pretzel Time or Pretzel Time's Affiliates;
(c) Have any direct or indirect interest as a disclosed or
beneficial owner in a Competitive Business, located or operating within three
(3) miles of any Pretzel Time Units, except Pretzel Time Units operated under
franchise agreements with Pretzel Time or Pretzel Time's Affiliates:
<PAGE>
(d) Have any direct or indirect controlling interest as a
disclosed or beneficial owner in a Competitive Business, except Pretzel
Time Units operated under franchise agreements with Pretzel Time or
Pretzel Time's Affiliates; or
(e) Perform services as a director, officer, manager,
employee, consultant, representative, agent or otherwise for a Competitive
Business, except Pretzel Time Units operated under franchise agreements with
Pretzel Time or Pretzel Time's Affiliates.
Notwithstanding the foregoing, Restricted Persons shall not be prohibited from
owing securities in a company if such securities are listed on a stock exchange
or traded on the over-the-counter market and represent two percent (2%) or less
of that class of securities.
<PAGE>
25. Restricted Person. For the purposes of this Agreement, "Restricted
Person" shall mean and include:
(a) Area Developer;
(b) Each of Area Developer's direct or indirect shareholders or partners (if
Area Developer is a corporation or partnership);
(c) Each member of Area Developer's immediate family;
(d) Each member of the immediate families of Area Developer's shareholders or
partners (if Area Developer is a corporation or partnership);
(e) Each Controlled Affiliate;
(f) Each shareholder or partner of a Controlled Affiliate;
(g) Each member of the immediate families of a Controlled Affiliate,
shareholders or partners; and
(h) Each person or entity affiliated with Area Developer or Area Developer's
shareholders or partners. References to "immediate family" shall mean parents,
spouses, natural and adopted children and siblings.
26. Marks.
a. Area Developer acknowledges that Pretzel Time and/or Pretzel Time's
Affiliates own the Marks and the Area Developer's right to use the Marks is
derived solely from franchise agreements entered into between Area Developer and
Pretzel Time for the purpose of operating Pretzel Time Units. Area Developer
agrees that Area Developer's usage of the Marks and any goodwill established
thereby shall inure to Pretzel Time's exclusive benefit. Area Developer further
agrees that, after the termination or expiration of this Agreement, Area
Developer will not at any time or in any manner identify itself or any business
as a franchisee or former franchisee of or as otherwise associated with Pretzel
Time or use in any manner or for any imitation thereof, except with respect to
Pretzel Time Units then operated by Area Developer pursuant to franchise
agreements with Pretzel Time.
b. Area Developer shall 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, or in any modified form, nor may Area Developer use any Mark in
connection with any business or activity other than the business conducted by
Area Developer pursuant to franchise agreements with Pretzel Time or in any
other manner not explicitly authorized in writing by Pretzel Time.
c. Area Developer shall immediately notify Pretzel Time in writing of
any apparent infringement of or challenge to Area Developer's use of any Mark or
any claim by any person of any rights in any Mark or similar trade name,
trademark or service mark of which Area Developer becomes aware. Area Developer
shall not communicate with any person other than Pretzel Time and Pretzel Time's
Affiliates and their legal counsel in connection with any such infringement,
challenge or claim. Pretzel Time and Pretzel Time's Affiliates shall have the
sole discretion to take such action as Pretzel Time deems appropriate and the
right to control exclusively any litigation, U.S. Patent and Trademark Office
proceeding or other administrative proceeding arising out of any such
infringement, challenge or claim or otherwise relating to any Mark. Area
Developer agrees to execute any and all instruments and documents, render such
assistance and do such acts and things as, in the opinion of Pretzel Time's and
Pretzel Time's Affiliates' legal counsel, may be necessary or advisable to
protect and maintain Pretzel Time and Pretzel Time's Affiliates interest in any
such litigation or U.S. Patent and Trademark Office or other proceeding or
otherwise to protect and maintain Pretzel Time's and Pretzel Time's Affiliates'
interest in the Marks. 27. Refrain from Disparagement.
Both Pretzel Time and Area Developer agree not to malign, harass or in
any way interfere with the other party or their employees, franchisees, or
agents with respect to their reputation and good will, or the conduct of the
other party's business. The parties further agree to not make any public
statements which would tend to damage the reputation or harm the business
interests of the other or their employees, franchisees, and agents.
28. Limitation of Liability.
In no event shall Pretzel Time be liable to Area Developer for any loss
of profits, indirect, special or consequential damages arising out of any breach
of Pretzel Time's obligations under this Agreement.
<PAGE>
29. Independent Contractors.
It is understood and agreed by the parties hereto that this Agreement
does not create a fiduciary relationship between them, that Pretzel Time and
Area Developer are and shall be independent contractors and that nothing in this
Agreement is intended to make either party a general or special agent, joint
venturer, partner or employee for the other for any purpose. Area Developer
shall conspicuously identify itself in all dealings as the owner of development
rights granted under a development agreement with Pretzel Time and shall place
such other notices of independent ownership on such forms, business cards,
stationery, advertising and other materials as Pretzel Time may require from
time to time. Further, this Agreement does not, and shall not be construed to,
create an employer-employee relationship, joint venture or partnership between
Pretzel Time and Area Developer. Neither the Area Developer nor Pretzel Time
shall have any authority to act for or to bind the other in any way, to alter
any of the terms or conditions of any of Pretzel Time's standard forms or
invoices, purchase orders, warranties, franchise agreements, subleases or
otherwise, or to warrant or to execute agreements on behalf of the other or to
represent that the other is in any way responsible for the acts, debts,
liabilities or omissions of the other. The Area Developer shall be an
independent contractor only. 30. No Liability For Acts of Other Party.
Area Developer shall 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
Pretzel Time's liability for any indebtedness or obligations of Area Developer,
nor may Area Developer use the Marks in any way not expressly authorized by
Pretzel Time. Except as expressly authorized in writing, Pretzel Time shall not
be obligated for any damages to any person or property directly or indirectly
arising out of the operation of the Area Developer's business authorized by or
conducted pursuant to this Agreement. 31. Taxes.
Pretzel Time shall have no liability for any sales, use, service,
occupation, excise, gross receipts, income, property or other taxes, whether
levied upon Area Developer or Area Developer's assets or upon Pretzel Time,
arising in connection with the business conducted by Area Developer pursuant to
this Agreement or franchise agreement. Payment of all such taxes shall be Area
Developer's responsibility.
32. Indemnification.
Area Developer agrees to indemnify, defend and hold harmless Pretzel
Time, Pretzel Time's parent company, subsidiaries and affiliates and their
shareholders, directors, officers, employees, agents successors and assignees
(the "Indemnified Parties") against and to reimburse them for any claims,
liabilities, lawsuits, demands, actions, damages and expenses arising from or
out of: (1) any breach of the agreements, covenants, representations, or
warranties of Area Developer contained in this Agreement or franchise agreement;
(2) any damages or injury to any person, including, but not limited to,
employees of Area Developer or a Controlled Affiliate, employees of Pretzel
Time, customers of Area Developer or a Controlled Affiliate, and members of the
public, suffered or incurred on or about any Pretzel Time Store owned or
operated by Area Developer or a Controlled Affiliate; (3) product liabilities
claims or defective manufacturing of the products by Area Developer or a
Controlled Affiliate; or (4) the activities hereunder or under any franchise
agreement of Area Developer or a Controlled Affiliate or any of their officers,
owners, directors, employees, agents or contractors. For purposes of this
indemnification, claims shall mean and include all obligations, actual and
consequential damages and costs reasonably incurred in the defense of any claim
against the Indemnified Parties, including, without limitation, reasonable
accountants', arbitrators', and attorneys' and expert witness fees, costs of
investigation and proof of facts, court costs, other litigation expenses and
travel and living expenses. Pretzel Time shall have the right to defend any such
claim against Pretzel Time. This indemnity shall continue in full force and
effect subsequent to and notwithstanding the expiration or termination of this
Agreement.
<PAGE>
33. Injunctive Relief.
Pretzel Time and Area Developer shall each have the right in a proper
case to obtain specific performance, temporary, preliminary or permanent
injunctive relief from a court of competent jurisdiction without bond and
without proof of damages. 34. Rights of Parties are Cumulative.
Pretzel Time's and Area Developer's rights hereunder are cumulative
and their exercise or enforcement of any right or remedy hereunder shall not
preclude their exercise or enforcement of any other right or remedy hereunder
which they are entitled by law to enforce. 35. Costs and Attorneys' Fees.
If a claim for amounts owed by Area Developer to Pretzel Time or
Pretzel Time's affiliates is asserted in any arbitration or judicial proceeding
or appeal thereof, or if Pretzel Time or Area Developer is required to enforce
this Agreement in an arbitration or judicial proceeding or appeal thereof, the
party prevailing in such proceedings shall 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, suit, action, hearing or proceeding to
enforce the obligations of this Agreement. If Pretzel Time incurs expenses in
connection with Area Developer's failure to pay when due amounts owing to
Pretzel Time, 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, Area Developer shall upon demand reimburse
Pretzel Time for any such costs and expenses which Pretzel Time incurs.
36. Continuing Obligations.
All of Pretzel Time's and Area Developer's obligations under this
Agreement which expressly or by their nature survive the expiration or
termination of this Agreement shall continue in full force and effect subsequent
to and notwithstanding the expiration or termination of this Agreement until
they are satisfied in full or by their nature expire. 37. Grant Of Franchisees.
Upon termination or expiration (without execution of a successor
Development Agreement) of this Agreement for any reason, Area Developer's rights
under this Agreement will terminate. Pretzel Time will thereafter have no
further obligation to grant Area Developer additional franchises for Pretzel
Time Units and will be free to operate or grant other persons franchises to
operate Pretzel Time Units within the Area Developer's Territory. 38.
Modification.
This Agreement may not be modified except in writing signed by the
parties hereto.
39. Pretzel Time's Option To Purchase Pretzel Time Units.
Area Developer acknowledges that Pretzel Time has certain rights
pursuant to the franchise agreements for the Pretzel Time Units located within
Area Developer's Territory that grant Pretzel Time the right to purchase the
Pretzel Time Stores along with all assets related thereto if the respective
franchise agreement is terminated or expires (pursuant to Section 20 of the
franchise agreement). Area Developer agrees that Pretzel Time shall have the
right to purchase the Pretzel Time Units along with all assets related thereto
as provided for in the respective franchise agreement (s) (pursuant to Section
20 of the respective franchise agreement) which is hereby incorporated herein by
reference. 40. Death Or Disability Of Franchisee.
Upon the death or permanent disability of Area Developer or, if Area
Developer is a corporation or partnership, the owner of a "Controlling
Interest"(as defined in Section 59 of this Agreement) in Area Developer, the
executor, administrator, conservator, guardian or other personal representative
of such Owner shall transfer Area Developer's interest in this Agreement or such
interest in Area Developer to Pretzel Time. Such disposition of this Agreement
or such interest in Area Developer shall be completed within a reasonable time,
not to exceed six (6) months from the date of death or permanent disability, and
shall be subject to all the terms and conditions applicable to transfers
contained in Section 44 of this Agreement. Failure to transfer the interest in
this Agreement or such interest in Area Developer within said period of time
shall constitute a breach of this Agreement. 41. Public Or Private Offerings.
<PAGE>
In the event Area Developer (or any of Area Developer's owners) shall,
subject to the restrictions and conditions of transfer contained in Section 44
of this Agreement, attempt to raise or secure funds by the sale of securities
(including, without limitation, common or preferred stock, bonds, debentures or
general or limited partnership interests) in Area Developer or any affiliate of
Area Developer, Area Developer, recognizing that the written information may
reflect upon Pretzel Time, agrees to submit any such written information used
with respect thereto prior to its inclusion in any registration statement,
prospectus or similar offering circular or memorandum and to obtain Pretzel
Time's written consent to the method of financing prior to any offering or sale
of such securities. Pretzel Time's written consent pursuant to this Section
shall not imply or constitute Pretzel Time's approval with respect to the sale
of the securities, the offering literature submitted to Pretzel Time and any
other aspect of the offering. No information respecting Pretzel Time shall be
included in any disclosure document unless such information has been furnished
by Pretzel Time in writing pursuant to Area Developer's written request, in
which Area Developer states the specific purposes for which the information is
to be used. Should Pretzel Time, in Pretzel Time's sole discretion, object to
any reference to Pretzel Time or Pretzel Time's business or to the relationship
of Area Developer or a Controlled Affiliate in such offering literature or
prospectus, such literature or prospectus shall not be used unless and until
Pretzel Time's objections are withdrawn. Pretzel Time assumes no responsibility
whatsoever for any offering. Area Developer shall pay Pretzel Time's expenses in
connection with the offering or proposed offering.
The prospectus or other literature utilized in any such offering shall
contain the following language in bold-face type on the first textual page
thereof:
PRETZEL TIME, INC. IS NOT DIRECTLY OR INDIRECTLY THE ISSUER OF THE
SECURITIES OFFERED HEREBY AND ASSUMES NO RESPONSIBILITY WITH RESPECT TO
THIS OFFERING AND/OR THE SUFFICIENCY OR ACCURACY OF THE INFORMATION SET
FORTH HEREIN, INCLUDING ANY STATEMENTS WITH RESPECT TO PRETZEL TIME,
INC. PRETZEL TIME, INC. DOES NOT ENDORSE OR MAKE ANY RECOMMENDATION
WITH RESPECT TO THE INVESTMENT CONTEMPLATED BY THIS OFFERING. Area
Developer (and each of Area Developer's owners) agrees to indemnify,
defend, and hold harmless
Pretzel Time, Pretzel Time's parent company, subsidiaries, and Affiliates and
their officers, directors, employees and agents from any and all claims, demands
and liabilities, and all costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred in defending against such claims, demands
or liabilities, arising from the offer or sale of such securities, whether
asserted by a purchaser of any such security or by a governmental agency.
Pretzel Time shall have the right (but not the obligation) to defend any such
claims, demands or liabilities and/or to participate in the defense of any
action to which Pretzel Time is named as a party. 42. Waiver.
The failure of either party to insist upon strict performance of any of
the terms of this Agreement, or the waiver by either party of any breach of any
terms of this Agreement, shall not prevent any subsequent strict enforcement of
such terms nor be deemed a waiver of any subsequent breach, whether similar in
nature or not.
<PAGE>
43. Restrictive Covenants.
Area Developer recognizes that the restrictive covenants contained in
this Agreement are essential to protect the business interests and goals of the
Pretzel Time, and that violation of these restrictions will cause irreparable
harm to the Pretzel Time. In the event of a breach or a threatened breach by the
Area Developer, Area Developer thus acknowledges and agrees that should Area
Developer violate the restrictive covenants contained in this Agreement, Pretzel
Time shall be entitled to seek special, preliminary, temporary or permanent
injunctive relief, as well as any other rights or remedies to which the Pretzel
Time shall be entitled.
44. No Assignment.
The Area Developer shall not assign, transfer and/or sell any of Area
Developer's rights or delegate any of Area Developer's obligations hereunder
without the prior written consent of Pretzel Time, which consent may be
arbitrarily withheld by Pretzel Time in Pretzel Time's sole discretion. To the
extent assignable, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. Each of the
following shall be deemed to be an assignment:
(a) the transfer of the rights of Area Developer hereunder;
(b) the transfer of fifty percent or more in the aggregate of
the capital stock or voting power of any corporate Area
Developer, Area Developer's parent company or any subsidiary,
controlled affiliate, affiliate, officer, director and/or
shareholder(s); (c) the issuance of stock by a corporate area
developer such that the newly issued shares constitute fifty
percent (50%) or more, in the aggregate of the capital stock
or voting power of the corporate franchisee; or (d) the
transfer of fifty percent (50%) or more in the aggregate
partnership interest of a partnership area developer.
45. Rights Of Parties Are Cumulative.
The rights of Area Developer and Pretzel Time are cumulative and no
exercise or enforcement by Pretzel Time or Area Developer of any right or remedy
hereunder shall preclude the exercise or enforcement by Pretzel Time or Area
Developer of any other right or remedy to which the party is entitled.
<PAGE>
46. WAIVER OF JURY TRIAL.
BOTH PRETZEL TIME AND THE AREA DEVELOPER IRREVOCABLY WAIVES TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY,
BROUGHT BY EITHER PARTY. THE PARTIES FURTHER AGREE THAT NEITHER SHALL DEMAND A
JURY TRIAL IN THE EVENT OF LITIGATION.
INITIALS
AREA DEVELOPER
PRETZEL TIME
47. Waiver Of Punitive Damages.
Except with respect to Area Developer's obligation to indemnify Pretzel
Time, 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 shall be limited
to recovery of any actual damages it sustains.
48. Exclusive Jurisdiction.
Both Pretzel Time and Area Developer agree that any action arising out
of or relating to this agreement, including without limitation, the offer and
sale of the area developer rights hereunder shall be instituted and maintained
only in a state or federal court of general jurisdiction in Dauphin County,
Pennsylvania or the county in which Pretzel Time maintains its principal place
of business. Area Developer irrevocably submits to the jurisdiction of said
court and waives any objection Area Developer may have to either the
jurisdiction or venue of such court.
49. Limitations Of Claims.
Except for claims brought by Pretzel Time with regard to Area
Developer's obligations to make payments to Pretzel Time pursuant to this
agreement or to indemnify Pretzel Time pursuant to this agreement, any and all
claims arising out of or relating to this agreement or the relationship of Area
Developer and Pretzel Time pursuant to this agreement shall be barred unless an
action is commenced within: (a) two (2) years from the date on which the act or
event giving rise to the claim occurred or (b) one (1) year from the date on
which Area Developer or Pretzel Time knew or should have known, in the exercise
of reasonable diligence of the facts given rise to such claims, whichever occurs
first. 50. Governing Law.
This Agreement shall be governed by, construed, and enforced in
accordance with, the laws of the Commonwealth of Pennsylvania without regard to
its principles of conflicts of law.
51. Captions.
The captions and paragraph headings in this Agreement are included for
convenience of reference only and shall not affect or be considered in the
interpretation or construction of any provision of this Agreement.
52. Approvals.
Except where this Agreement expressly obligates Pretzel Time reasonably
to approve or not unreasonably to withhold Pretzel Time's approval of any action
or request by Area Developer, Pretzel Time has the absolute right to refuse any
request by Area Developer or to withhold Pretzel Time's approval of any action
by Area Developer that requires approval by Pretzel Time.
53. Public Or Private Offerings.
If the Area Developer (or any of Area Developer's owners) attempts to
raise or secure funds by the sale of securities, the Area Developer is obligated
to pay Pretzel Time's then current fee to cover Pretzel Time's expenses in
connection with the offering or proposed offering. Currently, that fee is Ten
Thousand Dollars ($10,000.00). Such fee shall be payable by Area Developer to
Pretzel Time in cash upon demand.
<PAGE>
54. Severability.
In the event that any provision or part thereof in this Agreement is
held invalid or unenforceable by a court or other tribunal of competent
jurisdiction, then the same shall be deemed severed and separate from the other
provisions of this Agreement which shall remain in full force and effect. To the
extent enforcement is limited, then the provision or provisions so affected
shall be deemed to have been modified to reflect the limitation on enforcement.
55. Notices.
All notices, requests, demands and other communications under this
Agreement (collectively a notice) shall be in writing and shall be deemed to
have been duly given if delivered by hand against written receipt or if mailed
by United States certified or registered mail, return receipt requested, postage
pre-paid, properly addressed as follows, or to such other address as may be
specified in a notice given hereunder.
If to Pretzel Time: If to Area Developer:
Pretzel Time, Inc. ___________________
Attn: Rich Hankins
- -------------------
4800 Linglestown Road, Suite 202 ___________________
Harrisburg, PA 17112 ___________________
With a copy to:
Timothy T. Mitchell, Esquire
Rashti and Mitchell
Attorneys at Law
4422 Ridgeside Drive
Dallas, Texas 75244
56. Counterparts.
This Agreement may be execute in one or more counterparts, any and or
all of which shall constitute one and the same instrument.
57. Entire Agreement.
This Agreement and the exhibits attached hereto and incorporated herein
by reference sets forth the entire agreement and understanding between the
parties with respect to the subject matter herein and supersedes all other prior
and contemporaneous agreements, understandings, representations and warranties,
whether oral or written, except that neither party shall be relieved from making
payment of any amounts due and owing under any agreement entered into prior to
the date hereof. This Agreement may not be amended, modified or altered or any
of its provisions waived except in writing and signed by the authorized officer
of the party against whom enforcement is sought. 58. Time Is Of The Essence.
Time is of the essence with regards to each provision of this Agreement
as to which time is a factor.
<PAGE>
59. Certain Definitions.
As used in this Agreement the following terms shall have the following
definitions:
a. The term, "Affiliate," as used in relation to Pretzel Time, shall
mean any person, entity or company that directly or indirectly owns or controls
Pretzel Time, is directly or indirectly owned or controlled by Pretzel Time or
is under common control with Pretzel Time.
b. The term, "Competitive Business" shall mean any business operating
or granting franchises or licenses to others to operate a soft pretzel outlet or
any similar food service business, other than a business, otherwise within the
definition of a Competitive Business, which is (i) owned and operated by Area
Developer, (ii) is in existence on the date of this Agreement, and (iii) has
been disclosed to Pretzel Time in writing prior to execution of this Agreement.
c. The term, "Competitive Business"- A business or enterprise, other
than a Pretzel Time Unit, that:
(i) Offers food products which are the same as or similar to
the products for consumer consumption off premises or other distribution
channels; or
(ii) Grants or has granted franchises or licenses or
establishes or has established joint ventures for the development and/or
operation of a business or an enterprise described in the foregoing clause
subitem 59(c)(i).
d. The term, "Controlled Affiliate" shall mean a corporation or general
or limited partnership that Area Developer is authorized by this Agreement to
form to develop and operate a Pretzel Time Store, provided that:
(i) Area Developer owns not less than fifty percent (50%) of the ownership of
such corporation or partnership;
(ii) Area Developer has at least the percentage of voting
power required under applicable law to authorize a merger, liquidation,
dissolution or transfer of substantially all of the assets of such corporation
or partnership;
(iii) If the Controlled Affiliate is a partnership, Area
Developer is the managing partner; (iv) Area Developer
establishes to Pretzel Time's satisfaction that Area Developer
has, and
during the term of the franchise agreement for the Pretzel Time Unit to be owned
and operated by the Controlled Affiliate will have, the right and power to
control the operation of such Pretzel Time Unit and the sale or other
disposition of such Pretzel Time Unit;
(v) Such corporation or partnership conducts no Competitive Business;
(vi) Area Developer executes an "Owner's and Guarantor's
Undertaking And Assumption of Obligations" (a copy of which is attached hereto
as Exhibit "A") in which Area Developer guarantees performance by the Controlled
Affiliate of the terms and conditions of Area Developer's franchise agreement
and agrees that Area Developer will assume full and unconditional liability for
and agree to perform all obligations, covenants and agreements of the franchisee
contained in the franchise agreement;
(vii) All owners of the issued and outstanding capital stock
or partnership interests of such corporation or partnership have good moral
character; and,
<PAGE>
(viii) All principal owners of the issued and outstanding
capital stock or general partnership interests of such corporation or
partnership execute an "Owner's and Guarantor's Undertaking" in which they
assume full and unconditional liability for, guarantee, and agree to perform all
obligations, covenants and agreements of the franchisee contained in the
franchise agreement.
(e) The term, "Controlling Interest" shall mean an interest, the
ownership of which empowers the holder thereof to exercise a controlling
influence over the management, policies or personnel of an entity on any issue
and shall prevent any other person, group, combination, or entity from blocking
voting control on any issue or exercising any veto power. If a limited
partnership, a general partnership interest or such percentage of limited
partnership interests as shall permit the replacement or removal of any general
partner. Without limiting the generality of the foregoing, ownership of ten
percent (10%) or more of the equity or voting securities of a corporation or
ownership of any general partnership interest in a partnership or joint venture
shall be deemed conclusively to constitute a Controlling Interest in the
corporation, partnership, or joint venture, as the case may be.
(f) The term "Marks" shall mean the trademarks, service marks, logos
and other commercial symbols which Pretzel Time authorizes Area Developer to use
to identity the services and/or products offered by Pretzel Time Units,
including the mark "Pretzel Time" and the Trade Dress (defined below); provided
that such trademarks, service marks, logos, other commercial symbols and the
Trade Dress are subject to modification and discontinuance at Pretzel Time's
sole discretion and may include additional or substitute trademarks, service
marks, logos, commercial symbols and Trade Dress as provided in this Agreement.
(g) The term "Trade Dress" shall mean the unit design, decor and image
which Pretzel Time authorizes and requires Area Developer to use in connection
with the operation of Pretzel Time Units, as it may be revised and further
developed by Pretzel Time or Pretzel time's Affiliates from time to time and as
further described in Pretzel Time's manuals.
(h) The term "Pretzel Time Unit" shall mean a food service
business that: (1) offers products for consumer consumption
off-premises, provided that
Pretzel Time, may in its sole discretion, authorize and/or require such
business to offer TCBY yogurt products pursuant to a Yogurt Product
Addendum (defined in the Franchise Agreement) or to operate Special
Distribution Arrangements pursuant to a Special Distribution Agreement
(defined in the Franchise Agreement); and
(2) operates using the Pretzel Time System and the Marks; and
<PAGE>
DEVEPAG2.3.3.95
(3) is either operated by Pretzel Time or its Affiliates or
pursuant to a valid franchise from Pretzel Time. Pretzel Time Units are
of three types: (1) stores, (2) carts, and (3) kiosks. (i) The term
"Products" shall mean products approved or required by Pretzel Time
from time to time in its sole discretion for sale at or from Pretzel Time Units,
including, without limitation, hand-rolled soft pretzels of various flavors
including, without limitation, chocolate chip, raisin, honey-wheat, and
cinnamon, frozen pretzels and other pretzel-related products and toppings,
bagels, frozen yogurt, beverages, other food products and other Pretzel
Time-approved products, provided that the foregoing products are subject to
modification or discontinuance in Pretzel Time's sole discretion from time to
time and may include additional or substitute products.
(j) As used herein, the term "Non-Traditional Pretzel Time Unit" shall
mean any Pretzel Time Unit not located in a Shopping Mall.
(k) As used herein, the term "Pretzel Time Stores" shall mean "Pretzel
Time Units." (l) As used herein the term "Nontraditional Locations"
shall mean Non-Traditional Pretzel Time
Units that are located in airports, amusement parks, travel plazas, schools,
colleges, universities, hospitals, business offices, office buildings, military
facilities, entertainment facilities and/or entertainment events, sporting
facilities and/or sporting events, grocery stores, convenience stores,
supermarkets, bus stations, train stations, rapid transit stations, toll road
plazas, parks, toll road and/or limited access highway facilities.
(m) As used herein the term "Nontraditional Frozen Pretwisted Products"
shall mean frozen pretwisted pretzel products designated by Pretzel Time to be
sold as "Pretzel Time" products. Area Developer acknowledges that products that
are not sold under the "Pretzel Time" name shall not be governed by this
Agreement. Area Developer acknowledges that Pretzel Time may sell Nontraditional
Frozen Pretwisted Products that are branded and such products that are not
branded under the "Pretzel Time" name in and/or from Area Developer's Territory
without compensation to Area Developer. 60. Successors.
This Agreement shall bind and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns to the
parties hereto.
61. Terminology.
All terms and words used in this Agreement, regardless of the number
and gender in which they are used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine, or
neuter, as the context of sense of this Agreement of any section or clause
herein may require, as if such word had been fully and properly written in the
appropriate number and gender.
62. Invalid Or Unenforceable Provisions.
If any provisions of this Agreement, or its application to any person
or circumstance, is deemed invalid or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement or the application of such
provision to other persons or circumstances shall not be affected thereby,
provided, however, that if any provision or application thereof is invalid or
unenforceable, the court shall substitute a suitable and equitable provision
therefore in order to carry out, so far as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable provision.
<PAGE>
63. National Contracts, Nontraditional Locations and Nontraditional Frozen
Pretwisted Products. Concerning: (a) national contracts (including Marriott
Corporation and TCBY Systems Inc.); (b) Nontraditional Locations; and, (c) the
sale of Nontraditional Frozen Pretwisted Products, that directly relate to
income derived by Pretzel Time from the States of _____________, Area Developer
acknowledges that Area Developer shall have no rights concerning said (a)
national contracts (including Marriott Corporation and TCBY Systems Inc.); (b)
Nontraditional Locations; and, (c) sale of Nontraditional Frozen Pretwisted
Products.
IN WITNESS WHEREOF, the parties have hereunto caused this agreement to
be executed the day of ______________________ 1996.
WITNESSES: PRETZEL TIME, INC.
BY:/s/Martin E. Lisiewski
NAME:Martin E. Lisiewski
TITLE:
AREA DEVELOPER
BY:/s/Michael R. Ward
NAME:Michael R. Ward
TITLE:VP
<PAGE>
DEVEPAG2.3.3.95
EXHIBITS
Exhibit A .................................. Owners & Guarantor's Undertaking
Exhibit B ............................................. Principle Owners
Exhibit C .................................... Area Developer's Development
Obligations
Exhibit D ................................. Area Developer Responsibilities
Exhibit E ............................................. Franchise Agreement
<PAGE>
EXHIBIT D
AREA DEVELOPER RESPONSIBILITIES
This Exhibit is annexed to and forms a part of the Area Developer Agreement
executed on , 199 by and between Pretzel Time, Inc. and .
The parties herein agree that the following is the list of the Area
Developer's duties, obligations and responsibilities:
I. GENERAL RESPONSIBILITIES
1. Secure maximum sales volume from the potential sales in your
territory.
2. Provide adequate and consistent service to the franchise community
in your territory.
3. Develop company goodwill by increasing Pretzel Time prestige
and improve Pretzel Time's relationship with franchisees
wherever possible and conducting yourself in a way that will
reflect Pretzel Time's high integrity.
4. Show a steady growth in ability and self-development by:
a. accepting and using marketing and sales promotion tools and acids;
b. using to good advantage all training techniques and
marketing aids in making the franchisee's business more
profitable; c. improve yourself through company training in
selling and promotion; d. become thoroughly acquainted with
all Pretzel Time's policies, programs and products; and, e.
attending training classes at least once every 24 months.
5. Effectively plan and organize your territory and job to
accomplish the basic objectives of the job of area developer.
6. Acquaint yourself with competition which you will encounter in your
territory.
7. Become conversant about the general economy of your territory.
8. Learn the business history and operations of the franchisees within
the designated territory.
9. Organize your non-promotion tasks to carry out the job of promotion,
training and support by:
<PAGE>
DA.AGT2.24.95
D- 4
a. Setting up adequate files for reference in future work;
b. Prepare an overall plan of development in your territory to
use as a reference to accomplish your basic objectives.
10. Protect the Pretzel Time's trademarks.
II. SPECIFIC RESPONSIBILITIES
1. Completion of Pretzel Time's Management Training Program;
2. Establishment of office space within the designated territory to
conduct business;
3. Representation to others as an agent, not as an employee of Pretzel
Time;
4. Submission of an annual business plan to Pretzel Time
specifying nature of the organization, and manner in which
territory will be developed;
5. Opening a Pretzel Time Unit owned and operated by Area Developer;
6. Compliance with the new unit development procedures outlined below:
a. Franchisees must be approved by Pretzel Time;
b. Prompt completion of site checklist and submission to
Pretzel Time (only when requested by Pretzel Time);
c Initiation of remaining steps in franchise inquiry process;
d. After Pretzel Time approves site, lease negotiations
handled solely by Pretzel Time; and
e. Assist franchisee in unit build-out process and
assist franchisee's plan approval by Pretzel Time or
Pretzel Time's designated agent.
<PAGE>
7. No contact is to be initiated with any mall representatives
until a franchisee is approved by Pretzel Time for the
location;
8. Work on site for a minimum of two days immediately preceding
opening day and three days immediately following opening day
at each new unit opening within the Area Developer's
Territory. In the event that a franchise is sold, transferred
or assigned, the Area Developer shall work on site with the
new franchisee for five days beginning when the location is
transferred to the new franchisee;
9. Submit a completed unit opening checklist to Pretzel Time
within 5 days of each new unit opening or a transfer of an
existing franchise within the Area Developer's Territory;
10. Permit units within the Area Developer's Territory to open
only after ensuring Pretzel Time's standards have been
attained in every item of the new unit opening checklist;
11. Fulfill all additional responsibilities as defined in the Area
Developer's Agreement; and
12. Insure that all franchisees within their designated territory
are using Pretzel Time-approved food, beverages, products,
paper goods and supplies.
13. Submission of quarterly financial reports on a calendar year
basis to Pretzel Time, Inc.
<PAGE>
FRANCHISOR:
WITNESSES: PRETZEL TIME, INC.
BY:
NAME: ____________________
- -------------------
TITLE: ____________________
AREA DEVELOPER:
BY:
NAME: ___________________
- -------------------
TITLE: ___________________
<PAGE>
DA.AGT2.24.95
EXHIBIT "E"
THE FRANCHISE AGREEMENT
(A COPY OF THE FRANCHISE AGREEMENT IS ATTACHED TO THE OFFERING CIRCULAR AS
EXHIBIT "C" OF THE OFFERING CIRCULAR)
<PAGE>
EXHIBIT "C"
TO
DEVELOPMENT AGREEMENT
BEING AREA DEVELOPER'S
DEVELOPMENT OBLIGATIONS
Area Developer hereby agrees to have open and in operation at the end
of each Development Period described below the cumulative total of Pretzel Time
Units shown below as the development obligations (sometimes in this Agreement
referred to as the "Development Obligations") for such Development Period in
Area Developer's Territory:
<TABLE>
<CAPTION>
<S> <C> <C>
Development Date Development Development Number of Pretzel Time
Period Period Commences Period Ends Stores to be in Operation
First
Second
Third
Fourth
Fifth
</TABLE>
<PAGE>
AREA DEVELOPER AGREEMENT
BY AND BETWEEN
PRETZEL TIME, INC.
AND
-----------------------------------
<PAGE>
EXHIBIT E
TO THE OFFERING CIRCULAR
OF PRETZEL TIME, INC.
AREA DEVELOPER AGREEMENT
<PAGE>
EXHIBIT J
TO THE OFFERING CIRCULAR
OF PRETZEL TIME, INC.
FINANCIAL STATEMENTS
<PAGE>
38
"company owned stores") shall mean any Pretzel Time Unit owned, directly or
indirectly, by Pretzel Time or by a corporation in which Pretzel Time is the
majority shareholder.
11. Area Developer Expenses.
Area Developer acknowledges that Area Developer may incur no cost or
expenses on behalf of Pretzel Time without obtaining Pretzel Time's prior
written approval in each instance, if any.
12. Term.
The term of this Agreement shall be one year commencing on the
Effective Date and shall renew automatically from year to year thereafter unless
otherwise terminated in accordance with Sections 18 and/or 19 of this Agreement.
Each one year period shall be considered a Development Period as further set
forth on Exhibit "C." [Note: Pursuant to Maryland Law (COMAR 02.02.08.16L) any
general release required as a condition of renewal and/or assignment/transfer
will not apply to any liability under the Maryland Franchise Registration and
Disclosure Law. Any claims arising under the Maryland Franchise Registration and
Disclosure Law must be brought within 3 years after the grant of the franchise.]
13. Execution of Franchise Agreement.
Area Developer acknowledges that all franchisees in Shopping Malls in
the Area Developer's Territory shall execute a franchise agreement in form and
substance acceptable to Pretzel Time, as determined in Pretzel Time's sole
discretion. A copy of the Pretzel Time Franchise Agreement (including exhibits,
riders, shareholder guarantees, preliminary agreements and other agreements)
that Pretzel Time currently uses in granting franchises for the ownership and
operation of Pretzel Time Stores in the state in which Area Developer's
Territory is located is attached hereto as Exhibit "E" and incorporated herein
by reference the same as if fully copied and set forth at length. Further, Area
Developer hereby agrees to execute a franchise agreement for each Pretzel Time
unit that Area Developer opens, which form and substance of the franchise
agreement shall be acceptable to Pretzel Time in Pretzel Time's sole discretion.
Further, Area Developer hereby agrees to be bound by the
<PAGE>
Area Developer and Pretzel Time pursuant to this agreement shall be barred
unless an action is commenced within: (a) two (2) years from the date on which
the act or event giving rise to the claim occurred or (b) one (1) year from the
date on which Area Developer or Pretzel Time knew or should have known, in the
exercise of reasonable diligence of the facts given rise to such claims,
whichever occurs first. 50. Governing Law.
This Agreement shall be governed by, construed, and enforced in
accordance with, the laws of the Commonwealth of Pennsylvania without regard to
its principles of conflicts of law; provided a lawsuit may be brought in
Maryland for claims arising under the Maryland Franchise Registration and
Disclosure Law.
51. Captions.
The captions and paragraph headings in this Agreement are included for
convenience of reference only and shall not affect or be considered in the
interpretation or construction of any provision of this Agreement.
52. Approvals.
Except where this Agreement expressly obligates Pretzel Time reasonably
to approve or not unreasonably to withhold Pretzel Time's approval of any action
or request by Area Developer, Pretzel Time has the absolute right to refuse any
request by Area Developer or to withhold Pretzel Time's approval of any action
by Area Developer that requires approval by Pretzel Time.
53. Public Or Private Offerings.
If the Area Developer (or any of Area Developer's owners) attempts to
raise or secure funds by the sale of securities, the Area Developer is obligated
to pay Pretzel Time's then current fee to cover Pretzel Time's expenses in
connection with the offering or proposed offering. Currently, that
<PAGE>
20. Further Assurances. Each of the parties hereto hereby agrees to execute
and deliver any further instruments, certificates and documents as may be
reasonably requested by the other party hereto to carry out the terms,
conditions and responsibilities of this Agreement.
21. Noncompetition.
Area Developer agrees that for a term of one (1) year after the
termination or expiration of this Agreement, neither Area Developer nor Area
Developer's shareholders, directors or officers will engage directly or
indirectly, whether individually or in partnership or in conjunction with any
person, firm, associations, syndicate or corporation, as principal, agent,
shareholder, employee, consultant or in any other manner whatsoever, in any
business activity competitive with the business of Pretzel Time within three (3)
miles of any Pretzel Time Unit. Area Developer agrees that the limitations set
forth above are reasonable in time and geographic scope. If any provision hereof
is held invalid or unenforceable, the remainder shall nevertheless remain in
full force and effect. It is the intention of the parties that this Agreement
shall not be terminated thereby but shall be deemed to have been amended to the
extent required to render this Agreement valid and enforceable, such amendment
to apply only with respect to the jurisdiction of the court making such
adjucation. Covenants not to compete such as those mentioned above are generally
considered unenforceable in the State of North Dakota. 22. Confidentiality.
Both Pretzel Time and the Area Developer recognize that during the
course of this Agreement, Pretzel Time may loan to the Area Developer, Area
Developer's shareholders, officers, employees and agents valuable, confidential
and proprietary information pertaining to Pretzel Time's operations. Area
Developer agrees to hold in a fiduciary capacity for the benefit of Pretzel
Time, Pretzel Time's subsidiaries, successors, and assigns all secret and
confidential information, including
<PAGE>
To the extent assignable, this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. Each
of the following shall be deemed to be an assignment:
(a) the transfer of the rights of Area Developer hereunder;
(b) the transfer of fifty percent or more in the aggregate of
the capital stock or voting power of any corporate Area
Developer, Area Developer's parent company or any subsidiary,
controlled affiliate, affiliate, officer, director and/or
shareholder(s); (c) the issuance of stock by a corporate area
developer such that the newly issued shares constitute fifty
percent (50%) or more, in the aggregate of the capital stock
or voting power of the corporate franchisee; or (d) the
transfer of fifty percent (50%) or more in the aggregate
partnership interest of a partnership area developer.
45. Rights Of Parties Are Cumulative.
The rights of Area Developer and Pretzel Time are cumulative and no
exercise or enforcement by Pretzel Time or Area Developer of any right or remedy
hereunder shall preclude the exercise or enforcement by Pretzel Time or Area
Developer of any other right or remedy to which the party is entitled.
46. WAIVER OF JURY TRIAL.
[INTENTIONALLY DELETED].
47. Waiver Of Punitive Damages.
[INTENTIONALLY DELETED].
48. Exclusive Jurisdiction.
[INTENTIONALLY DELETED].
49. Limitations Of Claims.
[INTENTIONALLY DELETED].
<PAGE>
50. Governing Law.
[INTENTIONALLY DELTED].
51. Captions.
The captions and paragraph headings in this Agreement are included for
convenience of reference only and shall not affect or be considered in the
interpretation or construction of any provision of this Agreement.
52. Approvals.
Except where this Agreement expressly obligates Pretzel Time reasonably
to approve or not unreasonably to withhold Pretzel Time's approval of any action
or request by Area Developer, Pretzel Time has the absolute right to refuse any
request by Area Developer or to withhold Pretzel Time's approval of any action
by Area Developer that requires approval by Pretzel Time.
53. Public Or Private Offerings.
If the Area Developer (or any of Area Developer's owners) attempts to
raise or secure funds by the sale of securities, the Area Developer is obligated
to pay Pretzel Time's then current fee to cover Pretzel Time's expenses in
connection with the offering or proposed offering. Currently, that
PROMISSORY NOTE
MARTIN E. LISIEWSKI
$500,000.00 September 2, 1997
FOR VALUE RECEIVED, the undersigned, Martin E. Lisiewski ("Maker") hereby
promises to pay to Mrs. Fields' Holding Company, Inc., a Delaware corporation
("Holder"), the principal sum of Five Hundred Thousand Dollars ($500,000.00),
together with simple interest thereon at the rate of ten percent (10%) per annum
(computed on the basis of a 365-day year), on the unpaid principal balance
thereof, on or before the Due Date (as defined below). Payments of principal of,
and interest on, this Note are to be made in lawful money of the United States
of America in the State of Utah at the principal office of the Holder.
Payments of principal and interest shall be made on a monthly basis commencing
on January 2, 1998. Unless otherwise elected by Maker, payments shall be made
only from dividends and bonuses paid to Maker from Pretzel Time, Inc., a
Pennsylvania corporation, which, Maker hereby expressly agrees, Holder may
offset against such dividends and bonuses without first delivering such amounts
to Maker. Unpaid amounts due herein will accrue hereunder until the next
scheduled payment of bonus and/or dividend. At that time, any accrued amounts
may be offset against such dividend or bonus payment. Each monthly payment shall
equal the net amount of each dividend or bonus remaining after applicable
withholding taxes or income taxes, as the case may be, provided that annual
payments of principal and interest on this Note shall not exceed the sum of One
Hundred Thousand ($100,000) Dollars and shall be applied first to interest,
second to other charges due hereunder, and third to principal.
This Note shall be due and payable upon the earlier of (the "Due Date"):
1. September 1, 2002; or
2. Ninety (90) days after the termination of that certain
Shareholders Agreement of even date entered by and among
Maker, Holder and Pretzel Time, Inc., a Delaware corporation
("PTI"); or
3. Ninety (90) days after the termination of that certain
Employment Agreement of even date by and between Maker and
PTI; or
4. an Event of Default described below.
For purposes hereof, an Event of Default shall be:
a. Nonperformance. Failure to pay any amounts due hereunder,
subject to a ten (10) day period to cure from the due date, or the
failure to cure any other default hereunder within thirty (30) days of
the receipt of written notice from Holder of such a default;
b. Extraordinary Events. If (i) Maker shall file a voluntary
petition in bankruptcy or a petition or answer seeking a
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or other relief of the same or different kind under any
provision of the bankruptcy laws or Maker shall make an assignment for
the benefit of creditors; or (ii) an involuntary petition in bankruptcy
against Maker or a petition or answer made by a person other than Maker
seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or other relief against Maker of the same or
different kind under any provision of the bankruptcy laws is filed or
if a receiver is appointed having jurisdiction of the business property
or assets of Maker, and, in any of such events, if such petition shall
not be dismissed or the receivership vacated within ninety (90) days
from the date filed or commenced.
<PAGE>
This Note shall be in default and all amounts owing under this Note shall be
immediately due and payable upon the occurrence of an Event of Default.
Holder shall be entitled to recover its reasonable costs of collection
(including reasonable attorneys' fees) from Maker if an Event of Default shall
occur and be continuing hereunder.
The Maker hereby waives demand, presentment and protest, and notice of demand,
presentment, protest and nonpayment.
The Maker may prepay without penalty all or any portion of the principal
outstanding under this Note.
This Note is governed by the laws of the State of Utah without giving effect to
the conflicts of laws provisions thereof. This Note inures to the benefit of the
successors and assigns of Maker and Holder.
IN WITNESS WHEREOF, the Maker has executed this note as of the date set forth
above.
/s/Martin E. Lisiewski
Martin E. Lisiewski
EXCHANGE AGREEMENT
This Exchange Agreement is made and entered into as of the 2nd day of
September, 1997, by Mrs. Fields' Holding Company, Inc., a Delaware corporation
("Fields"), and Martin E. Lisiewski, an individual resident in Pennsylvania
("Lisiewski"); each a "Party", and collectively, the "Parties".
WHEREAS, Fields and Lisiewski are shareholders in Pretzel Time, Inc., a
Pennsylvania corporation ("Pretzel Time");
WHEREAS, the Parties have agreed that in order to provide liquidity for
Lisiewski, in the event that Fields, or a subsidiary or sister entity of Fields
(a "Fields Entity"), commences an initial public offering or secondary offering
of stock (collectively, an "Offering"), then Lisiewski shall have the right and
obligation to exchange his Pretzel Time stock (together with the Pretzel Time
stock of all of his Permitted Transferees as defined in the Shareholders
Agreement between the Parties and Pretzel Time of even date herewith)
(collectively, the "Lisiewski Pretzel Stock") for stock (the "Offering Entity
Stock") in the Fields entity conducting the Offering (the "Offering Entity"), as
more fully described herein;
WHEREAS, in addition to this Agreement, the Parties are concurrently
entering into a Registration Rights Agreement (the "Registration Rights
Agreement") to further clarify the rights of Lisiewski;
NOW, THEREFORE, in consideration of the foregoing, and of other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:
<PAGE>
1. Certain Definitions.
1.1 For purposes hereof, a Fields Entity includes Fields, Mrs. Fields
Original Cookies, Inc. ("MFOC"), and any subsidiaries of either of them, or any
parent entity that may be formed; provided that "Fields Entity" shall not
include Capricorn Investors II, L.P., or any parent entity thereof.
2. Cooperation of Offering Entity. Fields shall cause the Offering Entity to
cooperate and perform the obligations described hereunder, including the
exchange of Offering Entity Stock for Lisiewski Pretzel Stock in the event that
Fields is not the Offering Entity.
3. Mechanics of Exchange of Shares.
3.1 At least sixty (60) days prior to the Offering, the Offering Entity
and Fields (if the Offering Entity is other than Fields) shall deliver notice of
the impending Offering to Lisiewski (the "Offering Notice").
3.2 Within five (5) days of receipt of the Offering Notice, the Parties
shall agree on an appraiser to determine the value of the Lisiewski Pretzel
Stock and the value of the Offering Entity, after giving effect to the Exchange
(as defined below) (the "Valuation"). If the Parties are unable to agree on an
appraiser within five (5) days, then the Parties shall cause the board of
directors of Pretzel Time (with the concurrence of one director selected by
Lisiewski and one director selected by Fields) to select the appraiser. Such
selection shall be made within fourteen (14) days of receipt of the Offering
Notice by Lisiewski. The costs of the appraisal shall be shared equally by
Fields and Lisiewski. The Valuation shall be made by the appraiser within
fourteen (14) days of the appointment of the appraiser. The Valuation shall
specify a conversion ratio of Lisiewski Pretzel Stock for Offering Entity Stock.
When issued by the appraiser, the Valuation shall be final and binding on Fields
and Lisiewski.
3.3 Within seven (7) days of the Valuation, Lisiewski and the Offering
Entity shall exchange (the "Exchange") the Lisiewski Pretzel Stock for the
required number of shares of the Offering Entity Stock as specified by the
Valuation, which shares of Offering Entity Stock shall be placed in a mutually
acceptable escrow. In the event that an underwriting agreement is not entered
into as described in the Registration Rights Agreement, then the Exchange shall
not be consummated. In the event an underwriting agreement is consummated, then
the Exchange shall be consummated and the shares of Offering Entity Stock
released from the escrow to Lisiewski. 4. Post-Exchange Agreements.
4.1 Fields, on behalf of itself and the Fields Entitys' hereby
covenants and agrees that if the Exchange: (i) causes Lisiewski a federal and/or
State taxable event, and (ii) if the Lisiewski shares of Offering Entity Stock
are not publicly tradeable (whether through registration, SEC Rule 144, or
otherwise), then (iii) Fields (or a Fields Entity) shall loan (the "Loan") to
Lisiewski sufficient funds to pay such tax. The Loan: (i) shall be for the
period of time that the Lisiewski shares of the Offering Entity Stock are not
publicly tradeable (whether through registration, SEC Rule 144, or otherwise),
provided that when a sufficient number of shares are publicly tradeable then all
principal and accrued interest shall be immediately due and payable, (ii) shall
be at an interest rate that is the lesser of the cost of funds to the Fields
Entity or the prime rate (plus 1%) as announced in the Wall Street Journal on
the date that the Loan is closed. Lisewski shall pledge as security for the Loan
twenty one percent (21%) of the number of shares of Offering Entity Stock he
receives as a result of the Exchange.
<PAGE>
4.2 In the event that Fields makes the Loan, then Lisewski's Employment
Agreement shall continue in full force and effect for the duration of the Loan.
When the Loan becomes due and payable as described above, then the Employment
Agreement shall terminate.
5. Miscellaneous.
5.1 Benefit. This Agreement shall be binding upon and inure to the
benefit of the successors, assigns, personal representatives, heirs and legatees
of the respective Parties hereto. This Agreement may be assigned to and assumed
by MFOC, provided that Fields shall not be relieved of its duties under this
Agreement in the event of an assignment thereof.
5.2 Entire Agreement; Waiver. This Agreement contains the entire
agreement of the Parties hereto with respect to the subject matter hereof and no
modification, amendment or change of any term or provision of this Agreement
shall be valid or binding unless the same is in writing and signed by all the
Parties hereto. No waiver of any of the terms of this Agreement shall be valid
unless signed by the Party against whom such waiver is asserted and a waiver at
any time of any of the terms of this Agreement shall not be construed as a
waiver at any subsequent time of the same terms.
5.3 Notices. Any notice, demand, offer, or other written instrument
required or permitted to be given, made or sent hereunder shall be in writing
and may be sent by personal delivery, overnight courier, registered or certified
United States mail, postage prepaid, return receipt requested, to all required
Parties simultaneously at the their respective addresses as set forth in the
shareholder records of Pretzel Time. Any person to receive a notice hereunder
shall have the right to change the place to which any such notice shall be sent
by a similar notice sent in like manner to all of the other Parties hereto.
Except as otherwise provided herein, all notices sent in the United States mail
in the manner set forth above shall be deemed given or received on the earlier
of actual receipt or three (3) days after being placed in the United States
mail, or in the case of overnight courier, the day after delivery to the courier
service.
5.4 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Utah, without giving effect to the
conflict of laws provisions thereof.
5.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one agreement.
5.6 Severability. In the event any one (1) or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
5.7 Attorneys' Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
Party shall be entitled to reasonable attorneys' fees, costs and other
disbursements in addition to any other relief to which such Party may be
entitled.
<PAGE>
5.8 Terminology. With respect to terminology in this Agreement, each
number (singular or plural) will include all numbers and each gender (male,
female or neuter) will include all genders. The title of the Sections in this
Agreement will have no effect and will neither limit nor amplify the provisions
hereof.
5.9 Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Salt Lake City, Utah, in
any action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Each
Party agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
5.10 Arbitration. All disputes hereunder shall be resolved by binding
arbitration in Salt Lake City, Utah conducted in accordance with the terms of
this arbitration clause. Arbitrations conducted pursuant to this Agreement,
including selection of arbitrators, shall be administered by the American
Arbitration Association (the "Administrator") pursuant to the Commercial
Arbitration rules of the Administrator. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction. Any Party who fails
to submit to binding arbitration following a lawful demand by the opposing Party
shall bear all costs and expenses, including reasonable attorney's fees,
incurred by the opposing Party in compelling arbitration of any dispute
hereunder.
IN WITNESS WHEREOF, the Parties have executed this Agreement personally
or has caused this Agreement to be executed by a duly authorized representative.
MRS. FIELDS' HOLDING COMPANY, INC.,
By:/s/Michael R. Ward
Michael R. Ward, Vice President
/s/Martin E. Lisiewski
Martin E. Lisiewski, Individually
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as
of the 2nd day of September, 1997, by and between MRS. FIELDS' HOLDING COMPANY,
INC., a Delaware corporation ("Fields"), and MARTIN E. LISIEWSKI, an individual
with his principal residence in the State of Pennsylvania (a "Shareholder").
<PAGE>
1. Definitions. As used in this Agreement, the following terms shall have
the following meanings:
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Company" shall mean Fields, Mrs. Fields' Original Cookies,
Inc. ("MFOC"), and any subsidiaries of either of them, or any parent
entity of them that may be formed; provided, that "Company" shall not
include Capricorn Investors II, L.P., or any parent entity thereof. In
the event that a Company other than Fields, determines to register
Shares, then Fields shall cause such Company to comply with the
provisions of this Agreement, and shall be the "Company" for purposes
hereof.
"Exchange" means the exchange of Pretzel Time, Inc. shares
owned by the Shareholder (or his Permitted Assignees as defined in the
Shareholders Agreement), for Shares (as defined below), as more fully
described in the Exchange Agreement.
"Exchange Agreement" shall mean that certain Exchange
Agreement between the Parties of even date herewith.
"Holder" shall mean the Shareholder (and his Permitted
Transferees as defined in the Shareholders Agreement) or any other
party to or assignee under this Agreement who holds any Registrable
Securities.
The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration
statement in compliance with the Securities Act (as defined below),
including the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" means Shares which may be registered pursuant to this
Agreement.
"Registration Expenses" shall mean all expenses incurred by
the Company in connection with a registration hereunder, including,
without limitation, all registration and filing fees, printing
expenses, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration, and the fees and
disbursements of counsel for the Company.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
of the Commission thereunder.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of the Shares and all fees
and disbursements of counsel for any Holder in connection with the sale
of the Shares.
"Shares" means shares of the Company's common stock that are
acquired from the Company by a Holder, including pursuant to the
Exchange, and common stock issued in respect of such shares of common
stock as a result of any stock split, stock dividend, recapitalization,
or similar event.
"Shareholders Agreement" shall mean that certain Shareholders
Agreement among the Shareholder, Fields, and Pretzel Time, Inc., of
even date herewith.
<PAGE>
2. "Piggy-Back" Registration.
(a) If the Company shall determine at any time to register any
of its common stock or securities which are convertible into or
exercisable for common stock (other than a registration relating solely
to employee benefit plans, a registration relating solely to an SEC
Rule 145 transaction, or a registration on any registration form which
does not permit secondary sales or does not include substantially the
same information as would be required to be included in a registration
statement covering the sale of Registrable Securities), the Company
will: (i) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends
to attempt to qualify such securities under the applicable blue sky or
other state securities laws, and for purposes of the Shareholder shall
be sent concurrently with the Offering Notice described in the Exchange
Agreement), and (ii) use its best efforts to cause to be included in
such registration and in any underwriting involved therein all the
Registrable Securities specified in a written request or requests made
by the Holder within 20 days after receipt of such written notice from
the Company (or, in the case of the Shareholder, at the time of the
Exchange as defined in the Exchange Agreement); provided, however, that
the number of Registrable Securities so registered may be limited by
the underwriter's cut-back provision set forth in the following Section
2(c). Notice shall not be required from the Shareholder and his
Permitted Transferees (as defined in the Shareholders Agreement).
(b) If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company
shall so advise the Holder as a part of the written notice given
pursuant to Section 2(a). In such event, the right of the Holder to
registration pursuant to Section 2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent
provided herein.
(c) Any Holder proposing to distribute their securities
through such underwriting shall (together with the Company) enter into
an underwriting agreement in customary form with the representative of
the underwriter(s) selected for underwriting by the Company.
Notwithstanding any other provision of this Section 2, the Company
shall not be required to include in the registration the securities of
any Holder unless the Holder accepts and agrees to the terms proposed
by the underwriters selected by the Company, and then only in such
quantity as will not, in the opinion of the underwriters and based on
marketing factors identified by such underwriters, jeopardize the
success of the offering by the Company. If the total number of
Registrable Securities which the Holder(s) request to be included in
any offering exceeds the number of shares which the underwriters
reasonably believe is compatible with the success of the offering, the
Company shall only be required to include in the offering so many of
the shares as the underwriters believe will not jeopardize the success
of the offering. In such event, the priorities for inclusion of shares
in the Offering shall be as follows: (i) the Shares of the entity
actually undertaking the registration with respect to its own shares;
(ii) next, the Registrable Securities of the Shareholder and any
Permitted Transferee of the Shareholder (as defined in the Shareholders
Agreement), pro rata among the Shareholder and his Permitted
Transferees; (iii) next, the other Holders (including any parent of the
Company) in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of
filing the registration statement.
3. Obligations of the Company. If there is a registration of
Registrable Securities, the Company shall do the following as expeditiously as
possible:
<PAGE>
(a) the Company shall prepare and file with the Commission
such amendments and supplements to such registration statements and the
prospectus used in connection therewith to comply with the requirements
of the Securities Act;
(b) the Company shall furnish to the Holder(s) such number of
copies of a prospectus (including a preliminary prospectus), in
conformity with the requirements of the Securities Act, and such other
documents as such Holder(s) may reasonably request in order to
facilitate the disposition of the Registrable Securities to be sold
under the registration statement; and
(c) the Company shall use its best efforts to register and
qualify the securities covered by such registration statements under
the securities laws of such states of the United States as shall be
reasonably appropriate for the distribution of the securities covered
by such registration statement.
4. Information by Holder. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the Holder(s) of Registrable Securities included in any registration shall
cooperate with the Company and any underwriters to effect such registration(s),
including providing to the Company any consents and furnishing to the Company
such information regarding such Holder(s) and the distribution proposed by such
Holder(s) as the Company may reasonably request in writing and as shall be
required in connection with any registration, qualification, or compliance
referred to in this Agreement.
5. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification, or compliance pursuant to
Section 2 of this Agreement shall be borne by the Company, and all Selling
Expenses shall be borne pro rata by the Holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
6. No Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration under this
Agreement as a result of any controversy that might arise with respect to the
interpretation or implementation hereof.
7. Indemnification. In the event that the Registrable Securities of a
Holder are included in a registration statement filed under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
each such Holder, each of its officers, directors and partners, and
each person controlling such Holder, with respect to which registration
or qualification of Registrable Securities of such Holder has been
effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls any underwriter against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus,
offering circular or other document incident to any such registration,
qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or of any rule or
regulation promulgated under the Securities Act applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance,
and will reimburse each such Holder, each of its officers, directors
and partners, and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability, or
action, provided that the Company will not be liable in any such case
for amounts paid in settlement of any such claim, loss, damage,
liability, or action if such settlement is effected without the
reasonable consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable to the extent
that any such claim, loss, damage, liability, or expense arises out of
or is based on any untrue statement or omission based upon written
information furnished to the Company by such Holder.
<PAGE>
(b) To the extent permitted by law, each such Holder will, if
Registerable Securities held by such Holder are included in the
securities as to which such registration, qualification or compliance
is being effected, indemnify the Company, each of its directors and
officers, each legal counsel and independent accountant of the Company,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of the Securities Act, and each other
Holder, each of such other Holder's officers, directors, and partners,
and each person controlling such other Holder, against all claims,
losses, damages, and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such other
Holders, such directors, officers, partners, persons, underwriters, or
control persons for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and
in conformity with written information furnished to the Company by such
Holder, provided that the Holder will not be liable in any case for
amounts paid in settlement of any such claim, loss, damage, liability,
or action if such settlement is effected without the reasonable consent
of the Holder (which consent shall not be unreasonably withheld), and
provided further, that the liability of any Holder hereunder shall be
limited to the net proceeds to such Holder from the Shares of such
Holder that were sold in such offering.
(c) Each party entitled to indemnification under this Section
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided
further that the failure of any Indemnified Party to give notice as
provided herein, if substantially prejudicial to the ability of the
Indemnifying Party to defend against such claim or any litigation
resulting therefrom, shall relieve such Indemnifying Party of any
obligations under this Agreement to the extent such Indemnifying Party
is damaged solely as a result of such failure to give notice, but such
failure shall not relieve such Indemnifying Party of any of its
obligations otherwise than under this Agreement. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such
claim or litigation.
<PAGE>
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either
(i) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for
indemnification pursuant to this Section 7 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not
be enforced in such case notwithstanding the fact that this Section 7
provides for indemnification in such case, or (ii) contribution under
the Securities Act may be required by order or judgment or decree of
the Commission, or any court of competent jurisdiction on the part of
any such selling Holder or any such controlling person in circumstances
for which indemnification is provided under this Section 7; then, and
in each such case, the Company and such Holder will contribute to the
aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that
such Holder is responsible for the portion represented by the
percentage that the public offering price of such Holder's stock
offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, and the
Company is responsible for the remaining portion; provided,
however,that, in any such case, (A) no such Holder will be required to
contribute any amount in excess of the public offering price of all
such stock offered by such Holder pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
8. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of any
outstanding Shares to the public without registration, the Company agrees after
any registration to use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all
times;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act
and the Exchange Act, as long as it is subject to such reporting
requirements; and
(c) so long as a Holder holds any Shares, furnish to the
Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company, and such other reports and
documents so filed by the Company as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a
Holder to sell any such securities without registration.
9. "Market Stand-Off" Agreement. Holder agrees, if requested by the
Company or an underwriter of common stock (or other securities) of the Company,
not to sell or otherwise transfer or dispose of any common stock (or other
securities) of the Company held by the Holder (other than those included in the
registration) during the 90-day period (or longer period if required by the
underwriter(s); provided that the stand off period shall be no longer than the
period required of the Company or its parent) following the effective date of a
registration statement of the Company filed under the Securities Act.
<PAGE>
10. Termination of Registration Rights. The obligations of the Company
to register the Registrable Securities pursuant to this Agreement shall
terminate ten (10) years from the date hereof.
11. Modifications and Waivers. This Agreement may not be amended or
modified, nor may the rights of any party hereunder be waived, except by a
written document that is executed by the Company and all Holders at the time of
the amendment, provided that a Holder may be added by the Company alone. No
waiver of any provision of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof, nor shall any waiver constitute a
continuing waiver.
12. Successors. This Agreement is and shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, neither the Company nor any of the Shareholders
shall assign this Agreement to any third party, except that Fields may assign
this Agreement to MFOC, provided that Fields shall not be relieved of its duties
under this Agreement in the event of an assignment thereof.
13. Amendment of Registration. If, after a registration statement
becomes effective, the Company advises the holders of the Registrable Securities
that the Company considers it appropriate for the registration statement to be
amended, the holders of such shares shall suspend any further sales of their
Registrable Securities until the Company advises them that the registration
statement has been amended.
14. Notices. Any notice, request, consent, or other communication
hereunder shall be in writing and shall be sent by one of the following means:
(i) mailed by registered or certified first class air mail, postage prepaid;
(ii) by facsimile transmission; (iii) by reputable overnight courier; or (iv) by
personal delivery, and shall be properly addressed to the parties at their last
known addresses.
15. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto in relation to the subject matter hereof. Any prior
written or oral negotiations, correspondence, or understandings relating to the
subject matter hereof shall be superseded by this Agreement and shall have no
force or effect.
16. Severability. If any provision which is not essential to the
effectuation of the basic purpose of this Agreement is determined by a court of
competent jurisdiction to be invalid and contrary to any existing or future law,
such invalidity shall not impair the operation of the remaining provisions of
this Agreement.
<PAGE>
17. Submission to Jurisdiction. Each of the parties submits to the
jurisdiction of any state or federal court sitting in Salt Lake City, Utah, in
any action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other party with respect thereto. Each
party agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
18. Arbitration. All disputes hereunder shall be resolved by binding
arbitration in Salt Lake City, Utah conducted in accordance with the terms of
this arbitration clause. Arbitrations conducted pursuant to this Agreement,
including selection of arbitrators, shall be administered by the American
Arbitration Association (the "Administrator") pursuant to the Commercial
Arbitration rules of the Administrator. Judgment upon any award rendered
hereunder may be entered in any court having jurisdiction. Any party who fails
to submit to binding arbitration following a lawful demand by the opposing party
shall bear all costs and expenses, including reasonable attorney's fees,
incurred by the opposing party in compelling arbitration of any dispute
hereunder.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be an original,
but all of which together shall constitute one and the same instrument.
20. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Utah (applicable to contracts to be
performed wholly within the State).
21. Bound By Agreement. Each party shall be bound by and shall be
entitled to the benefits of the Agreement at the time each such party executes
the Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
COMPANY SHAREHOLDER
MRS. FIELDS' HOLDING COMPANY, INC.
By:/s/Michael R. Ward by:/s/Martin E. Lisiewski
MICHAEL R. WARD MARTIN E. LISIEWSKI
VICE PRESIDENT
EXHIBIT A
FRANCHISEE ACKNOWLEDGEMENTS AND REPRESENTATIONS STATEMENT
1. Franchisee acknowledges that he has read the franchise agreement (the
"Agreement") between Pretzel Time, Inc. ("Pretzel Time") and Franchisee dated as
of the same date hereof and that he understands and accepts the terms,
conditions, and covenants contained in the Agreement as being reasonably
necessary to maintain Pretzel Time's high standards of quality and service and
the uniformity of those standards at all Pretzel Time Units and thereby to
protect and preserve the goodwill of the Marks and the Pretzel Time System.
2. Franchisee acknowledges that the food service business is a highly
competitive industry, with constantly changing marketing conditions. Franchisee
acknowledges that he has conducted an independent investigation of the business
venture contemplated by the Agreement and recognizes that, like any other
business, the nature of the business conducted by Pretzel Time Units may change
over time, that an investment in a Pretzel Time Unit involves business risks and
that the success of the venture is largely dependent upon the business abilities
and efforts of Franchisee.
3. Franchisee acknowledges and agrees that Pretzel Time makes no warranties that
the Site selected by Franchisee will succeed or be profitable. Each franchise is
independent and the success or failure of a given franchise results from many
factors including, without limitation, Franchisee's personal day-to-day
involvement in the operations of the Unit.
4. Franchisee hereby acknowledges and agrees that Pretzel Time's approval of the
Site selected by Franchisee does not mean the Site will succeed or be
profitable. Each franchise is independent and the success or failure of a given
franchise results from many factors including, without limitation, Franchisee's
personal day-today involvement in the operations of the Unit.
5. Franchisee hereby acknowledges and agrees that Pretzel Time's approval of the
Site for the Unit does not constitute an assurance, representation or warranty
of any kind, express or implied, as to the suitability of the Site for a Pretzel
Time Unit, or the successful operation or profitability of a Pretzel Time Unit
operated at the Site. Pretzel Time shall not be responsible for the failure of
the Site approved by Pretzel Time to meet Franchisee's expectations as to
revenue or operational criteria. Franchisee further agrees and acknowledges that
he is solely and wholly responsible to fully investigate the site for its
suitability. Pretzel Time makes no representations or warranties of its own
expertise in the area of site selection and is offering only its own subjective
opinion regarding the business potential of any site.
<PAGE>
6. Franchisee acknowledges and agrees that Pretzel Time has not made any
representations or statement of actual, average, projected or forecasted sales,
profits or earnings with respect to Pretzel Time Units. Pretzel Time's employee,
personnel, and officers are not authorized to make any claims or statements as
to the earnings, sales or profits or prospects or chances of success that any
franchisee can expect or that present or past franchisee have had. Pretzel
Time's employees, personnel, and officers are not authorized to represent or
estimate dollar figures as to given store operations and they are directed to
provide the names of store owners in the contemplated areas so that the
prospective franchisee can make his own investigations.
7. Franchisee acknowledges and agrees that Pretzel Time employees,
representatives, and employees are not authorized to make any claims or
statements as to the suitability of any prospective locations for the
franchisee's Pretzel Time unit. Pretzel Time disclaims any responsibility in
selecting a suitable location for the franchisee's Pretzel Time unit.
8. Pretzel Time recommends that each prospective franchisee for a Pretzel Time
Unit franchise consult with an attorney of its own choosing and further be
represented by legal counsel at the time of its closing. Franchisee acknowledges
that it has had ample opportunity to consult with legal counsel and other
professional advisors.
9. Franchisee acknowledges that in all of Pretzel Time's dealings with
Franchisee, the officers, directors, employees, and agents of Pretzel Time act
only in a representative capacity and not in an individual capacity. Franchisee
further acknowledges that the Agreement, and all business dealings between
Franchisee and such individuals as a result of the Agreement, are solely between
Franchisee and Pretzel Time. Franchisee further represents to Pretzel Time, as
an inducement to its entry into this Agreement, that neither Franchisee nor its
Owners have made any misrepresentations in obtaining the Franchise.
<PAGE>
10. If Franchisee is a legal entity, Franchisee:
a. represents that it is duly organized and validly existing
in good standing under the laws of the jurisdiction of its
organization, is qualified to do business in all jurisdictions in which
its business activities or the nature of properties owned by Franchisee
requires such qualification, and has the authority to execute and
deliver the Agreement and perform all Franchisee's obligations under
the Agreement; and
b. agrees that all certificates representing Ownership
Interests in Franchisee now outstanding or hereafter issued will be
endorsed with a legend in form approved by Pretzel Time reciting that
the transfer of Ownership Interests in Franchisee is subject to
restrictions contained in this Agreement.
11. Franchisee further represents and warrants that all Owners of Franchisee and
their interests therein are completely and accurately listed in Exhibit D
attached hereto to the Franchise Agreement.
12. Franchisee represents and warrants that its domicile is as set forth below:
-----------------------------------
Address
-----------------------------------
City, State and Zip
WITNESSES: FRANCHISEE
- ---------------------------------
- ---------------------------------
_________________________________ By: _____________________________
Name: ___________________________
Title: ____________________________
Date Signed: ______________________
<PAGE>
12. Franchisee represents and warrants that its domicile is as set forth below:
-----------------------------------
Address
-----------------------------------
City, State and Zip
13. Maryland Law (Section 14-226 of the Maryland Franchise Registration and
Disclosure Law prohibits a franchisor from requiring a prospective franchisee to
assent to any release, estoppel or waiver of liability as a condition of a
purchasing a franchise. Accordingly, representations contained herein will not
release, estop or waive any liability incurred under the applicable portions of
the Maryland Franchise Registration Disclosure Law.
WITNESSES: FRANCHISEE
- ---------------------------------
- ---------------------------------
_________________________________ By: _____________________________
Name: ___________________________
Title: ____________________________
Date Signed: ______________________
<PAGE>
(B-1)
franex.96
EXHIBIT B
PRINCIPAL OWNER, OTHER OWNERS,
DESIGNATED PRINCIPAL OWNERS,
UNIT AND MANAGER, SUPERVISING OWNERS
AND INITIAL CAPITALIZATION
1. Principal Owners: Listed below is the full name (and mailing
address) of each person or entity who is a Principal Owner of Franchisee
(including a designated Principal Owner so designated based on their business
experience, financial capacity or other personal attributes), and a description
of the nature of such Principal Owner's direct or indirect equity or voting
interest in Franchisee:
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest (Describe):
<PAGE>
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
<PAGE>
(B -4)
franex.96
2. Other Owners. Listed below is the full name (and mailing address) of
each person or entity, other than the Principal Owners, who directly or
indirectly owns an equity voting interest in Franchisee and a description of the
nature of the interest (attach additional sheets if necessary):
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
3. Unit Manager and Additional Manager: As required pursuant to this
Agreement, the following person shall attend the training program as the initial
Unit Manager of the UNIT:
Name:
(Unit Manager)
4. Supervising Owners: As required pursuant to this Agreement, the
following Principal Owners shall supervise the operation of the UNIT:
Name:
Name:
Name:
Name:
<PAGE>
5. Initial Capitalization. Franchisee: (a) represents and warrants that
it has developed and previously provided to COMPANY a description of its initial
capital structure (the "Initial Capital Structure") which is a true, correct,
complete and detailed description of Franchisee's capital structure; (b)
covenants that it will not deviate from the Initial Capital Structure without
COMPANY's prior written consent; and (c) acknowledges that COMPANY has relied on
the Initial Capital Structure in entering into this Agreement.
WITNESSES:
PRETZEL
TIME,
INC.
a Pennsylvania corporation
_____________________ By:
_____________________ Name: ____________________
Title:
Date Signed: _______________
WITNESSES: FRANCHISEE
--------------------------
- --------------------
By:
____________________ Name: ____________________
Title:
Date Signed: _______________
<PAGE>
(C -2)
franex.96
EXHIBIT C
PERMITTED COMPETITIVE BUSINESSES
1. Applicability. This Agreement is executed pursuant to a Franchise Agreement
dated and this Exhibit shall be incorporated into the Franchise Agreement.
2. Owners in Permitted Competitive Businesses. The following persons
currently perform services for or have an ownership interest in a Permitted
Competitive Business as of the date of this Agreement:
A. Name of Owner:
B. Name of Owner:
Name of Competitive Business: Name of Competitive
Business:
Address of Competitive Business: Address of Competitive
Business:
C. Name of Owner:
D. Name of Owner:
Name of Competitive Business: Name of Competitive
Business:
Address of Competitive Business: Address of Competitive
Business:
<PAGE>
WITNESSES: PRETZEL TIME, INC.
