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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-23243
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CAFE ODYSSEY, INC.
(Name of Small Business Issuer as Specified in Its Charter)
MINNESOTA 31-1487885
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Indentification No.)
4801 W. 81ST STREET, SUITE 112
BLOOMINGTON, MN 55437
(Address of Principal Executive Offices)
612-837-9917
(Issuer's Telephone Number, Including Area Code)
HOTEL DISCOVERY, INC.
4801 W. 81ST STREET, SUITE 112
BLOOMINGTON, MN 55437
(Former Name, Former Address and Former Fiscal Address,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 10, 1998, the number of shares outstanding of the Issuer's
Common Stock, $0.01 par value was 8,000,089.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in the following pages, particularly
regarding estimates of the number and locations of new restaurants that the
Company intends to open during fiscal 1998 and 1999, constitute
"forward-looking statements" within the meaning of the Securities Act of
1933, as amended and the Securities Exchange Act of 1934, as amended.
Forward-looking statements involve a number of risks and uncertainties, and,
in addition to the factors discussed in this Form 10-QSB, among the other
factors that could cause actual results to differ materially are the
following: the Company's ability to identify and secure suitable locations
on acceptable terms, obtain additional capital necessary for expansion on
acceptable terms, open new restaurants in a timely manner, hire and train
additional restaurant personnel and integrate new restaurants into its
operations; the continued implementation of the Company's strict business
discipline over a growing restaurant base; the economic conditions in the
new markets into which the Company expands and possible uncertainties in the
customer base in these areas; changes in customer dining patterns;
competitive pressures from other national and regional restaurant chains;
business conditions, such as inflation or a recession, and growth in the
restaurant industry and the general economy; changes in monetary and fiscal
policies, laws and regulations; and other risks identified from time to time
in the Company's SEC reports, registration statements and public
announcements.
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CAFE ODYSSEY, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I FINANCIAL INFORMATION 4
ITEM 1. Financial Statements
Balance Sheets as of June 28, 1998 and December 28, 1997 4
Statements of Operations for the thirteen weeks ended June 28, 1998 5
and June 29, 1997 and the twenty-six weeks ended June 28, 1998
and June 29, 1997
Statements of Cash Flows for the twenty-six weeks ended June 28, 1998 6
and June 29, 1997
Condensed Notes to the Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and 9
Plan of Operations
PART II OTHER INFORMATION 12
ITEM 1. Legal Proceedings 12
ITEM 4. Submission of Matters to a Vote of Security Holders 12
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12
Signatures 14
</TABLE>
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CAFE ODYSSEY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
---- ----
ASSETS (Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,552,161 $ 9,222,174
Landlord allowance receivable 1,600,000 --
Inventories 122,381 41,766
Other current assets 444,201 250,043
------------- -------------
Total current assets 4,718,743 9,513,983
PROPERTY AND EQUIPMENT, net 11,280,457 5,270,160
OTHER ASSETS, net 374,204 55,908
------------- -------------
$ 16,373,404 $ 14,840,051
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term notes payable --- 200,000
Accounts payable 2,619,738 669,380
Accrued salaries and wages 310,461 366,674
Other accrued expenses 123,634 115,773
Current portion of long-term debt 999,969 69,420
------------- -------------
Total current liabilities 4,053,802 1,421,247
DEFERRED RENT 1,615,222 ---
LONG-TERM DEBT, less current portion 678,892 852,165
CONVERTIBLE PROMISSORY NOTES PAYABLE 150,000 150,000
------------- -------------
Total liabilities 6,497,916 2,423,412
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value, 100,000,000 shares
authorized; 8,000,089 and 8,000,189 shares issued
and outstanding 80,001 80,002
Additional paid-in capital 20,152,650 20,152,949
Less: Common stock subscribed (400,000) (400,000)
Accumulated deficit (9,957,163) (7,416,312)
------------- -------------
Total shareholders' equity 9,875,488 12,416,639
------------- -------------
$ 16,373,404 $ 14,840,051
============= =============
The accompanying condensed notes are an integral part of these balance sheets.
</TABLE>
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CAFE ODYSSEY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
-------------------- -----------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 1,195,676 $ 816,799 $ 1,999,995 $ 1,864,564
----------- ---------- ----------- -----------
COSTS AND EXPENSES:
Food, beverage and retail costs 343,587 254,172 562,003 612,115
Labor and benefits 532,787 443,684 850,944 1,036,302
Restaurant operating expenses 345,117 311,262 708,562 602,055
Depreciation and amortization 185,299 138,000 311,139 275,000
Selling, general and administrative
expenses 676,394 367,280 1,418,529 765,573
Pre-opening and development costs 663,875 189,423 791,193 189,423
----------- ---------- ----------- -----------
Total costs and expenses 2,747,059 1,703,821 4,642,370 3,480,468
----------- ---------- ----------- -----------
LOSS FROM OPERATIONS (1,551,383) (887,022) (2,642,375) (1,615,904)
INTEREST INCOME/(EXPENSE), net 10,669 (46,149) 101,524 (65,787)
----------- ---------- ----------- -----------
NET LOSS $(1,540,714) $ (933,171) $(2,540,851) $(1,681,691)
=========== ========== =========== ===========
BASIC AND DILUTED NET LOSS PER SHARE $(0.19) $(0.21) $(0.32) $(0.39)
====== ====== ====== ======
BASIC AND DILUTED WEIGHTED AVERAGE
OUTSTANDING SHARES 8,000,158 4,503,698 8,000,174 4,298,048
=========== ========== =========== ===========
</TABLE>
The accompanying condensed notes are an integral part of these financial
statements.
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CAFE ODYSSEY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-six weeks ended
----------------------
June 28, June 29,
1998 1997
------ ------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,540,851) $(1,681,691)
Adjustments to reconcile net loss to cash flows from operating
activities:
Depreciation and amortization 311,139 275,000
Shares issued for services --- 19,200
Changes in operating assets and liabilities:
Inventories (80,615) 6,770
Other current assets (194,158) (114,361)
Other assets (318,296) (181,183)
Accounts payable 1,950,358 (52,688)
Accrued salaries and wages (56,213) (138,299)
Other accrued expenses 7,861 (524,171)
Deferred rent 15,222 ---
----------- -----------
Net cash used in operating activities (905,553) (2,391,423)
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (6,321,436) (448,246)
----------- -----------
FINANCING ACTIVITIES:
Net borrowings/(payments) on short-term notes payable (200,000) 300,000
Payments to shareholder --- (99,357)
Proceeds from issuance of long-term debt 791,986 ---
Principal repayments on long-term debt (34,710) (28,925)
Proceeds from issuance of stock --- 1,868,446
Repurchase of common stock (300) ---
Payments received on stock subscriptions --- 90,000
----------- -----------
Net cash from financing activities 556,976 2,130,164
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (6,670,013) (709,505)
CASH AND CASH EQUIVALENTS, beginning of period 9,222,174 2,707,561
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,552,161 $ 1,998,056
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 34,342 $ 65,787
Cash paid for income taxes --- ---
Non-cash items - landlord allowance receivable 1,600,000 ---
</TABLE>
The accompanying condensed notes are an integral part of these financial
statements.
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CAFE ODYSSEY, INC.
