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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
AMENDMENT # 1
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
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(Name of Small Business Issuer in its charter)
FLORIDA 59-3283225
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
5415 COLLINS AVENUE, SUITE 305, MIAMI BEACH, FLORIDA 33140
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(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 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
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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.
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.
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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 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 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,
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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.
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.
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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 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.
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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.
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.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Restaurant sales for the three months ended June 30, 1999 increased
by $552,673 to $1,987,749 from $1,435,070 in the comparable period for an
increase of 38.5%. This was due to same store sales increase and an additional
restaurant, this was opened for the entire quarter in 1999.
Cost of sales decreased as a percentage of sales to 43.8%
compared to 45.1% in the comparable quarter of the prior year. This decrease was
due to operational controls and systems that were put in place during the
quarter.
Labor and employee benefits which consists of wages, payroll taxes
and other benefits and insurance costs for restaurant's salaried and hourly
employees decreased 3.7% as a percentage of sales to 30.6% in the 1999 quarter
compared to the prior year's quarter. This decrease was due to operational
controls and systems that were put in place during the quarter.
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 increases by 1.7% to 14.0% of
sales from 12.3%.
Administrative and general expenses for the 1999 quarter increased
by $124,788 when compared to the comparable 1998 quarter. The 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 and
professional fees. In addition, higher advertising and promotional expenses were
incurred to promote the Chicken Kitchen brand.
The increase in depreciation and amortization of $12,781 to
$100,897 was attributed to an additional restaurant in the 1999 quarter.
Securities gains of $7,075 are included in other income
(expense) in the quarter ended June 30, 1999. We do not anticipate gains from
securities activities in the future. The increase in the net loss from $156,079
to $173,276 is primarily attributed to the increased investment in human
resources to support future growth and franchising activity.
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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.
As of June 30, 1999 the working capital deficit increased by $160,071
primarily as a result of an increase in accounts payable as a result of
continuing losses and an increase in sales in the June 1999 quarter compared to
the March 1999 quarter. Also contributing to the working capital decrease was an
advance to an affiliate of $56,827. Included in current liabilities is a note
payable of $107,903 that the Company expects to satisfy by the issuance of the
Company's common stock as noted above.
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.
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.
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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 Strratcomm Media, Ltd. 690,000 5.84%
1947 Lee Road
Winter Park, FL 32789
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 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.
-12-
<PAGE> 13
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.
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.
-13-
<PAGE> 14
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
and Value of Unexercised
Unexercised In-the-Money
At Options at
Name 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 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.
As of March 31, 1999 and June 30, 1999 the Company had advanced $20,040
and $78,867 to Ambassa Holdings, Inc., which is owned by Christian Mahe
de Berdouare the Company's director, President and Chief Executive Officer. The
advance is non-interest bearing.
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
-14-
<PAGE> 15
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.
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.
-15-
<PAGE> 16
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 March 31, 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> <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 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 by 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
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<PAGE> 17
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 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 common stock to Corporate Relations
-17-
<PAGE> 18
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.
In June 1999, we issued 50,000 shares of Class A common stock to a
holder of the Company's preferred stock, who elected to convert to common stock.
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
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
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<PAGE> 19
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
Statements of Cash Flows
For the Years Ended March 31, 1999 and 1998
Notes to Financial Statements.
Unuaudited Financial Statements
Balance Sheets as of
June 30, 1999 (Unaudited)
Statements of Operations,
For the Three Months Ended June 30, 1999 and 1998 (Unaudited)
Statement of Stockholders' Equity
For the Three Months Ended June 30, 1999 (Unaudited)
Statements of Cash Flows
For the Three Months Ended June 30, 1999 and 1998 (Unaudited)
Notes to Financial Statements. (Unaudited)
-19-
<PAGE> 20
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.
-20-
<PAGE> 21
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 16 day of September 1999.
CHICKEN KITCHEN CORPORATION
By: /s/ Christian Mahe de Berdouare
-----------------------------------
Christian Mahe de Berdouare,
President and CEO
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<PAGE> 22
CHICKEN KITCHEN CORPORATION
FINANCIAL STATEMENTS AS OF
MARCH 31, 1999 AND 1998
TOGETHER WITH REPORT OF INDEPENDENT AUDITORS
F-1
<PAGE> 23
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
F-2
<PAGE> 24
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-3
<PAGE> 25
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-4
<PAGE> 26
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-5
<PAGE> 27
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-6
<PAGE> 28
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-7
<PAGE> 29
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.
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.
