<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BUFFALO WILD WINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 5812 31-1455915
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation of organization) Classification Code) Identification
Number)
</TABLE>
BUFFALO WILD WINGS, INC.
1919 INTERCHANGE TOWER, 600 SOUTH HIGHWAY 169
MINNEAPOLIS, MN 55426
(612) 593-9943
(Address and telephone number of principal executive offices and principal place
of business)
SALLY J. SMITH, CHIEF EXECUTIVE OFFICER AND PRESIDENT
BUFFALO WILD WINGS, INC.
1919 INTERCHANGE TOWER, 600 SOUTH HIGHWAY 169
MINNEAPOLIS, MN 55426
(612) 593-9943
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
WARREN E. MACK, ESQ. OR MELODIE R. GIRARD P. MILLER, ESQ.
ROSE, ESQ. DOHERTY, RUMBLE & BUTLER PROFESSIONAL
FREDRIKSON & BYRON, P.A. ASSOCIATION
900 SECOND AVENUE SOUTH, SUITE 1100 150 SOUTH FIFTH STREET, SUITE 3500
MINNEAPOLIS, MINNESOTA 55402 MINNEAPOLIS, MN 55402
(612) 347-7000 (612) 340-5555
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2)
<S> <C> <C> <C>
Units consisting of Common Stock and Warrants to purchase
one share of Common Stock............................... 1,725,000 $6.50 $11,212,500
Common Stock, no par value................................ 1,725,000 $6.00 $10,350,000
Warrants to purchase one share of Common Stock............ 1,725,000 $0.50 $862,500
Common Stock, no par value, underlying the Warrants....... 1,725,000 $8.00 $13,800,000
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Units consisting of Common Stock and Warrants to purchase
one share of Common Stock............................... $3,308
Common Stock, no par value................................ N/A(3)
Warrants to purchase one share of Common Stock............ N/A(3)
Common Stock, no par value, underlying the Warrants....... $4,071
</TABLE>
(1) Includes 225,000 units purchasable by the Underwriters to cover
over-allotments.
(2) Estimated solely for the purpose of calculating registration fees pursuant
to Rule 457(a) under the Securities Act of 1933, as amended.
(3) The registration fee is being paid and accounted for in the registration fee
calculation of the Units. The $6.50 per Unit offering price is being
allocated $6.00 per share to the Common Stock and $0.50 per Warrant to the
Warrants.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(s),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 5, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[BUFFALO WILD WINGS LOGO]
1,500,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK
All of the Units offered hereby are being sold by Buffalo Wild Wings, Inc.
Each Unit consists of one share of Common Stock, no par value ("Share"), and one
redeemable warrant ("Warrant") to purchase one share of Common Stock ("Warrant
Share") at an exercise price of $8.00 per share, subject to adjustment. The
Warrants are immediately exercisable, expire on the fourth anniversary of the
date of this Prospectus and are immediately transferable separate from the
Shares. The Warrants are subject to redemption by the Company, at a price of
$0.01 per Warrant, at any time 90 days after the date of this Prospectus
following a period of 20 consecutive trading days where the per share closing
sale price of the Common Stock exceeds $9.25 (subject to adjustment), on not
less than 30 days' written notice given not more than 15 trading days following
such 20 trading-day period.
Prior to this offering, there has been no public market for the Units,
Shares or Warrants. The Company has applied for quotation of the Shares and the
Warrants on the Nasdaq National Market under the symbols "BFLO" and "BFLOW,"
respectively. The Units will neither be quoted on the Nasdaq system nor listed
on a securities exchange.
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION" ON PAGE
12.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS
PUBLIC AND COMMISSIONS(1) TO COMPANY(2)
<S> <C> <C> <C>
Per Unit..................................... $6.50 $0.52 $5.98
Total(3)..................................... $9,750,000 $780,000 $8,970,000
</TABLE>
(1) In addition, the Company has agreed to (i) pay R.J. Steichen & Company, as
representative of the several Underwriters (the "Representative"), a
nonaccountable expense allowance equal to 2% of the gross proceeds of this
offering, (ii) sell to the Representative, for nominal consideration, a
five-year warrant to purchase up to 150,000 shares of Common Stock,
exercisable at $7.80 per share (the "Representative's Warrant") and (iii)
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $495,000
(including the nonaccountable expense allowance referenced in note 1 above).
See "Underwriting."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
225,000 Units solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $11,212,500, $897,000 and
$10,315,500, respectively. See "Underwriting."
The Units are offered by the several Underwriters subject to prior sale,
when, as and if delivered to and accepted by them, and are subject to the right
of the Underwriters to withdraw, cancel or modify such offer and to reject any
order in whole or in part. It is expected that delivery of the Units will be
made on or about , 1998.
[RJ STEICHEN & CO LOGO]
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[Photograph of exterior of Company-owned Buffalo Wild Wings restaurant]
[Photograph of interior seating area of Company-owned Buffalo Wild Wings
restaurant]
[Photograph of interior bar area of Company-owned Buffalo Wild Wings restaurant]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE REGISTERED
SECURITIES, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING
TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
2
<PAGE>
[Photograph of basket of Buffalo, New York-style chicken wings served at the
Company's restaurants]
[Photograph of various sandwiches served at the Company's restaurants]
[Photograph of various appetizers served at the Company's restaurants]
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO
CONVERSION OF OUTSTANDING CONVERTIBLE NOTES (216,346 SHARES) AND NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION (225,000 SHARES), REPRESENTATIVE'S
WARRANT (150,000 SHARES), OUTSTANDING OPTIONS AND WARRANTS (508,935 SHARES) AND
THE WARRANTS TO BE ISSUED IN CONNECTION WITH THIS OFFERING (1,500,000 SHARES)
AND (II) REFLECTS A 1-FOR-2 REVERSE STOCK SPLIT OF THE COMMON STOCK TO BE
EFFECTED SIMULTANEOUSLY WITH THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT OF
WHICH THIS PROSPECTUS IS A PART. SEE "DESCRIPTION OF SECURITIES" AND
"UNDERWRITING."
THE COMPANY
Buffalo Wild Wings, Inc. ("Buffalo Wild Wings" or the "Company") develops,
franchises and operates comfortable, "fast casual" restaurants offering a broad
menu of affordably priced food with a focus on Buffalo, New York-style chicken
wings. The Company's restaurants target the market niche between fast food and
casual dining, offering a dining and entertainment experience focused on quality
food, value pricing and a relaxed, fun atmosphere. The Company believes that its
restaurants have a family-friendly appeal designed to allow the dining
atmosphere and bar to coexist.
The Company focuses its strategy around a distinctive menu featuring its 12
signature chicken wing sauces that range from mild Teriyaki to "better-be-ready
Blazin." In addition to its Buffalo, New York-style chicken wings, the Company's
restaurants offer a broad menu of other made-to-order casual food items
including burgers, sandwiches, salads and appetizers. All of the menu items are
available for carryout, which approximates over 20% of restaurant sales for
Company-owned restaurants. The Company believes it has differentiated its
concept beyond its menu by creating a relaxed, unstructured and entertaining
atmosphere that appeals to a variety of consumers. The Company also attempts to
position its restaurants to take advantage of the lifestyles of families,
particularly in light of the growing influence that children have in the buying
decision. All of the Company's restaurants have numerous televisions with
satellite service, including large screen televisions, to capitalize on the very
high interest in sports and the National Trivia Network. Each restaurant also
has a full service bar, offering an extensive selection of specialty beers on
tap, 30 or more different bottled beers, wine and liquor. On average, annual
alcoholic beverage revenue system-wide accounts for 35% to 40% of restaurant
revenue.
Founded in 1982 with the opening of its first restaurant on the Ohio State
University campus, the Company has expanded into 16 states with a chain of 84
restaurants, of which 15 are Company-owned and 69 are franchised, including two
Company-owned restaurants currently under construction. System-wide during 1997,
those restaurants open for a full year averaged $1.2 million in revenue. From
its Company-owned restaurants and franchise fees, the Company's net income was
$806,000 in 1996 on revenues of $14.6 million and $828,000 in 1997 on revenues
of $16 million. For the first quarter ended March 29, 1998, net income was
$65,000 on revenues of $4.3 million.
The Company intends to expand its operations by increasing market
penetration in existing markets and new markets by emphasizing Company-owned
restaurants with a continued roll-out of franchised locations. The Company has
made a strategic decision to seek to increase the proportional number of
Company-owned restaurants in its restaurant base from 18% currently to 30% over
the next five years. The Company believes this strategy will allow it to more
rapidly grow the value of the Company and to attract
3
<PAGE>
and retain qualified personnel. The Company has opened four Company-owned
restaurants in 1998 and has two sites under construction as of the date of this
Prospectus. The Company estimates that with the net proceeds of this offering
and equipment lease financing it can open four additional restaurants in 1998
and up to eight restaurants in the first half of 1999. In 1998, the Company
anticipates up to 10 new franchised restaurants will open in addition to the two
that have already opened.
The Company operates under three different service models: counter service,
modified wait service (initial orders placed at the counter followed by wait
service) and table service. The Company plans to convert the majority of its
restaurants to the modified wait service model and incorporate this service
level in its new restaurants. This strategy allows the Company to preserve its
niche as a "fast casual" restaurant, between the fast food and casual dining
segments, by offering more convenience and lower prices (average ticket of $6-$9
per person) than "neighborhood" casual dining restaurants while providing a
higher service level and more entertaining atmosphere than available at fast
food restaurants.
The Company was incorporated under the laws of the State of Minnesota in
December 1995 and in June 1997 merged with bw-3, Inc., an Ohio corporation
organized in 1982 (the "Predecessor"). In May 1998, the Company changed its name
to Buffalo Wild Wings, Inc. The Company's wholly-owned franchising subsidiary is
bw-3 Franchise Systems, Inc., an Ohio corporation ("Franchise Systems"). Unless
otherwise specifically indicated, references to the "Company" include the
Predecessor and Franchise Systems. The Company's executive offices are located
at 1919 Interchange Tower, 600 South Highway 169, Minneapolis, Minnesota 55426
and its telephone number is (612) 593-9943.
THE OFFERING
<TABLE>
<S> <C>
Securities offered....................... 1,500,000 Units, each Unit consisting of one
Share of Common Stock and one redeemable Warrant
to purchase one share of Common Stock at an
exercise price of $8.00 per share, subject to
adjustment. The Warrants are immediately
exercisable, expire on the fourth anniversary of
the date of this Prospectus and are immediately
transferable separate from the Shares. The
Warrants are subject to redemption by the
Company, at a price of $0.01 per Warrant, at any
time 90 days after the date of this Prospectus
following a period of 20 consecutive trading
days where the per share closing sale price of
the Common Stock exceeds $9.25 (subject to
adjustment). The Company must give at least 30
days' written notice of such redemption not more
than 15 trading days following such 20
trading-day period.
Common Stock outstanding before this
offering............................... 1,987,758 shares(1)
Common Stock to be outstanding after this
offering............................... 3,487,758 shares(1)(2)
Use of Proceeds.......................... The Company intends to use proceeds from this
offering to repay debt, expand Company-owned
restaurant locations, upgrade information
systems and for working capital and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
symbols................................ Common Stock: BFLO
Warrants: BFLOW
</TABLE>
- ------------------------
(1) Reflects a 1-for-2 reverse stock split of the Common Stock to be effected
simultaneously with the effective date of the Registration Statement of
which this Prospectus is a part.