CONDENSED NOTES TO THE FINANCIAL STATEMENTS
JUNE 28, 1998 AND JUNE 29, 1997
1. DESCRIPTION OF THE BUSINESS
Cafe Odyssey, Inc. (the Company) owns and operates two restaurants, one in
Cincinnati, Ohio (the Kenwood Restaurant), which operates under the trade name
"Hotel Discovery", and one in the Mall of America in a suburb of Minneapolis,
Minnesota (the Mall of America Restaurant), which operates under the trade name
"Cafe Odyssey." The Kenwood Restaurant opened under the name "Hotel Mexico" on
December 19, 1996. The Mall of America Restaurant opened on June 8, 1998. Prior
to the opening of the Kenwood Restaurant, the Company was in the development
stage.
The Company's predecessor, Hotel Mexico (HMI), was originally incorporated in
January 1994 as an Ohio corporation. The Kenwood Restaurant Limited Partnership,
an Ohio limited partnership (the Kenwood Partnership), was formed in June 1995
for the purpose of owning and operating the Kenwood Restaurant. HMI's operations
and the net assets of the Kenwood Partnership were combined on November 14,
1996. On that date, the Kenwood Partnership contributed all of its net assets
totalling $1,567,197 to a newly formed corporation in exchange for shares of
such corporation. HMI, with total net assets of $631,966, then merged with and
into the newly formed corporation, the name of which remained Hotel Mexico, Inc.
(hereafter, Hotel Mexico). Upon consummation of the merger, all outstanding
shares of Hotel Mexico were converted into an aggregate of 1,350,000 shares of
Common Stock of the newly formed corporation.
The shares of Hotel Mexico Common Stock received by the Kenwood Partnership in
the reorganization were retained by the Kenwood Partnership until the effective
date of the Company's initial public offering, at which time the shares of
Common Stock and all other partnership assets were distributed to the general
and limited partners in accordance with the partnership agreement and the
Kenwood Partnership was dissolved.
On August 22, 1997, Hotel Mexico merged with and into Hotel Discovery, Inc., a
newly formed Minnesota corporation. The Company has an authorized capital stock
of 100,000,000 undesignated shares, and each share of Common Stock of Hotel
Mexico was converted into one share of the Company's Common Stock.
On February 25, 1998, the Company changed the name of its restaurant concept
from Hotel Discovery to Cafe Odyssey. The Company believes that the new name
better reflects the concept's primary focus on award-winning food, served in a
unique environment of adventure, imagination, exploration and innovation. The
Cafe Odyssey name is being used for the Mall of America Restaurant and will be
used for all subsequent restaurants. At the present time, the Company intends
to retain the name "Hotel Discovery" for the Kenwood Restaurant because of its
already established name.
On May 21, 1998, the Company changed its corporate name from Hotel Discovery,
Inc. to Cafe Odyssey, Inc. to reflect the change in the name of its restaurant
concept to Cafe Odyssey. In conjunction with this change, the Company's symbols
for its Units, Common Stock and Class A Warrants on the Nasdaq SmallCap market
were changed from HOTDU, HOTD and HOTDW to CODYU, CODY and CODYW, respectively,
effective May 26, 1998.
2. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the
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disclosures are adequate to make the information presented not misleading, it is
suggested that these interim financial statements be read in conjunction with
the Company's most recent 10-KSB dated December 28, 1997. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented have been made.
Operating results for the thirteen and twenty-six week periods ended June 28,
1998 are not necessarily indicative of the results that may be expected for the
fiscal year ended December 27, 1998.
The Company has adopted a 52-53-week accounting period ending on the last Sunday
in December of each year.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income," effective beginning in fiscal 1998, establishes standards
of disclosure and financial statement display for reporting total comprehensive
income and the individual components thereof. The adoption of SFAS No. 130 did
not have an impact on the Company's financial position or results of operations
as comprehensive income and net income were the same for all periods presented.
In fiscal 1997, the Company adopted SFAS No. 128, "Earnings per Share", which
requires disclosure of basic earnings per share (EPS) and diluted EPS, which
replace the existing primary EPS and fully diluted EPS, as defined by Accounting
Principles Board (APB) No.15. Basic EPS is computed by dividing net income by
the weighted average number of shares of Common Stock outstanding during the
year. Diluted EPS is computed similarly to primary EPS as previously reported
provided that, when applying the treasury stock method to common equivalent
shares, the Company must use its average share price for the period rather than
the more dilutive greater of the average share price or end-of-period share
price required by APB No.15. The adoption of SFAS No. 128 had no effect on the
Company's June 29, 1997 EPS data.
During April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
(SOP) 98-5, "Reporting of the Costs of Start-up Activities." SOP 98-5 requires
companies to expense as incurred all start-up and pre-opening costs that are not
otherwise capitalizable as long-lived assets. The adoption of the new accounting
standard had no effect on the Company, as all pre-opening costs have been
expensed as incurred since inception.
4. COMMITMENTS & CONTINGENCIES
In May 1998, the Company entered into an operating lease for a future restaurant
located in downtown Denver, Colorado. The lease is for a term of 15 years and
contains provisions for contingent rentals based on a percentage of gross
revenues, as defined, and contains provisions for payments of real estate
taxes, insurance and common area costs. In addition, the Company will receive
various tenant inducements and rent abatement.
5. STOCK OPTIONS
In May 1998, the Company adopted the 1998 Directors' Stock Option Plan, whereby
stock options to acquire an aggregate of 250,000 shares of the Company's common
stock can be granted to the Company's outside directors. The Company has
granted options on 20,000 shares through June 28, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
financial statements and related notes thereto included elsewhere in this
report.
OVERVIEW
The Company was formed in January 1994 as an Ohio corporation to develop, own
and operate upscale, casual themed restaurants under the name "Hotel Mexico".
The Company opened its first restaurant in the Kenwood Shopping Center in
Cincinnati, Ohio (the "Kenwood Restaurant") in December 1996 under the trade
name "Hotel Mexico." The Company subsequently renamed its Kenwood Restaurant
"Hotel Discovery", under which name this restaurant continues to operate. Prior
to opening the Kenwood Restaurant, the Company had no revenues and its
activities were devoted solely to development. The Company opened its second
restaurant under the trade name "Cafe Odyssey" in the Mall of America (the "Mall
of America Restaurant") in Bloomington, Minnesota, a suburb of Minneapolis, on
June 8, 1998. During the second quarter of 1998, the Company entered into a
lease agreement for approximately 18,000 square feet of space in the Denver
Pavilions, an urban retail/entertainment complex currently under construction in
downtown Denver, Colorado. The Company expects to open a Cafe Odyssey restaurant
in the Denver Pavilions leased space in the first quarter of 1999.
Future revenue and profits, if any, will depend upon various factors, including
market acceptance of the Hotel Discovery/Cafe Odyssey concept, the quality of
the restaurant operations, the ability to expand to multi-unit locations and
general economic conditions. The Company's present source of revenue is limited
to its existing restaurants. There can be no assurance the Company will
successfully implement its expansion plans, in which case it will continue to be
dependent on the revenues from the existing restaurants. The Company also faces
all of the risks, expenses and difficulties frequently encountered in connection
with the expansion and development of a new and expanding business. Furthermore,
to the extent the Company's expansion strategy is successful, it must manage the
transition to multiple-site operations, higher volume operations, the control of
overhead expenses and the addition of necessary personnel.
The Company uses a 52- or 53-week fiscal year ending on the last Sunday in
December of each year.
RESULTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED JUNE 28, 1998 AND JUNE 29,
1997
For the thirteen weeks ended June 28, 1998 (hereinafter, "second quarter of
1998"), the Company had net sales of $1,195,676 compared to $816,799 for the
thirteen weeks ended June 29, 1997 (hereinafter, "second quarter of 1997"). The
increase in sales is attributable to the opening of the Mall of America
Restaurant in the second quarter of 1998, offset by a continued decline in sales
at the Kenwood Restaurant for the second quarter of 1998 as compared to the
second quarter of 1997.