F-8
<PAGE> 30
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:
Weighted Average Shares
Outstanding
For the years ended
-----------------------------
March 31,
1999 1998
------------ ------------
Class A common stock 11,157,527 10,698,823
Class B common stock 963,936 --
---------- ----------
12,121,463 10,698,823
========== ==========
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.
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.
F-9
<PAGE> 31
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 $ 414,143 $ 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 1,012,620 733,521
Less accumulated depreciation and amortization (230,622) (93,230)
--------- ---------
Property and equipment, net $ 781,998 $ 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-10
<PAGE> 32
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.
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.
F-11
<PAGE> 33
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.
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.
F-12
<PAGE> 34
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, March 31,
1999 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 grant 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.
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.
F-13
<PAGE> 35
The following is a summary of stock option activity for the years ended
March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Employee Weighted Non-Employee Weighted
Option Average Option Average
Shares Exercise Price Shares Shares
---------- -------------- ------------ ---------
<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.
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.
F-14
<PAGE> 36
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-15
<PAGE> 37
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 Options for
Common Common Common Common
Stock Stock Stock 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-16
<PAGE> 38
CHICKEN KITCHEN CORPORATION
FINANCIAL STATEMENTS AS OF
JUNE 30, 1999 AND 1998
(UNAUDITED)
F-17
<PAGE> 39
CHICKEN KITCHEN CORPORATION
BALANCE SHEET
June 30
ASSETS 1999
------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 487,571
Marketable securities 5,569
Other current assets 122,125
------------
Total Current Assets 615,265
------------
ADVANCES TO AFFILIATES 78,867
PROPERTY AND EQUIPMENT, net 765,749
INTANGIBLE ASSETS, net 1,766,751
OTHER ASSETS 81,197
------------
Total Assets $ 3,307,829
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 574,311
Accrued expenses 447,178
Note payable 107,903
------------
Total Current Liabilities 1,129,392
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A, convertible preferred stock, $0.0005 par value;
1,000,000 shares authorized; 3,905 and 3,880 shares
issued and outstanding 2
Common stock Class A, $0.0005 par value; 50,000,000
shares authorized; 11,887,954 issued; and 11,787,954
outstanding 5,905
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 6,244,787
Accumulated deficit (4,072,766)
------------
Total Stockholders' Equity 2,178,437
Total Liabilities and Stockholders' Equity $ 3,307,829
============
The accompanying notes to financial statements are an integral part of
these statements.
F-18
<PAGE> 40
CHICKEN KITCHEN CORPORATION
STATEMENTS OF OPERATIONS
For the Three For the Three
Months Ended Months Ended
June 30, 1999 June 30, 1999
(Unaudited) (Unaudited)
-------------- -------------
FOOD AND BEVERAGE SALES $1,987,749 $ 1,435,076
OPERATING EXPENSES:
Cost of sales 870,239 647,567
Labor and employee benefits 608,201 492,350
Direct operating expenses 279,045 177,172
Consulting fees 16,861 23,285
Administrative and general 287,453 162,665
Depreciation and amortization 100,897 88,116
---------- -----------
Total operating expenses 2,162,696 1,591,155
---------- -----------
Loss from operations (174,947) (156,079)
OTHER INCOME (EXPENSE):
Net realized and unrealized gains on sales of
marketable securities 7,075 --
Other, net (5,404) --
---------- -----------
Total other income, net 1,671 --
---------- -----------
Loss before income taxes (173,276) (156,079)
---------- -----------
INCOME TAXES -- --
---------- -----------
Net loss $(173,276) (156,079)
========== ===========
Weighted Average Common Shares Outstanding 12,781,904 11,578,969
========== ===========
Net Loss Per Common Share $ (0.02) $ (0.02)
========== ===========
The accompanying notes to financial statements are an integral part of
these statements.
