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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
CHICKEN KITCHEN CORPORATION
----------------------------------------------
(Name of Small Business Issuer in its charter)
FLORIDA 59-3283225
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
5415 COLLINS AVENUE, SUITE 305, MIAMI BEACH, FLORIDA 33140
(Address of principal executive offices)
Issuer's telephone number: (305) 867-4433
Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
CLASS A COMMON STOCK
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Chicken Kitchen Corporation ("CKC" or the `Company") is filing this
Form 10-SB to register its common stock and thus become a reporting company
pursuant to Section 12(g) of the Securities Exchange Act of 1934.
We own and operate six (6) restaurants in leased premises featuring
marinated grilled chicken and other menu items. Additionally as of July 29,1999,
the Company has sold six (6) franchises. All restaurants operate under similar
proprietary trade and service marks, including design and distinctive logos and
trade dress.
Chicken Kitchen Corporation was originally incorporated in the State of
Florida in November 1994, as Chicken Acquisition Corporation ("CAC"). The
corporate office is located at 5415 Collins Avenue, Suite 305, Miami Beach,
Florida 33140. The Company's telephone number is (305) 867-4433 and the fax
number is (305) 867-4485.
BACKGROUND
On November 21, 1995, we opened our first Chicken Kitchen(R) restaurant
in the food court of the Aventura Mall, located in North Miami, Florida. All
restaurants offer marinated grilled chicken and other items, and operate under
the tradename Chicken Kitchen(R). "CKC" owns all service marks, trademarks,
designs and logos, operations manual, trade dress, marination formulas, sauces
and recipes. In December 1996, the Company and Chicken Kitchen Corporation, a
Delaware predecessor company ("CK of Delaware"), owned by the founder and CEO,
Mr. Christian de Berdouare, consummated the Agreement and Plan of
Reorganization, which was entered into on November 30, 1996 (the "Agreement").
Pursuant to the "Agreement", "CKC" purchased substantially all the assets of "CK
of Delaware" in exchange for 5,100,000 shares of the Company's Common Stock. Mr.
de Berdouare, as the sole owner of "CK of Delaware", thus gained control of the
Company upon consummation of the transactions contemplated by the "Agreement".
Subsequently the Company changed its name to Chicken Kitchen Corporation, a
Florida corporation, and "CK of Delaware" changed its name to Chicken
Liquidating Corporation.
On January 3, 1997, Ambassa Holdings, Inc. (an affiliate owned by the
President, who is the Principal Stockholder of the Company), acting for the
benefit of the Company, utilizing a loan from "CKC", purchased a 55% ownership
interest in Patty & Cesar's Food Service, Inc. ("P&C"). That transaction was
affected pursuant to the terms of an agreement for sale of shares by
shareholders dated November 15, 1996. "P&C" had filed a voluntary petition to
reorganize pursuant to Chapter 11 of the United States Bankruptcy Code at the
time of the purchase. The bankruptcy proceedings were dismissed in May 1997. The
55% investment in P&C was reflected
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as "Advances to Affiliate" in the Company's balance sheet at March 31, 1997 and
the loan was repaid in full, by the assignment of its 55% ownership to the
Company in September 1997. In November 1997, we acquired the remaining 45% of
"P&C" for $85,000 and the issuance of 15,000 shares of our common stock valued
at $1.575 per share ($23,265 in the aggregate), representing the fair market
value of the common stock on the date of issue, discounted by 10% due to trading
restrictions. The transaction has been accounted for under the purchase method
of accounting. The total cost of the acquisition of $333,000, not including net
cash acquired of $19,858, was allocated to equipment ($128,000), leasehold
interest ($100,000), other assets ($22,000), net liabilities ($110,000) and was
based on fair values with the excess cost ($194,000) being amortized over 10
years.
In November 1997, "CKC" acquired the assets of two additional
restaurants from an independent seller for $1,382,000, not including net cash
acquired of $2,250. The transaction has been accounted for under the purchase
method of accounting. The cost of the acquisition was allocated to equipment
($220,000), leasehold interest ($300,000), other assets ($21,000) and was based
on fair values with the excess cost ($841,000) being amortized over 10 years.
In February 1998, we acquired a restaurant from an independent seller
for $330,000 and the issuance of 170,000 restricted shares of the Company's
Class A common stock. 35,000 shares (issued in March 1997) were valued at $0.33
($11,550 in the aggregate and representing the price used for the Company's
private placement in December 1996, as the Company did not begin trading until
June 1997). The remaining 135,000 shares were valued at $0.844 (representing the
market value of the Company's Class A common stock on the date of issue
discounted by 10% due to trading restrictions). The acquisition agreement also
specified that, if at the one-year anniversary date of the closing the market
value of the Class A common stock is less than $2.00 per share, the Company will
issue additional shares so that the total value of shares issued in connection
with the acquisition equals $270,000. However, the maximum additional shares
that may be issued is limited to 135,000 shares. The cost of the acquisition,
determined in accordance with EMERGING ISSUES TASK FORCE 97-15 "CONTINGENCY
ARRANGEMENTS BASED ON SECURITY PRICES IN PURCHASE BUSINESS COMBINATIONS", of
$569,000, not including net cash acquired of $500, was allocated to equipment
($28,000), leasehold interest ($30,000), other assets ($4,700), net liabilities
($3,800), and was based on fair values with the excess cost ($510,100) being
amortized over 10 years.
RESTAURANT OPERATIONS
Our restaurants feature a menu focused on marinated grilled chicken
served whole, in halves or in quarters, and grilled boneless chicken breasts,
served in a variety of sandwiches, salads and platters. The Company believes
that the focus on grilled chicken capitalizes on the current consumer preference
for healthier, lower-fat foods. The focused menu also facilitates the consistent
preparation of fresh, high quality foods, the execution of efficient customer
service and the accurate replication of the concept in new locations.
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Our restaurants use fresh whole chickens, top grade produce and freshly
prepared rice, salads soups, and homemade sauces and dressings, which are
prepared fresh daily in each restaurant. We maintain stringent quality standards
for the preparation and service of all food items. We believe that the menu
emphasis on freshness and quality, as well as its focus on grilled chicken, will
appeal to an increasingly health-conscious consumer who desire a wholesome and
healthy alternative to the fare served at other quick-service restaurants.
The restaurants deliver value by providing generous portions of
wholesome, flavorful food at economical prices. The Company emphasizes value
with menu prices typically in line with prices of comparable menu items offered
by other quick-service restaurants and frequently less than comparable menu
items found in full service establishments.
A premium is placed on quick-service and customer convenience. The
restaurants are typically open for lunch and dinner, seven days a week from
11:00 a.m. to 10:00 p.m. In addition to eat-in service, all the restaurants
offer take-out, delivery and catering services to accommodate the varied
schedules of families, business people, students and other time-sensitive
individuals. Prompt, accurate and courteous service is a priority in each mode
of food delivery. In addition, the menu offers a variety of portion sizes to
accommodate a single customer, family or large group.
Our restaurants feature an attractive interior decor and exterior
design that is easily replicable in its multi-unit system. While each restaurant
has a similar appearance, the restaurants' design is sufficiently flexible to
accommodate a variety of available sites. The restaurants are also designed to
conveniently serve a high volume of customer traffic while retaining an
inviting, casual atmosphere.
FRANCHISE PROGRAM
Six franchises have been sold through July 29, 1999, one of which was
sold prior to FYE March 31,1999. The primary criteria considered by us in the
review and approval of franchisees is prior experience in operating restaurants
or other comparable business experience, and capital available for investment.
The current franchise fee is $25,000, payable $10,000 on signing the
UFOC (Uniform Franchise Offering Circular), and $15,000 when the premises lease
is signed. In addition, franchisees are obligated to pay a weekly royalty fee of
4% of revenues. In addition to the initial franchise fee, the franchisee
requires an additional $225,000 to $400,000 in capital for equipment, furniture,
fixtures, advertising, inventory and other pre-opening costs. The initial term
of the Franchise Agreement is for a twenty (20) year period.
Our future growth plans will be focused on selling and maintaining a
qualified franchise restaurant group as well as adding additional Company store
locations. We are building a staff of operations personnel to train and assist
franchisees in opening new restaurants and to monitor the operations of existing
restaurants. These services will be provided as part of our franchise
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program. New franchisees will be required to complete a four-week program that
features various aspects of day-to-day operations and certification in all
aspects of restaurant operations. The program consists of formal classroom
training and in-restaurant training, including human resources, accounting,
purchasing and labor and food handling laws. Standard operating manuals are
provided to each franchisee. The franchise agreement requires franchisees to
operate their restaurants in accordance with our standards and operating
procedures. Ongoing advice and assistance is provided to franchisees in
connection with the operation and management of each restaurant.
SUPPLIERS
The Company and its franchisees purchase all of its supplies from
pre-approved suppliers. We believe that alternative suppliers for our supplies
are readily available. We do not have long term supply contracts. Our main
suppliers are, Cheney Brothers Inc., Martin Poultry, Inc., Coca Cola of South
Florida, Daily Bread, Inc., Better and Nice Produce, Inc.
COMPETITION
The fast food restaurant industry is highly competitive and can be
significantly affected by many factors, including changes in local, regional or
national economic conditions, changes in consumer tastes, consumer concerns
about the nutritional quality of quick-service food and increases in the number
of, and particular locations of, competing restaurants. Factors such as
inflation, increases in food, labor and energy costs, the availability and cost
of suitable sites, fluctuating interest and insurance rates, state and local
regulations and licensing requirements and the availability of an adequate
number of managers and hourly paid employees can also adversely affect the fast
food restaurant industry. Multi-unit restaurant chains can also be substantially
adversely affected by publicity resulting from food quality, illness, injury, or
other health concerns. Major chains, which have substantially greater financial
resources and longer operating histories than the Company, dominate the fast
food restaurant industry. We compete primarily on the basis of location, food
quality and price. Changes in pricing or other marketing strategies by these
competitors can have an adverse impact on our sales, earnings and growth. There
can be no assurance that we will be able to compete effectively against our
competitors.
In addition, with respect to the sale of franchises, we compete with
many franchisors of restaurants and other business concepts for qualified and
financially capable franchisees.
REGULATION
We are subject to a variety of federal, state, and local laws affecting
the conduct of its business. Operating restaurants are subject to various
sanitation, health, fire and safety standards
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and restaurants under, or proposed for construction, are subject to state and
local building codes, zoning restrictions and alcoholic beverage regulations.
Difficulties in obtaining or failure to obtain required licenses or approvals
could delay or prevent the development or opening of a new restaurant in a
particular area. We are also subject to the Federal Fair Labor Standards Act,
which governs minimum wages, overtime, working conditions and other matters, and
the Americans with Disabilities Act, which became effective in January 1992. We
believe that we are in compliance with such laws, and that our Restaurants have
all applicable licenses as required by governmental authorities. We are subject
to regulations of the Federal Trade Commission (the "FTC") and various states
relating to disclosure and other requirements in the sale of franchises and
franchise operations. The FTC's regulations require the Company to timely
furnish prospective franchisees a franchise offering circular containing
prescribed information. Certain state laws also require registration of the
franchise offering with state authorities. Other states regulate the franchise
relationship, particularly concerning termination and renewal of the franchise
agreement. We believe that we are in compliance with the applicable franchise
disclosure and registration regulations of the FTC and the various states in
which we operates.
While we intend to comply with all federal, state and foreign laws and
regulations, there can be no assurance that we will continue to meet the
requirements of such laws and regulations, which, in turn, could result in a
withdrawal of approval to franchise in one or more jurisdictions. Any such loss
of approval may have a material adverse effect upon our ability to successfully
market franchises. Violations of franchising laws and/or state laws and
regulations regulating substantive aspects of doing business in a particular
state could subject the Company and its affiliates to rescission offers,
monetary damages, penalties, and/or injunctive proceedings. The state laws and
regulations concerning termination and non-renewal of franchisees are not
expected to have a material impact on our operations.
EMPLOYEES
As of July 29, 1999, we had approximately 157 full time and part time
staff, all at the restaurant level, and eight administrative employees.
TRADEMARKS
We market several menu item products under our Chicken Kitchen
trademark, tradename and design logos, our Chop-Chop tradename, and other
trademarks under registration with the US Patent and Trademark Office. We have
received trademark and service mark protection of these names and related
designs logos from the USPTO and consider these trademarks and service marks to
be important to our business.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
We are engaged in the business of operating six Chicken Kitchen
restaurants and have sold six franchises through July 29, 1999. All six
franchises sold to date are expected to be opened during fiscal year 2000. It
takes approximately six to eight months to open a new restaurant. A portion of
the Initial Franchise Fee is refundable, if the franchisee does not sign a lease
within 120 days of signing the UFOC. The full franchise fee ($25,000) is
recognized only when the franchise restaurant is opened, and not when the
Initial Franchise Fee is collected. Additionally, the Company receives a 4%
royalty based on the weekly sales. The recognition of franchise fees and
franchise royalties may fluctuate from quarter to quarter since we do not
directly control the timing of franchise openings or signing of franchise
agreements. We are continuing to develop a larger corporate infrastructure to
manage and administer the growth of our franchise program.
We are subject to the special risks attendant to companies which
are expanding operations, including but not limited to, the costs of evaluating
and establishing additional locations, the costs and complexities involved in
expanding administrative infrastructures, as well as the high level of
competition in the restaurant industry, changing consumer preferences and
tastes, and general economic conditions in Florida. As a result of these risks,
and the costs of expansion, our operating results could be materially adversely
affected in any operating period.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 1998
Restaurant sales for the year ended March 31, 1999 increased by
$4,462,358 to $6,676,497 from $2,214,139 in the prior year, for an increase of
200 percent. This was primarily attributed to one restaurant that opened in
fiscal 1999 and three restaurants in operation for the entire current fiscal
year compared to five months in the prior year for two restaurants and one month
for the third. Of the six restaurants in operation at the end of the current
year, all were operational for the full year, except one, which was opened for
only seven months, starting August 1998.
Cost of sales, which consists of the cost of chicken, food, produce,
beverage and paper costs, decreased as a percentage of sales to 42.5% compared
to 46.6% in fiscal 1998. This improvement was the result of operational controls
and systems that were put in place during fiscal 1999.
Labor and employee benefits which consists of wages, payroll taxes,
and other benefit and insurance costs for restaurant salaried and hourly
employees increased 2.6 % as a percentage of sales to 34.7% in the 1999 fiscal
year compared to 32.1 % in the prior fiscal year. This increase was attributable
to the higher personnel costs associated with the opening of an additional
restaurant and the competitive nature of the restaurant labor market. If the
minimum wage is
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increased during the fiscal year ending 3/31/2000, it will have a moderately
adverse effect on the restaurant payroll expense due to the large number of
hourly employees on the payroll.
Direct operating expenses consist of all restaurant-operating costs
other than cost of sales and payroll expenses and include occupancy costs,
utilities and other direct costs. These expenses decreased by .4% to 12.7% of
sales from 13.1%.
Administrative and general expenses increased by $190,697 in fiscal
1999 to $877,560. This increase is primarily attributable to increases in
corporate payroll necessitated by the greater number of company-owned stores and
in the hiring of human resources that will support our franchising growth.
Contributing to the increase were legal fees incurred with the acquisition of
assets. In addition, higher advertising and promotional expenses were incurred
to promote the Chicken Kitchen brand.
Depreciation and amortization increased significantly, attributable to
the full year's depreciation and amortization in fiscal 1999 of business and
assets acquired in late fiscal 1998.
Security gains of $130,546 are included in Other Income (expenses) in
fiscal 1999; there were none in the prior fiscal year. The prior fiscal year did
include a $71,550 recovery of merger costs previously written-off. We do not
expect to achieve a similar level of security gains in the future.
The reduction in net loss from $2.1 million to $560,000, a 73 percent
decrease, is primarily attributed to the reduction in consulting fees of over
$1.4 million incurred with costs associated in raising the Series A $4,000,000
Convertible Preferred Stock. Net loss per common share was 7 cents in the
current year compared with a net loss per common share of 21 cents in the prior
year.
YEAR ENDED MARCH 31, 1998 COMPARED TO YEAR ENDED MARCH 31, 1997
Sales in the year ended March 31, 1998 were more than double those in
the year ended March 31, 1997. The primary reason for the sales increase was the
growth in locations from one restaurant in fiscal 1997 to five location
(including two location established in November 1997) by the end of fiscal 1998.
Cost of sales was 47% of sales in fiscal 1998, compared to 45% in fiscal 1997.
The increase was due to increases in the price of chicken and produce.
Management does not expect significant future price increase in these items.
Other operating expense increased significantly in fiscal 1998,
generally in line with the increases in sales and locations, with two
exceptions. Advertising and promotion increased in connection with the
introduction of the new locations. In addition, we expensed consulting fees of
$1,572,263 in fiscal 1998 in connection with the raising of the $4 million
Convertible Preferred shares issued in fiscal 1998. Rent expense did not
substantially increase since we assumed older existing long-term leases.
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The net loss for fiscal 1998 was 2,136,223 or $1,442,360 greater than
in fiscal 1997. The difference was almost entirely attributable to the higher
consulting fees in fiscal 1998. Net loss per share was $0.21 in fiscal 1998,
compared to $.11 in fiscal 1997. We do not expect that we will incur a similar
level of consulting fees in the future.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash on hand of $183,430,
short-term securities of $150,775 and other current assets of $140,874, for
total current assets of $475,079. Total current liabilities are $829,135, and
are comprised of $345,892 in accounts payable, $379,840 in accrued expenses, and
$103,403 in a Note Payable. We had no long-term debt. As of March 31, 1999 and
1998, we had working capital (deficit) of ($354,056) and $80,592 respectively.
In November 1997, the Company completed a private offering of Series A
Convertible Preferred Stock and received net proceeds of approximately $2.5
million. The proceeds of the offering were used to acquire three new
restaurants, a remaining 45% interest in a fourth restaurant, to repay a
$600,000 bridge loan, to build the sixth company-owned restaurant and for
working capital.
The current payables as of March 31, 1999 include a $103,403 Note
Payable that the Company expects to satisfy by the issuance of the Company's
Common Stock. The holder of the Note is contesting the payment terms of this
Note. Accordingly, the final payment terms are not yet determinable causing the
current payable classification.
LOSSES INCURRED IN OPERATIONS / MODIFIED ACCOUNTANTS' REPORT
We have incurred losses from our operations since inception and we had
a working capital deficit of $354,056 at March 31, 1999. Our independent
accountants have modified their report to our financial statements to reflect
doubt as to our ability to continue as a going concern.
We currently operate six restaurants and have recently commenced
franchising operations. Management believes that cash on hand and cash generated
from operations together with Franchise Fees and Royalty payments will be
sufficient to fund operations. However, no assurance can be given that
additional funds will not be required prior to the expiration of such period or
that any funds which may be required will be available, if at all, on acceptable
terms. If additional funds are required, the inability of the Company to raise
such funds will have an adverse effect upon its operations. To the extent that
additional funds are obtained by the sale of equity securities, the stockholders
may sustain significant dilution. If adequate capital is not available, the
Company will have to reduce or eliminate its planned expansion activities, which
could otherwise ultimately provide significant revenue to the Company.
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We have no arrangements or understandings with respect to additional
financings, and any expansion of the Company's restaurants could require that
the Company's raise additional funds. In addition, expansion of the Company's
restaurant and franchising expectations may require additional capital. There
can be no assurance that the Company will be able to continue to expand or to
obtain sufficient capital in the future, nor the terms on which capital may be
obtained. The Company has no lines of credit available to it at this time.
Y2K RISK
We have reviewed the computers and software used in our business and
have determined that they are not affected by the Year 2000 Computer Problem. We
have been assured by our major suppliers that our supplies will not be
interrupted due to the year 2000 Computer Problem. We could be adversely
affected if there is loss of electrical power due to the Year 2000 Computer
Problem.
ITEM 3. PROPERTIES
We own and operate the following restaurants. All restaurant premises
are leased from independent landlords.
<TABLE>
<CAPTION>
LEASE
EXPIRATION
STORE NO. LOCATION SQUARE FEET MONTHLY LEASE PAYMENT DATE
- --------- -------- ----------- --------------------- ----------
<S> <C> <C> <C> <C>
1 Red Road, 1,100 $2,649 8/2019
South Miami
2 Arthur Godfrey Rd. 1,400 $3,826 11/2006
Miami Beach
3 Kendall Mall 1,600 $4,704 10/2004
West Miami
4 Aventura Mall 750 $6,405 10/2005
North Miami
5 Bayside Marketplace 700 $8,968 10/2005
Downtown Miami
6 Washington Avenue 3,200 $7,466 3/2018
Miami Beach
</TABLE>
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ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information relating to the beneficial
ownership of our Class A and Class B Common Stock as of July 21, 1999 by (i)
each person known by us to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock (ii) each of our directors and executive
officers, and (iii) all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
TITLE OF NAME AND ADDRESS NATURE OF PERCENTAGE
CLASS OF BENEFICIAL OWNER BENEFICIAL OWNER OF CLASS
- ----- ------------------- ---------------- ----------
<S> <C> <C> <C>
Class A Christian Mahe de Berdouare (1) 4,385,000 34.23%
President and Chief Executive Officer
5415 Collins Ave #305
Miami, FL 33140
Class B Christian Mahe de Berdouare (1) 1,000,000 98.14%
Director, President and
Chief Executive Officer
5415 Collins Ave #305
Miami, FL 33140
Class A Joseph A. Remsa Jr. (2) 200,000 1.66%
Executive Vice President
5415 Collins Ave #305
Miami, FL 33140
Class A Mitchell V. Gregory (3) 150,000 1.25%
CFO, Vice President of Finance
and Treasurer
Class A Frank Blackman (4) 110,000 .92%
Vice President Franchising
Secretary
5415 Collins Ave #305
Miami, FL 33140
Class A Alan Barton (5) 22,675 .19%
Vice President Training
5415 Collins Ave #305
Miami, FL 33140
Class A Union Securities, Ltd. 690,000 5.84%
609 Grandville St.
Vancouver, BC
Canada, V7Y1H4
Class A All Directors and Officers as
A Group (6 persons) 4,867,675 36.65%
</TABLE>
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(1) Includes 1,000,000 shares of Class A common stock which may be acquired on
exercise of outstanding common stock purchase options at $.33 for 5 years.