By:
___________________________ Name: _________________________
Title: __________________________
Date Signed: ____________________
WITNESSES: FRANCHISEE
----------------------------
By:
__________________________ Name: _________________________
Title:
Date Signed: ____________________
<PAGE>
(D -4)
franex.96
EXHIBIT D
OWNER'S AND GUARANTOR'S UNDERTAKING AND ASSUMPTION OF OBLIGATIONS
THIS UNDERTAKING AND ASSUMPTION OF FRANCHISEE'S OBLIGATIONS is given this day of
, 19 , by the undersigned. ----------------------------------- -----
FRANCHISEE:
Date of Franchise Agreement:
1. ACKNOWLEDGEMENT AND GUARANTY.
In consideration of, and as an inducement to, the execution of the
above mentioned Pretzel Time, Inc. Franchise Agreement ( the "Franchise
Agreement") by Pretzel Time, Inc. ("Company"), each of the undersigned and any
other parties who sign counterparts of this guaranty (referred to herein
individually as a "Guarantor" and collectively as "Guarantors") hereby
personally and unconditionally: (a) guarantees to COMPANY, and its successors
and assigns, for the term of the franchise Agreement and thereafter as provided
in the franchise Agreement, that FRANCHISEE shall punctually pay and perform
each and every undertaking, agreement and covenant set forth in the Franchise
Agreement; and (b) agrees to be personally bound by, and personally liable for
the breach of, each and every provision in the Franchise Agreement, both
monetary obligations and other obligations, including, without limitation, the
obligation to pay costs and legal fees as provided in the Franchise Agreement
and the obligation to take or refrain from taking specific actions or to engage
or refrain from engaging in specific activities, including, without limitation,
the provisions of the Franchise Agreement relating to competitive activities.
2. WAIVERS.
Each Guarantor waives:
(a) acceptance and notice of acceptance by COMPANY of the foregoing
undertakings; and
(b) notice of demand for payment of any indebtedness or nonperformance of
any obligations hereby guaranteed; and
(c) protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed; and
<PAGE>
(d) any right he may have to require that an action be brought against
FRANCHISEE or any other person as a condition of liability; and
(e) all rights to payments and claims for reimbursement or subrogation
which he may have against FRANCHISEE arising as a result of his execution and
performance under this guaranty; and
(f) any and all other notices and legal or equitable defenses to which
he may be entitled.
3. ADDITIONAL COVENANT OF GUARANTORS.
Each Guarantor consents and agrees that:
(a) his direct, independent, and immediate liability under this
undertaking shall be joint and several not only with FRANCHISEE, but also among
the Guarantors;
(b) he shall render any payment or performance required under the
Franchise Agreement upon demand if FRANCHISEE fails or refuses punctually to do
so;
(c) such liability shall not be contingent or conditioned upon pursuit
by COMPANY or its Affiliates of any remedies against FRANCHISEE or any other
person;
(d) such liability shall not be diminished, relieved or otherwise
affected by any subsequent rider or amendment to the Franchise Agreement or by
any extension of time, credit or other indulgence which COMPANY may from time to
time grant to FRANCHISEE or to any other person, including, without limitation,
the acceptance of any partial payment or performance, or the compromise or
release of any claims, none of which shall in any way modify or amend this
guaranty, which shall be continuing and irrevocable throughout the term of the
Franchise Agreement and for so long thereafter as there are any monies or
obligations owing by FRANCHISEE to COMPANY under the Franchise Agreement;
(e) the written acknowledgment of FRANCHISEE, accepted in writing by
COMPANY, or the judgment of any court or arbitration panel of competent
jurisdiction establishing the amount due from FRANCHISEE shall be conclusive and
binding on the undersigned as Guarantors;
(f) if COMPANY is required to enforce this guaranty in a judicial or
arbitration proceeding and prevails in such proceeding, it shall be entitled to
reimbursement of its costs and expenses, including, but not limited to,
reasonable accountants', attorneys', arbitrators', and expert witness fees,
costs of investigation, court costs, other litigation expenses and travel and
living expenses, whether incurred prior to, in preparation for or in
contemplation of the filing of any such proceeding. If COMPANY is required to
engage legal counsel in connection with any failure by the undersigned to comply
with this guaranty, the Guarantors shall reimburse COMPANY for any of the
above-listed costs and expenses incurred by it;
(g) Each of the undersigned Guarantors represents and warrants that, if
no signature appears below for such Guarantor's spouse, such Guarantor is either
not married or, if married, is a resident of a state which does not require the
consent of both spouses to encumber the assets of a marital estate.
(h) This Undertaking and Assumption shall be construed in accordance
with Pennsylvania law, without giving effect to its conflict of laws principles;
(i) This Undertaking shall continue in full force and effect with
respect to any extension or modification to the Franchise Agreement or any other
of the franchise agreements and Guarantors waive notice of any and all such
extensions, modifications, amendments or transfers;
(j) In lieu of any right of indemnification that Guarantors may have as
against Franchisee by virtue of the guarantee of Franchisee's obligations to
company which right of indemnification is hereby waived, Guarantors shall be
subrogated to the rights of Company as against Franchisee to the extent
Guarantors fully satisfy and discharge the obligations of Franchisee under the
Franchise Agreement and any other franchising agreements and such right of
subrogation shall be Guarantor's sold remedy against Franchisee;
(k) Guarantors agree to pay all reasonable attorneys' fees and all
costs and other expenses incurred in any collection or attempted collection of
amounts due pursuant to this Undertaking or in any negotiations relative to the
obligations hereby guaranteed or in enforcing this Undertaking against
Guarantors; and
<PAGE>
4. DEFINITIONS. For purposes of this Undertaking:
(a) "Owner" shall mean any person, partnership, corporation or other
entity holding any interest in Franchisee.
(b) The term "Guarantors" is applicable to one or more persons, a
corporation or a partnership, as the case may be, and the singular usage
includes the plural and the masculine and neuter usages included the other and
the feminine.
<PAGE>
IN WITNESS WHEREOF, each Guarantor has hereunto affixed his signature
on the same day and year as the Franchise Agreement was executed.
Owners and Guarantors:
Spouse
(Signature)
(Print Name)
Spouse
(Signature)
(Print Name)
Spouse
(Signature)
(Print Name)
Spouse
(Signature)
(Print Name)
<PAGE>
(E -1)
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EXHIBIT E
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS
(DIRECT DEBITS)
Name of Person or Legal Entity)(ID
- --------------------------------------------------------
Number)
Name
Account (if different)
(Street Address)
(City, State, Zip Code)
The undersigned depositor ("DEPOSITOR") hereby authorizes Pretzel Time, Inc.
("COMPANY") to initiate debit entries and/or credit correction entries to the
undersigned's checking and/or savings account(s) indicated below and the
depository designated below ("DEPOSITORY") and to debit such account pursuant to
COMPANY's instructions for any and all amounts due to Pretzel Time, Inc. The
DEPOSITOR understands that all amounts debited from the account below will be
credited to Pretzel Time's account.
DEPOSITORY Branch
City
State
Zip Code
Telephone Number of Bank Contact Person at Bank
Bank Transit/ABA Number Account Number
This authority is to remain in full and force and effect until DEPOSITORY has
received joint written notification from COMPANY and DEPOSITOR of the
DEPOSITOR's termination of such authority in such time and in such manner as to
afford DEPOSITORY a reasonable opportunity to act on it. Notwithstanding the
foregoing, DEPOSITORY shall provide COMPANY and DEPOSITOR with thirty (30) days'
prior written notice of the termination of this authority. If an erroneous debit
entry is initiated to DEPOSITOR's account, DEPOSITOR shall have the right to
have the amount of such entry credited to such account by DEPOSITORY, if (a)
within fifteen (15) calendar days following the date on which DEPOSITORY sent to
DEPOSITOR a statement of account or a written notice pertaining to such entry or
(b) forty-five (45) days after posting, which ever occurs first, DEPOSITOR shall
have sent to DEPOSITORY a written notice identifying such entry, stating that
such entry was in error and requesting DEPOSITORY to credit the amount thereof
to such account. These rights are in addition to any rights DEPOSITOR may have
under federal and state banking laws.
DEPOSITOR
DEPOSITORY
By:
By:
Title:
Title:
Date:
Date:
<PAGE>
(E-3)
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AUTHORIZATION TO HONOR CHECKS DRAWN BY AND PAYABLE TO
Q PRETZEL TIME, INC.
- ------------------------------------------------------------------------------
Bank Account in the Name of Store# Bank Account Number
1. 2. 3.
- ------------------------------------------------------------------------------
To The Bank Designated:
You are hereby requested and authorized to honor and to charge to the account
described, checks drawn on such account which are payable to the above named
Payee. The name(s) of the depositor(s) on such checks will be printed by
standard business machines. It is agreed that your rights with respect to each
such check shall be the same as if it bore a signature authorized for such
account. It is further agreed that if any such check is not honored whether with
or without cause you shall be under no liability whatsoever. This authorization
shall continue in force until revocation in writing is received by you.
Name of franchisee (please print)
4. / /
X5.
Date
Signature of Franchisee
- -----------------------------------------------------------------------------
Full Name of Bank
6.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Street Address
7.
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
City, State, Zip Code
8.
- ------------------------------------------------------------------------------
Drawee Bank Please Note: There is an Indemnification Agreement Below.
Indemnification Agreement
To The Bank Designated.
In consideration of your compliance with the request and authorization printed
on the Authorization Form hereof, the Payee agrees with respect to any such
action:
(1) To indemnify you and hold you harmless from any loss you may suffer as a
consequence of your actions resulting from or in connection with the execution
and issuance of any check, draft or order, whether or not genuine, purporting to
be executed by the Payee and received by you in the regular course of business
for the purpose of payment, including any costs or expenses reasonably incurred
in connection therewith.
(2) To indemnify you for any loss arising in the event that any such check,
draft or order shall be dishonored, whether with or without cause and whether
intentionally or inadvertently.
(3) To defend at our own cost and expense any action which might be brought by
any depositor or any other persons because of your actions taken pursuant to the
foregoing request, or in any manner arising by reason of your participation. - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
NOTICE TO
OWNER
1. ATTACH ONE VOIDED CHECK HERE
2. BE SURE ALL 8 SPACES SHOWN ABOVE ARE COMPLETED.
3. RETURN ALL THREE COPIES IMMEDIATELY.
<PAGE>
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EXHIBIT F
PRETZEL TIME, INC.
UNIT SITE AGREEMENT
This is Exhibit F to the Franchise Agreement entered into , 19 by and between
Pretzel Time, Inc. ("Pretzel Time") and ("Franchisee").
1. UNIT SITE.
Franchisee shall obtain lawful possession with sixty (60) days after
the date of the Franchise Agreement of a site approved by Pretzel Time for a
Pretzel Time Unit within the following geographical area described as follows:
2. SITE SELECTION.
Pretzel Time agrees to provide reasonable assistance in the selection
and evaluation of a proposed site for a Unit upon the request of the Franchisee.
Franchisee acknowledges and agrees that Pretzel Time's employees are not
permitted or authorized to make any claims, statements or representations as to
the suitability of any prospective locations for the site of the Franchisee's
proposed unit. Pretzel Time disclaims any responsibility in selecting a suitable
location for the Franchisee's Unit. Franchisee acknowledges and agrees that he
is solely and wholly responsible to fully investigate the site for its
suitability and Pretzel Time makes no representation or warranties of its own
expertise in the area of site selection.
3. APPROVAL OF SITE.
Franchisee agrees to submit to Pretzel Time a complete site evaluation
report and feasibility analysis for the Unit location containing such
information as Pretzel Time may reasonably require, such as size and type of
mall, size of unit, appearance, physical characteristics of the site,
photographs of the site, demographics of the area, traffic patterns, competition
from other businesses in the area, location of the nearest Pretzel Time Unit,
sales per square foot, lease terms, and other commercial characteristics. In
approving the proposed site for the Unit, Franchisee acknowledges and agrees
that Pretzel Time is relying on the representations and information provided by
the Franchisee. Upon receipt of the site information necessary to make its
determination, Pretzel time will either approve or disapprove Franchisee's
proposed site for the Unit within twenty (20) days of the receipt of the site
information and other materials requested by Pretzel Time and provide Franchisee
a written notice of same. Pretzel Time and Franchisee agree that Pretzel Time's
approval of the location for the proposed Unit shall be an agreement by the
parties that such location shall be the Site for the Unit to be operated by
Franchisee pursuant to the Franchise Agreement. 4. TERMINATION OF FRANCHISE
AGREEMENT.
Pretzel time shall have the right to terminate the Franchise Agreement
and refund all franchise fees paid by Franchisee except for $10,000.00 which
shall be retained by Pretzel Time for its costs and expenses associated with
reviewing the proposed site locations including, but not limited to, travel and
other associated expenses effective upon delivery of notice of termination to
Franchisee, if Franchisee (a) cannot locate a site which is approved and
suitable to both Pretzel Time and Franchisee within one hundred twenty (120)
days; or (b) fails to execute a lease agreement upon execution of the Franchise
Agreement.
IN WITNESS WHEREOF, the parties have executed, sealed and delivered this
Agreement the day and year first written above.
WITNESSES: PRETZEL TIME, INC.
a Pennsylvania corporation
By:
__________________________ Name: _______________________
Title: ________________________
Date Signed: __________________
WITNESSES FRANCHISEE
-----------------------------
By:
Name:
Title:
Date Signed: __________________
<PAGE>
(G-1)
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EXHIBIT G
COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS
THIS ASSIGNMENT is entered in to this day of , 1996, in accordance with the
terms of that certain Pretzel Time, Inc. Franchise Agreement (the "Franchise
Agreement") between ("FRANCHISEE") and Pretzel Time, Inc., a Pennsylvania
corporation ("COMPANY"), executed concurrently with this Assignment, under which
COMPANY granted FRANCHISEE the right to own and operate a PRETZEL TIME Unit
located at
(the "UNIT").
FOR VALUE RECEIVED, FRANCHISEE hereby assigns to COMPANY, all of
FRANCHISEE's right, title and interest in and to those certain telephone numbers
and regular, classified or other telephone directory listings (collectively, the
"Telephone Numbers and Listings") associated with COMPANY's trade and service
marks and used from time to time in connection with the operation of the UNIT at
the address provided above. This Assignment is for collateral purposes only and,
except as specified herein, COMPANY shall have no liability or obligation of any
kind whatsoever arising from or in connection with this Assignment, unless
COMPANY shall notify the telephone company and/or the listing agencies with
which FRANCHISEE has placed telephone directory listings (all such entities are
collectively referred to herein as the "Telephone Company") to effectuate the
assignment pursuant to the terms hereof.
Upon termination or expiration of the Franchise Agreement (without
renewal or extension), COMPANY shall have the right and is hereby empowered to
effectuate the assignment of the Telephone Numbers and Listings, and, in such
event, FRANCHISEE shall have no further right, title or interest in the
Telephone Numbers and Listings and shall remain liable to the Telephone Company
for all past due fees owing to the Telephone Company on or before the effective
date of the assignment hereunder.
<PAGE>
(G-3)
franex.96
FRANCHISEE agrees and acknowledges that as between COMPANY and
FRANCHISEE, upon termination or expiration of the Franchise Agreement, COMPANY
shall have the sole right to and interest in the Telephone Numbers and Listings,
and FRANCHISEE appoints COMPANY as FRANCHISEE's true and lawful attorney-in-fact
to direct the Telephone Company to assign same to COMPANY, and execute such
documents and take such actions as may be necessary to effectuate the
assignment. Upon such event, FRANCHISEE shall immediately notify the Telephone
Company to assign the Telephone Numbers and Listings to COMPANY. If FRANCHISEE
fails to promptly direct the Telephone Company to assign the Telephone Numbers
and Listings to COMPANY, COMPANY shall direct the Telephone Company to
effectuate the assignment contemplated hereunder to COMPANY. The parties agree
that the Telephone Company may accept COMPANY's written direction, the Franchise
Agreement or this Assignment as conclusive proof of COMPANY's exclusive rights
in and to the Telephone Numbers and Listings upon such termination or expiration
and that such assignment shall be made automatically and effective immediately
upon Telephone Company's receipt of such notice from COMPANY or FRANCHISEE. The
parties further agree that if the Telephone Company requires the parties execute
the Telephone Company's assignment forms or other documentation at the time of
termination or expiration of the Franchise Agreement, COMPANY's execution of
such forms or documentation on behalf of FRANCHISEE shall effectuate
FRANCHISEE's consent and agreement to the assignment. The parties agree that at
any time after the date hereof, they will perform such acts and execute and
deliver such documents as may be necessary to assist in or accomplish the
assignment described herein upon termination or expiration of the Franchise
Agreement.
WITNESSES:
ASSIGNEE:
PRETZEL TIME, INC.
- -------------------------
By:
- -------------------------
Name :
Title: ____________________
WITNESSES: ASSIGNOR:
-------------------------
- -------------------------
By:
- ------------------------
Name:
Title: _____________________
ACCEPTED AND AGREED TO BY:
(Telephone Company Authorized
Representative)
(Name of Telephone Company)
<PAGE>
(H-5)
franex.96
EXHIBIT H MUTUAL CONFIDENTIALITY AGREEMENT And now this _____ day of
_________________, 1996, this agreement is made by and between Pretzel Time,
Inc., a Pennsylvania corporation, with its principal place of business at 4800
Linglestown Road, Suite 202, Harrisburg, PA 17112 (hereinafter PTI) and , with
its principal place of business at (hereinafter Franchisee) WITNESSETH: WHEREAS,
PTI has certain information, formulas, blends, products, processes, programs,
and business documents which it considers to be secret, confidential and
proprietary; and WHEREAS, it will be necessary for PTI to disclose its
confidential information to Franchisee during the course of their dealings;
THEREFORE, for the mutual promises and covenants contained herein and intending
to be legally bound hereby the parties agree as follows: 1. AGREEMENT TO
MAINTAIN CONFIDENTIALITY. The parties acknowledge that a party may choose to
disclose certain confidential information in connection with the Franchise. The
parties agree that this agreement and all confidential information disclosed
hereunder shall be retained and kept in confidence in a manner adequate to
protect the disclosing party's Confidential Information. The parties agree not
to disclose the Confidential Information to others or use it for purposes other
than the Franchise without the disclosing party's prior written consent.
2. CONFIDENTIAL INFORMATION DEFINED.
Any and all information disclosed by one party to the other party in
connection with the Franchise is considered confidential information, including
but not limited to: formulas, blends, recipes, product lines, processes,
patents, programs, manufacturing methods, marketing programs, techniques of
doing business, data involving the party and any of its subsidiaries, successors
and assigns, credit terms, nature of services provided, the identity of the
party's suppliers, agents, franchisees, shippers or other entities, and business
information, plans and documents (hereinafter Confidential Information) unless
such information falls within the exceptions set forth in paragraph 4. The
Confidential Information may be disclosed in writing, orally, visually, or by
samples. In addition, each party's interest in the Franchise and the fact that
the parties are working together on the Franchise is considered to be
Confidential Information. 3. LIMITED DISCLOSURE.
The recipient of Confidential Information agrees to limit disclosure of
Confidential Information to its agents, officers, and employees who are needed
to accomplish the purpose stated above, and only then to its agents, officers
and employees who have agreed to be bound by the obligations of the recipient
hereunder.
4. EXCEPTIONS TO CONFIDENTIAL INFORMATION.
The parties' obligations of confidentiality hereunder shall not apply
to information: (a) Now or subsequently publicly available through no
fault of either party hereto; (b) Either party possessed or knew prior
to the date of the nondisclosure agreement and was not previously
received from the other party hereto as evidenced by the recipient's
written record prior to the receipt of such information from the
disclosing party; (c) Either party receives in good faith from any
third party which did not receive the same, directly or indirectly from
the other party hereto and has a right to make such disclosure; or (d)
Which is independently developed by the employees, agents, officers or
subsidiaries of either party, provided that any claim of independent
development must be shown by clear and convincing evidence.
5. RETENTION OF PROPERTY RIGHTS.
Any Confidential Information disclosed shall remain the property of the
disclosing party. The recipient of the confidential information does not acquire
any license under intellectual property rights of the other party pursuant to
this agreement. After the termination or accomplishments of the Franchise or at
any other time requested by the disclosing property, the recipient shall return
or destroy, at the disclosing party's direction, all documents, business plans,
information, samples or other materials embodying confidential information and
shall retain no copies thereof. 6. JOINTLY DEVELOPED CONFIDENTIAL INFORMATION.
Any new product, formula, recipe, blend, process, machine, equipment,
production method, patent, business plan or information developed or modified as
a result of this Franchise shall be the exclusive property of PTI. Any new
product, formula, recipe, blend, process, machine, equipment, production method,
patent, business plan or information shall not be disclosed to a third party by
the parties to this agreement.
<PAGE>
7. LENGTH OF OBLIGATION.
The recipient's obligation of confidentiality and of non-use of
confidential information hereunder shall continue during and beyond the
termination of the project.
8. DISCLAIMER OF ESTABLISHMENT OF RELATIONSHIP. This agreement does not
create a relationship of agency, partnership, joint venture or license between
the parties. This agreement does not obligate either party to purchase anything
from or sell any item to the other party.
9. RESTRICTIVE COVENANTS.
The parties recognize that this agreement is essential to protect the
business interests and goals of the parties and that violation of this agreement
will cause irreparable harm to the other party. In the event of a breach or a
threatened breach by a party, the parties agree that should either party violate
this agreement, the other party shall be entitled to seek special, preliminary
and permanent injunctive relief without proof of actual damages, as well as any
other rights or remedies to which it shall be entitled.
10. REFRAIN FROM DISPARAGEMENT.
Both parties agree not to malign, harass or in any way interfere with
the other party or their reputation and goodwill, or the conduct of the other
party's business. The parties further agree to not make any public statements
which would tend to damage the reputation or harm the business interests of the
other or their employees, franchisees, agents, subsidiaries or affiliates. 11.
JUDICIAL PROCEEDING.
If Franchisee or any of his/its agents, representatives, or employees,
becomes legally compelled to disclose any of the Information, Franchisee will
provide PTI with prompt notice so that PTI may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement. If such protective order or other remedy is not obtained, or if PTI
waives compliance with the provisions of this Agreement, Franchisee will furnish
only that portion of the Information which Franchisee is advised by opinion of
counsel is legally required and will exercise its best efforts to obtain
reliable assurance that confidential treatment will be accorded the Information.
12. MODIFICATION.
This agreement cannot be changed or modified except by another written
agreement signed by the party sought to be charged therewith or by his/its duly
authorized agent.
13. ENTIRE AGREEMENT. This agreement sets forth the entire agreement and
understanding between the parties with respect to the subject matter herein and
supersedes all prior or contemporaneous agreements, whether written or oral
between the parties.
14. ASSIGNMENT.
This agreement shall not be assigned by either party without the prior
written agreement of the parties.
15. SEVERABILITY. In the event that any provision of this agreement is
deemed by a court of any jurisdiction to be unenforceable, illegal or contrary
to public policy, it shall be stricken and the remainder of this Mutual
Confidentiality Agreement shall remain in force.
16. WAIVER. Failure of either party at any time or from time to time to
exercise any right under this Agreement shall not be deemed a waiver of such
right nor shall it prevent the party from subsequently asserting or exercising
such right.
<PAGE>
17. GOVERNING LAW.
This agreement shall be construed and governed according to the laws of
the State of Pennsylvania.
18. NOTICES. Notices hereunder shall be in writing and shall be
sufficiently given to the other party at the address indicated herein and
deposited in the mail, United States first class postage prepaid. 19. HEADINGS.
The titles or headings in this Agreement are for the convenience of the parties
and their attorneys and are not intended to constitute a substantive part of
this Agreement and such titles and headings should not be relied upon to
describe the contents of any section or paragraph. IN WITNESS WHEREOF, the
parties hereto have executed this Agreement on the date listed above. WITNESSES:
PRETZEL TIME, INC. a Pennsylvania corporation
By:
__________________________ Name: _______________________
Title: ________________________
Date Signed: __________________
WITNESSES: FRANCHISEE
- -----------------------------
By:
Name:
Title:
Date Signed: __________________
<PAGE>
(I-2)
franex.96
EXHIBIT I
PRETZEL TIME, INC.
TCBY'S YOGURT PRODUCT ADDENDUM
BY AND BETWEEN PRETZEL TIME, INC, FRANCHISOR
AND
---------------------------------------------------
FRANCHISEE
DATED: , 1996
This addendum (hereafter "Addendum") is made as of this day of , 1996, by
and between Pretzel Time, Inc. a Pennsylvania corporation (hereinafter "Pretzel
Time"), and ______________________, a(n)____________________, (hereinafter
"Franchisee") and is attached to and incorporated into the Pretzel Time
Franchise Agreement by and between Pretzel Time and Franchisee dated as of
_______________, ( hereafter "Agreement") and is considered a part of that
Agreement. All capitalized terms not defined in this Addendum shall have the
respective meanings set forth in the Agreement. To the extent that the terms of
this Addendum are directly inconsistent with any of the terms of the Agreement,
the terms of this Addendum shall supersede and govern. Accordingly, the parties
hereto agree as follows:
1. NEITHER TCBY SYSTEMS, INC., NOR ANY OF ITS AFFILIATES ARE DIRECTLY
OR INDIRECTLY RESPONSIBLE FOR ANY OBLIGATION, UNDERTAKING, COVENANT, OR OTHER
DUTY TO PERFORM OR TO REFRAIN FROM ANY ACTION UNDER OR BY VIRTUE OF THIS
AGREEMENT. ALL PARTIES HERETO ACKNOWLEDGE AND AGREE THAT NEITHER TCBY SYSTEMS,
INC. NOR ANY OF ITS AFFILIATES IS A PARTY TO THIS AGREEMENT, BUT TCBY SYSTEMS,
INC. DOES STAND IN A POSITION OF THIRD PARTY BENEFICIARY UNDER THIS AGREEMENT.
ALL PARTIES HERETO FURTHER ACKNOWLEDGE THAT THE TRADEMARKS AND SERVICE MARKS
"TCBY", "THE COUNTRY'S BEST YOGURT", AND ALL MARKS AND LOGO FORMS THERETO
RELATED ARE THE PROPERTY OF TCBY SYSTEMS, INC. OR AN AFFILIATE THEREOF, AND
NOTHING CONTAINED IN THIS AGREEMENT SHALL IN ANY MANNER ACT TO CREATE ANY
PROPERTY RIGHTS IN OR TO SAID MARKS OR RIGHTS RESPECTING SUCH MARKS AS AGAINST
TCBY SYSTEMS, INC. AND ITS AFFILIATES. ALL PARTIES HERETO FURTHER ACKNOWLEDGE
AND AGREE THAT TCBY SYSTEMS, INC. REPRESENTATIVES SHALL AT ALL TIMES HAVE THE
RIGHT TO INSPECT THE UNIT PREMISES AND BOOKS TO THE EXTENT SUCH PERTAIN TO
OPERATIONS OF A "TCBY" STORE.
2. Section 2E ("Option to Develop Other Sites Within the Territory") of
the Agreement is modified so that no option is granted for TCBY Products, since
any option would be granted or not granted in TCBY's sole discretion.
3. Section 2F ("Term of Franchise") of the Agreement is modified so
that for TCBY Products the expiration date is June 14, 2009, unless the
agreement dated June 15, 1994 between Pretzel Time and TCBY is terminated in
which event Franchisee shall no longer have the rights to use the TCBY Products
and utilize the TCBY Marks, (unless Franchisee otherwise obtains TCBY's separate
written agreement therefor). As used in this Addendum the term "TCBY Products"
shall mean "TCBY" brand frozen yogurt and such related items as Pretzel Time
shall designate to Franchisee. As used herein the term "TCBY" shall mean TCBY
Systems, Inc., an Arkansas corporation.
4. Section 4G ("Fees For Renewal of Franchise") of the Agreement is
modified so that no renewal for the TCBY Products is granted, since any renewal
would be granted or not granted in TCBY's sole discretion.
<PAGE>
5. Section 5A ("Renewal of Franchise Term") of the Agreement is
modified so that no renewal for TCBY Products is granted, since any renewal
would be granted or not granted in TCBY's sole discretion.
6. Section 6A ("Ownership of Marks") of the agreement is modified to
provide that TCBY owns the trademarks and service marks "TCBY" and "The
Country's Best Yogurt" and all marks and logo forms thereto related (herein
together referred to as the "TCBY Marks"). Franchisee agrees to treat the TCBY
Marks the same as the Pretzel Time Marks under this Agreement and that the
Agreement shall likewise bind Franchisee with respect to the TCBY Marks (for
example pursuant to Section 6C of the Agreement Franchisee agrees not to use any
TCBY Mark or trade name of TCBY or any part thereof with any prefix, suffix or
other modifying words, terms, designs or symbols or in any modified form as part
of any corporate trade name nor may Franchisee use any TCBY Marks in connection
with the sale of any unauthorized product or service or in any other manner not
expressly authorized in writing by TCBY and Pretzel Time).
7. Sections 8, 9, 12, 13 and 14 ("Development of Unit", "Unit Opening",
"Adherence to Uniform Standards", "Unit Image and Operation", and " Franchise
Operations") of this Agreement are modified to include that certain additional
requirements may be placed upon Franchisee in relation to the TCBY Products as
more fully set forth in the Operations Manual (for example, design standards,
equipment, menus, segregation of sales reporting) and as the particular
situations may dictate.
8. Except as specifically modified by this Addendum all terms,
conditions, covenants and provisions of the Agreement shall not be changed,
modified or altered and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this addendum the day and
year first above written.
WITNESSES: PRETZEL TIME, INC.
a Pennsylvania corporation
By:
__________________________ Name: _______________________
Title: ________________________
Date Signed: __________________
WITNESSES: FRANCHISEE
- -----------------------------
By:
Name:
Title:
Date Signed: __________________
<PAGE>
(J-3)
franex.96
EXHIBIT J
PRETZEL TIME SATELLITE UNIT
ADDENDUM
This addendum is made as of this day of , 199 , by and between Pretzel
Time, Inc., a Pennsylvania Corporation (hereinafter "Pretzel Time") and a
corporation with its principal place of business at
(hereinafter "Franchisee"), and is attached to and incorporated into the
Pretzel Time, Inc. Franchise Agreement by and between Pretzel Time and
Franchisee dated as of (hereinafter "Agreement") and is considered to be a part
of that Agreement. All capitalized terms not defined in this Addendum shall have
the respective meanings set forth in the Agreement. To the extent that the terms
of this Addendum are inconsistent with any of the terms of the Agreement, the
terms of this Addendum shall supersede and govern.
1. Pretzel Time herein grants to Franchisee who herein accepts the
non-exclusive right during the remainder of the term of the Agreement, subject
to earlier termination by Pretzel Time as provided below in this Addendum, to
operate one (choose one: cart or kiosk) (herein "Satellite Unit") at a specified
location proximate to the Unit within the territory which Satellite Unit shall
not be placed in operation at any location not previously approved in writing by
Pretzel Time, and which shall not be relocated from such approved location
without the prior written consent of Pretzel Time. The foregoing license is
limited solely to the sale of Pretzel Time Products from a Pretzel Time approved
Satellite Unit in accordance with this Addendum and does not confer any rights
on Franchisee to sell any products outside the Unit in any other manner.
Franchisee agrees this Addendum does not grant to him the right to operate the
Satellite Unit beyond the term of the Agreement. A renewal of this Addendum is
conditional upon the renewal of the Agreement.
2. Franchisee shall comply with Pretzel Time's specifications and
requirements regarding site selection. Franchisee shall promptly submit to
Franchisee after the execution date of this addendum a complete site evaluation
report and feasibility analysis containing such commercial and other information
and photographs as Pretzel Time may require from time to time for the site at
which Franchise proposes and intends in good faith to establish and operate the
Satellite Unit. In approving or disapproving any proposed site for the Satellite
Unit, Pretzel Time will consider such matters as it deems material, including
without limitation, foot traffic, other snack food tenants, other commercial
characteristics, lease terms, and the size, appearance and other physical
characteristics of the proposed site.
Pretzel Time will approve or disapprove a proposed site for the Satellite Unit
by delivery of written notice to Franchisee. Pretzel Time agrees to exert its
best efforts to deliver such notification to Franchisee within twenty (20) days
after receipt by Pretzel Time of a complete site package and such other
materials requested by Pretzel Time from time to time containing all information
requested by Pretzel Time. Pretzel Time shall have the right, in its sole
discretion, to approve or disapprove a proposed site for the Satellite Unit and
Franchisee acknowledges and agrees that Pretzel Time shall have no liability
therefor. Pretzel Time's failure to provide Franchisee with notice of its
approval or disapproval of one or more proposed sites shall in no event
constitute a waiver of Pretzel Time's right to approve or disapprove the site
for a proposed Satellite Unit.
3. Franchisee, at its sole expense, shall take such actions, including,
without limitation, constructing such improvements and acquiring fixtures,
equipment, signs, and other materials and supplies, and obtain such permits as
required to operate a Satellite Unit.
<PAGE>
4. Franchisee agrees to use, maintain, and/or construct only the type
of Satellite Unit and equipment that Pretzel Time has approved for Pretzel Time
Units and Satellite Units. Franchisee agrees to operate the Satellite Unit in
accordance with the standards, specifications, and procedures for operation of a
Satellite Unit which Pretzel Time prescribes in the Operations Manual or
otherwise in writing including, without limitation, requirements for training,
design, layout, equipment, fixtures, signage, Product packaging, materials and
supplies and Pretzel Time's prototype plans and layout which Pretzel Time may
change from time to time, in its sole discretion. Franchisee shall maintain the
condition and appearance of, and perform maintenance with respect to the
Satellite Unit, fixtures, and equipment used in connection with the Satellite
Unit in accordance with Pretzel Time's standards, specifications and procedures,
and consistent with the image of Pretzel Time Satellite Units as first class,
clean, sanitary, attractive and efficiently operated food service businesses.
5. If Franchisee proposes to make, construct or purchase any brand or
type of equipment, sign, cart, etc. not approved by Pretzel Time, Franchisee
must first notify Pretzel Time in writing and submit a request for an exception
to Pretzel Time and submit to Pretzel Time samples, sufficient specifications,
and any other material or information requested by Pretzel Time for its
determination of whether such standards and specifications, or supplier criteria
which determination will be made and communicated in writing to Franchisee
within a reasonable time. Franchisee shall not make any alterations,
modifications, additions, subtractions or improvements to any Satellite Unit
without Pretzel Time's prior written approval.
6. If Franchisee fails, at its sole expense, to maintain the
appearance, condition, repair and working order of the Satellite Unit and to
keep the Satellite Unit free from any damage, dirt or deterioration, Pretzel
Time in its reasonable judgment, shall so notify Franchisee of the deficiency
and the action required to correct the deficiency. If Franchisee fails to
correct the deficiency, Pretzel Time shall have the right to immediately
terminate the Agreement or Franchisee's right to operate the Satellite Unit or
both upon written notice.
7. Franchisee shall, at its sole expense, obtain and maintain all
licenses and permits relating to the construction and operation of the Satellite
Unit.
8. Franchisee acknowledges and agrees that the Satellite Unit must be
operated and maintained in accordance with the standards and specifications set
forth in the Agreement, this Addendum, and the Operations Manual. Franchisee in
particular, acknowledges and agrees that all gross sales made from the Satellite
Unit will be subject to the payment of Royalty Fees and Advertising Fund Fees as
outlined in the Agreement. Franchisee and Pretzel Time agree that the Satellite
Unit in all applicable purposes will be considered a part of the Unit. Any
breach of this Addendum will be a breach of the underlying Agreement.
<PAGE>
9. Notwithstanding the foregoing, Pretzel Time reserves the right, in
its sole discretion, with or without cause and regardless of the investment made
by Franchisee in establishing and conducting a Satellite Unit or the length of
time Franchisee has conducted and maintained the Satellite Unit, to direct and
require the Franchisee to discontinue use and operation of any Satellite Unit
effective one-hundred eighty (180) days after Pretzel Time written notice to
Franchisee and not to purchase or develop additional Satellite Units in
connection with a discontinuance of any facet or the entire Satellite Unit
program by Pretzel Time. Franchisee agrees to discontinue the use and operation
of the Satellite Unit as directed by Pretzel Time. Franchisee shall remove all
equipment, the Satellite Unit, signage and any other materials or distinguishing
items as directed by Pretzel Time within the time period directed by Pretzel
Time. Notwithstanding the foregoing, in the event Pretzel Time discontinues its
Satellite Unit program, in whole or in part, the Franchisee shall have the right
to continue the use of the Satellite Unit for a period of two (2) years from the
earlier of: (1) the date of purchase of the Unit or (2) the date of the
Satellite Unit Addendum Agreement. Franchisee agrees that he shall not have any
claim or initiate any claim against Pretzel Time for the termination of its
Satellite Unit Operation.
10. IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Addendum in multiple copies as of the date of the Agreement.
WITNESSES: PRETZEL TIME, INC.
a Pennsylvania corporation
By:
__________________________ Name: _______________________
Title: ________________________
Date Signed: __________________
WITNESSES: FRANCHISEE
- -----------------------------
By:
Name:
Title:
Date Signed: __________________
<PAGE>
(K-2)
franex.96
EXHIBIT K
RELEASE AGREEMENT
THE MARYLAND FRANCHISE REGISTRATION AND DISCLOSURE ACT PROVIDES THAT GENERAL
RELEASES SHALL NOT RELEASE LIABILITY.
THIS AGREEMENT is made and entered into this day of , 19 by and between
Pretzel Time, Inc., a Pennsylvania corporation having its principal office at
4800 Linglestown Road, Suite 202, Harrisburg, PA 17112 (the "COMPANY"); a
corporation having its present principal place of business at ; as an
individual, residing at; and as an individual, residing at
(individually or collectively "RELEASOR"), wherein the parties, in exchange for
good and valuable consideration, the sufficiency and receipt of which is hereby
acknowledged, and in reliance upon the representations, warranties, and
covenants herein set forth, do agree as follows:
1. Mutual Release. RELEASOR does for itself, its successors, assigns, heirs,
executor and administrator, hereby remise, release and forever discharge
generally the COMPANY and any affiliate, wholly-owned or controlled corporation,
subsidiary, successor or assign thereof and any shareholder, officer, director,
employee, or agent of any of them from any and all claims, demands, damages,
injuries, known or unknown, suspected or unsuspected, disclosed or undisclosed,
actual or potential, which either RELEASOR may now have, or may hereafter claim
to have had or to have acquired against the COMPANY, arising out of or related
to any violation, if any, of FTC Rules and state franchise laws regarding the
offer and sale of the franchise and the execution of a franchise agreement
between the parties for the Pretzel Time Store situated at . RELEASOR agrees not
to attempt from this day forward, directly or indirectly, to institute,
prosecute, commence, join in, or generally attempt to assert or maintain any
action thereon against the COMPANY, any affiliate, successor, assign, parent
corporation, subsidiary, division, controlled corporation, director, officer,
shareholder, employee, agent, servant in any court or tribunal of the United
States of America or any state thereof for offering or selling or entering into
an agreement of sale for the franchise located at the .
In the event that RELEASOR breaches any of the promises, covenants, or
undertakings made herein by any act or omission, it shall by way of
indemnification, pay all costs and expenses of the other caused by such act or
omission, including reasonable attorneys' fees.
3. Governing Law: Waiver of Jury. This Agreement and the offer and sale of the
franchise rights (as described above) shall be governed by the substantive laws
(and expressly excluding laws pertaining to the choice of law) of the State of
Pennsylvania. Both the COMPANY and RELEASOR agree that neither shall be entitled
to nor shall either demand a jury trial in the event of litigation hereunder or
hereto related.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Agreement effective as of the date first above
written.
RELEASOR SIGNATURE(S):
(Signature) (Signature)
(Type or print name above) (Type or print name above)
(Company Name)
President Secretary
(Type or print name above) (Type or print name above)
Not binding without execution by an authorized officer of the COMPANY.
PRETZEL TIME, INC.
By:
Name: ______________________
Title:
Date Signed: _________________
<PAGE>
(L-3)
franex.96
EXHIBIT L
THIRD PARTY ASSIGNMENT AGREEMENT
THIS AGREEMENT is made and entered into this day of , 19 , by and among
PRETZEL TIME, INC., a Pennsylvania corporation having its principal office at
4800 Linglestown Road, Suite 202, Harrisburg, Pennsylvania 17112 (the
"COMPANY"); whose principal address is (individually or collectively
"ASSIGNOR"); and whose principal address is (individually or collectively
"ASSIGNEE"), wherein the parties agree as follows:
1. Agreement Assigned. ASSIGNOR hereby sells, assigns, and conveys to ASSIGNEE
all interest in and to that certain Franchise Agreement made and entered into as
of for the development and operation of a "Pretzel Time" store located at or in
(the "Agreement"), to have and to hold said interest for the term of the
Agreement and any renewal thereof consistent with its terms and conditions. The
COMPANY hereby grants its permission for the assignment of the Agreement upon
the terms and conditions herein set forth. Any defined terms in the Agreement
appearing herein shall have the same meaning as set forth in the Agreement.
2. Payment By Assignor. Franchisee will deliver to the COMPANY on the date
of this Agreement: (a) If applicable, a signed statement of Gross
Revenues, if and as defined in the Agreement, with
respect to all days for which the COMPANY has not received
such as statement from ASSIGNOR. Such Statement shall indicate
the royalty and service fees and advertising fund
contributions payable on such Gross Revenues under the
Agreement, and shall recite that such statement is true,
complete, and correct.
(b) A check in the amount equal to the total of:
(i) All royalty and service fees due or which would become due to the
COMPANY under the Agreement;
(ii) All advertising fund contributions due or which would become due
to the COMPANY under the Agreement;
(iii) Payment of the assignment fee;
(iv) Any and all sums owing to any affiliate of the COMPANY.
3. Paymenbt By Assignee. Assignee will deliver to the company on the date of
this Agreement a check in the amount of $25,000.00 or the then current franchise
fee for new traditional Pretzel Time Units then in effect.
4. Mutual Release. ASSIGNOR does for itself, its successors, assigns, heirs,
executor and administrator, hereby remise, release, and forever discharge
generally the COMPANY and any affiliate, wholly-owned or controlled corporation,
subsidiary, successor or assign thereof and any shareholder, officer, director,
employee, or agent of any of them, and the COMPANY does hereby remise, release,
and forever discharge generally ASSIGNOR, from any and all claims, demands,
damages, injuries, agreements and contracts, indebtedness, accounts of every
kind and character, whether presently known or unknown, suspected or
unsuspected, disclosed or undisclosed, actual or potential, which ASSIGNOR or
COMPANY may now have, or may hereafter claim to have had or to have acquired
against the other of whatever source or origin, arising out of or related to any
and all transactions of any kind or character at any time prior to and including
the date hereof, including generally any and all claims at law or in equity,
those arising under the common law or state or federal statutes, rules or
regulations such as, by way of example only, franchising, securities and
antitrust statutes, rules or regulations, in any way arising out of or connected
with the Agreement under which ASSIGNOR may now operate a "Pretzel Time" store,
and further promise never from this day forward, directly or indirectly, to
institute, prosecute, commence, join in, or generally attempt to assert or
maintain any action thereon against the other, any affiliate, successor, assign,
parent corporation, subsidiary, division, controlled corporation, director,
officer, shareholder, employee, agent, servant, general partner, limited
partner, executor, administrator, estate, trustee or heir, in any court or
tribunal of the United States of America, any state thereof, or any other
jurisdiction. In the event ASSIGNOR or the COMPANY breaches any of the promises,
covenants, or undertakings made herein by any act or omission, the breaching
party shall pay, by way of indemnification, all costs and expenses of the other
caused by the act or omission, including reasonable attorney's fees.
<PAGE>
5. Assignor Post-Assignment and Post-Termination Obligations. ASSIGNOR
acknowledges and agrees that those obligations and duties which have effect or a
post-assignment or a post-termination basis and which are expressly set forth in
the Agreement or implied by their nature therein shall be performed and observed
hereafter to the extent and for a term as expressed or implied in the Agreement.
6. Subordination. ASSIGNOR agrees to subordinate any right to receive any
payment from ASSIGNEE to any rights or claims of the COMPANY to receive or for
payments from ASSIGNEE. Any payments received by ASSIGNOR as a result of any
sale of assets connected with or by virtue of this Assignment shall be subject
to settlement of all accounts ASSIGNOR has with the COMPANY, and ASSIGNEE shall
not pay any material portion of such purchase price to ASSIGNOR without first
obtaining the COMPANY's written consent.
7. Training. ASSIGNEE covenants to attend the COMPANY's initial training program
at such time and place as the COMPANY shall designate prior to the operation of
the Pretzel Time unit at. In the event ASSIGNEE shall not successfully complete
the training program in the manner set forth in the Agreement, then alternative
measures shall be taken in the manner and to the extent set forth in the
Agreement.
8. Acknowledgement. ASSIGNEE acknowledges the COMPANY's policy of generally
permitting any pushcarts, vending carts, kiosks, stands, inside modular units,
or counters (herein collectively "Satellite Units") which may currently exist to
continue to operate in their respective location or area for which rights have
been granted by the COMPANY, regardless of the nature or identity of the
operator thereof. ASSIGNEE agrees that ASSIGNEE's rights pursuant to the
Agreement shall be construed as being subject to and are subject to those
appertaining to all pre-existing agreements for pre-existing Satellite Units not
owned or operated by ASSIGNEE. ASSIGNEE represents ASSIGNEE has conducted an
independent analysis of the area proximate to the STORE and is not aware of any
territory or marketing conflicts presented by a pre-existing Satellite Unit.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Agreement effective as of the date first above
written.
WITNESSES: ASSIGNOR:
By:
Name:
Title:
ASSIGNEE:
By:
Name:
Title:
PRETZEL TIME, INC.
By:
Name:
Title:
<PAGE>
(M-10)
franex.96
EXHIBIT M
PRETZEL TIME, INC.
SUBLEASE AGREEMENT
This Sublease is made effective this day of 199 , by and between Pretzel
Time, Inc., a Pennsylvania Corporation, with its principal business address at
4800 Linglestown Road, Harrisburg, PA 17112 ("Sublessor") and a with its
principal business address at (the "Sublessee").
RECITALS:
WHEREAS, Sublessor, as franchisor, and Sublessee, as franchisee, have entered
into that certain Franchise Agreement dated , 199 , which is incorporated herein
by this reference (the "Franchise Agreement") for a Pretzel Time Unit located
at: (the "Unit").
WHEREAS, Sublessor, as tenant, and , as landlord (the "Landlord"),
entered into that certain lease for the premises of the Unit dated ("The
Lease"), a copy of which is attached hereto as Exhibit A and incorporated herein
by reference. The Prime Lease contains duties and obligations which Sublessee
must perform and covenants with which Sublessee must adhere, and
WHEREAS, Sublessee desires to sublease the premises of the Unit from
Sublessor and Sublessor desires to sublease the same to Sublessee, all on the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing Unit, mutual promises
and covenants contained herein and other good and valuable consideration, the
receipt, adequacy, and sufficiency, of which are hereby acknowledged, Sublessor
and Sublessee do hereby mutually agree as follows:
1. DESCRIPTION.
This Sublease shall be for the Site of the Unit as set forth in Paragraph 1 of
the Franchise Agreement and more particularly described as follows:
(the "Premises").
2. GRANT OF SUBLEASE.
A. Sublessor, for and in consideration of the covenants and agreements
herein contained on the part of Sublessee to be performed and observed, hereby
subleases and demises the Premises to Sublessee and Sublessee hereby takes from
Sublessor the Premises, on the terms and conditions set forth herein. Sublessee
acknowledges that it has inspected the Premises and has agreed to accept
possession and occupancy of the Premises in the condition existing upon the
effective date of the Prime Lease. The rights and interest of Sublessee under
this Sublease are and shall be subject and subordinate to the Prime Lease and to
all renewals, replacements and extensions thereof, and any mortgage or trust
deed that Sublessor or Landlord may now or hereafter place upon the Premises, to
any and all advances to be made thereunder and to the interest thereon. It is
expressly understood and agreed that Sublessor does not assume and shall not
have any of the obligations or liabilities of Landlord under the Prime Lease and
that Sublessor is not making the representations or warranties, if any, made by
Landlord in the Prime Lease. Neither the Landlord, the Sublessor nor any of
their Agents or other parties have made any promise, agreements, warranties or
representations which have induced either Sublessee to enter into this
transaction or otherwise, except as specifically set forth in this Agreement, if
any. With respect to work, services, repairs and restoration or the performance
of other obligations required by the Landlord under the Prime Lease, Sublessor's
sole obligation with respect thereto shall be to request the same upon written
request from Sublessee, and use reasonable efforts to obtain the same from
Landlord. Sublessor shall not be liable in damages, nor shall rent abate
hereunder, for or on account of any failure by Landlord to perform the
obligations and duties imposed on it under the Prime Lease. Nothing contained in
this Sublease shall be construed to create privity of estate or contract between
Sublessee and Landlord.
<PAGE>
3. PERMITTED USE OF PREMISES.
A. Sublessee covenants and agrees that the Premises shall be used
exclusively for the purpose of operating a franchised Pretzel Time Unit in
accordance with the Franchise Agreement (the "Permitted Use") and for no other
purpose. In addition, Sublessee shall at all times use the Premises in
compliance with all federal and state laws, governmental ordinances, rules,
codes, and regulations.
B. Sublessee covenants and agrees that throughout the Term it will
continuously and uninterruptedly occupy, use and operate the entire Premises.
Sublessee acknowledges that Sublessor is executing this Sublease in reliance
thereon and that the same is a material element inducing Sublessor to execute
this Sublease. Sublessee further covenants and agrees to use its best efforts to
maximize its sales at the Premises. Sublessee also covenants and agrees that if
it vacates or abandons the Premises or fails to conduct its business therein or,
without the prior written consent of Sublessor, in Sublessor's absolute
discretion, uses or permits or suffers the use of the Premises for any purpose
other than the Permitted Use, then Sublessor shall have the right to declare an
Event of Default and exercise its rights herein.
C. Sublessee agrees that he will not allow or permit to be used the
Premises or any part of the Premises in violation of any laws or ordinance or
any regulation of any governmental authority.
4. DEVELOPMENT OF THE UNIT.
A. Sublessee shall be responsible for constructing and developing the
Premises at Sublessee's sole cost and expense. Sublessor will furnish to
Sublessee protypical plans and specifications for a Pretzel Time Unit, including
requirements for exterior and interior materials and finishes, dimensions,
design, image, interior layout, decor, fixtures, equipment, signs, furnishings
and color scheme. It shall be Sublessee's responsibility to have prepared all
required construction plans and specifications to suit the shape and dimensions
of the Premises and to insure that such plans and specifications comply with
applicable ordinances, building codes and permit requirements and with lease
requirements and restrictions. Sublessee shall submit construction plans and
specifications to Sublessor for its approval before construction of the Premises
is commenced and shall, upon Sublessor's request, submit all revised or "as
built" plans and specifications during the course of such construction.
Sublessee may request special assistance in connection with the development of
the Premises, and Sublessor shall have the option, in its sole discretion, to
provide such assistance to Sublessee for a fee. Sublessor shall have the right
to approve any contractor hired by Sublessee to develop the Premises. Sublessee
agrees, at his sole expense, to do or cause to be done the following with
respect to developing the Premises at the Premises:
<PAGE>
(1) secure all financing required to develop and operate the
Premises;
(2) obtain all required building, utility, sign, health, sanitation,
business, environmental and other permits and licenses required for
construction and operation of the Premises;
(3) construct all required improvements to the Premises and decorate
the Premises in compliance with plans and specifications Sublessor
approves;
(4) purchase and install all required fixtures, furnishings, equipment
and signs required for the Premises (provided, however, that Sublessor
shall, in its sole discretion, have the right to install all required
signs at the Premises at Sublessee's sole expense); and
(5) purchase an opening inventory of Products (as defined in the
Franchise Agreement), materials and supplies.
5. EQUIPMENT, FIXTURES, FURNISHINGS, AND SIGNS.
A. Sublessee agrees to use in developing and operating the Unit only
such fixtures, furnishings, equipment (including, without limitation, cash
registers and computer hardware and software), and signs that Sublessor has
approved for Pretzel Time Units as meeting it specifications and standards for
quality, design, appearance, function and performance. Sublessee further agrees
to place or display at the Premises (interior and exterior) only such signs,
emblems, lettering, logos and display materials that Sublessor approves in
writing from time to time; provided, however, that Sublessee shall purchase or
lease approved brands, types or models of fixtures, furnishings, equipment
(including cash registers, and computer hardware and software) and signs only
from suppliers and distributors designated or approved by Sublessor (which may
include Sublessor and/or its Affiliates).
6. TERM.
A. Subject to Sublessor's right to terminate this Sublease as provided
herein, the term of this Sublease (the "Term") shall commence on the date hereof
(the "Commencement Date") and shall end on the earlier of: (1) the date of
expiration or termination of the Franchise Agreement or (2) the day which is one
day prior to the expiration of the Prime Lease.
B. Sublessee shall not have any right to exercise or require Sublessor
to exercise any option under the Prime Lease, including, without limitation, any
option to extend the term of the Prime Lease or to lease additional-space. If
this Sublease expires prior to the expiration of the Franchise Agreement,
Sublessee shall be responsible to obtain a new lease which has Sublessor's prior
approval, prior to the expiration of the Sublease.
C. Sublessee acknowledges and agrees that:
(1) Sublessee has examined and knows and accepts the condition of the
Premises and accepts the Premises "As Is" and with any and all faults
and defects;
(2) The Premises are, as of the date hereof, in good order, condition
and repair; and
(3) No covenants and representations as to the order, condition and
repair of the Premises and no promise to alter, remodel, decorate,
clean or improve the Premises have been made by Sublessor or its
employees or agents, prior to or at the execution of this Sublease that
are not expressed herein or in the Franchise Agreement.
<PAGE>
7. HAZARDOUS MATERIALS.
A. Sublessee acknowledges and agrees that it is expressly prohibited
from using handling or treating hazardous materials, substances or waste at, in
or affecting the Premises. Sublessee agrees to execute an estoppel certificate
upon request of Sublessor or Landlord stipulating whether any party is engaged
in the use or handling of hazardous materials, substances, or waste.
8. DEFAULT.
A. Notwithstanding anything to the contrary expressed or implied herein
or elsewhere, upon the occurrence of any one or more of the following events or
conditions (an "Event of Default"), Sublessee shall be in default hereunder and
Sublessor shall have the right to exercise any and all remedies available to
Landlord under the Prime Lease, at law or in equity or available to Sublessor
hereunder or at law or in equity, including, but not limited to, the right to
terminate this Sublease; or accelerate the payment of Rent (as hereinafter
defined); terminate the Franchise Agreement; and/or obtain court costs and/or
attorneys' fees.
(1) Sublessee fail to fully and timely pay Rent or any other sum
payable to Landlord when due and such failure shall continue uncured
for more than five days; or (2) Sublessee's failure to timely and fully
comply with any other provisions, conditions, items, or covenants
contained in the Prime Lease or hereunder for a period of ten (10) days
after written notice is delivered to Sublessee unless such default
results in a hazardous or emergency condition in which case Sublessor
may exercise all reasonable action required to cure such default
without notice to Sublessee and without first permitting Sublessee to
cure such default;
(3) Sublessee's action or inaction, or Sublessee's sufferance of any
act or condition, which would constitute an event of default by the
tenant (i.e. Sublessor) under the Prime Lease, regardless of whether or
not Landlord seeks to enforce the applicable default provision of the
Prime Lease;
(4) Notwithstanding anything contained herein to the contrary, if on
two (2) or more occasions during any twelve month period or on five (5)
occasions during the term of this Sublease, Sublessee fails (a) to
fully and timely pay when due, without regard to any cure period herein
provided, any required amounts or (b) to fully and timely submit when
due, without regard to any cure period herein provided, required
reports;
(5) If the Franchise Agreement expires or is terminated for any
reason;
(6) If a receiver or trustee is appointed to take possession of all
or a substantial portion of the assets of Sublessee;
(7) If Sublessee makes an assignment for the benefit of creditors;
(8) If any bankruptcy, reorganization, moratorium, insolvency, creditor
adjustment or debt rehabilitation proceedings or the like are
instituted by or against Sublessee under any state or federal law;
(9) If levy, execution, or attachment proceedings or other process of
law are commenced upon, on or against Sublessee or a substantial
portion of Sublessee's assets;
(10) If a liquidator, receiver, custodian, sequester, conservator,
trustee, or other similar judicial officer is applied for by Sublessee
or appointed for Sublessee;
(11) If Sublessee becomes insolvent in the bankruptcy or equity sense;
<PAGE>
(12) If the demised premises are vacated, abandoned or deserted during
the term of this Sublease or Prime Lease, or Sublessee removes or
manifests an intention to remove its goods and property from the
Premises other than in the ordinary course of business; (13) Sublessee
is engaged in or has engaged in the handling use or treatment of
hazardous wastes or materials in or affecting the Premises;
(14) If Sublessee or any guarantor of this Sublease is a corporation,
Sublessor shall have the immediate right to declare an Event of Default
and exercise its rights in the event the person or persons presently
owning a majority of the shares of stock of such corporation cease to
own a majority of said shares or maintain such voting control, whether
due to sale, assignment, operation of law or other disposition, or if
any guarantor shall be dissolved. If Sublessee or any guarantor of this
Sublease is a partnership, Sublessor shall have the immediate right to
declare an Event of Default and exercise its rights under Paragraph 8
above in the event that the general partner of the Sublessee or the
general partner of such general partner transfers its interest in
Sublessee, whether due to sale, assignment, operation of law or other
disposition; or
(15) Any attempted or actual transfer by Sublessee without Sublessor's
prior written consent.
9. RIGHT TO CURE DEFAULTS.
A. To the extent permitted by law, Sublessee hereby waives the benefit
of any otherwise controlling law or statute with respect to notices of default
and/or cure periods. At any time during the term of this Sublease and without
notice to Sublessee, Sublessor may, but is not obligated to, cure or otherwise
discharge any default by Sublessee under this Sublease. Any and all costs or
expenses which Sublessor may expend or incur for this purpose shall be due and
payable in full promptly upon Sublessor's written demand thereof. If
reimbursement is not received within five (5) days, Sublessee authorizes and
agrees Sublessor shall debit Sublessee's account. All costs and expenses
incurred by Sublessor under this Paragraph 9 shall bear interest at the greater
of: (1) eighteen percent per annum or (2) the highest interest rate permitted by
applicable law from the date payment was due.
10. RENT.
A. Sublessee shall pay to the Landlord on the Prime Lease all monthly
rent, percentage rent, additional rent, and charges ("Rent") at the times,
places and under the terms specified in the Prime Lease without notice, demand,
deduction, abatement, counter-claim, or set off.
11. OBLIGATIONS.
A. As between the parties hereto, Sublessee hereby assumes and agrees
to be bound by the covenants and agreements set forth in the Prime Lease and by
any terms and limitations imposed upon Sublessor as the tenant thereunder,
including, without limitation, the obligation to keep records and provide the
reports required by the Prime Lease with respect to percentage rent, and to
permit Sublessor (and Sublessor's landlord) to audit Sublessee's books and
records in accordance with the terms of the Prime Lease. Sublessee indemnifies
and agrees to defend (with counsel acceptable to Sublessor or its successors and
assigns) and to hold Sublessor and its successors and assigns harmless for, from
and against any and all claims, demands, liabilities, obligations, damages,
penalties, causes of action, costs and expenses, including reasonable attorneys'
fees and expenses, imposed upon, incurred by or asserted against Sublessor or
its successors and assigns which arise out of any violations under the Prime
Lease or any violations by Sublessee of this Sublease or the terms of the
Franchise Agreement or which may arise out of or are in any manner connected
with Sublessee's use and occupancy of the Premises. Notwithstanding any contrary
term or provision contained herein or in the Prime Lease, it is hereby expressly
agreed that (i) the terms of this Sublease do not grant Sublessee any rights of
first refusal, any options to purchase or any extensions or renewal rights with
respect to the Prime Lease; and (ii) Sublessee shall not use or occupy the
Premises in a manner contrary to this Sublease, the Prime Lease or the Franchise
Agreement.
<PAGE>
12. INSURANCE.
A. Sublessee shall, at his sole cost and expense, obtain and maintain
at all times during the term of this Sublease the insurance policies required by
the Franchise Agreement and the Prime Lease with respect to the Premises.
Sublessee expressly agrees to be bound by all of the terms of the Franchise
Agreement and the Prime Lease with respect to such insurance coverage
requirements, including, without limitation, the duty to name Sublessor, the
franchisor under the Franchise Agreement, and Landlord as additional insureds
and/or loss payees as their respective interest may appear.
13. MAINTENANCE, REPAIRS AND ALTERATIONS.
A. During the term hereof and at Sublessee's sole cost and expense, Sublessee
shall keep and maintain the Premises and any fixtures, facilities and equipment
contained therein, in good condition and repair and otherwise in compliance with
this Sublease, the Prime Lease, the Franchise Agreement and all applicable laws,
ordinances, codes, rules and regulations, and in conformity with the rules and
regulations of underwriters' fire prevention agencies.
B. Sublessee shall promptly and at its sole cost and expense repair any damage
or destruction to the Premises which occurs during the term of this Sublease,
including but not limited to the repair and replacement of any broken or cracked
glass. The repairs shall be completed in a good and workmanlike manner and shall
conform the Premises to the then current standards of layout and design for a
new Pretzel Time Unit. In the event that Sublessor is required to make
structural repairs to the Premises under the Prime Lease, including but not
limited to the roof of the Premises, Sublessee shall be required to complete
such repairs as set forth therein. All such repairs shall be scheduled, planned,
approved, made and completed in accordance with this Sublease, the Prime Lease,
the Franchise Agreement and all applicable laws, ordinances, codes, rules and
regulations.
C. Sublessee shall not make, or permit to be made, any alterations or additions
to any electrical, plumbing, heating or cooling systems, nor shall Sublessee
make any interior alterations or improvements in the Premises without the prior
written consent of Sublessor which shall be at Sublessor's sole and absolute
discretion. Sublessee shall promptly pay all costs, expenses and charges
thereof, shall make such alterations and improvements in accordance with
applicable laws and building codes and in a good and workmanlike manner, and
shall fully and completely indemnify Sublessor and Landlord, as the case may be,
from and against any mechanic's lien or other liens or claims in connection with
the making of such alterations and improvements of a structural nature to the
Premises. Sublessee shall not make any alterations, additions or improvements to
the exterior of the Premises. Sublessee shall promptly repair any damage to the
Premises, or to the building caused by any alterations, additions or
improvements of the Premises by Sublessee.
14. ASSIGNMENT.
A. Sublessee shall not sell, transfer, convey, mortgage, sublet,
quitclaim, pledge, assign, permit or suffer the use or occupancy of the Premises
or any part thereof by anyone other than Sublessee or otherwise grant any party
any interest in this Sublease or the Premises, in whole or in part, without
Sublessor's prior written consent which may be withheld at Sublessor's absolute
discretion. This Sublease and Sublessee's interest hereunder shall not be
assignable by operation of law. Any attempted or actual transfer by Sublessee
(whether by way of any assignment, sublease or otherwise) without Sublessor's
prior written consent shall be null and void and of no force or effect, shall
convey no right or interest hereunder to the purported transferee and shall
constitute an Event of Default under this Sublease. Sublessor may at any time
assign this Sublease and the rights, privileges, duties and obligations
hereunder to an entity that is to become the tenant under the Prime Lease and
Sublessor hereunder.
<PAGE>
B. Sublessee shall not convey, pledge, mortgage, encumber or otherwise
transfer (collectively Pledge) (whether voluntarily or otherwise) this Sublease
or any interest in or under it. For purposes of this Section an assignment shall
include any direct or indirect transfer of fifty percent (50%) or more of the
stock of a corporate Sublessee, or fifty percent (50%) or more of the equitable
or other interests of a partnership, individual, or other non-corporate
Sublessee. Any attempt by Sublessee to assign or Pledge this Sublease or sublet
the premises in contravention of the terms of this Sublease shall constitute a
default under both the franchise agreement and the sublease agreement.
15. NO LIENS.
A. Except with Sublessor's prior written consent, Sublessee shall not
create or suffer the existence of any lien or obligation against Sublessee, the
Premises, Sublessor or Landlord. Any claim to or lien upon the Premises arising
from any act or omission of Sublessee shall be subject and subordinate to the
paramount title of Landlord and to the rights of Sublessor and Landlord in and
to the Premises. If any lien or notice of lien on account of any alleged debt of
Sublessee or any notice of contract by a party engaged by Sublessee or
Sublessee's contractor to work on the Premises shall be filed against the
Premises or any part thereof, Sublessee, within ten (10) days after notice of
the filing thereof, will cause the same to be discharged of record by payment,
deposit, bond, order of a court of competent jurisdiction or otherwise. If
Sublessee shall fail to cause such lien or notice of lien to be discharged
within the period aforesaid, then in addition to any other right or remedy
available to Sublessor or Landlord, Sublessor or Landlord may, but shall not be
obligated to, discharge the same either by paying amounts claimed to be due or
by procuring the discharge of such lien by deposit or by bonding proceedings,
and in any such event Sublessor or Landlord shall be entitled, if Sublessor or
Landlord so elects, to compel the prosecution of the lender's claim with
interest, costs and allowances. Any amount so paid by Sublessor and Landlord and
all costs and expenses including attorneys' fees incurred by Sublessor and
Landlord in connection therewith, together with interest thereon at the rate
specified in Paragraph 9 above from their respective dates of Sublessor's or
Landlord's making of the payment or incurring of the cost and expense shall
constitute Additional Rent payable by Sublessee under this Sublease and shall be
paid promptly by Sublessee to Sublessor and Landlord on demand.
16. SUBORDINATION.
A. Sublessee acknowledges that this sublease is subordinate to said
Prime Lease in all respects and to all ground or underlying leases of the
property and to all mortgages which may now or hereafter be secured upon such
leases or the property and to any and all renewals, modifications,
consolidations, replacements and extensions thereof. This Paragraph shall be
self-operative and no further instrument of subordination shall be required by
Sublessor or mortgagee.
<PAGE>
17. RELATIONSHIP TO FRANCHISE AGREEMENT.
A. This agreement is being executed contemporaneously with a certain
franchise agreement between the parties hereto. The parties agree that a default
in either agreement shall be deemed a default in both entitling Sublessor
(Pretzel Time) to all of the remedies under both agreements. In the event of the
termination of the Sublessee's franchise due to default by Sublessee, this
sublease shall, at Sublessor's option, terminate and the premises be surrendered
to Sublessor. Any such termination shall not, however, relieve Sublessee of
liability for rent due hereunder.
18. WAIVER OF CERTAIN CLAIMS.
A. Sublessee waives all claims that it may have against Sublessor or
Landlord for damage or injury to person or property sustained by Sublessee, its
employees, agents and invitees, by any occupant of the Premises or by any other
person, resulting from the ownership, use, operation, occupancy or management of
any part of the Premises or any of its improvements, equipment or appurtenances
becoming out of repair, or resulting from any accident on or about the Premises
or resulting directly or indirectly from any act or omission of any person,
including Sublessor or Landlord, to the extent permitted herein and by law. All
personal property of Sublessee or of such other person only, and Sublessor and
Landlord shall not be liable for any damage thereto, to the extent permitted
herein and by law, or for the theft, disappearance or misappropriation thereof.
19. LEGAL PROCEEDINGS.
A. In the event Sublessor commences any legal proceeding to enforce
this Sublease against Sublessee and/or to remove Sublessee and his property from
the Premises, Sublessee shall not assert any counterclaims or similar
allegations as a defense to any such proceeding, it being
<PAGE>
Sublessor's and Sublessee's intention that such counter claims shall be brought
against Sublessor, if at all, in a separate legal proceeding. Sublessee shall
pay all costs and expenses incurred by Sublessor, including attorneys' fees and
other litigation expenses, to enforce this Sublease and the rights and
privileges evidenced hereby against Sublessee. As used herein, the term
"attorneys' fees" is deemed to include, without limitation, reasonable legal
fees whether incurred prior to, in preparation for or in contemplation of the
filing of any written demand or any claim, action, hearing or proceeding to
enforce Sublessee's obligations under this Sublease.
B. If Sublessee shall default in the payment of Rent or in the payment
of any other sums due under the Prime Lease and Sublease, Sublessee hereby
authorizes and empowers any Prothonotary or attorney of any court of record to
appear for Sublessee in any and all actions which may be brought for Rent and
other sums; and to sign for Sublessee an agreement for entering in any competent
court an amicable action or actions for the recovery of Rent and other sums, and
in suits or in amicable action or actions to confess judgment against Lessee for
all or any part of the Rent and other sums, including, but not limited to, the
amounts due from Lessee to Lessor under this Agreement and for interest and
costs, together with a reasonable attorney's commission for collection of not
less than Three Thousand Dollars ($3,000.00). Such authority shall not be
exhausted by one exercise, but judgment may be confessed from time to time as
often as any of the Rent and other sums shall fall due or be in arrears and such
powers may be exercised as well after the expiration of the term of this
Sublease.
C. When this Sublease and its term shall have been terminated on
account of any default and/or also when the term hereby created shall have
expired, it shall be lawful for any attorney of any court of record to appear as
attorney for Sublessee as well as for all persons claiming by, through or under
Sublessee and to sign an agreement for entertaining in any competent court an
amicable action in ejectment against Sublessee and all persons claiming by,
through or under Sublessee and to confess judgment for the recovery by Pretzel
Time of possession of the Premises, for which this Sublease and referenced Prime
Lease shall be sufficient warrant; thereupon, if Pretzel Time so desires, an
appropriate writ of possession may issue promptly, without any prior writ of
proceeding whatsoever, provided that if for any reason after such action shall
have been commenced it shall be determined that possession to bring one or more
further amicable action or actions to recover possession of the Premises and to
confess judgment for the recovery of possession of the Premises as provided.
Notwithstanding anything contained in this Sublease or Prime Lease to the
contrary, the right of Pretzel Time to initiate an amicable action in ejectment
as specified above shall not preclude or limit Pretzel Time's right to initiate
an amicable action for Rent (including but not limited to all unpaid Rent for
the balance of the term of this Prime Lease).
20. MISCELLANEOUS.
A. It is mutually agreed by and between Sublessee and Sublessor that
the respective parties shall and do waive trial by jury in any action,
proceeding, or counterclaim brought by either of the parties against the other
as to any matters whatsoever arising out of or in any way connected with this
Sublease, the relationship of Sublessee and Pretzel Time, Sublessee's use or
occupancy of the Premises or any statutory remedy.
<PAGE>
B. All provisions of the Franchise Agreement shall apply to this
Sublease, where appropriate, be incorporated by reference and bind Sublessor and
Sublessee as if the same were fully set forth herein.
C. The parties agree that the terms and conditions of this sublease
shall not be modified or changed in any way except by written agreement signed
by both parties thereto.
D. An provision of this Sublease and/or the Franchise Agreement which
imposes obligations which survive the termination or expiration hereof,
including but not limited to hereof, shall survive such termination or
expiration.
E. Any voluntary or other surrender of the Prime Lease by Sublessor to
Landlord shall not operate as a merger and shall, at Landlord's option, be
deemed an assignment of this sublease.
F. Any consent or waiver by Sublessor of any provision herein shall not
constitute a waiver of strict performance by Sublessee of the provisions of that
Sublease or from the full performance of Sublessee of any of the terms,
covenants, provisions, or conditions in this Sublease contained.
G. Sublessor shall have no duty to relet the premises or any part of it
nor shall it be responsible for failure to collect any rent due upon any
reletting, although Sublessor use its best efforts to relet the premises.
H. Nothing contained in this sublease shall limit or prejudice the
right of Sublessor to prove for and obtain as damages incident to a termination
of this Sublease Agreement in any bankruptcy, reorganization or other court
proceedings, the maximum amount allowed by any statute or rule of law in effect
when such damages are to be proved.
I. Only full payment of any amount shall satisfy Sublessee's payment
obligations hereunder. No endorsement or statement on any check or any letter
accompanying any check or payment made hereunder shall be deemed or construed as
an accord and satisfaction of the full amount due, and Sublessor may accept such
check or payment without prejudice to Sublessor's right to recover the balance
of such rent or pursue any remedy which would otherwise be available.
<PAGE>
J. This Sublease shall be governed by the laws of the state of
Pennsylvania except choice of law rules. To the extent permitted by law,
Sublessee hereby waives the benefit of any otherwise controlling statute of law
with respect to notices of default and/or cure periods.
K. No waiver of any breach or violation of any of the covenants,
agreements and obligations of Sublessee under this Sublease shall be construed,
taken or held to be a waiver of any other breach or violation or a waiver,
acquiescence in or consent to any further or succeeding breach or violation of
the same covenant, agreement or obligation.
L. Upon termination or expiration of this Sublease or the Franchise
Agreement for any reason whatsoever, Sublessee shall immediately surrender and
deliver up the Premises to Sublessor in the same condition as existed on the
Commencement Date of this Sublease, reasonable wear and tear excepted, and
remove from the Premises all unattached personal property, fixtures and
equipment owned by Sublessee and in which Sublessor has no security interest,
lien or other claim; provided, however, that all such personal property,
fixtures and equipment shall be and remain subject to (i) Landlord's rights
under the Prime Lease; and (ii) the Sublessor's rights under the Franchise
Agreements.
M. In the event Sublessee remains in possession of the Premises of
fails to remove its property from the Premises after the expiration or
termination of this Sublease for any reason without executing a new agreement
under which it may lawfully use and occupy the same, Sublessee shall fully and
timely pay to Landlord or Sublessor such sums as the Prime Lease requires the
Sublessor thereto to pay to Landlord in the event that such Sublessor fails to
timely surrender possession of the Premises. Notwithstanding anything to the
contrary contained in the Prime Lease, the holding over by Sublessee shall
create in Sublessee no right of occupancy to the Premises, without the prior
written consent of Sublessor. Unless Sublessor and Sublessee agree to the
contrary in writing, Sublessee's occupancy of the Premises after the expiration
date shall create a tenancy-at-sufferance.