F-19
<PAGE> 41
CHICKEN KITCHEN CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Preferred Class A Class B Additional
Stock Common Stock Common Stock Paid-In Accumulated Treasury
Amount Shares Amount Shares Amount Capital Deficit Shares Total
------- ------ ------ ------ ------ ------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1999 $ 2 11,737,954 $5,880 1,018,950 $ 509 $6,245,389 $(3,899,490) $ (10,172) $ 2,342,118
======= ========== ====== ========= ======= ========== =========== ========= ============
(UNAUDITED)
Sale of treasury stock (577) 10,172 9,595
Conversion of 25 shares
of Series A Preferred Stock
into Class A Common Stock
stock -- 50,000 25 -- -- (25) -- -- --
Net Loss for the
Three Months
Ended June 30, 1999 -- -- -- -- -- -- (173,276) (173,276)
------- ---------- ------ --------- ------- ---------- ----------- --------- ------------
BALANCE AT JUNE 30, 1999 $ 2 11,787,954 $5,905 1,018,952 $ 509 $6,244,787 $(4,072,766) -- $2,178,437
======= ========== ====== ========= ======= ========== =========== ========= ============
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
F-20
<PAGE> 42
CHICKEN KITCHEN CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three For the Three
Months ended Months ended
June 30, 1999 June 30, 1998
(Unaudited) (Unaudited)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(173,276) $(156,079)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 100,897 88,116
Net realized and unrealized gains on sales of
marketable securities (7,075) --
Decrease in fair value of marketable securities -- 12,000
Changes in operating assets and liabilities:
Other current assets 18,749 10,962
Advances to affiliate (56,827) --
Intangibles and other assets -- (1,346)
Advances to affiliates and other assets (16,451) --
Accounts payable and accrued expenses 295,757 6,606
--------- ---------
Net cash (used in) provided by operating activities 161,774 (39,741)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (24,009) (166,136)
Sale (purchase) of marketable securities, net 152,281 --
--------- ---------
Net cash (used in) provided by investing activities 128,272 (166,136)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term obligations 4,501 --
(Purchase) Sale of treasury stock 9,594 --
--------- ---------
Net cash provided by financing activities 14,095 --
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 304,141 (205,877)
--------- ---------
CASH AND CASH EQUIVALENTS, beginning of period 183,430 357,056
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 487,571 $ 151,179
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest expense $ 3,159 $ 1,319
========= =========
Cash paid for income taxes -- --
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part
of these statements.
F-21
<PAGE> 43
CHICKEN KITCHEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 June 30, 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. As of June 30, 1999, three franchise
agreements had been signed; although, the restaurants 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 acquisitions in excess of the fair value of net assets
acquired is being amortized on a straight-line basis over 10 years.
F-22
<PAGE> 44
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 June 30, 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 $173,276 and $156,079 for the three
months ended June 30, 1999 and 1998, respectively, plus the pro rata
portion of preferred dividends of $77,600 and $ 79,950 for the three months
ended June 30, 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 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:
Weighted Average Shares
Outstanding
(Unaudited)
For the Three Months Ended June 30,
-----------------------------------
1999 1998
----------- -----------------
Class A common stock 11,762,954 12,780,680
Class B common stock 1,018,950 798,289
---------- -----------
12,781,904 11,578,969
========== ===========
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-23
<PAGE> 45
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. 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.
UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying June 30, 1999 and 1998
unaudited financial Statements contain normal and recurring adjustments
necessary to present fairly the Company's financial position and the
results of operations for the period presented and the disclosures herein
are adequate to make the information presented not misleading. Operating
results for interim periods are not necessarily indicative of the results
that can be expected for a full year.
3. PROPERTY AND EQUIPMENT
Property and equipment, consisted of the following:
<TABLE>
<CAPTION>
June 30,
1999
(Unaudited)
-----------
<S> <C>
Restaurant equipment $ 426,909
Furniture, fixtures and office equipment 209,601
Leasehold improvements 355,821
Assets under capital lease 43,603
Construction in progress --
----------
Total cost 1,035,934
Less accumulated depreciation and amortization (270,185)
----------
Property and equipment, net $ 765,749
==========
</TABLE>
F-24
<PAGE> 46
4. INTANGIBLE ASSETS
Intangible assets, consisted of the following:
<TABLE>
<CAPTION>
June 30,
1999
(Unaudited)
-----------
<S> <C>
Trade name $ 12,940
Leasehold interest 614,734
Excess of acquisition costs over net assets acquired 1,545,648
----------
Total cost 2,173,322
Less accumulated amortization (406,571)
----------
Intangible assets, net $1,766,751
==========
</TABLE>
Leasehold interest and excess of acquisition costs over net assets acquired
were recorded as a result of an acquisition.
5. INCOME TAXES
The Company has net operating loss carry-forwards for federal income tax
purposes of approximately $3,021,000, at June 30, 1999, 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:
June 30, 1999
(Unaudited)
-------------
Deferred tax (liabilities) assets
Net operating loss carryforward $1,279,825
Other temporary timing differences 3,273
Difference in depreciation and
amortization of assets (8,798)
-----------
1,274,300
Less valuation allowance (1,274,300)
-----------
Net deferred tax (liabilities) assets --
===========
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.