Represents shares of Class B Common Stock which may be converted into
Class A Common Stock at the holder's option. Does not include 500,000
shares of Class B common stock owned by Mr. Mahe de Berdouare's spouse to
which he disclaims any beneficial interest.
(2) Includes 200,000 shares of common stock issuable upon exercise of 100,000
options at $.25 and 100,000 options at $.50 per share for 5 years.
(3) Includes 100,000 shares of common stock issuable upon exercise of option
at $.20 and 50,000 options at $.38 per share for 5 years.
(4) Includes 100,000 shares of common stock issuable upon exercise of option
at $.33 per share for 5 years.
(5) Includes 22,675 shares of common stock issuable upon exercise of option at
$.4343 per share for 5 years.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE PERSONS.
The following table sets forth-certain information with respect to our
executive officers and directors. Each director holds such position until the
next annual meeting of the Company's shareholders and until his respective
successor has been elected. Our Board of Directors may remove with or without
cause any of our officers at any time.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Christian Mahe de Berdouare President, Chief Executive Officer and Director
Frank Blackman Vice President of Franchising and Secretary
Joseph A. Remsa Jr. Executive Vice President
Mitchell Gregory Chief Financial Officer, Vice President of Finance and Treasurer
Alan Barton Vice President of Training and Human Resources
Joseph King Vice President of Purchasing
</TABLE>
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PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR: CHRISTIAN MAHE DE BERDOUARE
Mr. de Berdouare, age 43 has been President, Chief Executive Officer,
Director of the Company and a member of the Franchise Committee of the Board of
Directors, since December 1995. In addition, since 1988, he has been director,
President, Chief Executive Officer and holder of all of the issued and
outstanding shares of common stock of "CK of Delaware". From January 1984 to
December 1996, Mr. de Berdouare was the Founder, President and Director of
Chicken Kitchen, Ltd., Chicken Kitchen 52 OLP, Inc., Chicken Kitchen Corporation
of Delaware, all predecessor companies that operated as Chicken Kitchen R
restaurants in New York City and Miami. Prior to 1984, Mr. de Berdouare was a
Vice President, and founder of the Soft Commodities desk, at the London office
of Drexel Burnham Lambert, Inc.. Subsequently, Mr. de Berdouare was hired by
France's largest commodities trading firm, Interagra, S.A., to establish their
Soft Commodities operation, which he left a few years later, to start his own
International Trading Operation, in Paris.
VICE PRESIDENT & SECRETARY: FRANK BLACKMAN
Mr. Blackman, age 44, has been Vice President of Franchising and
Secretary since March 1997. Mr. Blackman was Director, Marketing Sales Training
and Performance Improvement of Republic Industries from 1997 to 1998. From 1991
to May 1997, he was Director, Training and Development, for Triarc Restaurant
Group, Arby's subsidiary.
Mr. Blackman was Director, Training, Development, and Area Manager for
Miami Foods, Ltd. from 1985 to 1991. From 1982 to 1985 Mr. Blackman was Sales
Manager for Mangren Research and Development Corporation and he held various
staff positions including Area Supervisor for Wendy's International, Inc. from
1977 to 1982. Mr. Blackman received a BS from Nova Southeastern University and
an MBA from Florida Atlantic University.
EXECUTIVE VICE PRESIDENT: JOSEPH A. REMSA, JR.
Mr. Remsa, age 48, has had a restaurant career encompassing both senior
level executive positions with restaurant franchisors and franchisees as well as
entrepreneurial ventures as concept founder and franchisee. Mr. Remsa has been
associated with Pizza Hut (National Pizza Company) as regional Vice President;
Sonic Restaurants as Director of Development and Franchisee; Sizzler as South
Florida Franchisee; Waffle House (Columbia Foods) franchise Vice President; and
most recently Offerdhal's Bagel Gourmet where he participated in the formative
merger, concept creation, and IPO of Einstein Brothers Bagels. Mr. Remsa is an
Adjunct Professor and Doctoral student at Florida Atlantic University in Boca
Raton, Florida. He has a MBA and BA degree in Economics from the University of
South Florida.
CHIEF FINANCIAL OFFICER, VICE PRESIDENT OF FINANCE AND TREASURER:
MITCHELL GREGORY
Mr. Mitchell Gregory, age 62, has been Chief Financial Officer, Vice
President of Finance and Treasurer since November 1998. He has been the
President of Aegis Holdings Limited, a manufacturer and distributor of lighting
products from 1992 to 1998. From 1988 to 1992, he was the President of Prestige
Group International, both Miami based companies. Prior to that, from 1975 to
1988 Mr. Gregory was Vice President of Finance and Chief Accounting
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Officer of DWG Corporation, a NYSE Fortune 500 company. Mr. Gregory is a
Certified Public Accountant. Mr. Gregory received a BA from Adelphia University.
From 1969 to 1972, he was with KPMG Peat Marwick as a CPA.
VICE PRESIDENT OF TRAINING AND HUMAN RESOURCES: ALAN BARTON
Alan Barton, age 36, recently joined the Company from his position with
Pollo Tropical, Inc., from 1995 to 1999, where he was responsible for opening
the company's franchised units and most recently served as Manager of the
Training Design and Delivery. Mr. Barton held similar posts at Arby's, Inc. from
1991 to 1994, where he first managed the franchising function for the
Northeastern US and then the State of Florida. Prior to Arby's, Inc., Alan
worked at the delivery division for Pizza Hut, Inc., of PepsiCo. Mr. Barton has
a Bachelor of Science degree in Personnel Management from Florida State
University.
VICE PRESIDENT OF PURCHASING: JOSEPH KING
Joseph King, age 58, has been Vice President of Purchasing since March
15, 1999. He was Director of Purchasing and R&D for Pollo Tropical Inc. from
1994 to 1998. Additionally, Joe's 10 years experience as the Southeastern
Regional Sales Manager for Tetley, Inc. and 8 years as Merchandising Manager
with the Martin Brower Corporation, McDonald's largest foodservice distributor
in the nation.
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid to our chief
executive officer for the last three completed fiscal years. No other executive
officer of the Company received compensation of $100,000 or more during any such
year.
<TABLE>
<CAPTION>
NAME AND FISCAL OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
CHRISTIAN MAHE DE BERDOUARE 1999 $195,000 $33,696 (1)
PRESIDENT, CHIEF EXECUTIVE OFFICER 1998 $180,000 $39,070
AND DIRECTOR 1997 $24,000
</TABLE>
(1) Includes $12,406 for automobile expense and $21,290 for cash payments.
-14-
<PAGE> 15
STOCK OPTION PLAN
There were no options granted to Named Executive Officers during the
fiscal year ended March 31, 1999. Subsequent to March 31, 1999, an additional
200,000 options were issued to the Named Executive Officer at a price of $.33
per share.
The following table set forth as of March 31, 1999 for the Named
Executive Officer the position spread between the exercise price of existing
options and the market value for the Company's common stock. There were no
options exercised during the fiscal year ended March 31, 1999.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------------------
Exercisable Value of Unexercised
and In-the-Money
Unexercised Options at
Name At March 31, 1999 March 31, 1999
------------------------ --------------------- ---------------------------------------
<S> <C> <C>
Christian Mahe de 1,000,000 $290,000
Berdouare
------------------------ --------------------- ---------------------------------------
</TABLE>
By resolution of our Board of Directors, we adopted a Stock Option Plan
(the Plan). The Plan enables the Company to offer an incentive based
compensation system to employees, officers and directors and to employees of
companies who do business with the Company. At the sole discretion of its Board
of Directors, any employee of the Company or any our subsidiaries may be made
eligible to participate in the Plan.
2,000,000 shares are authorized for issuance under the Plan, of which
1,000,000 shares are issuable under incentive stock options to Mr. de Berdouare;
200,000 options to Mr. Remsa; 150,000 options to Mr. Gregory; 100,000 to Mr.
Blackman and 22,675 options to Mr. Barton. Mr. de Berdouare's options are
exercisable for five years at a price of $.33 per share and the options to Mr.
Remsa are exercisable at 100,000 at $.25 and 100,000 at $.50; Mr. Gregory's
options are exercisable for 100,000 at $.20 and 50,000 at $.38; Mr. Blackman and
Barton are exercisable at $.33 and $.43 respectively. We may increase the number
of shares authorized for issuance under the Plan or may make other material
modifications to the Plan without
-15-
<PAGE> 16
shareholder approval. However, no amendment may change the existing rights of
any option holder.
DIRECTORS COMPENSATION.
There are no standard or other arrangements pursuant to which any
director of the Company is or was compensated during our last fiscal year for
services as a director, for committee participation or for special assignments.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We were incorporated in Florida in November 1994 as a wholly owned
subsidiary of Stratcomm Media, Ltd. ("Stratcomm"), under the name Chicken
Acquisition Corporation. Stratcomm purchased 4,900,000 shares for $2,450 and
subsequently contributed $843,097 in capital to the Company. In December 1996,
Stratcomm canceled 2,450,000 shares in connection with the acquisition of "CK of
Delaware", owned by Mr. Berdouare. The purchase price for "CK of Delaware" was
5,100,000 shares of the Company's common stock.
The Company leases its executive offices from its President under an
oral sublease for $2,500 per month. The sublease is on a month-to-month basis.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company's Articles of Incorporation authorizes the issuance of
65,000,000 shares of common stock, $.0005 par value per share, including
50,000,000 shares of Class A common stock and 15,000,000 shares of Class B
common stock. Holders of shares of Class A Common Stock are entitled to one vote
for each share, and holders of Class B stock are entitled to 10,000 votes per
share, on all matters to be voted on by the stockholders. Holders of either
Class of common stock have no cumulative voting rights. Holders of shares of
common stock are entitled to share ratably in dividends, if any, as may be
declared, from time to time by the Board of Directors in its discretion, from
funds legally available therefore. In the event of a liquidation, dissolution or
winding up of the Company, the holders of shares of common stock are entitled to
share pro rata all assets remaining after payment in full of all liabilities.
Holders of common stock have no preemptive rights to purchase our common stock
or Preferred Stock liquidation preferences. There are no conversion rights or
redemption or sinking fund provisions with respect to the common stock. Each
share of Class B Common Stock is convertible into one share of Class A Common
Stock. No issuance, sale or distribution of the Class B Common Stock shall be
registered under the Securities Act of 1933.
-16-
<PAGE> 17
PREFERRED STOCK
Our Articles of Incorporation authorizes the issuance of 1,000,000
shares of preferred stock, $.0005 par value, of which 3,880 shares of Series A
Preferred Stock are outstanding. The Series A Preferred Stock is convertible, at
the option of the holder, into shares of common stock at an initial Conversion
Rate, subject to adjustments, at a number of shares of Common Stock equal to
$1,000 divided by the lower of (i) Sixty-Five Percent (65%) of the average
Market Price (defined below) of the Common Stock for the five trading days
immediately prior to the Conversion Date or (ii) $1.265625 increased
proportionally for any reverse stock split and decreased proportionally for any
forward stock split or stock dividend. Market Price for any date shall be the
closing bid price of the Common Stock on such date, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), or the
closing bid price in the over-the-counter market if other than Nasdaq. The
holders of Series A Preferred have no voting rights, and have a liquidation
preference of $1,300 per share over the Common Stock. Dividends on the Series A
Preferred are payable at the rate of 8% per annum ($80 per share of Series A
Preferred Stock) payable on each July 1, in either cash, or at our option ,
Common Stock valued at the Conversion Rate. The initial closing for the sale of
the Series of Preferred Stock was on November 11, 1997. The holders of the
Series A Preferred Stock have the right to receive, at the time of conversion,
additional penalty shares equal to (a) 5% if we did not file a registration
statement to register the underlying common stock within 30 days of November 11,
1997, (b) an additional 5% if the registration statement is not declared
effective within 120 days of November 11, 1997, and (c) an additional 5% if we
do not deliver certificates representing the Common Stock within 5 days of the
date of conversion. Since the registration statement of which this Prospectus is
a part was not filed and declared effective within the time limits set forth in
(a) and (b) above, the holders of Series A Preferred Stock are entitled to 10%
additional shares upon conversion.
Our Board of Directors have the authority to issue the authorized
shares of Preferred Stock in one or more series and to fix the designations,
relative powers, preferences, rights, qualifications, limitations and
restrictions of all shares of each such series, including without limitation
dividend rates, conversion rights, voting rights, redemption and sinking fund
provisions, liquidation preferences and the number of shares constituting each
such series, without any further vote or action by the stockholders. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or adversely affect the
rights and powers, including voting rights, of the holders of Common Stock.
-17-
<PAGE> 18
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Class A Common Stock has been listed on the NASD OTC
Electronic Bulletin Board sponsored by the National Association of Securities
Dealers, Inc. under the symbol "CKKC" since May 11, 1997. On July 29, 1999, the
closing bid price as reported by the Electronic Bulletin Board was $.40.
The following table sets forth the high and low bid prices for the
Class A Common Stock as reported on the Electronic Bulletin Board for each
quarter since March31, 1997, for the periods indicated. Such information
reflects inter dealer prices without retail mark-up, mark down or commissions
and may not represent actual transactions. The Class B Common Stock does not
trade on any market.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
June 30, 1997 $2 3/4 $1 7/64
September 30, 1997 2 9/32 1 11/16
December 31, 1997 2 3/16 5/8
March 31, 1998 1 1/16 5/8
June 30, 1998 1 1/2 3/4
September 30, 1998 3/4 3/8
December 31, 1998 13/32 3/32
March 31, 1999 23/32 4/32
</TABLE>
The approximate number of record holders of our Class A Common Stock as
of June 30, 1999 was 221.
We have not declared or paid any cash dividends on the Common Stock nor
do we anticipate that any such dividends will be paid in the near future. We
intend to retain any earnings it may realize to finance operations and potential
expansion of its business. Holders of Series A Convertible Preferred Stock are
entitled to receive dividends at the rate of $80.00 per share per annum prior to
the payout of dividends to holders of common stock. The Preferred Stock dividend
may be paid in cash or in shares of Common Stock, at our option. It is our
current intention to pay such dividends in shares of Common Stock.
ITEM 2. LEGAL PROCEEDINGS.
On February 23, 1998, Mr. Daniel Hitchcock, landlord for the restaurant
located in South Miami, at 7315 S.W. 57 Avenue, filed a lawsuit Case No.:
98-24433 CA 41, pending in the Circuit Court of the Eleventh Judicial Circuit in
and for Miami-Dade County, Florida, seeking eviction of the Company for alleged
nonmonetary breaches of the provisions of the written lease agreement, including
a limitation on seating to 17 persons and alleging the lease did not authorize
outdoor seating. The Company answered the complaint on March 18, 1998, alleging
that the Company is in full compliance with the governing lease, as orally
modified by the
-18-
<PAGE> 19
parties. The action remains pending, and the Company is vigorously defending
against it. An eviction from these premises would have a very adverse effect on
the operating cash flow of the Company, and while the Company strongly believes
that it will be successful in the litigation, there is no way to predict the
outcome if the case is tried to a jury.
The Company is also defending a lawsuit styled AGRICOLA COCO BONH,
S.A.; AZUCAR, LTD.; BARRAS INVESTMENTS; WILLIAM BECKMAN; KRISTY CASH; CASTLE
CREEK VALLEY RANCH PARTNERSHIP DBPP; EDWARDS CAPITAL CORPORATION; MATTHEW
HOLSTEIN PENSION PLAN; PHILIP HOLSTEIN; BRUCE KNOX; ED LEINSTER; FREDERICK A.
LENZ; MICHAEL M. LOUIS, JR.; DAVID MALLEN; JOHN T. MITCHELL; NOSTRADAMUS, S.A.;
RICHARD M. PECK; POW WOW, INC.; BARRY SEIDMAN; JAMES SKALKO; JOSEPH SLOVES;
SURELOCK, INC. DOMINICK VICARI; WORLD CAPITAL FUNDING, L.L.C.; and ARNOLD A.
ZOUSMER vs. CHICKEN KITCHEN CORPORATION, a Florida corporation, and CHRISTIAN M.
DEBERDOUARE, Case No.: 99-4608 CA 0 pending in the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida, brought by preferred
shareholders of the Corporation for alleged breaches of a subscription agreement
to convert preferred shares into common shares. The Corporation is vigorously
defending the action. As the action is in the early stages of discovery, and not
yet at issue, it is impossible to determine whether, and to what extent, the
Corporation might suffer an adverse judgment.
The Corporation is defending a lawsuit styled CAFE 1429, INC. and
SLML, INC. v. CHICKEN KITCHEN CORPORATION, Case No.: 99-4709 CA 05, pending in
the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County,
Florida, brought by a landlord of the Corporation for eviction based on an
alleged non-payment default. The Corporation is defending the action on the
grounds that the plaintiffs agreed to accept certain compensation in the form of
corporate stock. As the action is in the discovery stage, it is impossible to
determine whether, and to what extent, the Corporation might suffer an adverse
judgment.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1996, the Company issued 2,409,168 shares of common stock
in a placement to 20 individuals at a price of $.33 per share. The placement was
effected without registration under the Securities Act of 1933 pursuant to an
exemption under Regulation D, Rule 504.
In December 1996, we issued 5,100,000 shares to Christian Mahe de
Berdouare in exchange for substantially all of the assets of "CK of Delaware".
The issuance was made
-19-
<PAGE> 20
without registration under the Securities Act of 1933 pursuant to an exemption
under Section 4(2) thereof.
On March 21, 1997, we issued 303,040 shares of common stock to Sammut &
Associates, Ltd., and 303,040 shares to Shannon Rosenbloom Inc. for consulting
services valued at $.33 per share. The issuance was made without registration
under the Securities Act of 1933 pursuant to an exemption under Section 4(2)
thereof.
On March 21, 1997, we issued 35,000 shares valued at $.33 per share to
Danalex, Inc. in connection with a proposed acquisition of all of the assets of
a restaurant in downtown Miami, Florida, which acquisition was consummated in
March 1998. The issuance was made without registration under the Securities Act
of 1933 pursuant to an exemption under Section 4(2) thereof.
In May and June 1997, we issued 150,000 shares to three persons for
services rendered at $.33 per share. The issuance was made without registration
under the Securities Act of 1933 pursuant to an exemption under Section 4(2)
thereof.
In September 1997, we issued 15,000 shares of common stock to two
persons in connection with the acquisition of the remaining 45% of a restaurant
location it did not already own. The issuance was made without registration
under the Securities Act of 1933 pursuant to an exemption under Section 4(2)
thereof.
In November 1997, we issued 4,000 shares of Series A Convertible
Preferred Stock to twenty-seven purchasers in an offering made under Section
4(2). Each purchaser executed a subscription agreement and consented to the
imprinting of a restrictive legend on the stock certificates. In connection with
this offering, we issued 290,000 shares of common stock for services valued at
$1.00 per share. The issuance was made without registration under the Securities
Act of 1933 pursuant to an exemption under Section 4(2) thereof.
In October 1997, we issued 500,000 shares of common stock for release
of claims and future consulting services to be rendered by Alain Berdouare and
200,000 shares to Sammut & Associates, Ltd., valued at $1.00 per share. See
"Certain Transactions." The issuance was made without registration under the
Securities Act of 1933 pursuant to an exemption under Section 4(2) thereof.
In October 1997, we issued 135,000 shares valued at $1.00 per share for
services rendered by one employee and one outside consultant. The issuance was
made without registration under the Securities Act of 1933 pursuant to an
exemption under Section 4(2) thereof. The issuance was made without registration
under the Securities Act of 1933 pursuant to an exemption under Section 4(2)
thereof.
In connection with the Company's sale of Series A Convertible Preferred
Stock, the Company issued 100,000 shares of restricted stock and options to
purchase 500,000 shares of
-20-
<PAGE> 21
common stock to Corporate Relations Group, Inc. a subsidiary of Stratcomm Media,
Ltd.; 100,000 options at $1.75, 100,000 at $2.10, 100,000 at $2.45, 100,000 at
$2.80 and 100,000 at $3.50. Additionally 140,000 shares were issued in relation
to that same transaction to Olympus Capital, Inc., at no cost, and an additional
200,000 stock options, 100,000 options at $1.25 and the other 100,000 at $1.75.
In January 1998, our outstanding common stock was converted into Class
A common stock by amendment to our Articles of Incorporation. Each shareholder
had the option to elect to receive shares of our Class B common stock rather
than Class A common stock. Effective February 20, 1998 the Company issued
1,018,950 shares of Class B Common Stock to 25 persons in exchange for shares of
Class A Common Stock in an exchange exempt under Section 3(a)(11) of the
Securities Act of 1933.