For the second quarter of 1998, food, beverage and retail costs were $343,587 or
28.7% of sales compared to $254,172 or 31.1% of sales for the second quarter of
1997. The improvement in food, beverage and retail costs as a percentage of
sales is due primarily to improved operating efficiencies at the Kenwood
Restaurant.
For the second quarter of 1998, labor, benefits and other direct restaurant
operating expenses were $877,904 or 73.4% of sales compared to $754,946 or 92.4%
of sales for the second quarter of 1997. This improvement in labor, benefits and
other direct restaurant operating expenses as a percentage of sales is due
primarily as a result of improved operating efficiencies at the Kenwood
Restaurant and the higher sales levels experienced at the Mall of America
Restaurant.
For the second quarter of 1998, the Company had a net loss of $1,540,714
compared to a net loss of $933,171 for the second quarter of 1997. The net loss
for the second quarter of 1998 is primarily attributable to operating losses at
the Kenwood Restaurant, start-up operations at the Mall of America Restaurant,
general and administrative expenses associated with building a senior management
team to execute the Company's growth plans and the remaining pre-opening costs
for the Mall of America Restaurant. The net loss for the second quarter
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of 1997 was largely attributable to the continued start-up operations at the
Kenwood Restaurant, as well as its repositioning to the trade name Hotel
Discovery from Hotel Mexico. Continued development of the Company's concept will
impact pre-opening and general and administrative expenses on an ongoing basis.
RESULTS OF OPERATIONS FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 1998 AND JUNE 29,
1997
For the twenty-six weeks ended June 28, 1998 (hereinafter, "first half of
1998"), the Company had net sales of $1,999,995 compared to $1,864,564 for the
twenty-six weeks ended June 29, 1997 (hereinafter, "first half of 1997"). The
increase in sales is attributable to the opening of the Mall of America
Restaurant in the second quarter of 1998, offset by a decline in sales at the
Kenwood Restaurant for the first half of 1998 as compared to its post-grand
opening period during the first half of 1997.
For the first half of 1998, food, beverage and retail costs were $562,003 or
28.1% of sales compared to $612,115 or 32.8% of sales for the first half of
1997. The improvement in food, beverage and retail costs as a percentage of
sales is due primarily to improved operating efficiencies at the Kenwood
Restaurant in the first half of 1998 as compared to its start-up operations in
the first half of 1997.
For the first half of 1998, labor, benefits and other direct restaurant
operating expenses were $1,559,506 or 78.0% of sales compared to $1,638,357 or
87.9% of sales for the first half of 1997. This improvement in labor, benefits
and other direct restaurant operating expenses as a percentage of sales is due
primarily as a result of improved operating efficiencies at the Kenwood
Restaurant in the first half of 1998 as compared to its start-up operations in
the first half of 1997, as well as the higher sales levels experienced at the
Mall of America Restaurant.
For the first half of 1998, the Company had a net loss of $2,540,851 compared to
a net loss of $1,681,691 for the first half of 1997. The net loss for the first
half of 1998 is primarily attributable to operating losses at the Kenwood
Restaurant, start-up operations at the Mall of America Restaurant, general and
administrative expenses associated with building a senior management team to
execute the Company's growth plans and the remaining pre-opening costs for the
Mall of America. The net loss for the first half of 1997 was largely
attributable to the start-up operations at the Kenwood Restaurant, as well as
its repositioning to the trade name Hotel Discovery from Hotel Mexico. Continued
development of the Company's concept will impact pre-opening and general and
administrative expenses on an ongoing basis.
LIQUIDITY AND CAPITAL RESOURCES
Since Inception, the Company's principal capital requirements have been (i) the
development of the Company and the Hotel Discovery/Cafe Odyssey concept, (ii)
the construction of the Kenwood Restaurant and the acquisition of furniture,
fixtures and equipment therein and (iii) the development and construction of the
Mall of America Restaurant. Total capital expenditures for the Kenwood
Restaurant were approximately $5.1 million, net of landlord contributions. Total
capital expenditures for the Mall of America Restaurant were approximately $5.1
million, net of landlord contributions of approximately $1.6 million and minimum
rent abatement of approximately $405,000.
The Company's primary sources of working capital have been proceeds from the
sale of Common Stock to and borrowings from its principal shareholder, chairman
and founder, Stephen D. King, the private placement of Common Stock and debt,
equipment lease financing, as well as the proceeds from the Company's initial
public offering of Units in November 1997. For the first halves of 1998 and
1997, the Company used $905,553 and $2,391,423, respectively, in cash flow for
operating activities. As of June 28, 1998 and June 29, 1997, the Company had
working capital of $664,941 and a working capital deficit of $1,684,117,
respectively.
In November 1997, the Company completed an initial public offering of 2,500,000
Units, each Unit consisting of one share of Common Stock and one redeemable
Class A Warrant at an initial public offering price of $5.00 per Unit. In
December 1997, the Company issued an additional 100,000 Units to its principal
underwriter, R.J. Steichen & Company, pursuant to the underwriter's decision to
exercise a portion of its over-allotment. The Company received net proceeds of
approximately $11.2 million in conjunction with the initial public offering and
the partial exercise of the underwriter's over-allotment.
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The Class A Warrants are subject to redemption by the Company at any time, on
not less than 30 days' written notice, at a price of $0.01 per Warrant at any
time following a period of 14 consecutive trading days where the per share
average closing bid price of the Company's Common Stock exceeds $7.00 (subject
to adjustment), provided that a current prospectus covering the shares issuable
upon the exercise of the Class A Warrants is then effective under federal
securities laws. For these purposes, the closing bid price of the Common Stock
shall be determined by the last reported sale price on the primary exchange on
which the Common Stock is traded.
The Company intends to open one to three restaurants in 1999. The Company
estimates that its capital expenditures (excluding any landlord contributions)
will be approximately $10 to $15 million in fiscal 1998 and $10 to $20 million
in fiscal 1999. The Company expects to finance its concept development and
expansion through cash flow from operations, the exercise of its Class A
Warrants and other forms of financing such as the sale of additional equity and
debt securities, capital leases and other credit facilities. There are no
assurances that such financing will be available on terms acceptable or
favorable to the Company.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine legal actions in the ordinary course of its
business. Although outcomes of any such legal actions cannot be predicted, in
the opinion of management there is no legal proceeding pending against or
involving the Company for which the outcome is likely to have a material adverse
effect upon the financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(A) On May 21, 1998, the Annual Meeting of Shareholders of the
Company (the "Annual Meeting") was held.
(B) At the Annual Meeting, all of management's nominees for directors
as listed in the proxy statement were elected with the following
votes:
Shares Voted "For" Shares "Withheld"
------------------ -----------------
Ronald K. Fuller 5,950,631 12,700
Stephen D. King 5,950,731 12,600
Michael L. Krienik 5,950,731 12,600
Martin J. O'Dowd 5,947,665 15,666
Thomas W. Orr 5,950,631 12,700
(C) At the Annual Meeting, the Shareholders also approved an
amendment to the Company's Articles of Incorporation to change
the name of the Company from Hotel Discovery, Inc. to Cafe
Odyssey, Inc. 5,919,631 votes were cast in favor of the
amendment; 23,550 votes opposed; and 20,150 votes abstained.
