<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A NO. 2
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-23243
CAFE ODYSSEY, INC.
(Name of Small Business Issuer in its Charter)
MINNESOTA 31-1487885
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4801 W. 81ST STREET, SUITE 112 55437
BLOOMINGTON, MN 55437 (Zip Code)
(Address of principal executive offices)
612-837-9917
(Issuer's telephone number, including area code)
Securities Registered Under Section 12(b) of the Exchange Act:
NONE
Securities Registered Under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.01
CLASS A WARRANTS TO PURCHASE ONE SHARE OF COMMON
STOCK UNITS, CONSISTING OF ONE SHARE OF COMMON STOCK AND
ONE CLASS A WARRANT
(Title of each class)
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The Issuer had total revenues of $6,932,891 for its fiscal year ended January 3,
1999.
As of April 2, 1999, the aggregate market value of the voting and non-voting
common equity held by non-affiliates (assuming for these purposes, but not
conceding, that all executive officers and directors are "affiliates" of the
Issuer) of the Issuer was $5,558,588 based upon the last reported sale price in
the Nasdaq SmallCap Market on April 2, 1999 of $0.81 per share.
As of January 3, 1999, the number of shares outstanding of the Issuer's Common
Stock was 8,000,089.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
1
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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 1999 and 2000, 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-KSB, 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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2
<PAGE> 3
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The following persons currently serve the Company as executive officers
and/or members of its Board of Directors. Each director has consented to serve
an additional term, if elected at the Company's next annual meeting of
shareholders.
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE COMPANY AGE DIRECTOR SINCE
- ---- -------------------------- --- --------------
<S> <C> <C> <C>
Stephen D. King Chairman of the Board, Chief Executive 42 1994
Officer and Chief Financial Officer
Ronald K. Fuller President, Chief Operating Officer 54 1997
and Director
Michael L. Krienik Director 46 1997
Thomas W. Orr Director 54 1997
Jerry L. Ruyan Director 52 1998
</TABLE>
Stephen D. King is the Chairman of the Board of the Company and a
managing partner of BaryCenter Capital Management, a Cincinnati-based financial
advisor and investment firm. Mr. King has also served as the Company's Chief
Executive Officer from its inception until February 1998 and from April 2, 1999
to the present and as Chief Financial Officer from October 31, 1998 to the
present. From 1982 to 1990, Mr. King served in various capacities, including
Chief Executive Officer, of Pizza Hut of Cincinnati, Inc., which operates 36
Pizza Hut restaurants in the Cincinnati, Ohio area. Mr. King has also served in
various capacities with Long John Silver, Two Pesos and Skyline Chili franchise
operations. Mr. King also has extensive real estate and financing expertise and,
from 1991 to 1994, served as managing partner of a real estate development
partnership with properties valued at approximately $60 million.
Ronald K. Fuller joined the Company as President and Chief Operating
Officer in January 1997. He also served as Chief Executive Officer of the
Company from February through April 1, 1999. Mr. Fuller had served since 1993 as
President and Chief Executive Officer for Leeann Chin, Inc., Minneapolis,
Minnesota. From 1985 to 1993, Mr. Fuller held several executive positions with
General Mills, Inc. and General Mills Restaurants, Inc. in Minneapolis and
Orlando, Florida, including Vice President - Operations, Executive Vice
President - New Concept Development, and President/General Manager.
Michael L. Krienik became a director of the Company in September 1997
and is President of Krienik Advertising Inc., Cincinnati, Ohio, a full-service
advertising agency which he founded in 1981. Prior to founding his own
advertising agency, Mr. Krienik served in various merchandising/management roles
with Federated Department Stores from 1973 to 1977 and then served as the
National Advertising Manager for U.S. Shoe Corporation from 1977 to 1981.
Thomas W. Orr became a director of the Company in September 1997 and
has been a Senior Consultant since 1995 for the Delta Consulting Group,
Trumbull, Connecticut, specializing in business strategy, new business
development, marketing and sales. From 1994 to 1995, Mr. Orr was President of
the retail chicken group of ConAgra Broiler Company, with responsibility for
strategic direction, operations of five plants, sales, marketing, international
and commodity businesses. Mr. Orr had previously been associated with ConAgra
Broiler Company from 1991 to 1993 as Vice President of Sales and Vice President
of Marketing. From 1993 to 1994, Mr. Orr served as Senior Vice President for
Jennie-O Foods, Inc., a subsidiary of Hormel Foods, with responsibility for
strategy development, marketing and sales for the retail, food service and
commodity divisions.
Jerry L. Ruyan has been a director of the Company since October 1998.