In December 1998, we issued 412,540 Class A common shares to the
holders of the Company's preferred stock as payment for the July 1,1998
Preferred Stock dividend. The issuance was made without registration under the
Securities Act of 1933 pursuant to an exemption under Section 4(2) thereof.
In April 1998, we issued 10,000 shares of Class A common stock to Mr.
Frank Blackman as part of his employment compensation package. The issuance was
made without registration under the Securities Act of 1933 pursuant to an
exemption under Section 4(2) thereof.
From April 1998, to June 1999, we issued 589,115 shares of Class A
common stock to preferred stock holders who elected to convert to common stock.
In November 1998, we issued 50,000 shares of Class A common stock to a
consultant and 100,000 shares to a service provider. The issuance was made
without registration under the Securities Act of 1933 pursuant to an exemption
under Section 4(2) thereof.
In December 1998, we issued 5,000 shares of Class A common stock to an
employer as a bonus. The issuance was made without registration under the
Securities Act of 1933 pursuant to an exemption under Section 4(2) thereof.
In March 1999, we issued 135,000 shares of Class A common stock to
Danalex, Inc. in connection with the purchase of the Bayside Marketplace
restaurant location. The issuance was made without registration under the
Securities Act of 1933 pursuant to an exemption under Section 4(2) thereof.
All of the transactions referred to above (except for the Rule 504
offering) are exempt from the registration requirements of the Securities Act of
1933, as amended, by virtue of Section 4(2) thereof covering transactions not
involving any public offering or involve no "offer" or "sale." No underwriter
was involved. As a condition precedent to each sale, the respective purchaser
was required to execute an investment letter and consent to the imprinting of a
-21-
<PAGE> 22
restrictive legend on each stock certificate received from the Company. Each
purchaser was offered access to information about the Company and the right to
meet with management.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act provides that a person who is
successful on the merits or otherwise in defense of an action because of service
as an officer or director or a corporation, such person is entitled to
indemnification of expenses actually and reasonably incurred in such defense.
F.S. 607.0850(3).
Such Act also provides that the corporation may indemnify an officer or
director, advance expenses, if such person acted in good faith and in a manner
the person reasonably believed to be in, or not opposed to, the best interests
of the corporation and, with respect to a criminal action, had no reasonable
cause to believe his conduct was unlawful. F.S. 607.0850(1)(2).
A court may order indemnification of an officer or director if it
determines that such person is fairly and reasonably entitled to such
indemnification in view of all the relevant circumstances. F.S. 607.0850(9).
The Company has adopted provisions in its articles of incorporation and
bylaws that limit the liability of its directors and provide for indemnification
of its directors and officers to the full extent permitted under the Florida
General Corporation Law.
PART F/S
The following financial statements are included herein:
Audited Financial Statements
Report of Independent Certified Public Accountant
Balance Sheets as of
March 31, 1999 and 1998
Statements of Operations,
For the Years Ended March 31, 1999 and 1998
Statement of Stockholders' Equity
For the Years Ended March 31, 1999 and 1998
-22-
<PAGE> 23
Statements of Cash Flows
For the Years Ended March 31, 1999 and 1998
Notes to Financial Statements.
PART III
EXHIBITS.
The following Exhibits were filed as exhibits to our registration
statement on Form S-1 (File No. 333-51251) with the same exhibit numbers and are
incorporated herein by this reference.
2.1 Agreement and Plan of Reorganization dated November 30, 1996
between the Company and Chicken Kitchen Corporation (Delaware)
3.1 Articles of Incorporation
3.2 First Amendment to Articles (increase in authorized)
3.3 Second Amendment to Articles (increase in authorized)
3.4 Third Amendment to Articles (name change)
3.5 Fourth Amendment to Articles (dual class common)
3.6 Certificate of Designation for Series A Preferred Stock
3.7 Bylaws
10.1 Agreement with Danelex, Inc.
10.3 Consulting Agreement - Sammut & Associates
The following Exhibits are filed herewith:
10.3 Standard Form of Franchise Agreement
10.4 Employment Agreement with Frank Blackman
10.5 Employment Agreement with Joseph A. Remsa, Jr.
-23-1
<PAGE> 24
SIGNATURES
In accordance with Section 12 of the Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned; thereunto duly authorized this 10 day of August 1999.
CHICKEN KITCHEN CORPORATION
By: /s/ Christian Mahe de Berdouare
----------------------------
Christian Mahe de Berdouare,
President and CEO
-24-
<PAGE> 25
CHICKEN KITCHEN CORPORATION
FINANCIAL STATEMENTS AS OF
MARCH 31, 1999 AND 1998
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 26
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
CHICKEN KITCHEN CORPORATION:
We have audited the accompanying balance sheets of CHICKEN KITCHEN CORPORATION
("the Company") as of March 31, 1999 and 1998, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CHICKEN KITCHEN CORPORATION as
of March 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has incurred losses from operations since
inception and may need additional funds to continue to operate. These factors
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 11. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
McKEAN, PAUL, CHRYCY, FLETCHER & CO.
Miami, Florida,
June 30, 1999
<PAGE> 27
CHICKEN KITCHEN CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 183,430 $ 357,056
Marketable securities 150,775 180,000
Other current assets 140,874 66,751
----------- -----------
Total Current Assets 475,079 603,807
----------- -----------
ADVANCES TO AFFILIATES 22,040 --
PROPERTY AND EQUIPMENT, net 781,998 640,291
INTANGIBLE ASSETS, net 1,827,390 2,072,674
OTHER ASSETS 64,746 69,949
----------- -----------
Total Assets $ 3,171,253 $ 3,386,721
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 345,892 $ 149,162
Accrued expenses 379,840 281,450
Note payable 103,403 92,603
----------- -----------
Total Current Liabilities 829,135 523,215
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Series A, convertible preferred stock, $0.0005 par value; 1,000,000 shares
authorized; 3,905 and 4,000 shares issued and outstanding 2 2
Common stock Class A, $0.0005 par value; 50,000,000 shares authorized;
11,877,954 and 11,635,248 issued; and 11,737,954 and 11,535,248
outstanding, respectively (Note 9) 5,880 5,768
Common stock Class B, $0.0005 par value; 15,000,000 shares authorized;
1,018,950 issued and outstanding in 1999. 509 --
Additional paid-in capital 6,245,389 5,995,232
Accumulated deficit (3,899,490) (3,137,496)
Treasury shares, at cost (10,172) --
----------- -----------
Total Stockholders' Equity 2,342,118 2,863,506
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,171,253 $ 3,386,721
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-2
<PAGE> 28
CHICKEN KITCHEN CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
March 31, 1999 March 31, 1998
------------ ------------
<S> <C> <C>
FOOD AND BEVERAGE SALES $ 6,676,497 $ 2,214,139
OPERATING EXPENSES:
Cost of sales 2,840,796 1,032,974
Labor and employee benefits 2,307,594 710,925
Direct operating expenses 850,361 289,499
Consulting fees 103,992 1,572,263
Administrative and general 877,560 686,863
Depreciation and amortization 382,676 135,983
------------ ------------
Total operating expenses 7,362,979 4,428,507
------------ ------------
Loss from operations (686,482) (2,214,368)
OTHER INCOME (EXPENSE):
Net realized and unrealized gains on sales of marketable securities 130,546 --
Recovery of merger and aborted acquisition costs -- 71,550
Other, net (2,125) 6,595
------------ ------------
Total other income, net 128,421 78,145
------------ ------------
Loss before income taxes (558,061) (2,136,223)
------------ ------------
INCOME TAXES -- --
------------ ------------
Net loss $ (558,061) $ (2,136,223)
============ ============
Weighted Average Common Shares Outstanding 12,121,463 10,698,823
Net Loss Per Common Share (Note 1) $ (0.07) $ (0.21)
============ ============
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-3
<PAGE> 29
CHICKEN KITCHEN CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Preferred Class a Class B
Stock Common Stock Common Stock
Amount Shares Amount Shares Amount
--------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1997 $ -- 10,100,248 $5,051 -- $ --
Issuance of common stock for professional
and employee services valued at $0.33 per
share (Note 5) -- 150,000 74 -- --
Issuance of 100,000 stock options for
consulting services (Note 8) -- -- -- -- --
Proceeds from issuance of 4,000 shares of
preferred stock at $1,000 per share less
issuance costs of $2,257,476 ($1,502,000 in
cash and 290,000 shares of common stock and
700,000 stock options with an aggregate value
of $755,476) (Note 5 and 8) 2 -- -- -- --
Issuance of common stock valued at $416,250 and
700,000 stock options valued at $339,226 for
consulting services in connection with issuance
of preferred stock (Note 5 and 8) -- 290,000 145 -- --
Issuance of common stock in connection with the
acquisition of the remaining 45% interest in
a restaurant location valued at $1.575 per
common share (Note 6) -- 15,000 8 -- --
Issuance of common stock valued at $1.575 per share
for consulting services performed by entities
owned by family members of the principal
stockholder (Note 5 and 8) -- 700,000 350 -- --
Issuance of common stock for professional and
employee services to individuals valued at
$1.575 per share (Note 5) -- 135,000 68 -- --
Issuance of common stock in connection with the
acquisition of restaurant assets valued at
$0.844 per common share (Note 6) -- 135,000 67 -- --
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated Treasury
Capital Deficit Shares Total
--------- ----------- -------- -----
<S> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1997 $1,857,046 $(1,001,273) $ -- $ 860,824
Issuance of common stock for professional
and employee services valued at $0.33 per
share (Note 5) 49,426 -- -- 49,500
Issuance of 100,000 stock options for
consulting services (Note 8) 15,593 -- -- 15,593
Proceeds from issuance of 4,000 shares of
preferred stock at $1,000 per share less
issuance costs of $2,257,476 ($1,502,000 in
cash and 290,000 shares of common stock and
700,000 stock options with an aggregate value
of $755,476) (Note 5 and 8) 1,742,520 -- -- 1,742,522
Issuance of common stock valued at $416,250 and
700,000 stock options valued at $339,226 for
consulting services in connection with issuance
of preferred stock (Note 5 and 8) 755,331 -- -- 755,476
Issuance of common stock in connection with the
acquisition of the remaining 45% interest in
a restaurant location valued at $1.575 per
common share (Note 6) 23,617 -- -- 23,625
Issuance of common stock valued at $1.575 per share
for consulting services performed by entities
owned by family members of the principal
stockholder (Note 5 and 8) 1,102,150 -- -- 1,102,500
Issuance of common stock for professional and
employee services to individuals valued at
$1.575 per share (Note 5) 212,557 -- -- 212,625
Issuance of common stock in connection with the
acquisition of restaurant assets valued at
$0.844 per common share (Note 6) 227,747 -- -- 227,814
</TABLE>
(CONTINUED)
F-4
<PAGE> 30
CHICKEN KITCHEN CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
(CONTINUED)
<TABLE>
<CAPTION>
Preferred Class A Class B
Stock Common Stock Common Stock
Amount Shares Amount Shares Amount
----------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Issuance of common stock valued at $0.675 per share
and 100,000 stock options pursuant to employment
agreement (Note 5 and 8) $ -- 10,000 $ 5 -- $ --
Net loss for the year -- -- -- -- --
----------- ----------- --------- --------- --------
BALANCE AT MARCH 31, 1998 2 11,535,248 5,768 -- --
Conversion of Class A common stock into Class B
common stock (Note 5) -- (1,018,950) (509) 1,018,950 509
Conversion of 95 shares of Series A preferred stock
into Class A common stock (Note 5) -- 524,744 262 -- --
Issuance of common stock for dividend on Series A
convertible, preferred stock (Note 5) -- 426,912 213 -- --
Acquisition of treasury stock -- (20,000) -- -- --
Issuance of common stock valued between $0.10 and
$0.34 per share to individuals for professional
services rendered (Note 5) -- 155,000 78 -- --
Issuance of common shares pursuant to prior year
acquisition agreement (Note 6) -- 135,000 68 -- --
Net loss for the year -- -- -- -- --
----------- ----------- --------- --------- --------
BALANCE AT MARCH 31, 1999 $ 2 11,737,954 $ 5,880 1,018,950 $ 509
=========== =========== ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-In Accumulated Treasury
Capital Deficit Shares Total
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock valued at $0.675 per share
and 100,000 stock options pursuant to employment
agreement (Note 5 and 8) $ 9,245 $ -- $ -- $ 9,250
Net loss for the year -- (2,136,223) -- (2,136,223)
----------- ----------- -------- -----------
BALANCE AT MARCH 31, 1998 5,995,232 (3,137,496) -- 2,863,506
Conversion of Class A common stock into Class B
common stock (Note 5) -- -- -- --
Conversion of 95 shares of Series A preferred stock
into Class A common stock (Note 5) (262) -- -- --
Issuance of common stock for dividend on Series A
convertible, preferred stock (Note 5) 203,720 (203,933) -- --
Acquisition of treasury stock -- -- (10,172) (10,172)
Issuance of common stock valued between $0.10 and
$0.34 per share to individuals for professional
services rendered (Note 5) 46,767 -- -- 46,845
Issuance of common shares pursuant to prior year
acquisition agreement (Note 6) (68) -- -- --
Net loss for the year -- (558,061) -- (558,061)
----------- ----------- -------- -----------
BALANCE AT MARCH 31, 1999 $ 6,245,389 $(3,899,490) $(10,172) $ 2,342,118
=========== =========== ======== ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-5
<PAGE> 31
CHICKEN KITCHEN CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITES:
Net loss $(558,061) $(2,136,223)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 382,676 135,983
Amortization of prepaid consulting -- 150,000
Recovery of merger and aborted acquisition costs -- (71,550)
Issuance of common stock for services 46,845 1,389,468
Net realized and unrealized gains on sales of
marketable securities (130,546) --
Changes in operating assets and liabilities:
Other current assets (74,123) (39,541)
Advances to affiliate -- (19,571)
Intangibles and other assets -- (15,216)
Advances to affiliates and other assets (16,837) --
Accounts payable and accrued expenses 275,952 268,036
--------- -----------
Net cash used in operating activities (74,094) (338,614)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (259,930) (90,248)
Sale (purchase) of marketable securities, net 159,770 (180,000)
Acquisition of restaurant assets, net of cash acquired of $22,608 -- (1,793,190)
--------- -----------
Net cash used in investing activities (100,160) (2,063,438)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term obligations 10,800 --
Purchase of treasury stock (10,172) --
Proceeds from sale of preferred stock, net of cash issuance
costs of $1,502,000 -- 2,498,000
--------- -----------
Net cash provided by financing activities 628 2,498,000
--------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (173,626) 95,948
--------- -----------
CASH AND CASH EQUIVALENTS, beginning of year 357,056 261,108
--------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 183,430 $ 357,056
========= ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest expense $ 6,734 $ 10,780
========= ===========
Cash paid for income taxes $ -- $ --
========= ===========
</TABLE>
The accompanying notes to financial statements are an integral
part of these statements.
F-6
<PAGE> 32
CHICKEN KITCHEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Company was organized under the laws of the State of Florida in
November 1994 under the name Chicken Acquisition Corp. The Company was a
wholly-owned subsidiary of Stratcomm Media, Ltd., a Canadian corporation
and began operations, in November 1995, of a restaurant located in Miami,
Florida, under the trade name "Chicken Kitchen" pursuant to a licensing
agreement with Chicken Kitchen Corporation. In December 1996, the Company
issued 2,409,168 shares of common stock at $0.33 per share ($795,000 in the
aggregate) in a private placement ("the Offering"). In connection with the
Offering, the Company acquired all the rights, title and interest in and to
the name "Chicken Kitchen" and other intangibles (see Note 5). The Company
then changed its name from Chicken Acquisition Corporation to Chicken
Kitchen Corporation. As of March 31, 1999 and 1998, the Company operated
six and five restaurant locations in South Florida, respectively.
During the year ended March 31, 1999, the Company commenced the selling of
franchise locations. The franchise agreement grants the franchisee a
non-exclusive license to open and operate a "Chicken Kitchen" restaurant
for a 20 year period, with one additional 20 year option. The Company
collects an initial franchise fee of $25,000, royalty fees and a percentage
of revenues for advertising. At March 31, 1999, one franchise agreement had
been signed; although, the restaurant had not yet opened.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the period reported.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be cash equivalents. The
concentration of credit risk associated with cash and cash equivalents is
considered low due to the credit quality of the issuers of the financial
instruments.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
computed over the estimated useful lives (ranging from five to twenty
years) of the assets on a straight-line method.
INTANGIBLE ASSETS
Registered trademarks and trade names are being amortized over their
estimated useful lives of 15 years. In connection with the acquisition of
restaurant locations, the Company assigns a portion of the cost of the
acquisition to the value of the lease acquired ("Leasehold interest") and
amortizes the amount over the life of the lease (ranging from 4 to 20
years). The cost of acquisitions in excess of the fair value of net assets
acquired is being amortized on a straight-line basis over 10 years.
F-7
<PAGE> 33
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful lives of its
intangible and other long-lived assets or whether the remaining balance of
its intangible and other long-lived assets should be evaluated for possible
impairment. The Company uses an estimate of the related undiscounted cash
flows over the remaining lives of the intangible and other long-lived
assets in determining whether an impairment has occurred. No impairments
exist at March 31, 1999.
INCOME TAXES
The Company has established deferred tax assets and liabilities for
temporary differences between financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
LOSS PER SHARE
Basic loss per common share is computed by dividing net loss attributable
to common stockholders (net loss of $558,061 and $2,136,223, for the years
ended March 31, 1999 and 1998, respectively, plus the pro rata portion of
preferred dividends of $314,189 and $120,000, for the years ended March 31,
1999 and 1998, respectively) by the weighted average number of shares of
common stock outstanding during the year. Diluted loss per share, which
assumes that the convertible preferred stock is converted into Class A
voting common stock and the stock options to purchase shares of Class A
voting common stock (see Notes 5 and 8) are exercised, is not presented
because the effect would be anti-dilutive for both 1999 and 1998. The
weighted average shares outstanding used in the computation of net loss
attributable to common shares are as follows:
<TABLE>
<CAPTION>
Weighted Average Shares
Outstanding
For the Years Ended
March 31,
---------- ----------
1999 1998
---------- ----------
<S> <C> <C>
Class A common stock 11,157,527 10,698,823
Class B common stock 963,936 --
---------- ----------
12,121,463 10,698,823
========== ==========
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, accrued payroll, and other accrued
liabilities approximate fair value because of their short term maturities.
The marketable securities are classified as trading securities and are
recorded at fair value based upon quoted market prices. Both realized and
unrealized gains and losses are included in other income or expense during
the period incurred. The cost of securities sold is based on the specific
identification method.
FRANCHISE FEES
Initial franchise fees and the related direct costs are deferred until the
franchised restaurant opens. Monthly franchise fees are accrued based on
the specified percentages of the franchisees' sales for the month.
Advertising fees received from the franchisees are reflected as a liability
until the advertising expenditures are made.
F-8
<PAGE> 34
STOCK-BASED COMPENSATION
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123") allows either adoption of a fair value method for accounting for
stock-based compensation plans or continuation of accounting under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations with supplemental
disclosures. The Company has chosen to account for its stock options using
the intrinsic value based method prescribed in APB Opinion No. 25 and,
accordingly, does not recognize compensation expense for stock option
grants made at an exercise price equal to or in excess of the fair market
value of the stock at the date of grant. Pro forma net income and earnings
per share amounts as if the fair value method had been adopted are
presented in Note 8. SFAS No. 123 does not impact the Company's results of
operations, financial position or cash flows.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement No. 130, ("SFAS No. 130")
"Reporting Comprehensive Income", which establishes standards for reporting
and display of comprehensive income and its components (revenue, expenses,
gains, and losses) in a full set of general-purpose financial statements.
The Company adopted SFAS No. 130 on April 1, 1998. The effect of adopting
this standard did not have a material effect on the Company's financial
position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform
with the current year presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment, consisted of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
----------- ---------
<S> <C> <C>
Restaurant equipment $ 414,133 $ 330,178
Furniture, fixtures and office equipment 208,573 124,082
Leasehold improvements 351,181 117,528
Assets under capital lease 38,723 4,880
Construction in progress -- 156,853
----------- ---------
Total cost 1,012,610 733,521
Less accumulated depreciation and amortization (230,622) (93,230)
----------- ---------
Property and equipment, net $ 781,988 $ 640,291
=========== =========
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets, consisted of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Trade name $ 12,245 $ 12,245
Leasehold interest 614,734 614,734
Excess of acquisition costs over net assets acquired
1,545,648 1,545,648
----------- -----------
Total cost 2,172,627 2,172,627
Less accumulated amortization (345,237) (99,953)
----------- -----------
Intangible assets, net $ 1,827,390 $ 2,072,674
=========== ===========
</TABLE>
Leasehold interest and excess of acquisition costs over net assets acquired
were recorded as a result of the acquisitions described in Note 6.
F-9
<PAGE> 35
5. STOCKHOLDERS' EQUITY
In April 1997, the Company issued 150,000 shares of its restricted common
stock for professional and employee services, valued at $0.33 per share
($49,500 in the aggregate), representing the price used for the Company's
private placement in December 1996, as the Company's stock did not begin
trading until June 1997.