(D) At the Annual Meeting, the Shareholders also approved an
amendment to the Company's 1997 Stock Option and Compensation
Plan to increase the number of shares of Common Stock reserved
for issuance thereunder from 750,000 shares to 1,250,000
shares. 4,336,168 votes were cast in favor of the amendment;
327,162 votes opposed; and 46,750 votes abstained.
(E) At the Annual Meeting, the Shareholders also approved adoption
of the 1998 Director Stock Option Plan. 4,208,236 votes were
cast in favor of the adoption; 359,567 votes opposed; and
182,571 votes abstained.
ITEM 5. OTHER INFORMATION
On May 21, 1998, the Securities and Exchange Commission adopted
an amendment to Rule 14a-4, as promulgated under the Securities
and Exchange Act of 1934. The amendment to 14a-4(c)(1) governs
the Company's use of its discretionary proxy voting authority
with respect to a shareholder proposal which the shareholder has
not sought to include in the Company's proxy statement. The new
amendment provides that if a proponent of a proposal fails to
notify the Company at least 45 days prior to the month and day
of mailing of the prior year's proxy statement, then the
management proxies will be allowed to use their discretionary
voting authority when the proposal is raised at the meeting,
without any discussion of the matter in the proxy statement.
With respect to the Company's 1999 Annual Meeting of
Shareholders, if the Company is not provided notice of a
shareholder proposal which the shareholder has not previously
sought to include in the Company's proxy statement by April 7,
1999, the management proxies will be allowed to use their
discretionary authority as outlined above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3 Articles of Incorporation, as amended
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10.1 Third Amendment dated February 25, 1998 to the 1997 Stock
Option and Compensation Plan
10.2 1998 Director Stock Option Plan
10.3 Amendment to Loan Documents dated as of June 28, 1998 by and
among PNC Bank, National Association, Stephen D. King and
Cafe Odyssey, Inc.
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
On May 27, 1998, the Company filed a report on Form 8-K
relating to its execution on May 12, 1998 of a lease agreement
with Denver Pavilions L.P. to lease approximately 18,000
square feet of space for a Cafe Odyssey restaurant in the
Denver Pavilions, an urban retail/entertainment complex
currently under construction in downtown Denver, Colorado.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAFE ODYSSEY, INC.
By: /s/ Anne D. Huemme
----------------------------------
Anne D. Huemme
Vice President-Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
Date: August 12, 1998
14
<PAGE> 15
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
3 Articles of Incorporation, as amended
10.1 Third Amendment dated February 25, 1998 to
the 1997 Stock Option and Compensation Plan
10.2 1998 Director Stock Option Plan
10.3 Amendment to Loan Documents dated as of June
28, 1998 by and among PNC Bank, National
Association, Stephen D. King and Cafe
Odyssey, Inc.
27 Financial Data Schedule
15
<PAGE> 1
EXHIBIT 3
ARTICLES OF INCORPORATION
OF
HOTEL DISCOVERY, INC.
The undersigned hereby creates a corporation under Chapter 302A of the
Minnesota Statutes and adopts the following Articles of Incorporation.
ARTICLE 1
NAME
The name of the Corporation is HOTEL DISCOVERY, INC.
ARTICLE 2
REGISTERED OFFICE
The address of the registered office of the Corporation is 3300 Norwest
Center, 90 South Seventh Street, Minneapolis, Minnesota 55402.
ARTICLE 3
CAPITAL
A. The Corporation is authorized to issue one hundred million
(100,000,000) shares of capital stock, having a par value of
one cent ($.01) per share in the case of common stock, and
having a par value as determined by the Board of Directors in
the case of preferred stock, to be held, sold and paid for at
such times and in such manner as the Board of Directors may
from time to time determine in accordance with the laws of the
State of Minnesota.
B. In addition to any and all powers conferred upon the Board of
Directors by the laws of the State of Minnesota, the Board of
Directors shall have the authority to establish by resolution
more than one class or series of shares, either preferred or
common, and to fix the relative rights, restrictions and
preferences of any such different classes or series, and the
authority to issue shares of a class or series to another
class or series to effectuate share dividends, splits or
conversion of the Corporation's outstanding shares.
C. The Board of Directors shall also have the authority to issue
rights to convert any of the Corporation's securities into
shares of stock of any class or classes, the authority to
issue options to purchase or subscribe for shares of stock of
any class or classes, and the authority to issue share
purchase or subscription warrants or any other evidence of
such option rights which set forth the terms, provisions and
conditions thereof, including the price or prices at which
such shares may be
<PAGE> 2
subscribed for or purchased. Such options, warrants and
rights, may be transferable or nontransferable and separable
or inseparable from other securities of the Corporation. The
Board of Directors is authorized to fix the terms, provisions
and conditions of such options, warrants and rights, including
the conversion basis or bases and the option price or prices
at which shares may be subscribed for or purchased.
ARTICLE 4
SHAREHOLDER RIGHTS
A. No shareholder of the Corporation shall have any preemptive
rights.
B. No shareholder of the Corporation shall have any cumulative
voting rights.
ARTICLE 5
INCORPORATOR
The name and address of the incorporator, who is a natural person of
full age, is:
William M. Mower
3300 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-4140
ARTICLE 6
WRITTEN ACTION BY LESS THAN ALL OF THE DIRECTORS
Any action required or permitted to be taken at a Board meeting, other
than an action requiring shareholder approval, may be taken by written action of
the Board of Directors if signed by the number of directors that would be
required to take the same action at a meeting at which all directors were
present.
ARTICLE 7
LIMITED LIABILITY OF DIRECTORS
To the fullest extent permitted by law, a director shall have no
personal liability to the Corporation or its shareholders for breach of
fiduciary duty as a director. Any amendment to or repeal of this Article 7 shall
not adversely affect any right or protection of a director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
<PAGE> 3
IN WITNESS WHEREOF, I have signed my name this 31st day of July, 1997.
/s/ William M. Mower
--------------------------------------
William M. Mower, Incorporator
<PAGE> 4
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
HOTEL DISCOVERY, INC.
The undersigned President of Hotel Discovery, Inc., a Minnesota
corporation (the "Corporation"), hereby certifies that at a meeting of the
shareholders on May 21, 1998, the following resolution to amend its Articles of
Incorporation were adopted by the shareholders of the Corporation in accordance
with the applicable provisions of the Minnesota Business Corporation Act:
1. Article 1 of its Articles of Incorporation is amended to read
in its entirety as follows:
The name of the Corporation is Cafe Odyssey, Inc.
IN WITNESS WHEREOF the undersigned has hereunto set his hand this 22nd
day of May, 1998.
/s/ Ronald K. Fuller
-----------------------------
Ronald K. Fuller
President
<PAGE> 1
EXHIBIT 10.1
CAFE ODYSSEY, INC.
AMENDMENT TO
1997 STOCK OPTION AND
COMPENSATION PLAN
1. Increase in Number of Shares Subject to the Plan. Section 5.1 of the
1997 Stock Option and Compensation Plan is hereby amended to read in its
entirety as follows:
5.1 Number of Shares. Subject to adjustment as provided in
Section 11.6, the number of shares of Common Stock which may be issued
under the Plan shall not exceed 1,250,000 shares of Common Stock.
2. Effective Date. This Amendment became effective as of February 25,
1998.
<PAGE> 1
EXHIBIT 10.2
HOTEL DISCOVERY, INC.