Mr. Ruyan co-founded and has been a partner of Redwood Venture Group Ltd., a
venture capital company based in Cincinnati, Ohio, since January 1996. Mr. Ruyan
is a director of Meridian Diagnostics, Inc., which develops diagnostic test
products for the global medical industry, which company he founded in 1977 and
for which he served as President and Chief Executive Officer from 1977 to
January 1996. He is also a director of Frisch's Restaurants, Inc., which
operates and licenses family restaurants and hotels with restaurants, and a
director of Meritage Hospitality Group, Inc., a Wendy's restaurant franchisee
based in Grand Rapids, Michigan.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and Nasdaq. Officers, directors and greater than ten per
cent shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the year ended January 3, 1999 all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten per cent
beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for
each of the last three fiscal years awarded to or earned by each executive
officer of the Company whose salary and bonus during the year ended January 3,
1999 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
-----------------
Annual Compensation Awards
-------------------------------------------- -----------------
Other Annual Common Stock
Salary Bonus Compensation Underlying Options
Name and Principal Position Year ($) ($) ($) (#)
--------------------------- ---- ------- ------ --------------- ------------------
<S> <C> <C> <C> <C> <C>
Stephen D. King (1) 1998 200,000 -- -- --
Chairman of the Board, 1997 83,333 70,000 -- --
Chief Executive Officer and 1996 -- -- -- --
Chief Financial Officer
Ronald K. Fuller 1998 200,000 90,000 35,000(2) 308,333(3)
President and Chief 1997 146,154 50,000 61,733(4) 308,333
Operating Officer 1996 -- -- -- --
Anne D. Huemme (5) 1998 125,000 -- 5,000 (6) 33,333 (3)
1997 -- -- -- 100,000
</TABLE>
(1) Mr. King assumed the title of Chief Financial Officer on October 30,
1998 and Chief Executive Officer on April 2, 1999.
(2) Includes $15,000 car allowance and $20,000 cafeteria plan benefits.
(3) Reflects options which were repriced. See "Ten-Year Option/SAR
Repricings" below.
(4) Includes $33,333 in consulting fees paid to Mr. Fuller before he became
an employee, $8,400 car allowance and $20,000 cafeteria plan benefits.
(5) Ms. Huemme relinquished the titles of Vice President - Finance and
Chief Financial Officer on October 30, 1998 and her employment was
terminated on December 24, 1998.
(6) Car allowance.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to any of the executive officers named in
the Summary Compensation Table during the fiscal year ended January 3, 1999. An
option was granted to Anne Huemme to purchase 100,000 shares during fiscal 1997
at an exercise price of $3.00 per share. The market price of the shares was
$3.00 on the date of grant. This grant represented 15.8% of options granted to
employees during fiscal 1997. The option originally expired on January 15, 2007.
The options vest ratably on the first, second and third anniversaries of the
date of grant. Ms. Huemme relinquished the titles of Vice President - Finance
and Chief Financial Officer on October 30, 1998 and her employment was
terminated on December 24, 1998. The portion of her option which vested on
January 5, 1999, to purchase 33,000 shares, was repriced to $.75 in December
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table summarizes information with respect to options held
by the persons named in the Summary Compensation Table, and the value of the
options held by such persons at the end of fiscal 1998. No options were
exercised by the executive officers named in the Summary Compensation Table
during fiscal 1998.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised in-the-
Options at FY-End(#) Money Options at FY-End ($)(1)
--------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen D. King 0 0 -- --
Ronald K. Fuller 108,333 200,000 0 0
Anne D. Huemme 0 100,000 0 0
</TABLE>
(1) The option exercise price in each case is $.75 and the last sale price
of the common stock on December 31, 1998 was $.656.
TEN-YEAR OPTION/SAR REPRICINGS
<TABLE>
<CAPTION>
Number of
Securities Market Price Exercise Length of
Underlying of Stock at Price at New Original Option
Options Time of Time of Exercise Term Remaining
Repriced Repricing Repricing Price at Date of
Name Date (#) ($) ($) ($) Repricing
- ---- ---- ---------- -------------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Stephen D. King ............ -- -- -- -- -- --
Ronald K. Fuller ........... 12/10/98 300,000 .75 3.00 .75 8 years
12/10/98 8,333 .75 3.00 .75 9 years
Anne D. Huemme ............. 12/10/98 33,333 .75 3.00 .75 9 years
</TABLE>
The Compensation Committee of the Board of Directors decided to reprice
the options enumerated above in response to a decrease in the market price of
the Company's common stock to a level which, in the opinion of the Board, had
the effect of eliminating substantially all the incentive value of such options.
The Compensation Committee concluded that short-term financial performance
considerations should not unduly influence long-term compensation strategies.
The Board believes that stock options play an extremely important role in
attracting talented executives and motivating them to perform up to their full
potential, particularly where stock options are an important component of an
executive's compensation package. Accordingly, the Board determined that a
repricing of options to current market value was both necessary and consistent
with its strategy of providing executives with tangible long-term performance
incentives.
BY THE COMPENSATION COMMITTEE
Thomas W. Orr
Michael L. Krienik
EMPLOYMENT AGREEMENTS
Ronald K. Fuller, President and Chief Operating Officer, has an
employment agreement which was renewed for another year on January 6, 1999. It
is subject to early termination for variety of reasons, including voluntary
termination by Mr. Fuller. Mr. Fuller's base salary was $200,000 for fiscal 1998
and will be $200,000 for fiscal 1999. Such base salary may be adjusted annually
as determined by the Company's Board of Directors. Such agreement also provides
that Mr. Fuller will receive one year's severance if terminated by the Company
for a reason other than "cause," as defined therein. Mr. Fuller receives
medical, dental and other customary benefits. The employment agreement provides
that Mr. Fuller will not compete with the Company for one year if he resigns or
is terminated for cause.