4
<PAGE>
(2) Does not include (i) 216,346 shares of Common Stock issuable upon conversion
of outstanding convertible notes, (ii) 225,000 shares of Common Stock
issuable upon exercise of the Underwriter's over-allotment option, (iii)
150,000 shares of Common Stock issuable upon exercise of the
Representative's Warrant, (iv) 508,935 shares of Common Stock issuable upon
exercise of outstanding options and warrants, or (v) 1,500,000 shares of
Common Stock issuable upon exercise of the Warrants to be issued in
connection with this offering.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE
------------------------------------- THREE MONTHS ENDED
DECEMBER DECEMBER DECEMBER ------------------------
CONSOLIDATED STATEMENT OF OPERATIONS 31, 29, 28, MARCH 30, MARCH 29,
DATA: 1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Restaurant sales......................... $ 10,031 $ 11,253 $ 12,216 $ 3,173 $ 3,280
Franchising revenues:
Initial franchise fees................. 315 338 328 123 50
Royalty income......................... 1,944 3,010 3,502 830 1,000
----------- ----------- ----------- ----------- -----------
Total franchising revenues........... 2,259 3,348 3,830 953 1,050
----------- ----------- ----------- ----------- -----------
Total revenue............................ 12,290 14,601 16,046 4,126 4,330
Cost of restaurant sales................. 6,853 7,338 7,809 2,068 2,089
Selling, general and administrative
expenses............................... 5,893 5,836 6,301 1,608 1,817
Preopening expenses...................... 28 53 65 23 112
Impairment and disposal charges.......... 1,120 -- 157 -- 145
----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations.......... (1,604) 1,374 1,714 427 167
Other income (expense), net.............. (289) (373) (343) (93) (56)
----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes...... (1,893) 1,001 1,371 334 111
Income tax expense (benefit)............. (222) 195 543 136 46
----------- ----------- ----------- ----------- -----------
Net earnings (loss)...................... $ (1,671) $ 806 $ 828 $ 198 $ 65
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings (loss) per common share(1)...... $ (.96) $ .45 $ .42 $ .10 $ .03
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common share
outstanding(1)......................... 1,735 1,784 1,967 1,967 1,969
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Earnings (loss) per common
share--assuming dilution(1)............ $ (.96) $ .45 $ .41 $ .10 $ .03
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding(1)....... 1,735 1,784 2,019 1,998 2,033
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 29, 1998
------------------------------------------------
PRO AS AS
CONSOLIDATED BALANCE SHEET DATA: ACTUAL FORMA(2) ADJUSTED(3) ADJUSTED(4)
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Working capital (deficit)..................... $ (1,626) $ (1,552) $ 7,742 $ 6,617
Total assets.................................. 8,900 11,020 18,268 17,143
Total liabilities............................. 6,666 8,685 6,666 6,666
Total stockholders' equity.................... 2,234 2,335 11,602 10,477
</TABLE>
- ------------------------
(1) See Note 1 to Consolidated Financial Statements for an explanation of the
determination of weighted average common and common equivalent shares
outstanding. Share and per share amounts adjusted for a 1-for-2 reverse
stock split of the Common Stock to be effected simultaneously with the
effective date of the Registration Statement of which this Prospectus is a
part.
(2) Pro forma includes the issuance of $2,250,000 of convertible notes and
detachable warrants in April 1998. An aggregate $1,125,000 of these notes
are convertible into Common Stock within 20 days of the closing of this
offering at 80% of the Price to Public of the Units offered hereby. See
"Description of Securities--Convertible Notes."
6
<PAGE>
(3) Adjusted to reflect the sale of the 1,500,000 Units offered by the Company
hereby at an offering price of $6.50 per Unit, and the application of the
estimated net proceeds therefrom, the repayment of $1,125,000 of convertible
notes issued in April 1998, the conversion of $1,125,000 of convertible
notes into Common Stock and the expensing of related note issuance and other
financing costs. Simultaneous with the effective date of the Registration
Statement of which this Prospectus is a part, the Company will record an
interest charge of $281,000 to reflect the in-the-money conversion discount
for the convertible note holders. See "Use of Proceeds" and "Description of
Securities--Convertible Notes."
(4) Adjusted to reflect the sale of the 1,500,000 Units offered by the Company
hereby at an offering price of $6.50 per Unit, and the application of the
estimated net proceeds therefrom, the repayment of $2,250,000 of the notes
issued in April 1998 and the expensing of related note issuance and other
financing costs. Simultaneous with the effective date of the Registration
Statement of which this Prospectus is a part, the Company will record an
interest charge of $281,000 to reflect the in-the-money conversion discount
for the convertible note holders. See "Use of Proceeds" and "Description of
Securities--Convertible Notes."
7
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. THIS PROSPECTUS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS
WHICH REFLECT THE COMPANY'S PLANS, ESTIMATES AND BELIEFS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE
DISCUSSED IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS. IN
EVALUATING AN INVESTMENT IN THE SECURITIES, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS.
DEPENDENCE ON EXPANSION STRATEGY; MANAGEMENT OF GROWTH
The Company's expansion strategy will depend upon the ability of the Company
and its franchisees to open and operate additional restaurants profitably. The
opening of new restaurants, both by the Company and its franchisees, will depend
on a number of factors, many of which are beyond the control of the Company and
its franchisees. These factors include, among others, the availability of
management, attracting and retaining qualified franchisees, restaurant staff and
other personnel, the cost and availability of suitable restaurant locations,
acceptable leasing or financial terms and securing required governmental
permits. Although the Company has formulated its business plans and expansion
strategies based on certain assumptions, based on the current best estimates of
management, the Company anticipates that, as with most business ventures, they
will be subject to change. There can be no assurance that the Company's
assessments regarding timing and opening of new Company restaurants and
franchise restaurants or a variety of other factors will prove to be correct, or
that such new restaurants will be operated profitably.
The Company's expansion has and will continue to require the implementation
of enhanced operational systems. The Company regularly evaluates the adequacy of
its current policies, procedures, systems and resources, including financial
controls, management information systems, human resources, marketing, field and
restaurant management and vendor capacities and relations. There can be no
assurance that the Company will adequately address all of the changing demands
that its planned expansion will impose on such systems, controls and resources.
See "Business--Buffalo Wild Wings Expansion Strategy."
UNCERTAINTY OF MARKET ACCEPTANCE
In the course of expansion of the Company's concept, the Company and its
franchisees will enter new or more highly competitive geographic regions or
local markets in which they may have limited operating experience. There can be
no assurance that the Company or its franchisees will be able to create brand
awareness or achieve a level of success of the Buffalo Wild Wings concept in
these regions or particular local markets. New Company-owned restaurants
typically require several months of operation before achieving normal
profitability. When the Company enters highly competitive new markets or
territories in which the Company has not yet established a market presence, the
adverse effects on revenue and profit margins may be greater and more prolonged.
COMPETITION
The food service industry is intensely competitive. Because of the nature of
the Buffalo Wild Wings concept as "fast casual," the Company competes with
national casual dining chains, such as Applebee's, T.G.I. Friday's and Chili's,
national fast food chains, such as McDonald's, Burger King and Arby's, as well
as local chains and independently-operated restaurants. Competition in the
casual dining and fast food segments of the restaurant industry is expected to
remain intense with respect to price, service, location, concept and the type
and quality of food. There is also intense competition for real estate sites,
qualified management personnel and hourly restaurant staff. Some of the
Company's competitors have been in existence longer than the Company and may be
better established in markets where the Company or its franchisees are or may be
located. Further, many of these competitors have greater financial and other
resources and market presence than the Company and its franchisees. See
"Business--Competition."
7
<PAGE>
DEPENDENCE ON FRANCHISING CONCEPT
Currently, approximately 82% of the restaurants in the Company's chain are
franchised restaurants and franchising royalties represented approximately 24%
of the Company's revenues during 1997. Although the Company plans to reduce the
percentage of franchised restaurants in its chain, the Company's performance is,
and will continue to be, dependent upon its ability to attract and retain
qualified franchisees as well as the ability of its franchisees to promote and
capitalize upon the Company's concept and its reputation for quality and value.
The Company has established criteria for use in evaluating prospective
franchisees, but there can be no assurance that it will recruit franchisees who
have the business abilities or financial resources necessary to open restaurants
on schedule or that franchisees will conduct operations in a manner consistent
with the Company's concepts and standards. See "Business-- Franchising."
GOVERNMENT REGULATIONS
The restaurant industry is subject to numerous federal, state and local
governmental regulations, including those relating to the preparation and sale
of food and alcoholic beverages, sanitation, public health, fire codes, zoning
and building requirements. Termination of the liquor license for any restaurant
would adversely affect the revenues of that restaurant and failure to obtain
such licenses would adversely affect the Company's expansion plans. The Company
and its franchisees are also subject to laws governing their relationships with
employees, including benefit, wage and hour laws, and laws and regulations
relating to workers' compensation insurance rates, unemployment and other taxes,
working and safety conditions and citizenship or immigration status. The Company
may be subject in certain states to "dram-shop" statutes, which generally
provide a person injured by an intoxicated person the right to recover damages
from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. While the Company carries liquor liability coverage, a
judgment against the Company under a dram shop statute in excess of such
insurance coverage, or any inability to continue to obtain such insurance
coverage at reasonable costs, could have a material adverse effect on the
Company. Failure to comply with any of these regulations or increases in the
minimum wage rate, employee benefit costs or other costs associated with
employees, could adversely affect the Company and its franchisees.
In addition, the Company is subject to various state and federal laws
relating to the offer and sale of franchises and the franchisor-franchisee
relationship. The failure by the Company to comply with these laws could subject
it to liability to franchisees and to fines or other penalties imposed by
governmental authorities. The Company believes that the franchising industry is
experiencing an increasing trend of franchisees filing complaints with
governmental authorities and instituting lawsuits against franchisors claiming
that they have engaged in unlawful or unfair trade practices or violated express
or implied agreements with franchisees. The Company believes that its relations
with its franchisees are generally good. See "Business--Government Regulations."
CERTAIN FACTORS AFFECTING THE RESTAURANT INDUSTRY
The restaurant industry is affected by national, regional and local economic
conditions, changing consumer tastes and spending priorities, health concerns
and trends, demographic trends, traffic patterns and the type, number and
location of competing restaurants. Multi-unit chains such as the Company can
also be adversely affected by publicity resulting from food quality, illness,
injury or other health concerns or operating issues stemming from one restaurant
or a limited number of restaurants. Dependence on fresh produce and meats also
subjects the Company to the risk that shortages or interruptions in supply,
particularly of chicken wings, caused by unfavorable weather or other
conditions, could adversely affect the availability, quality or cost of food
supplies. In addition, factors such as inflation, increased food, labor and
employee benefit costs, and the availability of qualified management and hourly
employees may also adversely affect the restaurant industry in general and the
Company's restaurants in particular. The Company and its franchisees may be the
subject of litigation based on discrimination, personal injury and
8
<PAGE>
other claims. None of the foregoing factors can be predicted with any degree of
certainty and any one or more of these factors could have a material adverse
effect on the Company's financial condition and results of operations. The
continued success of the Company will depend in part on the ability of the
Company's management to identify and respond appropriately to changing
conditions. See "Business--Competition."
NEED FOR ADDITIONAL FINANCING
The Company has opened four Company-owned restaurants in 1998, has two sites
under construction as of the date of this Prospectus and expects to open four
additional restaurants in 1998. The Company anticipates that the proceeds
received in this offering, together with cash from operations, equipment leasing
and landlord construction contributions (when available) will be sufficient to
fund its expansion plans for 1998 and into 1999. There can be, however, no
assurance that these estimates will prove accurate. To continue the expansion at
the same or higher level through 1999 and beyond, the Company anticipates that
additional funding and equipment leasing will be necessary. In addition, the
Company has made a strategic decision going forward to increase the proportional
number of Company-owned restaurants in its restaurant base. Accordingly, the
Company will need to seek additional financing to continue its expansion efforts
after the proceeds from this offering are exhausted. There can be no assurance
that such additional financing will be available to the Company on favorable
terms, if at all. See "Use of Proceeds" and "Business--Buffalo Wild Wing
Expansion Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's ability to develop and market its products and to maintain a
competitive position depends, in large part, on its ability to attract and
retain qualified personnel. There can be no assurance that the Company will be
able to attract and retain such personnel. In particular, the Company is
presently dependent upon the services of Sally J. Smith, Chief Executive Officer
and President, Mary J. Twinem, Chief Financial Officer, and Stephen E. David,
Chief Operating Officer. The Company does not maintain key person insurance on
any of its employees. The Company's inability to retain the full-time services
of any of these people or attract other qualified individuals could have an
adverse effect on the Company, and there would likely be a difficult transition
period in finding replacements for any of them. See "Management."
CONTROL BY EXISTING MANAGEMENT
Executive officers and directors of Buffalo Wild Wings will beneficially own
approximately 22% of the outstanding shares of Common Stock of the Company after
this offering. As a result of such ownership, such stockholders as a group have
the ability to influence actions requiring stockholder approval, including the
election or removal of the members of the Board of Directors, and changes in
control of the Company. See "Principal Stockholders."