N. Estoppel Certificate. Sublessee shall at any time and from time to
time within ten (10) days' of request from Sublessor or Landlord execute,
acknowledge and deliver to Sublessor or Landlord, as the case may be, in form
reasonable satisfactory to Sublessor or Landlord and/or any mortgagee of
Sublessor or Landlord, a written statement certifying that Sublessee has
accepted the Premises, that this Sublease is unmodified and in full force and
effect (or, if there have been modifications, that the same is in full force and
effect as modified and stating the modifications), that neither Sublessor or
Landlord is in default hereunder or under the Prime Lease (or, if any default
has occurred and is continuing, then Sublessee shall specify the nature and
period of existence thereof, and any action which Sublessee has taken or
proposes to take with respect thereto), the date to which the rent and other
charges have been paid in advance, if any, or such other accurate certification
as may reasonably be required by Sublessor or Landlord or their respective
mortgagees, and agreeing to give to such mortgagees copies of all notices by
Sublessee to Sublessor or Landlord. In the event that any party succeeds to
Sublessor's rights hereunder, Sublessee agrees to attorn to such successor and
shall recognizes such successor as the Sublessor hereunder or the landlord under
the Prime Lease, as the case may be. Such attornment shall be effected and
self-operative without the execution of any further instrument. Sublessee
agrees, however, to execute and deliver at any time and from time to time, any
instrument or certificate which, in the sold judgment of such successor, may be
necessary or appropriate to evidence such attornment. From and after any such
attornment, such successor shall, subject to the provisions herein contained, be
bound to Sublessee under all the terms, covenants and conditions of this
Sublease shall, from and after the succession to the interest of Sublessor
hereunder have the same remedies against such successor for a breach of any
agreement contained in this Sublease that Sublessee might have had against
Sublessor under this Sublease; provided, however, that such successor shall not
be:
<PAGE>
(1) liable for any act or omission of any prior landlord (including
Sublessor); (2) liable for the return of any security deposit; (3)
subject to any offset or defense which Sublessee might have against any
prior landlord
(including Sublessor); and
(4) bound by any rent or additional rent which Sublessee might
have paid for more than the current month to any prior
Landlord (including Sublessor).
O. All notices required to be delivered hereunder shall be delivered
in accordance with the
Franchise Agreement.
P. The recitals of this agreement form a part of this agreement and
are incorporated therein.
IN WITNESS WHEREOF, the parties hereto have cause this Sublease to be
duly executed the day of 199 .
WITNESSES: PRETZEL TIME, INC.
a Pennsylvania corporation
By:
__________________________ Name: _______________________
Title: ________________________
Date Signed: __________________
WITNESSES: FRANCHISEE
- -----------------------------
By:
Name:
Title:
Date Signed: __________________
<PAGE>
STATE OF )
: '
COUNTY OF )
On this _____ day of ___________, 19 __, before me, a Notary Public in
and for the County and State aforesaid, personally appeared
_______________________ and acknowledged that (s)he executed the foregoing
instrument as a free and voluntary act, for the uses and purposes therein set
forth.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
NOTARY PUBLIC
My Commission Expires:
<PAGE>
(N-2)
franex.96
EXHIBIT N
COLLATERAL ASSIGNMENT OF LEASE
THIS AGREEMENT is made and entered into this day of April , 1995, by and among
whose principal place of address is (individually or collectively "ASSIGNOR")
and PRETZEL TIME, INC., a Pennsylvania corporation having its principal office
at 4800 Lingelstown Road, Harrisburg, PA 17112 (the "ASSIGNEE"); wherein the
parties agree as follows:
1. Agreement Assigned. As additional security for the performance of Assignor's
obligations under that certain Franchise Agreement made and entered into as of
for the development and operation of a Pretzel Time Store located at or in (the
"Franchise Agreement") ASSIGNOR hereby sells, assigns, and conveys to ASSIGNEE
all interest in and to that certain Lease made and entered into as of for the
occupancy of a "Pretzel Time" store located at or in
by and between (the "Landlord") and (the "Tenant") containing approximately
square feet of space (the "Lease"), to have and to hold said interest for the
term of the Franchise Agreement and any renewal thereof consistent with its
terms and conditions. Any defined terms in the Franchise Agreement appearing
herein shall have the same meaning as set forth in this Agreement.
2. Collateral. The assignment hereunder is for the purposes of affording
Assignee additional collateral for the performance of Assignor's obligations
under the Franchise Agreement. Should Assignor not default under the terms of
the Franchise Agreement and the Lease, then this Collateral Assignment of Lease
shall not be utilized by Assignee.
3. Assignee's Exercise of Rights Granted Hereunder. Should Assignor default
under the terms of the Franchise Agreement, Assignee shall have the right, but
not the obligation, by written notice to assume Assignor's rights and
obligations under the Lease and obtain possession of the "Pretzel Time" store
from Assignor. Should Assignor default under the terms of the Lease, Assignee
shall have the right, but not the obligation, by written notice to assume
Assignor's rights and obligations under the Lease and obtain possession of the
"Pretzel Time' store. Assignor hereby agrees to execute such additional
documentation necessary to consummate the transfer as Assignee shall require.
Assignor hereby agrees that the Lease shall contain certain such language
binding the landlord to agree to the terms of this Collateral Assignment of
Lease and that the Lease will contain additional language obligating the
landlord to provide a copy of all default notices to Assignee with an
opportunity, but not an obligation, to cure any default under the Lease.
4. Additional Security. Should Assignee be required to guaranty the Lease, then
additionally Assignor shall obtain a letter of credit in the amount of $25,000
for the benefit of Assignee to additionally secure Assignor's obligations under
the Lease. Assignor agrees to execute such additional documentation necessary to
provide Assignee with this additional security.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have executed this Agreement effective as of the date first above written.
WITNESSES: ASSIGNOR:
By:
Name:
Title:
PRETZEL TIME, INC.
By:
Name:
Title:
<PAGE>
12. MODIFICATION. This agreement cannot be changed or modified except by
another written agreement signed by the party sought to be charged therewith or
by his/its duly authorized agent.
13. ENTIRE AGREEMENT. This agreement sets forth the entire agreement and
understanding between the parties with respect to the subject matter herein and
supersedes all prior or contemporaneous agreements, whether written or oral
between the parties.
14. ASSIGNMENT. This agreement shall not be assigned by either party
without the prior written agreement of the parties.
15. SEVERABILITY. In the event that any provision of this agreement is
deemed by a court of any jurisdiction to be unenforceable, illegal or contrary
to public policy, it shall be stricken and the remainder of this Mutual
Confidentiality Agreement shall remain in force.
16. WAIVER. Failure of either party at any time or from time to time to
exercise any right under this Agreement shall not be deemed a waiver of such
right nor shall it prevent the party from subsequently asserting or exercising
such right.
17. GOVERNING LAW.
[INTENTIONALLY DELETED].
<PAGE>
18. WAIVER OF CERTAIN CLAIMS.
A. Sublessee waives all claims that it may have against Sublessor or
Landlord for damage or injury to person or property sustained by Sublessee, its
employees, agents and invitees, by any occupant of the Premises or by any other
person, resulting from the ownership, use, operation, occupancy or management of
any part of the Premises or any of its improvements, equipment or appurtenances
becoming out of repair, or resulting from any accident on or about the Premises
or resulting directly or indirectly from any act or omission of any person,
including Sublessor or Landlord, to the extent permitted herein and by law. All
personal property of Sublessee or of such other person only, and Sublessor and
Landlord shall not be liable for any damage thereto, to the extent permitted
herein and by law, or for the theft, disappearance or misappropriation thereof.
Indiana law [Indiana Code Section 23-2-2.7-1(10) may prevent Pretzel Time from
fully enforcing this Section 18].
19. LEGAL PROCEEDINGS.
A. In the event Sublessor commences any legal proceeding to enforce
this Sublease against Sublessee and/or to remove Sublessee and his property from
the Premises, Sublessee shall not assert any counterclaims or similar
allegations as a defense to any such proceeding, it being Sublessor's and
Sublessee's intention that such counter claims shall be brought against
Sublessor, if at all, in a separate legal proceeding. Sublessee shall pay all
costs and expenses incurred by Sublessor, including attorneys' fees and other
litigation expenses, to enforce this Sublease and the rights and privileges
evidenced hereby against Sublessee. As used herein, the term "attorneys' fees"
is deemed to include, without limitation, reasonable legal fees whether incurred
prior to, in preparation for or in contemplation of the filing of any written
demand or any claim, action, hearing or proceeding to enforce Sublessee's
obligations under this Sublease.
B. If Sublessee shall default in the payment of Rent or in the payment
of any other sums due under the Prime Lease and Sublease, Sublessee hereby
authorizes and empowers any Prothonotary or attorney of any court of record to
appear for Sublessee in any and all actions which may be brought for Rent and
other sums; and to sign for Sublessee an agreement for entering in any competent
court an amicable action or actions for the recovery of Rent and other sums, and
in suits or in amicable action or actions to confess judgment against Lessee for
all or any part of the Rent and other sums, including, but not limited to, the
amounts due from Lessee to Lessor under this Agreement and for interest and
costs, together with a reasonable attorney's commission for collection of not
less than Three Thousand Dollars ($3,000.00). Such authority shall not be
exhausted by one exercise, but judgment may be confessed from time to time as
often as any of the Rent and other sums shall fall due or be in arrears and such
powers may be exercised as well after the expiration of the term of this
Sublease.
C. When this Sublease and its term shall have been terminated on
account of any default and/or also when the term hereby created shall have
expired, it shall be lawful for any attorney of any court of record to appear as
attorney for Sublessee as well as for all persons claiming by, through or under
Sublessee and to sign an agreement for entertaining in any competent court an
amicable action in ejectment against Sublessee and all persons claiming by,
through or under Sublessee and to confess judgment for the recovery by Pretzel
Time of possession of the Premises, for which this Sublease and referenced Prime
Lease shall be sufficient warrant; thereupon, if Pretzel Time so desires, an
appropriate writ of possession may issue promptly, without any prior writ of
proceeding whatsoever, provided that if for any reason after such action shall
have been commenced it shall be determined that possession to bring one or more
further amicable action or actions to recover possession of the Premises and to
confess judgment for the recovery of possession of the Premises as provided.
Notwithstanding anything contained in this Sublease or Prime Lease to the
contrary, the right of Pretzel Time to initiate an amicable action in ejectment
as specified above shall not preclude or limit Pretzel Time's right to initiate
an amicable action for Rent (including but not limited to all unpaid Rent for
the balance of the term of this Prime Lease). Indiana law [Indiana Code Section
23-2-2.7-1(10) may prevent Pretzel Time from fully enforcing this Section 19].
ASSET PURCHASE AGREEMENT
Dated as of July 23, 1997
among
MRS. FIELDS' PRETZEL CONCEPTS, INC.,
as Buyer,
H & M CONCEPTS LTD., CO.,
as Seller,
and
THE MANAGING MEMBERS OF H & M CONCEPTS LTD., CO.,
as Seller Members,
<PAGE>
TABLE OF CONTENTS
Page
1. Purchase, Sale and Assumption.......................................... 1
2. Closing; Transactions to be Effected; Purchase Price Adjustment........ 10
3. Conditions to Closing.................................................. 16
4. Representations and Warranties of the Seller and the Seller Members.... 20
5. Covenants of the Seller and the Seller Members......................... 40
6. Representations and Warranties of the Buyer............................ 43
7. Covenants of the Buyer................................................. 45
8. Mutual Covenants....................................................... 46
9. Employee and Related Matters........................................... 50
10. Further Assurances.................................................... 51
11. Indemnification....................................................... 51
12. Assignment............................................................ 61
13. No Third-Party Beneficiaries.......................................... 62
14. Termination........................................................... 62
15. Survival of Representations........................................... 63
16. Expenses.............................................................. 64
17. Arbitration........................................................... 64
18. Amendments............................................................ 66
19. Notices............................................................... 66
20. Interpretation........................................................ 67
21. Counterparts.......................................................... 67
22. Entire Agreement...................................................... 67
23. Fees.................................................................. 67
24. Severability.......................................................... 68
25. Consent to Jurisdiction............................................... 68
26. Governing Law......................................................... 69
<PAGE>
iv
Appendix A Index of Defined Terms
Exhibit A List of Stores to be Acquired
Exhibit B List of Excluded Stores
Exhibit C W/C Statement
Schedules
1(b)(viii) Excluded Assets
1(c)(iii) Display Cabinets
1(c)(iv) Other Assumed Liabilities
1(d)(vi) Excluded Liabilities Under Contracts With Members,
Stockholders, Creditors and Affiliates
1(e)(iv)A Personal Property Leases
3(a)(viii)(A) Agreements Requiring Consent to Transfer or Assign
Any of the Acquired Assets
3(a)(viii)(B) Contribution Schedule
4(c)(i) Ownership Interests of Seller
4(c)(ii) Exceptions to Ownership of Subsidiary Shares/
Officers, Directors, Managers and Managing Members
of Subsidiaries
4(d) Equity Interests
4(e)(i) Financial Statements
4(e)(ii) Disclosed Liabilities
4(f) Tax Returns and Audits
4(g) Liens on Acquired Assets
4(h) Condition of Assets
4(i) Intellectual Property
4(j) Contracts
4(j)(iv) Agreements With Officers, Etc.
4(j)(vi)(A) Leases or Similar Agreements With Third Party Lessors
4(j)(vii)(A) Contracts for Future Purchase of Materials,
Supplies or Equipment Not in Ordinary
Course of Business
4(j)(vii)(B) Management, Service, Consulting Contracts
4(j)(vii)(C) Advertising Agreements or Arrangements
4(j)(viii) Material License or Agreements Regarding Use of
Intellectual Property
4(j)(ix) Agreements or Contracts Regarding Seller or
Subsidiary Loans, Indebtedness, Etc.
4(j)(x) Guaranties by Others of Seller or Subsidiary
Indebtedness, Liabilities or Obligations
4(j)(xi) Security Agreement or Encumbrances Other Than
Original Purchase Price Conditional Sales
Contracts or Equipment Leases
4(j)(x)(ii) Agreements for Sale of Assets Not in Ordinary Course
of Business
4(j)(xiii) Agreements, Arrangements, Understandings Between
Seller or a Subsidiary and Any
Respective Member, Stockholder, Creditor or Affiliate
4(j)(xiv) Other Agreement, Contract, License, Commitment or
Instrument Pursuant to Which After the Closing the
Buyer Will Have any Liability
4(k) Litigation
4(l) Insurance
4(m)(i) Benefit Plans
4(m)(ii)-1 Benefit Plan Filings
4(m)(ii)-2 Proceedings
4(m)(iii) Contributions and Payments Funding Deficiencies
4(m)(v) Liabilities to Multiemployer Plans
4(m)(vii) Employee Welfare Benefit Plans
4(n) Material Events
4(o) Compliance with Applicable Laws; Environmental
Matters
4(p) Employee and Labor Relations
4(q) Material Licenses and Permits
4(r) Inventory
4(t) Product Liability
11(b)(ii) Rent Schedule
Rider No. 1 H&M Concepts Ltd. Co./Date: February 11, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of July 23, 1997, among MRS. FIELDS'
PRETZEL CONCEPTS, INC., a Delaware corporation (the "Buyer"), H & M CONCEPTS
LTD. CO., an Idaho limited liability company (the "Seller"), and the managing
members of the Seller, Randol S. Hemmer and Steven H. Mann (the "Seller
Members").
WHEREAS, the parties desire that the Buyer purchase from the Seller,
and that the Seller sell to the Buyer, the Acquired Assets (as defined in
Section 1(a)), and that the Buyer assume the Assumed Liabilities (as defined in
Section 1(c)), upon the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and of the respective
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto hereby agree as follows:
1. Purchase, Sale and Assumption.
(a) Purchase and Sale. On the terms and subject to the
conditions of this Agreement, the Seller agrees to sell, transfer, assign and
deliver to the Buyer, and the Buyer agrees to, accept and purchase from the
Seller, at the Closing (as defined in Section 2(a)), all the business and
operations of the Seller's seventy-nine (79) stores listed on Exhibit A hereto
(such business and operations being herein called, collectively, the "Acquired
Business") and all the assets and properties of the Seller of every kind and
description used or held for use in connection with the Acquired Business (such
assets and properties being herein called, collectively, the "Acquired Assets"),
other than the Excluded Assets (as defined in Section 1(b)). The Acquired Assets
shall include without limitation (i) all leasehold and subleasehold interests,
and improvements, fixtures, signage, easements, rights-of-way, and other
appurtenants thereto; (ii) all tangible personal property, such as machinery,
equipment, supplies, inventories, furniture, motor vehicles and tools; (iii) all
agreements, contracts, instruments, security interests and other similar
arrangements expressly assumed by the Buyer at the Closing; (iv) all books,
records, ledgers, files, documents, correspondence, plans, drawings, marketing
materials, studies, reports and other similar material, in written or electronic
form; (v) all recipes, techniques, processes, methods of production and
commercialization, training methods and know-how owned by the Seller; (vi) the
Subsidiary Shares (as defined in Section 2(b)(i), including all of Seller's
ownership interests in UVEST, LLC, a Utah limited liability company, LV-H&M,
LLC, a Nevada limited liability company, and the Seller's ownership interest in
H & M Concepts of Idaho, Inc., an Idaho corporation (collectively, the
"Subsidiaries"); (vii) store change funds in the aggregate amount of $25,000
(the "Store Cash"); (viii) deposits made in connection with leases, subleases
and utility service agreements; and (ix) all of the accounts, notes receivables,
rebates and all other assets listed in the W/C Statement (as defined in Section
2(c)(i)).
(b) Excluded Assets. The term "Excluded Assets" means,
collectively, the following: (i) the business and
operations of, and the assets and property located
in, the
Seller's stores listed on Exhibit B;
<PAGE>
(ii) any and all assets of the Seller's corporate office unless expressly
included herein;
(iii) all cash in the Seller's bank accounts other than Store Cash;
(iv) all rights and claims (including, without limitation, refunds and
claims thereto) of the Seller or of any Subsidiary with respect to the
Excluded Liabilities (as defined in Section 1(d));
(v) any rights under that certain Franchise Agreement, dated June 7, 1993,
as amended (the "Franchise Agreement"), between Seller's assignor,
Pretzel Time Northwest, Inc., an Idaho corporation, and Pretzel Time,
Inc., a Pennsylvania corporation ("Franchisor");
(vi) the "H & M Concepts" trade name and related trademarks;
(vii) any and all minute books, stock transfer
records and records of Taxes (as defined in Section 4(f)(iii))
of the Seller or the Subsidiaries; and
(viii) all assets listed on Schedule 1(b)(viii). (c) Assumed Liabilities.
On the terms and subject to the conditions of this Agreement, the
Buyer agrees to assume, at and effective from the Closing, the Assumed
Liabilities, other than the Excluded Liabilities. The term "Assumed
Liabilities" means the following liabilities and obligations of the
Seller and the Subsidiaries:
(i) all obligations under the agreements, contracts,
leases, licenses, and other arrangements referred to in the
description of Acquired Assets either (A) to furnish goods,
services and other non-cash benefits to another party after
Closing, or (B) to pay for goods, services and other non-cash
benefits that another party will furnish to the Acquired
Business after Closing;
(ii) all liabilities of the Seller listed in the W/C
Statement (as defined in Section 2(c)(i));
(iii) the obligation of the Seller pursuant to the
Franchise Agreement, as of the Closing Date, to install
humidified, pretzel display cabinets (the "Display Cabinets")
in stores included as a part of the Acquired Assets, but only
to the extent set forth on Schedule 1(c)(iii);
(iv) the obligation of the Seller under any store
lease or sublease that is a part of the Acquired Assets to pay
adjustments in common area maintenance fees billed after the
expiration of the 45-day period specified in Section 2(c)(i)
for adjusting the W/C Statement; and
(v) all other liabilities of the Seller listed on Schedule 1(c)(iv). (d)
Excluded Liabilities. The term "Excluded Liabilities" means any
liability or obligations of the Seller or any Subsidiary not expressly
assumed in this Agreement, including without limitation:
(i) any liability in respect of any Excluded Assets, including those
arising under the Franchise Agreement, except as expressly set forth
in Section 1(c)(iii) concerning the installation of the Display
Cabinets;
(ii) any obligation or liability to the Seller including those in
connection with the transactions contemplated by this Agreement or the
liquidation or dissolution of the Seller;
(iii)except as limited by Section 11(b)(iii), the costs associated with
obtaining assignments of store leases or subleases;
<PAGE>
(iv) any liability for any Taxes (as defined in
Section 4(f)(iii)) attributable to taxable years or periods ending at
the time of or prior to the Closing, or, in the case of any Straddle
Period (as defined in Section 11(a)(i)), the portion of such Straddle
Period (as determined in Section 11(a)(i)) ending at the time of the
Closing;
(v) any obligation to indemnify any person by reason
of the fact that such person was a director, officer, employee,
managing member or agent of the Seller or the Subsidiaries or was
serving at the request of any such entity as a managing member,
partner, trustee, director, officer, employee or agent of another
entity;
(vi) any obligations and liabilities of the Seller,
any Subsidiary or of any Seller Members with respect to any contract,
agreement, arrangement or understanding (including without limitation
any payables) with any of their respective members, stockholders,
creditors or affiliates (in each case, other than the Seller and the
Subsidiaries) including those identified on Schedule 1(d)(vi);
(vii) any liability under any Benefit Plan (as
defined in Section 4(m)) or other incentive plans or arrangements
sponsored by the Seller or any Subsidiary;
(viii) any liability or obligation with respect to
the payment of expenses pursuant to Section 16, including any
indemnification or other obligations under any related engagement
agreements or arrangements; and
(ix) any liability or obligation arising before
Closing under any agreement, contract, lease, sublease, license or
arrangement of the Seller, including those arising under the Franchise
Agreement other than the obligations of the Seller to install the
Display Cabinets expressly assumed by the Buyer pursuant to Section
1(c)(iii).
(e) Purchase Price; Subordination; Security.
(i) Payment of Purchase Price. The purchase price for
the Acquired Assets (the "Purchase Price") shall be Thirteen Million
Five Hundred Fifty Thousand Dollars ($13,550,000), of which: (A) Five
Million Five Hundred Fifty Thousand Dollars ($5,550,000) is payable in
cash at Closing (the "Cash Purchase Price"); (B) Four Million Dollars
($4,000,000) is payable with a promissory note (the "Subordinated
Note") that the Buyer shall cause to be issued by Mrs. Fields Holding
Company, Inc., a Delaware corporation and affiliate of the Buyer
("MFHC"), that shall bear interest at the rate of eight percent (8%)
per annum on the unpaid principal balance thereof, that shall require
payment of the unpaid principal thereof on or before five (5) years
from the date of the Closing, and that shall require monthly payments
of interest, commencing on September 30, 1997 and continuing on the
last day of each successive month thereafter until paid in full; and
(C) Four Million Dollars ($4,000,000) is payable with a promissory note
(the "Bridge Note") issued by the Buyer that shall bear interest at the
rate of sixteen percent (16%) per annum on the unpaid principal balance
thereof, and that shall be payable in full on or before November 1,
1997. (The Subordinated Note and the Bridge Note are collectively
hereinafter referred to as the "Notes.") As a loan fee (the "Loan Fee")
for the financing evidenced by the Bridge Note, the Buyer shall pay the
sum of Twenty Thousand Dollars ($20,000) to the Seller at the Closing
in addition to the Cash Purchase Price. At the Closing, the Buyer shall
receive a credit against the Cash Purchase Price in an amount equal to
Sixty Thousand Dollars ($60,000), representing one-half of the Seller's
obligation under the Franchise Agreement to install the Display
Cabinets pursuant to Section 1(c)(iii). The Purchase Price shall be
subject to adjustment as provided in Section 2(c).
<PAGE>
(ii) Additional Terms of Notes. In addition to the
requirements of Section 1(e)(i): (A) the Subordinated Note shall
provide that the obligations thereof shall be subject to offset by the
Buyer pursuant to the terms and conditions of this Agreement, and shall
provide for a penalty or premium in the event of prepayment as shall be
mutually agreed upon and set forth in the Subordinated Note; (B) the
Bridge Note shall provide that it is secured by the Subordinated
Security Interest (as defined in Section 1(e)(iv)) in the Collateral
granted by the Seller to the Buyer and that prepayment of some or all
of the principal and/or interest under the Bridge Note shall be without
penalty or premium; (C) each of the Notes shall provide that the
obligations thereof shall be subordinated to the Senior Financing (as
defined in Section 1(e)(v)), shall be governed by the laws of the State
of Utah (without giving effect to choice of law provisions) and shall
be in a form and shall contain such terms as are mutually agreeable to
the Buyer and the Seller and approved by the Lender (as defined in
Section 1(e)(v)).
(iii) Guaranty Agreements. On terms satisfactory to
the Buyer, the Seller and MFHC, and approved by the Lender, the Buyer
shall cause MFHC to execute and deliver to the Seller at the Closing a
guaranty agreement (the "MFHC Guaranty"), guaranteeing payment of the
Bridge Note. On terms satisfactory to the Buyer, the Seller, MFHC and
Capricorn Investors II, L.P., a Delaware limited partnership and
affiliate of the Buyer ("Capricorn"), and approved by the Lender, the
Buyer shall cause Capricorn to execute and deliver to the Seller at the
Closing a guaranty agreement (the "Capricorn Guaranty"), guaranteeing
payment of the Subordinated Note.
(iv) Seller's Security Interest. Subject to Section
1(v), the Bridge Note shall be secured by a security agreement, in a
form and containing terms mutually agreeable to the Buyer and the
Seller, and approved by the Lender (the "Subordinated Security
Agreement"), granting the Seller a security interest (the "Subordinated
Security Interest") in the Collateral (defined in this Section
1(e)(iv)). For purposes of this Agreement and the Security Agreement,
subject to the Lender's written approval, the term "Collateral" shall
mean (A) the leasehold and subleasehold interests and improvements,
inventory, machinery, equipment and other personal property sold,
transferred, conveyed and delivered as a part of the Acquired Assets by
the Seller to the Buyer, located in each of the retail stores
identified on Exhibit A, excluding any equipment or machinery leased by
the Buyer, including without limitation, the equipment and machinery
described in those certain personal property leases listed on Schedule
1(e)(iv)(A) to be assumed by the Buyer at the Closing; and (B) subject
to the written consent of the Franchisor, all of the Buyer's rights and
interests as franchisee under the New Franchise Documents (as defined
in Section 3(a)(x)). The Buyer agrees to execute and deliver to the
Seller all documents (including UCC financing statements) reasonably
necessary to perfect the Subordinated Security Interest, provided
however that the expense of filing any such documents shall be borne
and paid by the Seller. Promptly on the payment in full of the Bridge
Note, the Seller shall release and terminate the Subordinated Security
Interest and all financing statements related thereto.
(v) Lender's Security Interest; Subordination of
Seller's Security Interest. The Buyer intends to arrange financing of
the Cash Purchase Price through the borrowing of monies (the "Senior
Financing") from a third party lender (the "Lender"). The Seller hereby
agrees: (x) that all indebtedness, obligations and liabilities
(including without limitation those evidenced by promissory notes or
other instruments) of the Buyer (and/or any of the Buyer's affiliates),
owed now or in the future, to the Lender in connection with the Senior
Financing (collectively, the "Senior Debt"), subject to the limitations
set forth in the Subordination Agreement (as defined in Section
1(e)(viii) as to the permitted amount of Senior Debt, shall be secured
by a first-priority security interest, to be granted by the Buyer at
the Closing in favor of the Lender, covering such assets of the Buyer,
including without limitation the Acquired Assets and the Collateral, as
may be agreed upon by the Buyer and Lender (the "Senior Security
Interest"); (y) that all of the indebtedness, obligations, rights and
liabilities evidenced by or arising from any of the Notes, the
Subordinated Security Agreement or any other instruments securing
payment thereof (such indebtedness, obligations, rights and liabilities
being referred to herein as the "Subordinated Debt") shall be
subordinate and junior in rights of priority and payment and collection
to the rights of priority and payment and collection in full of all of
the Senior Debt; and (z) to execute and deliver all documents required
by the Lender in connection with the Senior Financing, including the
Subordination Agreement (as defined in Section 1(e)(vii)); provided
however, subject to the Lender's approval, none of the obligations of
MFHC to the Seller Members under the Consulting Agreement (as defined
in Section 1(e)(vi)) shall constitute Subordinated Debt. The Buyer
hereby agrees to furnish the Seller with copies of the documents
executed by the Buyer and delivered to the Lender evidencing and
securing the Senior Financing.
<PAGE>
(vi) Consulting Agreement. The Buyer shall cause MFHC
to enter into a consulting agreement (the "Consulting Agreement") with
the Seller and the Seller Members, providing for MFHC's engagement of
the Seller Members as consultants on mutually satisfactory terms.
(vii) Subordination Agreement. The Seller, the Buyer
and the Seller Members shall enter into an agreement (the
"Subordination Agreement") with the Lender, providing for the
subordination of the Subordinated Debt to the Senior Debt on mutually
satisfactory terms.
(f) Allocation of Purchase Price. Prior to the Closing Date,
the Buyer and the Seller shall negotiate, draft and execute a schedule (the
"Allocation Schedule") allocating the Purchase Price (including, for purposes of
this Section 1(f), any other consideration paid to the Seller, including the
Assumed Liabilities) among the Acquired Assets and the covenant not to compete
set forth in Section 5(f). Promptly following the making of the Purchase Price
adjustments contemplated by Section 2(c), the Buyer and the Seller shall in good
faith negotiate adjustments to the Allocation Schedule to reflect any
differences between the Purchase Price and any adjustments to the Purchase
Price, and execute a revised Allocation Schedule. The Allocation Schedule shall
be reasonable and shall be prepared in accordance with Section 1060 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder. The Seller and the Buyer agree that promptly upon receiving the
Allocation Schedule they shall return an executed copy thereof to the other
party. The Seller and the Buyer agree to file Internal Revenue Service Form
8594, and all federal, state, local and foreign Tax Returns (as defined in
Section 4(f)), in accordance with the Allocation Schedule. The Seller and the
Buyer agree to provide the other promptly with any other information required to
complete Form 8594.
(g) Nonassignable Assets.
(i) To the extent that any lease, contract, permit,
license or other asset included in the Acquired Assets is not capable
of being assigned, transferred, subleased or sublicensed without the
consent or waiver of a third party (whether or not a governmental
authority), or if such assignment, transfer, sublease or sublicense
would constitute a breach thereof or a violation of applicable law,
this Agreement (and any related documents delivered at the Closing)
shall not constitute an actual or attempted assignment, transfer,
sublease or sublicense thereof unless and until such consent or waiver
of such third party has been duly obtained or such assignment,
transfer, sublease or sublicense has otherwise become lawful (any
lease, contract, permit, license or other asset not assigned,
transferred, subleased or sublicensed as a result of this Section
1(g)(i) is hereinafter referred to as an "Unassigned Asset").
(ii) To the extent that the consents and waivers
referred to in Section 1(g)(i) are not obtained prior to the Closing,
or until the impracticalities of transfer referred to therein are
resolved, and in each case subject to Section 8(a), (A) the Seller
shall, subject to Section 8(a), use its best efforts to (1) provide or
cause to be provided to the Buyer the benefits of any Unassigned Asset,
(2) cooperate in any arrangement, reasonable and lawful as to both the
Seller and the Buyer, designed to provide such benefits to the Buyer
and (3) enforce for the account and at the expense of the Buyer any
rights of the Seller arising from such Unassigned Asset, including the
right to elect to terminate in accordance with the terms thereof on the
advice of the Buyer, and (B) the Buyer shall use its best efforts to
perform the obligations of the Seller arising under such Unassigned
Asset or shall promptly reimburse the Seller for the expense thereof.
2. Closing; Transactions to be Effected; Purchase Price Adjustment.
(a) Closing. The closing (the "Closing") of the purchase and
sale of the Acquired Assets and the Buyer's assumption of the Assumed
Liabilities shall be held at the offices of the Seller or its counsel, John R.
Hansen, Jr., in Boise, Idaho, at a time established by agreement of the parties,
on July 25, 1997, or if the conditions to Closing set forth in Section 3 of this
Agreement shall not have been satisfied by such date, as soon as practicable
after such conditions shall have been satisfied. The date on which the Closing
shall occur is hereinafter referred to as the "Closing Date".
(b) Transactions to be Effected. At the Closing, on the terms
and subject to the conditions of this Agreement:
<PAGE>
(i) the Seller shall deliver to the Buyer (A) such
appropriately executed and authenticated instruments of sale,
assignment, transfer and conveyance to the Buyer of the Acquired Assets
as the Buyer or its counsel may reasonably request, such instruments to
be reasonably satisfactory in form to the Buyer and its counsel, (B) a
certificate or certificates representing all the outstanding shares of
capital stock or membership interests, as the case may be (the
"Subsidiary Shares") of the Subsidiaries owned by the Seller, duly
endorsed in blank in proper form for transfer, with appropriate
transfer stamps, if any, affixed, and (C) the documents to be delivered
by the Seller pursuant to Section 3(a); and
(ii) the Buyer shall deliver to the Seller (A) the
Cash Purchase Price (reduced by any credits due the Buyer herein) and
the Loan Fee by wire transfer to one or more bank accounts which shall
be designated in writing by the Seller at least two business days prior
to the Closing Date, (B) the Notes, (C) such instruments of assumption
with respect to the Assumed Liabilities, appropriately executed and
authenticated by the Buyer, as the Seller or its counsel may reasonably
request, such instruments to be reasonably satisfactory in form to the
Seller and its counsel, and (D) the documents to be delivered by the
Buyer pursuant to Section 3(b).
(c) Purchase Price Adjustments.
(i) W/C Adjustment. Within 45 days after the Closing
Date, the Seller shall prepare and deliver to the Buyer a statement
(the "W/C Statement") in the same form as Exhibit C, which shall be
reviewed and reported on by the Buyer's independent auditors in
accordance with procedures to be established by the Seller and Buyer
without exception or qualification, setting forth the Working Capital
Amount (as defined in this Section 2(c)(i)).
If the Working Capital Amount is less than $(113,347) (i.e.,
110% of the negative Working Capital Target (as defined in this Section
2(c)(i)), the Purchase Price shall be decreased through a reduction in the Cash
Purchase Price to the extent that the Working Capital Amount is less than
$(103,043). [For example, if the actual Working Capital Amount is ($120,000),
then by reason of this Section 2(c)(i), the Cash Purchase Price shall be reduced
by $16,957 ($120,000 - $103,043 = $16,957).] Conversely, if the Working Capital
Amount is greater than $(92,738) (i.e., 90% of the negative Working Capital
Target), the Purchase Price shall be increased by an increase in the Cash
Purchase Price to the extent that the Working Capital Amount is greater than
($103,043). The Buyer shall pay to the Seller any such increase in the Purchase
Price, and the Seller shall repay to the Buyer any such decrease in the Purchase
Price, within five business days following the determination of the amount of
such adjustment pursuant to this Section 2(c).
"Working Capital Amount" means the net "working capital" of
the Seller as of the close of business on the Closing Date calculated in the
identical manner as the Working Capital Target set forth in the W/C Statement on
Exhibit C, which identifies each of the line items of certain selected assets
and liabilities that contribute to ordinary working capital for purposes of this
Agreement. The Working Capital Amount shall be subject to verification of the
value of assets included in the W/C Statement (e.g., inventory, equipment and
spare parts shall be reduced for damage or obsolescence and accounts receivable
shall be reduced for bad debts).
There shall be no adjustment in the Working Capital Amount listed on
Exhibit C with respect to the Simtec account, and the amount of the Pepsi rebate
set forth on Exhibit C shall not be reduced below $29,000, representing the 1996
Pepsi rebate.
"Working Capital Target" means $(103,043).
(ii) Preparation of W/C Statement; Resolution of
Disagreements. The Buyer shall assist the Seller and its independent
auditors in the preparation of the W/C Statement, and shall provide the
Seller and its independent auditors access at all reasonable times to
the personnel, properties, books and records of the Acquired Business
for such purpose. The Buyer's independent auditors may participate in
the preparation of the W/C Statement; provided, however, that the Buyer
acknowledges that the Seller shall have the primary responsibility and
authority for preparing the W/C Statement and the Seller's independent
auditors shall have the primary responsibility and authority for
certifying the W/C Statement. During the five-day period following the
Buyer's receipt of the W/C Statement, the Buyer and its independent
auditors will be permitted to review the working papers of the Seller's
independent auditors relating to such Statement. The W/C Statement
shall become final and binding upon the parties on the fifth day
following receipt thereof by the Buyer unless the Buyer gives written
notice of its disagreement (a "Notice of Disagreement") with respect to
the W/C Statement to the Seller prior to such date. Any Notice of
Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted and shall be accompanied by a letter from the
Buyer's independent auditors indicating that they concur with each of
the positions taken by the Buyer in the Notice of Disagreement. If a
Notice of Disagreement is received by the Seller in a timely manner,
then the W/C Statement (as revised in accordance with clause (A) or (B)
below) shall become final and binding upon the parties on the earlier
<PAGE>
of (A) the date the parties hereto resolve in writing any differences
they have with respect to any matter specified in the Notice of
Disagreement or (B) the date any disputed matters are finally resolved
in writing by the Arbitrator (as defined below). During the five-day
period following the delivery of a Notice of Disagreement, the Seller
and the Buyer shall seek in good faith to resolve in writing any
differences which they may have with respect to any matter specified in
the Notice of Disagreement. At the end of such five-day period, the
Seller and the Buyer shall submit to an arbitrator (the "Arbitrator")
for review and resolution any and all matters that remain in dispute.
The Arbitrator shall be such nationally recognized independent public
accounting firm as shall be agreed upon by the parties hereto in
writing. The Seller and the Buyer shall jointly request that the
arbitration be conducted in Salt Lake City, Utah in accordance with the
procedures of the American Arbitration Association. The Arbitrator
shall render a decision resolving the matters submitted to the
Arbitrator within 25 days following submission thereto. The cost of any
arbitration (including the fees of the Arbitrator) pursuant to this
Section 2(c)(ii) shall be borne 50% by the Buyer and 50% by the Seller,
except that each party shall bear all fees and expenses attributable to
any expert witness retained by such party but not the other party. The
fees and disbursements of the Seller's independent auditors incurred in
connection with their certification of the adjusted W/C Statement shall
be borne by the Seller, and the fees and disbursements of the Buyer's
independent auditors incurred in connection with their review of the
W/C Statement or certification of any Notice of Disagreement shall be
borne by the Buyer.
(iii) Real Property Lease/Sublease Adjustments. If
the landlord or sublandlord, as the case may be, does not consent to
the assignment of a lease or sublease to the Buyer and, furthermore,
prior to the end of the current term of such lease or sublease, the
landlord or sublandlord does not permit the Buyer to operate a store on
such premises because of the request for an assignment of the lease or
sublease to the Buyer pursuant to this Agreement, the Purchase Price
shall be reduced by an amount determined by multiplying the Purchase
Price by a fraction, the numerator of which is the amount of the
contribution set forth on Schedule 3(a)(viii)(B) for the lost store and
the denominator of which is the total contribution for all stores
listed on Schedule 3(a)(viii)(B). For the purpose of avoiding or
reducing any such loss, the Buyer and the Seller agree to make
reasonable efforts to enter into an agreement with the Franchisor, on
terms satisfactory to the Buyer, for the Buyer's management of any such
store during the remainder of the current term and, at the Buyer's
election, during any extended or option term, of the lease or sublease,
in lieu of an assignment thereof as required by this Agreement;
provided, however, neither the provisions of nor any actions taken by
the Seller or the Buyer pursuant to this Section 2(c)(iii) shall waive,
modify or limit the requirements of Section 3(a)(viii)(B) as conditions
of the Closing.
<PAGE>
(d) Post-Closing Activities. After the Closing, the Seller or
one or more of its subsidiaries may be liquidated, dissolved and wound-up in
accordance with the applicable limited liability company or corporate law, and
will make such state and federal regulatory and tax filings as are required by
law. The Buyer agrees to make its personnel, and applicable books and records,
available to the Seller to the extent necessary to enable the Seller to file all
Tax Returns (as defined in Section 4(f) of this Agreement) required to be filed
by the Seller or any of its subsidiaries, including in connection with a
liquidation of the Seller or its subsidiaries and in connection with the
Excluded Assets, the Excluded Liabilities and any indemnity claims hereunder,
provided that the Buyer's personnel will be so available only to the extent that
the performance of such actions does not interfere with the performance of such
personnel's duties for or on behalf of the Buyer. The Seller understands and
agrees that it will be solely responsible for paying or providing for the
payment of, and the Buyer will not be required to pay, any out-of-pocket
expenses incurred in connection with such actions.
3. Conditions to Closing.
(a) Buyer's Obligation. The obligation of the Buyer to
purchase the Acquired Assets is subject to the satisfaction (or waiver by the
Buyer) as of the Closing of the following conditions:
(i) The representations and warranties of the Seller
and Seller Members made in this Agreement shall be true and correct as
of the date hereof and on and as of the Closing, as though made on and
as of the Closing Date, and the Seller shall have performed or complied
in all material respects with all obligations and covenants required by
this Agreement to be performed or complied with by the Seller by the
time of the Closing; and the Seller shall have delivered to the Buyer a
certificate dated the Closing Date and signed by an authorized officer
of each Seller confirming the foregoing;
(ii) The Buyer shall have received an opinion dated
the Closing Date of John R. Hansen, Jr., counsel to the Seller, in a
form acceptable to the Buyer;
(iii) No injunction or order of any court or
administrative agency of competent jurisdiction shall be in effect, and
no statute, rule or regulation of any governmental authority of
competent jurisdiction shall have been promulgated or enacted, as of
the Closing which restrains or prohibits the purchase and sale of the
Acquired Assets;
(iv) The Buyer shall have received from the Seller,
the written consent of Franchisor to (A) the acquisition described
herein, (B) the Seller's assignment to the Buyer of the real property
leases or subleases (as the case may be) entered into between the
Seller and the Franchisor for each store comprising a part of the
Acquired Business, and (C) the Franchisor's written waiver of its right
of first refusal under the Franchise Agreement to acquire any of the
Acquired Assets or the Acquired Business. Such consent from the
Franchisor shall be in a form reasonably acceptable to the Buyer;
(v) The Buyer shall have received third-party
financing for the Cash Purchase Price on terms reasonably satisfactory
to the Buyer;
(vi) The Buyer shall have concluded its due diligence
review of the Seller, the Subsidiaries, the Acquired Assets, and the
Assumed Liabilities to its reasonable satisfaction;
(vii) There shall have been no material adverse
changes in the Acquired Business; (viii) The Seller
and the Buyer shall have obtained consents, in a form
reasonably
satisfactory to the Seller and the Buyer, to the transactions
contemplated hereby from the persons whose consent is required for the
transfer or assignment to the Buyer of any of the Acquired Assets,
including without limitation (A) under each of the agreements
identified on Schedule 3(a)(viii)(A), (B) under real property leases
and subleases with respect to the stores representing at least eighty
percent (80%) of the contribution of the net profit of the Acquired
Business for the fiscal year ending December 31, 1996 (as set forth in
Schedule 3(a)(viii)(B)), and (C) to the extent required by their
respective Operating Agreements, the members of the Subsidiaries;
<PAGE>
(ix) The Seller shall have demonstrated to the
reasonable satisfaction of the Buyer that the working capital position
of the Seller as of the Closing Date shall be consistent with the
operation of the Seller from the date of the Balance Sheet through the
Closing Date in the ordinary course of business consistent with past
practice and otherwise in accordance with this Agreement;
(x) The Buyer and the Franchisor shall have entered
into franchise, area development and any other agreements
(collectively, the "New Franchise Documents") necessary or desirable in
the discretion of the Buyer for the ownership, development, operation,
franchising and/or sub-franchising of the Acquired Business and the
Acquired Assets, on terms satisfactory to the Buyer;
(xi) MFHC and Capricorn, respectively, shall have
executed and delivered to the Seller the MFHC Guaranty and the
Capricorn Guaranty;
(xii) The Franchisor and the Seller shall have
entered into a written agreement terminating, effective as of the
Closing, on terms reasonably satisfactory to the Seller and the Buyer,
(A) the Franchise Agreement, and (B) all agreements by, between or
among the Seller, Franchisor and creditors of the Seller licensing such
creditors to operate or use any of the Acquired Assets as a Pretzel
Time Franchise;
(xiii) The Seller, the Buyer, and the Lender shall
have entered into a joint instruction letter governing the payment of
the Cash Purchase Price at the Closing to the Seller and third parties,
including without limitation the nature and amount of each payment to
third parties necessary or required to consummate the transactions
contemplated by this Agreement;
(xiv) The Buyer, the Seller and the Lender shall have
entered the Subordination Agreement;
(xv) The Buyer, the Seller, the Seller Members, and
MFHC shall have entered into the Consulting Agreement.
(b) Seller's Obligation. The obligation of the Seller to sell,
assign, transfer and deliver the Acquired Assets to the Buyer is subject to the
satisfaction (or waiver by the Seller) as of the Closing of the following
conditions:
(i) The representations and warranties of the Buyer
made in this Agreement qualified as to materiality shall be true and
correct and those not so qualified shall be true and correct in all
material respects as of the date hereof and on and as of the Closing,
as though made on and as of the Closing Date, and the Buyer shall have
performed or complied in all material respects with all obligations and
covenants required by this Agreement to be performed or complied with
by the Buyer by the time of the Closing; and the Buyer shall have
delivered to the Seller a certificate dated the Closing Date and signed
by an authorized officer of the Buyer confirming the foregoing.
(ii) The Seller shall have received an opinion dated
the Closing Date of Jones, Waldo, Holbrook & McDonough, counsel to the
Buyer, in a form acceptable to the Seller;
(iii) The conditions contemplated by Sections
3(a)(iii), 3(a)(iv), 3(a)(vii), 3(a)(viii), 3(a)(x), 3(a)(xi),
3(a)(xii), 3(a)(xiii), 3(a)(xiv), and 3(a)(xv) shall have been
satisfied; and
(iv) The Buyer shall have executed and delivered to
the Seller, the Notes, in accordance with Sections 1(e)(i) and (ii),
and the Subordinated Security Agreement in accordance with Section
(iv).
(c) Waiver of Closing Conditions. The parties hereto
acknowledge and agree that if the Buyer or the Seller shall have received prior
to the Closing written notice from the Seller or the Buyer, respectively,
providing specific information as to the failure of any condition set forth in
paragraph (a) or (b) above, respectively, and such party or parties determine to
proceed with the Closing, such party or parties will be deemed to have waived
such condition and shall not be entitled to be indemnified pursuant to Section
11 for any losses arising from any matters relating to such conditions;
provided, that no such waiver shall affect the calculation of any adjustment to
the Purchase Price under Section 2(c).
<PAGE>
4. Representations and Warranties of the Seller and the Seller Members.
The Seller and the Seller Members hereby jointly and severally represent and
warrant to the Buyer as follows:
(a) Organization and Standing of the Seller. The Seller and
each of the Subsidiaries is a limited liability company or corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation or incorporation. The Seller and each of the
Subsidiaries has full limited liability or corporate power and authority, as the
case may be, and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to use its name and to own,
lease or otherwise hold its properties and assets and to carry on its business
as presently conducted other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, would not have a material adverse effect on the assets, financial
condition or results of operations of the Acquired Business. The Seller and each
of the Subsidiaries is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership, leasing
or holding of its properties makes such qualification necessary, except such
jurisdictions where the failure so to qualify would not have a material adverse
effect on the assets, financial condition or results of operations of the
Acquired Business. The Seller has made available to the Buyer true and complete
copies of the Articles of Organization or Certificate of Incorporation
(whichever is applicable), as amended to date, and the Operating Agreement or
By-laws (whichever is applicable), as in effect on the date hereof, of the
Seller and the Subsidiaries.
(b) Authority; No Conflict. The Seller has all requisite power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All acts and other proceedings required to be taken by the
Seller (including without limitation any and all member or debtholder approvals)
to authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and properly
taken. This Agreement has been duly executed and delivered by the Seller and
constitutes a valid and binding obligation of the Seller, enforceable against
the Seller in accordance with its terms. The execution and delivery of this
Agreement and the Notes do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the terms hereof and thereof
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation, or result in the
creation of any Lien (as defined in Section 4(g)) upon any of the Acquired
Assets under, any provision of (i) any relevant limited liability company or
corporation law statute, (ii) the Articles of Incorporation, Bylaws, Articles of
Organization or Operating Agreement of the Seller or the Subsidiaries, (iii)
except as disclosed on the Schedules hereto, any material note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment, or agreement to
which the Seller or any of the Subsidiaries is a party or by which any of the
Acquired Assets is bound or (iv) any judgment, order or decree, or material
statute, law, ordinance, rule or regulation applicable to the Seller, any of the
Subsidiaries, or any of the Acquired Assets, other than, in the case of clause
(iii) above, any such conflicts, violations, defaults, rights or liens, claims,
encumbrances, security interests, options, charges or restrictions that
individually or in the aggregate would not have a material adverse effect on the
assets, financial condition or results of operations of the Acquired Business.
No material consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required to be obtained or made by or with respect to the Seller or
any of the Subsidiaries or their respective affiliates in connection with the
execution and delivery of this Agreement or the consummation by the Seller of
the transactions contemplated hereby, other than those that may be required
solely by reason of the Buyer's (as opposed to any other third party's)
participation in the transactions contemplated hereby.
<PAGE>
(c) Capitalization.
(i) Seller. Schedule 4(c)(i) sets forth (A) the
identity of each person and entity holding beneficially and of record
an ownership interest of the Seller, and (B) the ownership interest
held by each such person and entity. Such interests are fully paid and
non-assessable. Except as set forth in Schedule 4(c)(i), there are no
equity securities or ownership interests of the Seller outstanding.
Except as set forth in Schedule 4(c)(i), there are no outstanding
warrants, options, agreements, convertible or exchangeable securities
or other commitments pursuant to which the Seller is or may become
obligated to issue, sell, purchase, return or redeem any shares of
equity interests or ownership interests of the Seller. Except as set
forth in Schedule 4(c)(i), the equity securities or ownership interests
of the Seller are not subject to any voting trust agreement or other
agreement, contract, agreement, arrangement, commitment or
understanding or restricting or otherwise pertaining to the voting of
such equity securities ownership interests. The Seller has no managers,
and has no managing members other than the Seller Members.
(ii) Subsidiaries. The authorized capital stock of
H&M Concepts of Idaho, Inc. consists of 1,000 shares of common stock,
without par value, all of which are validly issued and outstanding and
fully paid and non-accessible, all of which are held beneficially and
of record by the Seller. The ownership interests of UVEST, LLC are held
beneficially and of record 30% by the Seller and 70% by NVEST LIMITED,
a Utah limited liability company. Such interests are fully paid and
non-assessible except as set forth in Schedule 4(d). The ownership
interests of LV-H&M, LLC are held beneficially and of record 80% by the
Seller and 20% by Jean Jensen, an individual residing at Boise, Idaho.
Such interests are fully paid and non-accessible. Except as set forth
above, there are no shares of capital stock or other equity securities
or ownership interests of the Subsidiaries outstanding. There are no
outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments (other than this Agreement) pursuant to
which the Subsidiaries are or may become obligated to issue, sell,
purchase, return or redeem any shares of capital stock or other
securities or ownership interests of the Subsidiaries, and there are
not any equity securities of the Subsidiaries reserved for issuance for
any purpose. Except as disclosed on Schedule 4(c)(ii), the Seller has
good and valid title to the Subsidiary Shares, free and clear of any
Liens. Assuming the Buyer has the requisite power and authority to be
the lawful owner of the Subsidiary Shares, upon delivery to the Buyer
at the Closing of one or more certificates representing the Subsidiary
Shares, duly endorsed by the Seller for transfer to the Buyer, and upon
the Seller's receipt of the Purchase Price, good and valid title to the
Subsidiary Shares will pass to the Buyer, free and clear of any Liens
other than those arising from acts of the Buyer or its affiliates.
Other than this Agreement, and except as disclosed on Schedules
4(c)(ii) and 4(d), the Subsidiary Shares are not subject to any voting
trust agreement or other contract, agreement, arrangement, commitment
or understanding, including any such agreement, arrangement, commitment
or understanding restricting or otherwise relating to the voting,
dividend rights or disposition of the Subsidiary Shares. Each of the
officers, directors, managers and managing members of the Subsidiaries
is listed on Schedule 4(c)(ii).
(d) Equity Interests. Except as disclosed on Schedule 4(d),
the Seller does not directly or indirectly own any capital stock of or other
equity or ownership interests in any corporation, limited liability company,
partnership or other entity.
(e) Financial Statements; Undisclosed Liabilities.
(i) Schedule 4(e)(i) sets forth (A) consolidated
balance sheets of the Seller and the Subsidiaries as of December 31,
1994, 1995 and 1996, and for five-month period ending May 25, 1997, and
the compiled consolidated statements of income, stockholders' equity
and cash flows of the Seller and the Subsidiaries for the fiscal years
or periods then ended, together with the notes to such financial
statements, and (B) the H & M Concepts Ltd. Company and Subsidiaries
Consolidated Financial Statements as of December 29, 1996, and the year
then ended, together with Report of Independent Public Accountants (the
"Audited Financial Statement"), prepared by Arthur Andersen & Co. at
the Buyer's request (collectively, the "Financial Statements"). The
Financial Statements have been prepared in conformity with generally
accepted accounting principles consistently applied (except in each
case as described in the notes thereto) and on the basis described in
such notes fairly present the financial condition and the results of
operations of the Seller and the Subsidiaries, as the case may be, as
of and for the periods indicated. The Acquired Assets constitute, with
the exception of any Excluded Assets, all the assets, properties,
rights and interests reflected on the audited balance sheet included as
a part of the Audited Financial Statement of the Seller and the
Subsidiaries as of December 29, 1996 (the "Balance Sheet") (other than
those assets, properties, rights and interests sold or disposed of in
the ordinary course of the Acquired Business, consistent with past
practice, since the date of the Balance Sheet).
<PAGE>
(ii) Except as set forth on Schedule 4(e)(ii), to the
knowledge of the Seller and the Seller Members, all of the Assumed
Liabilities arise out of or relate to the Acquired Business and neither
the Seller nor any of the Subsidiaries has any material liabilities or
obligations of any nature (whether accrued, absolute, contingent,
unasserted or otherwise), except (A) as disclosed, reflected, reserved
against or contemplated in the Balance Sheet and the notes thereto, (B)
for items disclosed in the Schedules hereto, (C) for liabilities and
obligations incurred in the ordinary course of business consistent with
past practice since the date of the Balance Sheet other than in
violation of this Agreement, (D) for Taxes or (E) for Excluded
Liabilities.
(f) Taxes.
(i) Except as set forth on Schedule 4(f), the Seller
has, in respect of the Acquired Business, filed all material Tax
Returns which are required to be filed (all such returns being true,
correct and complete in all material respects) and have paid all Taxes
shown to be due on such Tax Returns, and all monies required to be
withheld by the Seller from employees of the Acquired Business for
income Taxes and social security and other payroll Taxes have been
collected or withheld, and either paid to the respective taxing
authorities, set aside in accounts for such purpose, or accrued,
reserved against and entered upon the books of the Acquired Business.
(ii) The reserve for Taxes reflected in the Balance
Sheet is adequate for the payment of all liabilities for Taxes with
respect to or imposed upon the Acquired Business or the Acquired Assets
through the date of such Balance Sheet. Any Taxes in respect of the
period since the date of such Balance Sheet have arisen in the ordinary
course of business. Except as set forth on Schedule 4(f), there are no
ongoing audits or examinations of any of the Tax Returns of the Seller
or any of the Subsidiaries and neither the Seller nor any of the
Subsidiaries has been notified by any governmental authority that any
such audit is contemplated or pending. Except as set forth on Schedule
4(f), no governmental authority is now asserting or threatening to
assert against the Seller nor any of the Subsidiaries any deficiency or
claim for additional Taxes. Except as set forth on Schedule 4(f), no
extension of time with respect to any date on which a Tax Return was or
is to be filed by the Seller nor any of the Subsidiaries is in force,
and no waiver agreement by the Seller nor any of the Subsidiaries is in
force for the extension of time for the assessment or payment of any
Taxes. There are no liens for Taxes upon any of the Acquired Assets
other than Liens for Taxes not yet due or payable.
(iii) For purposes of this Agreement, "Taxes" shall
mean federal, state, local or foreign income, gross receipts, property,
sales, use, license, excise, franchise, employment, payroll,
withholding, alternative or add-on minimum, ad valorem, transfer or
excise tax, or any other tax, custom, duty, governmental fee or other
like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any governmental authority. For
purposes of this Agreement, "Tax Returns" shall mean all federal,
state, local and foreign tax returns, declarations, statements,
reports, schedules, forms and information returns and any amended Tax
Returns relating to Taxes.
<PAGE>
(g) Title to Acquired Assets. Except as set forth in Schedule
4(g), the Seller has good and marketable title to the Acquired Assets, free and
clear of all mortgages, liens, claims, security interests, easements, rights of
way, pledges, restrictions, charges or encumbrances of any nature whatsoever
(collectively, "Liens"), except mechanics', carriers', workmen's, repairmen's or
other like Liens arising or incurred in the ordinary course of business, Liens
arising under equipment leases with third parties entered into in the ordinary
course of business, and Liens for Taxes which are not due and payable or which
may thereafter be paid without penalty (such excepted Liens are hereinafter
referred to collectively as "Permitted Liens"). Subject to Section 1(g), at the
Closing, the Buyer shall acquire the Acquired Assets free and clear of all Liens
other than Permitted Liens.
(h) Condition of Assets. Except as disclosed on Schedule
4(h),(i) the tangible personal assets included in the Acquired Assets have been
maintained in all material respects in accordance with generally accepted
industry practice, (ii) the tangible personal assets included in the Acquired
Assets are in all material respects in good operating condition and repair
(ordinary wear and tear excepted), and (iii) the leased personal property
included in the Acquired Assets is in all material respects in the condition
required of such property by the terms of the leases applicable thereto.
(i) Trademarks, etc. Schedule 4(i) sets forth a true and
complete list of all material patents, trademarks (registered or unregistered),
trade names (registered or unregistered), service marks (registered or
unregistered), registered copyrights and material unregistered copyrights and
computer software applications, other than off-the-shelf applications, together
with all applications therefor, owned or used by or licensed to the Seller and
the Subsidiaries and all license agreements related thereto that are not
Excluded Assets to which the Seller or any Subsidiary is a party (collectively
"Intellectual Property") and with respect to trademarks, contains a list of all
jurisdictions in which such trademarks are registered or applied for and all
registration and application numbers. Except as disclosed on Schedule 4(i), the
Seller and the Subsidiaries own or have the valid right to use, without payment
to any other party, the Intellectual Property used in or necessary for the
conduct of their businesses, and the consummation of the transactions
contemplated hereby will not alter or impair any such rights. All material
Intellectual Property owned by the Seller or a Subsidiary is valid and all
registrations related thereto have been duly maintained. Except as disclosed on
Schedule 4(i), all Intellectual Property owned by the Seller or a Subsidiary is
free and clear of all Liens. Except as disclosed on Schedule 4(i), to the
Seller's and Seller Members' knowledge, no claims or other proceedings are
pending or threatened by any person or entity with respect to the ownership,
validity, enforceability or use of any Intellectual Property. To the Seller's
and Seller Members' knowledge (i) the conduct of their businesses does not
infringe upon the rights of any third party, (ii) no third party is infringing
upon any Intellectual Property owned by the Seller or a Subsidiary except as set
forth in Schedule 4(i), and (iii) the Intellectual Property identified on
Schedule 4(i) is all of the Intellectual Property necessary to conduct the
Acquired Business as presently conducted.
(j) Contracts. Except as described in Schedule 4(j) and except
for contracts or agreements exclusively relating to the Excluded Assets, neither
the Seller nor any of the Subsidiaries is a party to or bound by any:
(i) employment agreement or employment contract for
any employee; (ii) employee collective bargaining
agreement or other contract with any labor union;
(iii)covenant not to compete (other than pursuant to the Franchise
Agreement or any radius restriction contained in any lease, reciprocal
easement or development, construction, operating or similar
agreement);
<PAGE>
(iv) agreement or contract with any officer,
director, member, manager, managing member or employee of the Seller or
any affiliates of the Seller (other than employment agreements covered
by clause (i) above);
(v) lease or similar agreement under which the Seller
or a Subsidiary is a lessor or sublessor of, or makes available for use
by any third party, any real property owned or leased by the Seller or
a Subsidiary or any portion of premises otherwise occupied by the
Seller or a Subsidiary;
(vi) lease or similar agreement under which (A) the
Seller or a Subsidiary is lessee of, or holds or uses, any machinery,
equipment, vehicle or other tangible personal property owned by a third
party or (B) the Seller or a Subsidiary is a lessor or sublessor of, or
makes available for use by any third party, any tangible personal
property owned or leased by the Seller or a Subsidiary;
(vii) (A) continuing contract for the future purchase
of materials, supplies or equipment (other than purchase contracts and
orders for inventory in the ordinary course of business consistent with
past practice), (B) management, service, consulting or other similar
type of contract or (C) advertising agreement or arrangement;
(viii) material license or other agreement relating
in whole or in part to patents, trademarks, trade names, service marks
or copyrights (including any license or other agreement under which the
Seller or a Subsidiary has the right to use any of the same owned or
held by a third party);
(ix) agreement or contract under which the Seller or
a Subsidiary has borrowed or loaned any money or issued any note, bond,
indenture or other evidence of indebtedness or directly or indirectly
guaranteed (including, without limitation, through so-called
take-or-pay or keepwell agreements) indebtedness, liabilities or
obligations of others (other than endorsements for the purpose of
collection in the ordinary course of business), or any other note,
bond, indenture or other evidence of indebtedness;
(x) agreement or contract under which any other
person has directly or indirectly guaranteed indebtedness, liabilities
or obligations of the Seller or a Subsidiary (other than endorsements
for the purpose of collection in the ordinary course of business);
(xi) mortgage, pledge, security agreement, deed of
trust or other document granting a Lien (including, but not limited to,
Liens upon any properties acquired under conditional sales, capital
leases or other title retention or security devices other than any
original purchase price conditional sales contracts or equipment leases
entered into in the ordinary course of business);
(xii) any agreement or contract providing for the
sale or purchase of assets, not in the ordinary course of business
consistent with past practice;
(xiii) any agreement, arrangement or understanding
(including without limitation any payables) between the Seller or a
Subsidiary and any of their respective members, stockholders, creditors
or affiliates (in each case, other than the Seller and the
Subsidiaries); and
(xiv) other agreement, contract, lease, license,
commitment or instrument pursuant to which after the Closing the Buyer
will have any liability.
<PAGE>
Except as disclosed on Schedule 4(j), each agreement,
contract, lease, license, commitment or instrument of the Seller and the
Subsidiaries described on Schedule 4(j) and the other Schedules hereto
(collectively, the "Contracts") is valid, binding and in full force and effect.
Except as disclosed in Schedule 4(j), the Seller or a Subsidiary has performed
all material obligations required to be performed by it to date under the
Contracts and it is not (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder and, to
the Seller's and Seller Members' knowledge, no other party to any of the
Contracts is (with or without the lapse of time or the giving of notice, or
both) in breach or default in any material respect thereunder.
(k) Litigation; Decrees. Schedule 4(k) sets forth a list of
all lawsuits, claims, proceedings or investigations pending, or, to the Seller's
and the Seller Members' knowledge, threatened, as of the date of this Agreement,
by or against or affecting the Seller or a Subsidiary or any of the Acquired
Assets. Except as disclosed on Schedule 4(k), neither the Seller nor any of the
Subsidiaries is in default under any material judgment, order or decree of any
court, administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, applicable to it or any of the Acquired
Assets.
(l) Insurance. The insurance policies currently maintained
with respect to the Seller and each Subsidiary and the Acquired Assets are
listed on Schedule 4(l). All such policies are in full force and effect. The
Seller has heretofore made available to the Buyer true and complete copies of
all such policies.
(m) Benefit Plans.
(i) Schedule 4(m)(i) contains a list of all "employee
pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Pension Plans"), "employee welfare
benefit plans" (as defined in Section 3(l) of ERISA), bonus, stock
option, stock purchase, deferred compensation plans or arrangements,
and other employee fringe benefit plans (all the foregoing being herein
called "Benefit Plans") maintained, or contributed to, by the Seller or
any Subsidiary for the benefit of any employees of the Seller or any
Subsidiary who are employed primarily in the Acquired Business. The
Seller has delivered to the Buyer true, complete and correct copies of
(1) each Benefit Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (2) the most recent annual report on Form 5500
filed with the Internal Revenue Service with respect to each Benefit
Plan (if any such report was required), (3) the most recent summary
plan description for each Benefit Plan for which such a summary plan
description is required and (4) each trust agreement and group annuity
contract relating to any Benefit Plan.
(ii) Each Benefit Plan has been administered in all
material respects in accordance with its terms and the applicable
provisions of ERISA and the Code. Except as disclosed in Schedule
4(m)(ii)-l, all material reports, returns and similar documents with
respect to the Benefit Plans required to be filed with any governmental
agency or distributed to any Benefit Plan participant have been duly
and timely filed or distributed. Except as disclosed in Schedule
4(m)(ii)-2, there are no investigations by any governmental agency,
termination proceedings or other claims (except claims for benefits
payable in the normal operation of the Benefit Plans), suits or
proceedings against or involving any Benefit Plan or asserting any
rights or claims to benefits under any Benefit Plan that could
reasonably give rise to any material liability, and, to the Sellers'
knowledge, there are no facts that could reasonably give rise to any
material liability in the event of any such investigation, claim, suit
or proceeding.
(iii) Except as disclosed in Schedule 4(m)(iii), all
contributions to, and payments from, the Benefit Plans that may have
been required to be made in accordance with the Benefit Plans have been
timely made.
(iv) No "prohibited transaction" (as defined in
Section 4975 of the Code or Section 406 of ERISA) has occurred that
involves the assets of any Benefit Plan and that could subject the
Acquired Business or any of its employees, or, to the Seller's
knowledge, a trustee, administrator or other fiduciary of any trusts
created under any Benefit Plan, to any material tax or penalty on
prohibited transactions imposed by Section 4975 of ERISA or the
sanctions imposed under Title I of ERISA. Neither the Seller nor any
trustee, administrator or other fiduciary of any Benefit Plan nor any
agent of any of the foregoing has engaged in any transaction or acted
or failed to act in a manner that could subject the Acquired Business
to any material liability for breach of fiduciary duty under ERISA or
any other applicable law. No liability under Title IV of ERISA has been
incurred by the Seller, the Subsidiaries or their affiliates within six
years prior to the date hereof that has not been satisfied in full and
no condition exists that presents a material risk of incurring such
liability.
<PAGE>
(v) Except as disclosed in Schedule 4(m)(v), at no
time within the five years preceding the Closing Date has the Seller or
any Subsidiary been required to contribute to any "multiemployer plan"
(as defined in Section 4001(a)(3) of ERISA) or incurred any withdrawal
liability, within the meaning of Section 4201 of ERISA, which liability
has not been fully paid as of the date hereof, or announced an
intention to withdraw, but not yet completed such withdrawal, from any
multiemployer plan.
(vi) Neither the Seller nor any of the Subsidiaries
maintains or contributes to a Pension Plan which is subject to Section
302 of ERISA or Section 412 of the Code.
(vii) With respect to any Benefit Plan that is an
employee welfare benefit plan, except as disclosed in Schedule
4(m)(vii), (A) no such Benefit Plan is funded through a welfare
benefits fund, as such term is defined in Section 419(e) of the Code
and (B) each such Benefit Plan that is a group health plan, as such
term is defined in Section 5000(b)(1) of the Code, complies with the
applicable requirements of Section 4980B(f) of the Code.
(n) Absence of Changes or Events. Except as disclosed on
Schedule 4(n), since the date of the Balance Sheet, there has not been any
material adverse change in the assets, financial condition or results of
operations of the Acquired Business other than changes relating to the economy
in general or the Acquired Business's industry in general and not specifically
related to the Acquired Business. Since the date of the Balance Sheet, the
Seller and each Subsidiary has conducted its portion of the Acquired Business in
the ordinary course and in substantially the same manner as presently conducted
and has made all reasonable efforts consistent with past practice to preserve
its relationships with customers, suppliers and others with whom it deals, and
neither the Seller nor any Subsidiary has taken any action that, if taken after
the date hereof, would constitute a material breach of any of the covenants set
forth in Section 5(b).
(o) Compliance with Applicable Laws; Environmental Matters.
(i) Except as set forth in Schedule 4(o), to the
knowledge of the Seller or the Seller Members, the Seller and each
Subsidiary is in compliance with all applicable statutes, laws,
ordinances, rules, orders and regulations of any governmental authority
or instrumentality, domestic or foreign, except where noncompliance
would not have a material adverse effect on the assets, financial
condition or results of operations of the Acquired Business. Except as
set forth in Schedule 4(o), neither the Seller nor any of the
Subsidiaries has received any written communication from a governmental
authority that alleges that the Seller or any Subsidiary is not in
compliance, in respect of the Acquired Business, in all material
respects, with material federal, state, local or foreign laws,
ordinances, rules and regulations.
(ii) Except as set forth in Schedule 4(o), to the
knowledge of the Seller or the Seller Members, none of the operations
or properties of the Seller and the Subsidiaries is the subject of any
federal, state or foreign investigation, in respect of the Acquired
Business, evaluating whether any remedial action is needed to respond
to a release of any Hazardous Substance (as defined below) into the
environment, and neither the Seller nor any of the Subsidiaries has
received any written communication from a governmental authority that
alleges that the Seller or any Subsidiary is not in compliance, and the
Seller and the Subsidiaries are in compliance, in all material
respects, with all federal, state, local or foreign laws, ordinances,
codes, rules and regulations relating to the environment
("Environmental Laws") in respect of the Acquired Business, except
where noncompliance would not have a material adverse effect on the
assets, financial condition or results of operations of the Acquired
Business. The Seller and the Subsidiaries have filed all material
notices required in respect of the Acquired Business to be filed by
them under any Environmental Law indicating past or present treatment,
storage or disposal of a Hazardous Substance or reporting a spill or
release of a Hazardous Substance into the environment. Neither the
Seller nor any of the Subsidiaries has any material contingent
liabilities in respect of the Acquired Business in connection with any
<PAGE>
Hazardous Substance that individually or in the aggregate would have a
material adverse effect on the assets, financial condition or results
of operations of the Acquired Business. "Hazardous Substance" includes:
(i) any hazardous, toxic or dangerous waste, substance or material
defined as such in (or for the purposes of) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, and
any so-called superfund or superlien law, or any other Environmental
Law, including Environmental Laws relating to or imposing liability or
standards of conduct concerning any hazardous or toxic waste, substance
or material in effect on the date of this Agreement, (ii) asbestos or
polychlorinated biphenyls, and (iii) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
federal, state, foreign or local governmental authority pursuant to any
Environmental Law or any health and safety or similar law, code,
ordinance, rule or regulation, order or decree, and which could
reasonably pose a hazard to the health and safety of workers at or
users of any properties included in the Acquired Assets or cause damage
to the environment.
(p) Employee and Labor Relations. Except as set forth on
Schedule 4(p), (i) there is no labor strike, dispute, or work stoppage or
lockout actually pending, or, to the Seller's or Seller Members' knowledge,
threatened, against or affecting the Acquired Business and during the past two
years there has not been any such action; (ii) to the Seller's or Seller
Members' knowledge, no union organizational campaign is in progress with respect
to the employees of the Acquired Business and no question concerning
representation exists respecting such employees; (iii) the Seller and each
Subsidiary is in compliance in all material respects with all laws applicable to
the Acquired Business respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not engaged in any unfair
labor practice; (iv) there is no unfair labor practice charge or complaint
against the Seller or any Subsidiary in connection with the Acquired Business
pending, or, to the Seller's or Seller Members' knowledge, threatened, before
the National Labor Relations Board; (v) there is no pending, or, to the Seller's
or Seller Members' knowledge, threatened, grievance that, if adversely decided,
would have a material adverse effect on the assets, financial condition or
results of operations of the Acquired Business; and (vi) no charges with respect
to or relating to the Acquired Business are pending before the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices that, if adversely decided, would
have a material adverse affect on the assets, financial condition or results of
operations of the Acquired Business.
(q) Licenses; Permits. Except as disclosed on Schedule 4(q),
all material licenses, permits or authorizations issued or granted to the Seller
or a Subsidiary by local, state or federal governmental authorities or agencies
and applicable to the Acquired Business are validly held by the Seller or a
Subsidiary, the Seller and the Subsidiaries have complied with all requirements
in connection therewith and the same will not be subject to suspension,
modification or revocation as a result of this Agreement or the consummation of
the transactions contemplated hereby.
(r) Inventory. Except as set forth in Schedule 4(r), all
inventory of the Acquired Business is of a quality usable and salable in the
ordinary course of business, except for items of obsolete materials and
materials of below-standard quality (all of which have been written down in the
Balance Sheet and the W/C Statement to realizable market value or for which
adequate reserves have been provided therein, in each case to the extent
required by generally accepted accounting principles as applied by the Seller
(including methods and practices) in the preparation of the Balance Sheet and
the W/C Statement), or which have become obsolete in the ordinary course of
business since the date of the Balance Sheet and the W/C Statement.
<PAGE>
(s) Securities Act of 1933. The Notes being acquired by the
Seller pursuant to this Agreement are being acquired for investment only and not
with a view to any public distribution thereof, and the Seller will not offer to
sell or otherwise dispose of the Notes so acquired by it in violation of any of
the registration requirements of the Securities Act of 1933 or state securities
law. The Seller is a sophisticated investor with knowledge and experience in
business and financial matters, has received certain information concerning the
Buyer and has had the opportunity to obtain additional information as desired in
order to evaluate the merits and the risks inherent in holding the Notes, and is
able to bear the economic risk and lack of liquidity inherent in holding the
Notes.
(_)(_)(t) Product Liability. Except as set forth on Schedule
4(t), neither the Seller nor any of its Subsidiaries has any liability (and
there is no basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any liability) arising out of any injury to individuals as a result of
the consumption or use of any product prepared, sold, or delivered by the Seller
or any of its Subsidiaries.
(_)(_)(u) Disclosure. The representations and warranties
contained in this Section 4 do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained in this Section 4 not misleading.
5. Covenants of the Seller and the Seller Members. The Seller
covenants and agrees as follows: (a) Access. Prior to the
Closing the Seller will give the Buyer and its
representatives,
employees, counsel and accountants reasonable access, during normal business
hours and upon reasonable notice, to the personnel, properties, books and
records of the Seller and the Subsidiaries; provided, however, that such access
does not unreasonably disrupt the normal operations of the Seller or any
Subsidiary.