Mr. Fuller has an option agreement with the Company dated January 15,
1997 pursuant to which he was granted an option to purchase 300,000 shares of
common stock at an exercise price of $3.00 per share. The option agreement
provides that if Mr. Fuller is terminated without cause, all parts of the option
scheduled to vest thereafter shall immediately vest as of the date of
termination. Immediate vesting shall also occur in the event of (i) the sale in
one or more private transactions of 50% or more of the Company or (ii) a
majority of the members of the Board of Directors of the Company is replaced
within a period of less than six (6) months by directors not nominated and
approved by the Board. The option is currently unvested as to 200,000 shares.
Anne D. Huemme, who served as Vice President - Finance and Chief
Financial Officer from January 5, 1998 through October 30, 1998, had a
three-year employment agreement which expired on January 5, 2001, subject to
early termination for a variety of reasons. Ms. Huemme's employment with the
Company has been terminated as of December 24, 1998. Ms. Huemme received a base
salary of $130,000 during her first year of employment. The agreement also
provided that Ms. Huemme would receive six months' severance if terminated by
the Company for a reason other than cause. The agreement provided that Ms.
Huemme would not compete with the Company for one year if she resigned or were
terminated for cause.
In addition to the options referred to above, the Company granted an
option to purchase 8,333 shares to Mr. Fuller and an option to purchase 100,000
shares to Ms. Huemme in fiscal 1997 pursuant to the Company's 1997 Stock Option
and Compensation Plan (the "1997 Plan"). The 1997 Plan provides that such
options will become immediately exercisable if any of the following events occur
unless otherwise determined by the Board and a majority of the Continuing
Directors (as defined below): (1) any person or group of persons becomes the
beneficial owner of 30% or more of any equity security of the Company entitled
to vote for the election of directors; (2) a majority of the members of the
Board is replaced within a period of less than two years by directors not
nominated and approved by the Board; or (3) the stockholders approve an
agreement to merge or consolidate with or into another corporation or an
agreement to sell or otherwise dispose of all or substantially all of the
Company's assets. "Continuing Directors" are directors: (a) who were in office
prior to the time any of (1), (2) or (3) above occurred or any person publicly
announced an intention to acquire 20% or more of any equity security of the
Company, (b) directors in office for a period of more than two years, or (c)
directors nominated and approved by the Continuing Directors.
The Company intends to retain other management employees or consultants
pursuant to employment or consulting agreements. The Company intends to offer
stock options to such employees or consultants.
DIRECTOR COMPENSATION
Non-management directors each receive a ten-year option to purchase
25,000 shares of common stock when they became members of the Board. One-third
of each option vests on each of the first, second and third anniversaries of the
date of grant. Members of the Board who are also employees of the Company
receive no options for their services as directors.
A ten-year option to purchase 25,000 shares at an exercise price of
$1.438 was granted to Greg Mosher when he became a member of the Board on
September 18, 1998. Mr. Mosher resigned from the Board on October 30, 1998. A
ten-year option to purchase 25,000 shares at an exercise price of $.75 was
granted to Jerry Ruyan when he became a member of the Board on October 30, 1998.
On May 22, 1998, ten-year options to purchase 5,000 shares were granted
to each of Thomas Orr and Michael Krienik in lieu of compensation for their
service on the Audit Committee, and ten-year options to purchase 5,000 shares
were granted to each of Mr. Orr and Martin O'Dowd for service on the
Compensation Committee. All of the options had exercise prices of $4.50 per
share. On December 10, 1998, the options were repriced to $.75 per share.
Messrs. Krienik, O'Dowd and Orr each received ten-year options to
purchase 25,000 shares when they became members of the Board in 1997. The
options granted to Messrs. Orr and Krienik had an exercise price of $3.34 a
share and the options granted to Mr. O'Dowd had an exercise price of $3.75 a
share. On December 10, 1998, all of the options were repriced to $.75 per share.
Mr. O'Dowd resigned from the Board on February 15, 1999.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has outstanding one class of voting securities, common
stock, $.01 par value, of which 8,280,102 shares were outstanding as of the
close of business on April 9, 1999. Each share of common stock is entitled to
one vote on all matters put to a vote of shareholders. The following table sets
forth certain information regarding beneficial ownership of the Company's common
stock, by (i) each person known by the Company to be the beneficial owner of
more than 5% of the outstanding common stock, (ii) each director, (iii) each
executive officer named in the Summary Compensation Table, and (iv) all
executive officers and directors as a group. Unless otherwise indicated, each of
the following persons has sole voting and investment power with respect to the
shares of common stock set forth opposite their respective names.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT OF CLASS
------------------------------------------------- -------- ----------------
<S> <C> <C>
Stephen D. King.................................. 1,543,243 (2) 17.3%
Ronald K. Fuller................................. 253,878 (3) 3.0%
Mark D. Dacko.................................... 0 --
Michael L. Krienik............................... 19,999 (4) *
115 W. 9th Street
Cincinnati, OH 45202
Thomas W. Orr.................................... 21,666 (5) *
3440 W. Pepperwood Loop
Tucson, AZ 85742
Jerry L. Ruyan................................... 511,750 (6) 6.0%
10260 Alliance Road, Suite 350
Cincinnati, OH 45242
Perkins Capital Management, Inc.................. 464,100 (7) 5.6%
730 East Lake Street
Wayzata, MN 55391
All executive officers and directors
as a group (six persons)....................... 2,350,536 (8) 25.2%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each person is 4801 West
81st Street, Suite 112, Bloomington, MN 55437.