In November 1997, the Company issued 700,000 shares of its restricted
common stock for consulting services (to entities owned by family members
of the Principal Stockholder - see Note 10) and 135,000 shares of
restricted common stock for professional and employee services. These
shares have been valued at $1.575 per share ($1,315,125 in the aggregate),
representing the market value of the common stock on the date issued
discounted by 10% due to trading restrictions, and charged to consulting
fees in the accompanying statement of operations for the 1998 fiscal year.
In January 1998, the Company amended its Articles of Incorporation to
increase the total number of authorized common shares to 65,000,000,
divided into two classes (50,000,000 shares of Class A and 15,000,000
shares of Class B) and increase the total number of authorized preferred
shares to 1,000,000. In connection with the amendment, holders of Class A
common stock were given a one-time opportunity to convert their Class A
common stock into Class B common stock. In April 1998, 1,018,950 shares of
Class A common stock were converted into Class B common stock. The
dividends, distributions and relative rights, privileges and limitations of
the Class B common stock are identical to the Class A common stock, except
that each share of Class B common stock is entitled to 10,000 votes (the
Class A common stock is entitled to 1 vote), and the Class B common stock
is convertible at any time into Class A common stock.
In March 1998, in connection with an employment agreement, the Company
issued 10,000 shares of its restricted common stock valued at $0.675 per
share ($6,750 in the aggregate), representing the market value of the
common stock on the date issued, discounted by 10% due to trading
restrictions.
In September and December 1998, 155,000 shares of restricted common stock
were issued for professional and consulting services and were valued at
$46,845 in the aggregate, representing the market value of the common stock
on the dates issued, (discounted by 10% due to trading restrictions).
In March 1999, 135,000 shares of Class A common stock were issued in
connection with an acquisition agreement entered into by the Company during
February 1998 (see Note 6).
SERIES A CONVERTIBLE PREFERRED STOCK
During November 1997, the Company issued 4,000 shares of Series A
Convertible preferred stock at $1,000 per share ($4,000,000 in the
aggregate) in an offering pursuant to Regulation D promulgated pursuant to
the Securities Act of 1933 ("the Second Offering"). The proceeds were used
to purchase of two restaurant locations in Miami, Florida ($1,312,500),
acquire the remaining 45% interest in a restaurant location in Miami,
Florida ($85,000), pay certain finders fees, investors and corporate
relations, and professional fees ($1,502,000 in the aggregate), repay a
bridge loan ($600,000), and provide working capital for the Company
($500,500). In connection with the Series A preferred stock issuance, the
Company issued 290,000 shares of its restricted common stock for consulting
services rendered. The value of the shares ($416,250) has been reflected as
issuance costs in the accompanying Statement of Stockholders' Equity and
offset against the proceeds from the Series A preferred stock offering.
F-10
<PAGE> 36
The holders of Series A preferred stock have no voting rights and have a
liquidation preference of $1,300 per share over the common stock. Each
share is convertible at any time, at the option of the holder, into a
number of shares of common stock equal to $1,000 divided by the lower of
(a) 75% of the closing bid price of the common stock on the first day that
proceeds of the offering were disbursed or (b) 65% of the average closing
bid price of the common stock over the five trading days immediately prior
to the date of conversion. Upon conversion, additional shares (up to a
maximum of 15%) are also issued as liquidated damages to the holders
because a registration statement was not filed within the time specified in
the Second Offering. During the year ended March 31, 1999, 95 shares of
Series A preferred stock were converted into 539,116 shares (including
47,703 shares for penalties and 14,372 shares for dividends) of Class A
common stock, in accordance with the Second Offering.
Dividends on the Series A preferred stock are payable at the rate of 8% per
annum payable on July 1, in either cash or, at the option of the Company,
in Class A common stock. In December 1998, 412,540 shares of Class A common
stock were issued for payment of the July 1, 1998 dividend. The Company
intends on paying the July 1, 1999 dividend in Class A common stock.
6. RESTAURANT ACQUISITIONS
On January 3, 1997, Ambassa Holdings, Inc., an affiliate owned by the
President (who is the Principal Stockholder) of the Company, purchased a
55% ownership interest in Patty & Cesar's Food Service, Inc. ("P&C"),
pursuant to the terms of an agreement for sale of shares by shareholders
dated November 15, 1996. In November 1997, the Company acquired the
remaining 45% for $85,000 and the issuance of 15,000 shares of the
Company's common stock valued at $1.575 per share ($23,265 in the
aggregate), representing the fair market value of the common stock on the
date of issue discounted by 10% due to trading restrictions. The
transaction has been accounted for under the purchase method of accounting.
The total cost of the acquisition of $333,000, not including net cash
acquired of $19,858, was allocated to equipment ($128,000), leasehold
interest ($100,000), other assets ($22,000), net liabilities ($110,000) and
was based on fair values with the excess cost ($194,000) being amortized
over 10 years.
In November 1997, the Company acquired the assets of two additional
restaurant locations for $1,382,000, not including net cash acquired of
$2,250. The transaction has been accounted for under the purchase method of
accounting. The cost of the acquisition was allocated to equipment
($220,000), leasehold interest ($300,000), other assets ($21,000) and was
based on fair values with the excess cost ($841,000) being amortized over
10 years.
In February 1998, the Company acquired a restaurant location for $330,000
and the issuance of 135,000 restricted shares of the Company's Class A
common stock.valued at $0.844 (representing the market value of the
Company's Class A common stock on the date of issue discounted by 10% due
to trading restrictions). In March 1999, in accordance with the acquisition
agreement, an additional 135,000 shares of Class A common stock were issued
as the market value of the Class A common stock was less than $2.00 per
share at the one-year anniversary date of the closing. The February 1998
acquisition was accounted for in accordance with EMERGING ISSUES TASK FORCE
97-15 "CONTINGENCY ARRANGEMENTS BASED ON SECURITY PRICES IN PURCHASE
BUSINESS COMBINATIONS", which takes into consideration the shares which
were issued in March 1999. The cost of the acquisition of $569,000, not
including net cash acquired of $500, was allocated to equipment ($28,000),
leasehold interest ($30,000), other assets ($4,700), net liabilities
($3,800), and was based on fair values with the excess cost ($510,100)
being amortized over 10 years.
F-11
<PAGE> 37
The statements of operations and cash flows for the twelve month period
ended March 31, 1998 include the four restaurant locations acquired by the
Company from the respective acquisition dates through March 31, 1998.
Unaudited pro forma results of operations giving effect to the acquisitions
as of April 1, 1997 is reflected below.
Unaudited
For the Year Ended
March 31, 1998
------------------
Revenues, net $ 6,411,000
Net loss applicable to common shares $(2,292,000)
Loss per common share $ (0.21)
Average common shares outstanding 10,815,125
Pro forma net loss per share is computed by dividing the pro forma net loss
by the pro forma average number of common shares outstanding during the
periods.
Pro forma average number of common shares outstanding represents the number
of shares of common stock outstanding after giving retroactive effect to
the 15,000 and 135,000 shares issued in connection with the acquisitions.
The pro forma information is not necessarily indicative of the results of
operations that would have occurred had the acquisition taken place on
April 1, 1997 of the year presented, or of results, which may occur in the
future.
7. INCOME TAXES
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $2,871,000 and $2,397,000, at March 31, 1999 and
1998, respectively, which begin to expire in 2011. Due to the change in
control in December 1996 of the Company (see Note 1) and acquisitions, a
portion of the net operating losses could be limited in the future.
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
----------- ---------
<S> <C> <C>
Deferred tax (liabilities) assets
Net operating loss carryforwards $ 1,119,799 $ 934,836
Other temporary timing differences 6,246 --
Difference in depreciation and
amortization of assets (35,192) (37,107)
----------- ---------
1,090,853 897,729
Less valuation allowance (1,090,853) (897,729)
----------- ---------
Net deferred tax (liabilities) assets $ -- $ --
=========== =========
</TABLE>
Realization of the above deferred tax assets is dependent on generating
sufficient taxable income in the future to offset the deductible temporary
differences generating the deferred tax assets. Net deferred tax assets
have been fully reserved, as their net realizability is not assured at the
current time.
8. STOCK OPTIONS
In March 1997, the Company adopted a stock option plan, as amended, to
grant options to employees or other individuals who perform services for
the Company, to purchase up to 2,000,000 shares of the Company's common
stock. In April 1997, the Company granted 900,000 options to officers and
100,000 options (which has been recognized as compensation totaling
$15,593) to a non-employee party related to the Principal Stockholder,
before the Company's common stock began publicly trading. The options are
exercisable at any time over a ten-year period at an exercise price of
$0.33 per share. In March 1998 pursuant to an employment agreement, an
officer was granted 100,000 options to acquire restricted common stock at
an exercise price of $0.650 per share. The options are exercisable at any
time over a ten-year period. The market value of the Company's common stock
on the date of was $0.675. The Company recognized compensation cost of
$2,500 for the difference between the exercise price and the fair value on
the date of grant.
F-12
<PAGE> 38
In connection with the Series A preferred stock offering (see Note 5), the
Company issued of 200,000 options to a 5% stockholder of the Series A
preferred stock and 500,000 options to a stockholder of the Company's
common stock, when the market price of the Company's common stock was
$1.56. The value of the options ($339,226), on the date of grant using the
Black-Scholes option pricing model, has been reflected as issuance costs in
the accompanying Statement of Stockholders' Equity and offset against the
proceeds from the Series A preferred stock offering (see Note 5). The
200,000 options expired May 11, 1999 and the 500,000 options expire 100,000
annually through 2002, respectively, and have exercise prices of
$1.25-$1.75 and $1.75-$3.50, respectively.
During the year ended March 31, 1999, 100,000 options were granted to an
officer which are exercisable at any time over a ten-year period with an
exercise price of $0.20 per share representing the market value of the
Company's common stock on the date of grant.
The following is a summary of stock option activity for the years ended
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Employee Weighted Average Non-Employee Weighted Average
Option Shares Exercise Price Option Shares Exercise Price
------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Outstanding at April 1, 1997 -- $ -- -- $ --
Granted 1,000,000 0.36 800,000 1.99
Cancelled or expired -- -- -- --
Exercised -- -- -- --
---------- ---------
Outstanding at March 31, 1998 1,000,000 0.36 800,000 1.99
Granted 100,000 0.20 -- --
Cancelled or expired (100,000) 0.33 (100,000) 1.75
Exercised -- -- -- --
---------- ---------
Outstanding at March 31, 1999 1,000,000 $ 0.35 700,000 $ 2.03
========== =========== ========= ===========
Exercisable at March 31,1999 1,000,000 700,000
========== ===========
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has
been recognized for outstanding stock options. Had compensation cost for
the Company's outstanding stock options been determined based on the fair
value at the grant dates for those options consistent with SFAS No. 123,
the Company's net loss and loss per share would have differed as reflected
by the pro forma amounts indicated:
<TABLE>
<CAPTION>
For the Year Ended
March 31, March 31,
1999 1998
----------- -------------
<S> <C> <C>
Net loss applicable to common stock - as reported $ (872,250) $ (2,256,223)
=========== =============
Net loss applicable to common stock - pro forma $ (892,010) $ (2,433,260)
=========== =============
Net loss per common share - as reported $ (0.07) $ (0.21)
=========== =============
Net loss per common share - pro forma $ (0.07) $ (0.23)
=========== =============
</TABLE>
The value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model using the following weighted average
assumptions for the years ended March 31, 1999 and 1998, respectively:
expected volatility approximating 151% and 56%, risk-free interest rate of
7% and 7%, expected dividends of $0 and $0, and expected lives of 10 years
and a range from 1 to 10 years.
F-13
<PAGE> 39
9. COMMITMENTS AND CONTINGENCIES
LITIGATION AND CLAIMS
The Company and its principal shareholder are currently defendants in a
lawsuit brought by preferred stockholders (who purchased $4,000,000 of
Series A Convertible Preferred Stock in November 1997) for alleged breaches
of a subscription agreement to convert preferred shares into common stock.
As the lawsuit is in the discovery stage, legal counsel had advised the
Company that it is not possible to determine whether, and to what extent if
any, the Company might suffer an adverse judgement. The Company is
vigorously defending the action.
The Company is also currently a defendant in two separate lawsuits filed by
landlords of the Company for eviction based on alleged non-payments. As the
lawsuits are in the discovery stage, legal counsel had advised the Company
that it is not possible to determine whether, and to what extent if any,
the Company might suffer adverse judgements. The Company is vigorously
defending the actions.
LEASES
The Company leases the facilities for office and restaurant locations under
various non-cancelable operating lease agreements, one of which is with a
related party (lease expense of approximately $26,000 annually). Certain of
these lease agreements contain provisions for rent overrides based on a
percentage of gross sales. Additionally, the Company, in certain instances,
is responsible for real estate taxes and common area maintenance costs. The
leases also provide for renewal options. Future minimum rental commitments
with unrelated parties, excluding renewal option periods, under the
operating lease agreements at March 31, 1999 are as follows: 2000 -
$289,366; 2001 - $287,336; 2002 - $275,146; 2003 - $258,170; 2004 -
$261,827; and thereafter $1,669,309.
Total occupancy expense was $488,640 and $165,426, for the years ended
March 31, 1999 and 1998, respectively, and is included in "Direct operating
expenses" in the accompanying statements of operations.
GUARANTEE
A non-interest bearing note payable (with an imputed principal balance and
accrued interest of $103,403 and $92,603 at March 31, 1999 and 1998) made
in connection with the acquisition of restaurant assets and a location is
collateralized by 100,000 issued shares of the Company's restricted Class A
common stock held in escrow. The note was due in February 1999 and has not
yet been repaid by the Company. The Company expects to repay the note by
issuing the common stock. The holder of the note is currently contesting
the repayment; accordingly, the final payment terms are not yet
determinable.
10. RELATED PARTIES
A summary of the total amount of compensation paid to related parties is as
follows:
<TABLE>
<CAPTION>
Compensation Paid
For the Year Ended March 31,
1999 1998
----------- ----------
<S> <C> <C>
To a director of the Company for services rendered
(see Statement of Stockholders' Equity)
$ -- $ 16,130
To entities owned by family members of principal
stockholder for consulting services 90,926 186,062
To a stockholder of the Company's common stock in
connection with Second Offering (see Note 5)
-- 825,000
To a 5% stockholder of the Company's Series A preferred
stock in connection with Second Offering (see Note 5) -- 630,000
-------- ----------
Total $ 90,926 $1,657,192
======== ==========
</TABLE>
F-14
<PAGE> 40
During the year ended March 31, 1998, the Company also issued common stock and
options for common stock, valued on the date of grant using the Black-Scholes
option pricing model, as follows:
<TABLE>
<CAPTION>
Stock and Options Issued
-----------------------------------------------------------
Options Value of
Shares of Value of for Common Options for
Common Stock Common Stock Stock Common Stock
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
To a director of the Company for services rendered
(see Statement of Stockholders' Equity) 110,000 $ 142,165 -- $ --
To entities owned by family members of Principal Stockholder
For services in connection with initial offering 303,040 100,000 -- --
For consulting services 700,000 1,102,500 100,000 15,593
To a stockholder of the Company's common stock in
connection with Second Offering (see Note 5) 100,000 140,625 500,000 222,394
To a 5% stockholder of the Company's Series A preferred
stock in connection with Second Offering
(see Note 5) 140,000 196,875 200,000 116,832
--------- ---------- ------- --------
Total 1,353,040 $1,682,165 800,000 $354,819
========= ========== ======= ========
</TABLE>
11. GOING CONCERN AND MANAGEMENT'S PLANS
The Company has incurred losses from operations since inception, and at
March 31, 1999 the Company had a working capital deficit of $(354,056).
Management has indicated that cash generated from store locations and the
selling of franchisees should be sufficient to fund operations. However, no
assurance can be given that additional funds will not be required. If
additional funds are required, the inability to raise such funds may have
an adverse effect upon operations.
F-15
<PAGE> 1
Exhibit 10.3
CHICKEN KITCHEN
FRANCHISE AGREEMENT
----------------------------------------
FRANCHISEE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................................. 2
1. GRANT................................................................................ 2
II. TERMS AND RENEWAL.................................................................... 3
II. DUTEES OF FRANCHISOR................................................................. 4
IV. FEES................................................................................. 5
V. CONSTRUCTION OF RESTAURANT........................................................... 6
VI. TRAINING............................................................................. 7
VII. DUTIES OF FRANCHISEE................................................................. 7
VIII. PROPRIETARY MARKS.................................................................... 11
IX. CONFIDENTIAL MANUAL OF OPERATING PROCEDURES ("MOP").................................. 13
X. CONFIDENTIAL INFORMATION............................................................. 14
XI. ACCOUNTING AND RECORDS............................................................... 14
XII. ADVERTISING.......................................................................... 15
XIII. INSURANCE............................................................................ 17
XIV. TRANSFER OF INTEREST................................................................. 18
XV. DEFAULT AND TERMINATION.............................................................. 21
XVI. OBLIGATIONS UPON TERMINATION OR EXPIRATION........................................... 24
XVII. COVENANTS............................................................................ 26
XVIII. TAXES, PERMITS, AND INDEBTEDNESS..................................................... 28
XIX. INDEPENDENT CONTRACTOR AND INDEMNIFICATION........................................... 28
XX. APPROVALS AND WAIVERS................................................................ 29
XXI. NOTICES.............................................................................. 29
XXII. ENTIRE AGREEMENT..................................................................... 30
XXIII. SEVERABILITY AND CONSTRUCTION........................................................ 30
XXIV. APPLICABLE LAW....................................................................... 31
XXV. ACKNOWLEDGMENTS...................................................................... 32
RIDER A - SITE SELECTION ADDENDUM
</TABLE>
<PAGE> 3
CHICKEN KITCHEN
FRANCHISE AGREEMENT
This Agreement is entered into as of the ________ day of ________ 1999,
by and between Chicken Kitchen Corporation, a Florida corporation (Franchisor),
and __________________________ (Franchisee).
INTRODUCTION
A. Franchisor has the right to establish, operate and to license
others to operate restaurants which feature marinated grilled chicken and
complimentary menu items including fresh salads, rice, baked potatoes,
beans, corn, fruit salad, soups, sauces, desserts and beverages, and which
offer delivery service (the Chicken Kitchen System).
B. The Chicken Kitchen System includes certain trade names,
service marks, trademarks, logos, emblems, and indicia of origin, including
the mark CHICKEN KITCHEN(R), the chicken logo and other trade names,
service marks, and trademarks as are now, or in the future may be,
designated by Franchisor for use in connection with the Chicken Kitchen
System (the "Proprietary Marks"), quality food products, distinctive
design, decor, color scheme and interior layout for the restaurants,
specifications for equipment and menu items, operating procedures, and
business practices and policies.
C. Franchisor continues to develop, use, and control the use of
the Proprietary Marks so that the public will recognize the Chicken Kitchen
System as the source of services and products having high standards of
quality, appearance, and service.
D. Franchisee wishes to acquire the right to use the Chicken Kitchen
System at the location specified in this Agreement.
E. Franchisee understands and acknowledges the importance of the high
standards of quality, cleanliness, appearance and service of the Chicken
Kitchen System, and the necessity of operating the franchise business in
conformity with the standards and specifications specified by Franchisor.
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments set forth in this Agreement, agree as follows:
1. GRANT
A. Franchisor grants to Franchisee a non-exclusive license and franchise to
open and operate a Chicken Kitchen Restaurant at __________________________
(the "Franchise Business"). Franchisee agrees to operate the Franchise
Business throughout the term of this Agreement in conformity with the terms
of this Agreement.
B. This license is for the designated location only. Franchisee may not
relocate the Franchise Business without the prior written consent of
Franchisor. If, at the time of execution of this Agreement, the location of
the Franchise Business is not known, Franchisee shall lease or acquire a
location, subject to Franchisor's approval as provided in the Site
Selection Addendum, attached as Rider A- Provided Franchisee is not in
default under this Agreement, Franchisor agrees not to open or grant a
license to anyone other than Franchisee to open a restaurant utilizing the
Chicken Kitchen System within 2 miles of the Franchise Business if the
Franchise Business is located in a suburban area or within1/2mile of the
Franchise Business if the Franchise Business is located in a downtown or
densely populated area (the "Protected Area").
C. Franchisor may use, and license others to use, the Chicken Kitchen System
for the operation of restaurants at any location outside the Protected Area
on such terms and conditions as Franchisor deems appropriate. Also,
Franchisor may market products bearing the Proprietary Marks which are the
same as or similar to products sold or used in the Franchise Business
through retail outlets other than restaurants that may be located in and
outside of the Protected Area. In addition, Franchisor may acquire chicken
restaurants or companies which own or franchise chicken restaurants which
are located within or outside the Protected Area and may use, or license
the use of, other marks at any location within or outside the Protected
Area for the operation of restaurants which may be similar to the Franchise
Business, without offering Franchisee the right to open the restaurant(s).
2
<PAGE> 4
II. TERMS AND RENEWAL
A. The term of this Agreement shall expire on the 20th anniversary of the date
the Franchise Business opens for business.
B. Franchisee may renew this Agreement for 1 additional term of 20 years,
provided:
1. Franchisee gives Franchisor written notice of Franchisee's election to
renew not less than 12 months, nor more than 15 months, prior to the
end of the initial term.
2. Franchisee renovates and modernizes the Franchise Business premises,
including equipment, signs, decor and furnishings, to reflect the then
current standards and image of the Chicken Kitchen System.