(b) Conduct of the Seller. Except with the prior written
consent of the Buyer or as otherwise expressly permitted by this Agreement, the
Seller shall not take any action, at any time on or after the date hereof and at
or prior to the Closing, that would, or that could reasonably be expected to,
result in (i) any of the representations and warranties of the Seller set forth
in this Agreement or (ii) any of the conditions to the purchase and sale of the
Acquired Assets set forth in Section 3 not being satisfied.
(c) Preservation of the Acquired Business. The Seller will
carry on the Acquired Business diligently and in the ordinary course,
substantially in the same manner as heretofore conducted, and keep its retail
operations substantially intact, including its present relationships with
suppliers and customers and others having business relations with it; provided,
however, that the Seller may remove cash from the Acquired Business in any
manner and to any extent on or prior to the Closing Date consistent with the
Seller's obligation to include in the Acquired Assets the Store Cash. The Seller
will maintain in inventory, at all times prior to the Closing Date, quantities
of raw materials and other supplies and materials sufficient to allow the Buyer
to continue and operate the Acquired Business, after the Closing Date, free from
any shortage of such items (assuming the Buyer causes the Acquired Business to
continue to purchase such items after the Closing Date in the ordinary course
consistent with past practice). Except with the written consent of the Buyer,
the Seller shall not amend in any material respect or terminate any of the
agreements identified in Schedule 3(a)(viii) or enter into any new agreement
(other than any supply agreement or contract, with respect to which the Seller
has consulted with the Buyer) relating to the Acquired Business which, if
existing as of the date hereof, would be required to be disclosed on any of the
Schedules to the representations and warranties of the Seller in Section 4 of
this Agreement.
<PAGE>
(d) Confidentiality. The Seller will keep confidential, and
cause its affiliates and instruct its and its affiliates' officers, directors,
employees and advisors to keep confidential, all information concerning the
transactions contemplated by this Agreement (including as to the parties hereto)
and all nonpublic information relating to the Acquired Business, except as
required by law or administrative process and except for information which
becomes public other than as a result of a breach of this Section 5(d).
(e) Insurance. The Seller shall keep, or cause to be kept, all
insurance policies set forth on Schedule 4(l), or replacements therefor with
reputable firms and providing no lesser coverage (in amount or scope), in full
force and effect through the close of business on the Closing Date.
(f) Covenant Not To Compete. The Seller and the Seller Members
agree that they will not directly or indirectly compete with the Buyer for a
period of ten (10) years from the Closing Date. The phrase "directly or
indirectly compete" shall include: (i) owning, managing, operating, or
controlling, or participating in the ownership, management, operation, or
control of, or being connected with or having any interest in, as a stockholder,
director, officer, employee, agent, consultant, assistant, advisor, sole
proprietor, partner or otherwise, any business (other than any existing business
of the Seller not acquired hereunder) which is the same as or competitive with
the pretzel business conducted by the Buyer, at present or in the future, or any
affiliate of the Buyer; provided, however, that this prohibition shall not apply
to the retail pretzel operation of Randol S. Hemmer in the Mall of America
located at Bloomington, Minnesota, nor to any ownership of less than one percent
(1%) of the voting stock in companies whose stock is traded on a national
securities exchange or in the over-the-counter market; or (ii) soliciting or
attempting to solicit the services of any employees of Buyer or any affiliate of
the Buyer. If any of the provisions of this Section 5(f) is held to be
unenforceable, the remaining provisions shall nevertheless remain enforceable,
and the court making such determination shall modify, among other things, the
scope, duration, or geographic area of this covenant to preserve the
enforceability hereof to the maximum extent then permitted by law. The
enforceability of this covenant is subject to the injunctive and other equitable
powers of a court.
(g) Other Transactions. Prior to the Closing, neither the
Seller, the Subsidiaries nor any other affiliate of the Seller shall, directly
or indirectly, encourage, solicit, initiate or participate in discussions or
negotiations with any corporation, partnership, person, or other entity or group
(other than the Buyer and its representatives) concerning any merger, sale of
securities, sale of substantial assets or similar transaction involving the
Seller and/or the Subsidiaries. In the event that the Seller or any Subsidiary
receives an offer relating to any such transaction, the Seller will promptly
notify the Buyer of such proposal.
6. Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants to the Seller as follows:
(a) Authority. The Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Buyer has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby and thereby.
All corporate acts and other proceedings required to be taken by the Buyer to
authorize the execution, delivery and performance of this Agreement and the
Notes and the consummation of the transactions contemplated hereby and thereby
have been duly and properly taken. This Agreement has been duly executed and
delivered by the Buyer and constitutes a valid and binding obligation of the
Buyer, enforceable against the Buyer in accordance with its terms. When executed
and delivered at the Closing, they will be duly executed and delivered by the
Buyer and will constitute its valid and binding obligation, enforceable against
it in accordance with its terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the terms hereof and thereof will not, conflict with, or
result in any violation of or default (with or without notice or lapse of time,
<PAGE>
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation, or result in the creation of any Lien (other
than those securing the Subordinated Debt and/or the Senior Debt) upon any of
the properties or assets of the Buyer under, any provision of (i) the General
Corporation Law of the State of Delaware, (ii) the Certificate of Incorporation
or By-laws of the Buyer, (iii) any material note, bond, mortgage, indenture,
deed of trust, license, lease, contract, commitment or agreement to which the
Buyer is a party or by which any of its properties are bound, or (iv) any
judgment, order, or decree, or material statute, law, ordinance, rule or
regulation applicable to the Buyer or their respective properties or assets,
other than, in the case of clause (iii) above, any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate would not have a
material adverse effect on the assets, financial condition or results of
operations of the Buyer. No material consent, approval, license, permit, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required to be obtained or made by or
with respect to the Buyer in connection with the execution and delivery of this
Agreement and the Notes or the consummation by the Buyer of the transactions
contemplated hereby and thereby.
(b) Actions and Proceedings, etc. There are no (i) outstanding
judgments, orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal against the Buyer which have a material adverse
effect on the ability of the Buyer to consummate the transactions contemplated
hereby or (ii) actions, suits, claims or legal, administrative or arbitration
proceedings or investigations pending or, to the best knowledge of the Buyer,
threatened against the Buyer, which are likely to have a material adverse effect
on the ability of the Buyer to consummate the transactions contemplated hereby.
(c) Securities Act of 1933. The Subsidiary Shares being
purchased by the Buyer pursuant to this Agreement are being acquired for
investment only and not with a view to any public distribution thereof, and the
Buyer will not offer to sell or otherwise dispose of the Subsidiary Shares so
acquired by it in violation of any of the registration requirements of the
Securities Act of 1933 and applicable state securities or "blue sky" laws.
(d) Status of Buyer. The Buyer was incorporated on May 20,
1997. True and correct copies of the Buyer's Certificate of Incorporation and
By-laws, in the form they will be in effect on the Closing Date, have been
furnished to the Seller. The Buyer is a wholly owned subsidiary of Mrs. Fields'
Holding Company, Inc. Controlling ownership of the Buyer will not be transferred
outside the Buyer's group of affiliated, subsidiary or parent companies without
the Seller's consent, which shall not be unreasonably withheld.
7. Covenants of the Buyer. The Buyer covenants and agrees as follows:
(a) Confidentiality. Except as contemplated by this Agreement,
the Buyer will keep confidential, and cause its affiliates and instruct its and
its affiliates' officers, directors, employees and advisors to keep
confidential, all nonpublic information relating to the Seller, the Subsidiaries
or the Acquired Business, except as required by law or administrative process
and except for information which becomes public other than as a result of a
breach of this Section 7(a); provided, however, that the obligations of the
Buyer under this Section 7(a) shall terminate, with respect to information
concerning the Acquired Business (but not with respect to other information)
upon the occurrence of the Closing.
(b) Conduct of the Buyer. Except with the prior written
consent of the Seller, the Buyer shall not take any action, at any time on or
after the date hereof and at or prior to the Closing, that would, or that could
reasonably be expected to, result in (i) any of the representations and
warranties of the Buyer set forth in this Agreement becoming untrue, or (ii) any
of the conditions to the purchase and sale of the Acquired Assets set forth in
Section 3 not being satisfied.
<PAGE>
8. Mutual Covenants. The Seller and the Buyer each covenants and agrees
as follows:
(a) Best Efforts. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to cause the Closing to occur.
The Buyer acknowledges that certain consents to the transactions contemplated by
this Agreement may be required from third parties and that such consents have
not been obtained. The Seller and the Buyer shall use their best efforts to, and
shall cooperate with each other to obtain as soon as practicable, the consent,
approval or waiver, in form reasonably satisfactory to the Seller and the Buyer,
from any person whose consent, approval or waiver is necessary to assign or
transfer any Acquired Asset to the Buyer or otherwise to satisfy the conditions
set forth in Sections 3(a)(iv) and 3(a)(viii). The covenants contained in this
Section 8(a) shall continue after the Closing Date.
(b) Cooperation. The Buyer and the Seller shall cooperate with
each other for a period of 90 days after the Closing to ensure the orderly
transition of the Acquired Business from the Seller to the Buyer and to minimize
any disruption to the respective businesses of the Seller and the Buyer that
might result from the transactions contemplated hereby.
(c) Publicity. The Seller and the Buyer agree that, from the
date hereof through the Closing Date, no public release or announcement
concerning the transactions contemplated hereby shall be issued by either party
without the prior consent of the other party, and, to the extent practical, of
each person named therein (which consent shall not be unreasonably withheld),
except as such release or announcement may be required by any franchising or
other law or the rules or regulations of any United States or foreign securities
exchange, in which case the party required to make the release or announcement
shall allow the other party reasonable time to comment on such release or
announcement in advance of such issuance.
(d) Records.
(i) On the Closing Date, the Seller shall deliver or
cause to be delivered to the Buyer all original agreements, documents,
books, records and files (collectively, "Records"), in the possession
of the Seller relating to the Acquired Business of the Seller and the
Subsidiaries, subject to the following exceptions:
(A) The Buyer recognizes that certain
Records may contain incidental information relating to the
Seller and the Subsidiaries or may relate primarily to
Excluded Assets and/or Excluded Liabilities, and that the
Seller may retain such Records and shall provide copies of the
relevant portions thereof to the Buyer;
(B) The Seller may retain all Records
relating to the sale of the Acquired Assets, including bids
received from other parties and analyses relating to the
Acquired Business;
(C) The Seller may retain any Tax Returns.
The Buyer shall be provided with copies of such Tax Returns
only to the extent that they relate to the Acquired Business
or the Acquired Assets or the Buyer's obligations under this
Agreement. The Seller shall not dispose of or destroy such
records without first offering to turn over possession thereof
to the Buyer (at the Buyer's expense) by written notice to the
Buyer at least 30 days prior to the proposed date of such
disposition or destruction; and
(D) the Seller shall retain its limited
liability company books and records, and including its
membership records, its articles of organization and operating
agreement, minutes of the meetings of the members and
managers, and similar company governance documents.
(ii) After the Closing, upon reasonable written
notice, the Buyer and the Seller agree to furnish or cause to be
furnished to each other and their representatives, employees, counsel
and accountants access, during normal business hours, access to such
information (including Records pertinent to the Acquired Business) and
assistance relating to the Acquired Business as is reasonably necessary
for financial reporting and accounting matters, the preparation and
filing of any Tax Returns or the defense of any Tax claim or
assessment; provided, however, that such access does not unreasonably
disrupt the normal operations of the Seller, the Buyer or the Acquired
Business.
<PAGE>
(e) Supplemental Disclosure. Prior to the Closing, each party
shall supplement or amend its Schedules provided in connection with its
representations and warranties in this Agreement to include any information
hereafter obtained which would have been required to be set forth or described
in any such Schedule had it been existing or known as of the date of this
Agreement or which is necessary to complete or correct such Schedule.
Notwithstanding the foregoing, for purposes of determining the accuracy of such
representations and warranties for purposes of (i) Sections 3(a)(i) and 3(b)(i)
or (ii) Sections 11(b)(i) and 11(c)(i), such Schedules shall be deemed to
include, respectively, (iii) only that information contained therein on the date
of this Agreement or (iv) all information contained in such Schedules as so
supplemented or amended.
(f) Notice of Developments. The Buyer will give prompt written
notice to the Seller of any material development affecting the assets,
liabilities, business, financial condition, operations, results of operations,
or future prospects of the Buyer. The Seller will (and the Seller Members will
cause the Seller to) give prompt written notice to the Buyer of any material
development affecting the assets, liabilities, business, financial condition,
operation, results of operations or future prospects of the Seller and/or any of
the Subsidiaries. Each party will give prompt written notice to the other of any
material development affecting the ability of the parties to consummate the
transactions contemplated by this Agreement. No disclosure by any party pursuant
to this Section 8(f), however, shall be deemed to amend or supplement the
Schedules or to prevent or cure any misrepresentation, breach of warranty, or
breach of the covenant.
9. Employee and Related Matters.
(a) Employment Offers. The Buyer and the Seller agree that all
store level employees of the Seller actively employed by the Seller (not
including employees on a leave of absence for any reason, including but not
limited to, workers compensation, FMLA, disability, etc.) on the Closing Date
and certain field supervisory personnel designated by Buyer (collectively, the
"Employees") shall be offered employment with the Buyer (all such employees who
accept such employment offers are hereinafter referred to as "Continued
Employees"). The Buyer agrees that each employment offer to an Employee shall be
conditioned upon the waiver in writing by each such employee of any right of
such employee to severance payments from the Seller or their affiliates.
Notwithstanding the foregoing, it is understood that nothing in this Agreement
shall prohibit or restrict the Buyer from terminating Continued Employees,
changing compensation levels or other terms and conditions of employment
subsequent to the Closing Date. The Buyer does not assume and the Seller hereby
agrees to indemnify against, and hold Buyer harmless of and from, claims and
damages for wages or benefits (other than accrued vacation benefits pursuant to
Section 1(c)(ii)) accrued on or before the Closing Date or relating to periods
ending prior to or on the Closing Date.
(b) Employee Withholding and Reporting. The Seller shall
transfer to the Buyer copies of any records (including, but not limited to,
copies of Forms W-4, Employee Withholding Allowance Certificates) relating to
withholding and payment of income and employment taxes (federal, state and
local) and FICA taxes with respect to wages paid by the Sellers during the 1997
calendar year to any Continued Employees. The Seller shall provide all of its
employees, including Continued Employees, with Forms W-2, Wage and Tax
Statements, for the 1997 calendar year setting forth the wages paid and taxes
withheld by the Seller with respect to such employees for the 1997 calendar
year.
(c) No Rights of Employment. Nothing in this Section 9,
express or implied, is intended to confer or shall confer upon the Seller's
employees, former employees or any Continued Employee any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement, including,
without limitation, any rights of employment.
<PAGE>
10. Further Assurances. From time to time, as and when requested by
either party hereto, the other party shall execute and deliver, or cause to be
executed and delivered, all such documents and instruments and shall take, or
cause to be taken all such further or other actions, as such other party may
reasonably deem necessary or desirable to consummate the transactions
contemplated by this Agreement.
11. Indemnification.
(a) (i) Tax Indemnification. The Seller and the Seller
Members, jointly and severally, agree to indemnify the Buyer, its
affiliates and each of their respective officers, directors, employees
and agents and hold them harmless from any loss, liability, claim,
damage or expense (including reasonable legal fees and expenses)
(collectively, "Loss") suffered or incurred by any such indemnified
party arising from Taxes applicable to the Acquired Business or the
Acquired Assets, in each case attributable to taxable years or periods
ending at the time of or prior to the Closing and, with respect to any
Straddle Period, the portion of such Straddle Period ending at the time
of the Closing. The Buyer shall be liable for and shall pay and shall
indemnify the Seller, its affiliates and each of their respective
members, officers, directors, employees and agents for all Taxes
applicable to the Acquired Business or the Acquired Assets that are
attributable to taxable years or periods beginning immediately after
the Closing or, with respect to any Straddle Period, the portion of
such Straddle Period beginning immediately after the Closing. For
purposes of this Section 11(a), any Straddle Period shall be treated on
a "closing of the books" basis as two partial periods, one ending at
the time of the Closing and the other beginning immediately after the
Closing; provided, however, that Taxes (such as property Taxes) imposed
on a periodic basis shall be allocated pro rata on a daily basis in
accordance with the principles under Section 164(d) of the Code.
"Straddle Period" means any taxable year or period beginning before and
ending after the Closing.
(ii) Notwithstanding paragraph (i), any sales Tax,
use Tax, real property transfer or gains Tax, documentary stamp Tax or
similar Tax attributable to the sale or transfer of the Acquired
Business or the Acquired Assets shall be paid jointly and severally by
the Seller and the Seller Members. The Buyer and the Seller agree to
timely sign and deliver such certificates or forms as may be necessary
or appropriate to establish an exemption from (or otherwise reduce), or
file Tax Returns with respect to, such Taxes.
(iii) The Seller (and/or the Seller Members) or the
Buyer, as the case may be, shall provide prompt reimbursement for any
Tax paid by one party all or a portion of which is the responsibility
of the other party in accordance with the terms of this Section 11(a);
provided, however, that any claim for reimbursement asserted against
the Seller or the Seller Members may, at the Buyer's election, be
offset against the unpaid portion, if any, of the Subordinated Note as
provided in Section 11(g). Within a reasonable time prior to the
payment of any such Tax, the party paying such Tax shall give notice to
the other party of the Tax payable and the portion which is the
liability of each party, although failure to do so will not relieve the
other party from its liability hereunder except to the extent the
indemnifying party is materially adversely affected thereby.
(iv) The Buyer (or the Seller and/or the Seller
Members, as the case may be) shall promptly notify the Seller and/or
the Seller Members (or the Buyer, as the case may be) in writing, upon
receipt by the Buyer (or the Seller and/or the Seller Members, as the
case may be) or any of its (or their) affiliates of notice of any
pending or threatened federal, state, local or foreign Tax audits,
examinations or assessments which may affect the Tax liabilities for
which the Seller and/or the Seller Members (or the Buyer, as the case
may be) would be required to indemnify the Buyer (or the Seller and/or
the Seller Members, as the case may be) pursuant to paragraph (i) of
this Section 11(a), although failure to do so will not relieve the
Seller and/or the Seller Members (or the Buyer, as the case may be)
from its liability hereunder, except to the extent the Seller and/or
the Seller Members (or the Buyer, as the case may be) is materially
adversely affected thereby. The Seller and/or the Seller Members shall
have the right to control any Tax audit or administrative or court
proceeding relating to taxable periods ending at the time of or before
the Closing, and to employ counsel of their choice at their expense;
provided, however, that the Buyer shall be entitled to participate at
its own expense in (but shall have no right to control) any Tax Audit
or administrative or court proceeding relating to taxable periods
ending at the time of or before the Closing to the extent that its
interest could be materially adversely affected. In the case of the
Straddle Period, the Seller and/or the Seller Members shall be entitled
to participate at its expense in (but, except as provided below, shall
have no right to control) any Tax audit or administrative or court
proceeding relating in whole or in part to Taxes attributable to the
portion of such Straddle Period ending at the time of the Closing and,
with the written consent of the Buyer, and at the Seller's and/or the
Seller Members' sole expense, may assume the entire control of such
audit or proceeding. Neither the Buyer nor any of its affiliates may
settle any Tax claim for any taxable year or period ending at or before
the time of the Closing or for any Straddle Period which may be the
subject of indemnification by the Seller and/or the Seller Members
under paragraph (i) of this Section 11(a) without the prior written
consent of the Seller and/or the Seller Members, which consent may not
be unreasonably withheld.
<PAGE>
(v) After the Closing, each of the Seller and/or the
Seller Members, on the one hand, and the Buyer, on the other hand,
shall (and shall cause their respective affiliates to):
(1) assist the other party in preparing any
Tax Returns which such other party is responsible for
preparing and filing;
(2) cooperate fully in preparing for any
audits of, or disputes with taxing authorities regarding, any
Tax Returns relating to the Acquired Business or the Acquired
Assets;
(3) make available to the other and to any
taxing authority as reasonably requested all information,
records, and documents relating to Taxes relating to the
Acquired Business or the Acquired Assets;
(4) provide timely notice to the other in
writing of any pending or threatened Tax audits or assessments
relating to the Acquired Business or the Acquired Assets for
taxable periods for which the other may have a liability under
this Section 11(a); and
(5) furnish the other with copies of all correspondence received from any
taxing authority in connection with any Tax audit or information
request with respect to any such taxable period.
(b) Other Indemnification by the Seller and the Seller Members. The Seller
and the Seller Members, jointly and severally, agree to indemnify the
Buyer and each of their respective officers, directors, employees and
agents and hold them harmless from any Loss suffered or incurred by
any such indemnified party (other than any relating to Taxes for which
the exclusive indemnification provisions are set forth in Section
11(a)) to the extent arising from:
(i) any breach of any representation or warranty of
the Seller and/or the Seller Members contained in this Agreement or in
any Schedule, certificate, instrument or other document delivered
pursuant hereto or thereto (respectively, the "Related Documents")
(regardless of whether such breach is related to any Assumed
Liability); provided, however, that the Seller and/or the Seller
Members shall not have any liability for any breach of a representation
or warranty of the Seller and/or the Seller Members contained in this
Agreement if the Buyer had actual knowledge of such breach at the time
of the Closing (it being agreed that the burden of proof of such actual
knowledge shall be on the Seller and/or the Seller Members);
(ii) any breach of any covenant of the Seller and/or
the Seller Members contained in this Agreement requiring performance
after the Closing Date;
(iii) (A) any out of pocket costs associated with
obtaining assignments of store leases or subleases, and the
present value of any rent increases, above the amount set
forth on the rent schedule attached hereto as Schedule
11(b)(iii), in connection with or on account of the assignment
of the leases and subleases to the Buyer, over the remaining
term of such leases or subleases; but only to the extent the
foregoing amounts, in the aggregate, exceed Fifty Thousand
Dollars ($50,000);
(iv) any Excluded Liabilities not described in
Section 11(b)(iii);
<PAGE>
(v) any lawsuit, claim, proceeding or investigation,
known or unknown, existing as of the date of this Agreement or asserted
at any time thereafter, by or against the Buyer (or Subsidiary or
affiliate of Buyer) or any of the Acquired Assets, including without
limitation the proceedings, investigations or matters disclosed, or for
which disclosure is required, pursuant to Sections 4(k) or 4(p);
provided, however, that the Seller and/or the Seller Members shall not have any
liability under Section 11(b)(i) or (ii) to the extent the liability or
obligation arises as a result of any action taken or omitted to be taken by the
Buyer or any of its affiliates contrary to the express requirements of this
Agreement; and provided further, however, that the aggregate amount required to
be paid by the Seller and/or the Seller Members pursuant to Section 11(b) shall
not exceed $2,000,000.
(c) Indemnification by the Buyer. The Buyer shall indemnify
the Seller and/or the Seller Members, and each of their respective managing
members, officers, directors, employees and agents against and hold them
harmless from any Loss suffered or incurred by any such indemnified party (other
than any relating to Taxes for which the exclusive indemnification provisions
are set forth in paragraph (a) of this Section 11) to the extent arising from:
(i) any breach of any representation or warranty of the Buyer contained in
this Agreement;
(ii) any breach of any covenant of the Buyer contained in this Agreement
requiring performance after the Closing Date; or
(iii)any Assumed Liabilities; provided, however, the Buyer shall not have
any liability under clause (i) above for any breach of a
representation or warranty of the Buyer contained in this Agreement if
the Seller and/or the Seller Members had actual knowledge of such
breach at the time of the Closing (it being agreed that the burden of
proof of such actual knowledge shall be on the Buyer).
(d) Losses Net of Insurance, etc. The amount of any loss,
liability, claim, damage, expense or Tax for which indemnification is provided
under this Section 11 shall be net of any amounts recovered or recoverable by
the indemnified party under insurance policies with respect to such loss,
liability, claim, damage, expense or Tax and shall be (i) increased to take
account of any net Tax cost incurred by the indemnified party arising from the
receipt of indemnity payments hereunder (grossed up for such increase) and (ii)
reduced to take account of any net Tax benefit realized by the indemnified party
arising from the incurrence or payment of any such loss, liability, claim,
damage, expense or Tax. In computing the amount of any such Tax cost or Tax
benefit, the indemnified party shall be deemed to recognize all other items of
income, gain, loss, deduction or credit before recognizing any item arising from
the receipt of any indemnity payment hereunder or the incurrence or payment of
any indemnified loss, liability, claim, damage, expense or Tax. Any indemnity
payment under this Agreement shall be treated as an adjustment to the Purchase
Price, for Tax purposes, unless a final determination (which shall include the
execution of a Form 870-AD or successor form) with respect to the indemnified
party or any of its affiliates causes any such payment not to be treated as an
adjustment to the Purchase Price, for United States federal income Tax purposes.
(e) Termination of Indemnification. The obligations to
indemnify and hold harmless a party hereto, (i) pursuant to Section 11(a), shall
terminate at the time the applicable statutes of limitations with respect to the
Tax liabilities in question expire (giving effect to any extension thereof);
(ii) pursuant to Sections 11(b)(i) and (ii) and 11(c)(i) and (ii), shall
terminate on the date that is 2 (two) years after the Closing Date; and (iii)
pursuant to Sections 11(b)(iii), (iv) and (v) and 11(c)(iii) shall survive
indefinitely; provided, however, that such obligations to indemnify and hold
harmless shall not terminate with respect to any item as to which the person to
be indemnified or the related party hereto shall have, before the expiration of
the applicable period, previously made a claim by delivering a notice to the
indemnifying party stating in reasonable detail the basis of such claim and, in
the case of a claim arising from a third party claim, suit, action or
proceeding, stating that the claim has actually been asserted and including a
copy of such claim if in writing or the pleadings relating to such suit, action
or proceeding.
<PAGE>
(f) Procedures Relating to Indemnification (Other than under
Section 11(a). In order for a party (the "indemnified party") to be entitled to
any indemnification provided for under this Agreement (other than under Section
11(a) in respect of, arising out of or involving a claim or demand made by any
person, firm, governmental authority or corporation against the indemnified
party (a "Third Party Claim"), such indemnified party must notify the
indemnifying party in writing, and in reasonable detail, of the Third Party
Claim within 10 business days after receipt by such indemnified party of written
notice of the Third Party Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent the indemnifying party shall have been actually prejudiced as a
result of such failure. Thereafter, the indemnified party shall deliver to the
indemnifying party, within five business days after the indemnified party's
receipt thereof, copies of all notices and documents (including court papers)
received by the indemnified party relating to the Third Party Claim.
If a Third Party Claim is made against an indemnified party,
the indemnifying party will be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof with counsel selected by
the indemnifying party and reasonably satisfactory to the indemnified party.
Should the indemnifying party so elect to assume the defense of a Third Party
Claim, the indemnifying party will not be liable to the indemnified party for
legal expenses subsequently incurred by the indemnified party in connection with
the defense thereof. If the indemnifying party assumes such defense, the
indemnified party shall have the right to participate in the defense thereof and
to employ counsel, at its own expense, separate from the counsel employed by the
indemnifying party, it being understood that the indemnifying party shall
control such defense. The indemnifying party shall be liable for the fees and
expenses of counsel employed by the indemnified party for any period during
which the indemnifying party has not assumed the defense thereof (other than
during any period in which the indemnified party shall have failed to give
notice of the Third Party Claim as provided above). If the indemnifying party
chooses to defend or prosecute any Third Party Claim, all the parties hereto
shall cooperate in the defense or prosecution thereof. Such cooperation shall
include the retention and (upon the indemnifying party's request) the provision
to the indemnifying party of records and information which are reasonably
relevant to such Third Party Claim, and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Whether or not the indemnifying party shall have
assumed the defense of a Third Party Claim, the indemnified party shall not
admit any liability with respect to, or settle, compromise or discharge, such
Third Party Claim without the indemnifying party's prior written consent (which
consent shall not be unreasonably withheld).
(g) Certain Set-off Rights. All payments, if any, required to
be made by the Seller under Section 11 shall be made solely by (i) a dollar for
dollar reduction of the principal amount, if any, then remaining payable, under
the Subordinated Note, effective as of the date of issuance thereof, or (ii) in
the event the Subordinated Note has been prepaid, a claim against the Seller
and/or the Seller Members for repayment of all or a portion of the Cash Purchase
Price.
(h) Waiver of Other Remedies.
(i) The Buyer acknowledges and agrees that, from and
after the Closing, its sole and exclusive remedy with respect to any
and all claims relating to the subject matter of this Agreement (other
than claims of fraud) shall be pursuant to the indemnification
provisions set forth in this Section 11. In furtherance of the
foregoing, the Buyer hereby waives, from and after the Closing, to the
fullest extent permitted under applicable law, any and all rights,
claims and causes of action (other than claims of, or causes of action
arising from, fraud) it may have against the Seller and/or the Seller
Members or any of their affiliates, creditors, members or stockholders
relating to the subject matter of this Agreement arising under or based
upon any federal, state or local statute, law, ordinance, rule or
regulation.
<PAGE>
(ii) The Seller and the Seller Members acknowledge
and agree that, from and after the Closing, their sole and exclusive
remedy with respect to any and all claims relating to the subject
matter of this Agreement (other than claims of fraud) shall be pursuant
to the indemnification provisions set forth in this Section 11. In
furtherance of the foregoing, the Seller and the Seller Members hereby
waive, from and after the Closing, to the fullest extent permitted
under applicable law, any and all rights, claims and causes of action
(other than claims of, or causes of action arising from, fraud) they
may have against the Buyer or any of its affiliates, creditors or
stockholders relating to the subject matter of this Agreement arising
under or based upon any federal, state or local statute, law,
ordinance, rule or regulation. 12. Assignment. This Agreement and the
rights and obligations hereunder shall not be assignable or
transferable by the Buyer, the Seller, or the Seller Members (other than by
operation of law in connection with a merger, a sale of substantially all the
assets, or a liquidation of the Buyer or the Seller) without the prior written
consent of the other parties hereto (which consent shall not be unreasonably
withheld); provided, however, that the Buyer may assign its right to purchase
the Acquired Assets hereunder to a parent, subsidiary or affiliate of the Buyer
without the prior written consent of the Seller and, following the Closing Date,
may freely dispose of the Acquired Business; provided further, however, that no
assignment shall limit or affect the assignor's obligations hereunder; and
provided further, however, that the Note shall be transferable in accordance
with its terms, subject to applicable laws and regulations and subject to the
requirement that the Note not be transferred or distributed in a manner which
could subject the Buyer to reporting under the U.S. federal securities laws. In
connection with seeking any such consent, a party proposing to so assign or
transfer its rights and obligations shall give to the party whose consent is
sought reasonable details of the proposed assignment or transfer, including the
proposed method of making adequate provision for such party's obligations
hereunder.
13. No Third-Party Beneficiaries. Except as provided for indemnified
parties in Section 11 and except for the waivers of other remedies by the
Seller, the Seller Members, and the Buyer in Section 11(h), this Agreement is
for the sole benefit of the parties hereto and their permitted assigns and
nothing herein expressed or implied shall give or be construed to give to any
person or entity, other than the parties hereto and such assigns, any legal or
equitable rights hereunder.
14. Termination.
(a) Anything contained herein to the contrary notwithstanding,
this Agreement may be terminated and the transactions contemplated hereby
abandoned at any time prior to the Closing Date:
(i) by mutual written consent of the Seller and the Buyer;
(ii) by the Seller if any of the conditions set forth in Section 3(b)
hereof shall have become incapable of fulfillment, and shall not have
been waived by the Seller;
(iii)by the Buyer if any of the conditions set forth in Section 3(a)
hereof shall have become incapable of fulfillment, and shall not have
been waived by the Buyer; or
(iv) by either party hereto, if the Closing does not occur on or prior to
August 31, 1997.
(b) In the event of termination by the Seller or the Buyer
pursuant to this Section 14, written notice thereof shall forthwith be given to
the other parties and the transactions contemplated by this Agreement shall be
terminated, without further action by either party. If the transactions
contemplated by this Agreement are terminated as provided herein:
<PAGE>
(i) the Buyer shall return all documents and other
material received from the Seller or any Subsidiary relating to the
transactions contemplated hereby, whether so obtained before or after
the execution hereof, to the Seller; and
(ii) all confidential information received by the
Buyer with respect to the Acquired Business shall be kept confidential.
(c) If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 14, this
Agreement shall become void and of no further force and effect, except for the
provisions of (i) Section 16 hereof relating to certain expenses, (ii) Section
8(c) hereof relating to publicity, (iii) Section 23 hereof relating to finder's
fees and broker's fees and (iv) this Section 14. Nothing in this Section 14
shall be deemed to release either party from any liability for any breach by
such party of the terms and provisions of this Agreement or to impair the right
of either party to compel specific performance by the other party of its
obligations under this Agreement.
15. Survival of Representations. The representations and warranties in
this Agreement and in any other document delivered in connection herewith shall
survive the Closing solely for purposes of Sections 11(b) and 11(c) of this
Agreement and shall terminate at the close of business five years following the
Closing Date.
16. Expenses. Whether or not the transactions contemplated hereby are
consummated, except as otherwise expressly provided in this Agreement, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
17. Arbitration.
(a) Subject to the provisions of Sections 2(c) and 25, any
disagreement, dispute, controversy or claim arising out of or relating to this
Agreement or the transactions contemplated hereby, including, without
limitation, the interpretation hereof and any breach, termination or invalidity
hereof, shall be settled exclusively and finally (i) through good faith
negotiation of the parties for a period not in excess of 30 days and (ii) in the
event such negotiations do not yield a settlement within such 30-day period, by
arbitration (irrespective of the magnitude thereof, the amount in controversy or
whether such matter would otherwise be considered justiciable or ripe by a court
or arbitral tribunal).
(b) The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association (the
"Arbitration Rules"), except as those rules conflict with the provisions of this
Section 17, in which event the provisions of this Section 17 shall control.
(c) The arbitral tribunal shall consist of three arbitrators
chosen in accordance with the Arbitration Rules. The arbitration shall be
conducted in Salt Lake City, Utah. Any submission of a matter for arbitration
shall include joint written instructions of the parties requiring the arbitral
tribunal to render a decision resolving the matters submitted within 60 days
following the submission thereof.
(d) Any decision or award of the arbitral tribunal shall be
final and binding upon the parties to the arbitration proceeding. The parties
agree that the arbitral award may be enforced against the parties to the
arbitration proceeding or their assets wherever they may be found and that a
judgment upon the arbitral award may be entered in any court having jurisdiction
thereof.
(e) All out-of-pocket costs and expenses incurred by any party
in connection with the resolution of any disagreement, dispute, controversy or
claim pursuant to this Section 17, including, but not limited to, reasonable
attorney=s fees and disbursements, shall be borne by the party incurring the
same; provided, however, that the arbitral tribunal shall have the discretion to
declare any party as the "prevailing party" with respect to one or more of the
issues that were the subject of the arbitration and to require the other parties
to the arbitration to reimburse such "prevailing party" for some or all of its
costs and expenses incurred in connection with such proceeding.
(f) The costs of the arbitral tribunal shall be divided evenly
between any parties thereto affiliated with the Sellers, on the one hand, and
any parties thereto affiliated with the Buyer, on the other hand, unless there
is a "prevailing party", in which case the arbitral tribunal may allocate more
or all of such costs to the party thereto that is not the "prevailing party".
(g) This Section 17 shall not prohibit or limit in any way any
party from seeking or obtaining preliminary or interim injunctive or other
equitable relief from a court for a breach or alleged breach of any of the
covenants and agreements of another party contained in this Agreement.
<PAGE>
18. Amendments. No amendment to this Agreement shall be effective
unless it shall be in writing and signed by all parties hereto.
19. Notices. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or sent
prepaid telex, cable or telecopy, or sent, postage prepaid, by registered,
certified or express mail, or reputable overnight courier service and shall be
deemed given when so delivered by hand, telexed, cabled or telecopied, or if
mailed, three days after mailing (one business day in the case of express mail
or overnight courier service), as follows:
(i) if to the Seller, the Seller Members, or any of them,
H&M Concepts Ltd. Co.
c/o Steven H. Mann
824 W. Ashbourne Drive
Eagle, Idaho 83616
with a copy to:
John R. Hansen, Jr.
1419 West Washington
Boise, Idaho 83702
Telecopy: (208) 385-7008
(ii) if to the Buyer:
Mrs. Fields' Pretzel Concepts, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Attention: Larry A. Hodges, President
Telecopy: (801) 463-2183
with a copy to:
Jones, Waldo, Holbrook & McDonough, P.C.
170 South Main Street
Suite 1500
Salt Lake City, Utah 84101
Attn. Glen D. Watkins
Telecopy: (801) 328-0537
20. Interpretation. The headings contained in this Agreement, in any
Exhibit or Schedule hereto and in the table of contents and index of defined
terms to this Agreement, are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement. The phrase "to the
Seller's knowledge" or similar phrases means the actual knowledge, as of the
time the relevant statement is made, of any managing member of the Seller. For
purposes of the representations, warranties and covenants hereunder, references
to "the date of this Agreement," "the date hereof" or other similar phrases
shall be deemed to be references to July 22, 1997.
<PAGE>
21. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
22. Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
23. Fees. Each party hereto hereby agrees, represents and warrants that
no person has acted in connection with this Agreement or the transactions
contemplated hereby as a broker or finder and that no person is entitled to any
brokerage fee, finder's fee or commission with respect thereto. The parties
further agree to hold the other party harmless from any damages, claims or
expenses asserted against such party as a result of any person claiming a
commission or finder's fee for the transactions contemplated herein.
24. Severability. If any provision of this Agreement or the application
of any such provision to any person or circumstance shall be held invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
such invalidity, illegality or unenforceability shall not affect any other
provision hereof.
25. Consent to Jurisdiction.
(a) Each of the Seller, the Seller Members and the Buyer
irrevocably submits to the exclusive jurisdiction of (i) the Supreme Court of
the State of Utah, and (ii) the United States District Court for the Central
District of Utah, solely for the purposes of seeking specific performance or
enforcing an arbitral award arising out of this Agreement or any transaction
contemplated hereby. Each of the Seller, the Seller Members and the Buyer agrees
to commence any such action, suit or proceeding relating thereto either in the
United States District Court for the Central District of Utah or, if, for
jurisdictional reasons, such suit, action or other proceeding may not be brought
in such court, in the Supreme Court of the State of Utah. Each of the Seller,
the Seller Members and the Buyer further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party's respective
address set forth above shall be effective service of process for any action,
suit or proceeding in Utah with respect to any matters to which it has submitted
to jurisdiction as set forth above in this Section 25(a). Each of the Seller,
the Seller Members and the Buyer irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding described
above in (i) the Supreme Court of the State of Utah or (ii) the United States
District Court for the Central District of Utah, and hereby further irrevocably
and unconditionally waives and agrees not to plead or claim in any such court
that any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
(b) Should any litigation be commenced in connection with the
matters described in the preceding Section 25(a), the party prevailing shall be
entitled, in addition to such other relief as may be granted, to a reasonable
sum for such party's attorneys' fees and expenses determined by the court in
such litigation or in a separate action brought for that purpose.
<PAGE>
26. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Utah applicable to agreements
made and to be performed entirely within such State, without regard to the
conflicts of law principles of such State.
27. Remedies. Each of the parties acknowledges and agrees that each
other party would be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the parties agrees that each other
party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof, having jurisdiction over the parties and the
matter, in addition to any other remedy to which it may be entitled, at law or
in equity.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE PAGE FOLLOWS]
<PAGE>
214511.14
07/22/97
72
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
SELLER: BUYER:
H&M CONCEPTS LTD. CO. MRS. FIELDS' PRETZEL CONCEPTS,
INC.
By:/s/Randol S. Hemmer By:/s/
Name: Randol S. Hemmer Name:
Title: Managing Member Title:
By:/s/Steven H. Mann
Name: Steven H. Mann
Title: Managing Member
MEMBERS OF THE SELLER:
/s/Randol S. Hemmer
Randol S. Hemmer, individually
/s/Steven H. Mann
Steven H. Mann, individually
<PAGE>
A-1
APPENDIX A
INDEX OF DEFINED TERMS
Defined Term Page
Acquired Assets 1
Acquired Business 1
Allocation Schedule....................................................9
Arbitrator 14
Assumed Liabilities....................................................3
Balance Sheet 25
Buyer 1
Buyer Notes 11
Closing 10
Closing Date 11
Code 9
Continued Employees...................................................50
Contracts 32
Employees 50
Environmental Laws....................................................37
ERISA 33
Excluded Assets 2
Excluded Liabilities...................................................4
Financial Statements..................................................25
Indemnified party 58
Liens 28
Loss 51
Notice of Disagreement................................................13
Pension Plans 33
Permitted Liens 28
Purchase Price 5
Records 47
Related Documents 55
Seller 1
Store Cash 2
Straddle Period 52
Subsidiary Shares 11
Tax Returns 27
Taxes 27
Third Party Claim 58
Unassigned Asset 10
W/C Statement 12
Working Capital Amount................................................12
Working Capital Base Amount...........................................13
Acquired Assets 2
Acquired Business 2
Acquired Leases 64
Allocation Schedule....................................................8
Arbitration Rules 94
Arbitrator 17
Assumed Liabilities....................................................4
Balance Sheet 32
Benefit Plans 43
Buyer 1
Note..................................................................11
<PAGE>
Closing 10
Closing Cash Amount...................................................14
Closing Date 11
Code 8
Continued Employees...................................................71
Contracts 41
Election 69
Employees 71
Environmental Laws....................................................48
ERISA 43
Excluded Assets 3
Excluded Liabilities...................................................5
Financial Statements..................................................31
Hazardous Substance...................................................48
Indemnified Party 85
Intellectual Property.................................................36
Liens 35
Loss 73
Notice of Disagreement................................................16
Other Agreements 23
Permitted Liens 35
Purchase Price 6
Records 66
Related Documents 79
Seller 1
Store Cash 3
Straddle Period 75
Subsidiaries 2
Subsidiary Shares 11
Tax Returns 34
Taxes 34
Third Party Claim 85
Transaction Documents.................................................59
Unassigned Asset 9
W/C Statement 12
Working Capital Amount................................................14
Working Capital Base Amount...........................................15
EXHIBIT A
TO THE DEVELOPING AGENT AGREEMENT
OWNER'S AND GUARANTOR'S UNDERTAKING AND ASSUMPTION
OF OBLIGATIONS
<PAGE>
EXHIBIT "A"
OWNER'S AND GUARANTOR'S UNDERTAKING AND ASSUMPTION OF OBLIGATIONS
THIS UNDERTAKING AND ASSUMPTION OF AREA DEVELOPER'S OBLIGATIONS is given as of
this day of , 19 , by the undersigned.
- ----------------------------------- -----
AREA DEVELOPER:
Date of Area Developer Agreement:
1. ACKNOWLEDGEMENT AND GUARANTY.
In consideration of, and as an inducement to, the execution of the
above mentioned Pretzel Time, Inc. Area Developer Agreement ( the "Area
Developer Agreement") by Pretzel Time, Inc. ("Company"), each of the undersigned
and any other parties who sign counterparts of this guaranty (referred to herein
individually as a "Guarantor" and collectively as "Guarantors") hereby
personally and unconditionally: (a) guarantees to COMPANY, and its successors
and assigns, for the term of the franchise Agreement and thereafter as provided
in the franchise Agreement, that AREA DEVELOPER shall punctually pay and perform
each and every undertaking, agreement and covenant set forth in the Area
Developer Agreement; and (b) agrees to be personally bound by, and personally
liable for the breach of, each and every provision in the Area Developer
Agreement, both monetary obligations and other obligations, including, without
limitation, the obligation to pay costs and legal fees as provided in the Area
Developer Agreement and the obligation to take or refrain from taking specific
actions or to engage or refrain from engaging in specific activities, including,
without limitation, the provisions of the Area Developer Agreement relating to
competitive activities.
2. WAIVERS.
Each Guarantor waives:
(a) acceptance and notice of acceptance by COMPANY of the foregoing
undertakings; and
(b) notice of demand for payment of any indebtedness or nonperformance of
any obligations hereby guaranteed; and
(c) protest and notice of default to any party with respect to the
indebtedness or nonperformance of any obligations hereby guaranteed; and
(d) any right he may have to require that an action be brought against
AREA DEVELOPER or any other person as a condition of liability; and
(e) all rights to payments and claims for reimbursement or subrogation
which he may have against AREA DEVELOPER arising as a result of his execution
and performance under this guaranty; and
(f) any and all other notices and legal or equitable defenses to which
he may be entitled.
3. ADDITIONAL COVENANT OF GUARANTORS.
Each Guarantor consents and agrees that:
(a) his direct, independent, and immediate liability under this
undertaking shall be joint and several not only with AREA DEVELOPER, but also
among the Guarantors;
(b) he shall render any payment or performance required under the Area
Developer Agreement upon demand if AREA DEVELOPER fails or refuses punctually to
do so;
<PAGE>
(c) such liability shall not be contingent or conditioned upon pursuit
by COMPANY or its Affiliates of any remedies against AREA DEVELOPER or any other
person;
(d) such liability shall not be diminished, relieved or otherwise
affected by any subsequent rider or amendment to the Area Developer Agreement or
by any extension of time, credit or other indulgence which COMPANY may from time
to time grant to AREA DEVELOPER or to any other person, including, without
limitation, the acceptance of any partial payment or performance, or the
compromise or release of any claims, none of which shall in any way modify or
amend this guaranty, which shall be continuing and irrevocable throughout the
term of the Area Developer Agreement and for so long thereafter as there are any
monies or obligations owing by AREA DEVELOPER to COMPANY under the Area
Developer Agreement;
(e) the written acknowledgment of AREA DEVELOPER, accepted in writing
by COMPANY, or the judgment of any court or arbitration panel of competent
jurisdiction establishing the amount due from AREA DEVELOPER shall be conclusive
and binding on the undersigned as Guarantors;
(f) if COMPANY is required to enforce this guaranty in a judicial or
arbitration proceeding and prevails in such proceeding, it shall be entitled to
reimbursement of its costs and expenses, including, but not limited to,
reasonable accountants', attorneys', arbitrators', and expert witness fees,
costs of investigation, court costs, other litigation expenses and travel and
living expenses, whether incurred prior to, in preparation for or in
contemplation of the filing of any such proceeding. If COMPANY is required to
engage legal counsel in connection with any failure by the undersigned to comply
with this guaranty, the Guarantors shall reimburse COMPANY for any of the
above-listed costs and expenses incurred by it;
(g) Each of the undersigned Guarantors represents and warrants that, if
no signature appears below for such Guarantor's spouse, such Guarantor is either
not married or, if married, is a resident of a state which does not require the
consent of both spouses to encumber the assets of a marital estate.
(h) This Undertaking and Assumption shall be construed in accordance
with Pennsylvania law, without giving effect to its conflict of laws principles;
(i) This Undertaking shall continue in full force and effect with
respect to any extension or modification to the Area Developer Agreement or any
other of the franchise agreements and Guarantors waive notice of any and all
such extensions, modifications, amendments or transfers;
(j) In lieu of any right of indemnification that Guarantors may have as
against Area Developer by virtue of the guarantee of Area Developer's
obligations to company which right of indemnification is hereby waived,
Guarantors shall be subrogated to the rights of Company as against Area
Developer to the extent Guarantors fully satisfy and discharge the obligations
of Area Developer under the Area Developer Agreement and any other franchising
agreements and such right of subrogation shall be Guarantor's sold remedy
against Area Developer;
(k) Guarantors agree to pay all reasonable attorneys' fees and all
costs and other expenses incurred in any collection or attempted collection of
amounts due pursuant to this Undertaking or in any negotiations relative to the
obligations hereby guaranteed or in enforcing this Undertaking against
Guarantors; and
4. DEFINITIONS. For purposes of this Undertaking:
(a) "Owner" shall mean any person, partnership, corporation or other
entity holding any interest in Area Developer.
(b) The term "Guarantors" is applicable to one or more persons, a
corporation or a partnership, as the case may be, and the singular usage
includes the plural and the masculine and neuter usages included the other and
the feminine.
<PAGE>
IN WITNESS WHEREOF, each Guarantor has hereunto affixed his signature
on the same day and year as the Area Developer Agreement was executed.
Owners and Guarantors:
Spouse
(Signature)
(Print Name)
Spouse
(Signature)
(Print Name)
Spouse
(Signature)
(Print Name)
Spouse
(Signature)
(Print Name)
FRANCHISE AGREEMENT
TABLE OF CONTENTS
1. INTRODUCTION AND DEFINITIONS.......................................1
1.A. INTRODUCTION..............................................1
1.B. DEFINITIONS...............................................3
2. GRANT OF FRANCHISE RIGHTS..........................................7
2.A. GRANT OF FRANCHISE........................................7
2.B. PRINCIPAL OWNERS' GUARANTY................................7
2.C. TERRITORIAL RIGHTS........................................8
2.D. RESERVATION OF RIGHTS.....................................8
2.E. OPTION TO DEVELOP OTHER SITES WITHIN THE TERRITORY........9
2.F. TERM OF FRANCHISE.........................................9
3. OTHER DISTRIBUTION METHODS........................................10
3.A. SPECIAL DISTRIBUTION ARRANGEMENTS........................10
4. FRANCHISE AND OTHER FEES..........................................10
4.A. INITIAL FRANCHISE FEE....................................10
4.B. DEFERRAL OF FRANCHISE FEE................................10
4.C. ROYALTY FEE..............................................10
4.D. ADVERTISING FUND FEE.....................................11
4.E. TRANSFER FEE.............................................11
4.F. FEES FOR ADDITIONAL FRANCHISES...........................11
4.G. FEES FOR RENEWAL OF FRANCHISE............................12
4.H. PAYMENT BY ELECTRONIC FUNDS TRANSFER.....................12
4.I. LATE CHARGE AND INTEREST. ...............................12
5. RENEWAL OF FRANCHISE TERM.........................................13
5.A. FRANCHISEE'S RIGHT TO A SUCCESSOR FRANCHISE..............13
5.B. RELEASES.................................................14
5.C. NOTICES..................................................15
6. TRADEMARKS AND LIMITATIONS........................................15
6.A. OWNERSHIP OF MARKS.......................................15
6.B. DISCONTINUANCE OF USE OF MARKS...........................16
6.C. CORPORATE NAME...........................................16
6.D. TERMINATION..............................................17
6.E. TRADEMARK ENFORCEMENT....................................17
6.F. USE OF SERVICE MARK......................................17
7. SELECTION OF FRANCHISE LOCATION...................................18
7.A. SITE SELECTION...........................................18
7.B. LEASE....................................................18
7.C. RELOCATION...............................................20
8. DEVELOPMENT OF UNIT...............................................21
8.A. UNIT DESIGN SPECIFICATIONS AND CONSTRUCTION PLANS........21
8.B. DEVELOPMENT OF THE UNIT..................................21
8.C. EQUIPMENT, FIXTURES, FURNISHINGS, AND SIGNS..............22
8.D. EXCEPTIONS TO EQUIPMENT OR FURNISHINGS...................22
8.E. CONSTRUCTION ASSISTANCE..................................23
8.F. LIMITATION ON LIABILITY..................................23
9. UNIT OPENING......................................................24
9.A. COMMENCEMENT OF OPERATIONS...............................24
10. FRANCHISEE TRAINING...............................................24
10.A. INITIAL TRAINING.........................................24
10.B. EMPLOYEE TRAINING........................................25
10.C. ON-SITE TRAINING...........................................26
10.D. COMPANY GROWTH...........................................26
10.E. RETRAINING PROGRAMS......................................26
10.F. OTHER GUIDANCE...........................................26
11. ADVERTISING AND OTHER PROMOTIONS..................................27
11.A. PROVIDING OF ADVERTISING MATERIALS.......................27
11.B. CONTROL OF ADVERTISING PROGRAMS AND CONCEPTS.............27
11.C. SEGREGATION OF ADVERTISING FUND..........................28
11.D. SUSPENSION OF ADVERTISING FUND FEES......................29
11.E. FRANCHISEE'S REQUIRED ADVERTISING EXPENDITURES...........29
11.F. USE OF TRADEMARK REFERENCES AND APPROVAL...............
OF FRANCHISEE'S MARKETING..............29
12. ADHERENCE TO UNIFORM STANDARDS....................................30
12.A. STANDARDS AND OPERATIONS MANUAL..........................30
12.B. CONFIDENTIALITY OF OPERATIONS MANUAL.....................32
12.C. INCORPORATION OF OPERATIONS MANUAL INTO AGREEMENT........32
12.D. MODIFICATIONS/UPDATES OF OPERATIONS MANUAL...............33
13. UNIT IMAGE AND OPERATION..........................................33
13.A. CONDITION AND APPEARANCE OF UNIT.........................33
13.B. UNIT MENU..................................................35
13.C. ADHERENCE TO APPROVED ITEMS..............................35
13.D. EXCEPTION PROCESS........................................36
13.E. PROMOTIONAL ALLOWANCES.....................................37
14. FRANCHISEE OPERATIONS.............................................37
14.A. MANAGEMENT...............................................37
14.B. SUFFICIENT WORKING CAPITAL.................................38
14.C. FILING OF OPERATIONS AND SALES REPORTS.....................38
14.D. EMPLOYEE DRESS AND CUSTOMER SERVICE......................38
14.E. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES...........38
14.F. PAYMENT OF TAXES.........................................39
14.G. SALE OF PRODUCT..........................................39
14.H. COOPERATION..............................................39
14.I. INSURANCE................................................39
14.J. SUGGESTED RETAIL PRICES..................................40
15. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS......................41
15.A. ESTABLISHMENT OF ACCOUNTING SYSTEM.........................41
15.B. MAINTENANCE OF RECORDS....................................41
16. AUDITS AND INSPECTIONS............................................42
16.A. AUDITS...................................................42
16.B. RIGHT OF ENTRY AND INSPECTION............................42
17. TRANSFER, ASSIGNMENT AND REPURCHASE. .............................43
17.A. BY PRETZEL TIME............................................43
17.B. BY FRANCHISEE..............................................43
17.C. CONDITIONS FOR APPROVAL OF TRANSFER........................44
17.D. TRANSFER TO A WHOLLY-OWNED CORPORATION...................45
17.E. FORMATION OF A CORPORATION.................................46
17.F. DEATH OR DISABILITY OF FRANCHISEE..........................47
17.G. PRETZEL TIME'S FIRST RIGHT OF REFUSAL....................47
17.H. PUBLIC OR PRIVATE OFFERINGS..............................48
18. TERMINATION OF AGREEMENT BY FRANCHISEE............................49
18.A. FRANCHISEE'S RIGHT TO TERMINATE............................49
19. DEFAULT AND TERMINATION...........................................50
19.A. EXACT AND COMPLETE PERFORMANCE REQUIRED....................50
19.B. DEFAULT AND RIGHT TO CURE................................50
19.C. EXTENSION OF NOTICE........................................50
19.D. REPEATED BREACHES..........................................50
19.E. EVENTS OF DEFAULT - 30 DAYS NOTICE - CURABLE DEFAULTS....51
19.F. EVENTS OF DEFAULT - IMMEDIATE TERMINATION - NO
RIGHT TO CURE............................................53
20. RIGHTS AND OBLIGATIONS OF PRETZEL TIME AND FRANCHISEE UPON TERMINATION
OR EXPIRATION OF THE FRANCHISE..................................56
20.A. AMOUNTS OWED...............................................56
20.B. DISCONTINUANCE OF MARKS..................................56
20.C. RETURN OF MATERIALS......................................57
20.D. TELEPHONE COMPANY........................................57
20.E. CONFIDENTIAL INFORMATION.................................58
20.F. LEASING..................................................58
20.G. COVENANT NOT TO COMPETE..................................58
20.H. PRETZEL TIME'S RIGHT TO PURCHASE ASSETS OF THE UNIT........59
21. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION.......................60
21.A. EXCLUSIVE RELATIONSHIP...................................60
21.B. NO LIABILITY FOR ACTS OF OTHER PARTY.......................61
21.C. TAXES....................................................61
21.D. INDEMNIFICATION..........................................62
21.E. INDEPENDENT CONTRACTOR.....................................62
22. PROTECTION OF TRADE SECRETS.......................................63
22.A. CONFIDENTIAL INFORMATION...................................63
22.B. DISCLOSURE OF IDEAS AND NEW PROCEDURES.....................64
23. ENFORCEMENT.......................................................65
23.A. UNAVOIDABLE DELAYS.......................................65
23.B. RIGHTS OF PARTIES ARE CUMULATIVE.........................65
23.C. WAIVER OF OBLIGATIONS....................................65
23.D. CONTINUING OBLIGATIONS...................................66
23.E. INVALID OR UNENFORCEABLE PROVISIONS......................66
23.F. INJUNCTIVE RELIEF..........................................66
23.G. APPLICABLE LAW...........................................67
23.H. ENTIRE STATUS OF AGREEMENT...............................67
23.I. AMENDMENT OF AGREEMENT...................................67
23.J. HEIRS, SUCCESSORS AND ASSIGNS............................67
23.K. CONDITIONS AND CONTINGENCIES.............................67
23.L. WAIVER BY PRETZEL TIME...................................68
23.M. COSTS AND EXPENSES OF ENFORCEMENT........................68
23.N. RIGHTS OF PARTIES ARE CUMULATIVE ........................69
23.O. WAIVER OF JURY TRIAL.....................................69
23.P. WAIVER OF PUNITIVE DAMAGES.................................69
23.Q. EXCLUSIVE JURISDICTION.....................................69
23.R. LIMITATIONS OF CLAIMS....................................69
24. ACKNOWLEDGMENTS AND REPRESENTATIONS...............................70
25. CONSTRUCTION......................................................70
25.A. HEADINGS.................................................70
25.B. TERMINOLOGY................................................70
25.C. COUNTERPARTS.............................................71
25.D. REASONABLENESS.............................................71
26. SECURITY AGREEMENT................................................70
26.A. SECURITY INTEREST........................................71
26.B. DEFAULT REMEDIES UNDER U.C.C...............................72
27. NOTICES...........................................................72
27.A. DELIVERY OF NOTICES......................................72
EXHIBITS
FRANCHISE ACKNOWLEDGMENTS AND REPRESENTATIONS
STATEMENT . . . . . . . . . . . . . . . . . . . . . . .. A
PRINCIPAL OWNER, OTHER OWNERS, DESIGNATED PRINCIPAL
OWNERS, UNIT AND MANAGER, SUPERVISING OWNERS AND INITIAL
CAPITALIZATION . . . . . . . . . . . . . . . .. . . . B
PERMITTED COMPETITIVE BUSINESSES, FORM DEVELOPMENT
AGREEMENT (FOR SINGLE-UNIT FRANCHISES), IDENTITY OF
DEVELOPER AND DATE OR DEVELOPMENT AGREEMENT . . . .C
OWNER'S AND GUARANTOR'S UNDERTAKING AND ASSUMPTION OF
OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . D
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS (DIRECT DEBITS). E
UNIT SITE AGREEMENT . . . . . . . . . . . . . . . F
COLLATERAL ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS . . G
MUTUAL CONFIDENTIALITY AGREEMENT . . .H
TCBY YOGURT PRODUCTS ADDENDUM . . . . . . I
<PAGE>
FRAN.AGT 6.5.96
SATELLITE UNIT ADDENDUM . . . . . . . . . . . . . . J
RELEASE AGREEMENT . . . . . . . . . . . . . . K
THIRD PARTY ASSIGNMENT AGREEMENT . . . . . . . . . L
SUBLEASE . . . . . . . . . . . . . . . . . M
COLLATERAL ASSIGNMENT OF LEASE . . . . . . . . . N
<PAGE>
PRETZEL TIME, INC.
FRANCHISE AGREEMENT
This agreement is made and entered into this day of , 19 (hereinafter
referred to as "Effective Date") by and between Pretzel Time, Inc., a
Pennsylvania corporation with its principal place of business at 4800
Linglestown Road, Suite 202, Harrisburg, Pennsylvania 17112 trading and doing
business as Pretzel Time (hereinafter referred to as Pretzel Time) and
Franchisee (as defined below) who hereby agrees to the following:
Franchisee:
,
a
,
with its principal address at:
NOW THEREFORE, in consideration of the mutual covenants herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
1. INTRODUCTION AND DEFINITIONS.
1.A. INTRODUCTION.
Pretzel Time and its Affiliates (as defined below) have developed and
continue to develop methods of operating food service businesses, including the
food service business referred to in this Agreement as a Pretzel Time Unit
(defined below), which feature Products (defined below) for off premises
consumption. Pretzel Time has established quality products and services which
will continue to be a unique benefit to Pretzel Time and its Franchisees. In
addition to off-premises dining, Pretzel Time may, in its sole discretion, offer
to a Pretzel Time Unit the right to offer TCBY frozen yogurt and other TCBY
yogurt products. Pretzel Time Units operate at locations that feature a
distinctive food service format and Trade Dress (defined below) and utilize
distinctive business formats, specifications, employee selection and training
programs, signs, equipment, layouts, unit fronts, operation systems, recipes,
methods, procedures, designs and marketing and advertising standards and
formats, all of which Pretzel Time may modify from time to time in its sole
discretion (the" Pretzel Time System"). Pretzel Time operates, and franchises
certain qualified persons and entities to license and grants the privildge to
operate, Pretzel Time Units using the Pretzel Time System and the Marks (defined
below).
Pretzel Time has developed and perfected a System for providing to the
public, at retail, in an efficient manner, a variety of distinctive, hand-rolled
soft pretzels, pretzel-related products (such as pretzel dogs), beverages, and
complimentary pretzel toppings. These Products and services which comprise a
part of the Pretzel Time System are delineated and set forth in detail in the
Pretzel Time Operations Manual (hereinafter "Operations Manual"). These Pretzel
Time Units, which may include stores, carts, and kiosks, are known as "Pretzel
Time Units".
Franchisee acknowledges and agrees that Pretzel Time has expended a
considerable amount of time and effort in developing and refining the recipes
for, the methods of preparation of, the Products. Pretzel Time may from time to
time modify such recipes and methods of preparation, which may include requiring
Franchisee to prepare pretzels and other Products from scratch mixes and to
purchase prepared food products from Pretzel Time or an approved Pretzel Time
Affiliate. Pretzel Time and its Affiliates currently operate and will continue
to operate Pretzel Time Units offering and selling the Products. Pretzel Time
franchises others to operate Pretzel Time Units and other outlets offering and
selling the Products. Pretzel Time owns, uses, promotes and franchises certain
trade names, trademarks, service marks and other commercial symbols, including
the trade and service marks, "Pretzel Time" and associated logos, which have
gained and continue to gain public acceptance and goodwill, and may hereafter
create, use and franchise additional trademarks, service marks and commercial
symbols in conjunction with the operation of Pretzel Time Units.
The distinguishing characteristics of the Pretzel Time System include,
but are not limited to, the following:
(a) The Pretzel Time trade name and in combination with other
commercial symbols owned by Pretzel Time with a color scheme pattern,
Unit design, insignia, slogans, coordinating Pretzel Time's overall
operation, retail facilities, advertising, training, and other related
matters;
<PAGE>
(b) A developed marketing concept and uniform procedure for
the operation of a Pretzel Time Unit, including stylized designs and
display facilities to provide the highest quality of Pretzel Time
pretzels, soft beverages, toppings and other Pretzel Time-approved
products; and
(c) Rules of operation and a procedure for operating and
training Franchisees, managers and employees.
Franchisee recognizes the benefits to be derived from being identified
with and licensed by Pretzel Time, and being able to utilize the Pretzel Time
System of retailing Pretzel Time Products and related products, service and
trademarks which Pretzel Time makes available to its Franchisees. Franchisee has
applied for a franchise to operate a Pretzel Time Unit at the Site (defined
below). Franchisee's application and the Site have been approved by Pretzel Time
in reliance upon all of the representations made in such application and the
Franchisee's Acknowledgments and Representations Statement, a copy of which is
attached hereto as Exhibit A, which shall be executed by Franchisee concurrently
with this Agreement. Franchisee desires to operate a Pretzel Time Franchise
pursuant to the provisions hereof and at the Site specified herein, and
Franchisee has had a full and adequate opportunity to be thoroughly advised of
the terms and conditions of this Franchise Agreement by legal counsel of its own
choosing.
1.B. DEFINITIONS.
For purposes of this Agreement, the terms listed below have the
following meanings: Other terms used in this Agreement are defined and construed
in the context in which they occur.
"Affiliate" - Any person or legal entity that directly or indirectly
owns or controls Pretzel Time, that is directly or indirectly owned or
controlled by Pretzel Time, or that is under common control with Pretzel Time.
For purposes of this definition, "control" means the power to direct or cause
the direction of the management and policies of an entity.
"Cart" - It is a type of Pretzel Time Unit which is free-standing and
sells Pretzel Time pretzels and other Pretzel Time-approved Products which are
produced or manufactured at a co-existing Kiosk (defined below) or Store
(defined below) situated in the Territory.
"Competitive Business" - A business or enterprise, other than a Pretzel
Time Unit, that: (1) Offers food products which are the same as or similar to
the products for consumer consumption off premises or other distribution
channels; or (2) Grants or has granted franchises or licenses or establishes or
has established joint ventures for the development and/or operation of a
business or an enterprise described in the foregoing clause (1).
"Controlling Interest" - An interest, the ownership of which empowers
the holder thereof to exercise a controlling influence over the management,
policies or personnel of an entity on any issue and shall prevent any other
person, group, combination, or entity from blocking voting control on any issue
or exercising any veto power. If a limited partnership, a general partnership
interest or such percentage of limited partnership interests as shall permit the
replacement or removal of any general partner. Without limiting the generality
of the foregoing, ownership of forty percent (40%) or more of the equity or
voting securities of a corporation or ownership of any general partnership
interest in a partnership or joint venture shall be deemed conclusively to
constitute a Controlling Interest in the corporation, partnership, or joint
venture, as the case may be.
<PAGE>
"Area Developer's Agreement" - Agreement pursuant to which an area
developer is granted the right to develop one (1) or more Pretzel Time Units in
a geographic area in which the Unit is located.
"Franchisee" - The party to whom the Franchise is granted by the
Franchisor, Pretzel Time, Inc. The term is applicable to one or more persons, a
corporation or a partnership, as the case may be. If two or more persons are at
any time the Franchisee hereunder, their obligations and liabilities to Pretzel
Time shall be joint and several. References to Franchisee and assignee which are
applicable to an individual or individuals shall mean the Owner (defined below)
or Principal Owners (defined below) of the equity or operating control of the
Franchisee or the assignee, if the Franchisee or the assignee is a corporation
or partnership.
"Net Revenues" - For purposes of this Agreement, the term "Net
Revenues" includes all gross sums, monies and other consideration received by
Franchisee of every kind and nature from sales and services made in, upon, or
from any and all retail Units operated by Franchisee under the Pretzel Time
Marks in his Territory, whether upon credit or for cash, without reserve or
deduction for inability or failure to collect, less all refunds and allowances,
if any, given in good faith to customers, and any sales, use or excise taxes
which are separately stated and which Franchisee pays to any federal, state or
local tax authority.
"Immediate family" - (1) The spouse of a person; and (2) the natural
and adoptive parents and natural and adopted children and siblings of such
person and their spouses; and (3) the natural and adoptive parents and natural
and adopted children and siblings of the spouse of such person; and (4) any
other member of the household of such person.
"Interest" - Eighteen percent (18%) per annum for the number of days
overdue or the highest applicable rate allowed by law.
"Kiosk" - Is a type of Pretzel Time Unit, which is a free-standing
enclosed area located within the common area of a mall which can manufacture and
sell Pretzel Time pretzels and other Pretzel Time-approved Products without the
co-existence of a Pretzel Time Store within the territory.
"Marks" - The trademarks, service marks, logos and other commercial
symbols which Pretzel Time authorizes Franchisee to use to identify the services
and/or products offered by Pretzel Time Units, including the mark "Pretzel Time"
and the Trade Dress (defined below); provided that such trademarks, service
marks, logos, other commercial symbols and the Trade Dress are subject to
modification and discontinuance at Pretzel Time's sole discretion and may
include additional or substitute trademarks, service marks, logos, commercial
symbols and Trade Dress as provided in this Agreement.
"Owner" - Each person or entity holding direct or indirect, legal or
beneficial Ownership Interests (defined below) in Franchisee and each person who
has other direct or indirect property rights in Franchisee, this Agreement, the
Franchise or the Unit and as designated in Exhibit B attached and incorporated
herein.
<PAGE>
"Ownership Interests" - In relation to a: (i) corporation, the legal or
beneficial ownership of shares in the corporation; (ii) partnership, the legal
or beneficial ownership of a general or limited partnership interest; or (iii)
trust, the ownership of a beneficial interest of such trust.
"Permanent Disability" - A mental or physical disability, impairment or
condition that is reasonably expected to prevent or actually does prevent
Franchisee or an Owner of a Controlling Interest in Franchisee from supervising
the management and operation of the Unit for a period of six (6) months from the
onset of such disability, impairment or condition.
"Permitted Competitive Business" - A business which constitutes a
Competitive Business and is disclosed in Exhibit C which shall be made by
Franchisee and Owners as of the date of this agreement provided that such
business does not offer hard or soft pretzels, or yogurt on its menu.
"Pretzel Time Unit" - A food service business that:
(1) offers Products for consumer consumption off-premises,
provided that Pretzel Time, may in its sole discretion, authorize
and/or require such business to offer TCBY yogurt products pursuant to
a Yogurt Product Addendum (defined below) or to operate Special
Distribution Arrangements pursuant to a Special Distribution Agreement
(defined below); and
(2) operates using the Pretzel Time System and the Marks; and
(3) is either operated by Pretzel Time or its Affiliates or
pursuant to a valid franchise from Pretzel Time.
Pretzel Time Units are of three types: stores, carts, and kiosks.
"Principal Owner" - Each Owner which:
(1) is a general partner in Franchisee; or
(2) has a direct or indirect equity interest:
(a) in Franchisee of twenty percent (20%) or more
(regardless of whether such Owner is entitled to vote
thereon); or
(b) in any Pretzel Time unit; or
<PAGE>
(3) is designated as a Principal Owner in Exhibit B of this
Agreement.
"Products" - Products approved or required by Pretzel Time from time to
time in its sole discretion for sale at or from Pretzel Time Units, including,
without limitation, hand-rolled soft pretzels of various flavors including,
without limitation, chocolate chip, raisin, honey-wheat, and cinnamon, frozen
pretzels and other pretzel-related products and toppings, frozen yogurt,
beverages, and other Pretzel Time-approved products, provided that the foregoing
products are subject to modification or discontinuance in Pretzel Time's sole
discretion from time to time and may
include additional or substitute products.
"Site" - The location of the Pretzel Time Unit as described in this
Agreement. The term refers to the inside of the four walls of the Unit premises.
"Special Distribution Agreement" - A separate agreement whereby Pretzel
Time authorizes a Franchisee of a Pretzel Time Unit to operate a Special
Distribution Arrangement at a Special Distribution Location designated by
Pretzel Time.
"Special Distribution Arrangement" - The sale of Products at or from a
Special Distribution Location (defined below), whether or not by or through
on-premises food service facilities or concessions, pursuant to Pretzel Time's
standards and specifications for such sales, which Pretzel Time may change from
time to time in its sole discretion.
"Special Distribution Location" - A facility or location, which as by
way of example and without limitation, a school, hospital, office, work site,
military facility, grocery store, convenience store, supermarket, entertainment
or sporting facility or event, bus or train station, park, toll road or limited
access highway facility, shopping mall or other similar facility, at or from
which Pretzel Time, in its sole discretion, authorizes the operation of a
Special Distribution Arrangement pursuant to a Special Distribution Agreement,
which facility may be located within or outside the Territory.
"Store" - Is a traditional in-line Pretzel Time Unit where Pretzel Time
Products are produced and sold to customers at retail for off-premises
consumption.
"Territory" - The geographic area described in this Agreement.
"Trade Dress" - The unit design, decor and image which Pretzel Time
authorizes and requires Franchisee to use in connection with the operation of
Pretzel Time Units, as it may be revised and further developed by Pretzel Time
or its Affiliates from time to time and as further described in the Manuals.
"Transfer" - The voluntary, involuntary, direct or indirect assignment,
sale, gift, pledge, mortgage, hypothecation, encumbrance or other disposition by
Franchisee (or any of its Owners) or by operation of law of:
(1) Any interest in this Agreement;
(2) A Controlling Interest in Franchisee; or
(3) Any interest in the Unit, equipment, furnishings or fixtures.
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A Transfer shall also be deemed to include a merger or consolidation of
Franchisee with any other entity, the issuance of additional securities
representing, or convertible into, an Ownership Interest in Franchisee and any
Transfer as a result of death (subject to this Section), divorce, insolvency,
corporate or partnership dissolution proceedings or otherwise by operation of
law.
"Unit" - The Pretzel Time Unit which Franchisee is franchised to operate at the
Site pursuant to this Agreement.
"Yogurt Product Addendum" - The form of addendum to the Franchise
Agreement used by Pretzel Time attached hereto as Exhibit "I" from time to time
to authorize or require, in its sole discretion, a franchisee of a Pretzel Time
Unit to offer TCBY frozen yogurt and other TCBY frozen yogurt products.
2. GRANT OF FRANCHISE RIGHTS.
2.A. GRANT OF FRANCHISE.
Pretzel Time hereby grants to Franchisee and Franchisee agrees to
undertake, during the term of this Agreement and upon the terms and conditions
stated in this Agreement, the right, license and privilege to operate, conduct,
and do business and to use certain trade names, trademarks, service marks,
logos, and other commercial symbols, including Pretzel Time (referred to as
"Marks") solely and exclusively for the operation of one retail franchise Unit
(referred to as "Franchise"), which is in the form of a (Store/Kiosk/Cart), and
to sell those Products known as Pretzel Time pretzels and other Pretzel
Time-approved menu items and Products further described in Section 2
(hereinafter "Products") in accordance with the provisions of this Agreement and
in accordance with rules, standards, systems, and procedures as prescribed by
Pretzel Time which may be changed, improved and further developed from time to
time, (hereinafter "Pretzel Time System"), at one (1) location only, such
location to be
(hereinafter "Site").
Pretzel Time will not, as long as this Agreement is in effect and
Franchisee is not in default, enfranchise or operate any other Pretzel Time
Franchise within the following enclosed mall or building except as otherwise
provided herein (hereinafter referred to as "Territory"): none. Franchisee has
no territory other than the actual store location. Franchisee acknowledges that
Franchisee has no rights outside of the actual store location and that Pretzel
Time has the right to sell certain frozen products as Pretzel Time desires and
Pretzel Time may conduct Pretzel Time's business as Pretzel Time so desires
without hinderance from Franchisee.