(2) Includes 165,743 shares as to which Mr. King holds options to purchase
from various individuals which are currently exercisable and 477,500
shares issuable upon exercise of warrants which are currently
exercisable.
(3) Includes 108,333 shares issuable upon exercise of options exercisable
currently or within 60 days of the Record Date. Also includes 1,000
shares owned and 1,000 shares issuable upon exercise of warrants owned
by Mr. Fuller's wife, and 2,000 shares owned and 2,000 shares issuable
upon exercise of warrants owned by his children. Mr. Fuller disclaims
beneficial ownership of such shares.
(4) Represents shares issuable upon exercise of options exercisable
currently or within 60 days of the Record Date.
(5) Includes 11,666 shares issuable upon exercise of options exercisable
currently or within 60 days of the Record Date.
(6) Includes 276,000 shares issuable upon exercise of options and warrants
exercisable currently or within 60 days of the Record Date.
(7) Figures based on a Schedule 13G filed with the SEC on February 4, 1999.
(8) Includes 1,062,241 shares issuable upon exercise of options and
warrants exercisable currently or within 60 days of the Record Date.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In September 1998, the Company entered into a $3,000,000 revolving line
of credit facility with The Provident Bank. This credit facility is secured by
the leasehold improvements of the Company's Hotel Discovery restaurant in
Cincinnati, Ohio (the "Kenwood Restaurant"). In addition, Stephen King, Jerry
Ruyan and Greg Mosher, directors of the Company (Mr. Mosher has since resigned
as a director), entered into a joint and several guaranty of the first
$1,000,000 of the Company's borrowings under this credit facility. In
consideration of these guarantees, the Company issued 40,000 five-year warrants
to each of these individuals at an exercise price of $0.75 per share in November
1998. Messrs. King and Ruyan also each severally guaranteed another $500,000,
and in January 1999 a stockholder of the Company severally guaranteed another
$1,000,000, of such borrowings. All three guarantors pledged certain collateral
to the bank in connection with the latter guarantees. In exchange for such
guarantees and pledges of collateral, the Company issued 200,000 five-year
warrants to each of Messrs. King and Ruyan in November 1998, and 400,000
five-year warrants to the other third party in January 1999, all at an exercise
price of $0.75 per share. The Board of Directors of the Company also authorized
the issuance of additional warrants and the payment of cash penalties to the
three guarantors if the borrowings are not repaid in full by September 30, 1999.
This credit facility provides for monthly payments of interest accrued on the
outstanding unpaid principal balance at a rate equal to the Prime Rate, or 7.75%
as of January 3, 1999. As of April 2, 1999, the Company has borrowed $3,000,000
under this credit facility.
Mr. King personally guaranteed a $1,000,000 leasehold mortgage term
loan from PNC Bank, Ohio to the Company which was used for the Kenwood
Restaurant. Principal and interest were due monthly through February 1999, the
final maturity of the loan. The loan was repaid in full in September 1998 with
proceeds from the line of credit facility with The Provident Bank discussed in
the preceding paragraph.
On March 10, 1999, the Company entered into a promissory note for
$825,000 with BankWindsor. The note is an unsecured revolving line of credit
facility which requires interest payments only. The note is due March 10, 2000.
The note is secured by personal guarantees, including a guarantee by Stephen
King of $175,000 of the indebtedness, and the Company issued five-year warrants
to purchase a total of 500,000 shares at $.75 a share to the guarantors in
consideration of the guarantees. Of these warrants, Mr. King received a warrant
to purchase 87,500 shares.
In March 1999, The Provident Bank loaned $962,500 to Mr. King, which
funds were pledged by Mr. King to Cuningham Group Construction Services, LLC to
secure a portion of the Company's indebtedness to Cuningham in connection with
the construction of the Company's restaurant in Denver, Colorado. The loan bears
interest at Provident's prime rate and matures on June 30, 1999. The Company
guaranteed Mr. King's indebtedness to Provident and also pledged to Provident
its leasehold interest in the Denver restaurant and its right to receive the
$962,500 balance of the tenant improvement allowance from the landlord of the
Denver restaurant. The loan will be repaid in connection with the landlord's
release of the tenant improvement allowance. In consideration of his borrowing
such funds and pledging the cash collateral, the Company issued a five-year
warrant to Mr. King to purchase 150,000 shares of common stock at an exercise
price of $1.00 per share.
Mr. King provided essentially all of the Company's working capital in
the development stage. At January 3, 1999, the maximum and outstanding amount of
the Company's indebtedness to Mr. King was $100,000. On April 21, 1999, Mr. King
made a $200,000 unsecured loan to the Company which is due on demand. The loan
bears interest at an annual rate of 18%.
During 1998, Krienik Advertising, Inc., an Ohio corporation whose
President, Chief Executive Officer and sole shareholder is Michael Krienik, a
director of the Company, provided marketing and advertising services to the
Company. Fees paid for these services, including payments for subcontracted
media, printing, production and research services, were $741,077 during 1998.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(A) EXHIBITS
1.1 Form of Underwriting Agreement (with form of Underwriter's
Warrant) (incorporated herein by reference to Exhibit 1.1 to
the Company's Registration Statement on Form SB-2 as filed on
August 22, 1997, as amended (File No. 333-34235)) (the "1997
SB-2")
3.1 Articles of Incorporation, as amended (incorporated herein by
reference to Exhibit 3 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended June 28, 1998 (the "2Q98
10-QSB")).