F-25
<PAGE> 47
6. 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 June 30, 1999 are
as follows:
Year June 30,
1999
(Unaudited)
--------------
2000 $ 278,529
2001 282,394
2002 261,566
2003 253,679
2004 253,679
Thereafter 1,598,751
--------------
$ 2,928,598
==============
Total occupancy expense were $165,426 and $92,722, for the three months
ended June 30, 1999 and 1998, and are 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 $107,903 at June 30, 1999, respectively) 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.
F-26
<PAGE> 48
7. RELATED PARTIES
A summary of the total amount of compensation paid to related parties is as
follows:
<TABLE>
<CAPTION>
(Unaudited)
Compensation Paid
--------------------------
For the three months ended
June 30, 1999
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
To entities owned by family members of principal
stockholder for consulting services $ 16,861 23,285
-------- --------
Total $ 16,861 $ 23,285
======== ========
</TABLE>
The Company advanced $78,867 to an affiliated company owned by the President
(who is the principal Shareholder of the Company. The advance is non-interest
bearing.
8. GOING CONCERN AND MANAGEMENT'S PLANS
The Company has incurred losses from operations since inception, and at
June 30, 1999 the Company had a working capital deficit of $(514,127).
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-27
<PAGE> 1
Exhibit 10.3
CHICKEN KITCHEN
FRANCHISE AGREEMENT
----------------------------------------
FRANCHISEE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INTRODUCTION................................................................................................32
1. GRANT................................................................................................32
II. TERMS AND RENEWAL....................................................................................33
II. DUTEES OF FRANCHISOR.................................................................................33
IV. FEES.................................................................................................34
V. CONSTRUCTION OF RESTAURANT...........................................................................34
VI. TRAINING.............................................................................................35
VII. DUTIES OF FRANCHISEE.................................................................................36
VIII. PROPRIETARY MARKS....................................................................................39
IX. CONFIDENTIAL MANUAL OF OPERATING PROCEDURES ("MOP")..................................................40
X. CONFIDENTIAL INFORMATION.............................................................................40
XI. ACCOUNTING AND RECORDS...............................................................................41
XII. ADVERTISING..........................................................................................41
XIII. INSURANCE............................................................................................43
XIV. TRANSFER OF INTEREST.................................................................................43
XV. DEFAULT AND TERMINATION..............................................................................46
XVI. OBLIGATIONS UPON TERMINATION OR EXPIRATION...........................................................48
XVII. COVENANTS............................................................................................49
XVIII. TAXES, PERMITS, AND INDEBTEDNESS.....................................................................50
XIX. INDEPENDENT CONTRACTOR AND INDEMNIFICATION...........................................................51
XX. APPROVALS AND WAIVERS................................................................................51
XXI. NOTICES..............................................................................................51
XXII. ENTIRE AGREEMENT.....................................................................................52
XXIII. SEVERABILITY AND CONSTRUCTION........................................................................52
XXIV. APPLICABLE LAW.......................................................................................52
XXV. ACKNOWLEDGMENTS......................................................................................53
RIDER A - SITE SELECTION ADDENDUM
</TABLE>
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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
within 1/2 mile 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).
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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.
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.
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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.
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.
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:
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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.
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.
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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.
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.
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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.
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.
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.
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.
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.
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
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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.
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.
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.
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.
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 lirnitation,
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.
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.
Franchisee shall comply with all other requirements set forth in this
Agreement and the MOP.
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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 CHICKEN KITCHEN, without any prefix or suffix. Franchisee may not
use the Proprietary Marks as part of any corporate or other legal name.
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:
<PAGE> 11
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.
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.
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.
<PAGE> 12
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.
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
<PAGE> 13
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.
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
<PAGE> 14
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.
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.
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(ies). Each policy shall provide that the policy cannot be canceled or
materially modified without 30 days prior written notice to Franchisor.
<PAGE> 15
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.
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.
<PAGE> 16
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.
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
<PAGE> 17
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.
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.
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
<PAGE> 18
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.
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.
7. If Franchisee is declared to be in default under an mortgage,
lease, deed of trust, or loan relating to the Franchise Business.
<PAGE> 19
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.
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
<PAGE> 20
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.
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 51% 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.
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
<PAGE> 21
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.
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.
<PAGE> 22
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.
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 parties 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
<PAGE> 23
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.
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.
<PAGE> 24
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.
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.
<PAGE> 25
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:
------------------------------------
------------------------------------
<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.
3. CONFIDENTIALITY. Employee recognizes that Employer has and will have
information
<PAGE> 2
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
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of the requested date such vacation would commence.
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
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the manner set forth above.
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
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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
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Employee:
Joseph A. Remsa, Jr.
900 N.W. 110 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.