3. Franchisee is not, at the time of notice and at the time of renewal,
in default of any provision of this Agreement, or any other agreement
between Franchisee and Franchisor or any subsidiary or affiliate of
Franchisor, and Franchisee has performed its obligations throughout
the terms of the agreements.
4. Franchisee has satisfied all monetary obligations owed by Franchisee
to Franchisor and Franchisor's subsidiaries and affiliates, and has
timely met those obligations throughout the term of this Agreement.
5. Franchisee has the right to remain in possession of the designated
location for the duration of the renewal term.
6. Franchisee executes Franchisor's then current form of renewal
franchise agreement, which agreement shall supersede and replace this
Agreement, and pays a renewal fee equal to 50% of the then current
initial franchise fee for new franchises or, if Franchisor is not
granting new franchises at the time,the renewal fee shall be
$25,000.00. The terms and conditions of the renewal franchise
agreement may differ materially from the provisions of this Agreement,
including higher fees and advertising contribution.
7. To the fullest extent permitted by law, Franchisee executes a general
release of all claims against Franchisor and its subsidiaries and
affiliates, and their respective officers, directors, agents and
employees.
3
<PAGE> 5
III. DUTEES OF FRANCHISOR
A. Franchisor shall make available to Franchisee standard plans and
specifications for the layout of a Chicken Kitchen Restaurant. These plans
and specifications may be used only in the preparation of final plans and
specifications for the Franchise Business. An architect and/or engineer
must be employed by Franchisee to prepare final architectural and
mechanical plans and specifications, which plans must be approved by
Franchisor.
B. Franchisor will, upon request, provide guidelines for evaluating proposed
sites for the Franchise Business.
C. Franchisor will make available an initial training program prior to the
opening of the Franchise Business for Franchisee, the initial General
Manager and a manager trainee, and the Head Cook, and shall make available
such other training programs for Franchisee and Franchisee's employees as
Franchisor deems appropriate.
D. Franchisor shall provide up to 7 days of pre-opening and opening guidance
and assistance at the Franchise Business.
E. Franchisor shall provide continuing advisory assistance to Franchisee in
the operation, advertising and promotion of the Franchise Business as
Franchisor deems advisable. The advisory assistance may be provided in
person or by telephone, E-mail or written communication.
F. Franchisor shall make available, from time to time, advertising and
promotional materials for local advertising as described in Section XIII.B.
Franchisee must pay, within 30 days of invoicing, the charge for all
materials ordered by Franchisee.
G. Franchisor shall provide Franchisee with bookkeeping guidelines and
procedures for maintaining internal financial controls.
H. Franchisor shall loan to Franchisee 1 numbered copy of the Manual of
Operating Procedures (the "MOP") as more fully described in Section IX. If
the MOP is lost or damaged, Franchisor will furnish Franchisee with a
replacement MOP for $500.
I. Upon request of Franchisee, provided Franchisor has personnel available,
Franchisor shall provide additional consulting services. Franchisee shall
pay Franchisor for additional consulting services requested by Franchisee
the sum of $300.00, as adjusted each January to reflect changes in the
Consumer Price Index - All Items (CPI-W) with the base year being January
1998, per day (up to a maximum of 8 hours) per person plus all travel,
lodging, meals and other expenses incurred by Franchisor's personnel who
provide the requested consulting services.
4
<PAGE> 6
IV. FEES
A. Franchisee agrees to pay to Franchisor an initial franchise fee of
$25,000,00, payable (i) $10,000.00 upon execution of this Agreement and
(ii) $15,000.00 on the date the site for the Franchise Business is leased
or purchased. If Franchisee controls the site when this Agreement is
signed, the entire initial franchise fee must be paid upon execution.
Franchisor may terminate this Agreement if Franchisee fails to identify a
site acceptable to Franchisor within 120 days from the date of this
Agreement by refunding, without interest, Franchisee's payment less $5,000.
Once an acceptable site is identified, the initial franchise fee will be
fully earned and non-refundable.
B. During the initial term of this Agreement, Franchisee shall pay to
Franchisor a continuing weekly royalty fee in an amount equal to 4% of
Gross Sales for the preceding week, as defined in Section IV.E.
C. Recognizing the value of marketing, advertising and sales promotion to the
goodwill and public image of the Chicken Kitchen System, Franchisee shall
pay to Franchisor on a weekly basis, for inclusion in an Advertising Fund,
the amount specified by Franchisor, which amount will not exceed 4% of
Gross Sales. If there are less than 5 Chicken Kitchen Restaurants in the
television area of dominant influence (A.D.I.) in which the Franchise
Restaurant is located, Franchisee shall pay 2% of Gross Sales into the
Advertising Fund and shall spend not less than 2% of Gross Sales locally.
Franchisee's obligation to make payments to the Advertising Fund is in
addition to Franchisee's obligation to advertise locally, as set forth in
Section XII.A; however, in no event will the required advertising
expenditures exceed 4% of Gross Sales. The Advertising Fund, if any, shall
be maintained and administered by Franchisor as provided in Section XII.F.
Franchisor agrees that during the first 2 years of the term of this
Agreement the maximum amount, in addition to any sums paid because of a
deficiency in Franchisee's local advertising expenditures, Franchisee will
be required to pay to Franchisor for inclusion in the Advertising Fund is
2% of Gross Sales. Franchisee must furnish Franchisor with evidence of the
local advertising and sales promotion expenditures within 30 days after the
end of each 3 month period.
D. All weekly payments required by this Section IV and by Section XII,
together with the reports or statements required by Section XI, must be
received by Franchisor by the Friday following the end of the week for
which the payment and reports relate. Any payment or report not received by
Franchisor on or before the due date shall be deemed overdue. Franchisee
shall pay Franchisor interest on any past-due amount from the date it was
due until paid at the rate of 1.5% per month, or the maximum rate permitted
by law, whichever is less. Entitlement to interest shall be in addition to
any other remedies Franchisor may have.
E. As used in this Agreement, "Gross Sales" includes all revenue from the sale
of food, merchandise and services by the Franchise Business, including all
delivered items, whether for cash or credit, and regardless of collection
in the case of a credit sale, and shall include all payments to Franchisee
under any business interruption insurance or similar insurance policy, and
income of every kind and nature related to the Franchise Business including
sales away from the premises through mobile units or temporary facilities
at special events if Franchisor permits such sales. Gross Sales shall not
include revenues from any sales taxes or other taxes collected from
customers by Franchisee for transmittal to the appropriate taxing
authority.
5
<PAGE> 7
V. CONSTRUCTION OF RESTAURANT
A. Before commencing construction of the Franchise Business premises,
Franchisee, at Franchisee's expense, shall comply with all of the following
requirements:
1. Franchisee must obtain all zoning classifications, approvals and
permits required by state and local law for the construction and
operation of the Franchise Business. Franchisee shall certify in
writing to Franchisor that all such permits and approvals have been
obtained.
2. Franchisee shall employ a qualified architect or engineer to prepare
final plans and specifications for the construction of Franchise
Business premises based upon the standard plans and specifications
famished by Franchisor. The plans must be approved by Franchisor in
writing before the commencement of construction, and once approved by
Franchisor, the plans may not be changed without the prior written
consent of Franchisor.
3. Franchisee shall employ a qualified, licensed general contractor to
construct the Franchise Business premises. Franchisee shall obtain and
maintain in force, during the entire period of construction, the
insurance required under Section XIII.
B. During the period of construction, Franchisor and its agents shall have the
right to inspect the construction site at all reasonable times.
C. Franchisee shall complete construction (including all exterior and interior
carpentry, electrical, plumbing, painting and finishing work, and
installation of all furniture, fixtures, equipment, and signs) in
accordance with the approved final plans, at Franchisee's expense, within 6
months after the Franchise Business premises are leased or purchased
(exclusive of time lost by reason of strikes, lockouts, fire, and other
casualties and acts of God). Upon request, which shall not be unreasonably
withheld, Franchisor will grant reasonable additional time to the
Franchisee to complete construction.
D. Franchisee shall notify Franchisor when the construction is completed, and
within a reasonable time after notice, Franchisor shall inspect the
Franchise Business premises. Franchisee may not open the Franchise Business
without written authorization from Franchisor, and Franchisor's
authorization to open may be conditioned upon Franchisee's compliance with
the specifications of the approved final plans and with the standards of
the Chicken Kitchen System.
E. Franchisee shall open the Franchise Business within 10 days after receipt
of Franchisor's written authorization to open. The parties agree that time
is of the essence in the construction and opening of the Franchise
Business.
6
<PAGE> 8
VI. TRAINING
A. Prior to the opening of the Franchise Business, Franchisee (or, if
Franchisee is a corporation, a principal of the corporation designated to
supervise the operation of the Franchise Business approved by Franchisor)
and the General Manager, shall attend and successfully complete, to
Franchisor's satisfaction, the management training program offered by
Franchisor. The management training program shall be conducted at locations
and at times and for periods specified by Franchisor. Any persons
subsequently employed by Franchisee in the position of General Manager must
complete Franchisor's management training program. Franchisee agrees that
the Franchise Business will at no time be managed on a regular basis by
someone who has not successfully completed the management training program.
B. Prior to the opening of the Franchise Business, Franchisee's Head Cook
shall attend and successfully complete Franchisor's training program for
Head Cooks. Any persons subsequently employed by Franchisee as the Head
Cook shall also attend and successfully complete Franchisor's Head Cook
training program.
C. Franchisee agrees to participate in continuing training programs, which may
be offered by Franchisor to implement new operational and merchandising
standards. Franchisee shall offer a training program for employees of the
Franchise Business and agrees to staff the Franchise Business at all times
with a staff of trained employees sufficient to operate the Franchise
Business in accordance with this Agreement and the MOP.
D. There will be no charge for attending the initial management and Head Cook
training program; however, Franchisor may impose a fee for attendance at
subsequent management and Head Cook training programs, for continuing
training programs and for training materials. Franchisee shall pay all
travel and living expenses, compensation, workers' compensation and other
expenses incurred by Franchisee and Franchisee's employees when attending
the training programs.
VII. DUTIES OF FRANCHISEE
A. Franchisee understands and acknowledges that compliance with every detail
of the Chicken Kitchen System in the operation of the Franchise Business is
important to Franchisee, Franchisor and other franchisees in order to
develop and maintain high operating standards, to increase the demand for
the services and products sold by all restaurants which are part of the
Chicken Kitchen System, and to protect Franchisor's reputation and the
goodwill of the Chicken Kitchen System.
7
<PAGE> 9
B. A corporate Franchisee must comply with the following requirements
throughout the term of this Agreement:
1. Franchisee shall furnish Franchisor with its Articles of
Incorporation, Bylaws, other governing documents and any other
documents Franchisor may reasonably request, and any amendments.
2. Franchisee shall limit Franchisee's activities, and its Articles of
Incorporation and Bylaws shall at all times provide that Franchisee's
only business activities shall be operating the Franchise Business and
other businesses operated under franchises granted by Franchisor.
3. Franchisee shall maintain stop transfer instructions against the
transfer of any equity securities; and shall issue no securities which
do not contain the following printed legend:
THE TRANSFER OF THIS STOCK IS SUBJECT TO THE TERMS AND
CONDITIONS OF A FRANCHISE AGREEMENT WITH CHICKEN KITCHEN
CORPORATION. REFERENCE IS MADE TO THE PROVISIONS OF THE
FRANCHISE AGREEMENT AND TO THE ARTICLES OF INCORPORATION AND
BYLAWS OF THIS CORPORATION.
4. There shall be no transfer or issuance of Franchisee's stock without
the prior written approval of Franchisor.
5. All shareholders of Franchisee must agree to be bound by the terms and
conditions of this Agreement.
6. Franchisee shall maintain a current list of all owners of record and
all beneficial owners of any class of voting stock of Franchisee and
shall furnish the list to Franchisor upon request.
C. A Franchisee which is a partnership must comply with the following
requirements throughout the term of this Agreement:
1. Franchisee shall furnish Franchisor with a copy of the partnership
agreement and such other documents as Franchisor may reasonably
request and all amendments.
2. Franchisee shall prepare and furnish to Franchisor, upon request, a
current list of all general and limited partners in Franchisee.
D. A Franchisee who operates the Franchise Business as a sole proprietor must,
unless otherwise approved in writing by Franchisor, devote his full time
and best efforts to the day-to-day operation of the Franchise Business with
no other operational or management commitments in other businesses (other
than restaurants operated under franchises granted by Franchisor).
E. A Franchisee which is a limited liability company must comply with the
following requirements throughout the term of this Agreement:
1. Franchisee shall furnish Franchisor with its Articles of Organization,
Regulations and Operating Agreement, other governing documents and any
other documents Franchisor may reasonably request, and any amendments.
2. Franchisee shall limit Franchisee's activities, and its Articles of
Organization and Regulations and Operating Agreement shall at all
times provide that Franchisee's only business activities shall be
operating the Franchise Business and other businesses operated under
franchises granted by Franchisor.
3. Franchisee shall prepare and furnish to Franchisor, upon request, a
current list of all members of Franchisee.
8
<PAGE> 10
F. Franchisee shall use the Franchise Business premises solely for the
operation of a Chicken Kitchen Restaurant. The Franchise Business shall be
open during such hours and days as Franchisor may from time to time specify
in the MOP or as Franchisor may otherwise approve in writing.
G. Franchisee agrees that the Franchise Business shall at all times be under
the direct, on premises supervision of Franchisee or a trained General
Manager. Franchisee agrees to maintain a competent, conscientious, trained
staff, and to take such steps as are necessary to ensure that all employees
of the Franchise Business keep. a neat and clean personal appearance,
preserve good customer relations and comply with the dress codes prescribed
by Franchisor.
H. Franchisee shall meet and maintain the highest health standards and ratings
applicable to the operation of the Franchise Business. Franchisee shall
furnish to Franchisor, within 5 days after receipt, a copy of any violation
or citation, which indicates Franchisee's failure to maintain local health
or safety standards in the operation of the Franchise Business.
I. To insure that the highest degree of quality and service is maintained,
Franchisee shall operate the Franchise Business in strict conformity with
such methods, standards and specifications as Franchisor may from time to
time prescribe in the MOP or otherwise in writing. Franchisee agrees:
1. To maintain in sufficient supply and to use at all times, only such
fixtures, furnishings, equipment, signs, menu items, ingredients,
products, materials, supplies and paper goods as conform to the
standards and specifications prescribed or approved by Franchisor.
2. To use in the Franchise Business only menus and promotional materials,
which comply with Franchisor's prescribed specifications.
3. To sell or offer for sale only menu items, products and services
approved in writing by Franchisor; to sell or offer for sale all menu
items, products and services specified by Franchisor; to refrain from
any deviation from Franchisor's standards and specifications without
Franchisor's prior written consent; and to discontinue selling and
offering for sale any menu items, products or services which
Franchisor may, in its discretion, disapprove in writing at any time.
With respect to the offer and sale of all menu items, products and
services, Franchisee shall have sole discretion as to the prices to be
charged to customers.
4. To purchase and install, at Franchisee's expense, all fixtures,
furnishings, equipment, and signs which Franchisor may reasonably
specify in the MOP or otherwise in writing-, and to refrain from
installing or permitting to be installed on or about the Franchise
Business premises, without Franchisor's prior written consent, any
fixtures, furnishings, equipment, public telephones, signs, vending
and amusement machines or other items not previously approved as
meeting Franchisor's standards and specifications.
J. The availability of delivery service and on and off premises catering are
important elements of the Chicken Kitchen System. Franchisee agrees to
provide delivery and catering services within a 3 mile radius of the
Franchise Business, except that the required delivery area shall be 10
blocks if the Franchise Business is located in a downtown or densely
populated area (the "Delivery Area") and may provide these services outside
the Delivery Area as long as the delivery or catering address is not within
the Delivery Area of another restaurant which is a part of the Chicken
Kitchen System. Franchisor shall arbitrate any conflict between Franchisee
and another franchisee as to the boundary of the Delivery Area, and the
decision of Franchisor shall be final and binding. Franchisee acknowledges
that another Franchisee's delivery area may extend into Franchisee's
Delivery Area so that certain addresses in the Delivery Area may be able to
obtain delivery services from the Franchise Business and a restaurant
operated by another Franchisee. Franchisee agrees not to charge a separate
fee for delivery service nor to charge menu prices for delivery service
which are different than those charged for purchases made in the Franchise
Business. Delivery and catering services shall be conducted in accordance
with directives of Franchisor set out in the MOP or otherwise in writing.
9
<PAGE> 11
K. Franchisee shall purchase all food items, ingredients, supplies, materials
and other products used or offered for sale in the Franchise Business, and
all fixtures, furnishings, equipment (including cash registers and any
computer hardware and/or software) and signs from suppliers (including
manufacturers, distributors and other sources) who demonstrate, to the
continuing reasonable satisfaction of Franchisor, the ability to meet
Franchisor's then current standards and specifications for such items, who
possess adequate quality controls and capacity to promptly and reliably
deliver products, and who are approved in writing by Franchisor. Franchisee
shall only utilize point of sale programmable cash registers or computer
terminals, which are fully compatible with any Information Management
System Franchisor, in its discretion, may employ, even if the Information
Management System is not fully operational. All sales shall be recorded on
such cash registers or computer terminals. Franchisor may require that
Franchisee's cash registers or computer terminals be on-line with
Franchisor's computer so that Franchisor can pull sales data daily. The
cost of all equipment required to put Franchisee's cash registers or
computer terminals on-line with Franchisor's computer, including without
limitation a modem and dedicated telephone line, shall be paid for by
Franchisee. If Franchisee desires to purchase any products form an
unapproved supplier, Franchisee or the supplier shall submit to Franchisor
a written request for approval. Franchisee may not purchase from any
supplier until the supplier has been approved in writing by Franchisor.
Franchisor has the right to require that its representatives be permitted
to inspect the supplier's facilities, and that samples from the supplier be
delivered either to Franchisor or to an independent laboratory designated
by Franchisor for testing. A charge not to exceed the reasonable cost of
the inspection and the actual cost of the test shall be paid by Franchisee
or the supplier. Franchisor reserves the right, at its option, to
re-inspect from time to time the facilities and products of any approved
supplier and to revoke its approval upon the supplier's failure to continue
to meet any of Franchisor's then current criteria.
L. Franchisee acknowledges and agrees that Franchisor may develop for use in
the Chicken Kitchen System products made from confidential secret recipes
and formulae that are trade secrets of Franchisor. Franchisee agrees that,
if any proprietary products are or become a part of the Chicken Kitchen
System, Franchisee will use only Franchisor's secret recipe products and
shall purchase from Franchisor or from a source designated by Franchisor
all of Franchisee's requirements of the products. Currently, the only
propriety product is the marinade mix for the chicken. Franchisee agrees
not to, nor to permit anyone to, analyze or in any way reproduce or sell
the marinade mix, and further agrees to use the marinade mix only in the
Franchise Business and in the manner prescribed by Franchisor.
M. Franchisee shall maintain the Franchise Business in the highest degree of
sanitation and repair, and will make any additions, alterations, repairs
and replacements (but no others without Franchisee's prior written consent)
as may be required for that purpose, including, without limitation,
periodic repairs to or repainting or replacement of obsolete signs,
furnishings, equipment, and decor as Franchisor may reasonably direct.
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N. At Franchisor's request, which shall not be more often than once every 5
years, Franchisee agrees to refurbish the Franchise Business at
Franchisee's expense to conform to the building design, trade dress, color
schemes and presentation of trademarks and service marks then specified by
Franchisor as the current image of restaurants under the Chicken Kitchen
System. Refurbishing may include, without limitation, structural changes,
replacement of worn out or obsolete fixtures, equipment and signs, the
substitution of addition of new or improved fixtures, equipment and signs,
redecorating, alteration of the store front and modification of the design
and layout. Refurbishing will be commenced and completed within the
reasonable time specified by Franchisor.
O. Franchisor and its representative shall have the unrestricted right to
enter the Franchise Business and conduct such inspections as it deems
necessary to ascertain if Franchisee is complying with this Agreement and
the standards, specifications and procedures prescribed by Franchisor. The
inspections may be conducted without notice at any time when Franchisee or
an employee of Franchisee is at the Franchise Business. Franchisor agrees
to perform the inspections in a manner that minimizes interference with the
operation of the Franchise Business. Franchisee agrees to cooperate with
Franchisor and its representatives in the inspections by rendering any
assistance reasonably requested. Upon written notice from Franchisor or its
representatives, and without limiting Franchisor's other rights under this
Agreement, Franchisee shall correct such deficiencies detected during any
such inspection within 30 days, including, without limitation,
discontinuing further use of any equipment, advertising materials,
products, ingredients, supplies or other items that do not conform to
Franchisor's then current specifications, standards or requirements.
P. Franchisee acknowledges that the development and sale of new or modified
products for use in the Chicken Kitchen System shall be controlled by
Franchisor, in its sole discretion, during the research, market testing and
roll-out stages of development. Franchisee shall be authorized to sell new
or modified products only after the products have been approved by
Franchisor for general use in the Chicken Kitchen System.
Q. Franchisee shall comply with all other requirements set forth in this
Agreement and the MOP.
VIII. PROPRIETARY MARKS
A. Franchisor represents with respect to the Proprietary Marks that Franchisor
has the right to establish and operate, and the right to license others to
establish and operate, restaurants using the Chicken Kitchen System and
Proprietary Marks.
B. With respect to Franchisee's use of the Proprietary Marks pursuant to this
Agreement, Franchisee agrees that:
1. Franchisee shall use only the Proprietary Marks designated by
Franchisor, and shall use them only in the manner specified by
Franchisor.