3.2 By-laws (incorporated herein by reference to Exhibit 3.2 to
the 1997 SB-2)
4 Form of Warrant Agreement (incorporated herein by reference to
Exhibit 4 to the 1997 SB-2)
10.1 Indenture of Lease dated November 9, 1994 between Phillip E.
Stephens, Trustee and Kenwood Restaurant, Inc.; First
Amendment to Lease dated May 3, 1995 by and between Phillip E.
Stephens, Trustee and Kenwood Restaurant, Inc.; by Second
Amendment to Lease dated , 1996 between Phillip E.
Stephens, Trustee and Kenwood Restaurant Limited Partnership;
Second Amendment to Agreement dated October 18, 1996 between
Phillip E. Stephens, Trustee and Kenwood Restaurant Limited
Partnership; and Addendum to Second Amendment to Lease dated
October 18, 1996 between Phillip E. Stephens, Trustee and
Kenwood Restaurant Limited Partnership (Kenwood Restaurant)
(incorporated herein by reference to Exhibit 10.1 to the 1997
SB-2)
10.2 Lease dated August 4, 1997 between Mall of America Company and
Hotel Mexico, Inc. (Mall of America Restaurant) (incorporated
herein by reference to Exhibit 10.2 to the 1997 SB-2)
10.3 Loan Agreement dated October 9, 1996 by and among Kenwood
Restaurant Limited Partnership and PNC Bank, Ohio, National
Association (incorporated herein by reference to Exhibit 10.3
to the 1997 SB-2)
10.4 1997 Stock Option and Compensation Plan (incorporated herein
by reference to Exhibit 10.4 to the 1997 SB-2)
10.5 Employment Agreement between the Company and Ronald K. Fuller
dated March 17, 1997 (incorporated herein by reference to
Exhibit 10.5 to the 1997 SB-2)
10.6 Amendment to 1997 Stock Option and Compensation Plan
(incorporated herein by reference to Exhibit 10.6 to the 1997
SB-2)
10.7 Second Amendment to 1997 Stock Option and Compensation Plan
(incorporated herein by reference to Exhibit 10.7 to the 1997
SB-2)
10.8 Third Amendment dated February 25, 1998 to the Company's 1997
Stock Option and Compensation Plan (incorporated herein by
reference to Exhibit 10.1 to the 2Q98 10-QSB)
10.9 First Loan Assumption Agreement dated December 31, 1996 by and
among PNC Bank, Ohio, National Association, Kenwood Restaurant
Limited Partnership, Stephen D. King, Kenwood Restaurant, Inc.
and Hotel Mexico, Inc. (incorporated herein by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 28, 1997 (the "1997 10-KSB"))
10.10 Second Loan Assumption Agreement dated October 16, 1997 by and
among PNC Bank, Ohio, National Association, Stephen D. King
and the Company (incorporated herein by reference to Exhibit
10.9 to the 1997 10-KSB)
10.11 Amendment to Loan Documents dated as of June 28, 1998 by and
among PNC Bank, Ohio, National Association, Stephen D. King
and the Company (incorporated herein by reference to Exhibit
10.3 to the 2Q98 10-QSB)
10.12 Employment Agreement between the Company and Anne D. Huemme
dated December 15, 1997 Company (incorporated herein by
reference to Exhibit 10.10 to the 1997 10-KSB)
10.13 1998 Director Stock Option Plan (incorporated herein by
reference to Exhibit 10.2 to the 2Q98 10-QSB)
10.14 Shopping Center Lease dated May 12, 1998 between Denver
Pavilions, L.P. and the Company (incorporated herein by
reference to Exhibit 10 to the Company's Current Report on
Form 8-K filed on May 27, 1998)
10.15 Open-End Leasehold Mortgage, Security Agreement and Assignment
of Rents, Income and Proceeds made as of September 23, 1998 by
the Company to The Provident Bank ("Provident") (incorporated
herein by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended September 27, 1998
(the "3Q98 10-QSB")).
10.16 Revolving Promissory Note Mortgage Loan dated September 23,
1998 between the Company and Provident (incorporated herein by
reference to Exhibit 10.2 to the 3Q98 10-QSB)
10.17 Security Agreement dated as of September 23, 1998 between the
Company and Provident (incorporated herein by reference to
Exhibit 10.3 to the 3Q98 10-QSB)
10.18 Agreement Among Guarantors dated November 16, 1998 among
Stephen D. King, Jerry L. Ruyan, Greg C. Mosher and the
Company*
10.19 Agreement Among Guarantors dated January 22, 1999 among
Stephen D. King, Jerry L. Ruyan, Andrew Green and the Company*
10.20 Warrant No. PL-1 dated November 16, 1998 to purchase 40,000
shares of common stock of the Company issued to Stephen D.
King*
10.21 Schedule identifying material details of other warrants issued
by the Company substantially identical to the warrant filed as
Exhibit 10.20*
10.22 Indemnification and Contribution Agreement dated March 3, 1999
among Michael A. Bird, John E. Feltl, Stephen D. King, Timothy
I. Maudlin, Wayne W. Mills and the Company*
10.23 Promissory Note dated March 10, 1999 of the Company to
BankWindsor*
10.24 Warrant No. BWL-1 dated March 3, 1999 to purchase 25,000
shares of common stock of the Company issued to Michael A.