NO PRIOR PUBLIC MARKET FOR COMPANY'S SECURITIES; POSSIBLE VOLATILITY OF MARKET
PRICE
Prior to this offering, there has been no public market for any of the
securities of the Company. Although the Company has applied for listing of the
Common Stock and Warrants on the Nasdaq National Market, there can be no
assurance that an active public market for the Common Stock or Warrants will
develop or be sustained after the offering. Since, the Units will neither be
quoted on the Nasdaq system nor listed on a securities exchange, there will
likely be no public market for the Units. The initial offering price of the
Units and the Warrant exercise price have been arbitrarily determined by
negotiations between the Company and the Representative. The initial offering
price and the Warrant exercise price bear no relationship to the Company's
assets, book value, earnings, net worth or other recognized criteria of value.
Market prices for securities in this industry can be highly volatile, and the
market has experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. Announcements of
new restaurant openings or closings by the Company or its competitors,
9
<PAGE>
changes in the Company's comparable unit sales, government regulation, general
market conditions, as well as quarterly fluctuations in the Company's revenues
and financial results and other factors, may have a significant impact on the
market price of the Company's securities. In particular, the realization of any
of the risks described in the "Risk Factors" set forth in this Prospectus could
have a dramatic and adverse impact on such market price. See "Underwriting."
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock (including shares issued upon
the exercise of outstanding options) in the public market following this
offering could have an adverse effect on the market price of the Company's
securities. Such sales may also make it more difficult for the Company to sell
equity or equity-related securities in the future at a time and price that the
Company would deem appropriate. Upon completion of this offering, the Company
will have 3,487,758 shares of Common Stock issued and outstanding. Following
this offering, the 1,500,000 Shares and, following exercise of the Warrants, if
any, the 1,500,000 Warrant Shares will be freely tradable, except for any shares
purchased by an "affiliate" of the Company, which will be subject to the
limitations of Rule 144 promulgated under the Securities Act of 1933, as amended
("Rule 144"). All officers and directors and certain stockholders of the
Company, owning an aggregate of 1,938,612 shares, have entered into "lock-up"
agreements, agreeing not to sell, transfer or otherwise dispose of any shares of
Common Stock without the consent of the Representative for a period of 180 days
after the date of this Prospectus. The Representative may waive these
restrictions at any time in its discretion. Taking such restrictions into
account, in addition to the 1,500,000 Shares and 1,500,000 Warrant Shares, (i)
30,170 shares will be eligible for immediate sale on the date of this Prospectus
in accordance with Rule 144; (ii) 62 additional shares will become eligible for
sale in the public market beginning 90 days after the date of this Prospectus in
accordance with Rule 144; (iii) 18,789 additional shares will become eligible
for resale in the public market beginning in December 1998, subject to volume
and manner of sale limitations under Rule 144; (iv) 1,917,754 additional shares
will be eligible for sale beginning 180 days after the date of this Prospectus
upon the expiration of the lock-up agreements, subject, in certain cases, to
volume and manner of sale limitations under Rule 144; and (v) 20,983 additional
shares will be eligible for sale beginning in March 1999, subject to volume and
manner of sale limitations under Rule 144. As of the date of this Prospectus,
options to purchase an aggregate of 256,435 shares of Common Stock are
outstanding. See "Shares Eligible for Future Sale."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS;
POSSIBLE REDEMPTION OF WARRANTS
Purchasers of Units will be able to exercise the Warrants only if a current
prospectus relating to the shares of Common Stock underlying the Warrants is
then in effect and only if such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of Warrants reside. Although the Company will use its best
efforts to (i) maintain the effectiveness of a current prospectus covering the
shares of Common Stock underlying the Warrants and (ii) qualify the shares of
Common Stock underlying the Warrants for sale or for an exemption from
registration under the securities laws of the states in which the Units are
initially sold, there can be no assurance that the Company will be able to do
so. The Company will be unable to issue shares of Common Stock to those persons
desiring to exercise their Warrants if a current prospectus covering the shares
issuable upon the exercise of the Warrants is not kept effective or if such
shares are not qualified nor exempt from qualification in the states in which
the holders of the Warrants reside.
The Warrants are subject to redemption by the Company, at a price of $0.01
per Warrant, at any time 90 days after the date of this Prospectus following a
period of 20 consecutive trading days where the per share closing sale price of
the Common Stock exceeds $9.25 (subject to adjustment). The Company must give 30
days' written notice of such redemption not more than 15 trading days following
such 20 trading day period, provided that a current prospectus covering the
shares issuable upon the exercise of the
10
<PAGE>
Warrants is then effective under federal securities laws. If the Warrants are
redeemed, Warrant holders will lose their right to exercise the Warrants except
during the 30-day redemption period. Redemption of the Warrants could force the
holders to exercise the Warrants at a time when it may be disadvantageous for
the holders to do so or to sell the Warrants at the then market price or accept
the redemption price, which is likely to be substantially less than the market
value of the Warrants at the time of redemption. See "Description of
Securities--Warrants."
ADVERSE EFFECT OF UNDESIGNATED STOCK AND ANTI-TAKEOVER PROVISIONS
The authorized capital of the Company includes 5,000,000 shares of
undesignated stock. The Company's Board of Directors has the power to issue any
or all of the shares of undesignated stock, including the authority to establish
one or more series and to fix the powers, preferences, rights and limitations of
such class or series, without seeking stockholder approval. Further, as a
Minnesota corporation, the Company is subject to provisions of the Minnesota
Business Corporations Act ("MBCA") regarding "control share acquisitions" and
"business combinations." The Company may in the future consider adopting
additional anti-takeover measures. The authority of the Board to issue
undesignated stock and the anti-takeover provisions of the MBCA, as well as any
future anti-takeover measures adopted by the Company, may, in certain
circumstances, delay, deter or prevent takeover attempts and other changes in
control of the Company not approved by management and the Board of Directors. As
a result, the Company's stockholders may lose opportunities to dispose of their
shares at favorable prices generally available in takeover attempts or that may
be available under a merger proposal and the market price, voting and other
rights of the holders of Common Stock may also be affected. See "Description of
Securities."
DILUTION
Assuming conversion of $1.1 million of convertible notes issued in April
1998 into Common Stock, purchasers of shares in this offering will incur
immediate and substantial dilution in the pro forma net tangible book value per
share of $3.48 or 53.5% from the Price to Public of $6.50 per Unit. Assuming no
conversion and the repayment of the convertible notes issued in April 1998,
purchasers of shares in this offering will incur immediate and substantial
dilution in the pro forma net tangible book value per share of $3.61 or 55.5%
from the Price to Public of $6.50 per Unit. Investors may also experience
additional dilution as a result of the exercise of outstanding stock options, or
the issuance by the Company of additional equity securities. See "Dilution."
ABSENCE OF DIVIDENDS
The Company has not declared or paid any cash dividends on its Common Stock
since its inception and does not anticipate declaring or paying any such cash
dividends in the foreseeable future. See "Dividend Policy."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 Units offered
to the public hereby are estimated to be $8.5 million ($9.8 million if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $6.50 per Unit, and after deducting estimated
underwriting discounts and estimated offering expenses payable by the Company.
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------ -----------
<S> <C> <C>
Expansion of Company-owned restaurant locations..................... $ 5,100,000 60.2%
Repayment of debt, including interest............................... 2,325,000 27.4
Upgrade of information systems...................................... 450,000 5.3
Existing store remodel, working capital and general corporate
purposes.......................................................... 600,000 7.1
------------ -----
Total........................................................... $ 8,475,000 100.0%
------------ -----
------------ -----
</TABLE>
The Company intends to use approximately $5.1 million of the net proceeds to
expand the number of Company-owned restaurants. The Company has an equipment
lease financing facility of up to $2.5 million, of which approximately $1.8
million is remaining as of the date of this Prospectus to fund additional
Company-owned restaurants. The Company estimates that with such proceeds and
equipment lease financing it can open four additional restaurants in 1998 and up
to eight restaurants in the first half of 1999.
The Company currently intends to use $2.3 million of such proceeds to repay
outstanding convertible debt issued in connection with a recent financing by the
Company and related accrued interest, up to $1.1 million of such debt is
convertible into Common Stock. If any portion of this amount is converted, the
amount of proceeds allocated to expansion of Company-owned restaurant locations
will be increased accordingly. These convertible notes accrue interest at the
rate of 10% per annum. Accrued interest and the unconverted portion of the
principal amount of the notes are due and payable 20 days following the closing
of this offering. The proceeds from the notes are being used to fund the
leasehold costs of additional Company-owned restaurants during the period prior
to this offering. See "Description of Securities--Convertible Notes."
The Company estimates using approximately $450,000 of the net proceeds to
upgrade its information systems, including establishing a network infrastructure
to allow communication and electronic transfer of documents and data between
offices, commissaries, restaurants and field managers, as well as updating the
accounting system.
The balance of the net proceeds will be used for new Buffalo Wild Wings
signage and interior updating at existing Company-owned restaurants, working
capital and general corporate purposes. The Company anticipates that the
proceeds received in this offering, together with cash from operations,
equipment leasing and landlord construction contributions (when available) will
be sufficient to fund its expansion plans for 1998 and into the second quarter
of 1999. To continue the expansion at a higher level through 1999 and beyond,
the Company anticipates that additional funding and equipment leasing will be
necessary, and there can be no assurances that this additional financing will be
available when needed or on terms acceptable or favorable to the Company.
Pending their use, the net proceeds will be invested in investment grade,
interest-bearing securities.
DILUTION
The pro forma net tangible book value of the Company's Common Stock at March
29, 1998 was $1.8 million or $.92 per share. "Net tangible book value"
represents the tangible assets less total liabilities of the Company and "net
tangible book value per share" was determined by dividing the net tangible book
value of the Company by the number of shares of Common Stock outstanding on
March 29, 1998. See "Capitalization." Without taking into account any changes in
the Company's net tangible book value per
12
<PAGE>
share after March 29, 1998, other than to give effect to the sale of the
1,500,000 shares offered hereby at an assumed initial offering price of $6.50
per Unit (net of underwriting discounts and commissions and estimated offering
expenses) and the conversion of $1,125,000 of notes issued in April 1998 (net of
issuance and other financing costs), the pro forma net tangible book value of
the Company at March 29, 1998 would have been $11.2 million or $3.02 per share.
This represents an immediate increase in pro forma net tangible book value to
the existing stockholders of $2.10 per share and an immediate pro forma net
tangible book value dilution to purchasers of the shares of $3.48 per share.
Without taking into account any changes in the Company's net tangible book value
per share after March 29, 1998, other than to give effect to the sale of the
1,500,000 shares offered hereby at an assumed initial offering price of $6.50
per Unit, assuming none of the notes issued in April 1998 are converted to
Common Stock, and the application of the estimated net proceeds therefrom (after
deducting the underwriting discounts and commissions and the estimated offering
expenses), the pro forma net tangible book value of the Company at March 29,
1998 would have been $10.1 million or $2.89 per share. This represents an
immediate increase in pro forma net tangible book value to the existing
stockholders of $1.97 per share and an immediate pro forma net tangible book
value dilution to purchasers of the shares of $3.61 per share. The following
illustrates those dilutions:
<TABLE>
<CAPTION>
AS ADJUSTED(1) AS ADJUSTED(2)
-------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Assumed initial public offering price per
share.................................. $ 6.50 $ 6.50
Net tangible book value per share at
March 29, 1998....................... $ .92 $ .92
Increase per share attributable to new
investors............................ 2.10 1.97
--------- ---------
Pro forma net tangible book value per
share after this offering.............. 3.02 2.89
--------- ---------
Pro forma net tangible book value
dilution per share to new investors.... $ 3.48 $ 3.61
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Assuming conversion, as discussed above.
(2) Assuming no conversion, as discussed above.
The following table summarizes as of March 29, 1998, on a pro forma basis
the difference between the number of shares of Common Stock purchased from the
Company by existing stockholders and by new investors in this offering, the
total cash consideration paid to the Company and the average price paid per
share. The table assumes that no Units are purchased in this offering by
existing stockholders. To the extent existing stockholders purchase Units in
this offering, their percentage ownership, total consideration and average
consideration per share will be greater than is shown.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
----------------------- -------------------------- CONSIDERATION
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................... 1,987,633 57.0% $ 999,837 9.3% $ .50
New investors....................................... 1,500,000 43.0 9,750,000 90.7 6.50
---------- ----- ------------- ----- -----
Total........................................... 3,487,633 100.0% $ 10,749,837 100.0% --
---------- ----- ------------- ----- -----
---------- ----- ------------- ----- -----
</TABLE>
- ------------------------
(1) Does not reflect any deductions for commissions or expenses paid or incurred
in connection with the issuance of such shares. Does not include 125 shares
of Common Stock issued after March 29, 1998.