2. Franchisee shall use the Proprietary Marks only for the operation of
the Franchise Business.
3. Unless otherwise authorized or required by Franchisor, Franchisee
shall operate and advertise the Franchise Business only under the name
CIUCKEN KITCHEN, without any prefix or suffix. Franchisee may not use
the Proprietary Marks as part of any corporate or other legal name.
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4. During the term of this Agreement and any renewal, Franchisee will
indicate, in the manner specified by Franchisor, that the Franchise
Business is independently owned and operated under a franchise in a
notice posted in the Franchise Business and on invoices, order forms,
receipts, checks and contracts.
5. Franchisee's may use the Proprietary Marks only for the purposes and
in the manner authorized in this Agreement. Any other use of the
Proprietary Marks shall constitute an infringement of Franchisor's
rights.
6. Franchisee shall not use the Proprietary Marks to incur any obligation
or indebtedness on behalf of Franchisor.
7. Franchisee shall comply with Franchisor's instructions in filing and
maintaining any requisite trade name or fictitious name registrations,
and shall execute any documents deemed necessary by Franchisor or its
counsel to obtain protection for the Proprietary Marks or to maintain
their continued validity and enforceability.
8. Franchisee agrees not to do anything which could adversely affect
Franchisor's ownership of the Proprietary Marks, and to immediately
notify Franchisor of any infringement or imitations and any challenges
to Franchisee's use of any of the Proprietary Marks. Franchisor has
sole discretion as to what action, if any, should be taken. Franchisee
agrees to cooperate with Franchisor in preventing the infringement,
imitation, or misuse of any of the Proprietary Marks and agrees to be
named as a party in any legal action if requested by Franchisor. The
legal expenses incident to Franchisee's participation in a proceeding
at Franchisor's request shall be paid by Franchisor.
C. Franchisee understands and acknowledges that:
1. Franchisor is the owner of all right, title and interest in and to the
Proprietary Marks and the goodwill associated with and symbolized by
them.
2. The Proprietary Marks are valid and serve to identify the Chicken
Kitchen System and those who are authorized to operate under the
Chicken Kitchen System.
3. Franchisee shall not directly or indirectly contest the validity or
Franchisor's ownership of the Proprietary Marks.
4. Franchisee's use of the Proprietary Marks pursuant to this Agreement
does not give Franchisee any ownership interest or other interest in
or to the Proprietary Marks, except the license to use the marks
granted by this Agreement.
5. All goodwill arising from Franchisee's use of the Proprietary Marks
shall inure solely and exclusively to Franchisor's benefit; and, upon
expiration or termination of this Agreement and the license granted,
the goodwill associated with Franchisee's use of the Chicken Kitchen
System and the Proprietary Marks will have no monetary value.
6. The right and license of the Proprietary Marks granted to Franchisee
is non-exclusive, and Franchisor has and retains the right to:
a. Use the Proprietary Marks itself in connection with selling
products and services.
b. Grant other licenses to third parties giving them the right to
use the Proprietary Mark.
c. Develop and establish other systems using the Proprietary Marks
or similar marks, or any other proprietary marks, and to grant
licenses to use the marks without any obligation to offer a
license to Franchisee.
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7. Franchisor has the right to substitute different propriety marks for
use in identifying restaurants operating under the Chicken Kitchen
System if any of the Proprietary Marks can no longer be used or if, in
the sole discretion of Franchisor, it becomes advisable at any time to
modify or discontinue the use of any of the Proprietary Marks,
including CHICKEN KITCHEN, and/or use one or more additional or
substitute names or marks. Upon notification from Franchisor,
Franchisee shall promptly discontinue the use of any Proprietary Mark,
and Franchisor's liability to Franchisee shall be limited to
reimbursing Franchisee for the unamortized cost or book value of any
signs and printed materials which must be discarded.
8. Franchisor has the sole right to and interest in all telephone numbers
and listings associated with the Proprietary Marks, and Franchisor is
authorized to direct the telephone company to transfer the telephone
numbers and listings relating to the Franchise Business to Franchisor
or its designee should Franchisee fail or refuse to do so upon
termination or expiration of this Agreement.
IX. CONFIDENTIAL MANUAL OF OPERATING PROCEDURES ("MOP")
A. To protect the reputation, integrity and goodwill of the Chicken Kitchen
System and to maintain uniform standards of operation, Franchisee agrees to
operate the Franchise Business strictly in accordance with the provisions
in the MOP. Any failure by Franchisee to comply with the MOP shall be a
breach of this Agreement. Franchisee agrees to restrict access to the MOP
to employees of the Franchise Business and then only to the extent
necessary for the operation of the Franchise Business. Upon expiration or
termination of this Agreement, Franchisee will return the MOP, together
with all copies, to Franchisor.
B. Franchisee agrees to treat the MOP, any other written materials created for
or approved for use in the operation of the Franchise Business, and the
information contained therein, as confidential, and shall use all
reasonable efforts to maintain such information as secret and confidential.
Franchisee shall not at any time copy, duplicate, record, or otherwise
reproduce these confidential materials, in whole or in part, nor otherwise
make any of the materials or the information contained therein available to
any unauthorized person.
C. The MOP shall remain the property of Franchisor and will at all times be
kept in a secure place in the Franchise Business.
D. Franchisee agrees that changes in the standards, specifications, and
procedures will be necessary from time to time because of changing markets
and competition, new laws and regulations, new products and technological
developments, changing demographic factors and other conditions beyond
Franchisor's control, and agrees to accept and comply with modifications
which Franchisor in good faith believes to be necessary or desirable.
Changes to the Chicken Kitchen System may include, without limitation, the
adoption and use of new or modified trade names, trademarks, service marks
or copyrighted materials, new products and/or deletion of products, new
management practices, new equipment, new colors, decorations, uniforms,
signs or trade fixtures, and/or new operating or production procedures.
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E. Franchisee shall keep the loaned copy of the MOP up to date. In the event
of a dispute as to the contents of the MOP, the terms of the master copy of
the MOP maintained by Franchisor shall be controlling.
X. CONFIDENTIAL INFORMATION
A. Franchisee agrees not to, during the term of this Agreement or thereafter,
communicate, divulge, or use for the benefit of any other person, persons,
partnership, association or corporation any confidential information,
knowledge, or know-how concerning the methods of operation of the Franchise
Business which may be communicated to Franchisee, or of which Franchisee
may be apprized, by virtue of this Agreement. Franchisee shall divulge
confidential information only to those employees who must have access to it
in order to operate the Franchise Business. All information, knowledge,
know-how and techniques which Franchisor designates as confidential shall
be deemed confidential for purposes of this Agreement, except information
which Franchisee can demonstrate came to his attention prior to its
disclosure by Franchisor or which at or after the time of disclosure by
Franchisor to Franchisee becomes a part of the public domain, through
publication or communication by others.
B. Franchisee acknowledges that any failure to comply with the requirements of
this Section X will cause Franchisor irreparable injury, and Franchisee
agrees to pay all court costs and reasonable attorneys' fees incurred by
Franchisor in obtaining specific performance of, or an injunction against
violation of, the requirements of this Section X.
XI. ACCOUNTING AND RECORDS
A. Franchisee agrees to maintain during the term of this Agreement, and shall
preserve for at least 3 years from the end of the year to which they
relate, complete and accurate books, records and accounts in accordance
with generally accepted accounting principles and in the form and manner
prescribed by Franchisor in the MOP or otherwise in writing. These records
shall include, without limitation, accounting records and books, customer
files, sales and purchase records, sales tax records, deposit tickets, bank
statements, canceled checks and business tax returns.
B. No later than the 20th day of each month, Franchisee shall submit to
Franchisor, in a format specified by Franchisor, a monthly (for previous
month) and fiscal year to date profit and loss statement. Within 30 days
after the end of each calendar quarter, Franchisee shall furnish Franchisor
with a quarterly balance sheet for the Franchise Business. Franchisee shall
submit to Franchisor copies of all state and local sales tax returns for
the Franchise Business at the same time as the originals are filed with the
taxing authority.
C. Franchisee shall also submit to Franchisor such other forms, reports,
records, information, cash register "Z" tapes, daily management reports and
any other data specified in the MOP or requested by Franchisor.
D. Franchisor or its representatives shall have the right at all reasonable
times to examine and copy, at Franchisor's expense, the books, records and
tax returns of the Franchise Business. Franchisor shall also have the
right, at any time, to have an independent audit made of the books of the
Franchise Business. If an inspection discloses that sales have been
understated in any report to Franchisor, Franchisee shall immediately pay
to Franchisor the Royalty and Advertising Fund payment deficiency plus
interest from the date such payments were due until paid, at the rate of
1.5% per month, or the maximum permitted by law, whichever is less. If a
discrepancy is found between reported sales and actual sales in excess of
2% of reported sales, Franchisee must reimburse Franchisor for all costs of
the inspection including travel, living expenses, wages and reasonable
accounting and legal costs. The foregoing remedies shall be in addition to
any other remedies Franchisor may have.
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XII. ADVERTISING
Recognizing the value of advertising and the importance of the standardization
of advertising programs to the furtherance of the goodwill and public image of
the Chicken Kitchen System, the parties agree as follows:
A. Every 3 months during the term of this Agreement, Franchisee shall spend on
local advertising not less than an amount to be determined by Franchisor,
which requirement shall not exceed 4% of Gross Sales. In no event will
Franchisee's required advertising expenditures, in the aggregate (including
local advertising expenditures and payments to the Advertising Fund) exceed
4% of Gross Sales. The amount Franchisee may spend on local advertising is
not limited by this Agreement. Franchisee may voluntarily spend on local
advertising in excess of the required amount. Franchisee shall provide
Franchisor with receipts for all local advertising expenditures not later
than the 30th day following the end of each calendar quarter for
advertising expenditures incurred in that quarter. If the submitted
receipts do not document that Franchisee made the required local
advertising expenditures in any calendar quarter, Franchisee shall pay to
Franchisor an amount equal to the deficiency for inclusion in the
Advertising Fund.
B. Franchisor may from time to time offer to Franchisee, for a charge, local
advertising and promotional plans and materials.
C. All advertising and promotion by Franchisee shall be conducted in a
dignified manner and shall conforrn to the standards and requirements
specified by Franchisor. Franchisee shall submit to Franchisor, for its
prior approval (except with respect to prices to be charged), samples of
all advertising and promotional plans and materials that Franchisee desires
to use and which have not been furnished by or previously approved by
Franchisor. If written disapproval is not received by Franchisee within 15
days after the date of receipt by Franchisor of the samples and request for
approval, Franchisee may use the proposed advertising and promotional
materials. Franchisor may at any time disapprove advertising and
promotional materials, and following disapproval, Franchisee shall not use
the materials.
D. The Franchise Business shall be listed in the Yellow Pages of the local
telephone directory under the headings "Restaurants" and "Catering
Services", and if requested by Franchisor, the Franchise Business shall be
included in a joint listing with other restaurants in the Chicken Kitchen
System. The cost of the listing shall be paid by Franchisee, or on a pro
rata basis by all participating restaurants in the case of a joint listing.
The format, size and content of the listing must conform to the standards
established by Franchisor. Franchisor shall not specify an unreasonably
expensive listing. The cost of the listing shall not qualify as an
advertising expenditure for purposes of satisfying Franchisee's local
advertising expenditure requirement.
E. Franchisee may sell products at prices Franchisee may determine, and shall
in no way be bound by any price which may be recommended or suggested by
Franchisor.
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F. Franchisee shall pay into the Advertising Fund a recurring non-refundable
Advertising Fund fee, to be determined by Franchisor, which shall not
exceed 4% of Gross Sales. The Advertising Fund shall be administered by
Franchisor under the following conditions and limitations:
1. All reasonable costs incurred by Franchisor or charged to Franchisor
by third parties for the production and dissemination of advertising
and promotion materials may be charged to the Advertising Fund.
2. Franchisor, upon request, will provide Franchisee with an annual
accounting of receipts and disbursements of the Advertising Fund.
3. Selection of media and locale for media placement shall be at the sole
discretion of Franchisor.
4. The Advertising Fund shall be used exclusively to meet the costs of
maintaining, administering, directing and preparing advertising and/or
promotional and public relations and market research activities.
Franchisee shall contribute to the Advertising Fund by separate check
made payable to the Advertising Fund. All sums paid by Franchisee to
the Advertising Fund shall be maintained in a separate account and
shall not be used to defray any of Franchisor's expenses, except those
costs reasonably related to the administration of the Advertising Fund
and advertising programs for franchisees and the Chicken Kitchen
System.
5. It is anticipated that contributions to the Advertising Fund will be
expended for advertising and promotional purposes during the fiscal
year within which the contributions are made; however, if any funds
are not spent in the year received, they will be spent in the
following year.
6. The Advertising Fund is not, and shall not be deemed, an asset of
Franchisor. Although the Advertising Fund is intended to be of
perpetual duration, Franchisor has the right to terminate or suspend
the Advertising Fund or reduce Franchisee's obligation to make
payments into the Advertising Fund and instead direct Franchisee to
spend the payment on approved local advertising. Franchisor may revoke
such direction at any time and upon revocation Franchisee shall resume
making payments into the Advertising Fund. The Advertising Fund shall
not be terminated until all monies in the Advertising Fund have been
expended for advertising or promotional purposes.
7. Franchisee acknowledges that the Advertising Fund is intended to
increase the public's awareness of the Chicken Kitchen System and
Proprietary Marks and increase patronage of Chicken Kitchen
Restaurants. Although Franchisor will endeavor to utilize the
Advertising Fund to develop advertising and marketing materials and
programs, and to place advertising that will benefit all Chicken
Kitchen Restaurants, Franchisor has no obligation in administering the
Advertising Fund to ensure that expenditures by the Advertising Fund
in or affecting any geographic area are proportionate or equivalent to
the contributions to the Advertising Fund by Chicken Kitchen
Restaurants open in that geographic area or than Franchisee will
receive a direct benefit which is equivalent or proportionate to the
amount paid into the Advertising Fund by Franchisee.
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C. In the event that either a regional advertising fund or regional
advertising cooperative, approved by Franchisor, is established for the
Franchise Business' market, Franchisee shall become a member of and make
payment to the advertising cooperative in the amount determined by a
majority of the members. Payments to a local or regional advertising
cooperative may be used to satisfy Franchisee's required local advertising
obligation, but will not affect Franchisee's obligation to contribute to
the Advertising Fund.
XIII. INSURANCE
A. Throughout the term of this Agreement, including during construction,
Franchisee shall maintain in full force, at Franchisee's expense, an
insurance policy or policies protecting Franchisee and Franchisor against
any demand or claim with respect to personal injury, death or property
damage, or any loss, liability or expense arising or occurring upon or in
connection with the Franchise Business, including all vehicles used in the
business, whether owned by Franchisee, an employee of Franchisee or an
independent contractor used by Franchisee to provide delivery services.
B. The policy or policies shall be written by an insurance company licensed in
the state where the Franchise Business is located and be acceptable to
Franchisor, and shall include, at a minimum (except as additional coverage
and higher policy limits may reasonably be specified for all franchisees by
Franchisor from time to time) the following:
1. Comprehensive or commercial general liability insurance, including
personal injury, completed operations, contractual liability, property
damage, products liability, liquor liability and fire damage coverage,
as well as comprehensive automobile liability coverage for both owned
and non-owned vehicles, in the amount of not less than $ 1, 000, 000.
00 per occurrence for bodily injury and not less than $500,000 for
property damage.
2. All risk property insurance in an amount sufficient to cover the cost
of replacement (without deduction for depreciation) covering the
Franchise Business premises and its furniture, fixtures and equipment.
3. Comprehensive and collision insurance covering damage to every vehicle
used in the business in the amount of the actual cash value of the
vehicle. Personal injury protection for the drivers and passengers in
vehicles used in the business.
4. Business interruption insurance.
5. Employer's liability, workers' compensation and such other insurance
required by law where the Franchise Business is located.
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C. Franchisor may require additional coverage and/or higher policy limits as
may be reasonably required by good business practices.
D. Franchisee's obligation to obtain and maintain the foregoing insurance
shall not be limited in any way by reason of any insurance which may be
maintained by Franchisor, nor shall Franchisee's performance of that
obligation relieve Franchisee of liability under the indemnity provisions
set forth in Section XXIX.C.
E. Prior to commencing construction and prior to the opening of the Franchise
Business and at least 10 days prior to the expiration of any policy,
Franchisee shall deliver to Franchisor a certificate of insurance
reflecting that the insurance coverage is in effect, and upon request, a
copy of the policy(ices). Each policy shall provide that the policy cannot
be canceled or materially modified without 30 days prior written notice to
Franchisor.
XIV. TRANSFER OF INTEREST
A. TRANSFER BY FRANCHISOR
Franchisor may transfer or assign all or any part of its rights or obligations
under this Agreement to any person or legal entity.
B. TRANSFER BY FRANCHISEE
1. Franchisee understands and acknowledges that the rights and duties set
forth in this Agreement are personal to Franchisee, and are granted in
reliance on Franchisee's business skill, financial capacity and
personal character. Accordingly, neither Franchisee nor any immediate
or remote successor to any part of Franchisee's interest in this
Agreement, nor any individual, partnership, corporation or other legal
entity which directly or indirectly owns any interest in this
Agreement or in Franchisee, shall sell, assign, transfer, convey, give
away, pledge, mortgage or otherwise encumber any direct or indirect
interest in Franchisee, this Agreement, the Franchise Business, or the
assets of the Franchise Business without the prior written consent of
Franchisor, which consent may be withheld for any reason at
Franchisor's sole discretion; provided, however, subject to the
secured party complying with the provisions of Section XIV.B.3,
Franchisor's prior written consent shall not be required for the
granting of a security interest in the furniture, fixtures and
equipment used in the Franchise Business to a financial institution
providing financing for the initial purchase of these assets. Any
purported assignment or transfer, by operation of law or otherwise,
not having the written consent of Franchisor required by this Section
XIV.B.1 shall be null and void and shall constitute a material breach
of this Agreement, for which Franchisor may terminate this Agreement
without any opportunity to cure pursuant to Section XV.B.4.
2. If a transfer, alone or together with other previous, simultaneous or
proposed transfers, would result in a change or potential change of
control of Franchisee, or the ownership of this Agreement, the
Franchise Business or substantially all of the assets of the Franchise
Business, Franchisor may require, in its sole discretion, any or all
of the following as conditions of its approval:
a. All of Franchisee's accrued monetary obligations to Franchisor
and any subsidiary or affiliate of Franchisor have been
satisfied.
b. Franchisee is not in default of any provision of this Agreement
or any other agreement between Franchisee and Franchisor or an
affiliate or subsidiary.
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c. The transferor executes a general release, in a form satisfactory
to Franchisor, of all claims, to the maximum extent allowed by
law, against Franchisor and its officers, directors,
shareholders, agents and employees, in their corporate and
individual capacities, including, without limitation, claims
arising under federal, state, and local laws, rules and
regulations.
d. The transferee (and, if transferee is not an individual, such
owners of a beneficial interest in the transferee as Franchisor
may request) enter into a written assignment, in a form
satisfactory to Franchisor, assuming and agreeing to discharge
all of Franchisee's obligations under this Agreement.
e. The transferee demonstrates to Franchisor that transferee meets
Franchisor's managerial and business standards, is of good moral
character, has a good business reputation and credit rating, has
satisfactory business experience, has adequate financial
resources and capital, and successfully completes Franchisor's
management training program.
f. At Franchisor's option, the transferee (and if transferee is not
an individual, such owners of a beneficial interest in transferee
as Franchisor may request) execute for a term ending on the
expiration date of this Agreement, Franchisor's then current
standard form of Franchise Agreement, which agreement shall
supersede this Agreement in all respects and the terms of which
agreement may differ from the terms of this Agreement.
g. Transferor shall remain liable for all obligations of Franchisee
under this Agreement until such time as transferee has paid in
full all debt incurred by transferee in connection with the
assignment or transfer and shall execute all instruments
reasonably requested by Franchisor to evidence this continuing
liability.
h. Except in the case of a transfer to a corporation formed for the
convenience of ownership, a transfer fee in the amount of $5,000,
or such greater amount as is necessary to reimburse Franchisor
for its reasonable costs and expenses associated with reviewing
and processing the transfer request and providing training to the
transferee.
3. Franchisee shall not grant a security interest in any of the assets of
the Franchise Business unless the secured party agrees that, in the
event of a default by Franchisee under any documents related to the
security interest, Franchisor shall have the right and option to
purchase the rights of the secured party upon payment of all sums then
due to the secured party directly related to the Franchise Business.
4. Franchisee acknowledges and agrees that each condition which must be
met by a transferee is reasonable and necessary to protect the
integrity of the Chicken Kitchen System.