Bird*
10.25 Schedule identifying material details of other warrants issued
by the Company substantially identical to the warrant filed as
Exhibit 10.24*
10.26 Warrant No. PL2-1 dated March 18, 1999 to purchase
150,000 shares of common stock of the Company issued to
Stephen D. King.
23.1 Consent of Arthur Andersen LLP*
27 Financial Data Schedule*
* Previously filed.
(B) REPORTS ON FORM 8-K
On December 8, 1998, the Company filed a report on Form 8-K relating to
its execution on November 23, 1998 of a lease agreement with Irvine
Retail Properties Company to lease approximately 18,000 square feet of
space for a Cafe Odyssey restaurant in the Irvine Spectrum Center, a
dining and entertainment destination in Irvine, California.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CAFE ODYSSEY , INC.
By: /s/ Stephen D. King
----------------------
Stephen D. King
Chief Executive Officer and
Chief Financial Officer
Date: May 3, 1999
<PAGE> 1
EXHIBIT 10.26
The Warrant and the securities issuable upon exercise of this Warrant (the
"Securities") have not been registered under the Securities Act of 1933 (the
"Securities Act") or under any state securities or Blue Sky laws ("Blue Sky
Laws"). No transfer, sale, assignment, pledge, hypothecation or other
disposition of this Warrant or the Securities or any interest therein may be
made except (a) pursuant to an effective registration statement under the
Securities Act and any applicable Blue Sky Laws or (b) if the Company has been
furnished with both an opinion of counsel for the holder, which opinion and
counsel shall be reasonably satisfactory to the Company, to the effect that no
registration is required because of the availability of an exemption from
registration under the Securities Act and applicable Blue Sky Laws, and
assurances that the transfer, sale, assignment, pledge, hypothecation or other
disposition will be made only in compliance with the conditions of any such
registration or exemption.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF CAFE ODYSSEY, INC.
WARRANT NO. PL2-1 Bloomington, Minnesota
March 18, 1999
This certifies that, for value received, STEPHEN D. KING, or his
successors or assigns ("Holder") is entitled to purchase from Cafe Odyssey, Inc.
(the "Company") One Hundred Fifty Thousand (150,000) fully paid and
nonassessable shares (the "Shares") of the Company's Common Stock, $.01 par
value (the "Common Stock"), at any time and from time to time from the date
hereof until March 18, 2004, at an exercise price of $1.00 per share (the
"Exercise Price"), subject to adjustment as herein provided.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise of Warrant.
a. Exercise for Cash. The rights represented by this Warrant may
be exercised by the Holder, in whole or in part (but not as to a fractional
share of Common Stock), by the surrender of this Warrant (properly endorsed, if
required, at the Company's principal office in Bloomington, Minnesota, or such
other office or agency of the Company as the Company may designate by notice in
writing to the Holder at the address of such Holder appearing on the books of
the Company at any time within the period above named), and upon payment to it
by certified check, bank draft or cash of the purchase price for such Shares.
The Company agrees that the Shares so purchased shall have and are deemed to be
issued to the Holder as the record owner of such Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such Shares as aforesaid. Certificates for the Shares of Common
Stock so purchased shall be delivered to the Holder within a reasonable time,
not exceeding ten (10) days, after the rights represented by this Warrant shall
have been so exercised, and, unless this Warrant has expired, a new Warrant
representing the number of Shares, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the Holder within
such time. The Company may require that any such new Warrant or any certificate
for Shares purchased upon the exercise hereof bear a legend substantially
similar to that which is contained on the face of this Warrant.
b. Cashless Exercise. Upon receipt of a notice of cashless
exercise, the Company shall deliver to the Holder (without payment by the Holder
of any exercise price) that number of Shares
<PAGE> 2
that is equal to the quotient obtained by dividing (x) the value of the Warrant
on the date that the Warrant shall have been surrendered (determined by
subtracting the aggregate exercise price for the Shares in effect on the
Exercise Date from the aggregate Fair Market Value (hereinafter defined) for the
Shares by (y) the Fair Market Value of one share of Common Stock. A notice of
"cashless exercise" shall state the number of Shares as to which the Warrant is
being exercised. "Fair Market Value" for purposes of this Section (b) shall mean
the average of the Common Stock closing prices reported by the principal
exchange on which the Common Stock is traded, or the last sale prices as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq") National Market or SmallCap Market, as the case may
be, for the ten (10) business days immediately preceding the Exercise Date or,
in the event no public market shall exist for the Common Stock at the time of
such cashless exercise, Fair Market Value shall mean the fair market value of
the Common Stock as the same shall be determined in the good faith discretion of
the Board of Directors, after full consideration of all factors then deemed
relevant by such Board in establishing such value, including by way of
illustration and not limitation, the per share purchase price of Common Stock or
per security convertible into one share of Common Stock of the most recent sale
of shares of Common Stock or securities convertible into Common Stock by the
Company after the date hereof all as evidenced by the vote of a majority of the
directors then in office.