The foregoing tables and calculations, as of the date of this Prospectus,
(i) reflect a 1-for-2 reverse stock split of the Common Stock to be effected
simultaneously with the effective date of the Registration
13
<PAGE>
Statement of which this Prospectus is a part, and (ii) does not include (a)
216,346 shares of Common Stock issuable upon conversion of outstanding
convertible notes, (b) 225,000 shares of Common Stock issuable upon exercise of
the Underwriter's over-allotment option, (c) 150,000 shares of Common Stock
issuable upon exercise of the Representative's Warrant, (d) 508,935 shares of
Common Stock issuable upon exercise of outstanding options and warrants, or (e)
1,500,000 shares of Common Stock issuable upon exercise of the Warrants to be
issued in connection with this offering. See "Management--Stock Options,"
"Description of Securities" and Note 10 to the Consolidated Financial
Statements.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its Common Stock. The
Company currently intends to retain any earnings for use in the operation and
expansion of its business and therefore does not anticipate declaring or paying
any cash dividends in the foreseeable future.
14
<PAGE>
CAPITALIZATION
The following table sets forth capitalization of the Company as of March 29,
1998.
<TABLE>
<CAPTION>
MARCH 29, 1998
------------------------------------------------------
AS AS
ACTUAL PRO FORMA(2) ADJUSTED(3) ADJUSTED(4)
--------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Short-term debt.......................................... $ 991 $ 3,010 $ 991 $ 991
--------- ------ ------------- -------------
--------- ------ ------------- -------------
Long-term debt and capital lease obligations............. $ 2,303 $ 2,303 $ 2,303 $ 2,303
--------- ------ ------------- -------------
Stockholders' equity:
Common Stock, no par value; 20,000,000 shares
authorized; 1,987,633, 1,987,633, 3,703,979 and
3,487,633 shares issued and outstanding,
respectively(1)...................................... 1,810 1,911 11,792 10,386
Retained earnings...................................... 424 424 (190) 91
--------- ------ ------------- -------------
Total stockholders' equity........................... 2,234 2,335 11,602 10,477
--------- ------ ------------- -------------
Total capitalization(5)............................ $ 4,537 $ 4,638 $ 13,905 $ 12,780
--------- ------ ------------- -------------
--------- ------ ------------- -------------
</TABLE>
- ------------------------
(1) Reflects a 1-for-2 reverse stock split of the Common Stock to be effected
simultaneously with the effective date of the Registration Statement of
which this Prospectus is a part. Does not include (i) 225,000 shares of
Common Stock issuable upon exercise of the Underwriter's over-allotment
option, (ii) 150,000 shares of Common Stock issuable upon exercise of the
Representative's Warrant, (iii) 508,935 shares of Common Stock issuable upon
exercise of outstanding options and warrants, or (iv) 1,500,000 shares of
Common Stock issuable upon exercise of the Warrants to be issued in
connection with this offering. Does not include 125 shares of Common Stock
issued after March 29, 1998.
(2) Pro forma capitalization of the Company to reflect the issuance of
$2,250,000 of notes and detachable warrants in April 1998.
(3) Adjusted to reflect the sale of the 1,500,000 Units offered by the Company
hereby at an offering price of $6.50 per Unit, and the application of the
estimated net proceeds therefrom, the repayment of $1,125,000 of convertible
notes issued in April 1998, the conversion of $1,125,000 of convertible
notes into Common Stock and the expensing of related note issuance and other
financing costs. Simultaneous with the effective date of the Registration
Statement of which this Prospectus is a part, the Company will record an
interest charge of $281,000 to reflect the in-the-money conversion discount
for the convertible note holders. See "Use of Proceeds" and "Description of
Securities--Convertible Notes."
(4) Adjusted to reflect the sale of the 1,500,000 Units offered by the Company
hereby at an offering price of $6.50 per Unit, and the application of the
estimated net proceeds therefrom, the repayment of $2,250,000 of the notes
issued in April 1998 and the expensing of related note issuance and other
financing costs. Simultaneous with the effective date of the Registration
Statement of which this Prospectus is a part, the Company will record an
interest charge of $281,000 to reflect the in-the-money conversion discount
for the convertible note holders. See "Use of Proceeds" and "Description of
Securities--Convertible Notes."
(5) Capitalization does not include short-term debt.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company as of and
for each of the fiscal years in the three-year period ended December 28, 1997,
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated statement of operations data for the years ended
December 29, 1996 and December 28, 1997 and the consolidated balance sheet data
for the years then ended are derived from and are qualified by reference to, and
should be read in conjunction with the more detailed Consolidated Financial
Statements of the Company and the Notes thereto, included elsewhere in this
Prospectus, and the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which follows this section. The
consolidated statement of operations data for the three months ended March 30,
1997 and March 29, 1998 and the consolidated balance sheet data at March 29,
1998 have been derived from the Company's unaudited consolidated financial
statements for such periods included elsewhere in this Prospectus. The results
of operations for the three months ended March 29, 1998 are not necessarily
indicative of results to be expected for the entire fiscal year or for other
interim periods.
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED THREE MONTHS ENDED
------------------------------------------- ------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Restaurant sales...................................... $ 10,031 $ 11,253 $ 12,216 $ 3,173 $ 3,280
Franchising revenues:
Initial franchise fees.............................. 315 338 328 123 50
Royalty income...................................... 1,944 3,010 3,502 830 1,000
------------- ------------- ------------- ----------- -----------
Total franchising revenues........................ 2,259 3,348 3,830 953 1,050
------------- ------------- ------------- ----------- -----------
Total revenue......................................... 12,290 14,601 16,046 4,126 4,330
Cost of restaurant sales.............................. 6,853 7,338 7,809 2,068 2,089
Selling, general and administrative expenses.......... 5,893 5,836 6,301 1,608 1,817
Preopening expenses................................... 28 53 65 23 112
Impairment and disposal charges....................... 1,120 -- 157 -- 145
------------- ------------- ------------- ----------- -----------
Earnings (loss) from operations....................... (1,604) 1,374 1,714 427 167
Other income (expense), net........................... (289) (373) (343) (93) (56)
------------- ------------- ------------- ----------- -----------
Earnings (loss) before income taxes................... (1,893) 1,001 1,371 334 111
Income tax expense (benefit).......................... (222) 195 543 136 46
------------- ------------- ------------- ----------- -----------
Net earnings (loss)................................... $ (1,671) $ 806 $ 828 $ 198 $ 65
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Earnings (loss) per common share(1)................... $ (.96) $ .45 $ .42 $ .10 $ .03
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Weighted average common share outstanding(1).......... 1,735 1,784 1,967 1,967 1,969
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Earnings (loss) per common share--assuming
dilution(1)......................................... $ (.96) $ .45 $ .41 $ .10 $ .03
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
Weighted average common and common equivalent shares
outstanding(1)...................................... 1,735 1,784 2,019 1,998 2,033
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 29,
1995 1996 1997 1998
------------- --------------- --------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total current assets...................................... $ 2,024 $ 2,994 $ 3,284 $ 2,603
Total assets.............................................. 5,042 7,594 7,541 8,900
Total current liabilities................................. 4,220 3,966 3,451 4,229
Total long-term liabilities............................... 1,668 2,392 2,026 2,437
Retained earnings (accumulated deficit)................... (1,275) (469) 359 424
Total stockholders' equity (deficit)...................... (846) 1,236 2,064 2,234
</TABLE>
- ------------------------------
(1) See Note 1 to Consolidated Financial Statements for determination of
weighted average common and common equivalent shares outstanding. Share and
per share amounts adjusted for a 1-for-2 reverse stock split of the Common
Stock to be effected simultaneously with the effective date of the
Registration Statement of which this Prospectus is a part.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO INCLUDED ELSEWHERE IN
THIS PROSPECTUS. THIS PROSPECTUS INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS
WHICH REFLECT THE COMPANY'S PLANS, ESTIMATES AND BELIEFS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE
DISCUSSED IN THE RISK FACTORS SECTION AND ELSEWHERE IN THIS PROSPECTUS. IN
EVALUATING AN INVESTMENT IN THE SECURITIES, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE RISK FACTORS AND OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS.
GENERAL
The Company owns and operates 15 restaurants in four states, including two
restaurants currently under construction, and has 69 franchised restaurants in
16 states. The Company's revenues consist of sales from its restaurant
operations and franchise fees and royalties from its franchise operations.
Franchise fees are recognized in income in the period that substantially all
services and conditions relating to the sale under the Company's franchise
agreement have been performed, typically the period in which the franchise
opens.
Cost of restaurant sales include food, paper and beverage costs, along with
labor and benefits costs, associated with Company-owned restaurants.
Selling, general and administrative ("SGA") expenses include all other
restaurant-level expenses including occupancy, advertising, utilities, and
maintenance. The Company operates commissaries, which provide food and
restaurant supplies to Company-owned and franchised locations. Revenue and
expenses relating to the operation of the commissaries are reported in SGA
expense in the statement of earnings. Restaurant and franchise field
supervision, training, franchising, marketing and corporate and regional office
expenses are also included in SGA expenses.
Preopening expenses, including labor costs, costs of hiring and training
personnel and certain other costs incurred prior to or in conjunction with
opening new restaurant locations are reflected on the statement of earnings as
an expense in the period incurred.
Impairment charges are recorded whenever events or changes in circumstances
indicated that the carrying amount of a restaurant may not be recoverable. The
Company performs a semi-annual review of all Company-owned restaurants for
impairment. Disposal charges are recorded in the period that management makes
the decision to sell or close a Company-owned restaurant.
In late 1994, the Company moved its headquarters from Cincinnati, Ohio to
Minneapolis, Minnesota. This move coincided with a strategic decision by the
Company's founders to assemble an experienced executive management team. This
team assessed current operations and developed a plan to position the Company
for future growth. Based on the review by management of existing Company-owned
restaurants, in 1995 the Company developed and initiated a plan to restructure
the Company for long-term growth. This plan included the sale or closure of four
restaurants and the establishment of a corresponding reserve of $1.1 million to
cover the estimated losses and associated expenses, net of estimated proceeds.
Management believes that these restructuring activities, in addition to other
operating initiatives, were responsible for improved operating earnings in
fiscal 1996 and 1997.
17
<PAGE>
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, (i) the percentages
which certain items included in the consolidated statement of earnings bear to
total revenue, and (ii) other selected operating data. The Company utilizes a
52- or 53-week accounting period. The 1995, 1996 and 1997 include 53, 52, and 52
weeks, respectively.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------------- ------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
--------------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Restaurant sales.............................. 81.6% 77.1% 76.1% 76.9% 75.8%
Franchising revenue........................... 18.4% 22.9% 23.9% 23.1% 24.2%
----- ----- ----- ----- -----
Total revenue................................. 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Cost of restaurant sales(1)................... 68.3% 65.2% 63.9% 65.2% 63.7%
Selling, general and administrative
expenses.................................... 47.9% 40.0% 39.2% 39.0% 42.0%
Preopening expenses........................... 0.2% 0.3% 0.4% 0.6% 2.6%
Impairment and disposal charges............... 9.1% 0.0% 1.0% 0.0% 3.3%
----- ----- ----- ----- -----
Total operating expenses...................... 57.3% 40.3% 40.6% 39.6% 47.9%
----- ----- ----- ----- -----
Earnings (loss) from operations............... (13.0%) 9.4% 10.7% 10.4% 3.9%
Other income (expense):....................... (2.4%) (2.6%) (2.1%) (2.3%) (1.3%)
----- ----- ----- ----- -----
Earnings before income taxes.................. (15.4%) 6.8% 8.6% 8.1% 2.6%
Income tax expense (benefit).................. (1.8%) 1.3% 3.4% 3.3% 1.1%
----- ----- ----- ----- -----
Net earnings (loss)........................... (13.6%) 5.5% 5.2% 4.8% 1.5%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Other selected operating data:
Number of restaurants open at end of period:
Company................................. 11 10 10 10 12
Franchised.............................. 50 61 68 62 69
----- ----- ----- ----- -----
61 71 78 72 81
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- ------------------------
(1) As a percentage of restaurant sales.
THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 29, 1998
REVENUE. For the three months (13 weeks) ended March 29, 1998, the
Company's total revenues increased $204,000, or 4.9%, to $4.3 million compared
to $4.1 million for the three months ended March 30, 1997. Restaurant sales
increased $107,000, or 3.4%, to $3.3 million for the three months in 1998 from
$3.2 million in 1997. The increase in franchising was due to $519,000 of sales
from units that opened since March 30, 1997 and $107,000 of sales of units sold
or closed in the second quarter of 1997 offset by a $24,000 decrease in sales
from comparable units. Franchising revenue was $1.05 million in the first three
months of 1998, a $97,000 or 10.2% increase from $953,000 during the first three
months of 1997. The increase in franchising revenue is a result of an increase
in the number of franchise locations from 62 at March 30, 1997 to 69 at March
29, 1998, which was partially offset by a $73,000 reduction in initial franchise
fees due to opening three franchise locations in the first months of 1997
compared to two in 1998.
18
<PAGE>
COST OF RESTAURANT SALES. During the three months ended March 30, 1998,
cost of restaurant sales was 63.7% versus 65.2% for the comparable period in
1997. This decrease of 1.5% as a percentage of restaurant sales was primarily
due to improved labor utilization.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $209,000 or 13.0% to $1.8 million for the
three months ended March 30, 1998 compared to $1.6 million for the three months
ended March 29, 1997. This increase is principally attributable to selling,
general and administrative expenses for franchising, advertising and corporate
management. The Company continued to strengthened its corporate infrastructure
during 1997 to support its planned future growth, including the addition of Vice
Presidents of Franchise Sales, Marketing and Human Resources. The Company
anticipates that administrative expenses will remain constant as a percent of
total revenue for the near-term. Selling, general and administrative expenses as
a percentage of total revenue were 42.0% for the three-month period ended March
31, 1998 compared to 39.0% for the same period in 1997.
PREOPENING EXPENSES. Preopening expenses aggregated $112,000 in the
three-month period ended March 29, 1998 compared to $23,000 for the same period
in 1997. During the first three months of 1998, the Company incurred preopening
expenses for two new restaurants opened in March of 1998, and a portion of the
preopening expenses for three additional Company-owned restaurants under
construction during the second quarter of 1998. The Company will incur
preopening expenses during 1998 as additional Company-owned restaurants are
developed and opened. During the first three months of 1997, preopening expenses
were incurred for one restaurant which opened in February of 1997.
IMPAIRMENT AND DISPOSAL CHARGES. In March of 1998, the Company decided to
close an older restaurant located in Ohio that was in close proximity to another
Company-owned restaurant. As a result, the Company recorded a $145,000 charge to
operations for estimated lease commitments and other expenses associated with
closing this location. The restaurant was closed in April of 1998. There were no
charges recorded in the three-month period ended March 30, 1997.
INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest expense and other
income (expense) decreased $37,000 to $56,000 for the three months ended March
29, 1998 from $93,000 for the three months ended March 30, 1997. Interest
expense decreased by $31,000 primarily due to extinguishing a debt for $25,000
less than its carrying amount. Other income increased $6,000 to $19,000 in the
three months ending March 29, 1998 from $13,000 for the three months ended March
30, 1997, primarily due to additional interest earned on short-term cash
investments and finance charges assessed on franchisees accounts receivable.
In April 1998, the Company completed a private financing of $2.25 million of
units consisting of short-term notes, which are 50% convertible into Common
Stock, and Common Stock warrants. As a result of this private financing,
interest expense for 1998 may be up to approximately $650,000 higher than 1997
due to the notes stated 10% interest rate and the related amortization and
accretion of other financing costs and discounts.
INCOME TAX EXPENSE. The Company's effective tax rate for the three months
ended March 29, 1998 and March 30, 1997 was 41.4% and 40.7%, respectively. The
Company anticipates that the effective rate for the 1998 fiscal year will be
approximately 39% to 40%.
NET EARNINGS. Net earnings were $65,000 for the three months ended March
29, 1998 compared to $198,000 for the first three months ended March 30, 1997
for the reasons discussed above.
YEAR ENDED DECEMBER 29, 1996 COMPARED TO YEAR ENDED DECEMBER 28, 1997
REVENUE. For the year ended December 28, 1997, the Company's total revenues
increased $1.4 million or 9.9% to $16 million compared to $14.6 million for the
year ended December 29, 1996. Restaurant sales increased $963,000, or 8.6%, to
$12.2 million for the year 1997 from $11.3 million in 1996. This
19
<PAGE>
increase was due to $3.4 million of sales from units opened during 1996 and
1997, offset by a $2 million decrease in sales from units sold or closed in 1996
and 1997 and a $424,000 decrease in comparable unit sales in 1997 versus 1996.
Of this comparable unit decrease, $374,000 is attributable to one store whose
sales decrease was principally the result of a new Company-owned restaurant that
was opened in close proximity in February 1997. Franchising revenue was $3.8
million in 1997, a $482,000 or 14.4% increase from 1996 revenues of $3.3
million. This increase in franchising revenue is a result of an increase in the
number of franchise locations from 61 at December 29, 1996 to 68 at December 28,
1997, offset by initial franchise fees related to the opening 11 franchise
locations in 1997 compared to 15 in 1996.
COST OF RESTAURANT SALES. During the year ended December 28, 1997, cost of
restaurant sales was 63.9% versus 65.2% for the comparable period in 1996. This
1.3% improvement was primarily due to reduced food, beverage and paper costs
resulting from improved cost control in food preparation and increased menu
prices. Labor costs remained stable as a percentage of restaurant sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $465,000 or 8.0% to $6.3 million for the year
ended December 28, 1997 compared to $5.8 million for the year ended December 29,
1996. This increase is principally attributable to increased salary and benefits
expenses for additional franchising, advertising and corporate management offset
by improved performance by commissary operations.
PREOPENING EXPENSES. Preopening expenses incurred in the opening of new
restaurants totaled $65,000 for the year ended December 28, 1997 compared to
$53,000 for the same period in 1996. In both 1997 and 1996, the Company opened
two new Company-owned restaurants.
IMPAIRMENT AND DISPOSAL CHARGES. In 1995, the Company decided to sell or
close four restaurants and established a reserve of $1.1 million to cover the
estimated loss and expenses associated with the sale or closure, net of
estimated proceeds. No additional charges were recorded in 1996. In 1997, the
Company recorded a charge of $292,000 for asset impairment, which was partially
offset by a $135,000 reduction in the 1995 disposal reserve due to a change in
the estimated future rent payments to be paid by the Company.
INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest expense and other
income (expense) decreased $30,000 to $343,000 for the year ended December 28,
1997 from $373,000 for the year ended December 29, 1996. Interest expense
decreased by $43,000 due to lower overall interest rates and a reduction in
total long-term debt. Other income (expense) decreased by $7,000.
INCOME TAX EXPENSE. The Company's effective tax rate for the year ended
December 28, 1997 and December 29, 1996 was 39.6% and 19.5%, respectively.
During 1995, the Company developed and initiated a plan to substantially
restructure its operations. Based on the Company's improved financial and
taxable income in 1996, the Company concluded that it was more likely than not
to realize its deferred tax assets. As such the Company eliminated its valuation
allowance for deferred tax assets which substantially reduced the Company's
effective tax rate in 1996. The Company anticipates its effective tax rate for
1998 will range between 39-40%.
NET EARNINGS. Net earnings were $828,000 for the year ended December 28,
1997 compared to $806,000 for the year ended December 29, 1996 for the reasons
discussed above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 29, 1996
REVENUE. For the year ended December 29, 1996, the Company's total revenues
increased $2.3 million or 18.8% to $14.6 million compared to $12.3 million for
the year ended December 31, 1995. Restaurant sales increased $1.2 million, or
12.2%, to $11.3 million for the year 1996 from $10 million in 1995. This
increase was due to $2.6 million of sales at new units opened or purchased
during 1995 and 1996, offset by a $528,000 decline in sales from comparable
units and a $836,000 decline from units sold in
20
<PAGE>
May 1996. Also, 1996 revenue includes 52 weeks of sales versus 53 weeks of sales
in 1995. After normalizing 1995 revenue to approximate 52 weeks, comparable unit
sales in 1996 decreased 5% versus 1995. Franchising revenue was $3.3 million in
1996, a $1.1 million or 48.2% increase from 1995. The increase in franchising
revenue is a result of an increase in the number of franchise locations from 50
at December 31, 1995 to 61 at December 29, 1996. Initial franchise fee revenue
was comparable in 1996 and 1995 due to a higher average initial franchise fee
which more than offset a reduction in franchise openings from 23 in 1995 to 15
in 1996.
COST OF RESTAURANT SALES. During the year ended December 29, 1996, cost of
restaurant sales was 65.2% versus 68.3% for the comparable period in 1995. This
3.1% improvement was primarily due to reduced food, beverage and paper costs
resulting from improved cost control in food preparation and increased menu
prices. Labor costs remained consistent as a percentage of restaurant sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $1.2 million or 17.1% to $5.8 million for the
year ended December 29, 1996 compared to $7 million for the year ended December
31, 1995. This decrease is principally attributable to improved performance by
commissary operations which showed a profit margin during 1996 versus a loss in
1995. Total selling, general and administrative expenses also declined due to
the sale of three restaurants in 1996. These two factors were partially offset
by additional corporate overhead expenses incurred with establishing a new
management team.
PREOPENING EXPENSES. Preopening expenses incurred in the opening of new
restaurants totaled $53,000 in the year ended December 29, 1996 compared to
$28,000 for the same period in 1995. During 1996, the Company incurred
preopening expenses for two new restaurants compared to one during 1995.
IMPAIRMENT AND DISPOSAL CHARGES. In 1995, the Company decided to sell or
close four restaurants and established a reserve of $1.1 million to cover the
estimated losses and expenses associated with the sale or closure, net of
estimated proceeds. During 1996, three of these restaurants were sold, and the
reserve has been adequate to cover related losses and expenses.
INTEREST EXPENSE AND OTHER INCOME (EXPENSE). Interest expense and other
income (expense) increased $84,000 to $373,000 for the year ended December 29,
1996 from $289,000 for the year ended December 31, 1995. Interest expense
increased $116,000 as a result of additional debt borrowings during 1995. Other
income increased $32,000, the result of additional interest earned on short-term
cash investments and finance charges assessed on franchise accounts receivable.
INCOME TAX EXPENSE (BENEFIT). The Company's effective tax rate for the year
ended December 29, 1996 and December 31, 1995 was 19.5% and (11.7%),
respectively. As discussed above, the Company eliminated its valuation allowance
for deferred tax assets in 1996, which substantially reduced the Company's 1996
effective tax rate.
NET EARNINGS. Net earnings were $806,000 for the year ended December 29,
1996 compared to a net loss of $1.7 million for the year ended December 31, 1995
for the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates cash from its restaurant operations and through the
sale of franchises and ongoing franchise royalties. The Company sells products
through its commissary to franchisees on 15-day terms. At the end of the fiscal
years 1995, 1996 and 1997 and at March 29, 1998, the Company had net accounts
receivable of $1.1 million, $980,000, $1.1 million and $1.3 million,
respectively. As of the end of the last three fiscal years, the Company has
operated with a working capital deficit. This deficit has decreased from $2.2
million at December 31, 1995 to $167,000 at December 28, 1997. The working
capital position has improved due to an increase in cash on hand generated by
operations and reduction in the current maturities of long-term debt. Net cash
provided by operating activities was $2.3 million in 1996 and
21
<PAGE>
$1.6 million in 1997, and $31,000 and $735,000 for the three months ended March
30, 1997 and March 29, 1998, respectively. In 1995, net cash used in operating
activities was $964,000.
The Company requires capital primarily for the development or acquisition of
new restaurants, remodeling and relocation of existing Company-owned
restaurants, commissary equipment, and information systems. Capital expenditures
totaled $585,000, $1.4 million, and $794,000 for 1995, 1996, and 1997,
respectively, and $320,000 and $1.2 million for the three months ended March 30,
1997 and March 29, 1998, respectively. Net cash used in investing activities,
which includes primarily the acquisition costs of fixed assets, was $589,000,
$1.2 million, and $327,000 in 1995, 1996 and 1997, respectively, and $185,000
and $1.3 million for the three-month period ended March 30, 1997 and March 29,
1998, respectively.