Franchisee shall not conduct the business of the Unit from any Site
other than the Site specified, except as otherwise provided under this
Agreement. The form of addendum to the Franchise Agreement used by Pretzel Time
is attached hereto as Exhibit "J" to be used from time to time to add a
satellite unit pursuant to the Satelite Unit Addendum.
2.B. PRINCIPAL OWNERS' GUARANTY.
<PAGE>
Franchisee shall cause all Principal Owners, and their spouses, as of
the Effective Date to execute and deliver to Pretzel Time concurrently with this
Agreement, and all persons or entities which become Principal Owners, and their
spouses, thereafter to execute and deliver to Pretzel Time promptly thereafter,
the "Owner's and Guarantor's Undertaking and Assumption of Obligations,"
attached hereto as Exhibit D, or such other agreement as Pretzel Time prescribes
from time to time, undertaking to be bound jointly and severally by, and to
guarantee the payment and performance of, all provisions of this Agreement.
Franchisee shall furnish to Pretzel Time, at any time upon request, in such form
as Pretzel Time may require, a list of its shareholders or partners (of record
and beneficially) reflecting their respective interests in Franchisee.
2.C. TERRITORIAL RIGHTS.
Except as otherwise provided in this Agreement and provided that
Franchise is in full compliance with this Agreement, Pretzel Time and its
Affiliates will not during the term of this Agreement operate or grant
franchises for the operation of Pretzel Time Units within the Territory other
than the Franchise granted to Franchisee pursuant to this Agreement. Franchisee
acknowledges that Franchisee shall have no right to any Territory unless
Franchisee and Pretzel Time have entered into a separate Area Developer's
Agreement. Franchisee shall have no exclusive Territory based on this Agreement.
2.D. RESERVATION OF RIGHTS.
Except as expressly limited by Section 2.C., Pretzel Time (on behalf of
itself, its Affiliates and its designees) retains all rights, in its sole and
exclusive discretion, to offer to sell the Products and services authorized for
Pretzel Time Units under the Marks hereinafter described in Section 6 or other
trade names, trademarks, service marks and commercial symbols through similar or
dissimilar channels of distribution and national accounts and pursuant to such
terms and conditions as Pretzel Time deems appropriate. Pretzel Time and its
Affiliates retain the right to offer for sale and sell, and franchise others to
offer for sale and sell, any other Products or services under the "Marks" and
own and operate and grant to others the right to operate Pretzel Time Units
solely or in conjunction with TCBY stores or other snack food businesses at such
locations and on such terms and conditions as Pretzel Time, in its sole
discretion, deems appropriate. Such Products shall include, but not be limited
to, soft pretzels, frozen pretzels and other pretzel-related products, frozen
yogurt and other Pretzel Time-approved Products and such methods of distribution
may include, but shall not be limited to, sales at sports arenas and stadiums,
amusement parks, department stores, airports, toll road travel plazas,
hospitals, office buildings, schools and colleges and other Non Traditional Unit
venues as well as sales to wholesalers and/or distributors for resale.
Notwithstanding the foregoing, Pretzel Time reserves the right both within and
outside the Territory (if any) to sell at wholesale all Products and services
which comprise a part of the Pretzel Time System.
FRANCHISEE ACKNOWLEDGES AND AGREES THAT PRETZEL TIME HAS THE RIGHT TO
PLACE UNITS AT ANY LOCATION, EXCEPT AS LIMITED BY THIS AGREEMENT, AT ITS SOLE
DISCRETION AND WITHOUT REGARD TO THE IMPACT UPON THE FRANCHISEE'S BUSINESS.
FRANCHISEE ACKNOWLEDGES THAT ABSENT A SEPARATE AREA DEVELOPER'S AGREEMENT,
PRETZEL TIME HAS THE RIGHT TO PLACE UNITS AT ANY LOCATION, AT ITS SOLE
DISCRETION, AND WITHOUT REGARD TO THE IMPACT UPON THE FRANCHISEE'S BUSINESS.
Franchisee acknowledges that because complete and detailed uniformity
under many varying conditions may not be possible or practical, Pretzel Time
specifically reserves the right and privilege, at its sole discretion and as it
may deem in the best interests of all concerned in any specific instance, to
vary standards for any Franchisee based upon the peculiarities of the particular
Site, landlords' requirements, business potential, or other conditions which
Pretzel Time deems to be of importance to the successful operation of such
Franchisee's business.
<PAGE>
2.E. OPTION TO DEVELOP OTHER SITES WITHIN THE TERRITORY.
If Franchisee seeks to add a different type of Pretzel Time Unit, such
as a kiosk or a cart, within the Territory, then Franchisee must seek Pretzel
Time's approval by notifying Pretzel Time, in writing, that he desires to
develop and operate other units, including a cart or kiosk, within the
Territory. If Pretzel Time has fully negotiated a lease agreement for such
location, then Franchisee shall (1) obtain the consent of the landlord to
execute such lease and execute such lease, if applicable; (2) execute Pretzel
Time's then current form of Satellite Unit Addendum (containing Pretzel Time's
then current fees and expense requirements) and such ancillary documents
(including guarantees) as are then customarily used by Pretzel Time in the grant
of franchises for Pretzel Time Units as modified for use in connection with the
Site, as necessary, and (3) pay Pretzel Time's reasonable out-of-pocket expenses
incurred in locating such additional Site and negotiating the lease agreement,
all within ten (10) business days after Pretzel Time's delivery to Franchisee of
the lease agreement and the franchise documents.
If Franchisee timely notifies Pretzel Time in writing that Franchisee
desires to develop and operate an additional Pretzel Time Unit, such as a kiosk
or cart, within its Territory and Pretzel Time has not fully negotiated a lease
agreement for such location, then Franchisee will have thirty (30) days in which
to negotiate and deliver to Pretzel Time a lease agreement for such site in form
for execution. If Pretzel Time disapproves the lease agreement for failure to
meet Pretzel Time's requirements, Franchisee will have ten (10) days within
which to negotiate and deliver to Pretzel Time a revised lease agreement for
such location in form for execution. If Pretzel Time approves the lease
agreement for such location as meeting Pretzel Time's requirements, then
Franchisee will (1) execute such lease agreement; (2) execute the franchise
documents; and (3) pay Pretzel Time's reasonable out-of-pocket expenses
incurred, if any, in locating such additional Site and negotiating the lease
agreement, all within ten (10) business days after Pretzel Time's delivery to
Franchisee of the lease agreement and the franchise documents.
2.F. TERM OF FRANCHISE.
The term of this Agreement shall commence on the Effective Date of this
Agreement and shall expire twenty (20) years from the effective date of this
Agreement. References in this Agreement to the term of this Agreement mean the
initial term and any renewal term.
<PAGE>
3. OTHER DISTRIBUTION METHODS.
3.A. SPECIAL DISTRIBUTION ARRANGEMENTS.
Franchisee acknowledges and agrees that (1) Franchisee is not granted
any rights to operate Special Distribution Arrangements within or outside the
Territory pursuant to this agreement; and (2) the right to operate or grant to
others the right to operate Special Distribution Arrangements is reserved to
Pretzel Time; and (3) Pretzel Time has no obligation to offer to Franchisee the
right to operate Special Distribution Arrangements; and (4) Pretzel Time or its
designees may instead operate or grant to others the right to operate Special
Distribution Arrangements within and/or outside the Territory.
4. FRANCHISE AND OTHER FEES.
4.A. INITIAL FRANCHISE FEE.
The initial franchise fee is Twenty-Five Thousand Dollars ($25,000.00).
Upon execution of this Agreement by Franchisee, Franchisee shall pay to Pretzel
Time, in consideration of the franchise granted herein, Twenty-Five Thousand
Dollars ($25,000.00) payable by certified check or cashier's check in United
States currency due upon execution of the Franchise Agreement. The franchise fee
is fully earned by Pretzel Time upon the payment in full thereof and is
nonrefundable (except as specifically provided in this agreement) as
consideration for expenses incurred by Pretzel Time in furnishing assistance and
services to Franchisee and for Pretzel Time's lost or deferred opportunity to
franchise others, and not as compensation for the use of the copyrighted works,
Marks or Trade Dress. Franchisee acknowledges and agrees that this franchise fee
is reasonable. The fee is not reduced if Pretzel Time is unable to obtain a TCBY
Franchise. An additional $1,000 is payable by Franchisee to Pretzel Time as a
Yogurt Fee if Yogurt Product is included in the Franchise.
4.B. DEFERRAL OF FRANCHISE FEE.
Payment of the initial franchise fee is deferred for franchises to be
located in Minnesota and for Minnesota residents until the franchise Unit opens
at which time the franchise fee must be paid in full to Pretzel Time. Franchise
fees for Maryland residents and franchises to be located in Maryland will be
escrowed until the unit is opened. There may be other stores in which state
administrators have required fees or royalties to be deferred or escrowed.
4.C. ROYALTY FEE.
<PAGE>
Franchisee, in partial consideration of the grant of a franchise,
agrees to pay to Pretzel Time a continuing Royalty of seven percent (7%) of
Franchisee's net revenues (as defined in Section 1) on a weekly basis as
specified in this Section; provided only 4% Royalty shall be payable on TCBY
frozen yogurt and other TCBY frozen yogurt products. The Royalty is not uniform
as to all franchisees, it is fully earned, and is nonrefundable in any
circumstance. Franchisee shall pay weekly by electronic funds transfer (ACH)
without offset, defalcation, credit or deduction of any nature to Pretzel Time
the royalty fee, the advertising fund fee and all other amounts due and payable
on each Wednesday for the immediately preceding week. The Royalty shall be paid
by electronic funds transfer from Franchisee's general operating account. The
Royalty is paid, in part, to compensate Pretzel Time for various services
provided to Franchisee after the Unit opens, including, but not limited to,
quality, service, and cleanliness inspections. Pretzel Time, upon written notice
to Franchisee, shall have the right to change the timing of Franchisee's
payments of Royalty Fees and Advertising Fund Fees due under this Agreement.
Franchisee shall not subordinate to any other obligation his obligation to pay
the Royalty Fee or any other fee or charge hereunder.
4.D. ADVERTISING FUND FEE.
Franchisee agrees to pay on a weekly basis to Pretzel Time, as partial
consideration for the grant of the Franchise, an Advertising Fund Fee of one
percent (1%) of Net revenues for the preceding week as defined in Section 1.
Franchisee herein acknowledges that the Advertising Fund Fee is not uniform as
to all franchisees. The Advertising Fund Fee is fully earned and nonrefundable.
The Advertising Fund Fee shall be paid by electronic funds transfer from the
Franchisee's general operating account on Wednesday of each week based on the
preceding week's Net revenues.
4.E. TRANSFER FEE.
If Franchisee desires to assign his rights under the Franchise to a new
franchisee, Franchisee (Assignor of the Franchise), agrees to pay to Pretzel
Time a transfer fee equal to the greater of SIX THOUSAND TWO HUNDRED FIFTY
DOLLARS ($6,250.00) or the then current transfer fee being paid by franchisees
upon the assignment, gift, bequeath or transfer of ownership of the Franchise to
cover administrative costs and expenses. The transfer fee is non-refundable. The
fee shall be due and payable by the current Franchisee to Pretzel Time five (5)
days prior to the transfer of the Franchise to the assignee. Additionally, the
assignee of the Franchisee shall pay Pretzel Time an additional amount of
Twenty-Five Thousand Dollars ($25,000.00) (plus $1,000.00 if Yogurt Product is
included), for any additional units that are not existing stores or the then
current initial franchisee fee for traditional Pretzel Time Units.
4.F. FEES FOR ADDITIONAL FRANCHISES.
<PAGE>
In the event that Franchisee meets Pretzel Time's qualifications to
open additional Franchises at sites acceptable to both Franchisee and Pretzel
Time, which approval is at the sole discretion of Pretzel Time, the initial
franchisee fee shall be the greater of FIVE THOUSAND DOLLARS ($5,000.00)(plus
$1,000.00 if Yogurt Product is included) or the then current fee for additional
franchises set by Pretzel Time, at its sole discretion. The decision to grant an
additional franchise location shall be in the sole discretion of Pretzel Time
and at no time does Pretzel Time promise or guarantee that additional franchises
will be offered or approved. Such decisions will be made on a case-to-case
basis, based on factors including, but not limited to the availability of
suitable locations, quality of standards maintained in the Franchisee's current
Units, the impact of additional locations upon the operations of the
Franchisee's current Units, the geographical distance between the Franchisee's
existing and proposed location, the business plan of Pretzel Time, national
contracts with major corporations, the population of the area near the
prospective site, the quality of the site, and other economic and business
factors. Under no circumstances is Franchisee entitled to demand or require
Pretzel Time to grant to Franchisee a Franchise or a similar variation thereof.
4.G. FEES FOR RENEWAL OF FRANCHISE.
Franchisee agrees that in consideration of the grant of the "Successor
Franchise" (defined in Section 5.A.), Franchisee shall pay the current renewal
fee as of the date of renewal and execute a general release in the form
prescribed by Pretzel Time in accordance with Section 5.B. The renewal fee is
due and payable thirty (30) days prior to the renewal day.
4.H. PAYMENT BY ELECTRONIC FUNDS TRANSFER.
Franchisee agrees to pay all Royalties, Advertising Fund Fees, amounts
due Pretzel Time for purchases by Franchisee from Pretzel Time or its Affiliates
and other amounts which Franchisee owes to Pretzel Time via electronic funds
transfer from Franchisee's general account, which shall be initiated by Pretzel
Time and any transfer fees shall be paid by Franchisee every Wednesday for the
preceding week based upon the Net Revenues. Franchisee herein agrees to execute
and complete all necessary documentation required by Pretzel Time to permit the
wire transfer to Pretzel Time (in the form attached hereto as Exhibit E or such
other form as Pretzel Time shall accept). Under this procedure, Franchisee shall
authorize Pretzel Time to initiate debit entries and/or credit correction
entries to Franchisee's general operating bank account for payments of
Royalties, Advertising Fund Fees and other amounts payable under this Agreement
and any late or interest charges due thereon. Franchisee shall make the funds
available to Pretzel Time for withdrawal by electronic transfer no later than
one day prior to the due date for payment therefor. The Royalty and Advertising
Fund Fees amount actually transferred from Franchisee's account shall be based
on the Unit's Net Revenues indicated on the reports submitted by Franchisee as
required hereunder. If Franchisee has not reported the Unit's Net Revenues to
Pretzel Time for any week as required herein, then Pretzel Time shall be
authorized to debit Franchisee's account in an amount equal to the fees
transferred from Franchisee's account for the last reporting period for which a
report of the Unit's Net Revenues was provided to Pretzel Time as required
hereunder. If, at any time, Pretzel Time determines that Franchisee has
under-reported the Unit's Net Revenues, or underpaid Royalty or Advertising Fund
Fees or other amounts due hereunder, Pretzel Time shall be authorized to
initiate immediately a debit to Franchisee's account in the appropriate amount
in accordance with the foregoing procedure, plus interest as provided for in
this Agreement. Any overpayment shall be credited to Franchisee's account
through a credit effective as of the first week after Franchisee and Pretzel
Time determine that such credit is due. Notwithstanding any designation by
Franchisee, Pretzel Time shall have the sole discretion to apply any payments by
Franchisee to any past indebtedness of Franchisee for Royalty or Advertising
Fund Fees, purchases from Pretzel Time and/or its Affiliates, interest or any
other indebtedness, including, without limitation, payment of rental sums in
arrears for the Unit.
<PAGE>
4.I. LATE CHARGE AND INTEREST.
To compensate Pretzel Time for the increased administrative expense of
handling late payments, Pretzel Time may charge Franchisee a $50.00 late charge
for each delinquent payment. All Royalty and Advertising Fund Fees, amounts due
for purchases by Franchisee from Pretzel Time or its Affiliates, and other
amounts which Franchisee owes to Pretzel Time or its Affiliates shall bear
interest after their due date at a rate equal to the lesser of: (1) eighteen
percent (18%) per annum for the number of days which such payment is due; or (2)
the highest applicable legal rate permitted by applicable law. Franchisee
acknowledges that this Section shall not constitute Pretzel Time's or its
Affiliates' agreement to accept such payments after they are due or a commitment
by Pretzel Time or its Affiliates to extend credit to or otherwise finance
operation of the Unit. Notwithstanding the provisions of this Section 4.I.,
Franchisee acknowledges and agrees that his failure to pay all amounts when due
shall constitute grounds for termination of this Agreement.
5. RENEWAL OF FRANCHISE TERM.
5.A. FRANCHISEE'S RIGHT TO A SUCCESSOR FRANCHISE.
Upon the expiration of the initial term of this Agreement, Franchisee
shall have the one time right to obtain a successor franchise to operate a
Pretzel Time Unit at the Site (a "Successor Franchise") for a single term of
five (5) years immediately following the expiration of the initial term of the
Franchise upon giving Pretzel Time six (6) months notice prior to the expiration
of the then current term if:
(1) Franchisee and its Owners have complied with this Agreement and any
amendment during the initial term of this Agreement in all material
respects; and
(2) Franchisee maintains possession of the Site and agrees to remodel
and/or expand the Unit, add or replace equipment, furnishings, fixtures
and signs and otherwise modify the Unit to bring it into compliance
with specifications and standards then applicable under new or
Successor Franchises for Pretzel Time Units; or if Franchisee is unable
to maintain possession of the Site, or if, in the judgment of Pretzel
Time, the Unit should be relocated, Franchisee secures a substitute
site approved by Pretzel Time and agrees to develop expeditiously such
substitute site in compliance with specifications and standards then
applicable under new or successor franchises for Pretzel Time units;
and
(3) Pretzel Time has not given notice of its election not to renew six
(6) months prior to the expiration of the initial twenty (20) year
term; and
<PAGE>
(4) Franchisee is not in default of any material term or condition of
the lease agreement, or any other agreement between Pretzel Time and
Franchisee; and
(5) Franchisee executes Pretzel Time's then current Franchise Agreement
and other ancillary agreements required and being offered to new
Franchisees on the date of renewal, which agreements shall supersede in
all respects this Agreement and the terms of which may differ from the
terms of this Agreement, including, without limitation, Royalty Fees
and Advertising Fund Fees, other fees and charges, performance
criteria, and a provision which allows Pretzel Time and its Affiliates
to reserve the right, both within and outside of the Territory, to
offer and sell at wholesale or retail, through channels of distribution
distinct from those of a Franchise, Products and services which
comprise, or may in the future comprise a part of the Pretzel Time
System, which Products may be resold at retail to the general public by
such entities; and
(6) Franchisee is in full compliance with Pretzel Time's Operations
Manual; and
(7) On renewal, Franchisee agrees to pay the current renewal fee, the
Royalty and Advertising Fund fees specified in Pretzel Time's current
Franchise Agreement then being offered new Franchisees on the date of
renewal; and
(8) Franchisee shall execute general releases, in form satisfactory to
Pretzel Time, of any and all claims against Pretzel Time and its
Affiliates and their officers, directors, employees, agents, successors
and assigns arising under this Agreement; and
(10) Franchisee has complied with Pretzel Time's then current
qualification and training requirements.
Following receipt of Franchisee's election to renew, Pretzel Time shall
provide Franchisee with an execution copy of the form of Franchise Agreement to
be entered into for the renewal term. If the Franchisee does not execute and
return the renewal Franchise Agreement within thirty (30) days of receipt, then
Franchisee shall be deemed to have withdrawn its notice of renewal, and this
Agreement shall terminate at the end of the current term.
Pretzel Time may, at its option, with reasonable cause and upon written
notice, elect not to renew the Franchise Agreement. Pretzel Time shall notify
Franchisee of the nonrenewal not less than six (6) months prior to the
expiration of the term of this Agreement. If applicable law requires that
Pretzel Time give longer notice to Franchisee prior to the expiration of the
term than is specified in the Franchise Agreement, the Franchise Agreement will
remain in effect on a month-to-month basis until the requisite notice has been
given.
<PAGE>
5.B. RELEASES.
Franchisee and its Owners shall execute general releases, in form
satisfactory to Pretzel Time (the general form of which is attached hereto as
Exhibit "K"), of any and all claims against Pretzel Time and its Affiliates and
their respective shareholders, officers, directors, employees, agents,
successors and assigns. Failure by Franchisee and its Owners to sign and deliver
to Pretzel Time, such agreements and releases within thirty (30) days after
delivery thereof to Franchisee shall be deemed an election by Franchisee not to
obtain a Successor Franchise.
5.C. NOTICES.
Franchisee shall give Pretzel Time written notice of its election to
obtain a Successor Franchise not more than twelve (12) months and not less than
six (6) months prior to the expiration of this Agreement. Pretzel Time agrees to
give Franchisee, written notice, not more than thirty (30) days after receipt of
Franchisee's notice of (a) Pretzel Time's determination whether or not it will
grant Franchisee a Successor Franchise pursuant to this Section and/or (b) any
deficiencies in Franchisee's operation of the Unit (or any other failure to
comply with the terms of this Agreement) which could cause Pretzel Time to
refuse to grant a Successor Franchise. Such notice shall state what actions
Franchisee must take to correct the deficiencies and shall specify the time
period in which such deficiencies must be corrected. Pretzel Time shall give
Franchisee written notice of a decision not to grant a Successor Franchise based
upon Franchisee's failure to cure deficiencies not less than ninety (90) days
prior to the expiration of the initial term of this Agreement. Such notice shall
state the reasons for Pretzel Time's refusal to grant a Successor Franchise. In
the event Pretzel Time fails to give Franchisee (a) notice of deficiencies in
the Unit or in Franchisee's operation of the Unit, within thirty (30) days after
receipt of Franchisee's timely election to obtain a Successor Franchise, or (b)
notice of Pretzel Time's decision not to grant a Successor Franchise at least
ninety (90) days prior to the expiration of the term of this Agreement, Pretzel
Time may extend the term of this Agreement for such period of time as is
necessary in order to provide Franchisee reasonable time to cure deficiencies or
to provide ninety (90) days notice of Pretzel Time's determination not to grant
a Successor Franchise. The grant of a Successor Franchise shall be conditioned
upon Franchisee's continued compliance with all the terms and conditions of this
Agreement until the date of expiration.
6. TRADEMARKS AND LIMITATIONS.
6.A. OWNERSHIP OF MARKS.
Franchisee acknowledges that Pretzel Time is the owner of all right,
title and interest together with all the goodwill in and to the Marks.
Franchisee acknowledges that his right to use the Marks is derived solely from
this Agreement and is limited to his conduct of business pursuant to and in
compliance with this agreement and all applicable standards, specifications and
operating procedures Pretzel Time prescribes from time to time during its term.
Franchisee shall not have nor assert any right, title or interest in Pretzel
Time's Marks or any goodwill of Pretzel Time. Franchisee agrees that he will not
register such trade name or marks in his own name or that of any other firm,
person or corporation. The following Marks are currently authorized for
Franchisee's use in the Franchised Business as follows:
Pretzel TimeJ
Pretzel Time Stylized7
Pretzel Time Clock DesignJ
Pretzel Time StorefrontJ
Fitness with a twist.J
<PAGE>
Franchisee acknowledges and recognizes Pretzel Time's interest and
exclusive right to the concepts of the Pretzel Time System and its
distinguishing characteristics, including the name and style of the unique decor
of the Pretzel Time stylized literature, display and promotional materials,
marketing methods, operating procedures, training program and the manufacture of
Pretzel Time Products. Pretzel Time makes no representation or warranty, express
or implied, as to the use, exclusive ownership, validity or enforceability of
the Marks. Pretzel Time reserves the right to develop other trademarks, service
marks, copyrights and patents for use in other businesses. Pretzel Time and
Franchisee acknowledge and agree that it is not required to defend Franchisee
against a claim against his use of Pretzel Time Marks. Pretzel Time may
reimburse Franchisee for his liability and reasonable costs in connection with
defending Pretzel Time's registered trademarks provided Franchisee has notified
Pretzel Time immediately when he learned about the infringement or challenge.
Franchisee agrees to use Pretzel Time's trade name and Marks as the
sole trade identification of the Unit and in connection with, and exclusively
for the promotion and conduct of the Franchise as provided hereunder and in
accordance with instructions, rules, and procedures prescribed by Pretzel Time
from time to time with respect thereto. Notwithstanding the foregoing,
Franchisee shall identify himself as the independent owner of the Unit in the
manner prescribed by Pretzel Time. Franchisee agrees to give such notices of
trademark and service mark registrations as Pretzel Time may specify and to
obtain such business name registrations as may be required under applicable law.
Franchisee shall not at any time during the term of this Agreement or after its
termination, contest the validity or ownership of any of the Marks or assist any
other person in contesting the validity or ownership of the Marks.
6.B. DISCONTINUANCE OF USE OF MARKS.
If it becomes advisable at any time, in Pretzel Time's sole discretion,
for Pretzel Time or the Unit to modify or discontinue use of any Mark, and/or
use of one or more additional or substitute trade names, trademarks, service
marks, or other commercial symbols, Franchisee shall comply with Pretzel Time's
directions within a reasonable time after notice to Franchisee by Pretzel Time.
Neither Pretzel Time nor its Affiliates shall have any obligation to reimburse
Franchisee for any expenditures made by Franchisee to modify or discontinue the
use of a Mark or to adopt additional marks or substitutes for a discontinued
Mark, including, without limitation, any expenditures relating to advertising or
promotional materials or to compensate Franchisee for any goodwill related to
the discontinued Mark.
6.C. CORPORATE NAME.
Franchisee agrees not to use any Mark or trade name of Pretzel Time or
any part thereof or with any prefix, suffix or other modifying words, terms,
designs, or symbols or in any modified form as part of any corporate or trade
name nor shall Franchisee use any Mark in connection with the sale of any
unauthorized product or service or in any other manner not expressly authorized
in writing by Pretzel Time.
<PAGE>
6.D. TERMINATION.
Immediately upon the termination of this Agreement, the Franchisee
agrees to cease and forever abstain from using the Pretzel Time trade name and
Marks and return to Pretzel Time all documents, manuals, instructions, display
items and the like bearing the aforesaid trade names or any of the Marks.
6.E. TRADEMARK ENFORCEMENT.
Pretzel Time shall police and enforce its rights with respect to its
trademarks and other proprietary aspects of the Pretzel Time System with the
cooperation of Franchisee, and shall bring appropriate actions or proceedings
against infringers or other unlawful users at its sole expense.
Franchisee agrees to immediately notify Pretzel Time of any claim,
demand or suit based upon or arising from or of any attempt by any other person,
firm or corporation to use Pretzel Time's trademarks, service marks, copyrights,
trade secrets, or Systems licensed hereunder or colorable variation thereof in
which Pretzel Time has a proprietary interest. Pretzel Time will take the action
it thinks appropriate. In the event Pretzel Time undertakes any prosecution of
litigation or defense relating to the proprietary Marks licensed hereunder,
Franchisee agrees to execute any and all documents and do such acts and things
as may in Pretzel Time's opinion, be necessary to carry out such defense or
prosecution. Franchisee agrees that Pretzel Time has the right to control
administrative proceedings or litigation with respect to this issue.
Franchisee agrees to participate and cooperate in the prosecution of
any action to prevent the infringement, imitation, illegal use or misuse of the
Marks and agrees to be named as a party in any such action if requested by
Pretzel Time. Pretzel Time agrees to bear the legal expenses incident to
Franchisee's participation in such action, except for the cost of Franchisee's
personal legal counsel if Franchisee elects to be represented by counsel of his
own choosing.
6.F. USE OF SERVICE MARK.
Except with the prior written consent of Pretzel Time, Franchisee
agrees not to infringe upon, use or imitate Pretzel Time's System, or any of its
distinguishing characteristics, and further agrees not to cause or allow any
other person to infringe upon, use or imitate Pretzel Time's System, or any of
its distinguishing characteristics. Franchisee agrees to use and display the
Marks at all times only in accordance with the quality control standards set
forth in this Agreement and in the Operations Manual. During the term of this
Agreement, and renewal term, if any, Franchisee will operate the Unit only under
the Marks . Franchisee will use or display the Marks only within the designated
Territory. Franchisee will cause a sign bearing the name Pretzel Time which
meets Pretzel Time's specifications for color, design and size, to be installed
on the outside of the retail Unit. Franchise shall not, at any time during the
term of this Agreement or after its termination or expiration use any Mark in
connection with the sale of any unauthorized product or service or in any other
manner not expressly authorized in writing by Pretzel Time.
<PAGE>
7. SELECTION OF FRANCHISE LOCATION.
7.A. SITE SELECTION.
Franchisee shall be responsible for leasing a suitable site for the
Franchise subject to Pretzel Time's approval. Pretzel Time agrees to assist
Franchisee in locating and securing a location for the unit which is acceptable
to both Pretzel Time and Franchisee. Franchisee shall submit to Pretzel Time a
list of desired locations on the Location Agreement attached hereto as Exhibit W
or if Pretzel Time directs on a form prepared by Pretzel Time and attached
hereto as Exhibit F, and Pretzel Time shall contact the appropriate leasing
representatives to determine the availability of sites at those locations. After
obtaining information from appropriate leasing representatives, Pretzel Time
shall notify Franchisee whether or not the sites made available to Pretzel Time
are acceptable by Pretzel Time. In the event that a site for the franchise
cannot be located which is acceptable and suitable to both Pretzel Time and
Franchisee within One Hundred Twenty (120) days, then the Franchise Agreement
shall be terminated and all franchise fees paid by Franchisee shall be refunded.
Pretzel Time shall approve the site for the unit in reliance upon
information furnished and representations made by Franchisee with respect to the
size, appearance, and other physical characteristics of the site, photographs of
the site, demographic characteristics, traffic patterns, competition from other
businesses in the area, and other commercial characteristics. Pretzel Time's
approval of the site indicates only that Pretzel Time believes that the site
falls within acceptable criteria established by Pretzel Time as of the time
period encompassing the evaluation. Franchisee agrees that Pretzel Time shall
not be responsible for the failure of a franchise, site and/or premises approved
by Pretzel Time to meet expectations as to potential revenue or operational
criteria. Franchisee acknowledges and agrees that his acceptance of a Franchise
for the operation of a Unit in the Territory is based on his own independent
investigation of the suitability of the mall location.
Franchisee acknowledges that Pretzel Time's approval of the lease or
sublease for the Unit does not constitute a guarantee or warranty by Pretzel
Time, express or implied, of the successful operation or profitability of a Unit
operated at the designated Site. Such approval indicates only that Pretzel Time
believes that the Unit and the terms of the lease fall within the acceptable
criteria established by Pretzel Time as of the time period encompassing the
evaluation.
7.B. LEASE.
Pretzel Time and Franchisee further agree that Pretzel Time shall
negotiate the basic economic terms of the lease in consultation with the
Franchisee. Franchisee agrees to execute a letter of intent for the lease
premises which outlines the basic economic terms of the lease and return it to
Pretzel Time within five (5) days of receipt of same. Franchisee acknowledges
and agrees that he is responsible for reviewing the terms of the agreement and
making any necessary changes to the lease agreement. Franchisee shall not
execute any lease agreement without the prior approval of Pretzel Time, which
shall be conditioned upon inclusion of terms in the lease acceptable to Pretzel
Time and at Pretzel Time's option shall contain such provisions, including, but
not limited, to:
<PAGE>
(1). Notice to Pretzel Time of, and Pretzel Time's right to cure,
Franchisee's default under the lease provided, however, that if
Pretzel Time cures any such default, the total amount of all
costs and payments incurred by Pretzel Time in effecting the cure
shall be immediately due and owing to Pretzel Time by Franchisee;
(2). Franchisee's right to assign his interest under the lease or
sublease to Pretzel Time without the lessor's or sublessor's
consent;
(3). Allowing Franchisee to transfer the lease to Pretzel Time or
another approved franchisee in the event that Franchisee sells
his business (a copy of the form of the third party assignment
agreement that Franchisee and the prospective purchaser would
sign is attached hereto as Exhibit L);
(4). Authorizing and requiring the Lessor or sublessor to disclose to
Pretzel Time, upon its request, sales and other information that
Franchisee furnishes to the lessor or sublessor; and
(5). Providing that Pretzel Time (or one of its Affiliates or its
Assignee) shall have the right (but not the obligation) to assume
the lease or sublease:
(i) Upon termination of this Agreement by Pretzel Time or upon
expiration of this Agreement (unless a Successor Franchise is
granted to Franchisee), or
(ii) If Franchisee fails to exercise any options to renew or
extend the lease or sublease or,
(iii) If Franchisee commits a default that gives the lessor or
sublessor the right to terminate the lease or sublease, or
(iv) If Pretzel Time or one of its Affiliates or its
designee/assignee purchases the Unit.
(6). A provision allowing sampling in front of the retail Unit;
(7). A provision that the premises are to be used exclusively for a
Pretzel Time Unit only; and
(8). A provision which permits alterations to the premises in a good
and workman-like manner by Franchisee as required by Pretzel Time.
Franchisee further agrees to execute and return the lease and any other
riders, guaranties or sureties required by the Landlord within seven (7) days
from receipt of the same and no later than sixty (60) days after signing of this
Agreement. If any lease expires prior to the expiration of this Agreement,
Franchisee will be required to arrange any necessary lease for the Unit and
Pretzel Time shall have the right to approve the terms of the renewal lease for
the Unit prior to Franchisee's execution thereof. Franchisee agrees that he will
not execute a lease or sublease which Pretzel Time has disapproved. Franchisee
shall deliver a copy of the signed lease to Pretzel Time for the Unit within
five (5) business days after its full execution. The copy shall be complete and
include copies of all signature pages and exhibits.
A copy of the form of the sublease that Franchisee shall execute (if
Pretzel Time is the tenant pursuant to the lease) is attached hereto as Exhibit
M. A copy of the form of the collateral assignement of lease that Franchisee
shall execute (if Franchisee is the tenant pursuant to the lease) is attached
hereto as Exhibit N.
<PAGE>
Franchisee shall be responsible for all terms and conditions of the
lease covering the franchise location, including any required security deposit
and prepaid rent. Franchisee agrees to pay the Unit rent directly to the
landlord at the rate and terms specified in the primary lease between landlord
and Franchisee. Rent is generally paid monthly on the first day of the month and
is non-refundable. Franchisee agrees that the Unit shall be used only as a
Pretzel Time franchise.
If Franchisee fails to obtain lawful possession of an approved Site
(through a lease or assignment) within sixty (60) days after delivery of Pretzel
Time's approval of the Site, Pretzel Time, may, in its sole discretion, withdraw
approval of such Site at any time.
7.C. RELOCATION.
In the event that Franchisee's lease is terminated, with or without
fault of Franchisee, if the Site is damaged, condemned or otherwise rendered
unusable as a Pretzel Time Unit in accordance with this Agreement, or if, in the
judgment of Pretzel Time and Franchisee, there is a change in the character of
the location of the Site sufficiently detrimental to his business potential to
warrant its relocation, Pretzel Time will not unreasonably withhold permission
for relocation of the Unit to another Site, which meets Pretzel Time's
then-current site criteria, subject to the rights of existing Pretzel Time
franchisees under their franchise agreements with Pretzel Time. Franchisee
acknowledges and agrees that Pretzel Time is under no obligation to approve a
relocation of the Franchise. However, upon written approval from Pretzel Time,
Franchisee may relocate the Franchise to another location. Such approval shall
not be granted unless Franchisee is in compliance with all terms and conditions
of this Agreement and Franchisee has the financial resources available to
relocate the Unit and construct a new and comparable Unit according to Pretzel
Time's then current design standards. Any such relocation of the Franchise is
subject to Pretzel Time's prior approval of the new Unit location. Relocation
shall be at Franchisee's sole expense and Pretzel Time shall have the right to
charge Franchisee for any and all costs incurred by Pretzel Time, and a
reasonable fee for its services, in connection with any such approval,
evaluation and relocation of the Franchise. The Unit shall re-open at the
replacement Site as soon as reasonably practicable but in no event more than
ninety (90) days after the closing of the original location.
8. DEVELOPMENT OF UNIT.
8.A. UNIT DESIGN SPECIFICATIONS AND CONSTRUCTION PLANS.
Franchisee shall be responsible for constructing and developing the
Unit, including payment of all costs. Pretzel Time shall furnish to Franchisee
prototypical plans and specifications for the Unit, reflecting Pretzel Time's
requirements for dimensions, interior design and decor, layout, image, building
materials, color scheme, exterior and interior finishes, fixtures, equipment,
furnishings, and signs.
<PAGE>
Franchisee shall promptly after obtaining approval of the Site for the
Franchise:
(1). cause to be prepared by a Pretzel Time approved architect and
submit for approval by Pretzel Time a site survey and any modifications
to Pretzel Time's basic architectural plans and specifications for the
Pretzel Time Unit (including requirements for dimensions, exterior
design, materials, interior design and layout, equipment, fixtures,
furniture, signs and decorating) required for the construction of the
Franchise at the Site leased therefor. Franchisee shall have all such
modifications approved by Pretzel Time and prior to obtaining
permitting;
(2). insure that such plans and specifications comply with applicable
ordinances, building codes, and permit requirements and with lease
requirements and restrictions and all modification to Pretzel Time's
basic plans and specifications are modified to the extent necessary to
comply with local ordinances and state laws, building codes, permit
requirements, lease restrictions and federal law; and
(3). Franchisee shall also submit all revised or "as built" plans and
specifications during the course of such construction upon request of
Pretzel Time. Franchisee agrees to pay for any and all architect fees
and pay the architectural fees for the architect to review, approve and
modify the plans.
8.B. DEVELOPMENT OF THE UNIT.
Pretzel Time shall have the right to approve any contractor hired by
Franchisee to develop the Unit. Within one-hundred twenty (120) days of the
execution of the Franchise Agreement, Franchisee agrees, at his sole expense, to
do or cause to be done the following with respect to developing the Unit:
(1). Familiarizing himself with the physical condition of the
property, local laws, ordinances and
other requirements in connection with the construction of the Unit;
(2). Secure all financing required to develop and operate the Unit;
(3). Obtain all required building, utility, sign, health, sanitation,
business, environmental and other permits and licenses required
for construction and operation of the Unit;
(4). Extending all utilities to the Site and constructing all required
improvements to the Unit and decorate the Unit in compliance with
plans and specifications Pretzel Time approves within four to six
weeks of possession of the Site and two days prior to the
commencement date set forth in the lease for the Unit;
<PAGE>
(5). Purchase and install all required fixtures, furnishings,
equipment and signs required for the Unit (provided, however,
that Pretzel Time shall have the right, in its sole discretion,
to install all required signs at the Unit at Franchisee's sole
expense);
(6). Purchase an opening inventory of Products, materials, and
supplies;
(7). In accordance with Pretzel Time's standard specifications,
Franchisee shall totally equip, ready and inventory the Site at
its sole cost for opening to the public two (2) days prior to the
opening date specified in the lease; and
(8). Franchisee agrees that it will not open the Unit for business
without Pretzel Time's prior approval and training.
8.C. EQUIPMENT, FIXTURES, FURNISHINGS, AND SIGNS.
Franchisee agrees to use in developing and operating the Unit only such
fixtures, furnishings, equipment, and signs that Pretzel Time requires and has
approved for Pretzel Time Units as meeting its specifications and standards for
quality, design, appearance, function and performance. Franchisee further agrees
to place or display at the Unit only such signs, emblems, lettering, logos and
display materials that Pretzel Time approves in writing from time to time;
provided, however, that Pretzel Time shall have the right, in its sole
discretion, to install all required signs at the Unit at Franchisee's sole
expense. Franchisee shall purchase or lease approved brands, types or models of
fixtures, furnishings, equipment and signs only from suppliers designated or
approved by Pretzel Time (which may include Pretzel Time and/or its Affiliates).
Franchisee further agrees that all fixtures, furnishings and equipment used in
connection with the operation of the Unit shall be free and clear of all liens,
claims and encumbrances whatsoever, except with respect to any such liens,
claims or encumbrances asserted by Pretzel Time or third party purchase money
security interests.
8.D. EXCEPTIONS TO EQUIPMENT OR FURNISHINGS.
If Franchisee proposes to purchase any brand or type of construction or
decorating material, fixture, equipment, furniture or sign not then approved by
Pretzel Time, or any such item from a supplier which is not then approved by
Pretzel Time, Franchisee shall first notify Pretzel Time, in writing, and shall
submit to Pretzel Time, upon its request, sufficient specifications,
photographs, drawings and other information or samples for a determination by
Pretzel Time of whether such brand or type of construction or decorating
material, fixture, equipment, furniture or sign complies with its specifications
and standards or such supplier meets Pretzel Time's approved supplier criteria,
which determination shall be made and communicated in writing to Franchisee
within a reasonable time. Additionally, Franchisee shall pay all fees for said
testing and be responsible for acquiring and submitting equipment necessary for
such testing.
<PAGE>
8.E. CONSTRUCTION ASSISTANCE.
Upon request by Franchisee and without liability, Pretzel Time agrees
to provide construction assistance to Franchisee in one or more of the following
areas:
(1). Assist Franchisee in finding an architect for the construction
and development of the Unit;
(2). Assist Franchisee in finding a general contractor for the
construction and development of the Unit; and
(3). Respond to a reasonable amount of questions from Franchisee's
contractor relating to construction and development of the Unit
in accordance with the requirements of Pretzel Time.
8.F. LIMITATION ON LIABILITY.
Pretzel Time shall not be liable to Franchisee, the contractor, or any
other person, and Franchisee waives all claims for liability or damages of any
type whatsoever (whether direct, indirect, incidental, consequential, or
exemplary), on account of the rendition of any services by Pretzel Time in
accordance with this Section, except to the extent caused by the gross
negligence or intentional misconduct of Pretzel Time, and then any such
liability or damages shall be limited to five thousand dollars ($5,000.00).
Without limiting the generality of the foregoing, Pretzel Time shall not have
liability with respect to any of the following, all of which are the sole
responsibility of Franchisee:
(1). if construction of the Unit does not fully satisfy the
requirements (if any) of the landlord, the architect, the
contractor, and any governmental agency having jurisdiction or
does not fully satisfy the criteria established by Pretzel Time
for construction and development of Pretzel Time Units;
(2). if the Unit improvements are not structurally sound or free from
defects or deficiencies;
(3). if there are any construction delays or cost overruns; or
(4). if there are any disputes with any landlord, contractor,
subcontractor, architect, supplier or governmental agency with
respect to any aspect of the design, construction, provision, or
equipping of the Unit.
<PAGE>
9. UNIT OPENING.
9.A. COMMENCEMENT OF OPERATIONS.
Franchisee shall commence operation of the Franchise the earlier of: 1)
one hundred fifty (150) days after the execution of this Agreement; (2) as
specified in the lease for the Site; or (3) as otherwise required or approved in
writing by Pretzel Time. Failure to open the Unit within the aforementioned time
period shall result in the termination of this Franchise Agreement and all
franchise fees paid by Franchisee shall be nonrefundable. Franchisee agrees not
to open the Unit for business until the following has occurred:
(1). Pretzel Time approves the Unit pursuant to its Pre-Opening
Checklist;
(2). Pre-opening training of Franchisee and Unit personnel has been
completed to Pretzel Time's satisfaction;
(3). The initial franchise fee and all other amounts then due to
Pretzel Time have been paid in full;
(4). Pretzel Time has been furnished with copies of all insurance
policies required by this Agreement, or such other evidence of
insurance coverage and payment of premiums as Pretzel Time requests;
and
(5) Franchisee has executed Pretzel Time's wire transfer agreement.
Franchisee agrees to open the Unit for business on or before the
opening date specified in the lease if it has the Landlord's approval and only
after Pretzel Time notifies Franchisee that the conditions set forth in Sections
8 and 9 have been satisfied.
10. FRANCHISEE TRAINING.
10.A. INITIAL TRAINING.
Franchisee acknowledges and agrees that, while Pretzel Time's training
program will provide Franchisee with the fundamental knowledge necessary to
operate a unit, Franchisee cannot expect success unless he devotes his best
personal efforts to the business and exercises good business judgment in dealing
with customers, suppliers, and employees. Prior to the Unit's opening, Pretzel
Time shall furnish an initial training program on the operation of a Pretzel
Time Unit which shall take place at Pretzel Time's headquarters in Harrisburg,
Pennsylvania, or at a location which will provide the best training for the
Franchisee, which may or may not be close to Pretzel Time's headquarters. The
Franchisee agrees that he and his Unit Manager shall attend the initial training
session held four (4) to eight (8) weeks prior to the Unit's projected opening
date. Pretzel Time will not charge for the initial training of the Franchisee or
if a corporation or partnership, the Principal Owners of the Franchisee and the
Unit Manager. All incidental expenses relative to the required training,
including travel expenses, hotel/motel expenses, and meals shall be the
responsibility of the Franchisee while attending training. Prior to the
commencement of the operation of the Unit, the manager of the Unit ("Unit
Manager") and the Franchisee or if a corporation or partnership, one Owner of
the Franchisee as identified in Exhibit B, who will be personally overseeing the
Unit shall attend and successfully complete the Pretzel Time initial training
program to the satisfaction of Pretzel Time.
<PAGE>
The Franchisee and his Unit Manager must satisfactorily complete
Pretzel Time's training as determined by Pretzel Time, in its sole opinion,
before Franchisee is allowed to operate the Franchise. If Pretzel Time, in its
sole discretion, determines that Franchisee is unable to satisfactorily complete
the training program, Pretzel Time shall have the right to terminate this
Agreement and no franchise fees shall be refunded. The initial training program
shall cover material aspects of the operation of a Pretzel Time Unit, including
financial controls, employee relations, food preparation, service and
operational techniques, sampling, recipes and cooking procedures, marketing and
public relations, cleanliness and maintenance procedures, and maintenance of
Pretzel Time System standards. Franchisee shall receive one copy of the
Operations Manual, which cannot be reproduced, in whole or in part. In the event
that the Franchisee's copy is lost destroyed or significantly damaged,
Franchisee shall be obligated to obtain from Pretzel Time, at Franchisee's
expense a replacement copy of the Operations Manual.
10.B. EMPLOYEE TRAINING.
Pretzel Time may provide to Franchisee, at Franchisee's request,
guidance in the selection of a Unit Manager and may provide periodic evaluations
of Franchisee's Unit, Managers and employees, but without any liability
therefore to Pretzel Time. Franchisee shall hire all employees of the franchise,
be exclusively responsible for the terms of their employment and compensation,
and implement a training program for employees of the franchise. Franchisee
agrees to maintain a staff of trained employees to operate the Unit in
compliance with Pretzel Time's standards.
In the event the Unit Manager ceases to hold such full-time position at
the Unit, Franchisee shall have thirty (30) days in which to appoint a
substitute or replacement Unit Manager, who must attend and successfully
complete, to Pretzel Time's satisfaction the initial training program as
specified above within sixty (60) days after employment as Unit Manager. If
Pretzel Time in its sole discretion determines that the Unit Manager or any
subsequently appointed Unit Manager has failed to satisfactorily complete the
initial training program or any additional or refresher training program,
Franchisee agrees to immediately hire a substitute Unit Manager and promptly
arrange for such person to complete the initial training program to the
satisfaction of Pretzel Time. Franchisee agrees to notify Pretzel Time of any
new Unit Managers for the Unit within seven (7) business days of their
employment. In the event Franchisee operates more than one (1) Unit, at least
one (1) trained and competent Unit Manager referred to above shall act as a
full-time manager in each Territory. Franchisee shall keep Pretzel Time informed
at all times of the identity of any Unit Manager(s) of the Unit.
All Unit Managers of the Unit must have successfully completed an
initial training program as specified by Pretzel Time at the sole expense of the
Franchisee, including, but not limited to, salary and incidental travel expenses
attendant to any training provided by Pretzel Time. Franchisee and Unit Managers
who successfully complete training will receive a Training Certificate from
Pretzel Time. Pretzel Time shall make training available to Franchisee's Unit
Manager during Pretzel Time's regularly scheduled training course. In no event,
will Pretzel Time be under any obligation to provide individual training to
Franchisee's Unit Managers. Franchisee agrees that each Unit Manager shall
participate at Franchisee's expense in Pretzel Time's initial training program
and all other mandatory training programs which may subsequently be offered by
Pretzel Time.
<PAGE>
10.C. ON-SITE TRAINING.
Additionally, Pretzel Time will provide on-site training at
Franchisee's business location for a period of five (5) days, generally to be
commenced immediately prior to Franchisee's day of opening and continued the
first three (3) days of operation. Franchisee herein agrees to notify Pretzel
Time, in writing, of his opening date twenty (20) days prior thereto. This
training will include all functions required for the proper operation of the
franchise.
Should Franchisee request additional assistance from Pretzel Time in
order to facilitate the opening of the Franchise, and should Pretzel Time, in
its discretion, deem it necessary, feasible and appropriate to comply with the
request or should Pretzel Time determine that additional training is required,
Franchisee shall reimburse Pretzel Time at Pretzel Time's then current daily
training service fee, for the expense of Pretzel Time providing such additional
assistance and for its training related expenses, which may include, travel,
room and board.
10.D. COMPANY GROWTH.
Throughout the term of this Agreement, Pretzel Time may provide
Franchisee with information on company growth and operations as well as new
techniques developed to reduce costs and/or enhance sales or profits.
10.E. RETRAINING PROGRAMS.
Pretzel Time shall provide re-training programs at a location of
Pretzel Time's choice from time to time for experienced franchisees and their
managers and/or employees. Pretzel Time may charge fees for refresher training
courses for previously trained and experienced managers. Fees for special
programs will be based upon Pretzel Time's actual costs and attendance shall be
required. Attendance at retraining programs or seminars shall be at Franchisee's
sole expense, provided, however, that attendance will not be required at more
than two (2) such programs in any calendar year and shall not collectively
exceed ten (10) business days in duration during any calendar year.
<PAGE>
10.F. OTHER GUIDANCE.
Pretzel Time may advise Franchisee from time to time of operating
problems of the Unit which come to Pretzel Time's attention and, at Franchisee's
request but without any liability therefore to Pretzel Time, Pretzel Time shall
furnish to Franchisee guidance in connection with:
(i) Methods, standards, specifications and operating procedures
utilized by Pretzel Time Units;
(ii) Purchasing required fixtures, furnishings, equipment, signs,
Products, materials and supplies;
(iii) Advertising and Promotional programs;
(iv) Employee training; and
(v) Administrative, bookkeeping, accounting and general operating and
management procedures.
Such guidance shall, in Pretzel Time's discretion, be furnished in the form of
Pretzel Time's Operations Manual, bulletins and other written materials,
electronic computer messages, telephone conversations and/or consultations at
Pretzel Time's offices or at the Unit. Pretzel Time will make no separate charge
to Franchisee for such operating assistance as Pretzel Time customarily
provides. From time to time, Pretzel Time may make special assistance programs
available to Franchisee, however, Franchisee will be required to pay the per
diem fees and charges that Pretzel Time establishes from time to time for such
special assistance programs.
11. ADVERTISING AND OTHER PROMOTIONS.
11.A. PROVIDING OF ADVERTISING MATERIALS.
Franchisee and Pretzel Time agree and recognize the value of uniform
advertising to the goodwill and public image of Pretzel Time Units. Pretzel Time
has instituted and maintains and administers an advertising fund for such
advertising or public relations programs as Pretzel Time, in its sole
discretion, may deem necessary or appropriate to advertise or promote the
Pretzel Time System, nationally or regionally. Pretzel Time will periodically
provide Franchisee with programs, promotional concepts, and other information
designed to enhance the operation of the Franchise. In addition, Pretzel Time
may provide optional special promotions from time to time which will be at
Franchisee's cost, which may be mandatory. At its initial opening, Pretzel Time,
at Franchisee's expense, shall designate and supply an initial quantity of
forms, literature, display, and promotional materials. Pretzel Time, in
consideration of the Advertising Fund Fee, shall periodically provide Franchisee
with camera ready advertising materials. Multiple copies of advertising
materials will be furnished to Franchisee for an additional fee, including any
related shipping, handling and storage charges.
11.B. CONTROL OF ADVERTISING PROGRAMS AND CONCEPTS.
Pretzel Time shall direct all such programs, with sole discretion over
the creative concepts, materials, endorsements, and media used therein, and the
placement and allocation thereof. The manner, media and cost of such
advertising, public relations and promotional mailings shall be solely and
completely within the discretion of Pretzel Time. Pretzel Time shall have the
right to determine, in its sole discretion, the target and market areas for the
development and implementation of such programs. Pretzel Time may expend,
disburse and use funds from the Advertising Fund, in its sole discretion, for
the following purposes:
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(1) The creation and development of nonlocal advertising,
promotional campaigns, and public relations to promote and enhance the
value of the Service Marks and the business of all the Pretzel Time
retail establishments;
(2) Payments to Pretzel Time of such reasonable sums as may be
necessary for actual costs of advertising production, direct mail
purchases, and other media marketing tools;
(3) Payment of salaries and benefits for staff personnel in
the marketing and public relations department as well as other
administrative costs and overhead expenses of the department incurred
by Pretzel Time;
(4) The costs of employing advertising, marketing, public
relations and promotion agencies to assist in preparing and conducting
media programs and activities and supporting public relations, market
research and other advertising, promotion and marketing activities;
(5) Market research expenditures related to the development
and evaluation of the effectiveness of advertising and sales promotion;
and
(6) Costs of organizing and providing facilities for
international, national, or regional franchisee conferences.
Franchisee understands and acknowledges that the Advertising Fund is
intended to maximize recognition of the Marks and patronage of Pretzel Time
Units. Although Pretzel Time will endeavor to utilize the Advertising Fund to
develop advertising and marketing materials and programs and to place
advertising that will benefit all Pretzel Time Units, Pretzel Time undertakes no
obligation to ensure that expenditures by the Advertising Fund in or affecting
any geographic area are proportionate or equivalent to the contributions to the
Advertising Fund by Pretzel Time Units operating in that geographic area or that
any Pretzel Time Units will benefit directly or in proportion to its
contribution to the Advertising Fund from the development of advertising and
marketing materials or the placement of Advertising.
11.C. SEGREGATION OF ADVERTISING FUND.
Pretzel Time herein agrees to administratively segregate the
Advertising Fund on its books and records. Fees paid by Franchisee into the
advertising fund shall not under any circumstance be used for the general
operating expenses of Pretzel Time but shall and will be used exclusively for
advertising as outlined herein. Pretzel Time may spend in any fiscal year an
amount greater or less than the aggregate contributions of the franchisees to
the fund in that year and Pretzel Time may make loans to the fund bearing
reasonable interest to cover any deficits of the fund and cause the fund to
invest any surplus for future use by the fund. It is anticipated, and it is the
intent of Pretzel Time that all contributions to the Fund shall be expended for
advertising and promotional purposes during Pretzel Time's fiscal year within
which contributions are made. Any monies not expended in the fiscal year in
which they were contributed shall be applied and used for Fund expenses in the
following year.
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11.D. SUSPENSION OF ADVERTISING FUND FEES.
Pretzel Time reserves the right to suspend contributions/fees and
operations of the Advertising Fund for one or more periods, and the right to
terminate the Advertising Fund, upon thirty (30) days' prior written notice to
Franchisee. All unspent monies on the date of termination shall be distributed
to Pretzel Time's franchisees and Pretzel Time, its Affiliates and designees in
proportion to their respective contributions to the Advertising Fund upon the
same terms and conditions set forth herein upon thirty (30) days' prior written
notice Franchisee.
11.E. FRANCHISEE'S REQUIRED ADVERTISING EXPENDITURES.
In addition to any contributions by Franchisee to the Advertising Fund,
Franchisee is required to spend on marketing and related programs such amount as
is required pursuant to the terms and conditions of Franchisee's lease or
sublease. Franchisee acknowledges such amounts will vary from lease to lease,
and therefore, all Pretzel Time Unit franchisees will not be obligated to expend
the same amount on local advertising and marketing of the Unit.
11.F. USE OF TRADEMARK REFERENCES AND APPROVAL
OF FRANCHISEE'S MARKETING.
Franchisee further agrees that all advertising, promotion and marketing
by Franchisee shall be completely clear and factual and not misleading and shall
conform to the highest standards of ethical marketing and promotion policies
which may be prescribed from time to time by Pretzel Time. Franchisee agrees to
use the registration symbol of "R" within a circle (7 ) in connection with its
use of the Marks. Franchisee agrees to refrain from any business or marketing
practice which may be injurious to the business of Pretzel Time and the good
will associated with the Marks and other Pretzel Time Units. Prior to their use
by Franchisee, all press releases, literature, and samples of all local
advertising, marketing, point-of-purchase, and related materials not prepared or
previously approved by Pretzel Time shall be submitted to Pretzel Time for
approval, which shall not be unreasonably withheld. If written disapproval is
not received within twenty (20) days from the date of receipt by Pretzel Time of
such materials, Pretzel Time shall be deemed to have approved the materials.
Franchisee agrees not to use promotional or advertising materials which have
been disapproved by Pretzel Time or that have not been approved for use within
the preceding twelve months.
In addition, any pamphlets, brochures, cards or other promotional
materials offering free Products may only be used if prepared by Pretzel Time,
unless otherwise approved in advance by Pretzel Time. Notwithstanding the
foregoing, Pretzel Time will give favorable consideration to Franchisee's use of
free product cards developed by Franchisee, if the cards clearly state that they
may only be redeemed at Pretzel Time Units owned by Franchisee. Franchisee
agrees to list and advertise the Franchise in the regular white pages telephone
directories distributed within Franchisee's metropolitan area.
Franchisee agrees to distribute and display at Franchisee's location,
literature, display and promotional materials including special promotional
materials as Pretzel Time may from time to time make available. Franchisee
agrees that only those advertising, promotional materials, or items which are
authorized by Pretzel Time in writing prior to use shall be used, sold or
distributed, and no alternate display or use of the Pretzel Time Service Mark
shall be made without the prior written permission of Pretzel Time. Replacement
or updated literature, display, point-of-purchase and promotional materials may
be obtained from Pretzel Time for a fee including shipping.
<PAGE>
12. ADHERENCE TO UNIFORM STANDARDS.
12.A. STANDARDS AND OPERATIONS MANUAL.
Franchisee acknowledges and agrees that the operation of the Pretzel
Time Unit in accordance with the specifications, standards, operating procedures
and rules Pretzel Time prescribes for the operation of Pretzel Time Units is the
essence of this Agreement and is essential to preserve the goodwill of the Marks
and all Pretzel Time Units. Franchisee agrees to operate his Unit in strict
compliance and adhere to Pretzel Time's Unit design, signage, interior decor,
equipment and inventory requirements and rules and standards and procedures
(hereinafter referred to as "Standards") set forth in any Operations Manual or
Training Manual, as periodically modified and supplemented by Pretzel Time in
its discretion during the term of this Agreement ("Operations Manual") and
acknowledges that the same are reasonable, necessary and essential to the image
and success of each Unit and the Pretzel Time System and agrees to comply with
all such requirements and procedures. The Operations Manual shall contain
mandatory and suggested specifications, standards and operating procedures that
Pretzel Time prescribes from time to time for Pretzel Time Units and information
relating to Franchisee's other obligations under this Agreement. The Operations
Manual sets forth Standards regulating and relating to certain important
obligations on the part of franchisees and sanctions in the event of
noncompliance with such obligations. Pretzel Time may regulate, designate or
approve any one or more of the following with respect to the Pretzel Time Unit:
(1) 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;
(2) Types, models, brands, maintenance and replacement of required
equipment, fixtures, furnishings and signs;
(3) Approved, disapproved and required Products and other items to be
offered for sale;
(4) Designated and approved suppliers (including Pretzel Time and/or
its Affiliates) of equipment, fixtures, furnishings, signs, Products,
materials and supplies;
(5) Use and operation of an approved point of sale register;
(6) Payment of vendors; terms and conditions of sale and delivery of
and payment for Products, materials, supplies and services sold by
Pretzel Time, its Affiliates or unaffiliated suppliers;
(7) Marketing, advertising and promotional activities and materials
required or authorized for use;
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(8) Use of the Marks;
(9) Qualifications, training, dress, appearance and staffing of
employees;
(10) Minimum hours of operation;
(11) Participation in market research and testing and Product and
service development programs prescribed by Pretzel Time;
(12) Management by Unit Managers who have successfully completed
Pretzel Time's initial training program; communication to Pretzel
Time of the identities of such Unit Managers; replacement of
managers whom Pretzel Time determines to be unqualified to manage
the Pretzel Time Unit; and other matters relating to the
management of the Pretzel Time Unit and its management personnel;
(13) Use of a designated computer hardware and software system and
equipment with telecommunications capability, including the
procedures for providing sales information of the Unit to Pretzel
Time;
(14) Bookkeeping, accounting, data processing and record keeping
systems and forms, methods, formats, content and frequency of
reports to Pretzel Time of sales, revenues, financial performance
and condition; operational information; tax returns and other
operating and financial information, including without
limitation, audited yearly financial statements;
(15) Types, amounts, terms and conditions and approved underwriters
and
brokers of public, product, business interruption, crime loss, fire and
other required insurance coverage; Pretzel Time's rights under such
policies as an additional named insured; required or impermissible
insurance contract provisions; assignment of policy rights to Pretzel
Time; Pretzel Time's right to obtain insurance coverage for the Unit at
Franchisee's expense if Franchisee fails to obtain required coverage;
Pretzel Time's right to defend claims; and similar matters relating to
insured and uninsured claims;
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(16) Compliance with applicable laws; 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
Pretzel Time and its Affiliates and/or designees; and
notification of Pretzel Time in the event any action, suit or
proceeding is commenced against Franchisee or relating to the
Unit; and
(17) Regulation of such other elements and aspects of the appearance,
operation of and conduct of business by, Pretzel Time Units as
Pretzel Time determines from time to time, in its sole
discretion, to be required to preserve or enhance the efficient
operation, image or goodwill of Pretzel Time Units and the Marks.
12.B. CONFIDENTIALITY OF OPERATIONS MANUAL.
Pretzel Time will make available to Franchisee during the term of the
Franchise (1) copy of the Operations Manual by loaning a copy of the Operations
Manual to Franchisee. Franchisee acknowledges and agrees that all manuals loaned
to Franchisee contain confidential and proprietary material and information of
Pretzel Time provided to Franchisee is to be used by Franchisee only in
connection with the operation of the franchised Unit and other Pretzel Time
Units. The Operations Manual contains trade secrets and confidential information
and will remain the property of Pretzel Time and shall be returned to it on
termination of this Agreement. Franchisee covenants not to reveal the contents
of the Operations Manual to unauthorized persons. Franchisee may not, at any
time, copy the Operations Manual, in whole or in part, either physically or
electronically. In the event Franchisee's copy of the Operations Manual is lost,
destroyed or significantly damaged, Franchisee shall be obligated to obtain from
Pretzel Time, at Pretzel Time's then applicable charge, a replacement copy of
the Operations Manual.
12.C. INCORPORATION OF OPERATIONS MANUAL INTO AGREEMENT.
The Operations Manual's specifications, standards, and operating
procedures communicated to Franchisee in writing shall be deemed a part of this
Agreement and are incorporated herein by reference. Such Operations Manual
provisions and all reasonable modifications shall be binding upon Franchisee to
the same extent as if set forth verbatim in this Franchise Agreement, and such
provisions may be changed from time to time by Pretzel Time, in its sole
discretion, provided that changes are reasonably designed to enhance Pretzel
Time's Products, the Pretzel Time System, or franchise operation and are
uniformly applied with respect to all franchisees. Any administrative or
financial Section set forth in the Operations Manual shall be in addition to,
and not in derogation or limitation of, any right or remedy granted to Pretzel
Time under the Franchise Agreement, the Operations Manual, or any other
document, or otherwise available to Pretzel Time, at law or in equity,
including, without limitation, the right to terminate a franchise in the event
of certain defaults or delinquencies.
<PAGE>
12.D. MODIFICATIONS/UPDATES OF OPERATIONS MANUAL.
Franchisee understands and agrees that the Pretzel Time System is
constantly being modified and improved, and that such modifications and
improvements require changes from time to time in the system of operations.
Franchisee further agrees to accept and comply with such modifications,
revisions, and additions to the Pretzel Time System and Operations Manual which
Pretzel Time in the good faith exercise of its judgment believes to be desirable
and reasonably necessary in the time period indicated by Pretzel Time.
Franchisee agrees that Standards may be periodically modified by
Pretzel Time and that such modifications may obligate Franchisee to invest
additional capital in the Unit and/or incur higher operating costs. Pretzel Time
will not obligate Franchisee to invest additional capital at a time when such
investment cannot in Pretzel Time's reasonable judgment be amortized during the
remaining term of this Agreement. Franchisee hereby agrees that standards and
specifications prescribed from time to time in the Operations Manual, or
otherwise communicated to Franchisee in writing or electronically, shall
constitute provisions of this Agreement as if fully set forth herein.
13. UNIT IMAGE AND OPERATION.
13.A. CONDITION AND APPEARANCE OF UNIT.
Franchisee agrees that:
(1) neither the Unit nor the Site will be used for any purpose
other than the operation of a Pretzel Time Unit in full compliance with
this Agreement or other agreements with Pretzel Time; and
(2) Franchisee will maintain the condition and appearance of
the Unit, its equipment, furnishings, fixtures, and signs in accordance
with the specifications and standards of Pretzel Time and consistent
with the image of a Pretzel Time Unit as a first-class, clean,
sanitary, attractive and efficiently operated food service business;
and
<PAGE>
(3) Franchisee will perform such maintenance (including,
without limitation, maintenance procedures and routines which Pretzel
Time prescribes from time to time) with respect to the decor,
equipment, fixtures, furnishings, vehicles, and signs of the Unit and
the Site, as may be required or directed by Pretzel Time from time to
time to maintain such condition, appearance, and efficient operation,
including, without limitation:
(a) continuous and thorough cleaning and sanitation of the interior
and exterior of the Unit;
(b) thorough repainting and redecorating of the interior and exterior
of the Unit and/or the Site at reasonable intervals;
(c) interior and exterior repair of the Unit and/or Site; and
(d) repair or replacement of damaged, worn out or obsolete
furnishings, equipment, fixtures and signs, provided that
Pretzel Time will not require Franchisee to replace any
obsolete equipment unless Pretzel Time has initiated a program
to replace such equipment as it becomes necessary in its
company-owned Pretzel Time Units; and
(4) Franchisee will not make any material alterations to the
Site or to the appearance of the Unit as originally developed, without
prior approval in writing by Pretzel Time; and
(5) Upon notice from Pretzel Time, Franchisee shall remodel
and conform Franchisee's building design, Trade Dress, color schemes,
and presentation of Marks to Pretzel Time's then current public image
within a reasonable amount of time, which shall not exceed six (6)
months. Such a remodeling may include extensive structural changes to
the Unit fixtures and improvements as well as such other changes as
Pretzel Time may direct and Franchisee shall undertake such a program
promptly upon notice from Pretzel Time; provided the remodeling shall
not be required until such time as Pretzel Time has commenced or
completed a similar program in at least fifty percent (50%) of those
Pretzel Time Units owned and operated by Pretzel Time. This requirement
shall not apply in the event notice from Pretzel Time is received
during the last year of the term hereof or the term of any agreement by
virtue of which Franchisee occupies the Unit.
In addition to Pretzel Time's rights to terminate this Agreement as set
forth herein, if Franchisee does not maintain the condition and appearance of
the Unit as herein required, Pretzel Time, may, upon not less than ten (10)
days' written notice (or, in cases of health or sanitation hazards or other
public endangerment, immediately on oral or written notice) to Franchisee:
(i) arrange for the necessary cleaning or sanitation, repair,
remodeling, upgrading, painting or decorating; or
(ii) replace the necessary fixtures, furnishings, equipment, signs.
If Franchisee fails or refuses to initiate within ten (10) days after
receipt of a notice that the general state of repair, appearance, and
cleanliness of your store does not meet Pretzel Time's standards, and thereafter
continue in good faith and with due diligence a bona fide program to undertake
and complete required maintenance or refurbishing, Pretzel Time has the right,
but is not obligated, to enter upon the premises of the Unit and effect such
maintenance and refurbishing on Franchisee's behalf, and Franchisee shall pay
the entire cost thereof to Pretzel Time on demand.
<PAGE>
13.B. UNIT MENU.
Franchisee agrees that the Unit shall offer for sale all Products and
no other products, which Pretzel Time, in its sole discretion, may authorize
and/or require from time to time for the Unit. Franchisee agrees that the Unit
shall not offer for sale or sell any Products or services at or from the Unit
which have not been approved in writing by Pretzel Time or use the Site or Unit
for any purpose other than the operation of a Pretzel Time Unit. Franchisee
agrees that the Unit shall not sell any Products at, from or away from the Site
until Pretzel Time, in its sole discretion, has approved the same, provided the
foregoing shall not limit Franchisee to sample in front of the lease line as
limited in Franchisee's lease. Pretzel Time reserves the right to change the
types of authorized Products and require Franchisee to offer to sell and sell
the new, modified or substituted Products. Pretzel Time may develop new
Products, methods of operations, and standards and may provide you with
information about developments. Franchisee also acknowledges and agrees that if
Pretzel Time requires the Unit to use new or substitute products not currently
offered at Pretzel Time Units, Franchisee agrees to offer such Products in
compliance with Pretzel Time's specifications, standards and procedures
prescribed in the Operations Manuals or otherwise in writing and to diligently
pursue obtaining any permits and take such actions (including, without
limitation, constructing improvements and acquiring fixtures, furnishings,
equipment, supplies, and materials) required to offer such Products. Franchisee
acknowledges and understands that such modifications to the Products to be
offered by the Unit may require Franchisee to incur additional costs and
expenses to operate the Unit, including, without limitation, the purchase and/or
lease of additional or substitute furnishings, furniture, fixtures or equipment
and Franchisee agrees to incur such expenses in connection therewith.
13.C. ADHERENCE TO APPROVED ITEMS.
The reputation and goodwill of all Pretzel Time Units are based upon,
and can only be maintained by, the sale of distinctive, high-quality Products
and the presentation, packaging and service of Products in an efficient and
appealing manner. Pretzel Time has developed and shall continue to develop
certain proprietary food products which will be prepared by or for Pretzel Time
according to Pretzel Time's recipes and formulas. Pretzel Time has developed and
shall continue to develop standards and specifications for fresh hand-rolled
pretzels, frozen pretzels, pretzel toppings, beverages and other healthy snack
food products, materials and supplies incorporated in or used in the
preparation, baking, or serving of Products authorized by Pretzel Time. The need
for quality and quantity control in the Products offered for sale at the Unit is
acknowledged by Franchisee. All Products offered by Franchisee must be of
uniform quality and quantity and offered for sale to the public in accordance
with Pretzel Time's specifications as set forth in Pretzel Time's Operations
Manual and as may be amended from time to time.
<PAGE>
Pretzel Time has approved and shall review and continue to approve
suppliers and distributors of the foregoing Products, supplies, materials,
equipment, fixtures and machines that meet Pretzel Time's standards and
requirements including, without limitation, quality, quantity and portions,
prices, output requirements, distribution methods and locations, standards of
service, financial capability, customer service and other criteria. Franchisee
agrees that minimum standards for items of inventory, Products, machines, and
equipment may be recognized by brand name rather than by technical or
engineering description.
Franchisee agrees that it will use all equipment and Products,
including, without limitation, food products, smallwares, equipment, and paper
products as designated by Pretzel Time and shall purchase Pretzel Time's private
label food products, materials, supplies and proprietary food products,
ingredients, spices, sauces, mixes, beverages, materials and supplies used in
the preparation of Products developed by or for Pretzel Time or its Affiliates
whether or not pursuant to a special recipe or formula or bearing the Marks only
from Pretzel Time, its Affiliates or non-affiliated sources designated by
Pretzel Time. Franchisee further agrees to purchase only from distributors and
suppliers approved or required by Pretzel Time. Franchisee agrees that the
approved Products, equipment, smallwares, and inventory used on the premises may
alter from time to time as Pretzel Time reasonably deems necessary. Franchisee
agrees to offer for sale only those Products approved by Pretzel Time and no
others without the prior written approval of Pretzel Time. Franchisee shall not,
after receipt in writing of any modification of an approved or required supplier
or distributor, manufacturer of equipment, products, materials, supplies or
other items reorder any product from any supplier or distributor that is no
longer approved. Pretzel Time may approve or require a single distributor or
supplier for any Products, materials or supplies and may approve or require a
distributor or supplier only as to certain products, materials and supplies, and
such approval may be temporary pending a further evaluation of such distributor
or supplier by Pretzel Time. Pretzel Time may concentrate purchases with one or
more distributors or suppliers to obtain lower prices and/or advertising support
and/or services for the benefit of Pretzel Time, the Pretzel Time System and/or
Pretzel Time Units.
Pretzel Time will loan to Franchisee a list of approved brand Products
for use during the term of this Franchise Agreement at the initial training
session. Franchisee agrees to not copy the list. Franchisee will, during the
term of this Agreement and after its termination or expiration, maintain the
list and its contents in strict confidence, and upon the expiration or
termination of this Franchise Agreement, whichever is earlier, will immediately
return it to Pretzel Time. Pretzel Time shall promptly provide Franchisee with
any amendments to the designated list of inventory of available Products and
supplies to be carried and sold at Franchisee's location. Franchisee shall at
all times maintain an adequate inventory of approved Products sufficient in
quality and variety to realize the full potential of the Unit.
13.D. EXCEPTION PROCESS.
If Franchisee proposes to purchase materials or supplies not
theretofore approved by Pretzel Time as meeting its specifications, or from a
supplier or distributor not previously approved by Pretzel Time, Franchisee
shall first notify Pretzel Time and request Pretzel Time's approval using the
special exception form provided to Franchisee in its Operations Manual, and pay
any reasonable fees that Pretzel Time designates therefor. Further, Franchisee
agrees to use all forms specified and developed by Pretzel Time for requesting
any exceptions in products or suppliers. Pretzel Time may require submission of
sufficient information and samples to determine whether such materials, supplies
or suppliers meet its specifications as well as financial information regarding
the supplier. Pretzel Time will advise Franchisee within a reasonable time
whether such
<PAGE>
materials or supplies meet its specifications. Pretzel Time does not maintain a
formal criteria for approving materials, supplies or suppliers. All approvals,
disapprovals and revocations of approval of suppliers will be communicated to
Franchisee, in writing, and shall be in the sole discretion of Pretzel Time.