2. Transferability of this Warrant. This Warrant is issued upon the
following terms, to which each Holder consents and agrees:
a. Until this Warrant is transferred on the books of the Company,
the Company will treat the Holder of this Warrant registered as such on
the books of the Company as the absolute owner hereof for all purposes
without being affected by any notice to the contrary.
b. This Warrant may not be exercised, and this Warrant and the
Shares underlying this Warrant shall not be transferable, except in
compliance with all applicable state and federal securities laws,
regulations and orders, and with all other applicable laws, regulations
and orders.
c. The Warrant may not be transferred, and the Shares underlying
this Warrant may not be transferred, without the Holder obtaining an
opinion of counsel satisfactory in form and substance to the Company's
counsel stating that the proposed transaction will not result in a
prohibited transaction under the Securities Act of 1933, as amended
("Securities Act"), and applicable Blue Sky laws. By accepting this
Warrant, the Holder agrees to act in accordance with any conditions
reasonably imposed on such transfer by such opinion of counsel.
d. Neither this issuance of this Warrant nor the issuance of the
Shares underlying this Warrant have been registered under the
Securities Act.
3. Certain Covenants of the Company. The Company covenants and agrees
that all Shares which may be issued upon the exercise of the rights represented
by this Warrant, upon issuance and full payment for the Shares so purchased,
will be duly authorized and issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue hereof, except those that
may be created by or imposed upon the Holder or its property, and without
limiting the generality of the foregoing, the Company covenants and agrees that
it will from time to time take all such actions as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the effective purchase price per share of the Common Stock issuable
pursuant to this Warrant. The
2
<PAGE> 3
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved free of preemptive or other rights for the
exclusive purpose of issue upon exercise of the purchase rights evidenced by
this Warrant, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant.
4. Adjustment of Exercise Price and Number of Shares. The Exercise
Price and number of Shares are subject to the following adjustments:
a. Adjustment of Exercise Price for Stock Dividend, Stock Split or
Stock Combination. In the event that (i) any dividends on any class of
stock of the Company payable in Common Stock or securities convertible
into or exercisable for Common Stock ("Common Stock Equivalents") shall
be paid by the Company, (ii) the Company shall subdivide its then
outstanding shares of Common Stock into a greater number of shares, or
(iii) the Company shall combine its outstanding shares of Common Stock,
by reclassification or otherwise, then, in any such event, the Exercise
Price in effect immediately prior to such event shall (until adjusted
again pursuant hereto) be adjusted immediately after such event to a
price (calculated to the nearest full cent) determined by dividing (a)
the number of shares of Common Stock outstanding immediately prior to
such event, multiplied by the then existing Exercise Price, by (b) the
total number of shares of Common Stock outstanding immediately after
such event, and the resulting quotient shall be the adjusted Exercise
Price per share. No adjustment of the Exercise Price shall be made if
the amount of such adjustment shall be less than $.05 per share, but in
such case any adjustment that would otherwise be required then to be
made shall be carried forward and shall be made at the time and
together with the next subsequent adjustment which, together with any
adjustment or adjustments so carried forward, shall amount to not less
than $.05 per share.
b. Adjustment of Exercise Price for Dilutive Common Stock
Issuances. If at any time prior to the exercise of this Warrant in full
but following the date on which no Guarantees by the original Holder of
indebtedness of the Company to BankWindsor are still outstanding, the
Company shall (i) issue or sell any Common Stock Equivalents without
consideration or for consideration per share (in cash, property or
other assets) less than the Exercise Price per share on the date of
such issuance or sale or (ii) fix a record date for the issuance of
subscription rights, options or warrants to all holders of Common Stock
entitling them to subscribe for or purchase Common Stock (or Common
Stock Equivalents) at a price (or having an exercise or conversion
price per share) less than the Exercise Price on the record date
described below, the Exercise Price shall be adjusted so that the
Exercise Price shall equal the price determined by multiplying the
Exercise Price in effect immediately prior to the date of such sale or
issuance (which date in the event of distribution to shareholders shall
be deemed to be the record date set by the Company to determine
shareholders entitled to participate in such distribution) by a
fraction, the numerator of which shall be (i) the number of shares of
Common Stock outstanding on the date of such sale or issuance, plus
(ii) the number of additional shares of Common Stock which the
aggregate consideration received by the Company upon such issuance or
sale (plus the aggregate of any additional amount to be received by the
Company upon the exercise of such subscription rights, options or
warrants) would purchase at such current market price per share of the
Common Stock; and the denominator of which shall be (i) the number of
shares of Common Stock outstanding on the date of such issuance or
sale, plus (ii) the number of additional shares of Common Stock offered
for subscription or purchase (or into which the
3
<PAGE> 4
Common Stock Equivalents so offered are exercisable or convertible).
Any adjustments required by this paragraph shall be made immediately
after such issuance or sale or record date, as the case may be. Such
adjustments shall be made successively whenever such event shall occur.
c. Adjustment of Number of Shares Purchasable on Exercise of
Warrants. Upon each adjustment of the Exercise Price pursuant to this
Section, the Holder shall thereafter (until another such adjustment) be
entitled to purchase at the adjusted Exercise Price the number of
shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in such Warrant (as adjusted as a result
of all adjustments in the Exercise Price in effect prior to such
adjustment) by the Exercise Price in effect prior to such adjustment
and dividing the product so obtained by the adjusted Exercise Price.