The Company has historically funded capital expenditures through bank
borrowings, equipment leasing, sale of Common Stock and cash from operations. In
1996, the Company issued Common Stock totaling 231,550 shares through a private
placement, resulting in proceeds of $651,000, net of expenses. Of this amount,
$250,000 was used to repay a short-term note held by a shareholder of the
Company. Cash flows from financing activities primarily include proceeds from
notes and issuance of Common Stock offset by principal payments on notes and
capital leases. Net cash used by financing activities was $280,000 in 1996 and
$911,000 in 1997, and $55,000 and $262,000 for the three-month periods ended
March 30, 1997 and March 29, 1998, respectively. In 1995, proceeds provided by
notes exceeded payments, resulting in net cash provided by financing activities
of $1.0 million.
In April 1998, the Company completed a private financing of $2.25 million of
units consisting of short-term notes, which are 50% convertible into Common
Stock, and stock warrants. The proceeds of this financing are being used to fund
the leasehold costs of additional Company-owned restaurants during the period
prior to this offering. As of May 20, 1998, the Company has opened four new
restaurants in 1998 and has two additional Company-owned restaurants under
construction. Leasehold costs for these six sites range from $92,000 to
$302,000, depending on square footage, condition of space being leased, and
availability of tenant improvement dollars from the lessor. Equipment costs will
typically average $250,000 and are substantially financed through five-year
equipment leases. In addition to the two Company-owned restaurants that are
currently under construction, the Company has signed leases for three additional
sites. Two of these leases are in the contingency phase and could be revoked if
certain conditions are not satisfied. The remaining sites are in the
pre-construction phase of planning, design and applying for permits.
The Company has an equipment lease financing facility of up to $2.5 million
for restaurant and computer equipment available through June 1999, of which
$700,000 has been funded through May 20, 1998. The Company also has an unsecured
$250,000 line of credit with a bank due on January 1, 1999, which to date has
not been utilized.
The Company anticipates that the proceeds received in this offering,
together with cash from operations, equipment leasing and landlord construction
contributions (when available) will be sufficient to fund its expansion plans
for 1998 and into the second quarter of 1999. To continue the expansion at the
same or higher level through 1999 and beyond, the Company anticipates that
additional funding and equipment leasing will be necessary, and there can be no
assurances that this additional financing will be available when needed or on
terms acceptable or favorable to the Company.
INFLATION AND SEASONALITY
The Company's results of operations are impacted only slightly by
seasonality, due to a variety of location types (campus, suburban, downtown)
which lessens the impact. Also, quarterly results have been, and in the future
are likely to be, significantly impacted by the timing of new restaurant
openings and their respective preopening costs. Thus, results for any quarter
are not necessarily indicative of the results that may be achieved for a full
fiscal year.
22
<PAGE>
The primary inflationary factors affecting the Company's operations include
food, paper, and beverage costs, and labor and benefits costs. Chicken costs
fluctuate seasonally which is taken into consideration when establishing menu
prices. The low unemployment rate, and the resulting shortage of availability of
qualified restaurant management and hourly workers in certain geographic
locations in which the Company may expand could cause related increases in costs
of recruiting and compensating restaurant employees. In addition, the Company's
leases require the Company to pay taxes, maintenance and utilities, and these
costs, particularly real estate taxes, are subject to increases.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued SFAS 130, REPORTING
COMPREHENSIVE INCOME. It established standards for reporting and displaying the
components of comprehensive income. The statement requires additional
disclosures but has no impact on consolidated net earnings.
YEAR 2000
The Company is currently evaluating the Year 2000 issue. Anticipated
expenditures are not expected to have a significant impact on the Company's
ongoing results of operations. The Company believes that failure by its
suppliers to address this issue in a timely manner will not have a significant
impact on the Company or its operations because alternative suppliers are
available.
23
<PAGE>
BUSINESS
GENERAL
Buffalo Wild Wings develops, franchises and operates comfortable, "fast
casual" restaurants offering a broad menu of affordably priced food with a focus
on Buffalo, New York-style chicken wings. The Company's restaurants target the
market niche between fast food and casual dining, offering a dining and
entertainment experience focused on quality food, value pricing and a relaxed,
fun atmosphere. The Company believes that its restaurants have a family-friendly
appeal designed to allow the dining atmosphere and bar to coexist.
The Company focuses its strategy around a distinctive menu featuring its 12
signature chicken wing sauces that range from mild Teriyaki to "better-be-ready
Blazin." In addition to its Buffalo, New York-style chicken wings, the Company's
restaurants offer a broad menu of other made-to-order casual food items
including burgers, sandwiches, salads and appetizers. All of the menu items are
available for carryout, which approximates over 20% of restaurant sales for
Company-owned restaurants. The Company believes it has differentiated its
concept beyond its menu by creating a relaxed, unstructured and entertaining
atmosphere that appeals to a variety of consumers. The Company also attempts to
position its restaurants to take advantage of the lifestyles of families,
particularly in light of the growing influence that children have in the buying
decision. All of the Company's restaurants have numerous televisions with
satellite service, including large screen televisions, to capitalize on the very
high interest in sports and the National Trivia Network. Each restaurant also
has a full service bar, offering an extensive selection of specialty beers on
tap, 30 or more different bottled beers, wine and liquor. On average, annual
alcoholic beverage revenue system-wide accounts for 35% to 40% of restaurant
revenue.
Founded in 1982 with the opening of its first restaurant on the Ohio State
University campus, the Company has expanded into 16 states with a chain of 84
restaurants, of which 15 are Company-owned and 69 are franchised, including two
Company-owned restaurants currently under construction. The Company intends to
expand its operations by increasing market penetration in existing markets and
new markets by emphasizing Company-owned restaurants with a continued roll-out
of franchised locations. The Company has made a strategic decision to seek to
increase the proportional number of Company-owned restaurants in its restaurant
base from 18% currently to 30%. The Company believes this strategy will allow it
to more rapidly grow the value of the Company and attract and retain qualified
personnel. The Company has opened four Company-owned restaurants in 1998 and has
two sites under construction as of the date of this Prospectus. In addition, two
new franchised restaurants have opened in 1998.
The Company operates under three different service models: counter service,
modified wait service (initial orders placed at the counter followed by wait
service) and table service. The Company plans to convert the majority of its
restaurants to the modified wait service model and incorporate this service
level in its new restaurants. This strategy allows the Company to preserve its
niche as a "fast casual" restaurant, between the fast food and casual dining
segments, by offering more convenience and lower prices than casual dining but
providing a higher service level and more entertaining atmosphere than available
at fast food restaurants.
THE BUFFALO WILD WINGS CONCEPT
The Company's restaurants were originally named Buffalo Wild Wings and Weck
and were nicknamed bw-3 by its customers as a logical abbreviation of the
Company's longer original name. The Company has developed a loyal customer
following and name recognition in its core Ohio market and other of its markets.
The Company believes it receives a considerable amount of repeat business. The
Company has enhanced the restaurant name from bw-3 Grill and Pub to Buffalo Wild
Wings Grill & Bar for its new restaurants. The updated name and logo may
incorporate the bw-3 name into its new logo in certain markets to capitalize on
the name recognition that the Company has achieved in those markets. To date, 12
restaurants (nine Company-owned and three franchised) have been opened using the
Buffalo Wild Wings Grill & Bar name and logo.
24
<PAGE>
Buffalo Wild Wings restaurants target the niche between fast food and casual
dining, competing mainly with small, independently-owned restaurants. The
Company's strategy capitalizes on the increasing trend that people are preparing
fewer meals at home. The Company believes that, due in part to the growth in
single parent and dual-income households, consumers are searching for
comfortable, reasonably-priced dining. In addition, off-premises dining
(carryout) is one of the fastest growing segments of the restaurant industry.
Carryout accounts for over 20% of restaurant sales for Company-owned
restaurants. Recent studies have indicated an increasing number of consumers are
demanding higher quality food at reasonable prices. With an average ticket of
$6-9 for high-quality, flavorful food, the Company's restaurants are satisfying
consumer demands.
As a "fast-casual" restaurant, the Company has developed an interior design
that it believes is very comfortable and pleasing. The restaurants are fixtured
with stools, booths and various sized tables, and decorated with colorful
buffalo graphics and local memorabilia. Each restaurant is equipped with audio
and visual equipment for watching sporting events. The restaurants have multiple
big-screen televisions, with cable and satellite programming and the National
Trivia Network ("NTN") for on-line trivia games. Customers are encouraged to
pull together tables, relax, play NTN or watch the "big game" while enjoying
their food and beverages. The Company believes that customers value the
entertainment nature of the Company's restaurants.
To preserve its niche between the fast food and casual dining segments, the
Company plans to convert to the modified wait service model in the majority of
its restaurants and incorporate this model in its new restaurants. Under the
modified service model, customers will continue to place orders at the counter.
After the initial food order is placed and the customer sits down, wait service
begins. This style of service has been well received by customers since they do
not have to interrupt their meals to go to the service counter or to the bar to
get additional food or drinks. The Company believes that this service model will
enable it to maintain lower prices than casual dining while providing a higher
level of service and a more entertaining atmosphere than available at fast food
restaurants.
The typical dining area seats 175 to 225 people with a mix of large booths
and tables. The majority of the Company's restaurants are designed with a
spacious counter area for ordering and a bar area generally to one side of the
restaurant. The Company's newest restaurants have updated color schemes of blue
and gold earthtones, include wood floors in the bar area and contain greater
differentiation between the bar and restaurant areas.
BUFFALO WILD WINGS EXPANSION STRATEGY
Over the past 16 years, the Company has expanded from its first restaurant
adjacent to the Ohio State University campus to 84 locations in 16 states,
including two Company-owned restaurants under construction. The Company has made
a strategic decision going forward to increase the proportional number of
Company-owned restaurants in its restaurant base. The Company believes this
strategy will allow it to more rapidly grow the value of the Company and attract
and retain qualified personnel. The Company's expansion efforts are aimed at
increasing market penetration in its Midwestern core markets, as well as
developing new markets in the Southeast and along the Mid-Atlantic East Coast.
The Company has opened four Company-owned restaurants in 1998 and has two sites
under construction as of the date of this Prospectus. The Company estimates that
with the net proceeds of this offering and equipment lease financing it can open
four additional restaurants and up to eight restaurants in the first half of
1999. In 1998, the Company anticipates up to 10 new franchised restaurants will
open in addition to the two that have already opened.
The Company is currently operating in only a fraction of the markets where
it believes that its concept can be successful. The Company will continue to
follow its two-pronged strategy in selecting restaurant locations by locating
near college campuses and in selected suburban markets. The Company estimates
that there are more than 90 college campuses, with student populations exceeding
10,000 and city populations over 50,000, where the Company could successfully
operate restaurants. The Company's
25
<PAGE>
concept is also successful in suburban locations that draw from family and young
professional populations. The Company estimates that there are several hundred
potential suburban markets available for its concept.
In selecting markets and specific sites, the Company performs demographic
studies analyzing factors such as population within a three to five mile radius,
retail presence, theater and shopping mall locations and office density. In
choosing a particular site within a market, the Company considers common factors
such as visibility, access and parking. The Company anticipates continuing to
utilize several different restaurant formats in its expansion efforts including
freestanding units, strip centers, storefronts and shopping malls. The Company
will explore any of these formats assuming the site can achieve the appropriate
restaurant level economic returns.