1998 DIRECTOR STOCK OPTION PLAN
1. PURPOSE. The purpose of the Hotel Discovery, Inc. 1998 Director
Stock Option Plan (the "Plan") is to advance the interests of Hotel Discovery,
Inc. (the "Company") and its shareholders by encouraging share ownership by
members of the Board of Directors of the Company (the "Board") who are not
employees of the Company or any of its subsidiaries, in order to promote
long-term shareholder value through continuing ownership of the Company's common
stock.
2. ADMINISTRATION. The plan shall be administered by the Board. The
Board shall have all the powers vested in it by the terms of the Plan, such
powers to include authority (within the limitations described herein) to
prescribe the form of the agreement embodying awards of nonqualified stock
options made under the Plan ("Options"). The Board shall, subject to the
provisions of the Plan, grant Options under the Plan and shall have the power to
construe the Plan, to determine all questions arising thereunder and to adopt
and amend such rules and regulations for the administration of the Plan as it
may deem desirable. Any decisions of the Board in the administration of the
Plan, as described herein, shall be final and conclusive. The Board may act only
by a majority of its members in office, except that the members thereof may
authorize any one or more of their number or any other officer of the Company to
execute and deliver documents on behalf of the Board. No member of the Board
shall be liable for anything done or omitted to be done by him or by any other
member of the Board in connection with the Plan, except for his own willful
misconduct or as expressly provided by statute.
3. PARTICIPATION. Each member of the Board who is not an employee of
the Company or any of its subsidiaries (a "Non-Employee Director") shall be
eligible to receive an Option in accordance with Paragraph 5 below.
4. AWARDS UNDER THE PLAN.
(a) Awards under the Plan shall include only Options, which are rights
to purchase common stock of the Company, having $.01 par value (the "Common
Stock"). Such Options are subject to the terms, conditions and restrictions
specified in Paragraph 5 below.
(b) There may be issued under the Plan pursuant to the exercise of
Options an aggregate of not more than 250,000 shares of Common Stock, subject to
adjustment as provided in Paragraph 6 below. If any Option is canceled,
terminates or expires unexercised, in whole or in part, any shares of Common
Stock that would otherwise have been issuable pursuant thereto will be available
for issuance under new Options.
(c) A Non-Employee Director to whom an Option is granted (and any
person succeeding to such a Non-Employee Director's rights pursuant to the Plan)
shall have no rights as a shareholder with respect to any Common Stock issuable
pursuant to any such Option until the date of the issuance of a stock
certificate to him for such shares. Except as provided in Paragraph 6 below, no
adjustment shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities or other property)
for which the record date is prior to the date such stock certificate is issued.
<PAGE> 2
5. NONQUALIFIED STOCK OPTIONS. Each Option granted under the Plan shall
be evidenced by an agreement in such form as the Board shall prescribe from time
to time in accordance with the Plan and shall comply with the following terms
and conditions:
(a) The Option exercise price shall be the "Fair Market Value" (as
herein defined) of the Common Stock subject to such Option on the date the
Option is granted. Fair Market Value shall be the closing sales price of a share
of Common Stock on the date of grant as reported on the Nasdaq Market or, if the
Nasdaq Market is closed on that date, on the last preceding date on which the
Nasdaq Market was open for trading, but in no event will such Option exercise
price be less than the par value of the Common Stock.
(b) The Board shall determine the number of shares of Common Stock
subject to each Option granted to Non-Employee Directors and, subject to Section
5(d) hereof, the vesting schedule of each such Option. Notwithstanding the
foregoing, once such Options become outstanding, a Non-Employee Director will
still be entitled to the anti-dilution adjustments provided for in Section 6
hereof.
(c) The Option shall not be transferable by the optionee otherwise than
by will or the laws of descent and distribution, and shall be exercisable during
his lifetime only by him.
(d) Options shall not be exercisable:
(i) except pursuant to the vesting schedule established
by the Board of Directors and after the expiration of
ten years from the date it is granted.
Notwithstanding anything to the contrary herein, an
Option shall automatically become immediately
exercisable in full: (i) upon the removal of the
Non-Employee Director from the Board without cause;
or (ii) in the event of a "change in control" of the
Company, as defined in any existing agreements
between the Company and its senior officers.
(ii) unless payment in full is made for the shares of
Common Stock being acquired thereunder at the time of
exercise, such payment shall be made in United States
dollars by cash or check, or in lieu thereof, by
tendering to the Company Common Stock owned by the
person exercising the Option and having a Fair Market
Value equal to the cash exercise price applicable to
such Option, or by a combination of United States
dollars and Common Stock as aforesaid; and
(iii) unless the person exercising the Option has been at
all times during the period beginning with the date
of grant of the Option and ending on the date of such
exercise, a Non-Employee Director of the Company,
except that
(A) if such person shall cease to be such a
Non-Employee Director for reasons other than death,
while holding an Option that has not expired and has
not been fully exercised, such person may, at any
time within three years of the date he ceased to be a
Non-Employee Director (but in no event after the
Option
2
<PAGE> 3
has expired under the provisions of subparagraph
5(d)(i) above), exercise the Option with respect to
any Common Stock as to which he could have exercised
on the date he ceased to be such a Non-Employee
Director; or
(B) if any person to whom an Option has been granted
shall die holding an Option that has not expired and
has not been fully exercised, his executors,
administrators, heirs or distributees, as the case
may be, may, at any time within one year after the
date of such death (but in no event after the Option
has expired under the provisions of subparagraph
5(d)(i) above), exercise the Option with respect to
any shares subject to the Option.
6. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination or exchange of
shares, a sale by the Company of substantially all of its assets, any
distribution to shareholders other than a normal cash dividend, or other
extraordinary or unusual event, the number or kind of shares that may be issued
under the Plan pursuant to subparagraph 4(b) above, and the number or kind of
shares subject to, and the Option price per share under, all outstanding Options
shall be automatically adjusted so that the proportionate interest of the
participant shall be maintained as before the occurrence of such event; such
adjustment in outstanding Options shall be made without change in the total
Option exercise price applicable to the unexercised portion of such Options and
with a corresponding adjustment in the Option exercise price per share, and such
adjustment shall be conclusive and binding for all purposes of the Plan.
7. MISCELLANEOUS PROVISIONS.
(a) Except as expressly provided for in the Plan, no Non-Employee
Director or other person shall have any claim or right to be granted an Option
under the Plan. Neither the Plan nor any action taken hereunder shall be
construed as giving any Non-Employee Director any right to be retained in the
service of the Company.
(b) A participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law or otherwise (except in the event of a
participant's death, by will or the laws of descent and distribution),
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no such right or
interest of any participant in the Plan shall be subject to any obligation or
liability of such participant.
(c) Common Stock shall not be issued hereunder unless counsel for the
Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign securities, securities exchange and
other applicable laws and requirements.
(d) It shall be a condition to the obligation of the Company to issue
Common Stock upon exercise of an Option, that the participant (or any
beneficiary or person entitled to act under subparagraph 5(d)(iii)(B) above) pay
to the Company, upon its demand, such amount as may be
3
<PAGE> 4
requested by the Company for the purpose of satisfying any liability to withhold
federal, state, local or foreign income or other taxes. If the amount requested
is not paid, the Company may refuse to issue such Common Stock.
(e) The expenses of the Plan shall be borne by the Company.
(f) By accepting any Option or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to, any
action taken under the Plan by the Company or the Board.
(g) The appropriate officers of the Company shall cause to be filed any
reports, returns or other information regarding Options hereunder or any Common
Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, or any other applicable statute,
rule or regulation.