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C. OFFERINGS BY FRANCHISEE
Securities or partnership interests in Franchisee may be offered to the public,
by private offering or otherwise, only with the prior written consent of
Franchisor (whether or not Franchisor's consent is required under Section
XIV.B.), which consent shall not be unreasonably withheld. All materials
required for any offering of securities of Franchisee by federal or state law
shall be submitted to Franchisor for review prior to their being filed with any
government agency; and any materials to be used in any exempt offering shall be
submitted to Franchisor for review prior to their use. No offering of securities
shall imply (by use of any of the Proprietary Marks or otherwise) that
Franchisor is participating in the underwriting, issuance or offering of
securities by Franchisee; and Franchisor's review of any offering shall be
limited solely to the subject of the relationship between Franchisee and
Franchisor. Franchisee and the other participants in the offering must fully
indemnify Franchisor in connection with the offering, and must prior to the
offering execute all documents requested by Franchisor to evidence this
indemnification. For each proposed offering, Franchisee shall pay to Franchisor
a non-refundable fee of $10,000.00, or such greater amount as is necessary to
reimburse Franchisor for its reasonable costs and expenses associated with
reviewing the proposed offering, including, without limitation, legal and
accounting fees. Franchisee shall give Franchisor written notice, together with
a copy of all documentation pertaining to the proposed offering, at least 30
days prior to the date of commencement of any offering or other transaction
covered by this Section XIV.C.
D. RIGHT OF REFUSAL
1. Any party holding an interest in Franchisee, this Agreement or the
assets of the Franchise Business, who desires to accept a bona fide
offer from a third party to purchase such interest, shall notify
Franchisor in writing of each offer, and shall provide such
information and documentation relating to the offer as Franchisor may
request. Franchisor or its designee shall have the right and option,
exercisable within 60 days after receipt of the written notification
and requested documentation, to send written notice to the seller that
Franchisor or its designee intends to purchase the sefler's interest
on the same terms and conditions offered by the third party. Any
material change in the terms of any offer prior to closing shall
constitute a new offer subject to the same right of first refusal by
Franchisor or its designee as in the case of the initial offer.
Failure by Franchisor to exercise the option afforded by this Section
XIV.D. shall not constitute a waiver of any other provision of this
Agreement, including all of the requirements of Section XIV with
respect to a proposed transfer by Franchisee. If Franchisor does not
exercise its first right to purchase, the seller may conclude the sale
to the person who made the offer on the exact terms and conditions
specified in the notice to Franchisor for a period of 60 days after
receipt of Franchisor's consent to the assignment.
2. If the consideration, terms, and/or conditions offered by the third
party are such that Franchisor or its designee may not reasonably be
required to furnish the same consideration, terms, and/or conditions,
then Franchisor or its designee may purchase the interest proposed to
be sold for the reasonable equivalent in cash, or, at the option of
Franchisor, if the stock of Franchisor or its designee is publicly
traded, securities issued by Franchisor or its designee having a
market value equal to the offered consideration. If the parties cannot
agree within a reasonable time on the value of the offer, an
independent appraiser shall be designated by Franchisor and the
appraiser's determination shall be binding.
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E. Transfer Upon Death or Mental Incapacity
Upon the death or mental incapacity of any person with an interest in this
Agreement, the Franchise Business or Franchisee, the executor, administrator or
personal representative of such person shall transfer, within 6 months after
such death or mental incapacity, the interest of the person to a third party
approved by Franchisor. Such transfer shall be subject to the same conditions as
any inter-vivos transfer pursuant to this Section XIV. However, in the case of
transfer by devise or inheritance, if the heirs or beneficiaries of such person
are unable to meet the conditions in this Section XIV, the personal
representative of the deceased shall have a reasonable additional time to
dispose of the deceased's interest in this Agreement. If the interest is not
disposed of within a reasonable time, Franchisor may terminate this Agreement.
F. Non-Waiver of Claims
Franchisor's consent to a transfer of an interest in this Agreement shall not
constitute a waiver of any claims Franchisor may have against the transferring
party, nor shall it be deemed a waiver of Franchisor's right to demand exact
compliance with the terms of this Agreement by the transferee.
XV. DEFAULT AND TERMINATION
A. Franchisee shall be deemed in default under this Agreement, and all rights
granted in this Agreement shall automatically terminate without notice to
Franchisee, if Franchisee becomes insolvent or makes an assignment for the
benefit of creditors; if Franchisee files a petition or application seeking
any type of relief under the U.S. Bankruptcy Code or any state insolvency
or similar law, or someone files a petition or application seeking to have
Franchisee adjudicated a bankrupt, or seeking other relief against
Franchisee under the U.S. Bankruptcy Code or any state insolvency or
similar law and the petition or application is not dismissed within 60
days; if Franchisee is adjudicated as bankrupt or insolvent; if a receiver
or other custodian (permanent or temporary) of Franchisee's assets, or any
part thereof, is appointed by any court of competent jurisdiction; if
proceedings for a composition with creditors under any state or federal law
are instituted by or against Franchisee; if a final judgment remains
unsatisfied or of record for 30 days or longer (unless bonded); if
Franchisee is dissolved; if execution is levied against a material portion
of Franchisee's business or property; or if the real or personal property
of the Franchise Business is sold after levy.
B. Franchisee shall be deemed to be in default and Franchisor may, at its
option, terminate this Agreement and all rights granted under the
Agreement, without affording Franchisee any opportunity to cure the
default, effective immediately upon receipt of notice by Franchisee, upon
the occurrence of any of the following events:
1. If Franchisee fails to construct and open the Franchise Business in
accordance with Section V and/or the Site Selection Addendum of this
Agreement.
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2. If Franchisee at any time ceases to operate or otherwise abandons the
Franchise Business, or loses the right to possession of the premises
of the Franchise Business, or otherwise forfeits the right to do or
transact business in the jurisdiction where the Franchise Business is
located; provided, however, that if any loss of possession results
from the governmental exercise of the power of eminent domain or if,
through no fault of Franchisee, the premises are damaged or destroyed,
then Franchisee shall have 30 days after such event in which to apply
for Franchisor's approval to relocate or reconstruct the premises,
which approval shall not be unreasonably withheld.
3. If Franchisee, or any officer, director, controlling shareholder,
partner or parent of Franchisee, is convicted of a felony, a crime
involving moral turpitude or any other crime that Franchisor believes
is reasonably likely to have an adverse effect on the Chicken Kitchen
System, the Proprietary Marks or the goodwill associated with the
Chicken Kitchen System or the Proprietary Marks.
4. If Franchisee or any partner or shareholder in Franchisee transfers,
or attempts to transfer, any rights or obligations under this
Agreement or any interest in Franchisee to any third party without
Franchisor's prior written consent, contrary to the terms of Section
XIV of this Agreement.
5. If Franchisee fails to comply with the covenants in Sections XVII.B.
or XVII.C., or fails to obtain execution of the covenants required
under Section XVII.J.
6. If, contrary to the terms of Section IX or X, Franchisee discloses or
divulges the contents of the MOP or other confidential information
provided to Franchisee by Franchisor.
7. If an approved transfer is not effected following Franchisee's death
or mental incapacity within the time specified in Section XIV.
8. If Franchisee knowingly maintains false books or records, or submits a
false report to Franchisor.
9. If Franchisee, after curing a default pursuant to Section XV.C.,
commits the same act of default within the next 6 months.
10. If Franchisee defaults more than once in any 12 month period under
Section XV.C. for failure to comply with the requirements imposed by
this Agreement, whether or nor cured after notice.
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C. Except as provided in Sections XV.A. and XV.B., Franchisee shall have 30
days, unless a shorter time is specified, after receipt of written notice
from Franchisor within which to remedy any default. If any default is not
cured within that time, or such longer period as applicable law may
require, this Agreement shall terminate without further notice to
Franchisee effective immediately upon expiration of the cure period.
Franchisee shall be in default under this Agreement for any failure to
comply with any provision of this Agreement or to carry out the terms of
this Agreement in good faith. Such defaults shall include, without
limitation, the occurrence of any of the following events:
1. If Franchisee does not pay any monies owed to Franchisor or its
affiliates when due, or fails to submit the sales or financial reports
required by Franchisor under this Agreement. Franchisee shall have 10
days after receipt of written notice of termination from Franchisor to
cure a default in the payment of monies or submission of sales or
financial reports.
2. If Franchisee fails to maintain any of the standards or procedures
prescribed by Franchisor in this Agreement, the MOP, or otherwise in
writing.
3. Except as provided in Section XV.B, if Franchisee fails to obtain
Franchisor's prior written approval or consent as required under this
Agreement.
4. If Franchisee misuses or makes any unauthorized use of the Proprietary
Marks or otherwise impairs the goodwill associated with the
Proprietary Marks.
5. If Franchisee engages in any business or markets any service or
product under a name or mark which, in Franchisor's opinion, is
confusingly similar to any of the Proprietary Marks.
6. If Franchisee, by act or omission, permits a continued violation in
connection with the operation of the Franchise Business of any law,
ordinance, rule, or regulation of a governmental agency, in the
absence of a good faith dispute over its application or legality and
without promptly resorting to an appropriate administrative or
judicial forum for relief therefrom.
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7. If Franchisee is declared to be in default under an mortgage, lease,
deed of trust, or loan relating to the Franchise Business.
8. If a threat or danger to public health or safety results from the
construction, maintenance or operation of the Franchise Business.
XVI. OBLIGATIONS UPON TERMINATION OR EXPIRATION
Upon termination or expiration of this Agreement, all rights granted to
Franchisee shall terminate and:
A. Franchisee shall immediately cease to operate the Franchise Business, and
shall not thereafter, directly or indirectly, represent to the public that
the restaurant is associated with the Chicken Kitchen System or hold
himself out as a present or former franchisee of Franchisor.
B. Franchisee shall immediately and permanently cease to use, in any manner,
any menus, recipes, confidential methods, procedures and techniques
associated with the Chicken Kitchen System and the Proprietary Marks. In
particular, Franchisee shall cease to use, without limitation, the
proprietary marinade mix, and all signs, advertising materials, displays,
stationery, forms and any other materials which display any of the
Proprietary Marks; provided, however, that this Section XV.B. shall not
apply to the operation by Franchisee of any other restaurant under the
Chicken Kitchen System pursuant to a franchise granted by Franchisor to
Franchisee.
E. Franchisee shall take appropriate action to cancel any assumed or
fictitious name registration which contains any of the Proprietary Marks,
and Franchisee shall furnish Franchisor with evidence of compliance within
30 days after termination or expiration of this Agreement.
F. Franchisee shall, at Franchisor's option, assign to Franchisor or its
designee Franchisee's interest in any lease or sublease for the premises of
the Franchise Business. If Franchisor does not elect to exercise its option
to acquire the lease or sublease for the premises of the Franchise
Business, Franchisee shall promptly after termination or expiration of this
Agreement, make such modifications or alterations to the premises as may be
necessary to distinguish the appearance of the premises from its former
appearance and that of other restaurants operating under the Chicken
Kitchen System. If Franchisee fails or refuses to comply with the
requirements of this Section XVI, Franchisor may enter upon the premises,
without being guilty of trespass or any other tort, for the purpose of
making or causing to be made the required changes, at the expense of
Franchisee, which expense Franchisee agrees to pay upon demand.
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G. Franchisee agrees, in the event it continues to operate or subsequently
begins to operate a restaurant or other business, not to use any
reproduction, counterfeit, copy, or colorable imitation of any of the
Proprietary Marks in connection with the operation of, or promotion of,
such restaurant or other business which is likely to cause confusion,
mistake or deception, or which is likely to dilute Franchisor's rights in
and to the Proprietary Marks, and further agrees not to utilize any trade
dress. designation of origin, description or representation which falsely
suggests or represents an association or connection with Franchisor or the
Chicken Kitchen System.
H. Franchisee shall immediately pay all sums owing to Franchisor and its
subsidiaries and affiliates. In the event of termination because of a
default by Franchisee, these sums shall include all damages, costs and
expenses, including reasonable attorneys fees, incurred by Franchisor as a
result of the default, which obligation shall give rise to and remain,
until paid in full, a lien in favor of Franchisor against all personal
property, furnishings, equipment, signs, fixtures and inventory owned by
Franchisee located on the premises of the Franchise Business at the time of
default.
I. Franchisee shall pay to Franchisor all damages, costs and expenses,
including reasonable attorneys fees incurred by Franchisor subsequent to
the termination or expiration of this Agreement in obtaining injunctive or
other relief for the enforcement of any provision of this Section XVI.
J. Franchisee shall immediately deliver to Franchisor the MOP and such other
records, files, instructions, correspondence and materials which are
confidential and are related to operating the Franchise Business and/or to
the Chicken Kitchen System.
K. Franchisor shall have the option, exercisable within 30 days after
termination or expiration, to purchase from Franchisee the furnishings,
equipment, signs, fixtures, supplies, inventory and other tangible assets
of the Franchise Business at Franchisee's book value or fair market value,
whichever is less. If the parties are unable to agree on the fair market
value within a reasonable time, an independent appraiser shall be
designated by Franchisor, which appraiser's determination shall be binding.
Franchisor shall receive a credit against the purchase price for any sums
which are owed to it or a subsidiary or affiliate by Franchisee, the cost
of the appraisal, if any, and for any monies which Franchisor expends for
obligations of Franchisee. Upon payment of the purchase price, Franchisee
shall deliver to Franchisor or its designee a bill of sale conveying title
to the property free and clear of all encumbrances, and such other
documents reasonably required to effect a complete transfer of Franchisee's
right, title, and interest in the assets. Franchisee shall ensure that
notice is given to all creditors pursuant to the applicable bulk transfer
laws of the state where the Franchise Business was located, and shall hold
Franchisor harmless from any and all claims of Franchisee's creditors.
L. If Franchisee occupies the premises as a fee owner, Franchisee shall give
Franchisor the option of buying or leasing the premises at its fair market
value. In the event that Franchisor chooses to lease the premises, the term
of the lease shall be for a period of 20 years.
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M. Franchisee shall comply with the covenants contained in Section XVII.C.
XVII. COVENANTS
A. Franchisee covenants that during the term of this Agreement, except as
otherwise approved in writing by Franchisor, Franchisee (if Franchisee is a
partnership, corporation or limited liability company, then the Operating
Partner, who must have A minimum 5 1 % ownership interest in Franchisee)
shall devote full time, energy and best efforts to the management and
day-to-day operation of the Franchise Business with no operational or
management commitments in any other business (except for other restaurants
operated under franchises from Franchisor).
B. Franchisee acknowledges that, pursuant to this Agreement, Franchisee will
receive valuable specialized training and confidential information,
including, without limitation, information regarding the operation, sales,
promotional and marketing methods and techniques of Franchisor and the
Chicken Kitchen System. Franchisee covenants that during the tem of this
Agreement, except as otherwise approved in writing by Franchisor,
Franchisee shall not, either directly or indirectly, for himself, or
through, on behalf of, or in conjunction with, any person, persons or legal
entity.
1. Divert or attempt to divert any business or customer or potential
customer of the Franchise Business to any competitor, by direct or
indirect inducement, or do or perform, directly or indirectly, any
other act injurious or prejudicial to the goodwill associated with the
Proprietary Marks and the Chicken Kitchen System.
2. Employ or seek to employ any person who is at that time employed by
Franchisor or by another franchisee of Franchisor, or otherwise
directly or indirectly induce such person to leave his or her
employment, unless such employment is accomplished with the written
consent of the person's employer.
3. Own, maintain, advise, help, invest in, make loans to, engage in or
have any interest in any food service business which sells or
distributes chicken.
C. Franchisee covenants that, except as otherwise approved in writing by
Franchisor, Franchisee shall not, for A continuous uninterrupted period
commencing upon the expiration or termination of this Agreement, regardless
of the cause for termination, or upon the transfer of Franchisee's interest
in this Agreement, and continuing for 2 years, either directly or
indirectly, for himself, or through, on behalf of, or in conjunction with
any person, persons or legal entity, own, maintain, operate, engage in, be
employed by or have any interest in any food service business which sells
or distributes chicken within 5 miles of the Franchise Business or any
Chicken Kitchen Restaurant open or under construction on the date this
Agreement expires or terminates or Franchisee's interest in this Agreement
is transferred.
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D. Section XVII.C shall not apply to the ownership by Franchisee of less that
5% beneficial interest in the outstanding equity securities of any company
registered under the Securities Exchange Act of 1934.
E. The parties agree that each of the foregoing covenants shall be construed
as independent of any other covenant or provision of this Agreement. If all
or any portion of a covenant in this Section XVII is held unreasonable or
unenforceable by a court having valid jurisdiction in a final decision to
which Franchisor is a party, Franchisee expressly agrees that the provision
shall be deemed amended so that it is enforceable to the maximum extent
permitted by law and pubic policy, as if the resulting covenant were
separately stated in and made a part of this Section XVII.
F. Franchisee understands and acknowledges that Franchisor shall have the
right, in its sole discretion, to reduce the scope of any covenant set
forth in Sections XVII.B and XVII.C, without Franchisee's consent,
effective immediately upon written notice from Franchisor; and Franchisee
agrees to comply with any modified covenant, which shall be fully
enforceable notwithstanding the provisions of Section XXI.
G. Franchisee acknowledges that the Chicken Kitchen System and the
information, whether oral or written, disclosed to Franchisee by Franchisor
pursuant to this Agreement, have been developed by Franchisor at
considerable cost and expense and are disclosed to Franchisee in the
strictest confidence. Accordingly, Franchisee covenants and agrees the
neither Franchisee nor any of its directors, officers, shareholders,
partners, members or key employees will, otherwise than in accordance with
the terms of this Agreement, either during the term of this Agreement or at
any time thereafter, anywhere in the world, make use of or disclose any
confidential information with respect to the Chicken Kitchen System, nor
will they, for their own purposes or any other purposes whatsoever,
disclose to anyone any confidential information or knowledge they may
acquire with respect to Franchisor's affairs. Furthermore, Franchisee
acknowledges and will require its directors, officers, shareholders,
partners, members and key employees to acknowledge that they do not have
any rights or claims of any kind or nature in or to any element of the
Chicken Kitchen System or the Proprietary Marks.
H. Franchisee agrees to pay all costs and expenses, including reasonable
attorneys fees, incurred by Franchisor in connection with the enforcement
of this Section XVII.
I. Franchisee acknowledges that Franchisee's violation of the terms of this
Section XVII would result in irreparable injury to Franchisor for which no
adequate remedy at law may be available, and Franchisee accordingly
consents to the issuance of an injunction, without the posting of a bond,
prohibiting any conduct by Franchisee in violation of this Section XVII.
J. Franchisee shall obtain covenants similar to those set forth in this
Section XVII (including covenants applicable upon the termination of a
person's relationship with Franchisee) from all managers and head cooks of
Franchisee prior to granting such employees access to any confidential
aspect of the Chicken Kitchen System or the Franchise Business, and all
officers, directors and holders of a direct or indirect beneficial
ownership interest of 5% or more in Franchisee. All covenants required by
this Section XVII shall be in a form satisfactory to Franchisor, including,
without Stations specific identification of Franchisor as a third party
beneficiary of such covenants with the independent right to enforce them. A
duplicate original of each covenant shall be sent to Franchisor upon
execution. Failure by Franchisee to obtain execution of a covenant required
by this Section XVII.J shall constitute a material breach of this
Agreement.
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XVIII. TAXES, PERMITS, AND INDEBTEDNESS
A. Franchisee shall promptly pay when due all taxes levied or assessed,
including, without limitations, sales, F.I.C.A. and unemployment taxes,
and all accounts and other indebtedness incurred by Franchisee in the
ownership and operation of the Franchise Business. Franchisee shall pay
to Franchisor an amount equal to any sales tax, gross receipts tax or
similar tax (other than income tax) imposed on Franchisor with respect
to any payments to Franchisor required under this Agreement.
B. In the event of any bona fide dispute as to Franchisee's liability for
taxes assessed or other indebtedness, Franchisee may contest the
validity or the amount of the tax or indebtedness in accordance with
procedures of the taxing authority or applicable law; however, in no
event shall Franchisee permit a tax sale or seizure by levy, execution
or warrant, or attachment by a creditor, to occur against the premises
of the Franchise Business, or any improvements or personal property
used in the operation of the Franchise Business.
C. Franchisee shall comply with all federal, state and local laws, rules,
and regulations, and shall timely obtain all permits, certificates or
licenses necessary for the operation of the Franchise Business,
including, without limitation, licenses to do business, fictitious name
registrations, sales tax permit, building, health, occupancy, fire and
sanitation clearances.
D. Franchisee shall notify Franchisor in writing within 5 days of the
commencement of any action, suit or proceeding, and of the issuance of
any order, writ, injunction, award or decree of any court, agency or
other governmental instrumentality, which may adversely affect the
operation or financial condition of the Franchise Business.
XIX. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. It is understood and agreed by the parties that this Agreement does not
create a fiduciary relationship between them; that Franchisee is an
independent contractor; and, that nothing in this Agreement is intended to
constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee, employer, joint employer, enterprise or
servant of the other for any purpose.
B. During the term of this Agreement and any extension, Franchisee shall hold
himself out to the public as an independent contractor operating the
Franchise Business pursuant to a license from Franchisor.
C. Franchisee has no right to make any contract, agreement, warranty or
representation on Franchisor's behalf, or to incur any debt or other
obligation in Franchisor's name; Franchisor does not assume liability for,
and shall not be deemed liable as a result of, any action by Franchisee;
Franchisor is not liable by reason of any act or omission of Franchisee in
Franchisee's ownership or operation of the Franchise Business or for any
claim or judgment arising from the operation of the Franchise Business.
Franchisee agrees to indemnify and hold Franchisor harmless against all
claims arising directly or indirectly from, or as a result of, or in
connection with, Franchisee's operation of the Franchise Business, and the
costs, including attorneys fees, of defending against any claim.
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XX. APPROVALS AND WAIVERS
A. Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor,
and such approval or consent must be in writing.