RESTAURANT LOCATIONS
The majority of the Company's restaurants are located in the Midwestern
United States. The Company has franchise locations as far south as Florida and
as far north as Minnesota. The Company's most western operations are located in
Colorado and its most eastern restaurants are in North Carolina. Of the
Company's 84 sites, 29 are in close proximity to a college campus; 43 are in
suburban markets; 10 are in downtown locations; and 2 are located in resort
towns. The Company operates in a variety of sites with 28 restaurants in
freestanding units; 24 restaurants located in strip centers; four restaurants in
shopping malls; and 28 restaurants in storefront locations. The Company
currently leases all Company-owned restaurant sites and anticipates leasing all
future Company-owned sites. The following is a complete listing of the
restaurant locations:
<TABLE>
<S> <C> <C>
CO Arvada
Fort Collins (CSU)
Steamboat Springs
FL Clearwater
+ Jacksonville
Tallahassee (FSU)
IL Champaign (U of I)
Lincoln Park
IN Bloomington (IU)
Castleton
Greenwood
Indianapolis (Broadripple)
+ Indianapolis (Downtown)
Lafayette (Purdue)
Muncie (Ball State)
South Bend (Notre Dame)
KY + * Bowling Green
* Cold Spring (NKU)
+ * Lexington (UK)
Louisville (St. Matthews)
+ * Middletown
MI East Lansing (MSU)
Grand Rapids
Kalamazoo (WMU)
Lake Orion
Mount Pleasant (CMU)
Ypsilanti (EMU)
MN + * Columbia Heights
Mankato (MSU)
Minneapolis (U of M)
+ * West St. Paul
NE Lincoln (U of N)
NC Chapel Hill (UNC)
Charlotte
Greenville (ECU)
OH Akron (UA)
Alliance (Mt. Union)
Ashland (AU)
Boardman
Bowling Green (BGSU)
Canton
Cincinnati (Western Hills)
* Cincinnati (Forest Fair
Mall)
* Cincinnati (Norwood)
* Cincinnati (Ohio Pike)
* Cincinnati (UC)
+ * Cincinnati (Harper's
Station)
Cleveland (Flats)
Cleveland Hts. (Coventry)
Columbus (Bethel Centre)
Columbus (German Village)
* Columbus (OSU North)
+ * Columbus (Crossroads)
+ * Columbus (Avery Square)
Dayton (UD)
Garfield Heights
Heath
Kent (KSU)
Lima
Mason
Massillon
Medina
Mentor
OH Niles
North Ridgeville
Parma Heights
Reynoldsburg
Rocky River
Sandusky
Sugarcreek
Toledo (UT)
Toledo North
Willowick
Youngstown (YSU)
PA + * North Fayette
TN Knoxville (UT)
TX Austin (U of T)
Houston (Rice Univ.)
VA Charlottesville
WV Huntington (Marshall)
Morgantown (WVU)
WI Madison (UWM)
Milwaukee
+ Milwaukee (Mayfair)
* Company-owned
restaurants
+ Buffalo Wild Wings
Grill and Bar
</TABLE>
26
<PAGE>
RESTAURANT OPERATIONS
The Company enjoys many advantages from operating a multi-store restaurant
chain. Most significantly, the Company's size and earnings potential allow it to
attract growth-oriented professional management. The Company's size also enables
the Company to achieve benefits from functional division of responsibility. The
Company is able to leverage the abilities of full-time managers focused on
purchasing, finance, marketing and human resources, across its entire restaurant
chain. The Company is also benefiting from the operational economies of scale
that develop with a large restaurant base including efficiencies in operations,
marketing and advertising, and employee training programs.
All of the Company's restaurants are open for lunch and dinner business and
close at various times on the weekdays depending on the particular market.
Generally, hours are extended as permitted by local regulations on the weekends.
The kitchen is open at all times the restaurant is open.
MENU AND PRICING
At all of the Company's restaurants, the specialty menu item is the Buffalo,
New York-style chicken wings spun in one of 12 signature sauces. Each sauce has
a special taste prepared from its own unique recipe, not just flavored with more
spice. From the mildest sauce, teriyaki, to the "better-be-ready Blazin" sauce,
Buffalo Wild Wings sauces are created to appeal to many tastes. As consumer
tastes have changed, so has the variety of sauces. Spicy Garlic and Lemon Pepper
are the two most recently introduced sauces. The Company believes its uniquely
formulated sauces stick to wings better than its competitors due to the
thickness of the Company's proprietary sauces. Serving sizes range from six
wings to 100 wings, with larger orders available for parties.
The Company's menu features a wide variety of casual food including
made-to-order roast beef sandwiches, hamburgers, beer-battered onion rings, blue
nacho chips, and its famous Buffalo Chips-TM-, which are thick slices of
potatoes cut crosswise and deep fried. Low fat and low calorie items such as
salads and grilled chicken breast sandwiches provide options for the
health-conscious consumer. In addition, menu items may vary to provide specialty
regional favorites.
All of the Company's restaurants have a full service bar, offering an
extensive selection of specially brewed beers on tap, 30 or more different
bottled beers, wine and liquor. On average, annual alcoholic beverage revenue
system-wide accounts for 35% to 40% of restaurant revenue.
The Company uses one standard format for its dine-in and take-out menus with
consistent design and item description. However, the Company maintains different
pricing structures mainly dependent upon the level of service offered at a
particular location. In all pricing structures, the Company believes its pricing
is below that offered by national casual dining concepts like Applebee's,
Chili's and T.G.I. Friday's.
The sample menu included with this Prospectus illustrates the Company's
broad food selection and the pricing structure reflective of a modified
waitstaff level of service.
KITCHEN OPERATIONS
Restaurant kitchen areas operate with a standard equipment line consisting
of three walk-in coolers, sinks, storage space, food preparation counters,
grill, conveyor grill, line coolers and freezers, and six fryers. The wing
station is a specially designed area for holding and "spinning" wings in the
specialty sauces. "Spinning" wings is a technique used to insure that an even
coat of sauce is applied to the wings. The restaurants also have ovens in many
locations in order to bake fresh Kaiser and "kimmelweck" rolls.
TRAINING
The Company places a heavy emphasis on proper training. The Company has
developed policies, procedures, and manuals for all aspects of its restaurant's
operations. These manuals include an operations manual, build-out manual,
employee training manual, and an employee handbook. All Company restaurant
managers are required to complete a three-week training program and every
franchise unit must have
27
<PAGE>
two managers who successfully complete the same training program. The management
training program covers all aspects of operations including food handling,
preparation, cooking, plate presentation, ordering procedures, scheduling,
inventory control, and management functions.
PURCHASING
The quality of purchased products, specifically wings, burgers, chicken,
sauces and produce is a critical part of food production, presentation, and
value. Wings are purchased centrally at the Company's commissary to insure the
freshness and consistency of the product. The wings are fresh and held at
26 DEG.F to 28 DEG.F to protect the quality and allow for consistent cooking.
The Company's one-third pound burger is also purchased fresh and never frozen.
The signature sauces are produced specifically for the Company and continue to
distinguish the Company's food. Most importantly, the ordering system, storage,
and delivery programs allow the Company to control inventory and provide the
freshest, highest quality products for its restaurants.
MANAGEMENT INFORMATION SYSTEMS
The Company is in the process of equipping all of its restaurants with NCR
PC-based cash register systems. The PC-based systems use
Twenty/20-Registered Trademark- software that provides touch-screen capabilities
for entering orders and generating customer bills. Coconut Code accounting
software and Timeware systems serve as the Company's back office software for
all Company-owned restaurants and some franchised restaurants. Managers using
the Coconut Code software have the ability to calculate gross margin at the
restaurant level on a weekly basis. The Company is currently using modules in
Coconut Code which will allow managers to analyze variance in food and alcohol
costs by menu item. The Company anticipates that its systems will be Year 2000
compliant by July 1999.
Franchised locations that do not utilize Coconut Code use a variety of other
information systems. The Company recognizes the importance of information
systems and the benefits of having all of the Company-owned restaurants on
compatible systems and is committed to investing in technology.
RESTAURANT-LEVEL ECONOMICS
The typical investment to open a leased, 5,500 square foot Company-owned
Buffalo Wild Wings Grill & Bar ranges between $450,000 to $600,000 including
leasehold improvements, furniture and equipment, and before landlord
contributions. Actual capital outlays vary depending on the amount of landlord
contributions, cost of liquor licenses, availability of equipment leasing and
square footage of the restaurant. The Company believes that it can further
reduce the cost of new restaurant equipment by negotiating with one or two
vendors to supply equipment all of its new restaurants. The Company's goal is
for those restaurants opened for a full year to achieve $1.2 million in revenue.
MARKETING AND ADVERTISING
The success of Buffalo Wild Wings is based on attracting and maintaining
customers, both on college campuses and in the suburbs. The Company believes its
restaurants attract different guests at different times of the day. Businessmen
and women, as well as college students, visit at lunch, young families arrive in
the early evening and sports fans enjoy the late night and weekend games. The
Company's objective is to increase market awareness by building a solid brand
identity with well-planned, system-wide campaigns including advertising,
marketing and public relations efforts focused on promoting Buffalo Wild Wings
as "the place for fun and food."
System-wide advertising messages are developed to support the Company's
brand positioning. In an effort to effectively get these messages to the right
people and to spread the message to the largest audience possible, the Company
has developed system-wide media plans for each market. Markets are generally
evaluated individually and customized media plans are developed. The plans focus
primarily on broadcast media, both television and radio. Print media is utilized
as a secondary media option.
28
<PAGE>
At the local level, franchises are encouraged to support the system-wide
media buys with local media buys and to implement a variety of marketing
programs to drive repeat traffic and to promote the restaurant's entertaining
atmosphere. The Company provides each franchisee with a marketing manual that
provides guidance on local marketing techniques and programs. The manual
includes strategies for instituting an effective grand opening plan, programs
for college campus marketing efforts and grassroots neighborhood marketing
ideas.
Restaurants also attempt to capitalize on high-profile sporting events such
as the Super Bowl, NCAA Basketball Tournament and Monday Night Football by
promoting eat-in and carryout specials. The Company has instituted "Tuesday Wing
Day" across the entire chain which has increased traffic on a day that has
traditionally been the restaurant industry's slowest day of the week. Tuesdays
now generate more than 18% of total system-wide weekly revenue.
System-wide media campaigns and promotions are developed and implemented
with the direction of the Buffalo Wild Wings National Advertising Board (NAB).
The volunteer franchisee Board is elected by franchisees annually and meets
regularly to review and provide input on advertising messages prepared by the
national advertising agency.
FRANCHISING OPERATIONS
Franchising continues to play a key role in the Company's restaurant
expansion program. The Company currently supports 69 franchises and anticipates
up to 10 additional franchised restaurants will open during 1998. Buffalo Wild
Wings employs a full-time Vice President of Franchise Development to actively
promote franchising. The Company believes franchising allows it to attract
highly motivated entrepreneurial individuals who can successfully manage
restaurants. In addition to the personal characteristics the Company seeks in
franchise operators, the Company searches for individuals with the financial
capacity to make meaningful investments in their franchised restaurant. The
Company also requires the owner or general manager to have previous restaurant
experience. The Company offers new franchisees with site selection assistance,
protected territory designations, layout, design and equipment specifications,
approved suppliers and grand opening promotions and on-site opening assistance.
The Company's franchise agreement grants the franchisee the right to develop
and operate a restaurant and use the bw-3 or Buffalo Wild Wings names and
trademarks within the guidelines established by the Company. Franchisees have
the opportunity to become area developers and operate several restaurants within
a defined area. The Company plans to increase the number of area development
agreements. The franchise agreements are for an initial term of ten years and
include two five year renewal options. The Company has the ability to terminate
franchise agreements due to various financial defaults and operational
compliance violations. The franchise agreement grants a protected territory to
the franchisee which prohibits the Company or another franchisee from opening a
restaurant within the assigned territory. The agreements give the Company the
right to first refusal should a franchisee decide to sell a restaurant.
Franchisees generally currently pay the Company an initial franchise fee of
$30,000 and a continuing monthly royalty fee equal to 5% of net revenue. The
Company does not provide financing for its franchisees. Starting in 1998,
franchisees are required to contribute a percentage of weekly restaurant revenue
to a national advertising fund used to conduct national, regional and local
advertising campaigns. Each franchisee is required to spend a minimum of 3% of
gross revenue on advertising and marketing efforts. Of this amount, 1.5% must be
contributed directly to a national advertising fund and the remaining 1.5% must
be spent in the franchisee's local market. The Company believes that this level
of advertising spending will result in increased traffic and revenue volumes.
After a franchisee is granted approval to operate a restaurant, franchisees
are required to send three members from its operation, prior to opening, to a
three-week Company sponsored training program. The training covers a wide
variety of topics including: food preparation, daily operations, weekly/monthly
administration, employee management, hiring, safety and sanitation, equipment
handling, and inventory
29
<PAGE>
management. Prior to the grand opening of a franchised restaurant, the Company
sends an opening team, consisting of a lead trainer and two assistants, to the
restaurant. The opening team spends two weeks with the franchisee; one week
prior to opening and one week after opening. The Company currently employs four
full time individuals to provide training to franchisees.