8. AMENDMENT OR DISCONTINUANCE. The Plan may be amended at any time and
from time to time by the Board as the Board shall deem advisable; provided,
however, that no amendment shall become effective without shareholder approval
if such shareholder approval is required by law, rule or regulation, and in no
event shall the Plan be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act or the rules thereunder. No amendment of
the Plan shall materially and adversely affect any right of any participant with
respect to any Option theretofore granted without such participant's written
consent.
9. TERMINATION. This Plan shall terminate upon the earlier of the
following dates or events to occur upon the adoption of a resolution of the
Board terminating the Plan or ten years from the date the Plan is initially
approved and adopted by the shareholders of the Company. No termination of the
Plan shall materially and adversely affect any of the rights or obligations of
any person, without his consent, under any Option theretofore granted under the
Plan.
10. EFFECTIVE DATE OF PLAN. The Plan will become effective on the date
that it is approved by the affirmative vote of the holders of the greater of (a)
a majority of the outstanding shares of Common Stock of the Company present and
entitled to vote or (b) a majority of the voting power of the minimum number of
shares entitled to vote that would constitute a quorum for transaction of
business at the Company's Special Meeting of Shareholders.
4
<PAGE> 1
EXHIBIT 10.3
AMENDMENT TO LOAN DOCUMENTS
THIS AGREEMENT made effective as of June 28, 1998, by and among PNC
BANK, NATIONAL ASSOCIATION, successor by merger to PNC BANK, OHIO, NATIONAL
ASSOCIATION ("Lender"), STEPHEN D. KING, an individual and resident of the
State of Ohio (the "Guarantor"), and CAFE ODYSSEY, INC., formerly known as
HOTEL DISCOVERY, INC., a Minnesota corporation, as successor by merger to HOTEL
MEXICO, INC., an Ohio corporation formerly known as "KRLP ACQUISITION CORP."
(the "New Borrower").
RECITALS
A. Lender extended a secured loan in the amount of $1,000,000.00 (the
"Loan") to the Kenwood Restaurant Limited Partnership, an Ohio
corporation (the "Original New Borrower") with respect to certain
premises, more particularly described in Schedule "A" hereto and made
a part hereof (the "Property"), the obligations of which were
guaranteed by the Guarantor and which loan is described herein as the
"Loan."
B. The Loan is now evidenced and/or secured by the documents listed in
Schedule B hereto (collectively, the "Loan Documents"), of which
Stephen D. King is the Guarantor pursuant to a Guarantee dated October
9, 1996 and identified in Schedule B hereto. All terms used herein,
but not defined, shall have the same definitions as used in the Loan
Agreement identified in Schedule "B" hereto.
C. The Original New Borrower transferred all of its right, title and
interest in the Property to Hotel Mexico, Inc. ("HMI").
D. Pursuant to certain Assignment and Assumption of Lease dated December
15, 1996 by and between Original New Borrower and HMI, and filed of
record in Official Record Volume 7268, Page 1034, in the Hamilton
County, Ohio Recorder's Office, HMI assumed all of the obligations of
the Original New Borrower under the Loan.
E. On or about August 1, 1997, HMI merged into the New Borrower, with New
Borrower being the surviving corporation under such merger.
F. Lender, New Borrower and Guarantor entered into a certain Second Loan
Assumption dated as of October 16, 1997, under which Lender approved
of said merger between HMI and New Borrower, New Borrower assumed
HMI's obligations under the Loan Documents, and the Loan Documents
were amended as provided therein.
G. New Borrower recently changed its name and is in the process of making
a name change filing with the Ohio Secretary of State.
H. New Borrower is in default under the Loan Documents and has requested
Lender to forebear its rights and remedies against New Borrower and
Guarantor as a result of such default, and to modify certain of its
obligations contained therein, and Lender has agreed to give such
<PAGE> 2
forbearance and to approve such modifications in accordance with, but
subject to, the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Acknowledgement of Loan Terms
New Borrower acknowledges the following:
1.1 As of the effective date of this Agreement, New Borrower is
currently indebted to Lender in the outstanding principal
amount of $883,411.58 under the Loan.
1.2 The current annual rate of interest payable under the Loan is
9.06% per annum and shall remain at such rate until maturity.
1.3 The monthly installment payment of principal currently in
effect under the Loan is acknowledged to be $5,785.00, plus
accrued interest.
1.4 The Loan Documents are valid and binding obligations of the
New Borrower and Guarantor, as applicable, and are
enforceable in accordance with their terms.
2. Acknowledgement of Loan Defaults
New Borrower acknowledges that New Borrower and Guarantor are
currently in default of the Loan Documents as follows:
2.1 The incurrence of indebtedness pursuant to that certain
financing identified in the loan documentation contained in
Schedule 2.1 attached hereto and made a part hereof with
respect to its restaurant located at the Mall of America in
Minneapolis, Minnesota (the "Mall of America Financing") in
contravention of Section 7.1 contained in the Loan Agreement.
2.2 The repayment of certain indebtedness owed by New Borrower to
Guarantor in the amount of approximately $525,110.00 and
Guarantor's failure to pay such sum to Lender, in
contravention of Section 6 contained in the Guarantee and the
other Loan Documents.
3. Amendment to Loan Agreement
The Loan Documents are hereby amend as follows:
2
<PAGE> 3
3.1 Section 6.8.1 of the Loan Agreement is hereby revised to read
as follows:
Monthly statements. Furnish Lender within twenty days (20)
after the end of each fiscal thirty (30) day period with
internally prepared financial statements of New Borrower with
respect to such thirty (30) day period, which shall be in
Proper Form and shall contain such information as Lender may
request, including without limitation, operating statements
of the Project, cash flow statements, balance sheet, profit
and loss statements.
3.2 Section 6.28 of the Loan Agreement is hereby revised to read
as follows:
Maintenance of cash. Shall maintain at all times cash under
its exclusive control, not subject to any pledge, security or
similar arrangement, of $1,000,000.00, or more.
3.3 The following section is hereby incorporated as Section 6.29
into the Loan Agreement:
Tenant Finish for Mall of America Lease. Shall furnish to
Lender, in Proper Form, documentation which evidences receipt
of payment of the sum of $1,600,000.00 (the "Tenant Finish"),
from the Lessor pursuant to Section 24.20 of that certain
Lease dated by and between New Borrower, as Lessee, and Mall
of America Company, a Minnesota General Partnership, as
Lessor, affecting its restaurant in Mall of America,
Minneapolis, Minnesota (the "Mall of America Lease") no later
than fourteen (14) days after its receipt of such sum.
3.4 The maturity date of the Term Note is hereby revised from
"February 1, 1999" to "November 1, 1998.