Franchisee must comply with the following conditions in order to seek a
substitution for a Pretzel Time approved Product:
(1) Franchisee shall submit a written request to Pretzel Time
for approval of a non-approved supplier or product;
(2) Franchisee and supplier shall demonstrate to Pretzel
Time's reasonable satisfaction that it is able to supply the
commodity which meets Pretzel Time's specifications to
Franchisee; and
(3) The supplier shall demonstrate to Pretzel Time's
reasonable satisfaction that the supplier is of good standing
in the business community with respect to its financial
soundness and the reliability of its product and service and
shall request in writing to Pretzel Time to be named an
approved supplier.
13.E. PROMOTIONAL ALLOWANCES.
Franchisee acknowledges and agrees that Pretzel Time may, in its sole
discretion, collect and retain all allowances, benefits, credits, monies,
payments or rebates (collectively "Promotional Rebates"), whether for
promotional, advertising or other purposes, offered to Franchisee or Pretzel
Time or its Affiliates by manufacturers, suppliers and distributors based upon
Franchisee's purchases of Products or other products and materials. Franchisee
assigns to Pretzel Time or its designee all of Franchisee's right, title and
interest in and to any and all such Promotional Allowances and authorizes
Pretzel Time or its designee to collect any such Promotional Allowances for
remission to the general operating funds of Pretzel Time.
14. FRANCHISEE OPERATIONS.
14.A. MANAGEMENT.
Franchisee agrees that he will at all times faithfully, honestly, and
diligently perform his obligations hereunder, that he will continuously exert
his best efforts and shall continually train and supervise his personnel to
Pretzel Time's reasonable standards, in furtherance of the mutual business
interests of both Pretzel Time and Franchisee and that he will not engage in any
other business or activity that may conflict with his obligations hereunder. A
Unit shall be under the direct, on-premises supervision of a trained and
competent Franchisee or a trained and competent employee acting as a Unit
Manager at all times. Franchisee shall remain active in overseeing the
operations of the Unit conducted under the supervision of such Unit Manager.
Pretzel Time shall have the right to deal with the Unit Manager and assistant
managers on matters pertaining to the day-to-day operations of, and reporting
requirements for the Unit. Franchisee shall be required to notify Pretzel Time
within seven (7) business days of changing Unit Managers. Franchisee shall hire
all employees of the Unit and shall be exclusively responsible for the terms of
their employment and compensation and for the proper training of such employees
in the operation of the Unit.
<PAGE>
If the Unit at any time is not being managed by you or a Unit Manager
who shall have satisfactorily completed Pretzel Time's training program, Pretzel
Time is authorized, but is not required to immediately appoint a Manager to
maintain the operations of the Unit for you. Pretzel Time has the right to
change a reasonable fee for such management services, not to exceed our costs,
and to cease to provide such management services at any time. Pretzel Time's
right to manage a Unit and obtain reimbursement for costs also applies in the
event of your death or disability.
14.B. SUFFICIENT WORKING CAPITAL.
Franchisee shall maintain an adequate sales force to serve properly all
customers, and shall carry at all times a stock of merchandise of such size,
character, quality and price to produce the maximum return to Franchisee and so
as to produce all of the gross revenue which may be produced by such manner of
operation.
14.C. FILING OF OPERATIONS AND SALES REPORTS.
Franchisee's net revenues and operational analysis are to be reported
on or before Tuesday at 12:00 P.M. Eastern Standard Time (or Eastern Daylight
Savings Time) or any other time reasonably designated by Pretzel Time, to
Pretzel Time on forms designated by Pretzel Time for the immediately preceding
week. If the gross sales report is not submitted as herein specified, Pretzel
Time may, at its option, charge a late fee of $50.00 to Franchisee. There will
only be one late fee for each late report.
14.D. EMPLOYEE DRESS AND CUSTOMER SERVICE.
The presentation of an uniform image is essential to a successful
franchise system. Franchisee shall cause all employees of Franchisee while
working at the franchise location to dress appropriately (in the specific
uniform approved and designated by Pretzel Time) in keeping with the Pretzel
Time image, as Pretzel Time may designate from time to time, to present a neat
and clean appearance and to render confident and courteous service to the
Franchise's customers.
14.E. COMPLIANCE WITH LAWS AND GOOD BUSINESS PRACTICES.
Franchisee shall secure and maintain in force in his name all required
licenses, permits, and certificates relating to the conduct of his business
pursuant to this Agreement. Franchisee will conduct the Franchise in strict
compliance with all applicable laws, ordinances, regulations, and other
requirements of any federal, state, county, municipal or other government,
including, without limitation, those laws and regulations pertaining to
preparation, purchase and handling of food products, occupational hazards,
health, safety and sanitation, worker's compensation insurance, unemployment
insurance, and withholding and payment of all taxes. While Pretzel Time may
advise Franchisee as a courtesy on any applicable laws, ordinances, or
regulations, Pretzel Time undertakes no duty to do so and Franchisee hereby
acknowledges it is Franchisee's sole duty to inquire regarding and concerning
all laws, ordinances, and regulations affecting the Unit, its operations,
employees and Franchisee.
<PAGE>
Franchisee shall in all dealings with its customers, suppliers, Pretzel
Time, and public officials adhere to high standards of honesty, integrity, fair
dealing and ethical conduct. Franchisee agrees to refrain from any business or
advertising practice which may be injurious to the business of Pretzel Time and
the goodwill associated with the Marks and other Pretzel Time Units.
Franchisee shall notify Pretzel Time within three (3) business days
after the commencement of any action, suit, proceeding or issuance of any order,
writ, injunction, award or court decree which may adversely affect the operation
or financial condition of Franchisee or the unit or immediately notify Pretzel
Time of any notice of health or sanitation violation.
14.F. PAYMENT OF TAXES.
Franchisee shall be solely responsible for payment of all taxes,
including, but not limited to, real estate, sales, payroll, franchise, income,
personal property, and gross receipts taxes which are assessed as a result of
Franchisee's operation of the Franchise.
14.G. SALE OF PRODUCT.
Franchisee agrees not to sell or offer to sell any materials, supplies,
or inventory used in the preparation of any of the Products other than to
Pretzel Time and that he shall not sell, dispense, give away or otherwise
provide without Pretzel Time's prior written consent any product except by means
of retail sales in the franchise location. Franchisee may only sell finished
Products and may not sell any Products to any person or entity purchasing the
Products for resale. Notwithstanding the foregoing, Franchisee may offer free
samples of Products at or directly in front of the Unit to retail customers
only.
14.H. COOPERATION.
Franchisee agrees that he shall cooperate with Pretzel Time in taking
any action, or refraining from any action, which in the judgment of Pretzel Time
is necessary or desirable to promote and enhance the quality of the products of
the Franchise location, the service provided by the Franchisee, or the image of
the Franchise in the community.
14.I. INSURANCE.
Franchisee shall maintain at Franchisee's expense, in form, amounts and
with insurers satisfactory to Pretzel Time, which insurers must have an A.M.
Best Company rating of "A-" or better and naming Pretzel Time an additional
insured, insurance against all types of public liability with personal injury
coverage and property damage coverage. In addition to coverage as aforesaid such
insurance shall include coverages as set forth in the Operations Manual and
shall contain a provision obligating all insurers to provide a written notice
Pretzel Time of any cancellation or modification of coverage at least thirty
(30) days prior to the effective date of such modification or cancellation.
The insurance afforded by the policy or policies respecting liability
shall not be limited in any way by reason of any insurance which may be
maintained by Pretzel Time. Within sixty (60) days of the signing of this
Agreement, but in no event later than the date on which Franchisee acquires an
interest in the real property (by lease or purchase) on which it will develop
and operate the Franchise, a Certificate of Insurance showing compliance with
the foregoing requirements shall be furnished by Franchisee to Pretzel Time for
approval. Such certificate shall state that said policy or policies will not be
canceled or altered without at least thirty (30) days prior written notice to
Pretzel Time and shall reflect proof of payment of premiums. Maintenance of such
insurance and the performance by Franchisee of the obligations under this
Section shall not relieve Franchisee of liability under the indemnity provision
set forth in this Agreement. Minimum limits as required above may be modified
from time to time, as conditions require by written notice to Franchisee.
<PAGE>
Should Franchisee not procure and maintain such insurance coverage as
required by Pretzel Time, Pretzel Time shall have the right and authority,
without any obligation to do so, immediately procure such insurance coverage and
to charge same to Franchisee, which charges together with a reasonable fee for
expenses incurred by Pretzel Time in connection with such procurement, shall be
payable by Franchisee immediately upon notice.
Franchisee shall fully cooperate with Pretzel Time in its efforts to
obtain such insurance policies, promptly execute all forms or instruments
required to obtain or maintain such insurance policies, allow inspections of the
Unit or vehicles which are required to obtain and maintain insurance and pay
Pretzel Time on demand for any costs or premiums.
14.J. SUGGESTED RETAIL PRICES.
Pretzel Time may from time to time advise or offer guidance to
Franchisee relative to prices for Products offered for sale by Franchisee that
in Pretzel Time's judgment constitute good business practice. Franchisee shall
not be obligated to accept any such advice or guidance and shall have the sole
right to determine and to sell products at any price that it determines.
Whenever Pretzel Time recommends a retail price, such recommendations are based
on Pretzel Time's experience concerning all factors that enter into a proper
price, but such recommendation is in no manner binding on Franchisee and no such
advice or guidance shall be deemed or construed to impose upon Franchisee any
obligation to charge any fixed, minimum or maximum prices for any product
offered for sale by the Franchise. Pretzel Time reserves the right to advertise
retail prices of Pretzel Time Products, provided that such retail prices are
qualified as "suggested." The parties understand and agree that such advertising
shall not be construed as requiring Franchisee to adhere to such prices but
Franchisee shall have complete freedom to establish retail prices.
<PAGE>
15. ACCOUNTING, REPORTS AND FINANCIAL STATEMENTS.
15.A. ESTABLISHMENT OF ACCOUNTING SYSTEM.
Franchisee shall establish at his own expense a complete and accurate
bookkeeping, accounting, record keeping and data processing system prepared in
accordance with generally accepted accounting principles and conforming to the
requirements and formats that Pretzel Time prescribes from time to time. Pretzel
Time shall provide Franchisee with forms on which to maintain certain sales and
operational data. Franchisee shall furnish to Pretzel Time on said forms that
Pretzel Time prescribes from time to time:
(i) On Tuesday of each week, a report on the Unit's net revenues and
sales and operations for the previous week;
(ii) Every six calendar month period, a balance sheet and a profit and
loss statement for the Unit for the previous semi-annual period and a
year to-date statement of financial condition as of the end of such
previous period; and
(iii) Within thirty (30) days after Franchisee's year end, an annual
financial report.
The reports required in Section 15.A. (ii) and (iii) if not audited, should be
signed by the Franchisee or its financial officer, attesting that (1) the
reports are true and accurate, (2) they are prepared in accordance with GAPP on
a basis consistent with prior periods, (3) they fully describe and completely
disclose the information sought, and (4) the signer has made diligent efforts to
ascertain the truth and completeness of the information.
15.B. MAINTENANCE OF RECORDS.
Franchisee agrees, at all times, he shall keep and maintain adequate,
accurate, true, and proper records, books, reports, data, and accounts relative
to the franchise in the English language and in accordance with generally
accepted accounting principles, and retain the records for a period of three (3)
years after the date they were prepared, from which there may be readily
determined the information required in the operating reports to be filed with
Pretzel Time. Such records include, without limitation, 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, supplier invoices, dated cash register tapes, weekly
inventories, sales reports, financial statements and tax returns.
Franchisee hereby authorizes Pretzel Time to utilize the data supplied
by Franchisee under this Section in any publication, discovery statement,
Offering Circular, or advertisements related to the sale of Franchises or
related entities by Pretzel Time, anywhere, at any time, without specific
compensation therefor.
<PAGE>
16. AUDITS AND INSPECTIONS.
16.A. AUDITS.
Pretzel Time or its designee shall have the right at any time during
business hours and without prior notice to Franchisee, to inspect, audit and
copy or the right to cause to be inspected, audited and copied, the business
records, bookkeeping and accounting records, sales and income tax records and
returns and other records of the Franchised Business, including but not limited
to, 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, supplier invoices, dated
cash register tapes, weekly inventories, sales reports, financial statements and
tax returns and the books and records of any corporation or partnership which
holds the Franchise including the personal financial records and tax returns of
the Franchisee during and after the term of the Franchise Agreement. Franchisee
agrees to maintain on the premises all sales and operational information for
four weeks.
Any such inspection or audit will take place at a time which will not
interfere with Franchisee's normal business. Franchisee shall fully cooperate
with Pretzel Time's representatives and independent accountants hired by Pretzel
Time to conduct any such inspection or audit. If Pretzel Time deems necessary,
Franchisee shall deliver to Pretzel Time or its designated agents copies of all
bookkeeping records not already in the possession of Pretzel Time, including
customer records, cash register tapes, sales and purchase records and tax
records, to enable Pretzel Time or its representative or designee to adequately
audit Franchisee's gross sales. Franchisee hereby waives any right to withhold
tax records relative to the Franchise as privileged information. Each report and
financial statement shall be signed and verified by Franchisee in the manner
Pretzel Time prescribes. Pretzel Time reserves the right to require Franchisee
to have audited or reviewed financial statements prepared on an annual basis.
In the event that an audit discloses that Franchisee's actual net
revenues exceed Franchisee's reported net revenues by two percent (2%) or more
for any thirty day period, Franchisee is obligated to pay to Pretzel Time,
within fifteen (15) days after receipt of the inspection or audit report, the
royalty of seven percent (7%) and the Advertising Fund Fee of one percent (1%)
of the amount of such understatement plus interest from the date such payments
were originally due. The audit will be conducted at the expense of Pretzel Time,
provided that if an audit disclosed an understatement of two percent (2%), as
described above, Franchisee will bear the cost of the audit, including without
limitation, the charges of attorneys and any independent accountants, their
travel expenses, room and board, and compensation of Pretzel Time's
representatives and independent accountants. Providing that in no case will
Franchisee be obligated to pay more than ten thousand dollars ($10,000) for such
inspection or audit costs. The foregoing remedies shall be in addition to
Pretzel Time's other remedies and rights under this Agreement or applicable law.
<PAGE>
16.B. RIGHT OF ENTRY AND INSPECTION.
To determine whether Franchisee and the Unit are complying with this
Agreement and with all Pretzel Time's standards and operations as prescribed by
Pretzel Time, Pretzel Time or its designated agents shall have the right at any
reasonable time and without prior notice to Franchisee to:
a. Inspect the Unit;
b. Observe, photograph and video tape the Unit's operations for such
consecutive or intermittent periods as Pretzel Time deems necessary;
c. Remove samples of any Products, materials or supplies for testing
and analysis;
d. Interview personnel of the Unit;
e. Interview customers of the Unit; and
f. Inspect and copy any books, records and documents relating to the
operation of the Unit. Franchisee agrees to cooperate fully with
Pretzel Time in connection with any such inspections,
observations, photographing, video taping, Product removal and interviews.
Franchisee shall present to his customers such comment or evaluation forms as
Pretzel Time periodically prescribes and shall participate and/or request his
customers to participate in any surveys performed by or on behalf of Pretzel
Time. At the conclusion of his inspection, Pretzel Time's field representative
shall prepare a written report which shall contain all of his observations and
conclusions. If the field representative determines that a condition amounting
to a default of this Agreement has occurred or exists, this conclusion shall be
promptly communicated to Franchisee and Pretzel Time.
17. TRANSFER, ASSIGNMENT AND REPURCHASE.
17.A. BY PRETZEL TIME.
This Agreement is fully transferable by Pretzel Time and shall inure to
the benefit of any assignee, transferee or other legal successor to Pretzel
Time's interest herein. If Pretzel Time's assignee will perform any of Pretzel
Time's obligations under this Agreement, then that assignee must be financially
capable of performing those obligations and the assignee must expressly assume
and agree to perform them. Franchisee agrees that Pretzel Time shall have the
right, from time to time, to delegate the performance of any portion or all of
its obligations and duties under this Agreement.
<PAGE>
17.B. BY FRANCHISEE.
Franchisee understands and acknowledges that the rights and duties
created by this Franchise Agreement are personal to Franchisee (or if Franchisee
is a corporation or partnership, to its Owners) and that Pretzel Time has
granted the Franchise to Franchisee in reliance upon Pretzel Time's perceptions
of the individual or collective character, skill, aptitude, attitude, business
ability and financial capacity of Franchisee (or its Owners). Accordingly,
Franchisee agrees no Transfer shall be made without Pretzel Time's prior written
approval. Any Transfer without such approval shall constitute a breach of this
Agreement and shall be void and of no effect. Pretzel Time's consent to the
assignment shall neither constitute a novation or change in Franchisee's
obligations under this agreement, nor constitute a waiver of any claims Pretzel
Time may have against Franchisee (or its Owners) nor be deemed a waiver of
Pretzel Time's right to demand the transferee's exact compliance with all of the
terms or conditions of this Agreement.
17.C. CONDITIONS FOR APPROVAL OF TRANSFER.
If Franchisee is in full compliance with this Agreement (and, if
Franchisee is a corporation or partnership, its Owners are in full compliance
with this Agreement), Pretzel Time shall not unreasonably withhold its approval
of a Transfer that meets all of the following requirements:
(1) The transferee and its Owners must meet Pretzel Time's then
applicable standards for Pretzel Time Unit franchisees and must have
had sufficient business experience, aptitude, and financial resources
to operate the Unit;
(2) Franchisee has paid such royalty, advertising fund fees, amounts
owed for purchases by Franchisee from Pretzel Time and its Affiliates
and all other amounts owed to Pretzel Time or its Affiliates and third
party creditors and shall have submitted to Pretzel Time all required
reports and statements;
(3) Franchisee or the transferee has paid Pretzel Time's then current
transfer fee to defray expenses Pretzel Time incurs in connection with
the transfer, except that if the proposed Transfer is, to or among
Owners of Franchisee, this provision shall not apply;
<PAGE>
(4) The Transferee and/or its Unit Manager have agreed to complete
Pretzel Time's training program to Pretzel Time's satisfaction and
prior to the date of transfer;
(5) The Transferee has agreed to be bound by all of the terms and
conditions of this Agreement and executes a current Franchise Agreement
and other franchise documents, a sublease agreement, if any, and other
documents required by Pretzel Time;
(6) Franchisee (and its transferring Owners) have executed a general
release, in form satisfactory to Pretzel Time, of any and all claims
against Pretzel Time and its Affiliates and their officers, directors,
employees and agents;
(7) Pretzel Time has approved the material terms and conditions of such
Transfer, including, without limitation, that the price and terms of
payment are not so burdensome as to affect adversely the transferee's
operation of the Unit; provided, however, that Pretzel Time's approval
of such Transfer does not ensure the transferee's success as a Pretzel
Time Unit franchisee, nor should the transferee rely upon Pretzel
Time's approval of such Transfer in determining whether to acquire
Franchisee's Pretzel Time Unit; (8) If Franchisee (and/or its Owners)
finances any part of the sale price of the transferred interest,
Franchisee and/or its Owners have agreed that all obligations of the
transferee under or pursuant to any promissory notes, agreements or
security interests reserved by Franchisee or its Owners in the assets
of the Unit or the Premises shall be subordinate to the transferee's
obligations to pay royalty and service fees and other amounts due to
Pretzel Time and its Affiliates and otherwise to comply with this
Agreement;
(9) Franchisee (and its Owners) have executed a noncompetition covenant
in favor of Pretzel Time and the transferee agreeing that, for a period
of twelve (12) months commencing on the effective date of the Transfer,
Franchisee, its Owners and members of the immediate families of
Franchisee and each of its Owners will not hold any direct or indirect
interest as a disclosed or beneficial owner, investor, partner,
director, officer manager, employee, consultant, representative or
agent, or in any other capacity, in a Competitive Business located or
operating within three (3) miles of the Unit, and within three (3)
miles of any other Pretzel Time Unit;
<PAGE>
(10) If consent is required, the lessor of the Premises consents to the
assignment or sublease of the Premises to the transferee;
(11) Franchisee has complied with all of its obligations to Pretzel
Time, its Affiliates, suppliers, and distributors, and Franchisee is
not in default under this Agreement or any other Agreement with Pretzel
Time or Pretzel Time's Affiliates;
(12) All improvements, including refurbishings, remodelings, new
equipment must be made prior to the Transfer; and
(13) Franchisee (and its Owners) has agreed that he will not directly
or indirectly at any time or in any manner (except with respect to
Pretzel Time Units owned and operated by Franchisee) identify himself
or any business as a current or former Pretzel Time Unit, or as a
franchisee, licensee or dealer of Pretzel Time or its Affiliates, use
any Mark, any colorable imitation thereof or other indicia of a Pretzel
Time Unit in any manner or for any purpose or utilize for any purpose
any tradename, trade or service mark or other commercial symbol that
suggests or indicates a connection or association with Pretzel Time or
its Affiliates.
17.D. TRANSFER TO A WHOLLY-OWNED CORPORATION.
Notwithstanding Section 17.B., if Franchisee is in full compliance with
this Agreement, Franchisee may transfer this Agreement to a corporation which
conducts no business other than the Pretzel Time Unit and in which Franchisee
maintains management control and owns and controls one hundred percent (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 17.C.(2) and 17.C.(8). Notwithstanding anything to the contrary herein,
Franchisee shall 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 such corporation shall recite that
the issuance and assignment of any interest therein is restricted by the terms
of Section 17 of this Franchise Agreement, and all issued and outstanding stock
certificates of such corporation shall bear a legend reciting or referring to
the restrictions hereof.
17.E. FORMATION OF A CORPORATION.
In the event, Franchisee desires to form a corporation for the sole
purpose of acting as a Franchisee under this Agreement, in addition to the
conditions imposed under Section 17, the following terms and conditions must be
complied with, unless otherwise agreed in writing by Pretzel Time:
<PAGE>
(1) Franchisee must be the owner of the majority interest in
the voting stock of the corporation and the principal
executive officer thereof;
(2) Franchisee's shareholders shall enter into an agreement
under seal with Pretzel Time, on Pretzel Time's standard form,
guaranteeing the full payment of the corporation's money
obligations to Pretzel Time as individual surety and agreeing
to be bound individually by the non-competition obligation
stated herein; and
(3) Franchisee and all shareholders must continue to meet its
obligations under the noncompetition provisions of this
Agreement.
In the event Franchisee or its successor is a corporation or
partnership or similar entity, it is agreed as follows:
(1) That the Articles of Incorporation and By-Laws or the
Partnership Agreement, shall reflect that the issuance and
transfer of voting stock or other ownership interest therein,
is restricted by the terms of this Agreement. Franchisee shall
furnish Pretzel Time at the time of the execution of this
Agreement or of assignment to the corporation or partners of
Franchisee, a written agreement stating that no stockholder or
partner will sell, assign or transfer voluntarily or by
operation of law any securities of Franchisee, or other
ownership interest in Franchisee, to any person or entity
other than existing shareholders or partnership, to the extent
permitted hereunder, without the prior written consent of
Pretzel Time. All securities issued by Franchisee will 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 Pretzel Time,
Inc. dated , 199____. Reference is made to said Agreement
and to the restrictive provisions of the Articles and
By-laws or Shareholders or Partnership Agreement."
<PAGE>
(2) That if Franchisee or a successor, is a corporation, the
majority of the capital stock thereof shall not at any time or
in the aggregate be sold, assigned, pledged, mortgaged or
transferred without the prior written consent of Pretzel Time.
(3) Franchisee represents and warrants that its Owners are as
set forth on Exhibit B attached to this Agreement and
covenants that it will not vary from that ownership structure
without the prior written approval of Pretzel Time.
17.F. DEATH OR DISABILITY OF FRANCHISEE.
Upon the death or Permanent Disability of Franchisee or, if Franchisee
is a corporation or partnership, the Owner of a Controlling Interest in
Franchisee, the executor, administrator, conservator, guardian or other personal
representative of such person shall transfer Franchisee's interest in this
Agreement or such interest in Franchisee to a third party approved by Pretzel
Time. Such disposition of this Agreement or such interest in Franchisee
(including, without limitation, transfer by bequest or inheritance) shall be
completed within a reasonable time, not to exceed six (6) months from the date
of death or Permanent Disability, and shall be subject to all the terms and
conditions applicable to Transfers contained in Section 17.B. and 17.C. Failure
to transfer the interest in this Agreement or such interest in Franchisee within
said period of time shall constitute a breach of this Agreement.
17.G. PRETZEL TIME'S FIRST RIGHT OF REFUSAL.
If Franchisee (or its Owners) shall at any time determine to sell,
assign or transfer for consideration this Agreement or an Ownership Interest in
Franchisee or the Unit, Franchisee (or its Owners) shall obtain a bona fide,
executed written offer and earnest money deposit from a responsible and fully
disclosed purchaser (including lists of the Owners of record and beneficially of
any corporate offeror and all general and limited partners of any partnership
offeror and, in the case of a publicly-held corporation or limited partnership,
copies of the most current annual and quarterly reports) and shall immediately
submit to Pretzel Time a true and complete copy of such offer, which shall
include details of the payment terms of the proposed sale and the sources and
terms of any financing for the proposed purchase price. To be a valid, bona fide
offer, the proposed purchase price shall be denominated in a dollar amount. The
offer must apply only to an interest in this Agreement, Franchisee or the Unit
and may not include an offer to purchase any other property or rights of
Franchisee (or its Owners). However, if the offeror proposes to buy any other
property or rights from Franchisee (or its Owners) under a separate,
contemporaneous offer, the price and terms of purchase offered to Franchisee (or
its Owners) for the interest in this Agreement, Franchisee or the Unit shall
reflect the bona fide price offered therefore and shall not reflect any value
for any other property or rights.
<PAGE>
Pretzel Time shall have the right, exercisable by written notice
delivered to Franchisee (or its Owners) within sixty (60) days from the date of
delivery of an exact copy of such offer to Pretzel Time, to purchase such
interest for the price and on the terms and conditions contained in such offer,
provided that Pretzel Time may substitute cash for any form of payment proposed
in such offer, Pretzel Time's credit shall be deemed equal to the credit of any
proposed purchaser and Pretzel Time shall have not less than sixty (60) days to
prepare for closing. Without regard to the representations and warranties
demanded by the proposed purchaser, if any, Pretzel Time shall be entitled to
purchase such interest subject to all customary representations and warranties
given by the Franchisee, seller of the assets of a business or voting stock of
an incorporated business, as applicable, including, without limitation,
representations and warranties as to ownership, condition and title to stock,
and /or assets, liens and encumbrances relating to the stock and/or assets,
validity of contracts and liabilities of the corporation whose stock is
purchased and affecting the assets, contingent or otherwise.
If Pretzel Time exercises its right of first refusal, Franchisee (and
its Owners) agrees that, for a period of twelve (12) months commencing on the
date of the closing, neither Franchisee (nor its Owners) shall have any direct
or indirect interest (through a member of the immediate families of Franchisee
or its Owners of otherwise) as a disclosed or beneficial owner, investor,
partner, director, officer, employee, consultant, representative, or agent or in
any other capacity in any Competitive Business located or operating within three
(3) miles of the Unit, and/or three (3) miles of any other Pretzel Time Unit.
The restrictions of this Section shall 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. If Pretzel Time
exercises its right of first refusal, Franchisee (and its Owners) further agrees
that he will abide by the restrictions of Section 17.C.(13).
If Pretzel Time does not exercise its right of first refusal,
Franchisee or its Owners may complete the sale to such purchaser pursuant to and
on the exact terms of such offer, subject to Pretzel Time's approval of the
Transfer as provided in Section 17, provided that if the sale to such purchaser
is not completed within 120 days after delivery of such offer to Pretzel Time,
or if there is a material change in the terms of the sale (which Franchisee
shall promptly communicate to Pretzel Time), Pretzel Time's right to first
refusal shall be extended for thirty (30) days after the expiration of such 120
day period or after the material change in the terms of the sale so communicated
to Pretzel Time.
<PAGE>
17.H. PUBLIC OR PRIVATE OFFERINGS.
In the event Franchisee (or any of its Owners) shall, subject to the
restrictions and conditions of Transfer contained in Section 17, attempt to
raise or secure funds by the sale of securities (including, without limitation,
common or preferred stock, bonds, debentures or general or limited partnership
interests) in Franchisee or any affiliate of Franchisee, Franchisee, recognizing
that the written information may reflect upon Pretzel Time, agrees to submit any
such written information used with respect thereto prior to its inclusion in any
registration statement, prospectus or similar offering circular or memorandum
and to obtain Pretzel Time's written consent to the method of financing prior to
any offering or sale of such securities. Pretzel Time's written consent pursuant
to this Section shall not imply or constitute Pretzel Time's approval with
respect to the sale of the securities, the offering literature submitted to
Pretzel Time or any other aspect of the offering. No information respecting
Pretzel Time shall be included in any disclosure document unless such
information has been furnished by Pretzel Time in writing pursuant to
Franchisee's written request, in which Franchisee states the specific purposes
for which the information is to be used. Should Pretzel Time, in its sole
discretion, object to any reference to it or its business or to the relationship
of Franchisee or a controlled affiliate in such offering literature or
prospectus, such literature or prospectus shall not be used unless and until
Pretzel Time's objections are withdrawn. Pretzel Time assumes no responsibility
whatsoever for any offering. Franchisee shall pay Pretzel Time's expenses in
connection with the offering or proposed offering.
The prospectus or other literature utilized in any such offering shall
contain the following language in bold-face type on the first textual page
thereof:
PRETZEL TIME, INC. IS NOT DIRECTLY OR INDIRECTLY THE ISSUER OF THE
SECURITIES OFFERED HEREBY AND ASSUMES NO RESPONSIBILITY WITH RESPECT TO
THIS OFFERING AND/OR THE SUFFICIENCY OR ACCURACY OF THE INFORMATION SET
FORTH HEREIN, INCLUDING ANY STATEMENTS WITH RESPECT TO PRETZEL TIME,
INC. PRETZEL TIME, INC. DOES NOT ENDORSE OR MAKE ANY RECOMMENDATION
WITH RESPECT TO THE INVESTMENT CONTEMPLATED BY THIS OFFERING.
Franchisee (and each of its Owners) agrees to indemnify, defend and
hold harmless Pretzel Time, its parent company, subsidiaries, and Affiliates and
their officers, directors, employees and agents from any and all claims, demands
and liabilities, and all costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred in defending against such claims, demands
or liabilities, arising from the offer or sale of such securities, whether
asserted by a purchaser of any such security or by a governmental agency.
Pretzel Time shall have the right (but not the obligation) to defend any such
claims, demands or liabilities and/or to participate in the defense of any
action to which it is named as a party.
<PAGE>
18. TERMINATION OF AGREEMENT BY FRANCHISEE.
18.A. FRANCHISEE'S RIGHT TO TERMINATE.
If Franchisee is in substantial compliance with this Agreement and
Pretzel Time substantially breaches a material provision of this Agreement and
(1) fails to cure such breach within thirty (30) days after written notice
thereof is delivered to Pretzel Time or (2) if such breach cannot reasonably be
cured within thirty (30) days after Pretzel Time's receipt of such notice,
undertake (within thirty (30) days after Pretzel Time's receipt of such notice
and continue until completion), reasonable efforts to cure such breach,
Franchisee may terminate this Agreement. Such termination shall be effective ten
(10) days after delivery to Pretzel Time of notice that such breach has not been
cured and Franchisee elects to terminate this Agreement. A termination of this
Agreement by Franchisee for any reason other than a substantial breach of a
material provision of this Agreement by Pretzel Time, and Pretzel Time's failure
to cure such breach as provided above shall be deemed a termination by
Franchisee without cause.
19. DEFAULT AND TERMINATION.
19.A. EXACT AND COMPLETE PERFORMANCE REQUIRED.
Franchisee acknowledges that complete performance of all the terms of
this Agreement is necessary for the protection of Pretzel Time and its
franchisees. It is therefore agreed that complete and exact performance by the
Franchisee of each of his promises contained herein is a condition to the
continuance of this Franchise.
19.B. DEFAULT AND RIGHT TO CURE.
If Franchisee defaults in the performance of any of the terms of this
Agreement or the Operations Manual, Pretzel Time, in addition to all other
remedies available to it at law or in equity and without prejudice to any other
rights or remedies, may immediately terminate this Agreement by delivering a
written notice to Franchisee of any breach of this Agreement and a notice period
of forty-five (45) days shall be given to Franchisee, unless such default is
cured by the Franchisee within thirty (30) days after written notice thereof
from Pretzel Time to Franchisee. Notwithstanding the foregoing, if the default
is other than a failure to pay a monetary obligation to Pretzel Time or to a
related company and of a nature that more than thirty (30) days are reasonably
required to cure, Franchisee shall commence to cure the default within said
thirty (30) day period and shall proceed with such cure with due diligence with
a view to accomplishing the cure at the earliest possible moment, and within the
period, if any, designated by Pretzel Time as the allowable additional time
within which the cure must be accomplished.
19.C. EXTENSION OF NOTICE.
If any applicable law or rule requires a greater prior notice of
termination, the prior notice required by such law or rule shall be substituted
for the notice requirements herein.
<PAGE>
19.D. REPEATED BREACHES.
Further, notwithstanding anything herein elsewhere contained, if
Franchisee shall repeatedly fail to comply with the terms of this Agreement, or
any of them, of any nature, even though such failures may be cured within the
applicable grace periods, Pretzel Time shall have the right by written notice
given to Franchisee immediately to declare this Agreement terminated, which
right shall be in addition to and without prejudice to any other right or remedy
to which Pretzel Time may be entitled under this Agreement or otherwise under
applicable law. As used in this Agreement the term "repeatedly fail" shall mean
three (3) defaults within any twelve (12) month period, even if the defaults are
later cured.
19.E. EVENTS OF DEFAULT - 30 DAYS NOTICE - CURABLE DEFAULTS.
The occurrence of any one of the following events shall constitute a
default under this Agreement requiring a 30 day notice period of termination by
Pretzel Time to Franchisee:
(i) Franchisee fails to pay money when due to Pretzel Time as
required under the Franchise Agreement, including, without
limitation, the franchise fee, the renewal fee, the transfer
fee, royalties, and the advertising fund fee; or
(ii) If Franchisee or his Unit Manager fails to satisfactorily
complete any mandatory training programs (except the initial
training in which case, the Franchise Agreement can be
terminated upon notice) offered by Pretzel Time; or
(iii) If Franchisee fails to submit to Pretzel Time financial
or other information when required under this Agreement or
submits a financial statement which materially understates net
revenues; or
(iv) If Franchisee fails to develop or construct the Unit in
accordance with this Agreement; Pretzel Time's plans and
specifications or fails to equip and furnish the location in
accordance with Pretzel Time's plans and specifications; or
(v) A final judgment against Franchisee remains unsatisfied of
record for thirty (30) days, unless a supersedeas or other
appeal bond has been filed; or
<PAGE>
(vi) Franchisee or any of its Owners abandons, surrenders or
transfers control of the operation of the Unit without the
prior written approval of Pretzel Time, or threatens to
abandon the same; or
(vii) Franchisee fails to use Pretzel Time approved marketing
and promotional materials or Franchisee fails to receive
Pretzel Time's prior approval of marketing and promotional
materials; or
(viii) Failure to obtain Pretzel Time's prior written consent
or approval where expressly required by the Franchise
Agreement; or
(ix) If Franchisee operates the franchise in such a manner so
as to affect materially and adversely the goodwill or
reputation of Pretzel Time or its System or any product
manufactured by any Affiliate; or
(x) Franchisee denies Pretzel Time the right to inspect the
Unit or to examine or audit his books; or
(xi) Franchisee misuses Pretzel Time's Marks or asserts any
interest in Pretzel Time's Marks; uses Pretzel Time's
tradename or any part thereof as part to of its corporate
name; does not cooperate in the enforcement of any Mark; or
challenges or seeks to challenge the validity of the Marks; or
(xii) Franchisee fails to maintain and operate the Unit in
accordance with standards and specifications established by
Pretzel Time as to the services or maintenance of inventory;
or
(xiii) Franchisee fails to obtain all permits, insurance,
licenses and other necessary documents for the opening of the
Unit; or
(xiv) Franchisee fails to maintain uniform Unit design and
image, and/or fails to refurbish or remodel as required by
Pretzel Time; or
(xv) Franchisee attempts or does mortgage, pledge or otherwise
assign as security the premises, any equipment, furnishings,
fixtures or any interest Franchisee may have; or
(xvi) Conduct by Franchisee which is of such a nature that a
reasonably objective person would consider same to be
deleterious to or to reflect unfavorably on Pretzel Time or
the Pretzel Time Unit System; or
<PAGE>
(xvii) Failure by Franchisee to maintain a responsible credit
rating by failing to make prompt payment of undisputed bills,
invoices and statements from suppliers or distributors of
goods and services to the Unit; or
(xviii) Failure to comply with all of the terms of the
Operations Manual as amended from time to time, the standards
and specifications required by Pretzel Time or any other
agreement between the Franchisee and Pretzel Time; or
(xix) Fails to pay any federal or state income, sales or other
taxes due on the Unit's operations unless Franchisee is in
good faith contesting his liability for such taxes; or
(xx) Franchisee knowingly sells any product or service that
does not conform to Pretzel Time's specifications, uses or
sells products other
<PAGE>
than in strict accordance with the requirements of the
Franchise Agreement or the Operations Manual; fails to sell
products or services approved by Pretzel Time or deals with
vendors and suppliers not approved by Pretzel Time.
(xxi) Franchisee fails to pay any subcontractor, contractor or
other person to whom money is due and that subcontractor,
contractor or other person demands said money from Pretzel
Time.
(xxii) Franchisee is late in paying rent to the landlord more
than 2 times in any twleve month period.
19.F. EVENTS OF DEFAULT - IMMEDIATE TERMINATION - NO RIGHT TO CURE.
The following acts of default will result in termination of the
Franchise effective immediately upon delivery and receipt of written notice of
same to Franchisee and with no right to cure where the grounds for termination
or cancellation are:
(i) Franchisee or a Owner fails to complete all phases of the initial
training program to Pretzel Time's satisfaction; or
(ii) Franchisee fails to commence operation of the Unit within the
time specified in this Agreement; or
(iii) Any affirmative act of bankruptcy or insolvency by
Franchisee, or the filing by Franchisee of any petition or
action in bankruptcy or insolvency, or for appointment of a
receiver or trustee, Franchisee admits in writing his
inability to pay his debts or an assignment by Franchisee for
the benefit of creditors, or the failure to vacate or dismiss
within five (5) days after filing any such proceedings
commenced against Franchisee by a third party. Franchisee
expressly and knowingly waives any rights that he may have
under the provisions of the Bankruptcy Rules and consents to
the termination of this Agreement or any other relief which
may be sought in a complaint filed by Pretzel Time to lift the
provisions of the automatic stay of the Bankruptcy Rules.
Additionally Franchisee agrees not to seek an injunction order
from any court in any jurisdiction relating to insolvency,
reorganization of arrangement proceedings which would have the
effect of staying or enjoining this provision. THIS PROVISION
MAY NOT BE ENFORCEABLE UNDER FEDERAL BANKRUPTCY LAW (11
U.S.C.A. Sec. 101 et seq.); or
(iv) Failure to cure within seventy-two (72) hours after
delivery of written notice of default under the Franchise
Agreement which materially impairs the goodwill associated
with Pretzel Time's trade names, trademarks, service marks,
logo types or other commercial
<PAGE>
symbols or the use by Franchisee of any name, mark, system
insignia or symbol not authorized by Pretzel Time; or
(v) The conviction of Franchisee, or any if its principals if
it is a partnership or corporation, of a crime related to the
business conducted pursuant to the franchise which may tend to
affect adversely the goodwill or reputation of Franchisee,
Pretzel Time or its System or the products of Pretzel Time's
Affiliates; or
(vi) Abandonment of the Franchise. For purposes of this
agreement "Abandonment" shall mean Franchisee's failure (other
than with Pretzel Time's prior written approval) to keep the
franchise open and operating for business during the minimum
opening hours specified in this Agreement or Lease Agreement;
or
(vii) Franchisee ceases to occupy the premises. If the loss of
possession in the result of governmental exercise of eminent
domain, destruction of the site, or termination of lease
(except by reason of Franchisee's fault), Franchisee may (with
Pretzel Time's consent and subject to availability) relocate
to other premises in a comparable location. Failure to
relocate to other Pretzel Time-approved premises within the
time specified in this Agreement after loss of possession due
to eminent domain, destruction of premises or termination of
lease without Franchisee's fault shall constitute an act of
Default with no right to cure and immediate termination upon
notice; or
(viii) The existence of an imminent danger to public health or
safety or fails or refuses to comply with standards relating
to the cleanliness or sanitation of the Unit or violates any
health, safety or sanitation, law ordinance or regulation and
does not correct such noncompliance within forty-eight (48)
hours after written notice thereof is delivered to Franchisee;
or
(ix) The loss of the right to occupy the premises from which
the franchise is operated by either Franchisee or Pretzel
Time; or
<PAGE>
(x) Material falsification of business records and reports
required by Pretzel Time; or
(xi) Franchisee (or any of its Owners) makes an assignment,
surrenders or transfers control of the Unit's operation in
violation of this Agreement; or
(xii) Franchisee (or any of its Owners) has made any material
misrepresentation or omission in the application for the
Franchise or in materials submitted relating to a transfer; or
(xiii) Franchisee, (or its Owners) or members of their
immediate family violate the restrictions on the operation of
Competitive Businesses during the term of this Agreement; or
(xiv) Franchisee (or any of its Owners or employees) makes an
unauthorized use or disclosure of or duplicates any copy of
any Confidential Information or uses, duplicates or discloses
any portion of the Operations Manual in violation of this
Agreement; or
(xv) Failure on two (2) or more separate occasions within any
period of twelve (12) consecutive months or on three (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 and fees or other payments due to
Pretzel Time or its Affiliates or otherwise fails to comply
with this Agreement, whether or not such failures to comply
with this Agreement, Advertising Fund Fee are corrected after
notice thereof is delivered to Franchisee; or
(xvi) Fails to cure a default under this Agreement within the
time specified or provide proof acceptable to Pretzel Time of
efforts which are reasonably calculated to correct such
failure within a reasonable time, which shall in no event be
more than sixty (60) days after such notice, if such failure
cannot reasonably be corrected within twenty (20) days after
written notice of such notice of default is delivered to
Franchisee; or
(xvii) Franchisee terminates this Agreement without cause; or
(xviii) Franchisee understates the Unit's net revenues in any
report or financial statement by an amount greater than two
(2) percent; or
(xix) Franchisee causes or permits to exist a default under
the lease or sublease for the Site and fails to cure such
default within the applicable cure period set forth in the
lease or sublease; or
<PAGE>
(xx) Franchisee (or any of its Owners) fails on three (3) or
more separate occasions within any period of twenty-four (24)
consecutive months to comply with this Agreement whether or
not such failures to comply are corrected after notice of
default is given, or failure on two (2) or more separate
occasions within any period of twelve (12) consecutive months
to comply within the same requirement under this Agreement,
whether or not such failures to comply are corrected after
notice of default is given.
20. RIGHTS AND OBLIGATIONS OF PRETZEL TIME AND FRANCHISEE UPON TERMINATION OR
EXPIRATION OF THE FRANCHISE.
20.A. AMOUNTS OWED.
Unless otherwise authorized by Pretzel Time in writing, in the event of
expiration or termination of this Agreement for any reason, or upon the sale,
transfer or assignment of the Franchise by Franchisee, all of Franchisee's
rights hereunder shall terminate and Franchisee shall cease to operate the
Franchise. Franchisee agrees to pay Pretzel Time within fifteen (15) days after
the effective date of termination or expiration of this Agreement, or such later
date that the amounts due to Pretzel Time are determined, such Royalty Fees,
Advertising Fund Fees, amounts owed for purchases by Franchisee from Pretzel
Time or its Affiliates, interest due on any of the foregoing and all other
amounts owed to Pretzel Time or its Affiliates which are then unpaid.
Expiration or termination of this Agreement for any reason shall not
affect, modify, or discharge any note, account receivable, or debt, contingent
or otherwise, existing or arising under this Agreement, or any prior agreement,
contract, or dealing between Pretzel Time and Franchisee.
20.B. DISCONTINUANCE OF MARKS.
Franchisee agrees to immediately discontinue all use of trade names,
trademarks, logotypes, forms of advertising and other commercial symbols of
Pretzel Time, and forms of advertising indicative of Pretzel Time and cancel all
assumed name registrations. Franchisee further shall remove or cause to be
removed all signs and structures indicative of a Pretzel Time Unit and shall
alter the premises occupied by Franchisee so as to distinguish the same from its
former appearance and from a Pretzel Time franchise. Further, Franchisee shall
discontinue the use of any and all printed goods and materials using said trade
names, trademarks, logos and other commercial symbols of Pretzel Time. If
Franchisee refuses to comply with the terms of this Section 20 after Pretzel
Time requests compliance, Pretzel Time shall have the right to enter upon
Franchisee's premises without being deemed guilty of trespassing or any other
offense, and make or cause to be made such changes at Franchisee's expense,
which Franchisee agrees to pay upon demand.
Franchisee agrees to not directly or indirectly at any time or in any
manner (except with respect to other Pretzel Time Units owned by the Franchisee)
identify himself or any business as a current or former Pretzel Time Unit, or as
a franchisee, licensee or dealer of Pretzel Time or its Affiliates. Franchisee
further agrees to not use any Mark, any colorable imitation thereof or other
indicia of a Pretzel Time Unit 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 Pretzel Time or its
Affiliates. Franchisee (or any of its Owners) agrees after termination he will
not do business under any name or in any manner that might tend to give the
general public the impression that he is associated, affiliated, licensed,
franchised by or related to Pretzel Time. The Franchisee (or any of its Owners)
may not thereafter use any name, logo type, or symbol confusingly similar to
Pretzel Time's Service Mark, logo type or symbol. If Franchisee continues
operating a business at the franchised location it will exert every reasonable
effort to inform the public of his new status, including a change of telephone
number and advertising materials.
<PAGE>
The Franchise granted to Franchisee hereunder to sell Products bearing
Pretzel Time's Marks does not include the right to sell or advertise for sale of
Franchisee's Franchise itself or of its business location. No advertisement by
Franchisee or other public solicitation for sale of his interest in this
Agreement may include a representation of Pretzel Time's trademark or any
reference to Pretzel Time or its trademark system.
20.C. RETURN OF MATERIALS.
Franchisee agrees to return to Pretzel Time all signs, sign-faces,
forms, invoices, letterhead, and other materials containing any Mark or
otherwise identifying or relating to a Pretzel Time Unit and allow Pretzel Time,
without liability to remove all such items from the Unit. Franchisee also agrees
to return all materials and confidential information loaned to Franchisee,
including, without limitation, all Operations Manuals and Training Manuals and
videos. Franchisee agrees to return all materials and supplies identified by the
Marks in full cases or packages to Pretzel Time for credit and dispose of all
other materials and supplies, but not equipment, identified by the Marks within
thirty (30) days after the effective date of termination or expiration of this
Agreement.
20.D. TELEPHONE COMPANY.
Franchisee agrees to notify the telephone company and all telephone
directory publishers of the termination or expiration of Franchisee's right to
use any telephone and telecopy numbers and any regular, classified or other
telephone directory listings associated with any Mark and to authorize the
transfer thereof to Pretzel Time or at its direction. Franchisee acknowledges
and agrees that as between him and Pretzel Time, Pretzel Time has the sole
rights to and interest in all telephone and telecopy numbers and directory
listings associated with any Mark. Franchisee authorizes Pretzel Time, and
hereby appoints Pretzel Time and any of its officers as Franchisee's 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 Pretzel Time Units to Pretzel Time or at its direction, should Franchisee
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 Pretzel
Time's exclusive rights in such telephone and telecopy numbers and directory
listings and Pretzel Time's authority to direct their transfer. Franchisee
agrees to execute a collateral assignment of telephone numbers and listings
agreement which is attached hereto as Exhibit G. In no event shall Pretzel Time
be responsible for any charges incurred by Franchisee and associated with the
telephone company prior to the date of transfer.
20.E. CONFIDENTIAL INFORMATION.
Franchisee (and its Owners) agrees that upon termination or expiration
of this Agreement, he will immediately cease to use any Confidential Information
of Pretzel Time or its Affiliates disclosed to him pursuant to this Agreement in
any business or otherwise. This provision is also applicable to the Owners if
the Franchise is a corporation or partnership.
20.F. LEASING.
If Franchisee has leased the premises, Pretzel Time may, in its sole
discretion and without any obligation to do so, assume the lease. Franchisee
will not be entitled to any refund of the initial franchise fee, royalties, or
Advertising Fund Fees.
<PAGE>
20.G. COVENANT NOT TO COMPETE.
Upon termination of this Agreement, in accordance with its terms and
conditions or by Franchisee without cause, or upon expiration of this Agreement
(unless the Franchise is renewed as provided for in this Agreement), Franchisee
and its Owners agree that for a period of TWELVE (12) months commencing on the
effective date of termination or expiration or the date on which Franchisee
complies with this Section, whichever is later, neither Franchisee, nor its
Owners, nor any person or entity affiliated with Franchisee or Franchisee's
shareholders or partners shall have any direct or indirect interest (through a
member of the immediate families of Franchisee or its Owners or otherwise) as a
disclosed or beneficial owner, investor, partner, director, officer, employee,
consultant, representative, agent or in any other capacity in any Competitive
Business located or operating: (1) at the Site; (2) within three (3) miles of
the Unit; and/or (3) within three (3) miles of any other Pretzel Time Unit in
operation or under development on the effective date of termination or
expiration of this agreement for a period of one year after the termination or
expiration. The restrictions of this Section shall 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.
Franchisee and its Owners expressly acknowledge that they possess skills and
abilities of a general nature and have other opportunities for exploiting such
skills. Consequently, enforcement of the covenants made in this Section will not
deprive the Franchisee or its Owners or shareholders of their personal goodwill
or ability to earn a living.
The Franchise Agreement contains a covenant not to compete which extends beyond
the termination of the franchise. Franchisee and its Owners acknowledge that the
covenant not to compete is fair and reasonable, and will not impose any undue
hardship, since the Franchisee (and its Owners) has other considerable skills,
experience and education which will afford him the opportunity to derive income
from other endeavors.
Neither Franchisee nor any of its Owners shall divert or attempt to divert any
business or any customers of any Pretzel Time Unit to any Competitive Business
or employ or seek to employ any person who is employed by Pretzel Time, its
Affiliates or a franchisee of Pretzel Time nor induce or attempt to induce any
such person to leave said employment without the prior written consent of such
person's employer.
<PAGE>
20.H. PRETZEL TIME'S RIGHT TO PURCHASE ASSETS OF THE UNIT.
Upon termination of this Agreement by Pretzel Time in accordance with
its terms and conditions or by Franchisee without cause or upon expiration of
this Agreement (unless the franchise has been renewed), Pretzel Time, its
Affiliates or its assignee shall have the option (not the obligation),
exercisable by giving written notice thereof within sixty (60) days from the
date of such expiration or termination, to acquire from Franchisee all the
assets in the Unit including the equipment, furnishings, signs, leasehold
improvements, usable inventory of Products, materials, supplies and other
tangible assets of the Unit and an assignment of the lease for the Unit. Pretzel
Time shall have the unrestricted right to assign this option to purchase.
Pretzel Time or its assignee shall be entitled to all customary warranties and
representations in connection with its asset purchase, including, without
limitation, representations and warranties as to ownership, condition of and
title to assets, no liens and encumbrances on the assets, validity of contracts
and agreements and liabilities inuring to Pretzel Time or affecting the assets,
contingent or otherwise.
(1) The purchase price for the assets of the Unit shall be equal to the
greater of:
The sum of the book value of the Unit's assets (including
furnishings, fixtures, equipment, and leasehold improvements)
amortized on a straight-line basis over a five (5) year period
plus the lesser of costs and the then-current wholesale market
value of all usable inventory of Products, materials and
supplies (i.e. in good and saleable condition and not obsolete
or discontinued), or
The product of the Unit's average cash flow for the two (2)
most recently completed fiscal years multiplied by two (2).
"Cash flow" represents the Unit's net revenues less all
pretzel unit-related costs (i.e., cost of goods sold, labor,
occupancy and other Unit expenses) as well as annual
administrative costs of ten thousand dollars ($10,000.00) and
royalty and service fees, but not including interest and
depreciation.
(2) Pretzel Time and its Affiliates shall have the right to set off
against and reduce the purchase price by any and all amounts owed by Franchisee
to Pretzel Time and its Affiliates. Pretzel Time may exclude from the assets
purchased hereunder any equipment, furnishings, signs, usable inventory of
Products, materials or supplies of the Unit that Pretzel Time has not approved
as meeting its standards for Pretzel Time Unit, and the purchase price shall be
reduced by the replacement costs of such excluded items which are required in
the operation of the Unit.
(3) The purchase price shall be paid in cash at the closing of the
purchase, which shall take place no later than ninety (90) days after receipt by
Franchisee of Pretzel Time's notice of exercise of this option to purchase the
Unit, at which time Franchisee shall deliver instruments transferring to Pretzel
Time or its assignee good and merchantable title to the assets purchased, free
and clear of all liens and encumbrances with all sales and other transfer taxes
paid by Franchisee, and all licenses or permits of the Unit which may be
assigned or transferred. In the event the closing of the purchase does not occur
within said ninety (90) day period because Franchisee fails to act diligently in
connection therewith, the purchase price shall be reduced by ten percent (10%).
Franchisee further agrees that the purchase price shall be further reduced by
ten percent (10%) per month for each subsequent month Franchisee fails to act
diligently to consummate this transaction. In the event that Franchisee cannot
deliver clear title to all of the purchased assets as aforesaid, or in the event
there are other unresolved issues, at Pretzel Time's option, the losing of the
sale shall be accomplished through an escrow. Prior to closing, Franchisee and
Pretzel Time shall comply with the applicable Bulk Sales provisions of the
Uniform Commercial Code as enacted in the state in which the Unit is located.
<PAGE>
(4) If Pretzel Time or its assignee exercises this option to purchase,
pending the closing of such purchase, Pretzel Time may appoint a manager to
maintain the operation of the Unit, at its option, require Franchisee to close
the Unit during such time period without removing any assets. If Pretzel Time
appoints a manager to maintain the operation of the Unit pending closing of such
purchase, all funds from the Unit's operation during the period of management by
a Pretzel Time appointed manager shall be kept in a separate fund and all
expenses of the Unit, including compensation, other costs and travel and living
expenses of the Pretzel Time appointed manager, shall be charged to such fund.
As compensation for the management services provided, Pretzel Time shall charge
such fund ten percent (10%) of the Unit's net revenues during the period of
Pretzel Time's management. Operation of the Unit during any such period shall be
for and on behalf of Franchisee, provided that Pretzel Time shall have a duty
only to utilize its good faith efforts and shall not be liable to Franchisee or
its Owners for any debts, losses or obligations incurred by the Unit or to any
creditor of Franchisee for any merchandise materials, supplies or service
purchased by the Unit during any period in which it is managed by Pretzel Time's
appointed manager. Franchisee shall maintain in force all insurance policies
required for the Unit until the date of closing.
21. RELATIONSHIP OF THE PARTIES/INDEMNIFICATION.
21.A. EXCLUSIVE RELATIONSHIP.
Franchisee acknowledges and agrees that Pretzel Time would be unable to
protect Confidential Information against unauthorized use or disclosure and
would be unable to encourage a free exchange of ideas and information among
Pretzel Time Units if Franchisees of Pretzel Time Units were permitted to hold
interests in or perform services for a Competitive Business except as specified
in Exhibit C. Franchisee also acknowledges that Pretzel Time has granted the
Franchise to Franchisee in consideration of and reliance upon Franchisee's
agreement to deal exclusively with Pretzel Time. Franchisee therefore agrees
that during the term of the Franchise Agreement, or the period of time which
Franchisee operates a Unit under this Agreement, whichever is shorter, neither
Franchisee nor any Affiliate, immediate family member, or in the event
Franchisee is a corporation
any Owner thereof and member of his immediate family or in the event Franchise
is a partnership any partner (general or limited) thereof and any member of his
immediate family, shall:
<PAGE>
(1) Have any direct or indirect interest as an owner, investor,
partner, director, officer, employee, consultant, representative, agent
or in any other capacity in any Competitive Business located or
operating at the Site or within three (3) miles of any Pretzel Time
Unit in operation or under development on the effective date of
termination or expiration of this Agreement, except a Pretzel Time Unit
operated by Franchisee under Franchise Agreements with Pretzel Time; or
(2) Recruit or hire any employee who, within the immediately preceding
six (6) month period, was employed by Pretzel Time or any Pretzel Time
Unit operated by Pretzel Time, its Affiliates or another franchisee or
licensee of Pretzel Time, without obtaining the prior written
permission of Pretzel Time or such franchisee.
Notwithstanding the foregoing, Franchisee shall not be prohibited from
owning securities listed on a stock exchange or traded on the over-the-counter
market that represents two percent (2%) or less of that class of securities.
Covenants contained in this Section shall be construed as severable and
independent, and shall be interpreted and applied consistent with the
requirements of reasonableness. Any judicial reformation of these covenants
consistent with this interpretation shall be enforceable as though contained
herein and shall not affect any other provisions or terms of this Agreement.
This non-compete provision may not be enforceable under the laws of your state.
21.B. NO LIABILITY FOR ACTS OF OTHER PARTY.
Franchisee shall not employ any of the Marks in signing any contract or
applying for any franchise or permit or in a manner that may result in Pretzel
Time's liability for any of Franchisee's indebtedness or obligations, nor may
Franchisee use the Marks in any way not expressly authorized by Pretzel Time.
Except as expressly authorized in writing, neither Pretzel Time nor Franchisee
shall make any express or implied agreements, warranties, guarantees or
representations or incur any debt in the name or on behalf of the other,
represent that their relationship is other than Pretzel Time and franchisee, or
be obligated by or have any liability under any agreements or representations
made by the other that are not expressly authorized in writing. Pretzel Time
shall not be obligated for any damages to any person or property directly or
indirectly arising out of the operation of the Unit or Franchisee's business
authorized by or conducted pursuant to this Agreement.
21.C. TAXES.
Pretzel Time shall have no liability for any sales, use, service,
occupation, excise, gross receipts, income, property or other taxes, whether
levied upon Franchisee, the Unit, Franchisee's property or upon Pretzel Time, in
connection with the sales made or business conducted by Franchisee. Payment of
all such taxes shall be Franchisee's responsibility.
<PAGE>
21.D. INDEMNIFICATION.
Franchisee agrees to indemnify and hold Pretzel Time and its
subsidiaries, Affiliates, stockholders, directors, officers, employees, agents
and assignees harmless against, and to reimburse them for, any loss, liability,
judgment or damages (actual or consequential) and all reasonable costs and
expenses of defending any claim brought against any of them or any action in
which any of them is named as a party (including, without limitation, reasonable
accountants, attorneys' and expert witness fees, costs of investigation, court
costs, other litigation expenses, damages to Pretzel Time's reputation and good
will, travel expenses) which any of them may suffer, sustain or incur by reason
of, arising from or in connection with Franchisee's ownership or operation of
the Unit, unless such loss, liability or damage is only due to the negligence of
Pretzel Time (or its Affiliates, subsidiaries). Pretzel Time's right to
indemnity under this agreement shall arise notwithstanding that joint or
concurrent liability may be imposed on Pretzel Time by statute, ordinance,
regulation or other law. Franchisee acknowledges and agrees that any action or
inaction by any third party which is not an Affiliate of Pretzel Time shall not
be attributable to or constitute negligence of Pretzel Time. The indemnities and
assumptions of liabilities and obligations herein shall continue in full force
and effect subsequent to and notwithstanding the expiration or termination of
this Agreement.
Pretzel Time shall notify Franchisee of any claims and Franchisee shall
be given the opportunity to assume the defense of the matter. If Franchisee
fails to assume the defense within three (3) days of notice thereof, Pretzel
Time may defend the action in the manner reasonably appropriate, and Franchisee
shall pay to Pretzel Time all reasonable costs, including without limitation
attorney's fees, court costs, expert witness fees, travel and telephone
expenses, incurred by Pretzel Time in effecting such defense, in addition to any
such sum which Pretzel Time may pay by reason of any settlement agreed to by the
parties or reasonably negotiated by Pretzel Time in the event Franchisee fails
to assume the defense, or judgment against Pretzel Time.
21.E. INDEPENDENT CONTRACTOR.
It is understood and agreed by the parties hereto that Franchisee is an
independent contractor and is not an agent, partner, joint venturer, or employee
of Pretzel Time. Pretzel Time and Franchisee agree that nothing in this
Agreement is intended to create a fiduciary relationship between them.
Franchisee shall have no right to bind or obligate Pretzel Time in any way nor
shall he represent that he has any right to do so. Pretzel Time shall have no
control over the terms and conditions of employment of Franchisee's employees.
In all public records and in his relationship with other persons, on
stationery, business forms and checks, Franchisee shall indicate his independent
ownership of the franchised Unit and that he is a franchisee of Pretzel Time.
Franchisee shall exhibit on the premises in such places as may be designated by
Pretzel Time, a Pretzel Time approved notice that the franchised Unit is
operated by an independent operator and not by Pretzel Time or Pretzel Time's
Affiliates, which operate company owned franchises. Franchisee shall take all
legal steps such as a fictitious name registration to ensure Franchisee's
independent business status.
<PAGE>
22. PROTECTION OF TRADE SECRETS.
22.A. CONFIDENTIAL INFORMATION.
Pretzel Time possesses and will further develop and acquire certain
confidential and proprietary information and trade secrets relating to the
operation of Pretzel Time Units, which includes, but not limited to the
following categories of information, methods, techniques, procedures, and
knowledge developed or to be developed by Pretzel Time, its consultants or
contractors, its Affiliates or its designees, and/or franchisees ("Confidential
Information"):
(1) methods, techniques, equipment, specifications, standards,
policies, procedures, information, concepts and systems relating to and
knowledge of and experience in the development, operation and
franchising of Pretzel Time Units:
(2) site selection criteria;
(3) marketing and promotional programs for Pretzel Time Units;
(4) recipes, ingredients, formulas, mixes, spices, seasonings, sauces,
recipes for, and methods for the preparation, cooking, and serving of
the Products;
(5) techniques, formats, specifications, systems, procedures, and
knowledge of and experience in the development and operation of Pretzel
Time Units;
(6) knowledge of specifications for and suppliers of certain Products,
materials, supplies, equipment, furnishings and fixtures;
(7) sales data and information concerning inventory requirements for
Products, materials and supplies, and specifications for and knowledge
of suppliers of certain materials, equipment, and fixtures for Pretzel
Time Units;
(8) employee selection procedures, training and staffing levels;
(9) Operations Manual and other Manuals prepared by Pretzel Time; and
(10) information concerning Product sales, operating results, financial
performance and other financial data of Pretzel Time Units.
<PAGE>
Pretzel Time will disclose such parts of the Confidential Information
as Pretzel Time deems necessary or advisable from time to time in its sole
discretion for the operation of a Pretzel Time Unit to Franchisee during
training, and in guidance and assistance furnished to Franchisee during the term
of the Franchise, and Franchisee may learn or otherwise obtain from Pretzel Time
additional Confidential Information of Pretzel Time during the term of the
Franchise. Franchisee acknowledges that the foregoing Confidential Information
is highly confidential. Franchisee acknowledges and agrees that he will not
acquire any interest in Confidential Information, other than the right to
utilize Confidential Information disclosed to Franchisee in the operation of the
Pretzel Time Unit during the term of this Agreement, and that the use or
duplication of any Confidential Information in any other business would
constitute an unfair method of competition. Franchisee, including its directors,
officers, shareholders, and partners agree(s) that Confidential Information is
proprietary, includes trade secrets of Pretzel Time and is disclosed to
Franchisee solely on the condition that Franchisee agrees, and Franchisee (and
its Owners) does hereby agree, that he:
(1) shall not disclose any information pertaining to the Pretzel Time
System, directly or indirectly, to any person, natural or corporate,
without the express prior written consent of Pretzel Time. Franchisee
may disclose to its Unit Manager such information deemed necessary to
disclose, provided such Unit Manager has agreed to maintain such
information in confidence in Pretzel Time's confidentiality agreement
and Pretzel Time has received such executed agreement (attached hereto
as Exhibit H);
(2) Will not use Confidential Information in any other business or
capacity;
(3) Will maintain the absolute confidentiality of Confidential
Information during and after the term of this Agreement;
(4) Will not make unauthorized copies of any portion of Confidential
Information disclosed in written or other tangible form; and
(5) Will adopt and implement all reasonable procedures that Pretzel
Time prescribes from time to time to prevent unauthorized use or
disclosure of Confidential Information, including, without limitation,
restrictions on disclosure thereof to his employees.
This confidentiality requirement shall not apply in a judicial or
administrative proceeding to the extent Franchisee is legally compelled to
disclose such information, provided Franchisee shall have used his best efforts
and shall have afforded Pretzel Time the opportunity to obtain an appropriate
protective order or other assurance satisfactory to Pretzel Time of confidential
treatment for the information required to be so disclosed. This restrictions on
Franchisee's disclosure and use of the Confidential Information shall also not
apply to the disclosure of information, methods, procedures, techniques and
knowledge which are or become generally known in the food service business in
the Territory, other than through disclosure (whether deliberate or inadvertent)
by Franchisee.
<PAGE>
Notwithstanding the foregoing and any other provision of this
Agreement, Franchisee may use the Confidential Information in connection with
the operation of other Pretzel Time Units (in addition to the Unit) pursuant to
other Franchise Agreements with Pretzel Time.
22.B. DISCLOSURE OF IDEAS AND NEW PROCEDURES.
Franchisee shall fully and promptly disclose to Pretzel Time, all
ideas, concepts, methods and techniques relating to the development and
operation of a dessert or snack food business conceived or developed by the
Franchisee and/or Franchisee's employees during the term of this Agreement.
Franchisee agrees and grants to Pretzel Time and its Affiliates a perpetual and
worldwide right to use and authorize other Pretzel Time Units or other food
service businesses operated by Pretzel Time or its Affiliates, franchisees and
designees to use such ideas, recipes, formulas, concepts, methods, and
techniques relating to the development and/or operation of a dessert or snack
food business. If incorporated into the Pretzel Time System for the development
and/or operation of Pretzel Time Units, such ideas, recipes, formulas, concepts,
methods and techniques shall become the sole and exclusive property of Pretzel
Time without any further consideration to Franchisee. Pretzel Time shall have no
obligation to make any lump sum or on-going payments to Franchisee with respect
to any such idea, concept, method, technique or product. Franchisee agrees that
Franchisee will not use nor will it allow any other person or entity to use any
such concept, method, technique or product without obtaining Pretzel Time's
prior written approval.
23. ENFORCEMENT.
23.A. UNAVOIDABLE DELAYS.
Delays in the performance of any duties hereunder which are not the
fault of, and not within the reasonable preventive control of, the party due to
perform, including but not limited to, fire, flood, labor disputes, natural
disasters, acts of God, civil disorders, riots, insurrections, work stoppages,
slowdowns or disputes, or other similar events, shall not cause a default in
said performance, but the parties shall extend the time of performance for a
period of time equivalent to the length of delay, or for such other reasonable
period of time as agreed by the parties.
23.B. RIGHTS OF PARTIES ARE CUMULATIVE.
The rights of Pretzel Time and Franchisee hereunder are cumulative and
no exercise or enforcement by Pretzel Time or Franchisee of any right or remedy
hereunder shall preclude the exercise or enforcement by Pretzel Time or
Franchisee of any other right or remedy herein or which Pretzel Time or
Franchisee is entitled by law to enforce.
23.C. WAIVER OF OBLIGATIONS.
Pretzel Time may by written instrument unilaterally waive or reduce any
obligation of or restriction upon Franchisee under this Agreement, and
Franchisee may by written instrument unilaterally waive or reduce any obligation
of or restriction upon Pretzel Time under this Agreement, effective upon
delivery of written notice thereof to the other or such other effective date
stated on the notice of waiver. Whenever this Agreement requires Pretzel Time's
prior approval or consent, Franchisee shall make a timely written request
therefore, and such approval shall be obtained in writing. Pretzel Time makes no
warranties or guaranties upon which Franchisee may rely, and assumes no
liability or obligation to Franchisee, by granting any waiver, approval or
consent to Franchisee, or by reason of any neglect, delay, or denial of any
request therefore. Any waiver granted by Pretzel Time shall be without prejudice
to any other rights Pretzel Time may have, will be subject
<PAGE>
to continuing review by Pretzel Time, and may be revoked, in Pretzel Time's sole
discretion, at any time and for any reason, effective upon delivery to
Franchisee of ten (10) days' prior written notice.
23.D. CONTINUING OBLIGATIONS.
All obligations of Pretzel Time and Franchisee which expressly or by
their very nature survive the expiration or termination of this Agreement shall
continue in full force and effect subsequent to and notwithstanding its
expiration or termination and until they are satisfied or by their nature
expire.
23.E. INVALID OR UNENFORCEABLE PROVISIONS.
If any provisions of this Agreement, or its application to any person
or circumstance, is deemed invalid or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement or the application of such
provision to other persons or circumstances shall not be affected thereby,
provided, however, that if any provision or application thereof is invalid or
unenforceable, the court shall substitute a suitable and equitable provision
therefore in order to carry out, so far as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable provision.
If any applicable and binding law or rule of any jurisdiction requires
a greater prior notice of the termination of or refusal to enter into a
successor Franchise Agreement to this Agreement than is required hereunder, or
the taking of some other action not required hereunder, or if, under any
applicable and binding law or rule of any jurisdiction, any provision of this
Agreement or any standard or procedure outlined in the Operations Manual is
invalid or unenforceable, the prior notice and/or other action required by such
law or rule shall be substituted for the comparable provisions hereof, and
Pretzel Time shall have the right, in its sole discretion, to modify such
invalid or unenforceable operations procedure or standard to the extent required
to be valid and enforceable.
23.F. INJUNCTIVE RELIEF.
Franchisee recognizes and acknowledges the unique value and secondary
meaning attached to the Pretzel Time system, its trademarks, service marks,
standards of operation and Pretzel Time's property. Franchisee acknowledges and
agrees that any noncompliance with the restrictive covenants contained herein,
including without limitation those provisions pertaining to noncompetition,
confidentiality and the improper or unauthorized use of Pretzel Time's Marks
will cause irreparable damage to Pretzel Time and its franchisees. Franchisee
therefore agrees that should it violate any restrictive covenant, or threaten to
breach the restrictive covenants, then Pretzel Time shall be entitled to both
permanent and temporary injunctive relief, without bond, from any court of
competent jurisdiction in addition to any other remedies to which Pretzel Time
may be entitled, at law or in equity, under this agreement or otherwise under
applicable law.
<PAGE>
23.G. APPLICABLE LAW.
Except to the extent governed by the U.S. Trademark Act of 1946 (Lanham
Act, 15 U.S.C. "1051 et seq.), this Agreement, the other agreements referred
herein, and the offer and the sale of the franchise shall be governed in all
respects and aspects by the laws of the Commonwealth of Pennsylvania and
expressly excluding the laws pertaining to the choice of law and conflict of
laws.
23.H. ENTIRE STATUS OF AGREEMENT.
This Agreement contains the entire agreement of the parties and there
are no other oral or written understandings or agreements between Pretzel Time
and Franchisee relating to the subject matter of this agreement, except as set
forth in Pretzel Time's Offering Circular required by Rule under the Federal
Trade Commission Act, a copy of which has been provided to Franchisee and of
which Franchisee acknowledges receipt, there are no representations,
inducements, promises, agreements arrangements or undertakings, oral or written,
between the parties hereto other than those set forth and duly executed in
writing. No agreement of any kind shall be binding upon either party unless and
until the same has been made in writing and duly executed by both parties.
Upon acceptance of this Agreement by Pretzel Time, all previous
agreements, contracts, arrangements or understandings of any kind, oral or
written, relative to the franchise granted herein are cancelled, and all claims
and demands thereon are fully satisfied. This agreement, although drawn by
Pretzel Time, shall be construed fairly and reasonable, and not more strictly
against one party than against the other party hereto.
23.I. AMENDMENT OF AGREEMENT.
This Agreement shall not be modified or amended except by written
agreement executed by both parties hereto. No oral amendment or waiver will be
effective and that this provision cannot be orally amended or waived. No waiver
of default or rights will be effective unless in writing.
23.J. HEIRS, SUCCESSORS AND ASSIGNS.
Subject to the provisions hereof relating to transfer and assignment,
this Agreement is intended to and does bind the heirs, executors, administrators
and successors of any or all of the parties hereto.
23.K. CONDITIONS AND CONTINGENCIES.
The obligations of the parties hereunder are expressly conditional and
contingent upon the full execution of and performance of all obligations by the
parties under this Agreement. This Agreement is expressly conditional upon
Franchisee executing all documents required by this Agreement within ten (10)
days of receipt of the document. Failure by Franchisee to execute any documents
shall result in the Agreement being null and void.
<PAGE>
In addition during Franchisee's training, all documents pertaining to
the franchising of Franchisee as a Pretzel Time Unit shall be held in escrow by
Pretzel Time. Title in and to the Pretzel Time Unit shall not pass to Franchisee
until Franchisee has been trained as a Pretzel Time franchisee to the
satisfaction of Pretzel Time. If Franchisee fails to satisfactorily complete
Pretzel Time initial training, the appointment of Franchisee as a Pretzel Time
franchisee and the granting of the franchise business to Franchisee shall be
null and void, all documents executed between Franchisee and Pretzel Time or its
designees with respect to the transaction shall be terminated and cancelled. The
Franchisee acknowledges and agrees that no portion of the Franchise fee shall be
refunded if Franchisee fails to complete Pretzel Time's initial training class
to the satisfaction of Pretzel Time. If the Franchisee completes the initial
training to the satisfaction of Pretzel Time, Pretzel Time will provide to
Franchisee fully signed copies of the Franchise Agreement.