d. Notice as to Adjustment. Upon any adjustment of the Exercise
Price and any increase or decrease in the number of shares of Common
Stock purchasable upon the exercise of the Warrant, then, and in each
such case, the Company within thirty (30) days thereafter shall give
written notice thereof, by first class mail, postage prepaid, addressed
to each Holder as shown on the books of the Company, which notice shall
state the adjusted Exercise Price and the increased or decreased number
of shares purchasable upon the exercise of the Warrants, and shall set
forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
e. Effect of Reorganization, Reclassification, Merger, etc. If at
any time while any Warrant is outstanding there should be any capital
reorganization of the capital stock of the Company (other than the
issuance of any shares of Common Stock in subdivision of outstanding
shares of Common Stock by reclassification or otherwise and other than
a combination of shares provided for in Section 4(a) hereof), or any
consolidation or merger of the Company with another corporation, or any
sale, conveyance, lease or other transfer by the Company of all or
substantially all of its property to any other corporation, which is
effected in such a manner that the holders of Common Stock shall be
entitled to receive cash, stock, securities, or assets with respect to
or in exchange for Common Stock, then, as a part of such transaction,
lawful provision shall be made so that each Holder shall have the right
thereafter to receive, upon the exercise hereof, the number of shares
of stock or other securities or property of the Company, or of the
successor corporation resulting from such consolidation or merger, or
of the corporation to which the property of the Company has been sold,
conveyed, leased or otherwise transferred, as the case may be, which
the Holder would have been entitled to receive upon such capital
reorganization, reclassification of capital stock, consolidation,
merger, sale, conveyance, lease or other transfer, if such Warrant had
been exercised immediately prior to such capital reorganization,
reclassification of capital stock, consolidation, merger, sale,
conveyance, lease or other transfer. In any such case, appropriate
adjustments (as determined by the Board of Directors of the Company)
shall be made in the application of the provisions set forth in this
Warrant (including the adjustment of the Exercise Price and the number
of Shares issuable upon the exercise of the Warrants) to the end that
the provisions set forth herein shall thereafter be applicable, as near
as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the exercise of the Warrants as if the
Warrants had been exercised immediately prior to such capital
reorganization, reclassification of capital stock, such consolidation,
merger, sale, conveyance, lease or other transfer and the Warrant
Holders had carried out the terms of
4
<PAGE> 5
the exchange as provided for by such capital reorganization,
consolidation or merger. The Company shall not effect any such capital
reorganization, consolidation, merger or transfer unless, upon or prior
to the consummation thereof, the successor corporation or the
corporation to which the property of the Company has been sold,
conveyed, leased or otherwise transferred shall assume by written
instrument the obligation to deliver to each Holder such shares of
stock, securities, cash or property as in accordance with the foregoing
provisions such Holder shall be entitled to purchase.
5. No Rights as Stockholders. This Warrant shall not entitle the
Holder as such to any voting rights or other rights as a stockholder of the
Company.
6. Registration Rights. The Company undertakes to file as soon as
practicable a registration statement on Form S-3 (the "Registration Statement")
to register the Shares under the Securities Act and such Blue Sky Laws of those
states as are reasonably selected by the Holder. The Company shall use its best
efforts to have the Registration Statement declared effective by the Securities
and Exchange Commission (the "Commission") as soon as practicable. The Company
shall keep the Registration Statement effective and current until the earlier to
occur of (i) the date all the Shares are sold, (ii) the date all of the Shares
may be sold under Rule 144(k) under the Securities Act or (iii) the expiration
date of this Warrant. Except as set forth in the following sentence, the Company
shall bear all expenses and fees incurred in connection with the preparation,
filing, and amendment of the Registration Statement with the Commission. The
Holder shall pay all fees, disbursements and expenses of any counsel or expert
retained by the Holder and all underwriting discounts and commissions, filing
fees and any transfer or other taxes relating to the Shares included in the
Registration Statement.
7. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Minnesota.
8. Amendments and Waivers. The provisions of this Warrant may not be
amended, modified or supplemented, and waiver or consents to departures from the
provisions hereof may not be given, unless the Company agrees in writing and has
obtained the written consent of the Holders.
9. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to the Holder
shall be mailed, delivered, or telefaxed and confirmed to the Holder at his or
her address set forth on the records of the Company; or if sent to the Company
shall be mailed, delivered, or telefaxed and confirmed to Cafe Odyssey, Inc.,
4801 West 81st Street, Suite 112, Bloomington, MN 55437 or to such other address
as the Company or the Holder shall notify the other as provided in this Section.
IN WITNESS WHEREOF, Cafe Odyssey, Inc. has caused this Warrant to be
signed by its duly authorized officer in the date set forth above.
CAFE ODYSSEY, INC.
/s/ Ronald K. Fuller
Ronald K. Fuller
President
5
<PAGE> 6
SUBSCRIPTION FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, of the shares of Common Stock of Cafe
Odyssey, Inc. (the "Shares") to which such Warrant relates and herewith makes
payment of $ therefor in cash, certified check or bank draft and
requests that a certificate evidencing the Shares be delivered to,
, the address for whom is set forth below the
signature of the undersigned:
Dated:
------------------
-----------------------------------
(Signature)
-----------------------------------
-----------------------------------
(Address)
* * *
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the right to purchase
shares of Common Stock of Cafe Odyssey, Inc. to which the within Warrant relates
and appoints attorney, to transfer said right on the books
of with full power of substitution in the premises.
Dated:
--------------------
-----------------------------------
(Signature)
-----------------------------------
-----------------------------------
(Address)
6