4. Forbearance
4.1 Except as otherwise provided in this Agreement, PNC shall not
commence any adversarial legal proceeding against the New
Borrower or the Guarantor or against any of the Property or
other assets of New Borrower as a result of the occurrence of
any of the defaults provided in Section 2 hereof, and PNC
shall conditionally waive such defaults, except that this
forbearance and conditional waiver shall automatically
terminate, and shall be of no further force and effect as a
result of any of the following:
4.1.1 An Event of Default under any of the Loan Documents,
including without limitation, any additional
defaults under the provisions of the Loan Documents
specified in Section 2 hereof;
3
<PAGE> 4
4.1.2 If Lender reasonably deems itself insecure as a
result of facts or circumstances not known to Lender
as of the date of this Agreement or if any other
event, matter or condition shall occur, arise or
exist creating in Lender a reasonable cause for
concern that any of its rights or interests may be
materially and adversely affected by any delay in
enforcing its remedies for any Event of Default,
including without limitation, any transfer by the
New Borrower or Guarantor that (i) its trustee in
bankruptcy could challenge under 11 U.S.C. Sections
544, 547 or 548 if the New Borrower or Guarantor
were insolvent and a petition were filed by or
against either such party in bankruptcy, (ii)
constituted a distribution to its shareholders or
(iii) compensated or benefited any insider (as
defined in Section 101 of the United States
Bankruptcy Code) in excess of a reasonable salary
for services actually performed or was more
favorable than or in consistent with past practices;
4.1.3 Lender determines that there are facts or
circumstances not directly known to Lender as to the
date of this Agreement which constitute a material
adverse change in the financial condition of New
Borrower; or
4.1.4 November 1, 1998.
4.2 This forbearance and conditional waiver by Lender are
expressly limited to the purposes specified in Section 4.1
hereof, and do not constitute a forbearance or waiver of any
additional defaults by New Borrower under the Loan Documents
specified in Section 2 hereof, or a forbearance or waiver of
any other Event of Default under the Loan Documents.
Furthermore, this forbearance and conditional waiver by
Lender shall not be deemed to amend, modify or extend any of
the obligations of either New Borrower or Guarantor under the
Loan Documents.
4.3 New Borrower and Guarantor covenant and agree that if any
petition in bankruptcy is filed (voluntary or involuntary)
with respect to the New Borrower and/or the Guarantor, Lender
shall be entitled, and the New Borrower shall consent, to
immediate and complete relief from any automatic stay or
moratorium arising out of or related to the bankruptcy
petition and Lender shall be permitted to proceed to protect
and enforce its rights or remedies either by suit in equity
or by action at law, or both. New Borrower and Guarantor
covenant and agree to join with Lender in filing the
appropriate petitions or requests for relief required to
obtain the relief referred to herein. In addition, in the
event of any such bankruptcy, New Borrower waives its
exclusive rights under 11 U.S.C. Section 1121 to file a plan
of reorganization during the 120 day period after the date of
entry of an order for relief under chapter 11 of the United
States Bankruptcy Code and further waives any exclusive right
it may have under the United States Bankruptcy Code to secure
acceptance of any plan filed by it. New Borrower and
Guarantor hereby stipulate, acknowledge and agree that,
irrespective of the waiver herein, in any proceeding filed by
or against the New
4
<PAGE> 5
Borrower, "cause" within the meaning of 11 U.S.C. Section
1121(d) exists for reducing to zero, on the request of
Lender, the 120 day and 180 day exclusivity periods
prescribed for under 11 U.S.C. Section 1121 with respect to
the filing by the New Borrower of a plan and securing
acceptance thereof and the New Borrower shall consent and
hereby does consent to a request by Lender if it shall so
elect, of the court to a reduction of such exclusivity
periods such that in a Chapter 11 case brought by or against
the New Borrower, Lender shall have the right to file and
seek to secure acceptance of a plan of reorganization at any
time after the date of the order for relief under such
chapter, whether or not the New Borrower at any time files a
plan in such proceeding. No provision hereof shall preclude
the New Borrower from filing a plan of reorganization under
chapter 11 of the United States Bankruptcy Code.
4.4 New Borrower and Guarantor acknowledge that Lender has been
induced to enter into this Agreement because New Borrower and
Guarantor have represented to Lender, and Lender agrees, that
the interests of all parties hereto and the other creditors
of New Borrower shall be best served without Bankruptcy Court
proceedings. Accordingly, the parties hereto have bargained
in good faith for the terms of the forbearance and
conditional waiver contained herein and New Borrower and
Guarantor agree that the filing of any Chapter 11 Bankruptcy
Petition with respect to New Borrower would be in bad faith,
and in abrogation of this Agreement and should be deemed to
have been so filed by the Bankruptcy Court, justifying
dismissal of such bankruptcy case or proceeding, or
enforcement of the relief from stay and waiver of exclusivity
provisions set forth above, and further, justifying
enforcement of the bankruptcy guarantee executed and
delivered concurrently with this Agreement by Guarantor.
Nothing in this Agreement shall be deemed in any way to limit
or restrict any of Lender's rights to seek in Bankruptcy
Court or any other court of competent jurisdiction, any
relief Lender may deem appropriate in the event that a
voluntary or involuntary petition under any title of the
United States Bankruptcy Code is filed by or against New
Borrower.
5. Release
New Borrower and Guarantor hereby release Lender and its employees,
agents and counsel from all claims, losses, damages and expenses,
including but without limitation reasonable attorneys fees, arising
out of or relating to the Loan, Lender's administration of the Loan
and negotiation of this Agreement.
6. Inducements
As an inducement for Lender to enter into this Agreement, New Borrower has paid
to Lender the sum of $300,000.00 to be used to reduce the outstanding principal
under the Loan, and has agreed to reimburse Lender for all of its reasonable
attorneys fees and other costs associated with the Loan through this date, both
of which sums have been paid to Lender concurrent with the execution of this
5
<PAGE> 6
Agreement. As a further inducement for Lender to enter into this Agreement, New
Borrower and Guarantor represent, warrant and state to Lender the following:
6.1 The Loan Documents constitute the valid, legal and binding
obligations of the New Borrower and Guarantor, as applicable,
which are enforceable in accordance with their terms; and the
liens and security interests of the security documents
comprising the Loan Documents are valid and substituting
liens and interests against the collateral described therein,
first in priority of title, except for matters disclosed in
that certain Loan Policy of Title Insurance No. 36 0138 010
00004177 issued by Chicago Title Insurance Company to Lender.
6.2 There are no claims, causes of action, defenses or rights of
setoff against Lender with respect to the Loan Documents by
either of them.
6.3 Except for the defaults acknowledged in Section 2 hereof, the
New Borrower and Guarantor are currently not in default under
the Loan Documents and have fully performed all of their
respective duties and obligations thereunder through and
including the effective date of this Agreement. Furthermore,
Lender currently is entitled to enforce all of its rights and
remedies against New Borrower and Guarantor under the Loan
Documents as a result of the defaults acknowledged in Section
2 hereof.
6.4 This Agreement and the consummation of the transaction
contemplated hereby constitute the valid, enforceable and
binding obligation of the New Borrower and Guarantor,
respectively.
6.5 Neither the execution of this Agreement nor the consummation
of any of the transactions contemplated hereby will
constitute a violation of, be in conflict with, or constitute
a default under (or with the passage of time or delivery of
notice, or both), or will constitute a default under any term
or provision of any Agreement which the New Borrower or
Guarantor is a party to or bound by.
6.6 Concurrent with the signature and delivery of this Agreement
by the parties hereto, the New Borrower owns full, absolute
and complete title to the Property, subject to the lien of
the security documents comprising the Loan Documents and the
fee simple or reversionary interest of Phillip E. Stephens,
Trustee, under the Restaurant Lease.
6.7 Lender has acted at all times in a fair, reasonable, good
faith manner in connection with its administration and
enforcement of the Loan Documents, its dealings with the
parties hereto with respect to the Loan, and all other
transactions related to this Agreement or the Loan.
6
<PAGE> 7
6.8 New Borrower has adopted the necessary resolution to enter
into this Agreement and its signatory to this Agreement is
authorized to execute the same and is in good standing with
New Borrower.