It is understood and agreed by the parties that the granting of the
franchise and all contracts and agreements entered into by and between the
parties with respect to the Unit are specifically contingent upon the signing of
a lease for the Site. In the event that a lease for the Site cannot be obtained
on or before sixty (60) days after delivery of Pretzel Time's approval of the
Site at no fault or delay by Franchisee, then all contracts and agreements
entered into by Pretzel Time, and Franchisee shall become null and void and of
no effect, and all monies deposited by Franchisee less a nonrefundable fee of
$2,500 shall be refunded.
23.L. WAIVER BY PRETZEL TIME.
No waiver by Pretzel Time of any default or failure to perform by
Franchisee, or of any breach of the terms of this Agreement or no failure,
refusal or neglect of Pretzel Time to exercise any right, option or power given
it under this Agreement, shall preclude Pretzel Time from thereafter requiring
strict compliance or from declaring this Agreement and the franchise granted
herein revoke or terminated. The failure of Pretzel Time to terminate this
Agreement upon the occurrence of one or more Acts of Default will not constitute
a waiver or otherwise affect the right of Pretzel Time to terminate this
Franchise because of a continuing or subsequent failure to cure one or more of
the aforesaid events of default or any other default.
<PAGE>
23.M. COSTS AND EXPENSES OF ENFORCEMENT.
If a claim for amounts owed by Franchisee to Pretzel Time or its
Affiliates is asserted in any judicial or arbitration proceeding or later
appeal, or if Pretzel Time is required to enforce the Franchise Agreement in a
judicial or arbitration proceeding or later appeal, the prevailing party will be
entitled to reimbursement of its costs and expenses, including reasonable
arbitrators', accountants' 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 the Franchise
Agreement. If Pretzel Time incurs expenses in connection with your failure to
pay when due amounts owing to Pretzel Time, to submit when due any reports,
information or supporting records or otherwise to comply with the Franchise
Agreement, including, but not limited to legal, arbitrators' and accounting
fees, you are required to reimburse Pretzel Time for any such costs and expenses
which it incurs.
23.N. RIGHTS OF PARTIES ARE CUMULATIVE
THE RIGHTS OF FRANCHISEE AND PRETZEL TIME ARE CUMULATIVE AND NO
EXERCISE OR ENFORCEMENT BY PRETZEL TIME OR FRANCHISEE OF ANY RIGHT OR REMEDY
HEREUNDER SHALL PRECLUDE THE EXERCISE OR ENFORCEMENT BY PRETZEL TIME OR
FRANCHISEE OF ANY OTHER RIGHT OR REMEDY TO WHICH THE PARTY IS ENTITLED.
23.O. WAIVER OF JURY TRIAL.
BOTH PRETZEL TIME AND THE FRANCHISEE IRREVOCABLY WAIVES TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY
EITHER PARTY. THE PARTIES FURTHER AGREE THAT NEITHER SHALL DEMAND A JURY TRIAL
IN THE EVENT OF LITIGATION.
23.P. WAIVER OF PUNITIVE DAMAGES.
EXCEPT WITH RESPECT TO FRANCHISEE'S OBLIGATION TO INDEMNIFY PRETZEL
TIME, 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 SHALL BE LIMITED
TO RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.
<PAGE>
23.Q. EXCLUSIVE JURISDICTION.
BOTH PRETZEL TIME AND FRANCHISEE AGREE THAT ANY ACTION ARISING OUT OF
OR RELATING TO THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, THE OFFER AND
GRANTING OF THE FRANCHISE RIGHTS HEREUNDER SHALL BE INSTITUTED AND MAINTAINED
ONLY IN A STATE OR FEDERAL COURT OF GENERAL JURISDICTION IN DAUPHIN COUNTY,
PENNSYLVANIA OR THE COUNTY IN WHICH PRETZEL TIME MAINTAINS ITS PRINCIPAL PLACE
OF BUSINESS.
FRANCHISEE IRREVOCABLY SUBMITS TO THE JURISDICTION OF SAID COURT AND
WAIVES ANY OBJECTION FRANCHISEE MAY HAVE TO EITHER THE JURISDICTION OR VENUE OF
SUCH COURT.
23.R. LIMITATIONS OF CLAIMS
EXCEPT FOR CLAIMS BROUGHT BY PRETZEL TIME WITH REGARD TO FRANCHISEE'S
OBLIGATIONS TO MAKE PAYMENTS TO PRETZEL TIME PURSUANT TO THIS AGREEMENT OR TO
INDEMNIFY PRETZEL TIME PURSUANT TO THIS AGREEMENT, ANY AND ALL CLAIMS ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF FRANCHISEE AND
PRETZEL TIME PURSUANT TO THIS AGREEMENT SHALL BE BARRED UNLESS AN ACTION IS
COMMENCED WITHIN: (1) TWO (2) YEARS FROM THE DATE ON WHICH THE ACT OR EVENT
GIVING RISE TO THE CLAIM OCCURRED OR (2) ONE (1) YEAR FROM THE DATE ON WHICH
FRANCHISEE OR PRETZEL TIME KNEW OR SHOULD HAVE KNOWN, IN THE EXERCISE OF
REASONABLE DILIGENCE OF THE FACTS GIVEN RISE TO SUCH CLAIMS, WHICHEVER OCCURS
FIRST.
24. ACKNOWLEDGMENTS AND REPRESENTATIONS.
Franchisee acknowledges that he has read this Agreement and that he
understands and accepts the terms, conditions and covenants contained in this
Agreement as being reasonably necessary to maintain Pretzel Time's high quality
and service and the uniformity of those standards at all Pretzel Time Units and
thereby to protect and preserve the goodwill of the Marks.
Pretzel Time disclaims and Franchisee acknowledges that he has not
received or relied upon any representations, promises, guarantees or warranties,
expressed or implied, made to induce the execution hereof or in connection
herewith which is not expressly contained herein or in the disclosure statement.
More specifically, Franchisee acknowledges and agrees that no person acting on
behalf of Pretzel Time or its affiliated companies has made any written or oral
claim, statement, assurance, promise or projection of any sort regarding the
actual or prospective sales, earnings, gross profit or net profit of the
franchise, which is the subject of this agreement. Franchisee acknowledges and
agrees that Pretzel Time's officers, directors, employees and agents act only in
a representative and not in a personal capacity in connection with any of their
dealings with Franchisee. Franchisee recognizes that neither Pretzel Time nor
any other person can guarantee Franchisee's success in the franchised business.
Franchisee further represents to Pretzel Time, as an inducement to its entry
into this Agreement, that all statements in Franchisee's application for the
Franchise are accurate and complete and that Franchisee has made no
misrepresentations or material omissions in obtaining the franchise.
<PAGE>
25. CONSTRUCTION.
25.A. HEADINGS.
The Section headings throughout this Agreement are for the convenience
and reference only of the parties and their attorneys, and the words contained
therein shall not be held to expand, modify, limit, define, amplify or aid in
the interpretation, construction or meaning of this Agreement.
25.B. TERMINOLOGY.
All terms and words used in this Agreement, regardless of the number
and gender in which they are used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine, or
neuter, as the context or sense of this Agreement or any Section or clause
herein may require, as if such word had been fully and properly written in the
appropriate number and gender.
The term Franchisee as used herein is applicable to one or more
persons, a corporation or a partnership, as the case may be. If two or more
persons are at any time Franchisee hereunder, their obligations and liabilities
to Pretzel Time shall be joint and several. References to Franchisee and
assignee which are applicable to an individual or individuals shall mean the
Owners of Franchisee or the assignee, if the Franchisee or the assignee is a
corporation nor partnership.
25.C. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, any and all
of which shall constitute one and the same instrument.
25.D. REASONABLENESS.
Pretzel Time and Franchisee agree to act reasonably in all dealings
with each other pursuant to this Agreement. Whenever the consent or approval of
either party is required or contemplated, the party whose consent is required
agrees not to unreasonably withhold the same, unless such consent is expressly
subject to such party's sole discretion pursuant to the terms of this Agreement.
In no event shall Pretzel Time's withholding of consent allow Franchisee a claim
for money damages.
<PAGE>
26. SECURITY AGREEMENT.
26.A. SECURITY INTEREST.
In order to secure full and prompt payment of the fees and other
charges to be paid by Franchisee to Pretzel Time, and to secure performance of
the other obligations and covenants to be performed by Franchisee, under this
Agreement, Franchisee hereby grants Pretzel Time a valid and effectual security
interest in, lien upon, and right of set off against all of Franchisee's
interest in the improvements, fixtures, inventory, goods, appliances and
equipment now or hereafter owned and located at the Unit (whether annexed to the
Premises or not) or used in connection with the business conducted at the Unit,
including, without in any manner limiting the generality of the foregoing, 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, ovens,
refrigerators, freezers, 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, stoves, set-up
tables, rolling counters, kitchen ranges, display counters and shelves,
humidified cabinets, 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 the prior written consent of Pretzel Time, Franchisee agrees 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. Franchisee 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 sale of inventory in the ordinary course of business, without the prior
written consent of Pretzel Time. Franchisee agrees to give to Pretzel Time
advance notice in writing of any proposed change in Franchisee's name, identity
or structure and not to make any such change without the prior written consent
of Pretzel Time and compliance with the provisions of this Agreement. Franchisee
agrees to execute for filing such financing statements and continuation
statements as Pretzel Time may require from time to time. Pretzel Time agrees to
pay all filing fees, including fees for filing continuation statements in
connection with such financing statements.
<PAGE>
26.B. DEFAULT REMEDIES UNDER U.C.C.
In the event of a default by Franchisee under this Agreement, Pretzel
Time shall have 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 to Franchisee pursuant to this Section shall not be construed
to derogate from or impair any other rights which Pretzel Time may have under
this Agreement or otherwise at law or equity.
27. NOTICES.
27.A. DELIVERY OF NOTICES.
All written notices permitted or required to be delivered by the
provisions of this Agreement or of the Operations Manual shall be deemed so
delivered to the Franchisee:
a. At the time delivered by hand; or
b. One business day after transmission by facsimile, telecopy,
telegraph or other electronic system;
c. One business day after being placed in the hands of a commercial
carrier service for next business day delivery; or
d. Three (3) business days after placement in the United States mail by
registered or certified mail, return receipt requested, postage prepaid
and addressed to the party to be notified at the addresses listed below
or the most current business address of which the notifying party has
been notified. If Franchisee refuses delivery of the same then notice
shall be deemed delivered when refused by Franchisee.
<PAGE>
IF TO PRETZEL TIME:
Pretzel Time, Inc.
Attn: Martin Lisiewski, CEO
4800 Linglestown Road, Suite 202
Harrisburg, Pennsylvania 17112
WITH COPIES TO:
Rashti and Mitchell
Attorneys at Law
Attn: Timothy T. Mitchell
4422 Ridgeside Drive
Dallas, Texas 75244
IF TO FRANCHISEE:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first written above.
WITNESSES: PRETZEL TIME, INC.
FRANCHISOR
- -----------------------
BY:
_______________________ NAME: ____________________
TITLE: _____________________
WITNESSES: FRANCHISEE:
----------------------------
BY:
______________________ NAME: _____________________
TITLE:
CORPORATE ACKNOWLEDGMENT
STATE OF )
: '
COUNTY OF )
On this _____ day of ___________, 19 __, before me, (Name of Notary)
the undersigned officer, personally appeared and , known personally to me
to be the Presidentand Secretary, respectively, of the above-named corporation,
and that they, as such officers, being authorized to do so, executed the
foregoing instrument for the purpose therein contained, by signing the name of
the corporation for themselves as such officers.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(Notary Public)
My Commission Expires:
(Notary Seal)
<PAGE>
INDIVIDUAL OR PARTNERSHIP ACKNOWLEDGMENT
STATE OF )
: '
COUNTY OF )
On this _____ day of ___________, 19 __, before me,
(Name of Notary)
the undersigned officer, personally appeared to me personally known and
known to me to be the same person(s) whose name(s) is (are) signed to the
foregoing instrument, and acknowledged the execution thereof for the uses and
purposes therein set forth.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
(Notary Public)
My Commission Expires:
(Notary Seal)
<PAGE>
FRAN.AGT 6.5.96
FRANCHISE AGREEMENT
By and between
Pretzel Time, Inc., a Pennsylvania corporation as Franchisor
and
, Franchisee
<PAGE>
EXHIBIT C
TO THE OFFERING CIRCULAR
OF PRETZEL TIME, INC.
FRANCHISE AGREEMENT
<PAGE>
Exhibit "M"
Sublease
[Substitute 2 page short form - Karen to send Tim the disk]
EXHIBIT "B"
TO THE DEVELOPING AGENT AGREEMENT
PRINCIPAL OWNER, OTHER OWNERS,
DESIGNATED PRINCIPAL OWNERS,
UNIT AND MANAGER, SUPERVISING OWNERS
AND INITIAL CAPITALIZATION
[A COPY OF THE PRINCIPAL OWNER, OTHER OWNERS, DESIGNATED PRINCIPAL OWNERS, UNIT
AND MANAGER, SUPERVISING OWNERS AND INITIAL CAPITALIZATION IS ATTACHED TO THE
FRANCHISE AGREEMENT (EXHIBIT "C" OF THE OFFERING CIRCULAR) AS EXHIBIT "B"].
<PAGE>
OWNRLST12.09.94
(B - 3)
EXHIBIT "B"
PRINCIPAL OWNER, OTHER OWNERS,
DESIGNATED PRINCIPAL OWNERS,
UNIT AND MANAGER, SUPERVISING OWNERS
AND INITIAL CAPITALIZATION
1. Principal Owners: Listed below is the full name (and mailing
address) of each person or entity who is a Principal Owner of Franchisee
(including a designated Principal Owner so designated based on their business
experience, financial capacity or other personal attributes), and a description
of the nature of such Principal Owner's direct or indirect equity or voting
interest in Franchisee:
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
<PAGE>
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
2. Other Owners. Listed below is the full name (and mailing address) of
each person or entity, other than the Principal Owners, who directly or
indirectly owns an equity voting interest in Area Developer and a description of
the nature of the interest (attach additional sheets if necessary):
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
Name: Number of Shares
Owned:
Address: % of Total
Shares:
Number of Shares Owner is Entitled
to
Vote:
Other Interest
(Describe):
<PAGE>
3. Unit Manager and Additional Manager: As required pursuant to this
Agreement, the following person shall attend the training program as the initial
Unit Manager of the UNIT:
Name:
(Unit Manager)
4. Supervising Owners: As required pursuant to this Agreement, the
following Principal Owners shall supervise the operation of the UNIT:
Name: Name:
Name: Name:
<PAGE>
5. Initial Capitalization. Area Developer: (a) represents and warrants
that it has developed and previously provided to COMPANY a description of its
initial capital structure (the "Initial Capital Structure") which is a true,
correct, complete and detailed description of Area Developer's capital
structure; (b) covenants that it will not deviate from the Initial Capital
Structure without COMPANY's prior written consent; and (c) acknowledges that
COMPANY has relied on the Initial Capital Structure in entering into this
Agreement.
PRETZEL TIME, INC. MRS. FIELDS' ORIGINAL COOKIES,
a Pennsylvania corporation INC., a Delaware corporation
By:
By:
Name: ___________________ Name: _____________________
Title:
Title:
ASSIGNMENT OF ASSETS AND ASSUMPTION OF LIABILITIES AGREEMENT
THIS ASSIGNMENT OF ASSETS AND ASSUMPTION OF LIABILITIES AGREEMENT (the
"Agreement") is made and entered into as of July 25, 1997, by and between H & M
Concepts Ltd., Co., an Idaho limited liability company ("Assignor") and Mrs.
Fields' Pretzel Concepts, Inc., a Delaware corporation ("Assignee").
WITNESSETH
WHEREAS, Assignor and Assignee are parties to that certain Asset
Purchase Agreement, dated as of July 23, 1997, (the "Asset Agreement"), pursuant
to which Assignor shall assign certain Acquired Assets (as defined in the Assets
Purchase Agreement) and the Assumed Liabilities (as defined in the Asset
Purchase Agreement) to the Assignee, in partial consideration for Assignee's
assumption of the Assumed Liabilities; and
WHEREAS, Assignee is prepared to accept the assignment of the Acquired
Assets and the Assumed Liabilities on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals, which are
hereby incorporated into this Agreement by this reference, the mutual
representations and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
Section 1. Assignment
Assignor hereby assigns, transfers, sets over, delivers and conveys
unto Assignee, its successors and assigns, all of Assignor's right, title and
interest in and to the Acquired Assets and the Assumed Liabilities, to have and
to hold the Acquired Assets and Assumed Liabilities hereby assigned,
transferred, set over, delivered, conveyed or intended so to be unto Assignee,
its successors and assigns, forever, and Assignee hereby accepts the assignment
of the Acquired Assets and the Assumed Liabilities and hereby assumes, agrees to
pay, perform and discharge any and all obligations or liabilities incident
thereto. This Agreement is entered into pursuant and subject to the terms and
conditions of the Asset Agreement. None of the Excluded Assets (as defined in
the Asset Purchase Agreement) are acquired, transferred or set over to, and none
of the Excluded Liabilities are assumed by, Assignee pursuant to this Agreement.
Section 2. Additional Documentation
<PAGE>
Assignor and Assignee hereby covenant and agree to execute, acknowledge
and deliver such further conveyances and instruments or documents, and to do
such further acts as may be necessary or appropriate to assure Assignee, its
successors and assigns, of all of Assignor's right, title and interest in and to
the Assets hereby assigned, transferred, set over and delivered, conveyed or
intended so to be.
Section 3. Miscellaneous
Section 3.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah, without giving
effect to any choice or conflict of law provision or rule thereof.
Section 3.2 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
H&M CONCEPTS LTD. CO.
By:/s/Randol S. Hemmer
Name: Randol S. Hemmer Title: Managing Member
By:/s/Steven H. Mann
Name: Steven H. Mann
Title: Managing Member
FIRST AMENDMENT TO
OPERATING AGREEMENT FOR
UVEST, LLC
WHEREAS, the parties hereto are one of the original members of UVEST,
LLC, a Utah limited liability company (the "Company"), who previously adopted
the Operating Agreement for UVEST, LLC (the "Agreement") pursuant to the Utah
Limited Liability Company Act, and a Substitute Member (as defined in Section
1.43 of the Glossary attached to the Agreement) being admitted to the Company
pursuant to this First Amendment to the Agreement;
NOW, THEREFORE, the parties hereto adopt the following amendment to the
Agreement to reflect the admission of Mrs. Fields' Pretzel Concepts, Inc.
("MFPC") as a Substitute Member of the Company in place of the interest
previously held by H&M Concepts Ltd. Co. and the appointment of MFPC as the
Managing Member of the Company.
1. Effective as of the date hereof, Sections 2.6 and 2.7 of the Agreement are
amended and restated to read, in their entirety, as follows:
2.6 Registered Agent and Office:
The registered agent for the service of process is Michael R.
Ward and the registered office is 462 W. Bearcat Drive, Salt Lake City,
Utah 84115. The Managing Member may, from time to time, change the
registered agent or office by appropriate filings with the Secretary of
State. If the Managing Member shall fail to designate a replacement
registered agent or change of address of the registered office, any
Member may designate a replacement registered agent or file a notice of
change of address by appropriate filings with the Secretary of State.
2.7 Principal Office:
The principal office of the Company shall be located at 462 W.
Bearcat Drive, Salt Lake City, Utah 84115. The Managing Member may,
from time to time, change the principal office of the Company as it
shall in its sole discretion determine by Notice to the Members.
2. Effective as of the date hereof, Section 1.24 of the Glossary attached to the
Agreement is amended and restated to read, in its entirety, as follows:
1.24 Managing Member, Manager:
Managing Member shall mean Mrs. Fields' Pretzel Concepts, Inc.
IN WITNESS WHEREOF, the parties hereto have set their hands this day of
_____________________, -------- 1997.
MEMBERS
MRS. FIELDS' PRETZEL CONCEPTS, INC. NVEST, LIMITED
By By
Its: Managing Member of PVEST, LLC
General Partner of NVEST, Limited
FIRST AMENDMENT TO
OPERATING AGREEMENT FOR
LV-H&M, L.L.C.
WHEREAS, the parties hereto are one of the original members of LV-H&M,
L.L.C., a Nevada limited liability company (the "Company"), who previously
adopted the Operating Agreement for LV-H&M, L.L.C. (the "Agreement") pursuant to
the Nevada Limited Liability Company Act, and a Substitute Member (as defined in
Section 1.35 of the Glossary attached to the Agreement) being admitted to the
Company pursuant to this First Amendment to the Agreement;
NOW, THEREFORE, the parties hereto adopt the following amendment to the
Agreement to reflect the admission of Mrs. Fields' Pretzel Concepts, Inc.
("MFPC") as a Substitute Member of the Company in place of the interest
previously held by H&M Concepts Ltd. Co. and the appointment of MFPC as the
Managing Member of the Company.
1. Effective as of the date hereof, Sections 2.5 and 2.6 of the Agreement are
amended and restated to read, in their entirety, as follows:
2.5 Registered Agent and Office:
The registered agent for the service of process is The
Corporation Trust Company of Nevada at One East First Street, Reno,
Nevada 89501. The Managing Member may, from time to time, change the
registered agent or office by appropriate filings with the Secretary of
State. If the Managing Member shall fail to designate a replacement
registered agent or change of address of the registered office, any
Member may designate a replacement registered agent or file a notice of
change of address by appropriate filings with the Secretary of State.
2.5 Principal Office:
The principal office of the Company shall be located at 462 W.
Bearcat Drive, Salt Lake City, Utah 84115. The Managing Member may,
from time to time, change the principal office of the Company as it
shall in its sole discretion determine by Notice to the Members.
2. Effective as of the date hereof, Section 1.21 of the Glossary attached to the
Agreement is amended and restated to read, in its entirety, as follows:
1.21 Managing Member, Manager:
Managing Member shall mean Mrs. Fields' Pretzel Concepts, Inc.
IN WITNESS WHEREOF, the parties hereto have set their hands this day of
_____________________, -------- 1997.
MEMBERS
MRS. FIELDS' PRETZEL CONCEPTS, INC.
By
Its: Jean C. Jensen
LEASE
PRICE BUSINESS CENTER - TIMESQUARE
2300 SOUTH 300 WEST STREET
CITY OF SOUTH SALT LAKE, UTAH
TABLE OF CONTENTS
PAGE
ARTICLE 1 PREMISES. . . . . . . . . . . . . . . . 1
ARTICLE 2 PURPOSE . . . . . . . . . . . . . . . . 1
ARTICLE 3 TERM . . . . . . . . . . . .. . . . 1
ARTICLE 4 POSSESSION . . . . . . . . . .. . 1
ARTICLE 5 RENT . . . . . . . . . . . . . . . . . 1
ARTICLE 6 USE OF PREMISES . . . . . . . . . . . . . . 2
ARTICLE 7 COMPLIANCE WITH LAW . . . . . . . ..... . . . 2
ARTICLE 8 ALTERATIONS. . . . . . . . . .. . . . 3
ARTICLE 9 REPAIRS. . . . . . . . . . . .. . . . . . 4
ARTICLE 10 LAWS, WASTE AND NUISANCE. . . . . . . . . . . 4
ARTICLE 11 ABANDONMENT . . . . . . . . . .. . . . . 5
ARTICLE 12 LIENS . . . . . . . . . . . .. . . . 5
ARTICLE 13 ASSIGNMENT AND SUBLETTING . . . . . ...... . 5
ARTICLE 14 PARKING AND COMMON AREAS . . . . . . . . 5
ARTICLE 15 INDEMNIFICATION OF LESSOR . . . . . . . . . 6
ARTICLE 16 INSURANCE . . . . . . . . . .. . . . . 7
ARTICLE 17 UTILITIES; JANITORIAL SERVICE. . . . ... . . . 9
ARTICLE 18 NET LEASE; ADDITIONAL RENT . . . . . . . . . 9
ARTICLE 19 PERSONAL PROPERTY TAXES . . . . . . . . . . . 12
ARTICLE 20 ENTRY AND INSPECTION. . . . . . . 12
ARTICLE 21 DEFAULT . . . . . . . . . . . . . . . . 12
ARTICLE 22 DESTRUCTION . . . . . . . . . . 13
ARTICLE 23 EMINENT DOMAIN. . . . . . . . . . . . . 14
ARTICLE 24 MORTGAGE REQUIREMENTS . . . . . . .... . 15
ARTICLE 25 RULES, REGULATIONS AND RESTRICTIVE COVENANTS 15
ARTICLE 26 HOLDING OVER. . . . . . . . . . . . . . . 15
ARTICLE 27 NOTICES . . . . . . . . . . . . 16
ARTICLE 28 LESSORIS RIGHT TO CURE DEFAULTS. . . . ............ 16
<PAGE>
TABLE OF CONTENTS - PAGE 'IWO
ARTICLE 29 FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 30 TRANSFER OF LESSOR'S INTEREST. . . . . . . . . . . . 16
ARTICLE 31 SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 32 QUIET ENJOYMENT . .. . . . . . . . . . 17
ARTICLE 33 SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . .. 17
ARTICLE 34 SURRENDER OF LEASE . . . . . . . . . . . . . . . . . . . 17
ARTICLE 35 LESSOR'S EXCULPATION . . . . . . . . . . . . . . . . . . 17
ARTICLE 36 ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 37 ESTOPPEL CERTIFICATES AND FINANCING . . . . . .18
ARTICLE 38 SUCCESSORS AND ASSIGNS . . . . . . . . . . .. . . 18
ARTICLE 39 TIME. . . . . . . . . . . . . . . . . . . .. . . . . . . . 18
ARTICLE 40 MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 41 LESSOR'S ACCEPTANCE. . . . . . . . . . . . . . . . . . . 19
ARTICLE 42 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . 19
ARTICLE 43 GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 44 AUTHORITY OF SIGNATORIES . . . . . . . . . . . . . . 19
EXHIBITS:
EXHIBIT "A" PRICE BUSINESS CENTER - TIMESQUARE SITE PLAN
EXHIBIT "B" FLOOR PLAN
EXHIBIT "C" RULES, REGULATIONS AND RESTRICTIVE COVENANTS
<PAGE>
LEASE SUMMARY
LESSOR: PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHIP
LESSEE: MRS. FIELDS COOKIES, a California Corporation
TRADE NAME: MRS. FIELDS COOKIES
CENTER/PARK: PRICE BUSINESS CENTER - TIMESQUARE
PREMISES: 462 BEARCAT DRIVE SALT LAKE CITY , UT 84115
----------------------------------------------
LEASE TERM: SEVEN (7) YEARS
LEASE COMMENCEMENT DATE: March 2 , 1995
RENT COMMENCEMENT DATE: May 17 , 1995
<TABLE>
<CAPTION>
<S> <C> <C>
RENT:
LEASE YEARS MONTHLY RENT ANNUAL RENT
-------------------------------------------------
1
$11,552.16 $138,625.92
2
$11,943.49 $143,321.92
3
$12,334.82 $148,017.92
4
$12,726.16 $152,713.92
5
$13,117.49 $157,409.92
6
$13,508.82 $162,105.92
7
$13,900.16 $166,801.92
</TABLE>
USE: General office, administration
OPTION TO EXTEND: None
LESSEE'S SHARE OF
COMMON AREA EXPENSES: Pro Rata
LESSEE'S SHARE OF
TAX OBLIGATION: Pro Rata
LESSEE'S SHARE OF
INSURANCE: Pro Rata
SECURITY DEPOSIT: None
GUARANTORS: MRS. FIELDS INC.
ADDRESSES FOR NOTICE: LESSOR: LESSEE:
PRICE DEVELOPMENT COMPANY,MRS. FIELDS COOKIES
LIMITED PARTNERSHIP 462 West Bearcat Drive
35 Century Park Way Salt Lake City,
UT 84115
Salt Lake City, UT 84115
(801) 486-3911
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into this 27 day of February , 19 95
, by and between PRICE DEVELOPMENT COMPANY, LIMITED PARTNERSHOP, doing
business in PRICE BUSINESS CENTER - TIMESQUARE, as Lessor, and Mrs. Fields
Cookies ,
, as Lessee.
ARTICLE 1. PREMISES. Lessor is the owner of real property situated in
the City of South Salt Lake, Salt Lake County, State of Utah, on which Lessor is
developing an exclusive preplanned office and commercial park, known as the
PRICE BUSINESS CENTER - TIMESQUARE, which real property is shown on Exhibit "All
and attached hereto and by this reference incorporated herein.
Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the
certain premises in PRICE BUSINESS CENTER - TIMESQUARE (hereinafter referred to
as the "Premises" and "Park" respectively) outlined in red on the plat of PRICE
BUSINESS CENTER - TIMESQUARE attached hereto as exhibit "A", said premises
containing a total of approximately 18,784 square feet of floor space. The
parties agree that this Lease is subject to the effect of any covenants,
conditions, restrictions, easements, mortgages or deeds of trust, ground leases,
rights of way and any other matters or documents of record; the effect of any
zoning laws of the city, county and state where the Park is situated, and
general and special taxes not delinquent. Lessee agrees that as to Lessee's
leasehold estate Lessee and all persons in possession or holding under Lessee,
will conform to and will not violate the terms of any covenants, conditions or
restrictions of record which may now or hereafter encumber the Property (the
"Restrictions") ; and this Lease is subordinate to the restrictions and any
amendments or modifications thereto.
ARTICLE 2. PURPOSE. The Premises are to be used only for office or other
commercial purposes permitted in the Rules, Regulations and Restrictive
Covenants attached hereto as Exhibit "C", and for no other purpose without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld.
ARTICLE 3. TERM. The term of this Lease shall be for a seven (7) year
period, commencing when Lessee occupies the Premises.1 Lessor agrees that it
will, at its sole cost and expense and as soon as it is reasonably possible,
commence and pursue the completion of the improvements to be erected by Lessor
as shown on the attached Exhibit "B".2
ARTICLE 4. POSSESSION. If Lessor, for any reason whatsoever, cannot
deliver possession of the Premises to Lessee at commencement of the term hereof,
this Lease shall not be void or voidable, nor shall Lessor be liable to Lessee
for any loss or damage resulting therefrom, but in that event, all rent shall be
abated during the period between the commencement of said term and the time,
when Lessor delivers possession. As such, rent shall commence4 and the Lease
term shall be extended by such period of delay.5
<PAGE>
ARTICLE 5. RENT. Lessee shall pay to Lessor, as rent for the
Premises during the term of this Lease, the sum of ________3________________
_______________________________________Dollars ( 3 )
per month, payable on or before the first day of each calendar month during the
* See page la for footnotes.
1 , which is scheduled to be March 2, 1995.
2 Lessee shall have forty-five (45) days from Lease Commencement to build
out its Lessee interior finish with no minimum rent due.
<TABLE>
<CAPTION>
<S> <C>
3 Lease Years Monthly Rent
----------- ------------
1 $ 11,552.16
2 $ 11,943.49
3 $ 12 ,334.82
4 $ 12,726.16
5 $ 13,117.49
6 $ 13,508.82
7 $ 13,900.16
</TABLE>
4 as stated herein,
5 if Lessor is unable to turn over the space by April 1, 1995, Lessee
shall have the right to terminate this Lease.
<PAGE>
term hereof. Minimum rent for any partial month shall be prorated or a per
them basis. 1
Rent shall be paid to Lessor without deduction or offset, in lawful
money of the United States of America and shall be paid at the office of Lessor
at 35 Century Park-Way, Salt Lake City, Utah 84115, or to such other place as
Lessor may from time to time designate by written notice to Lessee. Any
installment of rent, other sum or any portion of such installment or other sum
required under this Lease to be paid by Lessee which has not been paid within
five (5) days after the due date thereof (withstanding postal delays) shall,
whether or not demand therefor is made or notice of default is given, bear
interest at the rate of one and one half percent (1-1/2%) per month from the due
date thereof or until paid in full. In addition thereto, Lessor may charge a sum
equal to five percent (5%) of each unpaid amount as a service fee to compensate
Lessor for the additional time and expense necessitated in the handling of
delinquent payments.
ARTICLE 6. USE OF PREMISES. Lessee shall not do or permit anything to
be done in or about the Premises, nor bring or keep anything therein which will
in any way increase the existing rate or affect any policy of fire or other
insurance upon the Premises or any of its contents. Lessee shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other lessees or occupants of the Park,
injure or annoy them or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose. Nor shall Lessee cause, maintain or
permit any nuisance in, on or about the Premises. Lessee shall not damage or
deface or otherwise commit or suffer to be committed any waste in or upon the
Premises.
Lessee shall not place any sign or advertisement upon any exterior wall
or window without the prior written consent of Lessor, which consent shall not
be unreasonably withheld.
ARTICLE 7. COMPLIANCE WITH LAW. Lessee shall not use the Premises or
permit anything to be done in or about the Premises which will in any way
conflict with any law, statute, ordinance or government rule or regulation now
in force or which may hereafter be enacted or promulgated. Lessee shall at its
sole cost and expense promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted related to or
affecting the condition, use or occupancy of the Premises, excluding structural
changes not related to or affected by Lessee's improvements or acts. The
judgment of any court of competent jurisdiction or the admission of Lessee in an
action against Lessee, whether Lessor be a party thereto or not, that Lessee has
violated any such law, statute, ordinance or governmental rule, regulation or
requirement, shall be conclusive of that fact as between Lessor and Lessee.
Lessee hereby accepts the Leased Premises in the condition existing as
the date of occupancy, subject to all applicable zoning, municipal, county and
state laws, ordinances, rules, regulations, orders, restrictions of record, and
requirements in effect during the term or any part of the term hereof regulating
the Leased Premises.
<PAGE>
* See page 2a for footnote.
1 As long as Lessee is not in default under this Lease, Lessee's
obligation to pay minimum rent as defined under Article 5 shall abate
during the initial forty-five (45) day build-out period, and then shall
abate for a thirty (30) day period. commencing with the seventy-fifth
(75th) day of the Lease term, Lessee shall be obligated to pay full
minimum rent as specified herein. The foregoing notwithstanding,
however, should Lessee default under any provision (s) of this Lease
and should such default not be cured within the times allowed for such
hereunder, Lessee shall be responsible for, and pay upon demand, the
thirty (30) day rent period which has been abated under this footnote.
<PAGE>
For purposes hereof, "Hazardous Materials" shall mean any and all
flammable explosives, radioactive material, hazardous waste, toxic substance or
related material, including but not limited to, those materials and substances
defined as "hazardous substances", "hazardous materials", "hazardous wastes" or
"toxic substances" in the Environmental Laws. For purposes hereof,
"Environmental Laws" shall mean all local, state and federal laws, statues,
rules and regulations, including but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 et seq. ; the Hazardous Materials Transportation Act, 39 U.S.C.
Section 1801, et seq.; the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. ; the Federal
Clean Water Act 33 U.S.C. Section 1251 et seq. ; the Clean Air Act 42 U.S. C.
Section 7401 et seq. ; the Porter-Cologne Water Quality Act, including all
amendments thereto, replacements thereof, and regulations adopted and
publications promulgated pursuant thereto. Lessee agrees that during the term of
this Lease Lessee shall not be in violation of any federal, state or local law,
ordinance or regulation relating to industrial hygiene, soil, water, or
environmental conditions on, under or about the Leased Premises including, but
not limited to, the Environmental Laws. Lessee further agrees that during the
term of this Lease, there shall be no use, presence, disposal, storage,
generation, release, or threatened release of Hazardous Materials on, from or
under the Leased Premises. Lessee agrees to indemnify, defend, protect and hold
harmless Lessor, its directors, officers, employees, partners, and agents from
and against any and all losses, claims, demands actions, damages (whether direct
or consequential), penalties, liabilities, costs and expenses, including all
attorney's fee- and leg7l expenses, arising out of any violation or alleged
violation of any of the laws or regulations referred to in this Article 7, or
breach of any of the provisions of this Article.
ARTICLE 8. ALTERATIONS. Lessee shall not make or permit to be made any
alterations, additions or improvements to or of the Premises or any part thereof
without the written consent of Lessor, which consent shall not be unreasonably
withheld, and any alterations, additions or improvements to, or on the Premises,
except movable furniture and trade fixtures, shall at once become a part of the
realty and belong to Lessor. Lessee shall submit working drawings for any such
alterations, additions or improvements to Lessor for Lessor's prior written
approval. Lessor hereby consents to the alterations, additions or improvements
shown on Exhibit "B", attached hereto, and Lessor further agrees to complete any
of Lessor's work, if any, specifically as shown on Exhibit "B". In the event
Lessor consents to the making of any alterations, additions or improvements to
the Premises by Lessee, the same shall be made by Lessee at Lessee's sole cost
and expense and selection by Lessee of any contractor or person to construct or
install the same shall be subject to the prior written approval of Lessor, which
approval shall not be unreasonably withheld, and such work shall be performed in
a workmanlike manner.
Lessee shall keep the Premises and the Park in which the Leased
Premises are situated, free from any liens arising out of any work performed,
materials furnished or obligations incurred by Lessee. In the event a mechanic's
or other lien is filed against the Leased Premises or the Park of which the
Leased Premises forms a part as a result of a claim arising through Lessee,
Lessor may demand that Lessee furnish to Lessor a surety bond satisfactory to
Lessor in an amount equal to at least one hundred fifty percent (150%) of the
amount of the contested lien, claim or demand, indemnifying Lessor against
liability for the same and holding the Leased Premises free from the effect of
such lien notice from Lessor. In addition, Lessor may require Lessee to pay
Lessor's attorneys' fees and costs in participating in any action to foreclose
such lien if Lessor shall decide it is to its best interest to do
so. Lessor
may pay the claim prior to the enforcement thereof, in which event Lessee shall
reimburse Lessor in full, including attorney's fees, for any such expense, as
additional rent, with the next due rental.
<PAGE>
Lessee shall return the Leased Premises to Lessor at the expiration or earlier
termination of this Lease in good and sanitary order, condition and repair, free
of rubble and debris, broom clean, reasonable wear and tear excepted. Upon, or
within ten (10) days prior to termination of this Lease, Lessee will provide, at
Lessee's sole cost and expense a certification of the HVAC system by a
contractor acceptable to Lessor. In the event said certification indicates any
deferred maintenance or other conditions other than normal wear and tear, Lessee
shall promptly cause any such conditions to be remedied at Lessee's sole cost
and expense, by a contractor acceptable to Lessor. All damage to the Leased
Premises caused by the removal of such trade fixtures and other personal
property that Lessee is permitted to remove under the terms of this Lease and/or
such restoration shall be repaired by Lessee at its sole cost and expense prior
to termination.
ARTICLE 9. REPAIRS. Lessee shall, at all times during the term hereof,
and at Lessee's sole cost and expense, keep, maintain and repair the Premises in
good and sanitary order and condition, including, without limitation,
replacement of all broken or damaged glass, replacement of light globes or tubes
and doors, window casements, heating and air conditioning systems, plumbing,
pipes, electrical wiring conduit, interior partitions, fixtures, leasehold
improvements and alterations.
Lessor shall, at its sole cost and expense, keep and maintain in good
repair, the exterior walls and roof of the Premises. By entering into the
Premises, Lessee shall be deemed to have accepted the Premises in "as-is"
condition and as being in good and sanitary order, condition and repair, and
Lessee agrees that on the last day of said term or sooner termination of this
Lease to surrender the Premises with appurtenance in the same condition as when
received, reasonable use and wear thereof and damage by fire, act of God or by
the elements is excepted.
Lessor shall pay for maintenance and repair as defined herein so long
as the need for same does not result from any wrongful or negligent act or
omission of Lessee or its employees, invitees or licensees. The cost of any such
maintenance, repair, janitorial or other service which becomes necessary as a
result of any such act or omission shall be borne by Lessee. Lessor shall not be
required to make any repairs unless and until Lessee has notified Lessor in
writing of the need for such repairs and Lessor shall have a reasonable period
of time thereafter within which to commence and complete said repairs. Lessor
shall act within seventy-two (72) hours after receipt of written notice and
shall pursue to completion with due diligence; provided however, Lessor shall
not be liable for any damages, direct, indirect or consequential, or for damages
for personal discomfort, illness or inconvenience of Lessee by reason of failure
of such equipment facilities or systems or reasonable delays in the performance
of such repairs, replacements and maintenance, unless caused by the deliberate
act or omission of Lessor, its servants, agents, or employees or anyone
permitted by it to be in the Park, or through it in any way, the cost of the
necessary repairs, replacements or alterations shall be borne by Lessee who
shall pay the same to Lessor on demand. Lessee waives all rights it may have
under law to make repairs at Lessor's expense.
ARTICLE 10. LAWS, WASTE AND NUISANCE. (a) Lessee covenants that it: (i)
will comply with all governmental laws, ordinances, regulations and
requirements, now in force or which hereafter may be in force, of any lawful
governmental body or authority having jurisdiction over the Premises; (ii) will
keep the Premises and every part thereof in a clean, neat and orderly condition,
free of noise, odors or nuisances which are objectionable to Lessor or Lessee's
neighbors; (iii) will in all respects and at all times fully comply with all
health and policy regulations; (iv) shall not overload the floors or permit or
allow any waste, abuse, deterioration or destructive use of the Premises to
occur.
<PAGE>
(b) Lessee further covenants that it will (i) not cause or permit any
hazardous wastes to be brought upon or used in or about the Premises; (ii)
immediately notify Lessor of any environmental concern raised by a private party
or governmental agency as it relates to the Premises; and (iii) immediately
notify Lessor of any hazardous waste spill. In the event of a violation hereof,
Lessee shall immediately proceed, at Lessee's expense, to remedy same. Failure
of Lessee to commence clean up activities within five (5) days after receipt of
notice to so do shall result in a default under this Lease. Lessor shall,
thereafter, have the right, but not the obligation, to remedy any environmental
violation upon the Premises and Lessee shall promptly reimburse Lessor for all
costs relating thereto. Lessor further retains the right, in its sole, but
reasonable discretion, to conduct any environmental tests on the Premises should
Lessor suspect a violation to exist upon the Premises. Lessee shall and does
agree to indemnify and hold Lessor harmless from and against any and all
damages, costs, expenses and liability whatsoever, including, without
limitation, attorneys' fees that Lessor may incur because of Lessee's violation
of, or the resulting enforcement of any Environmental Laws.
ARTICLE 11. ABANDONMENT. Lessee shall not vacate or abandon the
Premises at any time prior to the expiration or earlier termination of the term
hereof nor permit the Premises to remain unoccupied for a period longer than ten
(10) consecutive days. In the event Lessee shall abandon, vacate or surrender
the Premises or be dispossessed by process of law or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to have
been abandoned.
ARTICLE 12. LIENS. Should any mechanic's or other liens be filed
against the Premises b]e reason of Lessee's acts or omissions or because of a
claim against Lessee or against Lessee's agents or contractors, Lessee shall
cause the same to be canceled and discharged of record and shall indemnify,
defend and hold Lessor harmless from any such lien and shall deal with any such
lien in accordance with the terms of Article 8 above.
ARTICLE 13. ASSIGNMENT AND SUBLETTING. The purpose of this Lease is to
transfer possession of the Leased Premises to Lessee f or Lessee's personal use
in return for certain benefits, including rent, to be transferred to the Lessor.
Lessee's right to assign or sublet as stated in this Article is subsidiary and
incidental to the underlying purpose of this Lease. Lessee acknowledges and
agrees that it has entered into this Lease in order to acquire the Leased
Premises for its own personal use and not for the purpose of obtaining the right
to convey the leasehold to others. Lessee shall not assign this Lease or sublet
the Premises or any part thereof to occupy or use the Premises or any portion
thereof without the prior written consent of Lessor. Acceptance of rent by
Lessor of Lessee or Assignee shall not be deemed approval or acceptance of
assignment or subletting. Lessee shall remain liable for all terms and
conditions of this Lease Agreement at all times upon Lease assignment or
subletting. In the event Lessor grants permission in writing for Lessee to
sublet or assign, Lessee shall pay to Lessor Three Hundred and No/100 Dollars
($300.00) to cover costs and inconvenience. Any assignment or subletting by
Lessee without Lessor's consent shall be a-default by Lessee hereunder.
ARTICLE 14. PARKING AND COMMON AREAS . Lessee shall have nonexclusive
parking rights for - 0 - parking spaces in the Parking Area adjacent to or near
Lessee's Premises. Lessor shall cause the parking and landscaped areas
surrounding the Premises to be graded, blacktopped, lighted and landscaped at no
expense to Lessee. Lessor shall also complete the landscaped areas and driveways
situated within the Park and outside of the Premises (hereinafter referred to as
the "Common Area") at no expense to Lessee.
<PAGE>
Lessee, for the use and benefit of Lessee, its customers, invitees and
employees, shall have the nonexclusive right in common with Lessor and other
present and future owners, lessees and their agents, employees, customers,
licensees and sublessees, to use said Common and Parking Areas during the entire
term of this Lease or any extension thereof, for ingress and egress, roadway,
sidewalks and automobile parking.
Lessor shall have the right, through reasonable rules, regulations
and/or restrictive covenants promulgated or modified by it from time to time, to
control use and operation of the Common Areas in order that the see may occur in
a proper and orderly fashion; provided, however, that any such promulgated or
modified rules, regulations and/or restrictive covenants shall not discriminate
against Lessee in favor of other lessees or portions of the Park.
Lessor reserves the right to change from time to time the dimensions
and location of the Common Areas as shown on Exhibit "All as well as the
dimensions identity and type of any Building (except the Premises of Lessee)
shown on Exhibit "All and to construct additional buildings, modifications of
existing buildings or other improvements in the Park.
ARTICLE 15. INDEMNIFICATION OF LESSOR. This Article 15 is written and
agreed to in respect of the intent of the parties to assign the risk of loss
whether resulting from negligence of the parties or otherwise, to the party who
is obligated hereunder to cover the risk of such loss with insurance. Thus, the
indemnity and waiver of claims provisions of this Lease have as their object, so
long as such object is not in violation of public policy, the assignment of risk
for a particular casualty to the party carrying the insurance for such risk,
without respect to the causation thereof.
Lessor and Lessee release each other, and their respective authorized
representatives, from any claims for damage to any person or to the Leased
Premises and the Building and other improvements in which the Leased Premises
are located, and to the fixtures, personal property, Lessee's improvements and
alterations of either Lessor or Lessee, in or on the Leased Premises and the
Building and other improvements in which the Leased Premises are located,
including loss of income, that are caused by or result from risks insured or
required under the terms of this Lease to be insured against under any property
insurance policies carried or to be carried by either of the parties.
Each party shall cause each such insurance policy obtained by it to
provide that the insurance company waives all rights of recovery by way of
subrogation against either party in connection with any damage covered by such
policy. Neither party shall be liable to the other for any damage caused by fire
or any other risks insured against under any property insurance policy carried
under the terms of this Lease. If any such insurance policy cannot be obtained
with a waiver of subrogation without payment of an additional premium charge
above that charged by the insurance companies issuing such policies without
waiver of subrogation, the party receiving the benefit shall elect to either
forfeit the benefit or shall pay such additional premium to the insurance
carrier requiring such additional premium.
Lessee, as a material part of the consideration to be rendered to
Lessor, shall indemnify, defend, protect and hold harmless Lessor against all
actions, claims, demands, damages, liabilities, losses, penalties, or expenses
of any kind which may be brought or imposed upon Lessor or which Lessor may pay
or incur by reason of injury to person or property, from whatever cause, all or
in anyway connected with the condition or use of the Leased Premises, or the
improvements or personal property therein or thereon, including without
limitation any liability or injury to the person or property of Lessee, its
agents, officers, employees or invite3s. Lessee agrees to indemnify, defend and
protect Lessor and hold it harmless from any and all liability, loss, cost or
obligation on account of, or arising out of, any such injury or loss however
occurring, including breach of the provisions of this Lease and the negligence
for the parties hereto. Nothing contained herein shall obligate Lessee to
indemnify Lessor against its own sole or gross negligence or willful acts, for
which Lessor shall indemnify Lessee.
<PAGE>
In the event any action, suit or proceeding is brought against Lessor
by reason of such occurrence, Lessee, upon Lessor's request will at Lessee's
expense resist and defend such action, suit or proceeding, or cause the same to
be resisted and defended by counsel designated either by Lessee or by the
insurer whose policy covers the occurrence and in either case approved by
Lessor. The obligations of Lessee under this Article arising by reason of any
occurrence taking place during the Lease term shall survive any termination of
this Lease.
Lessee, as a material part of the consideration to be rendered to
Lessor, hereby waives all claims against Lessor for damages to goods, wares,
merchandise and loss of business in, upon or about the Leased Premises and for
injury to Lessee, its agents, employees, invitees or third persons in or about
the Leased Premises from any cause arising at any time, including breach of the
provisions of this Lease and the negligence of the parties hereto.
Wherever in this Article the term Lessor or Lessee is used and such
party is to receive the benefit of a provision contained in this Article, such
term shall refer not only to that party but also to its officers, directors,
employees, partners and agents.
ARTICLE 16. INSURANCE. (a) Lessee agrees to secure and keep in force
from and after the date Lessor shall deliver possession of the Premises to
Lessee and throughout the Lease term, at Lessee's sole cost and expense
Comprehensive General Liability insurance on the Premises under Lessee's care,
custody and control, and all areas appurtenant thereto, on an occurrence basis
with a minimum limit of liability in an amount of One Million Dollars
($1,000,000.00) per occurrence, Two Million Dollars ($2,000,000.00) aggregate.
Evidence of said insurance shall be provided to Lessor within thirty (30) days
of occupancy and shall name Lessor as an additional insured. The policy shall
contain cross liability endorsements and shall insure performance by Lessee of
the indemnity provisions of this Lease; shall cover contractual liability, and
products liability; shall be primary, not contributing with, and not in excess
of coverage which Lessor may carry; shall state that Lessor is entitled to
recovery for the negligence of Lessee even though Lessor is named as an
additional insured; shall provide for severability of interest; shall provide
that an act or omission of one of the insured or additional insured which would
void or otherwise reduce coverage shall not void or reduce coverage as to the
other insured or additional insured; and shall afford coverage after the term of
this Lease (by separate policy or extension if necessary) for all claims based
on acts, omissions injury or damage which occurred or arose (or the onset of
which occurred or arose) in whole or in part during the term of this Lease. The
limits of said insurance shall not limit any liability of Lessee hereunder. Not
more frequently than every three (3) years, if, in the reasonable opinion of
Lessor, the amount of liability insurance required hereunder is not adequate,
Lessee shall promptly increase said insurance coverage as required by Lessor.
(b) Lessor shall procure insurance coverage insuring the
building in which the Lessor against loss of, or damage to, Premises are located
(Lessor's Building) by reason of fire and certain other casualties. Such
insurance shall be underwritten by a responsible insurance company qualified to
do business in the State where Lessor's Building is located and shall be in the
face amount equal to the full replacement cost of Lessor's Building. Such
insurance shall cover loss or damage by fire, and loss or damage arising out of
the normal extended coverage perils which are windstorm, hail, acts of god,
explosion, riot attending a strike, civil commotion, aircraft, vehicles, and
smoke.
<PAGE>
(c)At all times during the term hereof, Lessee shall keep in
force at its sole cost and expense, fire and extended coverage insurance, and
against sprinkler leakage or malfunction and water damage and against vandalism
and malicious mischief, Lessee's trade fixtures, furnishings, equipment and
contents upon the Premises in full replacement value thereof. Lessee shall also
obtain broad form boiler and machinery insurance on all air-conditioning
equipment, boilers and other pressure vessels or systems, whether fired or
unfired, which are installed by Lessee or which exclusively serve the Premises.
such boiler and machinery insurance shall cover the replacement value of such
items. Lessee shall also obtain plate glass insurance for all plate glass upon
the Premises.
(d) Each of the parties hereby waives any rights it may
have
against the other party on account of any loss or damage to its property
(including Lessor's Building, the contents of such, and property located on the
Common Areas) which arises from any risk generally covered by fire and extended
coverage insurance, whether or not such party may have been negligent or at
fault in causing such loss or damage. Each of the parties shall obtain a clause
or endorsement in the policies of such insurance which each party obtains in
connection with this Lease to the effect right of subrogation against the other
party f or loss covered by such insurance. It is understood that such
subrogation waivers may be operative only as long as such waivers are available
in the State where Lessor's Building is located. In the event subrogation
waivers are allegedly not operative in such State, notice of such fact shall be
promptly given by party obtaining the insurance in question to the other party.
(e) No use shall be made or permitted to be made on the Leased
Premises, nor acts done, which will increase the existing rate of insurance upon
the Building in which the Leased Premises are located, or cause the cancellation
of any insurance policy are located, or cause the cancellation of any insurance
policy covering the Building, or any part thereof, nor shall Lessee sell, or
permit to be kept, used or sold, in or about the Leased Premises, any Article
which may be prohibited by the standard form of fire insurance policies. Lessee
shall at its sole cost and expense, comply with any and all requirements
pertaining to the Leased Premises, of any insurance organization or company,
necessary for the maintenance of reasonable property damage and public liability
insurance, covering the Leased Premises, the Building or the Park. Lessee agrees
to pay to Lessor, as additional rent, any increase resulting from Lessor's use
in premium on policies which may be carried by Lessor on the Leased Premises,
the Building or on the Park, or any blanket policies which include the Building
or Park, covering damage thereto and loss of rent caused by fire and other
perils above the rates for the least hazardous type of occupancy for office use.
Lessee further agrees to pay Lessor, as additional rent, any increases in such
premiums resulting from the nature of Lessee's occupancy or any act or omission
of Lessee. Lessee shall maintain in full force and effect on all of its
fixtures, equipment and personal property in the Leased Premises, a policy or
policies of fire and casualty insurance in "all risk" form with insurance to the
extent of at least ninety percent (90%) of their replacement value cost required
to negate the effect of co-insurance provision, whichever is greater. No such
policy shall have a deductible in a greater amount than One Thousand Dollars
($1,000.00) . Lessee sha31 also insure in the same manner the physical value of
all its Leasehold Improvements. During the Lease term, the proceeds from any
such policy or policies of insurance shall be used for the repair or replacement
of the property so insured. Lessor shall have no interest in the insurance upon
Lessee's equipment and fixtures and will sign all documents necessary or proper
in connection with the settlement or any claim or loss by Lessee.
<PAGE>
(f)Lessee shall procure pollution liability insurance covering
Lessor against any diminution in value of Lessors Premises or Park as a result
of Lessee's handling of any Hazardous Material (as defined herein) the cost of
any on or off site clean up of any such hazardous material, any toxic waste
liability including a complete indemnification of Lessor against any and all
claims whatsoever made in any connection whatsoever with Lessee's bringing any
Hazardous Material onto the Premises or the Park.
ARTICLE 17. UTILITIES: JANITORIAL SERVICE. (a) Lessee shall be solely
responsible for, and shall promptly pay before delinquency, all charges for use
or consumption of heat, sewer, water, gas, electricity, telephone or any other
utility services supplied to Lessee or to the Premises during the term hereof.
Should Lessor elect to supply any utility service, Lessee agrees to purchase and
pay for the same at the applicable rates then prevailing in the community.
Should any utility service be provided on a joint meter to the Premises and to
other spaces within Lessor's Building, Lessee shall reimburse Lessor for its pro
rata share (based upon floor area square footage) of such jointly supplied
utility service. Such reimbursement shall be made within ten (10) days following
the receipt of Lessor's statement indicating the share owed by Lessee and such
shall be considered additional rent hereunder.
(b)Lessor shall not be liable in the event of any interruption in
the supply of any utility service to the Premises or to Lessor's Building.
Lessee agrees that it will not install any equipment which will exceed or
overload the capacity of any utility facilities and that if any equipment
installed by Lessee shall require additional utility facilities, the same shall
be installed at Lessee's expense in accordance with plans and specifications
first approved in writing by Lessor.
(c)Lessee shall provide at its sole expense regular janitorial
service for the Premises which shall include at least ordinary dusting and
cleaning, emptying of waste baskets and vacuuming. In addition, Lessee shall
provide an adequate sized dumpster for the storage of refuse in the location
depicted on Exhibit "A". Lessee shall arrange for the removal of such refuse and
periodic cleaning of such dumpster and the areas immediately adjacent thereto.
ARTICLE 18. NET LEASE: ADDITIONAL RENT. (a) it is the intent of both
parties that the minimum monthly rentals herein specified shall be absolutely
net to Lessor throughout the term of this Lease, that all costs, expenses, and
obligations of every kind relating to the Premises which may arise or become due
during the term hereof shall be paid by Lessee, except for those which are
specifically imposed upon Lessor pursuant to the terms of this Lease. In
furtherance thereof, Lessee specifically agrees to pay to Lessor as additional
rent, without demand therefor and without offset or deduction, the expenses and
charges set forth below:
<PAGE>
(i) Lessee shall pay to Lessor its Proportionate
Share (as defined below) of the Park's Common Area operating costs. The "Common
Area operating cost" means the total cost and expense incurred in connection
with the ownership, maintenance, repair, and operation of Common Areas,
specifically including, without limitation, the costs and expenses for:
utilities for lighting and cleaning the Common Areas, watering Vegetation, and
temperature control in interior Common Areas; personal property taxes and
assessments on the Common Area personalty and equipment; real property taxes and
assessments on the land and improvements comprising the exterior Common Areas
(to the extent not included in subparagraph (c) below; premiums for property
damage and vandalism and malicious mischief insurance covering exterior Common
Areas and for public liability insurance covering Lessor's activities on the
Common Areas; maintenance, repair and replacement (including capital charges) of
Common Area pavement, sidewalks, walls, fences, curbs and bumpers, floor and
wall coverings in interior Common Areas, and all interior and exterior
directional signs; gardening and the maintenance and replacement of landscaping
and irrigation systems; striping and line painting; sweeping; sanitary and floor
control; removal of snow, ice, trash, rubbish, garbage, and other refuse;
cleaning, repair and replacement of lighting fixtures including bulbs and
ballasts; depreciation on, or rentals for, machinery and equipment used in such
maintenance; the cost of supplies and personnel (and salaries, uniforms,
workmen's compensation insurance, group insurance, fidelity bonds and other
fringe benefits) to implement such service, to direct parking, and to police the
Common Areas; repair of all utility lines; custodial service for interior Common
Areas; fees required licenses and permits relating to the operation of parking
areas, and fifteen percent (15%) of all the foregoing costs (except for the cost
of taxes and insurance) to cover administrative and overhead expenses.
(ii) Lessee shall pay to Lessor its Proportionate Share
(as defined below) of the cost of Lessor's property damage insurance described
in paragraph 16(b) above.
(iii)Lessee shall pay to Lessor its Proportionate Share
(as defined below) of all Real Estate Taxes (as defined below) levied against
Lessor's Building and land for any period occurring during the term of this
Lease.
"Real Estate Taxes" or "Taxes" shall mean and include all general and
special taxes, assessments, duties and levies, charged and levied upon or
assessed by any governmental authority against the Park including the land, the
Buildings, the Premises, any other improvements situated on the land other than
the Buildings, the various estates in the land and the Buildings, any leasehold
improvements, fixtures, installations additions and equipment whether owned by
Lessor or Lessee. Real Estate Taxes shall also include the reasonable cost to
Lessor contesting the amount, validity, or the applicability of any Taxes
mentioned in this Article. Further included in the definition of Taxes herein
shall be general and special assessments, fees of every kind and nature,
commercial rental tax, levy, penalty or tax (other than inheritance or estate
taxes) imposed by any authority having the direct or indirect power to tax, as
against any legal or equitable interest of Lessor in the Leased Premises or in
the Park or on the act of entering into this Lease or as against Lessor's right
to rent or other income therefrom, or as against Lessor's business of leasing
the Leased Premises, any tax, fee, or charge with respect to the possession,
leasing, transfer of interest, operation, management, maintenance alteration,
repair, use, or occupancy by Lessee of the Leased Premises or any portion of the
Park, or any tax imposed in substitution, partially or totally, for any tax
previously included within the definition of Taxes herein, or any additional
tax, the nature of which may or may not have been previously included within the
definition of Taxes. Further, if at any time during the term of this Lease the
method of taxation or assessment of real estate or the income therefrom
prevailing at the time of execution hereof shall be, or has been altered so as
to cause the whole or any part of the Taxes now or hereafter levied, assessed or
imposed on real estate to be levied, assessed or imposed upon Lessor, wholly or
partially, as a capital levy, business tax, permit or other charge, or on or
measured by the rents received therefrom, then such new or altered Taxes,
regardless of their nature, which are attributable to the Land the Buildings or
to other improvements on the land shall be deemed to be included with the term
"Real Estate Taxes" for purposes of this Article 18, whether in substitution
for, or in addition to any other Real Estate Taxes, save and except that such
shall not be deemed to include any enhancement of said tax attributable to other
income of Lessor. With respect to any general or special assessments which may
be levied upon or against the Leased Premises, the Buildings, the Park, the
underlying realty or which may he evidenced by improvement or other bonds, or
may be paid in annual or semi-annual installments, only the amount of such
installment, pro rated for any partial year, and statutory interest, shall be
included within the computation of Taxes for which Lessee is responsible
hereunder. When possible, Lessee shall cause its trade fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real property of Lessor. If any of Lessee's said personal property
shall be assessed with Lessor's real property, Lessee shall pay to , Lessor the
Taxes attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the Taxes applicable to Lessee's property.
<PAGE>
(b)All costs and expenses herein described which are incurred on
a Park-wide basis, such as exterior Common Area maintenance costs, liability
insurance, and taxes and assessments (if separate tax bills are not available) ,
shall be prorated among the various completed buildings within the Park,
including Lessor's Building, based upon the square foot area within such
buildings. Such portion of the Park-wide costs and expenses herein described
which are allocated to Lessor's Building plus those costs and expenses which are
incurred on a Building-wide basis, such as interior Common Area maintenance and
property damage insurance, shall be added together and Lessee's Proportionate
Share of the resulting total costs and expenses shall be the ratio obtained by
dividing the square foot floor area of the Leased Premises by the total square
foot floor area within Lessor's Building. In all cases, floor area shall be
measured from the outside of exterior walls and from the center of common walls.
Notwithstanding the preceding provision of Article 18, Lessee's proportionate
share as to certain expenses may be calculated differently to yield a higher
percentage share for Lessee as to certain expenses in the event Lessor permits
other lessees in the Park to directly incur such expenses rather than have
Lessor incur the expenses in common for the Park (such as, by way of
illustration, herein a Lessee performs its own landscaping maintenance). In such
case Lessee's proportionate share of the applicable expense shall be calculated
as having its denominator the gross leasable area of all Premises in the Park
less the gross leasable area of Lessees who have incurred such expense directly.
In any case in which Lessee, with Lessor's consent, incurs such expenses
directly, Lessee's proportionate share will be calculated specially so that
expenses of the same character which are incurred by Lessor for the benefit of
other Lessees in the Park shall not be pro rated to Lessee. Nothing herein shall
imply that Lessor will permit Lessee or any other Lessee of the Park to incur
any Common Area Costs or Operating Costs. Any such permission shall be in the
sole discretion of the Lessor, which Lessor may grant or withhold in its
arbitrary judgment.
(c)Lessee's Proportionate Share of the costs and expenses herein
described shall be estimated by Lessor for each twelve (12) month period, as
Lessor, in good faith, may determine and shall where possible, be based upon
previous costs and expenses increased by an inflation factor and anticipated
forthcoming extraordinary expenditures. Lessee shall pay in equal installments
in advance on the first day of each calendar month one-twelfth (I/12th) of its
estimated Proportionate Share of such costs for such period and any adjustments
to be made as a result of any difference between the amount paid by Lessee (as
its estimated Proportionate Share) and Lessee's actual Proportionate Share. In
the case of a deficiency, Lessee shall promptly remit the amount of such
deficiency to Lessor. In the ' case of a surplus, Lessor shall supply such
surplus to payments next falling due from Lessee hereunder. Notwithstanding the
foregoing, however, Lessor may elect to prorate certain costs and expenses, such
as taxes and assessments, as they are incurred and, with respect to such items,
not following the "budget billing" concept described in this subparagraph.
ARTICLE 19. PERSONAL PROPERTY TAXES.. During the term hereof Lessee
shall pay prior to delinquency all taxes assessed against and levied upon
fixtures, furnishings, equipment and all other personal property of Lessee as
well as any alterations or leasehold improvements contained in the Premises and
when possible Lessee shall cause said fixtures, furnishings and equipment to be
assessed and billed separately from the real property of Lessor.
<PAGE>
ARTICLE 20. ENTRY AND INSPECTION. Lessee shall permit Lessor and its
agents to enter into and upon the Premises at all reasonable times for the
purpose of inspecting the same or for the purpose of placing upon the property
in which the Premises are located any usual or ordinary signs advertising the
availability of the property for sale or lease prior to the expiration of this
Lease. Lessor or its agents may, during normal business hours, enter upon said
Premises and exhibit same to prospective lessees.
ARTICLE 21. DEFAULT. In the event of any failure of Lessee to pay any
rental due hereunder within five (5) days after the same shall be due or any
failure to perform any other of the terms, conditions or covenants of this Lease
to be observed or performed by Lessee for more than ten (10) days after written
notice of such default shall have been given to Lessee or if Lessee or any
guarantor of the Lease shall become bankrupt or insolvent or file any debtor
proceedings or take or have taken against Lessee or any guarantor of this Lease
in any court pursuant to any statute either of the United States or of any state
a petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of all or a portion of Lessee's or any such
guarantor's property or if Lessee or any such guarantor makes an assignment for
the benefit of creditors or petitions for or enters into an arrangement or if
Lessee shall abandon said Premises or suffer this Lease to be taken under any
writ of execution, Lessor, besides other rights or remedies it may have, shall
have the immediate right of re-entry and may remove all persons and property
from the Premises and such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of Lessee, all without
service of notice or resort to legal process and without being deemed guilty of
trespass or becoming liable for any loss or damage which may be occasioned
thereby.
Should Lessor elect to re-enter, as herein provided, or should it take
possession pursuant to legal proceedings or pursuant to any notice provided for
by law, it may either terminate this Lease or it may from time to time without
terminating this Lease, make such alterations and repairs as may be necessary in
order to relet the Premises and relet said Premises or any part thereof for such
term or terms (which may be for a term extending beyond the term of this Lease)
and at such rental or rentals and upon such other terms and conditions as Lessor
in its sole discretion may deem advisable, upon such reletting, all rentals
received by Lessor from such reletting shall be applied, first, to the payment
of any indebtedness other than rent due hereunder from Lessee to Lessor, second,
to the payment of any costs and expenses of such alterations and repairs, third,
to the payment of rent due and unpaid hereunder, and the residue, if any, shall
be held by Lessor and applied toward payment of future rent as the same may
become due and payable hereunder. If such rentals received from such reletting
during any month be less than that to be paid during that month by Lessee
hereunder, Lessee shall pay any such deficiency to Lessor. Such deficiency shall
be calculated and paid monthly. No such re-entry or taking possession of said
Premises by Lessor shall be construed as an election on its part to terminate
this Lease unless a written notice of such intention be given to Lessee or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, in addition to any other
remedies it may have, it may recover from Lessee all damages it may incur by
reason of such breach, including the worth at the time of such termination of
the excess, if any, of the amount of rent and charges equivalent to rent
reserved in this Lease for the remainder of the stated term over the then
reasonable rental value of the Premises for the remainder of the stated term,
all of which amounts shall be immediately due and payable from Lessee to Lessor.
<PAGE>
In the event of default, all Lessee's fixtures, furniture, equipment,
improvements, additions, alterations and other personal property shall remain on
the subject Premises and in that event and continuing during the length of said
default, Lessor shall have the right to take the exclusive possession of the
same and to use the same, rent or charge free, until all defaults are cured, or,
at its option, at any time during the term of this Lease, to require Lessee to
forthwith remove the same, and Lessee hereby waives all rights to notice and all
common law and statutory claims and causes of actions which it may have against
Lessor subsequent to such date as regards to storage, distribution, damage, loss
of use and ownership of the personal property affected by the terms of this
Article. Lessee acknowledges Lessor's need to relet the Leased Premises upon
termination of this Lease for repossession of the Leased Premises and
understands that the forfeitures and waivers provided herein are necessary to
said reletting and to prevent Lessor incurring a loss for inability to deliver
the Leased Premises to a prospective Lessee.
The remedies given to Lessor in this section shall be in addition and
supplemental to all other rights or remedies which Lessor may have under the
laws then in force.
ARTICLE 22. DESTRUCTION. (a) If Lessor's Building shall be partially
damaged by fire or other casualty insured against under Lessor's property damage
insurance policies, Lessor shall, upon receipt of the insurance proceeds, repair
Lessor's Building to a condition which is substantially similar to the condition
in existence prior to such casualty.
(b)Notwithstanding the foregoing, however, if Lessor's Building
is damaged as a result of flood, earthquake, nuclear radiation or contamination,
act of war or other risk which is not covered by Lessor's insurance, or if the
Premises or Lessor's Building are damaged to the extent of thirty-three and one
third percent (33-1/3%) or more of their then replacement value, or if the
repair of the Premises, or Lessor's Building, would require more than one
hundred twenty (120) days, Lessor shall either terminate this Lease upon written
notice given to Lessee within twenty (20) days following such casualty or
commence as soon as is reasonably possible the restoration of Lessor's Building.
Lessor's obligations to restore shall in no way include any construction
originally performed by Lessee or subsequently undertaken by Lessee, but shall
include solely that property constructed by Lessor prior to commencement of the
term hereof. The cost of any repairs to be made by Lessor, pursuant to this
Article 22 of this Lease, shall be paid by Lessor utilizing available insurance
proceeds. Lessee shall reimburse Lessor upon completion of the repairs for any
deductible for which no insurance proceeds will be obtained under Lessor's
insurance policy, or if other premises are also repaired, a pro rata share based
on total costs of the repair equitable apportioned to the Leased Premises.
Lessee shall, however, not be responsible to pay any deductible or its share of
any deductibles to the extent that Lessee's payment would be in excess of
$10,000.00 if Lessee's consent has not been received by Lessor, unless such
denial of consent by Lessee is unreasonable.
(c)In the event this Lease is not terminated and Lessor
undertakes to repair any portion of the Premises, until such repair is complete,
rent shall abate proportionately as to the portion of the Premises rendered
untenable. Notwithstanding the foregoing, however, if the damage being repaired
was caused by the negligence of Lessee or its employees, agents, licensees or
concessionaires, there shall be no abatement of rent during the repair period.
<PAGE>
(d)Unless this Lease is terminated, Lessee shall, at its expense,
repair the fixtures and improvements installed by it within the Premises and
repair or replace any of Lessee's furniture, equipment or other personal
property damaged by such casualty.
ARTICLE 23. EMINENT DOMAIN. If all or more than 33-1/3% of the Premises
or all or a material portion of the Common Areas shall be taken or appropriated
by any public or quasi-public authority under the power of eminent domain, or
transfer in lieu thereof, either party hereto shall have the right, at its
option, to terminate this Lease as of the date title vests in the condemning
entity. Lessor shall be entitled to any award, or other payment made in
connection with such condemnation. Lessee, however, shall have the right to
pursue a claim in any condemnation proceeding against the condemning authority
(but not against Lessor) for compensation for any resulting damages to Lessee's
business, trade fixtures and personal property (but not for any diminution or
loss of Lessee's leasehold estate) . If a part of the Premises shall be so taken
or appropriated and this Lease is not thereafter terminated, the rental
thereafter to be paid shall be reduced in the proportion that the area of the
Premises so taken bears to the entire Premises. Notwithstanding the foregoing,
however, before Lessee may terminate this Lease by reason of a taking or
appropriation as described above, such taking or appropriation shall be of such
an extent and nature as to substantially handicap, impede or impair Lessee's use
of the Premises for a period in excess of ninety (90) days (assuming Lessor
shall promptly commence any repairs necessary to restore the remaining Premises
to a complete architectural unit). If any material part of Lessor's Building
other than the Premises shall be so taken or appropriated, Lessor shall have the
right, at its option, to terminate this Lease. Lessor shall be entitled to the
entire condemnation award or payment attributable to any such taking of Lessor's
Building or to any taking of any portion of the Common Areas.
ARTICLE 24. MORTGAGE REOUIREMENTS. This Lease and all rights of Lessee
under this Lease are hereby subordinate hereunder to any lien of any mortgage or
mortgages or lien or other security interest resulting from any other method of
financing or refinancing, now or hereafter in force against the land and/or
buildings hereafter placed upon the land of which the Premises are a part and to
all advances made or thereafter to be made upon the security thereof. The
provisions of this Article notwithstanding, so long as Lessee is not in defaults
hereunder, this Lease shall remain in full force and effect for the full term
hereof and shall not be terminated as a result of any foreclosure or sale or
transfer in lieu of such proceedings pursuant to a mortgage or other instrument
to which Lessee has subordinated its rights pursuant hereto.
In the event of the sale or assignment of Lessor's interest in the
buildings of which the Premises are a part, or in the event of any proceeding,
brought for the foreclosure of, or in the event of exercise of the power of sale
under any mortgage or other security instrument made by Lessor covering the
Premises, Lessee shall attorn to the assignee or purchaser and recognize such
purchaser as Lessor under this Lease.
Lessee agrees to give any mortgagees (as defined below), by registered
mail, a copy of any notice of default served by Lessee upon Lessor, provided
that prior to such notice, Lessee has been notified, in writing (by way of a
Notice of Assignment of Rents and Leases or otherwise) of the addresses of any
such mortgagees. Lessee further agrees that if Lessor shall have failed to cure
such default within the time set forth in this Lease, then any such mortgagees
shall have an additional thirty (30) days within which to cure such default or
if such default cannot be cured within that time, then such additional time as
may be necessary, if within such thirty (30) days, any such mortgagee has
commenced and is diligently pursuing the remedies necessary, to cure such
default (including but not limited to commencement of foreclosure proceedings,
if necessary to effect such cure) , in which event this Lease shall not be
terminated while such "mortgagee" shall mean the holder of any mortgage, the
beneficiary under any deed of trust or the holder of any other security interest
which encumbers Lessor's Building.