B. Franchisor makes no warranties or guarantees upon which Franchisee may
rely, and assumes no liability or obligation to Franchisee or any third
party to whom Franchisor would not be otherwise liable by providing any
waiver, approval, consent or suggestion or by reason of any neglect, delay
or denial of a request.
C. No failure of Franchisor to exercise any power reserved to it in this
Agreement, or to insist upon compliance by Franchisee with any obligation
or condition in this Agreement, and no custom or practice of the parties at
variance with the terms of this Agreement, shall constitute a waiver of
Franchisor's right to demand exact compliance with any of the terms of this
Agreement. Waiver by Franchisor of any particular default shall not affect
or impair Franchisor's right with respect to any subsequent default of the
same or of a different provision; nor shall any delay, forbearance or
omission of Franchisor to exercise any power or right arising out of a
breach or default by Franchisee of any of the terms, provisions or
covenants of this Agreement affect or impair Franchisor's rights or
constitute a waiver by Franchisor of any rights under this Agreement or
right to declare any subsequent breach or default.
XXI. NOTICES
All notices required or permitted under this Agreement shall be in writing and
shall be personally delivered or sent by any means which provides a receipt for
delivery to the par-ties at the following addresses unless and until a different
address has been designated by written notice to the other party:
Notices to Franchisor: Chicken Kitchen Corporation
Attn: Christian de Berdouare
5415 Collins Avenue, Suite 305
Miami Beach, Florida 33140
Notices to Franchisee: ________________________
________________________
________________________
or the Franchise Business
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XXII. ENTIRE AGREEMENT
THIS AGREEMENT AND THE DOCUMENTS REFERRED TO IN THIS AGREEMENT, TOGETHER WITH
THE FRANCHISE
Application, financial statement and capitalization plan submitted by Franchisee
upon which Franchisor is relying in granting this franchise, constitute the
entire Agreement between Franchisor and Franchisee concerning the subject matter
of this Agreement, and supersede all prior negotiations, commitments,
representations and agreements. Except for those permitted to be made
unilaterally by Franchisor, no amendment, change, or variance from this
Agreement shall be binding on either party unless mutually agreed to by the
parties in a written document signed by the parties.
XXIII. SEVERABILITY AND CONSTRUCTION
A. IF ANY PROVISION OF THIS AGREEMENT MAY BE CONSTRUED IN TWO WAYS, ONE WHICH
WOULD MAKE THE PROVISION ILLEGAL OR UNENFORCEABLE AND THE OTHER WHICH MAKES
THE PROVISION VALID AND ENFORCEABLE, THE PROVISION SHALL HAVE THE MEANING
WHICH MAKES ITS ENFORCEABLE. THIS AGREEMENT IS TO BE READ ACCORDING TO ITS
FAIR MEANING AND IS NOT TO BE INTERPRETED STRICTLY AGAINST EITHER PARTY.
THE PARTIES INTEND THAT THIS AGREEMENT BE ENFORCEABLE TO FULLEST EXTENT. IF
ANY COURT OR ARBITER FINDS THAT ANY PROVISION IS NOT ENFORCEABLE AS
WRITTEN, FRANCHISOR AND FRANCHISEE AGREE THAT THE PROVISION BE AMENDED SO
THAT IT IS ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE
LAW AND PUBLIC POLICY. THE PROVISIONS OF THIS AGREEMENT ARE SEVERABLE, AND
THE AGREEMENT IS TO BE INTERPRETED AS IF ALL INVALID OR UNENFORCEABLE
PROVISIONS WERE NOT IN THE AGREEMENT AND PARTIALLY VALID PROVISIONS SHALL
BE ENFORCED TO THE EXTENT THAT THEY ARE VALID AND ENFORCEABLE.
B. FRANCHISEE EXPRESSLY AGREES TO BE BOUND BY ANY PROMISE OR COVENANT IMPOSING
THE MAXIMUM DUTY PERMITTED BY LAW WHICH IS CONTAINED WITHIN THE TERMS OF
ANY PROVISION OF THIS AGREEMENT, AS THOUGH IT WERE SEPARATELY ARTICULATED
IN AND MADE A PART OF THIS AGREEMENT.
C. Any provision of this Agreement which imposes an obligation after the
termination or expiration of this Agreement shall continue to be binding on
the parties after the termination or expiration.
D. If Franchisee consists of more than one person, each partner shall be
liable for the total performance of Franchisee regardless of their
ownership percentage.
E. The Introduction is a part of this Agreement. Section captions are used for
convenience and should not be construed as a limitation of the matter which
follows. Words of any gender used in this Agreement shall include any other
gender, and words in the singular shall include the plural, where
applicable.
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XXIV. APPLICABLE LAW
A. This Agreement takes effect upon its acceptance and execution by Franchisor
in Mami-Dade County, Florida, and shall be interpreted and construed under
the laws of the State of Florida, which laws shall prevail in the event of
any conflict of law; provided, however, that if any of the provisions of
this Agreement would not be enforceable under the laws of the State of
Florida, but would be enforceable under the laws of the state where the
Franchise Business is located, then such provision shall be interpreted and
construed under the laws of the state in which the Franchise Business is
located. If the Franchise Business is located in a state other than Florida
and the laws of that state require terms other than, or in addition to,
those contained in this Agreement, this Agreement shall be deemed modified
so as to comply with the laws of that state, but only to the extent
necessary to prevent the invalidity of this Agreement or any of its
provisions, the imposition of a fine or penalty, or the imposition of civil
or criminal liability. To the extent permitted by law, Franchisee waives
any provision of law which prohibits, or makes unenforceable, any provision
of this Agreement.
B. In the event of a dispute between the parties in connection with, arising
from or relating to this Agreement, including, without limitation, any
claim that this Agreement or any provision is invalid or void or voidable,
the parties agree to make a good faith effort to resolve the dispute
through discussion and, at the request of either party, through mediation
before a mutually agreeable mediator, in which event the parties shall
execute a confidentiality agreement and shall split the mediator's fee. The
mediator, if possible, shall be experienced in franchise related matters.
If the parties are unable to agree upon a mediator, the mediator shall be
selected by the American Arbitration Association.
C. If the parties are unable to resolve their differences through discussion
and mediation, they agree that the United States District Court for the
Southern District of Florida and the courts of the Eleventh Judicial
Circuit of the State of Florida in and for Miami-Dade County, Florida shall
be the proper venue and forum in which to adjudicate any dispute under or
in connection with this Agreement, and agree not to contest or challenge
the jurisdiction or venue of these courts.
D. No right or remedy conferred upon or reserved to Franchisor or Franchisee
by this Agreement is intended to be, nor shall it be deemed, exclusive of
any other right or remedy under this Agreement or by law or equity provided
or permitted, but each shall be cumulative of every other right or remedy.
E. Nothing contained in this Agreement shall bar Franchisor's right to obtain
injunctive relief against threatened conduct that will cause it loss or
damages, under the usual equity rules, including the applicable rules for
obtaining restraining orders and preliminary injunctions, except any
requirement for the posting of a bond, which requirement, if any, is
expressly waived by Franchisee.
31
<PAGE> 33
F. Whenever this Agreement provides for the payment or reimbursement of
attorneys' fees, such fees shall include trial and appellate fees.
G. Franchisor and Franchisee irrevocably waive trial by jury in any action,
proceeding or counterclaim, whether at law or in equity, brought by either
of them.
H. To the fullest extent permitted by law, Franchisor and Franchisee waive any
right to, or claim for, any punitive or exemplary damages against the other
and agree that each shall be limited to the recovery of only actual
damages.
I. All claims arising out of this Agreement or the relationship of Franchisee
and Franchisor in connection with Franchisee's operation of the Franchise
Business must be made within I year from the occurrence of the facts giving
rise to the claim.
XXV. ACKNOWLEDGMENTS
A. FRANCHISEE ACKNOWLEDGES THAT FRANCIHSEE HAS HAD AMPLE OPPORTUNITY TO
CONSULT WITH AN ATTORNEY AND OTHER PROFESSIONAL ADVISORS AND IS ENTERING
INTO THIS AGREEMENT AFTER HAVING MADE AN INDEPENDENT INVESTIGATION OF THE
CHICKEN KITCHEN SYSTEM AND THE MARKET AREA IN WHICH FRANCHISEE WILL OPERATE
THE FRANCHISE BUSINESS. FRANCHISEE RECOGNIZES THAT THE BUSINESS VENTURE
CONTEMPLATED BY THIS AGREEMENT INVOLVES A HIGH DEGREE OF FINANCIAL RISK AND
THAT ITS SUCCESS WILL BE LARGELY DEPENDENT UPON THE BUSINESS, MANAGERIAL,
AND FINANCIAL CAPABILITIES OF FRANCHISEE. FRANCHISOR EXPRESSLY DISCLAIMS
THE MAKING OF, AND FRANCHISEE ACKNOWLEDGES THAT FRANCHISEE HAS NOT
RECEIVED, ANY WARRANTY OR GUARANTEE, EXPRESS OR IMPLIED, AS TO THE
POTENTIAL VOLUME, PROFITS OR SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED
BY THIS AGREEMENT.
B. FRANCHISEE ACKNOWLEDGES RECEIVING A COPY OF THE COMPLETE CHICKEN KITCHEN
CORPORATION FRANCHISE AGREEMENT AT LEAST 5 BUSINESS DAYS PRIOR TO SIGNING
THIS AGREEMENT. FRANCHISEE FURTHER ACKNOWLEDGES RECEIVING THE, CHICKEN
KITCHEN OFFERING CIRCULAR/ DISCLOSURE DOCUMENT AT LEAST 10 BUSINESS DAYS
PRIOR TO SIGNING THIS AGREEMENT OR MAKING ANY PAYMENT TO FRANCHISOR.
C. FRANCHISEE ACKNOWLEDGES THAT THE TERMS AND CONDITIONS OF THIS AGREEMENT MAY
VARY SUBSTANTIALLY FROM THOSE CONTAINED IN FRANCHISEES WHICH FRANCHISOR HAS
OR MAY GRANT IN THE FUTURE.
32
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
day and year shown on the first page.
Franchisor:
CHICKEN KITCHEN CORPORATION
By:
---------------------------------
Christian De Berdouare, President
Franchisee:
-----------------------------------
-----------------------------------
33
<PAGE> 35
RIDER A
SITE SELECTION ADDENDUM
The location of the franchise business is _______________________________
_______________________________________________________________________________
_______________________________________________________________________________
Franchise acknowledges that Franchisor's approval of the location is
not a guarantee, recommendation or endorsement of the location, and that the
success of the Franchise Business to be operated at the location is dependent
upon Franchisee's abilities as an independent business person.
FRANCHISOR: Chicken Kitchen Corporation
By:
-------------------------------------
Christian De Berdouare, President
FRANCHISEE:
---------------------------------------
---------------------------------------
34
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement ("this Agreement") is made effective as of March
15,1998, by and between Chicken Kitchen Corporation, ("the Employer"), of 5415
Collins Avenue, Suite 305, Miami Beach, Florida 33140 and Mr. Frank Blackman,
("the Employee"), of 2830 La Paz Avenue, Cooper City, Florida 33026.
A. Employer is engaged in the business of grilled chicken fast food
restaurants.
B. Employer desires to have the services of the Employee.
C. Employee is willing to be employed by Employer.
Therefore, the parties agree as follows:
1. EMPLOYMENT & COMPENSATION. Employer shall employ Employee as a Vice President
of Franchising or as prescribed by the President & CEO. Employee accepts and
agrees to such employment, subject to the general supervision, advice and
direction of Employer and the Employer's supervisory personnel. Employee shall
also perform (i) such other duties as are customarily performed by an employee
in a similar position, and (ii) such other and unrelated services and duties as
may be assigned to Employee from time to time by Employer. A sign on bonus of
10,000 shares of "CKKC " will be given upon joining the Company. The annual
salary shall be based on $80,000.00, and paid monthly at the end of each month.
The annual compensation will include an annual bonus, based on the number of
"CK" franchises sold in the preceding 12 months period (5 "CK" = $10,000, 10
"CK" = $20,000, 15 "CK" $40,000, 20 "CK" = $60,000), or to be determined by the
President in case the number of franchises are below 5. Also, the employee will
be included in the Company's stock option plan, with 100,000 common shares to be
issued at 0.65 cts, which is the closing price at the time of signing this
agreement. If Employee leaves the Company before the end of his employment
contract, all shares in the stock option plan will revert back to the Company. A
monthly car allowance of $750.00 will also be provided, to cover lease,
insurance and all other costs associated with the running of the car. Medical
insurance will also be paid by the Company, life insurance in the amount of
$250,000 and long term disability to age 65.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees to perform faithfully,
industriously,, and to the best of Employee's ability,; experience, and talents,
all of the duties that may be required by the express and implicit terms of this
Agreement, to the reasonable satisfaction of Employer. Such duties shall be
provided at such place(s) as the needs, business, or opportunities of the
Employer may require from time to time.
<PAGE> 2
3. CONFIDENTIALITY. Employee recognizes that Employer has and will have
information regarding the following:
- products
- future plans
- business affairs
- trade secrets
- technical matters
- copyrights
and other vital information (collectively, "Information") which are valuable,
special and unique assets of Employer. Employee agrees that the Employee will
not at any time or in any manner, either directly or indirectly, divulge,
disclose, or communicate in any manner any Information to any third party
without the prior written consent of the Employer. Employee will protect the
Information and treat it as strictly confidential. A violation by Employee of
this paragraph shall be a material violation of this Agreement and will justify
legal and/or equitable relief.
4. UNAUTHORIZED DISCLOSURE OF INFORMATION. If it appears that Employee has
disclosed (or has threatened to disclose) Information in violation of this
Agreement, Employer shall be entitled to an injunction to restrain Employee from
disclosing, in whole or in part, such Information, or from providing any
services to any party to whom such Information has been disclosed or may be
disclosed. Employer shall not be prohibited by this provision from pursuing
other remedies, including a claim for losses and damages.
5. CONFIDENTIALITY AFTER TERMINATION OF EMPLOYMENT. The confidentiality
provisions of this Agreement shall remain in full force and effect for a 24
months period after the termination of Employee's employment.
6. NON-COMPETE AGREEMENT. Employee recognizes that the various items of
Information are special and unique assets of the company and need to be
protected from improper disclosure. In consideration of the disclosure of the
Information to Employee, Employee agrees and covenants that for a period of 12
months following the termination of this Agreement, whether such termination is
voluntary or involuntary, Employee will not directly or indirectly engage in the
grilled, rotisserie, broiled, and other non-fried chicken concept. This does not
include restaurants with beef or fish as main items in concept or menu. This
covenant shall apply to the geographical area that includes United States of
America. Directly or indirectly engaging in any competitive business includes,
but is not limited to, (i) engaging in a business as owner, partner, or agent,
(ii) becoming an employee of any third party that is engaged in such business,
(iii) becoming interested directly or indirectly in any such business, or (iv)
soliciting any customer of Employer for the benefit of a third party that is
engaged in such business. Employee agrees that this non-compete provision will
not adversely affect the Employee's livelihood.
7. VACATION. Employee shall be entitled to 2 weeks of paid vacation for each
year of employment beginning on the first day of Employee's employment. Such
vacation must be taken at a time mutually convenient to Employer and Employee,
and must be approved by Employer. Requests for vacation shall be submitted to
Employee's immediate supervisor 30 days in advance of the requested date such
vacation would commence.
2
<PAGE> 3
8. HOLIDAYS. Employee shall be entitled to the following holidays with pay
during each calendar year: New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day & Christmas Day
9. TERM/TERMINATION. Employee's employment under this Agreement shall be for 2
years, beginning on March 1, 1998. If Employee wishes terminate this agreement,
he must give 60 days notice. If Employer choses to terminate for anything other
than cause, Employer will pay 90 days severance upon notification of
termination. If Employer terminates Employee, Employee shall also be entitled to
open 3 "CK" franchises, and will not be obligated to pay the then current
$25,000 franchise fee, for a total value of $75,000. If no termination occurs,
this contract will automatically renew itself at the end of the 2-year period.
If Employee is in violation of this Agreement, Employer may terminate employment
without notice and with compensation to Employee only to the date of such
termination. The compensation paid under this Agreement shall be the Employee's
exclusive remedy.
10. RETURN OF PROPERTY. Upon termination of this Agreement, the Employee shall
deliver all property (including keys, records, notes, data, memoranda, models,
and equipment) that is in the Employee's possession or under the Employee's
control which is Employer's property or related to Employer's business. Such
obligation shall be governed by any separate confidentiality or proprietary
rights agreement signed by the Employee.
11. NOTICES. All notices required or permitted under this Agreement shall be in
writing and shall be deemed delivered when delivered in person or deposited in
the United States mail, postage paid, addressed as follows:
Employer:
Chicken Kitchen Corporation
Mr. Christian de Berdouare
President & CEO
5415 Collins Avenue, Suite 305
Miami Beach, Florida 33140
Employee:
Mr. Frank Blackman
2830 La Paz Avenue
Cooper City, Florida 33026
Such addresses may be changed from time to time by either party by providing
written notice in the manner set forth above.
3
<PAGE> 4
12. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.
13. AMENDMENT. This Agreement may be modified or amended, if the amendment is
made in writing and is signed by both parties.
14. SEVERABILITY. If any provisions of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid or enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
15. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or limitation of
that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
16. APPLICABLE LAW. This Agreement shall be governed by the laws of the State of
Florida.
Employer:
Chicken Kitchen
By: /s/ Christian de Berdouare
------------------------------------
Mr. Christian de Berdouare
President & CEO
AGREED TO AND ACCEPTED, THIS 3rd DAY OF FEBRUARY 1998.
Employee:
By: /s/ Frank Blackman
------------------------------------
Mr. Frank Blackman
4
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement ("this Agreement") is made effective as of July 19,
1999, by and between Chicken Kitchen Corporation, ("the Employer"), of 5415
Collins Ave. , Suite 305, Miami Beach, Florida 33140, and Joseph A. Remsa, Jr.,
("the Employee"), of 900 N.W. 110 Ln., Coral Springs, Florida 33071.
A. Employer is engaged in the business of Quick Service Restaurant
operation and Franchisor
B. Employer desires to have the services of Employee.
C. Employee is willing to be employed by Employer.
Therefore, the parties agree as follows:
1. EMPLOYMENT. Employer shall employ Employee as a Executive Vice President to
establish strategic controls for the operation of the restaurants and franchise
program, participate in establishing corporate mission and long term
organizational structure, and prepare all financial reports, analyses, and
projections. Employee accepts and agrees to such employment, subject to the
general supervision, advice and direction of Employer and the Employer's
supervisory personnel. Employee shall also perform (i) such other duties as are
customarily performed by an employee in a similar position, and (ii) such other
and unrelated services and duties as may be assigned to Employee from time to
time by Employer.
2. BEST EFFORTS OF EMPLOYEE. Employee agrees to perform faithfully,
industriously, and to the best of Employee's ability, experience, and talents,
all of the duties that may be required by the express and implicit terms of this
Agreement, to the reasonable satisfaction of Employer. Such duties shall be
provided at Miami Beach, Florida and at such other place(s) as the needs,
business, or opportunities of the Employer may require from time to time.
3. COMPENSATION OF EMPLOYEE. As compensation for the services provided by
Employee under this Agreement, Employer will pay Employee $4,000.00 per Month.
This amount shall be paid in accordance with the Employer's usual payroll
procedures. Upon termination of this Agreement, payments under this paragraph
shall cease; provided, however, that the Employee shall be entitled to payments
for periods or partial periods that occurred prior to the date of termination
and for which the Employee has not yet been paid.
4. REIMBURSEMENT FOR EXPENSES IN ACCORDANCE WITH EMPLOYER POLICY. The Employer
will reimburse Employee for "out-of-pocket" expenses in accordance with Employer
policies in effect from time to time.
5. RECOMMENDATIONS FOR IMPROVING OPERATIONS. Employee shall provide Employer
with all information, suggestions, and recommendations regarding Employer's
business, of which Employee has knowledge, that will be of benefit to Employer.
6. CONFIDENTIALITY. Employee recognizes that Employer has and will have
information regarding the following:
- products
- future plans
- business affairs
<PAGE> 2
Employee:
Joseph A. Remsa, Jr.
900 N.W. I 10 Ln.
Coral Springs, Florida 33071
Such addresses may be changed from time to time by either party by providing
written notice in the manner set forth above.
13. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties and there are no other promises or conditions in any other agreement
whether oral or written. This Agreement supersedes any prior written or oral
agreements between the parties.
14. AMENDMENT. This Agreement may be modified or amended, if the amendment is
made in writing and is signed by both parties.
15. SEVERABILITY. If any provisions of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this
Agreement is invalid or unenforceable, but that by limiting such provision it
would become valid or enforceable, then such provision shall be deemed to be
written, construed, and enforced as so limited.
16. WAIVER OF CONTRACTUAL RIGHT. The failure of either party to enforce any
provision of this Agreement shall not be construed as a waiver or limitation of
that party's right to subsequently enforce and compel strict compliance with
every provision of this Agreement.
17. APPLICABLE LAW. This Agreement shall be governed by the laws of the State of
Florida.
Employer:
Chicken Kitchen Corporation
By: /s/ Christian de Berdouare
---------------------------------
Christian de Berdouare
President
Employee:
By: /s/ Joseph A. Remsa, Jr.
---------------------------------
Joseph A. Remsa, Jr.