6.9 A true, correct and complete copy of the loan documentation
evidencing the Mall of America Financing is attached as
Schedule 6.9 hereto, and there are no modifications or
amendments thereto.
6.10 A true, correct and complete copy of the Mall of America
Lease is attached as Schedule 6.10 hereto, and there are no
amendments or modifications thereto.
6.11 The Mall of America Financing is in full force and effect,
New Borrower has received all loan proceeds therefrom and has
used the same in the ordinary course of New Borrower's
business.
6.12 The Mall of America Lease is in full force and effect and
there is no default thereunder by New Borrower.
6.13 The Tenant Finish shall be used in New Borrower's ordinary
course of business.
6.14 A true, correct and complete copy of the lease transaction of
New Borrower with respect to its restaurant to be located in
Denver, Colorado is attached hereto as Schedule 6.14, and
there are no amendments or modifications thereto.
6.15 New Borrower promptly shall file all documentation with the
Ohio Secretary of State necessary to reflect New Borrowers'
current name in its conduct of business in the State of Ohio,
and shall furnish Lender with a certified copy of a name
change certificate therefrom. Borrower further shall promptly
reimburse Lender for all fees and expenses incurred in the
filing of a U.C.C. Financing Statement with the Ohio
Secretary to reflect said name change.
6.16 All of the representations, warranties and other undertakings
of New Borrower and Guarantor, respectively, contained in the
Loan Documents, except as expressly modified herein, are
restated and made effective as of the date of this Agreement.
7. Notices
Notices to the parties hereto under the Loan Documents shall be sent in the
manner set forth in the Loan Agreement at the following addresses:
7
<PAGE> 8
If to Lender: PNC Bank, National Association 201 East 5th
Street Cincinnati, Ohio 45201-1198 Attn:
Katherine Herke Nickel
with copy to: Frost & Jacobs LLP
2500 PNC Center
201 East Fifth Street
Cincinnati, Ohio 45201 Attn: Frederick W.
Kindel
If to New Borrower: Cafe Odyssey, Inc.
4801 West 81st Street
Suite 112
Bloomington, Minnesota 55437 Attn: Ronald
K. Fuller
with copy to: Maslon Edelman Borman & Brand 3300 Norwest
Center 90 South Seventh Street Minneapolis,
Minnesota 55402-4140 Attn: William M.
Mower, P.A.
If to Guarantor: Stephen D. King
8260 North Creek Drive, Suite 140
Cincinnati, Ohio 43235
with copy to: Maslon Edelman Borman & Brand 3300 Norwest
Center 90 South Seventh Street Minneapolis,
Minnesota 55402-4140 Attn: William M.
Mower, P.A.
8. Consent to Jurisdiction; Waiver of Jury Trial
This Agreement has been executed, delivered and accepted at and will
be deemed to be made at Cincinnati, Ohio and will be interpreted and
the rights and liabilities of the party hereto determined in
accordance with the laws of the State of Ohio, and the New Borrower
and Guarantor hereby agree that the exclusive jurisdiction of any
state or federal court located within Hamilton County, Ohio and
consents that all service of process to New Borrower and Guarantor
shall be sent in the manner set forth in the Loan Agreement to the
addresses set forth in Section 7 hereof. Nothing contained herein will
prevent the Lender from bringing any action or exercising any right
against any property of the New Borrower within any other
8
<PAGE> 9
state or nation to enforce any award of judgment obtained in the
federal or state court located within Hamilton County, Ohio. The New
Borrower and Guarantor waive any objection based on forum
non-conveniens and any objection to venue or any other action
instituted hereunder. The New Borrower and Guarantor and the Lender
each waive any right to trial by jury in any action or proceeding
related to this Agreement, the Loan Documents or any transaction
contemplated in any such documents.
9. Miscellaneous
This Agreement may be executed in counterparts. This Agreement,
together with the Loan Documents, contain the entire agreement among
the parties hereto and supersedes all discussions, communications,
documents and other matters furnished among the parties hereto or
their counsel. The Agreement shall be included in the definition of
"Loan Documents" as used herein. Notwithstanding anything contained
herein to the contrary, the liens and security interest of the
Security Documents comprised in the Loan Documents shall retain their
original priority of title. In the event one or more provisions
contained in this Agreement shall for any reason be held invalid,
legal or unenforceable, in any respect, such invalidity, legality or
unenforceability shall not affect any other provision of this
Agreement.
10. Confession of Judgment. Any attorney-at-law may appear in any court of
record situated in the county where either New Borrower or Guarantor
then resides or conducts business, or in the county where New Borrower
signed this warrant, or in any other court in the State of Ohio or in
any other state or territory of the United States, at any time after
the debt hereby evidenced shall become due, either at its stated
maturity or by acceleration or otherwise, and may waive the issuing
and service of process and confess judgment against New Borrower,
jointly and severally, in favor of Lender, for the amount then owing
herein, together with the costs of suit, and thereupon release all
errors and waive all rights of appeal and stays of execution. No such
judgment or judgments against less than all of the undersigned shall
be a bar to a subsequent judgment or judgments against any one or more
or the undersigned against whom judgment has not been obtained hereon,
this being a joint and several warrant of attorney to confess
judgment.
9
<PAGE> 10
Executed as of July 23, 1998.
================================================================================
WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
================================================================================
NEW BORROWER:
CAFE ODYSSEY, INC. F/K/A
HOTEL DISCOVERY, INC.
By: /s/ Stephen D. King
Print Name: Stephen D. King
Title: Chairman
10
<PAGE> 11
================================================================================
WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
================================================================================
GUARANTOR:
By: /s/ Stephen D. King
Print Name: STEPHEN D. KING
APPROVED AND AGREED:
LENDER:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Lawrence Reynolds
Title: Vice President
STATE OF MINNESOTA )
) SS:
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me, a notary public,
this 23rd day of July, 1998 by Stephen D. King, the Chairman of CAFE ODYSSEY,
INC. F/K/A HOTEL DISCOVERY, INC., a Minnesota corporation.
/s/ William M. Mower Notary Public
11
<PAGE> 12
STATE OF MINNESOTA )
) SS:
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me, a notary public,
this 23rd day of July, 1998 by STEPHEN D. KING, a resident of Ohio.
/s/ William M. Mower
Notary Public
STATE OF OHIO )
) SS:
COUNTY OF HAMILTON )
The foregoing instrument was acknowledged before me, a notary public,
this 24th day of July, 1998 by Lawrence Reynolds, a Vice President of PNC BANK,
NATIONAL ASSOCIATION, a national banking association, on behalf of such
association.
/s/ Frederick W. Kindel
Notary Public
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS FORM 10-QSB, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> MAR-30-1998
<PERIOD-END> JUN-28-1998
<CASH> 2,552,161
<SECURITIES> 0
<RECEIVABLES> 1,600,000
<ALLOWANCES> 0
<INVENTORY> 122,381
<CURRENT-ASSETS> 4,718,743
<PP&E> 12,228,598
<DEPRECIATION> (948,141)
<TOTAL-ASSETS> 16,373,404
<CURRENT-LIABILITIES> 4,053,802
<BONDS> 678,892
0
0
<COMMON> 80,001
<OTHER-SE> 9,795,487
<TOTAL-LIABILITY-AND-EQUITY> 16,373,404
<SALES> 1,195,676
<TOTAL-REVENUES> 1,195,676
<CGS> 343,587
<TOTAL-COSTS> 2,747,059
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (10,669)
<INCOME-PRETAX> (1,540,714)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,540,714)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,540,714)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