<PAGE>
ARTICLE 25. RULES, REGULATIONS AND RESTRICTIVE COVENANTS. Lessee shall
faithfully observe and comply with the Rules, Regulations and Restrictive
Covenants attached hereto as Exhibit "C" and all reasonable modifications of and
additions thereto from time to time put into effect by Lessor, provided however,
that any such promulgated or modified Rules, Regulations and/or Restrictive
Covenants shall not discriminate against Lessee in favor of other lessees of
portions of the Park. Lessor shall not be responsible to Lessee for the
non-performance by any other lessee or occupant of the Park of any such Rules,
Regulations and Restrictive Covenants, but shall take reasonable steps to secure
such other Lessee's compliance.
ARTICLE 26. HOLDING OVER. If Lessee holds possession of the Premises
after the term of this Lease with Lessor's consent, and Lessor accepts rent in
the amounts hereinafter provided, Lessee shall become a lessee from
month-to-month upon terms equal to the then existing terms hereunder, except
that the rent shall be the then existing rent then payable hereunder at the end
of the term (on a monthly basis) multiplied by one hundred fifteen percent
(115%). Rent shall be paid in advance on or before the first day of each month
and Lessee shall continue in possession until such tenancy shall be terminated
by Lessor or until Lessee shall have given to Lessor a written notice at least
thirty (30) days prior to the date of termination of such tenancy of its
intention to terminate such tenancy.
ARTICLE 27. NOTICES. All notices and demands which may or are required
to be given by either party to the other hereunder shall be sent by overnight
courier or United States certified or registered mail, postage prepaid,
addressed to:
LESSOR LESSEE
PRICE DEVELOPMENT COMPANY MRS. FIELDS COOKIES
LIMITED PARTNERSHIP 462 West Bearcat Drive
35 Century Park-Way Salt Lake City, UT 84115
Salt Lake City, Utah 84115 Attn: Real Estate Department
Telephone: (801) 486-3911 Telephone: _______________
ARTICLE 28. LESSOR'S RIGHT TO CURE DEFAULTS. All covenants and
agreements to be performed by Lessee under any of the terms of this Lease shall
be at its sole cost and expense and, except as otherwise specifically provided
herein, without any abatement of rent. If Lessee shall fail to pay any sum of
money, other than rent, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, and such failure
shall continue for five (5) days after Lessee has received notice thereof by
Lessor, Lessor may, but shall not be obligated to do so, and without waiving any
rights of Lessor or releasing Lessee from any obligations of Lessee hereunder,
make such payment or perform such other act. All sums to be paid by Lessor and
all necessary incidental costs together with interest thereon at the rate of one
and one-half percent (1-1/2%) per month from the date of such payment by Lessor
in connection with the performance of any such act by Lessor shall be considered
additional rent hereunder and, except as otherwise in this Lease expressly
provided, shall be payable to Lessor on demand or, at the option of Lessor, in
such installments as Lessor may elect and may be added to any rent then due or
thereafter becoming due under this Lease.
<PAGE>
ARTICLE 29. FORCE MAJEURE. Lessor shall not be responsible or liable
for any delay in the observance or performance of any term or condition of this
Lease to be observed or performed by Lessor to the extent such delay results
from action of governmental authorities, civil commotions, strikes, fires, acts
of God, whether or not similar to the matters herein specifically enumerated and
any such delay shall extend by like time any period of performance by Lessor and
shall not be deemed a breach of or failure to perform this Lease or any
provision hereof.
ARTICLE 30. TRANSFER OF LESSOR'S INTEREST. In the event Lessor
transfers its interest in the Premises (other than a transfer as provided in
Article 13 of this Lease), Lessor shall be relieved of all obligations accruing
hereunder after the effective date of such transfer, provided that such
obligations have been expressly assumed in writing by the transferee.
Lessee agrees at any time and from time to time upon not less than ten
(10) days prior request by Lessor, to execute, acknowledge and deliver to Lessor
a statement in writing certifying that this Lease is unmodified and in full
force and effect (or if there have been modifications, that the same is in full
force and effect as modified and stating the modifications) and the dates to
which the fixed rent and other charges have been paid in advance, if any, (it
being intended that any such statement delivered pursuant to this subparagraph
may be relied upon by a prospective purchaser, mortgagee or assignee of any
mortgage of the Premises) or shall execute any document or provide any statement
as required by Lessor's lender provided such document shall not affect the
rental or term of this Lease.
ARTICLE 31. SECURITY DEPOSIT. Lessee has deposited with Lessor or its
agent ________________________________________________ Dollars ($ - 0 - )
receipt of which by Lessor is hereby acknowledged, as security (and not as rent)
for the full and faithful performance of any of the terms and conditions hereof.
In the event Lessee defaults in the performance of any of the terms hereof or
abandons the Premises, Lessor may use, apply or retain the whole or any part of
such security for the payment of any rent or any other payment to be made by
Lessee hereunder which is in default or of any other cost, expense or liability
which Lessor may incur by reason of Lessee's default. If all or any portion of
the security deposit is so used or applied, Lessee shall, no later than five (5)
days after written demand is made therefor, deposit cash with the Lessor in an
amount sufficient to restore the security deposit to its original amount. If
Lessee shall, at the end of the term hereof, including extensions and holdover
periods, have fully and faithfully complied with all of the terms and provisions
of this Lease (but not otherwise) the security deposit, or any balance thereof
shall then be returned to Lessee. Lessee shall not be entitled to interest on
any such security deposit. Lessee shall not assign or encumber the funds
deposited by it as security hereunder and neither Lessor nor its successors or
assigns shall be bound by any such assignment or encumbrance.
ARTICLE 32. OUIET ENJOYMENT. Lessor covenants that so long as
Lessee performs all of its obligations hereunder it shall peacefully and
quietly have, hold and enjoy the Premises for the term hereof.
ARTICLE 33. SIGNS. Lessee shall not place on the Leased Premises or in
the Park, any exterior signs or advertisements, nor any interior signs or
advertisements that are visible from the exterior of the Leased Premises,
without Lessor's prior written consent, which Lessor reserves the right to
withhold for any aesthetic reason in its sole judgment. The cost of installation
and regular maintenance of any such signs approved by Lessor shall be at the
sole expense of Lessee. At the termination of this Lease, or any extensions
thereof, Lessee shall remove all its signs, and all damage caused by such
removal shall be repaired at Lessee's expense.
<PAGE>
ARTICLE 34. SURRENDER OF LEASE . The voluntary or other surrender of
this Lease by Lessee, or a mutual cancellation thereof, shall not work as a
merger, and shall, at the option of Lessor, terminate all or any existing
subleases or subtenancies, or may, at the option of Lessor, operate as an
assignment to it of any or all such subleases or subtenancies
ARTICLE 35. LESSOR'S EXCULPATION. In the event of default, breach or
violation by Lessor (which term includes Lessor's partners, co-ventures,
co-lessees, officers, directors, employees, agents, or representatives) of any
Lessor's obligations under this Lease, Lessor's liability to Lessee shall be
limited to its ownership interest in the Leased Premises (or its interest in the
Park, if applicable) or the proceeds of a public sale of such interest pursuant
to foreclosure of a judgment against Lessor. Lessor may, at its option, and
among its other alternatives, relieve itself of all liability under this Lease
by conveying the Leased Premises to Lessee. Notwithstanding any such conveyance,
Lessee's leasehold and ownership interest shall not merge. Lessor (as defined in
this Article '15) shall not be personally liable for
ARTICLE 36. ATTORNEYS' FEES. Lessee hereby agrees to pay, as additional
rent, all attorneys, fees and disbursements, and all other court costs or
expenses of legal proceedings or other legal services which Lessor may incur or
pay out by reason of, or in connection with:
(a)any action or proceeding brought by Lessor wherein Lessor
obtains a final judgment or award against Lessee (including arbitration) on
account of any default by Lessee in the observance not limited to, matters
involving payment of rent and additional rent, alterations or other Lessee's
work and subletting or assignment;
(b)any action or proceeding brought by Lessee against Lessor (or
any officer, partner, or employe of Lessor) in which Lessee fails to secure a
final judgment against Lessor:
(c)any other appearance by Lessor (or any officer, partner, or
employee of Lessor) as a witness or otherwise in any action or proceeding
whatsoever involving or affecting Lessee or this Lease;
(d) any assignment, sublease, or leasehold mortgage proposed or
granted by Lessee (whether or not permitted under this Lease), and all
negotiations with respect thereto; and
(e) any alteration of the Leased Premise by Lessee, and all
negotiations with respect thereto.
In any action or proceeding referred to in Section (a) , Lessee shall
be entitled to recover its attorney fees and costs, if Lessee is the prevailing
party against Lessor.
Lessee's obligations under this Article shall survive the expiration or
any other termination of this Lease. This Article is intended to supplement (and
not to limit) other provisions of this Lease pertaining to indemnities and/or
attorney's fees.
Should it be necessary for Lessor to employ legal counsel to enforce
any of the provisions of this Lease, Lessee agrees to pay, as additional rent,
all attorney's fees and court costs reasonably incurred thereby, whether or not
Lessor commences any legal action or proceeding.
ARTICLE 37. ESTOPPEL CERTIFICATES AND FINANCING. Within ten (10) days
of request therefor by Lessor, Lessee shall execute a written statement
acknowledging the commencement and termination dates of this Lease, that it is
in full force and effect, has not been modified (or if it has, stating such
modifications) , and providing any other pertinent information as Lessor or its
agent might reasonably request. Failure to comply with this Article shall be a
material breach of this Lease by Lessee giving Lessor all rights and remedies
under Article 21 hereof, as well as a right to damages caused by the loss of a
loan or sale which may result from such failure by Lessee.
<PAGE>
ARTICLE 38. SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained shall, subject to the provisions as to assignment, apply to and bind
the heirs successors, executors, administrators and assigns of all of the
parties hereto; and all of the parties hereto shall be jointly and severally
liable hereunder.
ARTICLE 39. TIME. Time is of the essence of this Lease with
respect to each and every Article, Section and Subsection hereof.
ARTICLE 40. MISCELLANEOUS. Subject to any limitations on assignment set
forth herein, all of the terms and provisions of this Lease shall inure to the
benefit of and be binding upon the successors and assigns of each of the parties
hereto.
In the event of any action or proceeding brought by either party against
the other under this Lease, the prevailing party shall be entitled to recover
attorney's tees in such amount as the court may adjudge reasonable.
The waiver by Lessor of any term, covenant or condition herein
contained shall not be deemed to be a waiver of the same or any other term,
covenant or condition or any subsequent breach of the same of any other term,
covenant or condition herein contained. The subsequent acceptance of rent
hereunder by Lessor shall not constitute a waiver of any preceding breach by
Lessee of any term, covenant or condition of this Lease, other than the failure
of Lessee to pay the particular rent so accepted, regardless of Lessor's
knowledge of such preceding breach at the time of acceptance of such rent.
This Lease shall be governed by and construed in accordance with Utah
law.
The invalidity or enforceability of any provision hereof shall not
affect or impair any other provision hereof.
This Lease constitutes the entire agreement of the parties and
supersedes all prior agreements or understandings between the parties with
respect to the subject matter hereof. This Lease may not be modified or amended
except by written agreement of the parties.
The term "Lessor" as used herein shall include the agent or agents of
Lessor. The term "Lessee" as used herein shall include the plural as well as the
singular and shall include the masculine, feminine and neuter. If there is more
than one Lessee, the obligations of Lessee hereunder shall be joint and several.
Paragraph headings in this Lease are for convenience only and shall not
define or limit the scope or intent of any provision hereof.
Lessee shall not record this Lease or a Memorandum thereof without the
written consent of Lessor. Lessor may file this Lease for record with the
Recorder of the County in which the Park is located.
ARTICLE 41. LESSOR'S ACCEPTANCE. Lessor's execution of this Lease
is subject to Lessee providing financial statements of the Lessee and/or
Guarantor(s) which are acceptable to the Lessor.
<PAGE>
ARTICLE 42. ENTIRE AGREEMENT. This Lease and the Exhibits, Riders and
Addenda, if any, attached hereto and the rules and regulations adopted pursuant
to Article 25 above constitute the entire agreement between the parties. All
Exhibits, Riders or Addenda mentioned in this Lease are incorporated herein by
reference. No subsequent amendment to this Lease shall be binding upon Lessor or
Lessee unless reduced to writing and signed. Submission of this Lease for
examination does not constitute an option for the Premises and becomes effective
as a Lease only upon execution and delivery thereof by Lessor to Lessee. If any
provision contained in a Rider or Addendum is inconsistent with a provision in
the body of this Lease, the provision contained in said Rider or Addendum stall
control. It is hereby agreed that this Lease contains no restrictive covenants
binding on other lessees or exclusive use provisions in favor of Lessee. There
are no representations or promises by either party to the other except as are
specifically set forth herein. This Lease supersedes and revokes all previous
conversations, negotiations, arrangements, letters of intent, writings,
brochures, understandings, and information conveyed, whether oral or in writing,
between the parties hereto or their respective representatives or any agents of
any of them. The captions and section numbers appearing herein are inserted only
as a matter of convenience and are not intended to define, limit, construe or
describe the scope or intent of any Section or Article.
ARTICLE 43. GUARANTEE. FOR VALUE RECEIVED, the undersigned hereby
unconditionally guarantees the prompt and faithful performance by Lessee of
all of the obligations of the Lessee as set forth in the aforesaid Lease
Agreement.
Dated this 10th day of February , 19 95 .
-------- --------------- ----
MRS. FIELDS INC. ____________________
/s/ Ed Clissold, Sec. ____________________
================= ====================
ARTICLE 44. AUTHORITY OF SIGNATORIES. Each person executing this Lease
individually and personally represents and warrants that he is duly authorized
to execute and deliver the same on behalf of the entity for which he is signing
(whether it be a corporation, general or limited partnership or otherwise) and
that this Lease is binding upon said entity in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF , Lessor and Lessee executed this Lease as of the
date first above written.
LESSOR
PRICE DEVELOPMENT COOMPANY,
LIMITED PARNTERSHIP,
a Maryland limited partnership
By: JP REALTY, INC., a Maryland
corporation, its general partner
ATTEST:
/s/ Paul K. Mendenhall By: /s/ G. Rex Frazier
Paul K. Mendenhall, G. Rex Frazier
Secretary President
LESSEE
MRS. FIELDS COOKIES
a California Corporation
ATTEST:
/s/ Ed Clissold, Sec. By: /s/ Randal Baker
Its V P
<PAGE>
TENANT: MRS. FIELDS COOKIES
PROJECT: TIMESQUARE
SPACE #: 1140
EXHIBIT "B"
LANDLORD'S WORK AND TENANT'S WORK
A. Landlord shall deliver the Premises in its existing condition and Tenant
hereby agrees to accept the Premises in that existing condition.
1 B. Tenant shall make improvements to the Premises as provided in the
Lease. Tenant agrees, at its expense, to then prepare detailed drawings
showing the extent of such improvements, sign and submit said signed
drawings to Landlord in triplicate for review and approval or disapproval
within thirty (30) days of receipt of said drawings. Drawings must be
prepared by a licensed architect or qualified designer in the State of
Utah.
In the event Landlord shall approve said drawings, Landlord shall sign
and
return one
(1) set of drawings to Tenant.
Tenant hereby agrees, at its expense, to construct the Premises in
accordance with the detailed drawings, and shall not commence upon any
of Tenant's work until Landlord has approved the detailed drawings in
writing.
Tenant agrees to complete said construction in accordance with all
applicable building codes and zoning ordinances of the City of South
Salt Lake.
Tenant agrees to provide Landlord with copies of all applicable
building permits, health department permits, contractors' license numbers,
insurance certificates covering the work, and final lien waivers evidencing
Tenant's payment in full of all of Tenant's construction costs. Landlord
may require Tenant to furnish a bond or other security for performance of
the above work by Tenant.
C. Any sign to be placed on the Premises or on any part of the exterior c)f
the structure must be approved in writing by Landlord's Project Director
prior to the ordering of said sign.
D. Tenant shall be responsible for providing landlord with "as-built"
drawings upon completion of Tenant's work. It is imperative that the
contractor building the Premises keeps accurate records of any notations,
changes, etc., which vary from the final sepia drawings sent to Landlord
before construction begins.
Approved By
Landlord /s/ G. Rex Frazier Date 2-27-95
Approved By
Tenant /s/ Ed Clissold, Sec. Date 2-10-95
/s/ Randal Baker, VP Date 2-10-95
Approved as to form By Landlord's Project Director: /s/ Date 12/2/94 * See page
B-1 for footnote.
<PAGE>
TENAN., Mrs. Fields Cookies
PROJECT: Timesquare
SPACE #: 1140
1. Lessee shall, as a part of its work, complete the following scope of work:
(a) Install a new demising wall to deck with six inch (6") metal
studs and five eights inch (5/8") (Type X) gypsum board, taped
and finished on both sides.
(b) Separate the electrical System. Provide new electrical
equipment and meters for both the area being occupied by
Lessee and the left over
3104
square foot space . created in the redemise.
(c) Separate the HVAC system as necessary to provide separate heating and
cooling functions for both the area being occupied by the Lessee and the
left over space created in the redemise.
(d) Separately meter the gas and water lines coming in to the building for
both spaces.
(e) Upgrade the restrooms in accordance with the Americans with
Disabilities Act.
(f) Install automatic door openers on the front entryway in accordance
with the Americans with Disabilities Act.
Approved as to Form:
/s/
Date: 12/2/94
<PAGE>
TENANT : Mrs. Fields Cookies
PROJECT: Timesquare
SPACE #: 1140
CONSTRUCTION ALLOWANCE
Notwithstanding anything to the contrary contained in this Exhibit
"B", Landlord agrees to contribute to Tenant a construction allowance of $
185,000.00 which sum shall apply towards the work to be done by Tenant as set
forth in the Section of this Exhibit "B" entitled "Tenant's Work", except that
such sum shall not in any event apply towards Tenant's trade fixtures, signs or
architectural fees. Said sum is hereinafter referred to as the "Construction
Allowance". 1
The Construction Allowance shall be paid by Landlord to
Tenant in a single payment upon (i) the performance by Tenant of all of
its obligations pursuant to this Exhibit "B" , and (ii) the occurence
of each of the following conditions:
(1) The filing of a Notice of Completion and the expiration of applicable
lien periods, provided that no mechanics' or materialmen's liens are
asserted or filed within such lien period; or in the alternative,
presentation to Landlord oil full and complete releases o-I mechanics',
materialmen's and laborers'. liens respecting Tenant's Work;
(2) Issuance of final Certificate of Occupancy with respect to the Premises
by the City in which the Shopping Center is located;
(3) Delivery to Landlord not later than thirty (30) days after completion
of Tenant's Work as described in this Exhibit "B" a written statement of
the cost breakdown and a copy of the general contract for the performance
of Tenant's Work. Such cost breakdown shall be certified to be correct by
Tenant or by the managing general partner of Tenant if Tenant is a
partnership or by the President or a Vice President of Tenant if Tenant is
a corporation;
(4) Tenant has opened for business;
(5) Tenant is not in default under this Lease or under this Exhibit "B";
and
(6) Delivery to Landlord of a certificate of Tenant's architect certifying
that Tenant's Work has been completed in accordance with plans and
specifications approved by Landlord and certifying the correctness of the
final billing of Tenant's contractor to Tenant.
(7) Tenant has completed to Landlord's satisfaction (i) those items
specifically found by Landlord (or its architect, engineer or other
representative) or any governmental building inspector, to be (a)
incomplete or of unacceptable workmanship (b) deficient because of
inadequate or inferior materials, or (c) not in compliance with the
approved plans and specifications and (ii) any other "punch list" items.
Approved as to Form:
/s/
Date: 12/2/94
<PAGE>
1 Prior to payment of the construction allowance and in addition to the
specific requirements listed in the Construction Allowance Exhibit,
Lessee shall
provide Lessor a cost breakdown of the work performed by Lessee. The amount of
the construction allowance shall not exceed One Hundred Eighty Five
Thousand Dollars ($185.000.00). Any costs in excess of One Hundred
Eighty Five Thousand Dollars ($185,000.00) shall be borne solely be
Lessee.
<PAGE>
TENANT: MRS FIELDS COOKIES
PROJECT: TIMESQUARE
EXHIBIT "C" SPACE#: 1140
RULES, REGULATIONS AND RESTRICTIVE COVENANTS
TIMESQUARE PARK
Attached to and made a part of that certain Lease Agreement made and
entered into this _________ day of _________________ , 19_____ , by and between.
PRICE DEVELOPRENT COMPANY LIMITED PARTNERSHIP, as Lessor and MRS. FIELDS
COOKIES, as Lessee.
I. PERMITTED USES. The purpose of the TIMESQUARE PARK is to create an
attractive environment for conducting business which does not create a
hazard or is not offensive due to appearance or to the emission of noxious
odors, smoke or noise, and to conduct wholesale and retail operations,
research laboratories, central office facilities and selective supporting
facilities. Lessor shall review the proposed use of each parcel of land and
approve each use, keeping in mind the broad outlines of the purpose of this
Office and Commercial Park.
II. PROHIBITED USES. No portion of the property shall be occupied by any of
the following uses:
A. Residential purposes, except for the dwelling of watchmen or other
employees
attched to a particular enterprise authorized in the area;
B. Storage in bulk of any junk, wrecked automobiles or materials of any
nature in or adjacent to the Premises, or
C. No portion of the Premises or any building or structure thereon at any
time shall be used for the manufacture, storage, distribution or sale of
any products or items which shall increase the fire hazard of adjoining
property; or for any business which constitutes a nuisance or causes the
emission of odors of a gas injurious to produces manufactured or stored on
adjoining premises, or which emit undue noise or for any purpose which will
injure the reputation of said Premises or the neighboring, property or for
any use which is in violation of any of the laws or zoning regulations of
Salt Lake City or the State of Utah.
III. SIGNS. Criteria have been established for the purpose of assuring as
outstanding development and for the mutual benefit of all Lessees. Signs
installed as nonconforming or unapproved shall be brought into conformance
at the expense of the Lessee. All signs and the placement and installment
thereof shall receive written approval of Lessor, which shall not be not be
unreasonably withheld.
A. Miscellaneous Requirements:
1. Lessee, its representative, or its sign contractor, shall remove
Lessee's sign, at the termination of this Lease Agreement and repair
damaged area to its original condition before Lessee's sign was erected.
2. Lessee, its representative, or its sign contractor, shall repair
and maintain, in a clean and orderly fashion, all signs during the term of
this Lease. If Lessee fails to repair or maintain said sign(s) after ten
(10) days' written notice to do so from the Lessor, Lessor may repair,
clean or maintain said sign(s) and the cost thereof shall be payable by
Lessee to Lessor upon demand as additional rent.
IV. STORAGE. No land or buildings shall be used so as to permit the
keeping of articles, goods or materials in the open or exposed to
public view.
V . EMPLOYEE PARKING. Parking, as provided to Lessee for its
employees, shall not be used for future construction expansion unless
additional parking is provided. Employee parking shall be confined to
the area reserved for Lessee and its employees.
A. No storage of vehicles shall be allowed other than those directly
used in the operation of normal business.
B. No maintenance or repairs of vehicles shall be allowed in anycommon
area or areas reserved for customer or employee parking.
C. No common areas reserved for customer or employee parking shall be
used for "off-highway vehicles" subject to regulated registration.
D . No public parking shall be allowed on dedicated street.
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement"), dated the _26_ day of November,
1996, is by and between Debra J. Fields ("Fields") of Summit County, Utah and
Mrs. Fields' Original Cookies, Inc. ("the Company") of 462 West Bearcat Drive,
Salt Lake City, Utah 84115.
RECITALS
A. The Company is engaged in the marketing, manufacture, and
production of cookies and other bakery goods for retail sale.
B. The Company wants to retain Fields as a consultant to perform certain
consulting services for the Company.
C. Fields desires to act as a consultant and not as an employee and perform
certain consulting services for the Company.
D. Fields and the Company desire and have agreed to enter into this
Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals,
which by this reference are incorporated herein, Fields and the Company agree to
the following terms, conditions and covenants.
1
AGREEMENT
1. Term, The initial term of this Agreement shall commence as
of the date hereof, and shall continue on the terms and conditions provided
herein until December 31, 1999.
2. Consulting Duties, During the term of this Agreement,
Fields agrees to perform consulting work for the Company (a) on the days listed
on Exhibit A with respect to 1996, and (b) at a minimum rate of 50 days per
calendar year thereafter, and Fields shall also have the option to designate
that she perform services for up to 20 additional days during the term of this
Agreement (the "Extra Days"), such work to be performed at the direction of and
the discretion of the Company's CEO. This consulting work shall consist of the
performance of one or more of the following types of activities:
(a) Public Relations
i. National
aa. Spokesperson (public)
bb. Charity Events
cc. Special Events
dd. Board Meetings
ee. Store visits
ff. Company meetings
gg. Franchise/licensee presentations
hh. Grand openings
<PAGE>
2
ii. Lending - participate in
presentations jj. Landlord meetings
ii. International
aa. Spokesperson (public)
bb. Charity events
cc. Special Events
dd. Country Visits
ee. Interviews
ff. Store visits
gg. Franchise relations
(b) Advertising
i. Print
ii. Radio
iii. Television
(c) Travel related to the foregoing.
All duties requested of Fields shall be consistent in type and
character with duties performed by senior officers of the Company, and will not
be inconsistent with her status as founder of the predecessor of the Company.
<PAGE>
3
3. Fields will report to the Company's CEO, who shall have
sole direction over Fields relationship with the Company and the duties to be
performed by Fields under this Agreement,
4. Fields will have no authority over any Company employees or
resources except as agreed to by the Company's CEO. The Company will provide
Fields with appropriate administrative support (which shall not require a
full-time or dedicated employee) sufficient to enable her to perform her duties
hereunder.
5. Scheduling of Work Days. The timing and scheduling of
Fields' work days during each calendar year commencing on or after January 1,
1997 during the term of this Agreement shall be determined as follows:
(a) The CEO and Fields shall discuss during the first
month of each calendar year a general schedule for the coming
year and the timing of work days for Fields and will attempt
to schedule for such year most if not all of Fields work days.
While mutual agreement as to the scheduling of each work day
will be sought by both parties, the CEO will make the final
determination in the best interests of the Company acting
reasonably. Once work days are scheduled in writing, the
Company and Fields agree not to change those days without
mutual agreement.
(b) The Company agrees to use its best efforts not to
schedule any work days on holidays or weekends, unless
mutually agreed, except
<PAGE>
4
that such scheduling of work on weekends or holidays may occur
in limited circumstances (not to exceed two, and not to
include Thanksgiving, Christmas and New Year's holidays) where
travel may be required to or from an event on a weekend or
holiday.
(c) For 1996 per attached exhibit
(d) One work day will be considered utilized under
this Agreement if any portion of a day is utilized hereunder.
Even if duties performed in one calendar day extend beyond
eight hours still only one day will be considered to be
utilized hereunder. Fields will use reasonable efforts to
accommodate travel on the same days other duties are
performed.
(e) A minimum of three work days per month will be
guaranteed by the Company unless otherwise agreed to. The
maximum number of workdays in any given month will not exceed
fourteen days unless mutually agreed.
(f) The Company will make a good faith effort to
schedule the majority of work
days in the year during the third week of each month.
6. Compensation for Consulting Services. In exchange for providing the
consulting services outlined herein, the Company will pay Fields $250,000.00 per
year with a 10% increase over the amount payable with respect to the previous
year, beginning on January 1, 1999. At the Company's request and Fields
<PAGE>
5
agreement and in addition to the Extra Days, Fields may work up to an additional
50 days per year (the "Optional Days") for payment of an additional $5,000.00
per day.
7. In the event that Fields fails to work on those days
previously scheduled, and such days are not rescheduled by mutual agreement,
$5,000.00 per day missed will be deducted at the end of the month. Fields
acknowledges that any missed scheduled days will cause the company to incur
certain costs and expenses not contemplated under this Agreement, the exact
amount of which costs are extremely difficult or impracticable to fix.
Therefore, if Fields fails to work any scheduled days without giving the Company
at least 72 hours notice (unless such failure is due to illness, canceled
airline flights or other acts of God), Fields shall agree to have $5,000.00 per
missed day deducted from the amount the Company pays to Fields. Fields and the
Company agree that this charge represents a reasonable estimate of such costs
and expenses and is fair compensation to the Company for its loss caused by
Fields failure to work any scheduled days.
8. To assist Fields, the $250,000.00 per year payable under
this Agreement as of January 1, 1997 will be made in twelve equal monthly
installments on the last day of each month, and additional compensation at the
rate of $5,000 per day shall be paid as of the last day of each month for each
Extra Day and Optional Day and for each day during 1996 where services are
performed during such month. A general accounting and reconciliation of moneys
owed and days worked each calendar year will be done every quarter, commencing
with the quarter ending March 31, 1997.
6
9. Fields may hold a seat on the Board of Directors of the
Company but will not be compensated separately. It will not be a condition of
performance under this Agreement that the Company offers nor that Fields accepts
a seat on the Board.
10. The Company agrees to pay Fields pursuant to written
travel and other company polices (copies of which shall be provided to Fields)
for expenses reasonably related to her consulting duties. Such expenses shall
include cookies at no cost where the use of Mrs. Fields cookies are in the
furtherance of the performance of Fields duties and to the benefit of the
Company. In the event Fields desires to provide cookies at events which are not
in the furtherance of her duties under this Agreement, but will inure to the
benefit of the Company, prior approval must be obtained from the CEO and the
Company will reimburse Fields at 65% of retail. Any cookies to be provided by
Fields for events which are not in furtherance of her duties under this
Agreement nor to the benefit of the Company will be provided at retail to Fields
11. Fields may co-invest in the new company at the same basis
as Capricorn Investors 11, L.P. at closing.
<PAGE>
COVENANT NOT TO DISCLOSE
12. Fields acknowledges and agrees that during her
relationship with the Company Fields has had or may have access to and become
familiar with various trade secrets and other confidential information,
consisting of, but not limited to recipes, formulas, patents, copyrights,
devices, secret inventions, processes, and compilations of information, records,
methodology and specifications ("confidential information"), which are owned by
the Company and which are regularly used in the operation of the
7
Company's business. Fields agrees that the Company has all right, title, and
interest in to any of this confidential information, and acknowledges that it is
the sole and exclusive property of the Company.
13. Fields shall not disclose any of the confidential
information, directly, or indirectly, or use it in any way, either during Fields
employment or at any time thereafter, except as required and authorized in the
course of acting as a consultant for the Company. All recipes, files, records,
documents, drawings, specification, equipment, computer records, and similar
items relating to the business of the Company, whether prepared by Fields or
otherwise coming into Fields' possession, shall remain the exclusive property of
the Company. Such items and all duplicates shall be returned to the Company upon
the termination of Fields' consulting services under this Agreement with the
Company.
14. Fields further agrees that, unless such confidential
information is or becomes a matter of general public knowledge other than by
reason of a breach of this Agreement, or information which Fields lawfully
receives from any third party under circumstances which she has reason to
believe rightfully permits the disclosure thereof to others, or unless required
to disclose such information by governmental process, Fields will hold the
information referred to above, solely for the benefit and use of the Company and
shall not directly or indirectly disclose it to any person or entity without the
prior, written permission of the Company.
8
15. Fields agrees that if she violates any of the provision
of paragraph 14 of this Agreement for any reason during the term
of this Agreement, the Company
shall be entitled to the entry of a permanent injunction against
Fields in order to prevent the continuation of irreparable harm
and loss of good will to the Company. Nothing in this Agreement,
however shall be construed to prohibit the Company from also
pursuing any other remedies, the parties having agreed that all
remedies shall be cumulative.
<PAGE>
COVENANT NOT TO COMPETE
16. Fields and the Company agree that the consulting services
to be provided by Fields under the terms of this consulting agreement are unique
and extraordinary. The company is in the business of manufacturing, distributing
and marketing at retail and at wholesale, cookies, baked goods, specialty
coffees and drinks, cookbooks, and other promotional items bearing the Company's
trademark, for sale by franchisees, licensees and at Company owned outlets.
Fields acknowledges that the Company's products are identified with Fields and
the consulting services she will perform hereunder. Fields acknowledges and
agrees that a substantial amount of the good will generated for the Company will
result from and be created by Fields consulting services as provided hereunder.
17. Company and Fields agree, and Fields understands, that the
Company encourages Fields to pursue outside activities. During the period of
this Agreement which ends with the termination of Fields consulting services,
Fields will give ten business days prior written notice, with reasonable detail,
to the Company's CEO of any non-company venture, project, undertaking, business
association, etc. that Fields will become associated with before entering into
such venture.
9
18. In consideration for the payments made to Fields under
this Agreement, the opportunity the Company provides to Fields to act as a
consultant and to participate in the public relations, advertising, national and
international visits, and other Company business, and in view of other
consideration as specified below, Fields covenants and agrees as part of and
ancillary to this Agreement, that during the term of this Agreement, or portion
thereof, when Fields is receiving payment for consulting services, Fields shall
not for any reason, without the prior written consent of the Company, directly
or indirectly, or by any means or device whatsoever, for herself or on behalf
of, or in conjunction with any person, partnership, corporation, or other entity
engaged in the Company's areas of marketing, research, development, production
or manufacturing, compete with the Company, directly or indirectly, or be the
spokesperson for any company that sells food based products, or solicit any
subscribers or customers of the Company for the type of products provided by the
Company, or through direct employment or a consulting relationship with a
competitor of the Company in any country where the Company is actively selling
its products.
19. Fields agrees that if she violates any of the provisions
of paragraphs 17 & 18 of this Agreement for any reason during the term of this
Agreement, the Company shall be entitled to the entry of permanent injunction
against Fields in order to prevent the continuation of irreparable harm and loss
of good will to the Company. Nothing in this Agreement, however, shall be
construed to prohibit the Company from also pursuing any other remedies, the
parties having agreed that all remedies shall be cumulative.
<PAGE>
10
20. Fields and the Company have attempted to limit Fields'
right to compete only to the extent necessary to protect the Company from unfair
competition and to protect the good will of the Company. Fields and the Company
recognize, however, that reasonable people may differ in making such a
determination. Consequently, Fields and the Company hereby agree that if the
scope of enforceability of the restrictive covenant in paragraph 18 above is in
anyway disputed at any time, then after a 30 day cooling-off period, Fields and
the Company agree to submit the dispute to the Company's Board of Directors for
their determination.
TERMINATION OF CONSULTING AGREEMENT
21. During the term of this Agreement, the Company may terminate
Field's consulting services for cause under this Agreement by giving Fields
written notice specifying the grounds therefor. For purposes of this paragraph,
"cause" shall include the following:
(a) fraud or dishonesty with regard to any aspect of consulting with the
Company;
(b) deliberate and significant violation of the Company's rules, regulations,
standards and/or policies;
(c) accepting other employment that makes it impossible for Fields to perform
consulting services on behalf of the Company; and
(d) violation of the non-compete provision.
<PAGE>
11
In the event that Fields is terminated for cause as specified hereunder, all
payments for consulting services as provided hereunder will terminate
22.Fields may refuse to continue performing consulting services hereunder
and terminate this Agreement at any time for any reason at which time all
payments for consulting services will cease.
GENERAL
23. Fields agrees that she has been fully advised on and
understands the meaning in effect of each and every provision contained in this
Agreement, in particular the Covenant Not to Disclose and the Covenant Not to
Compete.
24. If, in one or more instances, either Fields or the Company
fails to insist that the other party perform any of the terms of this Agreement,
such failure shall not be construed as a waiver by such party of any past,
present or future right granted under this Agreement; the obligations of both
Fields and the company under this Agreement shall continue in full force and
effect.
25. If any provision, paragraph, or subparagraph is adjudged by
any court to be void or unenforceable in whole or in part, this adjudication
shall not affect the validity of the remainder of the Agreement, including any
other provision, paragraph, or subparagraph. Each provision, paragraph and
subparagraph of this Agreement is separable from every other provision,
paragraph and subparagraph, and constitutes a separate and distinct covenant.
26. If any party to this Agreement breaches any of the terms of
the Agreement, then the breaching party shall pay to the non-breaching party all
of the non-
<PAGE>
12
breaching party's costs and expenses, including reasonable attorneys' fees
incurred by the non-breaching party in enforcing the terms of this Agreement.
27. This Agreement shall supersede all other written or oral
agreements made by Fields and the Company as to her consulting duties and the
covenant not to compete for the period specified herein, but shall not supersede
or modify any other written agreement, unless specifically referred to herein
The parties hereto acknowledge and agree that except for the proposed execution
of the License Agreement and the Mutual Release, this Agreement (a) shall not
affect any rights of the parties with respect to trademarks, trade names, trade
secrets or other intellectual property including, but not limited to, the rights
of the MF Entities and the Lenders pursuant to the Mrs. Fields Inc.
Organizational Agreement dated May 5, 1986 among Randall K. Fields and Debra J.
Fields, MF holdings Inc., MFI, Riverview Financial Corp., and Fenwick, Davis &
West, and pursuant to The Fields Grant and Assignment of Rights dated May 12,
1986 executed by Randall K. Fields and Debra J. Fields, and (b) shall not serve
as a reaffirmation or acknowledgment of the existence, enforceability or
validity of any of the foregoing.
28. Any modification of this Agreement and any waiver of any
provision, right, or remedy hereof shall be effective only if the same is in
writing signed by Fields or the Company.
29. Any notices pertaining to the Agreement shall be writing and
shall be transmitted by personal hand-delivery to an officer or director of the
Company or to Fields, or through the facilities of the US post office, certified
mail, return receipt
<PAGE>
13
requested. The addresses set forth below for the respective parties shall be the
paces where notice shall be sent, unless a written notice of a change of address
is given.
Debra J. Fields The Company
3475 East Bench Creek Road c/o Larry Hodges, CEO
Woodland, UT 84063 462 West Bearcat Drive
Salt Lake City, UT 84115
30. This Agreement shall be governed by the laws of the State
of Utah. The terms of this Agreement as set forth are
contractual and not a mere recital. Fields and
the Company agree that they have carefully read the entire foregoing Agreement
and know the contents of it, in particular the Agreement, and that they sign the
same of their own free act and will.
IN WITNESS WHEREOF, this Agreement is executed as of the day
and year first above written.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By: /s/ Larry A. Hodges
Its: President C.E.O.
/s/ Debra J. Fields
Debra J. Fields
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this _____ day of , 1997, by and between JULIE BYERLEIN ("Employee") and MRS.
FIELDS' ORIGINAL COOKIES, INC., a Delaware corporation (the "Company").
RECITAL
This Agreement is made and entered into with reference to the following
facts and objectives:
The Company desires to establish its right to the services of Employee
in the capacities described below, on the terms and conditions hereinafter set
forth, and Employee is willing to accept such employment on such terms and
conditions.
Therefore, in consideration of the mutual agreements hereinafter set
forth, Employee and the Company have agreed and do hereby agree as follows:
AGREEMENT
1. DUTIES. The Company does hereby hire, engage, and employ the
Employee as the Senior Vice President of Marketing of the Company and as
Executive Vice President of Marketing of The Mrs. Fields' Brand, Inc., a
Delaware corporation, and Employee does hereby accept and agree to such hiring,
engagement, and employment. Employee shall serve the Company in such position
fully, diligently, competently, and in conformity with provisions of this
Agreement and the corporate policies of the Company as they presently exist, and
as such policies may be amended, modified, changed, or adopted during the Period
of Employment, as hereinafter defined.
During the Period of Employment Employee shall also serve as the Vice
President of Marketing of each subsidiary or affiliate of the Company that is
now or that becomes a part of the Mrs. Fields Company Group. As used in this
Agreement, the term the "Mrs. Fields Company Group" shall mean and refer to the
Company and the Company's subsidiaries and affiliates from time to time.
Subject to specific elaboration by the Board of Directors of the
Company as to the duties (which shall be consistent herewith and with Employee
offices provided for hereunder) that are to be performed by Employee and the
manner in which such duties are to be performed, the duties of Employee shall
entail those duties customarily performed by a vice-president of marketing of a
company with a sales volume and the number of employees commensurate with those
of the Company. Provided, however, that at all times during the Period of
Employment, Employee shall perform those duties and fulfill those
responsibilities and refrain from those activities that are reasonably
prescribed or proscribed by the Board of Directors of the Company to be
performed or refrained from by her consistent with her positions with the
Company.
Employee shall be responsible and report only to the Company's
President and Chief Executive Officer.
Throughout the Period of Employment, Employee shall devote her full
time, energy, and skill to the performance of her duties for the Company and for
the benefit of the Company and the Mrs. Fields Company Group.
Employee shall exercise due diligence and care in the performance of
her duties for and the fulfillment of her obligations to the Company under this
Agreement.
The Company shall furnish Employee with office, secretarial and other
facilities and services as are reasonably necessary or appropriate for the
performance of Employee's duties hereunder and consistent with her position as
the Vice President of Marketing of the Company.
<PAGE>
2. PERIOD OF EMPLOYMENT. The Period of Employment shall, unless sooner
terminated as provided herein, be two (2) years commencing on the closing of the
date of execution of this Agreement and ending with the close of business on the
second anniversary of the date of execution of this Agreement (the "Period of
Employment").
No later than three hundred and sixty (360) days prior to the end of
the Period of Employment, the Company and the Employee shall commence
discussions concerning a possible extension or modification of this Agreement.
Unless the Company provides notice of termination three months prior to contract
expiration, then the contract will automatically renew for a year with the same
terms.
3. COMPENSATION.
(a) BASE SALARY. During the Period of Employment, the Company
shall pay Employee, and Employee agrees to accept from the Company, in payment
for her services a base salary of One Hundred Seventy-Five Thousand Dollars
($175,000.00) per year ("Base Salary"), payable in equal semi-monthly
installments or at such other time or times as Employee and the Company shall
agree. Upward adjustment to the Base Salary shall be considered by the Company's
Board of Directors not less frequently than annually. The Company s Board of
Directors at any time or times may, but shall have no obligation to, supplement
Employee s salary by such bonuses and/or other special payments and benefits as
the Board of Directors of the Company in its sole and absolute discretion may
determine.
(b) INCENTIVE COMPENSATION. During the Period of Employment, Employee
shall:
(i) participate in any incentive compensation plan adopted by the Company
in replacement for the Fiscal 1994 Incentive Compensation Plan of MFI (the "1994
Incentive Plan"); or
(ii) if the Company, for any reason, shall not adopt and implement an
incentive compensation plan in replacement of the 1994 Incentive Plan for
eligible employees of the Company (including Employee), Company and Employee
agree that this Agreement shall provide Employee with the opportunity to earn
and be paid incentive compensation to the same extent that she was eligible to
earn and be paid incentive compensation under the incentive compensation plan
under which, pursuant to the provisions of this Section 3(b), Employee was most
recently eligible to earn and be paid incentive compensation by MFI.
4. FRINGE BENEFITS. During the Period of Employment, Employee shall be
entitled to the following fringe benefits.
(a) BENEFIT PLANS. Employee shall be entitled to participate
in all benefit plans and programs generally available to all other senior
management employees of the Company or to all employees of the Company working
in Salt Lake City, Utah, subject to any restrictions specified in such plans and
to receive such other benefits and conditions of employment as are provided to
all other senior officers or executives of the Company as of the date of this
Agreement.
<PAGE>
(b) EQUITY PLAN. Employee shall be entitled to participate in
an equity based plan or arrangement (the "Equity Plan") consistent with the
letter from Herbert S. Winokur, Jr. to Lawrence Hodges, dated August 5, 1996. In
the event that (i) the Company fails to adopt the Equity Plan, Employee may
terminate this Agreement and her employment hereunder with Good Reason, as
hereinafter defined, in accordance with the provisions of Section 9(a)
("Termination by Employee-Termination-With Good Reason"). Employee's right to
terminate this Agreement and her employment hereunder with Good Reason in
accordance with said Section 9(b) shall be Employee's sole and exclusive remedy
for or resulting from the failure, for any reason, of the Company or its Board
of Directors to create or implement the Equity Plan or to take any other action
specified in this Section 4(b).
Anything in this Agreement or in such plan or arrangement to the
contrary notwithstanding, the inclusion in such plan or arrangement of any
provision(s) addressing participation by Employee in such plan or arrangement
for a period of years shall not be interpreted as a promise of continued
employment by the Company for such period of years or any other period of time.
The plan or arrangement to be proposed by Employee shall provide that
any payments made thereunder, in conjunction with any other payments that
constitute "parachute payments" (as defined in Section 280G(b)(A) of the
Internal Revenue Code) (the "Code"), shall be limited such that no such payments
or portions thereof constitute an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code) or are otherwise nondeductible by the Company
for tax purposes under any other provision of the Code.
<PAGE>
(c) VACATION AND OTHER LEAVE. Employee shall be entitled to
such amounts of paid vacation and other leave, but not less than three (3) weeks
vacation per twelve-month period of employment, as from time to time may be
allowed to the Company's senior management personnel generally, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies applicable to such personnel. Notwithstanding the above, the
Company has agreed that during the first 12 months of Employee's employment,
Employee shall be entitled to take her three (3) weeks of vacation at any time
upon the appropriate notice to Larry Hodges.
(d) VESTING ON DEATH OR DISABILITY. Upon any termination of
this Agreement and Employee's employment hereunder by reason of Employee's death
or Permanent Disability, as defined in Section 7(b) ("Death or Disability -
Definition of Permanently Disabled and Permanent Disability"), provided that the
terms and provisions of such plan and applicable law permit, any theretofore
deferred or unvested portion of any award made to Employee in respect of any
retirement, pension, profit sharing, long term incentive, and similar plans
automatically shall become fully vested in Employee and shall be nonforfeitable,
and shall continue in effect and be redeemable by or payable to Employee (or her
designated beneficiary or estate) at the time and on the same conditions as
would have applied had Employee's employment not been so terminated. It is
expressly provided, however, that nothing in this Section 4(d) shall obligate
the Company to provide full vesting upon death or disability in connection with
participation by Employee in the equity plan or arrangement contemplated under
Section 4(b) ("Fringe Benefits-Equity Plan"), further, the provisions governing
payment of any incentive compensation payable to Employee pursuant to the
incentive compensation plan(s) referred to in Section 3(b)
("Compensation-Incentive Compensation") shall govern any payment of incentive
compensation due thereunder in the event of Employee's death or disability.
5. BUSINESS EXPENSES AND AUTOMOBILE ALLOWANCE. During the
Period of Employment, the Company shall pay, or in case paid by Employee in the
first instance, reimburse Employee for, any and all necessary, customary, and
usual expenses incurred by her in connection with the performance of her duties
hereunder, including, without limitation, all traveling expenses, and
entertainment expenses, upon submission of appropriate vouchers and
documentation.
To the extent provided to all other senior officers or executives of
the Company, during the Period of Employment, Employee shall be entitled to
receive an automobile allowance and reimbursement for expenses associated with
the operation and maintenance of an automobile which is comparable to Employee's
current automobile. The Company will reimburse Employee upon presentation of
vouchers and documentation for any such operational and maintenance expenses
which are consistent with the usual accounting procedures of the Company.
6. NO OTHER BENEFITS OR COMPENSATION. Employee, as a result of
her employment by the Company, shall be entitled to only the compensation and
benefits provided for in this Agreement, subject to the terms thereof, and no
others.
<PAGE>
7. DEATH OR DISABILITY.
(a) TERMINATION OF EMPLOYMENT. If Employee dies during the Period of
Employment, Employee's employment shall automatically cease and terminate
as of the date of Employee's death.
If Employee becomes Permanently Disabled (as hereinafter
defined) while employed by the Company, (i) Employee's employment and the
Company's obligations hereunder, including the payment of Base Salary pursuant
to Section 3(a) ("Compensation-Base Salary") shall continue for a period of
ninety (90) days from the date on which the Employee is determined to be
Permanently Disabled ("Employee s Disability Date"), and (ii) ninety (90) days
after the Employee's Disability Date, Employee's employment and all obligations
of the Company hereunder shall automatically cease and terminate.
In the case of Employee's death or Permanent Disability (as
hereinafter defined), the Company shall be obligated to pay to Employee (or to
Employee s estate in the case of Employee's death) any Base Salary and any
incentive compensation accrued to Employee as of the date of the Employee's
death, or in the case of Employee's Permanent Disability, as of the Employee's
Disability Date. In the event Employee's employment is terminated on account of
Employee's Permanent Disability, he shall, so long as her Permanent Disability
continues, remain eligible for all benefits provided under any long-term
disability programs of the Company in effect at the time of such termination,
subject to the terms and conditions of any such programs, as the same may be
changed, modified, or terminated for or with respect to all senior management
personnel of the Company.
(b) DEFINITION OF PERMANENTLY DISABLED AND PERMANENT DISABILITY. For
purposes of this Agreement (other than Sections 4 (a) ("Fringe
Benefits-Benefit Plans"), 4 (d) ("Fringe Benefits-Vesting on Death or
Disability"), and the provisions relating to disability insurance contained
in the last sentence of Section 7(a) ("Death or Disability-Termination of
Employment"), the terms "Permanently Disabled" and "Permanent Disability"
shall mean Employee's inability, because of physical or mental illness or
injury, to perform substantially all of her customary duties pursuant to
this Agreement, and the continuation of such disabled condition for a
period of ninety (90) continuous days, or for not less than one hundred
eighty (180) days during any continuous twenty-four (24) month period.
Whether Employee is Permanently Disabled shall be certified to the Company
by a Qualified Physician (as hereinafter defined), or if requested by
Employee a panel of three Qualified Physicians. If Employee requests such a
panel, Employee and the Company shall each select a Qualified Physician who
together shall then select a third Qualified Physician. The determination
of the individual Qualified Physician or the panel, as the case may be,
shall be binding and conclusive for all purposes. As used herein, the term
"Qualified Physician" shall mean any medical doctor who is licensed to
practice medicine in the State of Utah and is reasonably acceptable to each
of Employee and the Company. Employee and the Company may in any instance,
and in lieu of a determination by a Qualified Physician or panel of
Qualified Physicians, agree between themselves that Employee is Permanently
Disabled. The terms Permanent Disability and Permanently Disabled as used
herein may have meanings different from those used in any disability
insurance policy or program maintained by Employee or the Company.
<PAGE>
8. TERMINATION BY THE COMPANY.
(a) TERMINATION FOR CAUSE. The Company, by
action of its Board of Directors, may, by providing written notice to Employee,
terminate the employment of Employee under this Agreement for "cause" at any
time. The term "cause" for purpose of this Agreement shall mean:
(i) The refusal of Employee to implement or adhere to lawful policies
or directives of the Board of Directors of the Company consistent with this
Agreement; or
(ii) Employee's conviction of or entrance of a plea of nolo contendere to
(A) a felony, (B) to any other crime, which other crime is punishable by
incarceration for a period of one (1) year or longer, or (C) other conduct of a
criminal nature that may have an adverse impact on the Company s reputation and
standing in the community; or
(iii) conduct that is in violation of
Employee's common law duty of loyalty to
the Company; or
(iv) fraudulent conduct by Employee in connection with the business affairs
of the Company, regardless of whether said conduct is designed to defraud the
Company or others; or
(v) theft, embezzlement, or other criminal misappropriation of funds
by Employee, whether from the Company or any other person; or
(vi) any breach of or Employee's failure to fulfill any of Employee's
obligations, covenants, agreements, or duties under this Agreement.
Provided, however, that "cause" pursuant to clause (i) or (vi) shall not be
deemed to exist unless the Company has given Employee written notice thereof
specifying in reasonable detail the facts and circumstances alleged to
constitute "cause", and thirty (30) days after such notice such conduct or
circumstances has not entirely ceased or been entirely remedied. If Employee's
employment is terminated for "cause," the termination shall take effect upon the
effective date (pursuant to Section 24 ("Notices")) of written notice of such
termination to Employee. In the event Employee's employment is terminated for
"cause," then except for unpaid accrued vacation, the Company shall have no
obligation to pay Employee any amounts, including, but not limited to Base
Salary, for or with respect to any period after the effective date of the
termination of Employee's employment for "cause," including any obligation under
the replacement to the 1994 Incentive Plan or the Equity Plan.
<PAGE>
If the Company attempts to terminate Employee's employment pursuant to
this Section 8(a) and it is ultimately determined that the Company lacked
"cause," the provisions of Section 8(b) ("Termination by the Company-Termination
Without Cause") shall apply, and Employee's sole and exclusive remedy for such
breach of this Agreement by the Company and/or any other damages that Employee
shall have suffered or incurred of any nature whatsoever, shall be to receive
the payments expressly called for by Section 8(b) ("Termination by the
Company-Termination Without Cause") with interest on any past due payments at
the rate of eight percent (8%) per year from the date on which the applicable
payment would have been made pursuant to Section 8(b) ("Termination by the
Company-Termination Without Cause") plus Employee's costs and expenses
(including but not limited to reasonable attorneys' fees) incurred in connection
with such dispute.
(b) TERMINATION WITHOUT CAUSE. The Company may, with or without
reason, terminate Employee's employment under this Agreement without
"cause" at any time, by providing Employee thirty (30) days prior written
notice of such termination. If Employee's employment is terminated pursuant
to this Section 8(b), Employee shall not be obligated to render services to
the Company following the effective date of such notice (the "Notice Date")
except such services as are requested by the Company pursuant to Section 11
("Transition Period Services"), and as its sole and exclusive obligation
and duty to Employee resulting directly or indirectly from the termination
of Employee's employment with the Company and in full and complete
settlement of any and all claims that Employee may have or claim to have
arising directly or indirectly out of the termination of her employment
with the Company, the Company shall, subject to Section 12 ("Non
Competition") pay Employee, as severance pay, an amount (the "Severance
Amount") equal to the product of multiplying the then current semi-monthly
base salary by the greater of the number of semi-monthly periods from the
Notice Date through the remainder of this Agreement or twenty-four (24)
semi-monthly periods (the "Severance Period"). The Severance Amount shall
be payable by the Company to Employee in an amount equal to the Base Salary
payable in twelve (12) equally monthly installments commencing on the
Notice Date. The Company shall also pay to the Employee a portion of any
discretionary bonus (the "Bonus Portion"), as determined by the Company's
Board of Directors, referred to in Section 3(a) ("Compensation-Base
Salary"), that, but for the termination of Employee's employment, would
have been paid to Employee for or with respect to the calendar year in
which Employee's employment is terminated. The Bonus Portion shall consist
of that percentage of the said discretionary bonus determined by dividing
the number of full or partial calendar months during the calendar year in
which Employee's employment is terminated that Employee was in the employ
of the Company by twelve (12). Until the end of the Severance Period or
until Employee is gainfully employed by another employer, which ever time
period is less, the Company shall allow Employee to continue participation
in the Company s group health insurance plan at the Company's expense. In
accordance with all applicable laws, Employee shall be extended all COBRA
rights and benefits at the end of the Severance Period.
<PAGE>
9. TERMINATION BY EMPLOYEE.
(a) TERMINATION-WITHOUT GOOD REASON. Employee shall have the
right to terminate this Agreement and her employment hereunder at any time upon
thirty (30) days prior written notice of such termination to the Company. Except
as expressly set forth in Section 11 ("Transition Period Services"), upon the
effective date of any such termination all obligations and rights of Employee
and the Company hereunder shall terminate and cease.
(b) TERMINATION-WITH GOOD REASON. If the Company:
(i) requires Employee to relocate her home, without Employee's
consent, to a location which is more than 75 miles from 462 West Bearcat
Drive, Salt Lake City, Utah 84115; or
(ii) fails to provide Employee with the compensation
and benefits called for by this
Agreement; or
(iii) assigns Employee to a lower organizational
level than the level at which he is on
the date of this Agreement assigned, or substantially diminishes Employee's
assignment, duties, responsibilities, or operating authority from those
specified in Section 1 ("Duties"); or
(iv) fails to implement an incentive compensation
plan required by Section 3(b)
("Compensation-Incentive Compensation"); or
(v) fails to implement an equity plan or arrangement required by
Section 4(b) ("Fringe Benefits-Equity Plan"); or
(vi) is divested, by sale, closure, liquidation, foreclosure, or other
means, of any substantial part of its assets or business as now held or
conducted; or
(vii) breaches this Agreement and such breach
continues for a period of thirty (30)
days after written notice thereof given by Employee to the Company, then any one
or more of such circumstances shall constitute "Good Reason", and, subject to
the provisions of Section 10 ("Means and Effect of Termination"), Employee shall
have the right to terminate this Agreement and her employment hereunder for Good
Reason, if, thirty (30) days after the effective date of Employee's notice to
the Company of such circumstances constituting Good Reason, such circumstances
continue to exist, and for all purposes of this Agreement any such termination
of this Agreement by Employee shall have the same effects under this Agreement
as the termination of the Employee's employment under this Agreement by Company
without "cause."
<PAGE>
10. MEANS AND EFFECT OF TERMINATION. Any termination of Employee's
employment under this Agreement shall be communicated by written notice of
termination from the terminating party to the other party. The notice of
termination shall indicate the specific provision(s) of this Agreement relied
upon in effecting the termination and shall set forth in reasonable detail the
facts and circumstances alleged to provide a basis for termination, if any such
basis is required by the applicable provision(s) of this Agreement. Any notice
of termination by the Company shall be approved by a resolution duly adopted by
a majority of the directors of the Company then in office. The burden of
establishing the existence of "cause" or Good Reason shall be upon the
terminating party. If Employee's employment is terminated by either party, then
promptly after the effective date of such termination or in the manner and at
the time or times provided in the relevant Section of this Agreement, the
Company promptly shall provide and pay to Employee, or in case of her death her
estate or heirs, all compensation, benefits, and reimbursements due or payable
to Employee for the period to the effective date of the termination. To the
extent permitted by applicable law, the calendar month in which Employee's
employment is terminated shall be counted as a full month in determining amount
and vesting of any benefits under benefit plans of the Company.
11. TRANSITION PERIOD SERVICES. In the event Employee's employment is
terminated by the Company pursuant to section 8(b) ("Termination by the
Company-Termination Without Cause") or by Employee pursuant to Section 9(a)
("Termination by Employee-Without Good Reason"), if requested by the Company in
writing, Employee shall render such services, on a part-time basis for a period
not to exceed sixty (60) days after the effective date of the notice of
termination (whether given by the Company or by Employee), as the Company's
Board of Directors reasonably requests for transition purposes. Employee shall
receive no compensation for such services, other than the payment of Base Salary
as provided in Section 8(b) ("Termination by the Company-Termination Without
Cause") and reimbursement for expenses incurred by Employee in providing such
services as provided in, and subject to the provisions of, Section 5 ("Business
Expenses and Automobile Allowance")
12. Non Competition. For a period of one year from the date of the
termination of Employee's employment hereunder, Employee shall not become an
employee, owner (except for passive investments of not more than three percent
(3%) of the outstanding shares of, or any other equity interest in, any company
or entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent or director of any firm or
person which either directly competes with a line or lines of business of the
Company accounting for ten percent (10%) or more of the Company's gross sales,
revenues or earnings before taxes. If, in any judicial proceeding, a court shall
refuse to enforce all of the separate covenants deemed included in this
paragraph, the parties intend that those of such covenants which, if eliminated,
would permit the remaining separate covenants to be enforced in such proceedings
shall, for the purpose of such proceedings, be deemed eliminated from the
provisions of this Section 12.
In addition to any other remedies that may otherwise be available for a
breach of Section 12 hereof by Employee, Employee agrees that in the event of
such breach he shall irrevocably forfeit any right he may have to any remaining
severance payment to be made under Section 8(b) ("Termination by the
Company-Termination Without Cause") subsequent to such breach.
<PAGE>
13. ASSIGNMENT. This Agreement is personal in its nature and neither of
the parties hereto shall, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; provided, however, that,
in the event of the merger, consolidation, or transfer or sale of all or
substantially all of the assets of the Company with or to any other individual
or entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations hereby
created between the parties hereto shall be governed by and construed under and
in accordance with the internal laws of the State of Utah, which internal laws
exclude any law or rule of the State of Utah, or any interpretation thereof,
that would require or call for the application of the laws of any other state or
jurisdiction hereto.
15. ENTIRE AGREEMENT. Except with respect to final agreement regarding
those open incentive compensation matters described in Section 3(b)
("Compensation-Incentive Compensation") and the equity plan or arrangement
contemplated under Section 4(b) ("Fringe Benefits-Equity Plan"), this Agreement
embodies the entire agreement of the parties hereto respecting the matters
within its scope. This Agreement supersedes all prior agreements of the parties
hereto on the subject matter hereof. Any prior negotiations, correspondence,
agreements, proposals, or understandings relating to the subject matter hereof
shall he deemed to be merged into this Agreement and to the extent inconsistent
herewith, such negotiations, correspondence, agreements, proposals, or
understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as set forth
herein.
This Agreement shall not be modified by any oral agreement, either
express or implied, and all modifications hereof shall be in writing and be
signed by the parties hereto. The provisions of this and the immediately
preceding sentence themselves may not be modified, either orally or by conduct,
either express or implied, and it is the declared intention of the parties
hereto that no provision of this Agreement, including said two sentences, shall
be modifiable in any way or manner whatsoever other than through a written
document signed by the parties hereto.
16. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
17. NUMBER AND GENDER. Where the context requires, the singular shall
include the plural, the plural shall include the singular, and any gender shall
include all other genders.
18. SECTION HEADINGS. The section headings in this Agreement are for
the purpose of convenience only and shall not limit or otherwise affect any of
the terms hereof.
<PAGE>
19. DISPUTE RESOLUTION.
(a) NEGOTIATION AND MEDIATION. In the event any dispute arises
hereunder, the parties shall first attempt to resolve the dispute by negotiation
in good faith. If the dispute cannot be timely resolved through negotiation, the
parties will, before resorting to any of their remedies at law or in equity, try
to settle the dispute in good faith by mediation in Salt Lake City, Utah or such
other location as the parties may agree, under the then operative mediation
rules of the American Arbitration Association or such other mediation tribunal
or private mediator or medication services provider as the parties agree. The
mediator shall be such person as the parties mutually agree, but if the parties
have failed to agree on a mediator within seven (7) days after the date on which
any party demands that the parties proceed to mediation, the mediator shall be
selected by the American Arbitration Association or such other mediation
services provider as the parties agree.
(b) OTHER REMEDIES. Failing settlement of the dispute by
negotiation or mediation, the parties shall, unless they mutually agree to
resolve the dispute finally by arbitration, be entitled to pursue their legal
and equitable remedies (subject to the provisions of Section 20 ("Liquidated
Damages-Breach by the Company")) in any court having jurisdiction.
20. LIQUIDATED DAMAGES-BREACH BY THE COMPANY. Because the damages
suffered by Employee in such an event would be difficult or impossible to
estimate, establish, ascertain, or prove, and in order to provide Employee with
a remedy in such an event without the necessity and associated cost of Employee
having to establish or prove the damages suffered by Employee as a result
thereof (which remedy the parties hereto have and do agree would be appropriate
and adequate compensation to Employee in such event), in the event that this
Agreement and Employee's employment hereunder shall be terminated (whether by
the Company or Employee) and thereafter Employee shall prevail in any dispute
between Employee and the Company relative to, involving, or concerning the
legality of or justification for the termination of this Agreement and
Employee's employment hereunder and any other issues or matters directly or
indirectly arising out of or in connection with such termination and Employee's
employment by the Company, subject to Section 12 ("Non Competition") Employee
shall be entitled to the continued payment of the Base Salary as provided in
Section 8(b) ("Termination by the Company-Termination Without Cause") as
liquidated and exclusive damages and not as a penalty, and in such case this
Agreement and Employee's employment hereunder, shall for all purposes be treated
as having been terminated by the Company without "cause" pursuant to Section
8(b) ("Termination by the Company-Termination Without Cause").
In the event Employee files any claim, complaint, charge, action, or
lawsuit against the Company or its employees, agents, officers, directors, or
any other person affiliated or associated with the Company, with any
governmental agency, any state or federal court, or any mediation or arbitration
body or group, for or with respect to a matter, claim, or incident, known or
unknown, which has occurred or arisen or which shall hereafter occur or arise
relative to, involving, or concerning the termination of this Agreement and
Employee's employment hereunder (whether as a result of action of Employee or
the Company) and any other issues or matters directly or indirectly arising out
of or in connection with such termination and Employee's employment by the
Company, and in such claim, complaint, action, charge, or lawsuit, Employee
alleges or asserts the right to recover, receive, or be awarded damages from the
Company or its employees, agents, officers, directors, or any other person
affiliated or associated with the Company in addition to or in lieu of the
liquidated damages expressly provided for in this Section 20, Employee hereby
stipulates, agrees, and consents to the dismissal or withdrawal, with prejudice,
of any such claim, complaint, action, charge, or lawsuit (collectively, a
"Dismissable Claim"). In the event that Employee files any Dismissable Claim,
Employee shall be liable to the party or parties against whom the Dismissable
Claim is filed (the "Nonfiling Party") and shall indemnify and save the
Nonfiling Party harmless from all costs and expenses, including, but not limited
to, attorneys fees, incurred by the Nonfiling Party and/or the Nonfiling Party s
officers, agents, employees, directors, and/or any other person affiliated or
associated with the Nonfiling Party, if any, in defending or responding to any
such Dismissable Claim, regardless of whether such defense or response is before
a state or federal court or administrative agency or a mediation or arbitration
body and regardless of who might ultimately be deemed to be the prevailing party
as to any such Dismissable Claim.
<PAGE>
21. ATTORNEY'S FEES. Employee and the Company agree that in any dispute
resolution proceedings arising out of this Agreement, the prevailing party shall
be entitled to its or her reasonable attorney's fees and costs incurred by it or
her in connection with resolution of the dispute in addition to any other relief
granted.
22. INDEMNIFICATION. If Employee is made a party to, is threatened to
be made a party to, or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding") by
reason of the fact that he is or was a director, officer, or employee of the
Company or is or was serving at the request of the Company as a director,
officer, employee, or agent of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to employee
benefit plans, whether before, during or after expiration or termination of this
Agreement, the Company shall indemnify and hold Employee harmless to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than such law permitted the Company to provide prior to
such amendment), against all expense, liability, and loss (including attorneys
fees, judgment fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by Employee in connection therewith,
and such indemnification shall continue after Employee ceases to be a director,
officer, employee, or agent of the Company and shall inure to the benefit of
Employee's heirs, executors, and administrators. The right to indemnification
conferred hereby shall include the right to be paid by the Company the
reasonable expenses incurred in defending any Proceeding in advance of its final
disposition as such expenses are incurred. The indemnification provided herein
shall not be deemed exclusive of any other rights to which Employee may be
entitled under the Certificate of Incorporation, Bylaws, any agreement, or vote
of stockholders or disinterested directors of the Company, or otherwise, both as
to action in her official capacity and as to action in another capacity while
holding such office or position, and shall continue with respect to action in
such capacities even if Employee has thereafter ceased to be a director,
officer, employee, or agent of the Company, and shall inure to the benefit of
Employee's heirs, executors and administrators. Except in the case of fraudulent
conduct or theft, embezzlement, or other criminal misappropriation of funds by
Employee, then nothing in this Agreement waives the Company's obligations under
this paragraph, even if Employee is terminated.
<PAGE>
23. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute or
public policy, then only the portions of this Agreement which violate such
statute or public policy shall be stricken, All portions of this Agreement which
do not violate any statute or public policy shall continue in full force and
effect. Furthermore, any court order striking any portion of this Agreement
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Agreement.
24. NOTICES. All notices under this Agreement shall be in writing and
shall be either personally delivered or mailed postage prepaid, by certified
mail, return receipt requested, (a) if to the Company, to it at 462 West Bearcat
Drive, Salt Lake City, Utah 84115 Attention: President or (b) if to Employee to
her at 462 West Bearcat Drive, Salt Lake City, Utah 84115 by the same means, or
in either party s case to such other address or to the attention of such person
as the party has specified by prior written notice to the other party. Notice
shall be effective when personally delivered, or five (5) business days after
being so mailed.
25. COUNTERPARTS. This Agreement may be executed in counterparts
collectively containing the signatures of each of the parties.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and Employee has hereunto signed this
Agreement, on the date first written above.
MRS. FIELDS' ORIGINAL COOKIES, INC.,
a Delaware Corporation (the "Company")
By:/s/Larry A. Hodges
Larry A. Hodges
Its:President/CEO
/s/Julie Byerlein
JULIE BYERLEIN ("Employee")
Exhibit 12
<TABLE>
<CAPTION>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES AND PREDECESSORS
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
The Original Cookie Company, Incorporated
Mrs.Fields, Inc. and and the Carved-out Portion of Hot Sam
Subsidiaries Company, Inc.
DECEMBER DECEMBER
31, 31,
FISCAL YEARS ENDED 1995 FISCAL YEARS ENDED 1995
--------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31, 31, 30, 17, 31, 31, 30, 17,
-------- -------- -------- -------- -------- -------- -------- --------
1993 1994 1995 1996 1993 1994 1995 1996
------ ------ ------- ------ ------- -------- --------- --------
Earnings:
Net loss...................... $(2,243) $(5,320) $(2,368) $(2,304) $ (333) $(5,355) $(2,096) $(5,645)
Add: Income taxes.......... 215 191 241 205 213 224 263 -
Fixed charges................. 1,088 2,155 51 80 4,172 4,381 4,268 2,828
----------- -------- -------- -------- --------- --------- --------- -----
Total earnings (loss)..... $ (940) $(2,974) $(2,076) $(2,019) $ 4,052 $ (750) $ 2,435 $(2,817)
========= ======== ======== ======== ======= ========= ======== ========
Fixed charges:
Total fixed charges.. $ 1,088 $ 2,155 $ 51 $ 80 $ 4,172 $ 4,381 $ 4,268 $ 2,828
========= ================== ========== ======= ======== ======== ========
Ratio of earnings to fixed
charges....................... - - - - 0.97x - 0.57x -
============================================== ===========================================
</TABLE>
(a) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued and net
of debt premium amortization), including the amortization of debt issuance costs
and original issue discount, noncash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with capital lease obligations, letter of credit commissions, fees or
discounts and the product of all dividends and accretion on mandatorily
redeemable preferred stock multiplied by a fraction, the numerator of which is
one and the denominator of which is one minus the current combined federal,
state and local statutory tax rate. For fiscal years 1993, 1994 and 1995 and the
period December 31, 1995 through September 17, 1996, Mrs. Fields, Inc. and
subsidiaries' earnings were insufficient to cover fixed charges by $2,082,000,
$5,129,000, $2,076,000 and $2,127,000, respectively. For fiscal years 1993, 1994
and 1995 and the period December 31, 1995 through September 17, 1996, The
Original Cookie Company, Incorporated and the Carved-out Portion of Hot Sam
Company, Inc's. (combined) earnings were insufficient to cover fixed charges by
$120,000, $5,131,000, $1,833,000 and $5,645,000, respectively.
<TABLE>
<CAPTION>
Mrs. Fields' Original Cookies, Inc. and Subsidiaries
<S> <C> <C>
SEPTEMBER FISCAL
18, 1996 Year
THROUGH Ended
DECEMBER JANUARY
28, 1996 3, 1998
Earnings: -------- -------
Net income (loss)............. $ 3,856 $ 463
Fixed charges................. 1,955 8,903
--------- --------
Total earnings............ 5,811 9,366
========= ========
Fixed charges:
Interest expense.............. $ 1,793 $ 7,830
Preferred stock dividends..... 162 1,073
--------- --------
Total fixed charges....... $ 1,955 $ 8,903
======== =========
Ratio of earnings to fixed 2.97x 1.05x
charges............................ ========= ========
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made part of this
registration statement on Form S-4.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 23, 1998
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Mrs. Fields' Original
Cookies, Inc. on Form S-4 of our report dated February 9, 1996, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/DELIOTTE & TOUCHE LLP
DELIOTTE & TOUCHE LLP
Salt Lake City, Utah
January 26, 1998
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
MRS. FIELDS' ORIGINAL COOKIES, INC.
(Exact name of obligor as specified in its charter)
Delaware 87-0552899
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
THE MRS. FIELDS' BRAND, INC.
(Exact name of obligor as specified in its charter)
Delaware 87-0563472
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
462 West Bearcat Drive
Salt Lake City, Utah 84115
(Address of principal executive offices) (Zip code)
----------------------
Series B 10-1/8% Senior Notes due 2004
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust powers.
(Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration
Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed
with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit
6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published pursuant
to law or to the requirements of its supervising or examining authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 20th day of January, 1998.
THE BANK OF NEW YORK
By: /s/WALTER N. GITLIN
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001043482
<NAME> MRS. FIELDS' ORIGINAL COOKIES, INC.
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JAN-03-1998
<EXCHANGE-RATE> 1.00
<CASH> 16,287
<SECURITIES> 0
<RECEIVABLES> 4,360
<ALLOWANCES> 614
<INVENTORY> 3,100
<CURRENT-ASSETS> 28,823
<PP&E> 35,327
<DEPRECIATION> 6,125
<TOTAL-ASSETS> 149,684
<CURRENT-LIABILITIES> 15,690
<BONDS> 100,000
902
0
<COMMON> 0
<OTHER-SE> 30,765
<TOTAL-LIABILITY-AND-EQUITY> 149,684
<SALES> 123,987
<TOTAL-REVENUES> 130,507
<CGS> 98,900
<TOTAL-COSTS> 122,092
<OTHER-EXPENSES> 368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,584
<INCOME-PRETAX> 463
<INCOME-TAX> 655
<INCOME-CONTINUING> (974)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (974)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Mrs. Fields' Original Cookies, Inc. and
subsidiaries as of December 28, 1996 and January 3, 1998 and for the period from
inception (September 18, 1996) to December 28, 1996 and for the year ended
January 3, 1998 included in this registration statement and have issued our
report thereon dated January 17, 1998. Our audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. Schedule II, "Valuation and Qualifying Accounts", is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 17, 1998
<PAGE>
<TABLE>
<CAPTION>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<S> <C> <C> <C> <C>
Balance at
beginning Balance at
Description of period Additions Deductions end of period
Allowance for Doubtful Accounts:
Period from Inception (September
18, 1996) through December 28, 1996...... $ 269,000 119,000 - $ 388,000
Year Ended January 3, 1998................. 388,000 481,000 255,000 614,000
Store Closure Reserve:
Period from Inception (September
18, 1996) through December 28, 1996...... 5,060,000 - 305,000 4,755,000
Year Ended January 3, 1998.................. 4,755,000 3,257,000 2,546,000 5.466,000
</TABLE>