Ongoing support services offered by the Company include operations and
marketing manuals, consultations, group purchasing programs and scheduled visits
from operational field staff members. The Company's regional managers regularly
monitor the quality standards, management and financial performance of all of
its franchised operations. At times, the Company encounters deficiencies in
individual franchised operations, and as a result seven franchised operations
have closed during 1996 and five during 1997.
COMMISSARY OPERATIONS
In order to insure quality and product consistency, the Company operates a
production and distribution center in Columbus, Ohio as well as two regional
sub-commissaries in Cleveland, Ohio and Chicago, Illinois. The Columbus
commissary produces frozen dough balls and bakes specialty Kaiser rolls and
prepares cheeses and mixes for easier and consistent preparation at the
restaurants. The commissary delivers sauces, wings, meats, cheeses and paper
products to the restaurants in leased refrigerated trucks.
The Columbus commissary also serves as the central purchasing and
distribution center for the Company. By centralizing all purchasing, the Company
is able to negotiate directly with suppliers for key food and beverage products.
This generally insures uniform quality and provides for preferred pricing and
volume discounts. The Company views its commissary as an integral part of its
operations and essential for maintaining consistency and quality across all of
its restaurants. As the Company expands its operations, it may open additional
sub-commissaries depending on the locations of the new restaurants.
COMPETITION
The entertainment and restaurant industries are highly competitive. There
are a great number of restaurants and entertainment businesses that compete
directly and indirectly with the Company, including both the fast food market
segment and the casual dining segment. Competitors within these segments are
well-run, well-capitalized companies including McDonald's, Taco Bell,
Applebee's, T.G.I. Friday's and Chili's. The Company competes with restaurants
primarily on the basis of quality of food and service, atmosphere, price,
location and entertainment quality. The Company believes it has developed a
brand within its core markets making Buffalo Wild Wings Grill & Bar synonymous
with Buffalo, New York-style chicken wings, which will serve as a deterrent to
new competition in an industry with few barriers to entry. While the Company
believes that its restaurant units are distinctive in design and operating
concept, it is aware of competitors that operate with similar concepts. Many of
the Company's existing and potential competitors are well-established and have
significantly greater financial, marketing and other resources than does the
Company.
GOVERNMENT REGULATIONS
The restaurant industry is subject to numerous federal, state and local
governmental regulations, including those relating to the preparation and sale
of food and alcoholic beverages, sanitation, public health, fire codes, zoning
and building requirements. Each restaurant requires appropriate licenses from
regulatory authorities allowing it to sell liquor, beer, and wine, and each
restaurant requires food service licenses from local health authorities. The
Company's licenses to sell alcoholic beverages must be renewed annually and may
be suspended or revoked at any time for cause, including violation by the
Company or its employees of any law or regulation pertaining to alcoholic
beverage control, such as those regulating the minimum age of patrons or
employees, advertising, wholesale purchasing, and inventory control. The failure
of a restaurant to retain liquor or food service licenses could have a material
adverse effect on its operations. In order to reduce this risk, each restaurant
is operated in accordance with standardized procedures designed to assure
compliance with all applicable codes and regulations.
30
<PAGE>
The Company and its franchisees are also subject to laws governing their
relationships with employees, including benefit, wage and hour laws, and laws
and regulations relating to workers' compensation insurance rates, unemployment
and other taxes, working and safety conditions and citizenship or immigration
status. The Company may be subject in certain states to "dram-shop" statutes,
which generally provide a person injured by an intoxicated person the right to
recover damages from an establishment that wrongfully served alcoholic beverages
to the intoxicated person. The Company believes its insurance presently provides
adequate coverage for such liability. Failure to comply with any of these
regulations or increases in the minimum wage rate, employee benefit costs or
other costs associated with employees, could adversely affect the Company and
its franchisees.
In addition, the Company is subject to various state and federal laws
relating to the offer and sale of franchises and the franchisor-franchisee
relationship. In general, these laws and regulations impose certain disclosure
and registration requirements prior to the sale and marketing of franchises. The
failure by the Company to comply with these laws could subject it to liability
to franchisees and to fines or other penalties imposed by governmental
authorities. The Company believes that the franchising industry is experiencing
an increasing trend of franchisees filing complaints with governmental
authorities and instituting lawsuits against franchisors claiming that they have
engaged in unlawful or unfair trade practices or violated express or implied
agreements with franchisees. The Company believes that its relations with its
franchisees are generally good.
TRADEMARKS, SERVICE MARKS AND TRADE SECRETS
The Company owns a number of trademarks and service marks registered or
pending with the U.S. Patent and Trademark Office. The Company has received
registration of the following service marks: Buffalo Wild Wings & Weck, bw-3,
Buffalo Wild Wings & Weck plus design, ###-BWWW (telephone number) and ###-WING
(telephone number). The Company has filed applications for registration for the
following service marks: Buffalo Wild Wings and Buffalo Wild Wings design. The
Company attempts to protect its sauce recipes as trade secrets by, among other
things, requiring confidentiality agreements with its supplier of sauces. It is
possible that competitors could develop recipes and procedures that duplicate or
closely resemble the Company's. The Company places considerable value on its
trademarks, service marks and trade secrets and intends to actively defend and
enforce them.
EMPLOYEES; CORPORATE HEADQUARTERS
As of May 20, 1998, the Company employed approximately 636 people. Of the
approximately 569 employees that work in Company-owned restaurants,
approximately 22% are full-time and 78% are part-time. Restaurants average
between 25 and 70 employees depending on the restaurant's size and revenue
volume. The Company's commissary operations employ 32 individuals and corporate
management, office staff and district managers account for the remaining 35
employees. There are currently no unions or collective bargaining agreements in
place at the Company.
The Company's headquarters are located in Minneapolis, Minnesota. The
Company leases approximately 6,800 square feet under an agreement that expires
in 2002 and provides for annual rental payments of $159,000, including common
area maintenance expenses and real estate taxes. The Company believes this space
is sufficient to meet its needs for the foreseeable future.
LEGAL PROCEEDINGS
The Company is involved in claims arising in the normal course of business.
In management's opinion, the final resolution of these claims will not have a
material adverse effect on the Company's financial position or results from
operations.
31
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
James W. Disbrow(2).................................. 49 Chairman of the Board and Chief Compliance Officer
Sally J. Smith....................................... 40 Chief Executive Officer, President and Director
Stephen E. David..................................... 40 Executive Vice President, Chief Operating Officer and
Director
Mary J. Twinem....................................... 37 Chief Financial Officer and Treasurer
Dale M. Applequist(3)................................ 50 Director
Kenneth H. Dahlberg(1)............................... 80 Director
Michael T. Gillen(1)................................. 39 Director
Warren E. Mack(2)(3)................................. 53 Director
James M. Schmidt(2)(3)............................... 38 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Stock Option Committee
JAMES W. DISBROW co-founded the Company in 1982 and has served as a director
since its inception, as its Chairman of the Board since 1995 and as its Chief
Compliance Officer since July 1996. He was President of Costumes Unlimited from
1974 until 1982. Prior to that time, Mr. Disbrow spent seven years as a
professional ice skater and coach. Mr. Disbrow has served as an international
and national figure skating judge, referee, and technical representative and was
the 1994 World Team Leader. He was named the 1998 Olympic Team Leader for the
United States figure skating team.
SALLY J. SMITH has served as the Company's Chief Executive Officer and
President since July 1996, as a director since August 1996 and as its Chief
Financial Officer from 1994 to 1996. Prior to joining the Company, she was the
Chief Financial Officer of Dahlberg, Inc., the manufacturer and franchisor of
Miracle-Ear hearing aids, from 1983 to 1994. Ms. Smith began her career with
KPMG Peat Marwick LLP, an international accounting and auditing firm. Ms. Smith
is a CPA.
STEPHEN E. DAVID has served as the Company's Executive Vice President and
Chief Operating Officer since July 1996 and as a director since August 1996.
Prior to joining the Company, Mr. David was the Vice President of Operations at
Kenny Roger's Roasters, a 300 unit international restaurant chain, from 1992 to
January 1996. Prior to that time, Mr. David held a variety of management
positions with the Olive Garden Italian Restaurants and T.G.I. Fridays.
MARY J. TWINEM has served as the Company's Chief Financial Officer and
Treasurer since July 1996 and as its Controller from January 1995 to July 1996.
Prior to joining the Company, she served as the Director of Finance/Controller
of Dahlberg, Inc., from 1989 to December 1994. Ms. Twinem began her career with
a public accounting firm, where she held a number of positions in audit and tax.
She is a CPA.
32
<PAGE>
DALE M. APPLEQUIST has served as a director of the Company since 1997. Mr.
Applequist was President and Chief Executive Officer of Cash Plus, Inc., a
division of Campbell Mithun Esty, an advertising agency he co-founded in 1976.
KENNETH H. DAHLBERG has served as a director of the Company since 1994. He
was the founder of Dahlberg, Inc. and its Chairman of the Board from 1948 to
1993. He is also a director of National City Bancorporation, a publicly held
bank holding company.
MICHAEL T. GILLEN has served as a director of the Company since 1995. Mr.
Gillen is currently the Senior Vice President of Canadaigua Wine Company. From
August 1996 until August 1997, he was President of RayBan, Inc. a subsidiary of
Bausch and Lomb, Inc. He was President and Chief Executive Officer of Dahlberg,
Inc. from 1994 until 1996. From 1990 to 1994, Mr. Gillen was Vice President of
Advo, Inc. He was Area Vice President of Pepsi Cola Co. from 1982 to 1990.
WARREN E. MACK has served as a director of the Company since 1994. Mr. Mack
has been an attorney with the law firm of Fredrikson & Byron, P.A. since 1969,
serving as its President from 1985 to 1997 and as a director since 1978.
Fredrikson & Byron, P.A. provides legal services to the Company from time to
time. Mr. Mack is also a trustee of Buena Vista University.
JAMES M. SCHMIDT has served as a director of the Company since 1994. Mr.
Schmidt has been a practicing attorney since 1985, most recently with the law
firm of Robbins, Kelly, Patterson & Tucker, which law firm provides services to
the Company from time to time.
The number of directors is determined by the stockholders at their annual
meeting, subject to the right of the stockholders to change such number between
annual meetings and to the right of the Board to increase such number between
annual meetings. All directors hold office until the next annual meeting of
stockholders or until their successors have been duly elected and qualified.
Executive officers of the Company are appointed by and serve at the discretion
of the Board of Directors. The Board of Directors has a Compensation Committee,
which provides recommendations concerning salaries and other compensation to be
paid to executive officers of the Company, an Audit Committee, which is
responsible for reviewing the Company's audit process, and a Stock Option
Committee, which is responsible for administering the Company's employee stock
option plan.
Pursuant to the Company's 1995 Stock Option Plan, each non-employee director
is entitled to receive an option to purchase 1,500 shares of Common Stock upon
initial election to the Board of Directors and additional options to purchase
750 shares of Common Stock upon each re-election to the Board of Directors.
Further, each non-employee director is entitled to receive $500 for each Board
meeting attended, $250 for each Board Committee meeting attended and
reimbursement of expenses incurred in connection with these meetings.
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY. The following table sets forth certain information
regarding compensation earned or awarded to the Chief Executive Officer and
President and each other executive officer of the Company who received total
salary and bonus compensation in excess of $100,000 during the Company's fiscal
year ended December 28, 1997 (the "Named Executive Officers").
33
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
<S> <C> <C> <C>
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($)
- ---------------------------------------------------------- ------------- ---------- -----------
James W. Disbrow,
Chairman of the Board and Chief Compliance Officer...... 1997 $ 126,856 $ 31,875
Sally J. Smith,
Chief Executive Officer and President................... 1997 $ 139,356 $ 42,000
Stephen E. David,
Executive Vice President and
Chief Operating Officer................................. 1997 $ 132,270 $ 33,125
Mary J. Twinem,
Chief Financial Officer and Treasurer................... 1997 $ 89,356 $ 22,500
</TABLE>
OPTION GRANTS; AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES. There
were no option grants to, or exercise by, any of the Named Executive Officers
during fiscal 1997. The following table sets forth certain information regarding
the number and value of exercisable and unexercisable options to purchase shares
of Common Stock held as of the end of the Company's 1997 fiscal year by the
Named Executive Officers:
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ----------------------------------------- ----------------------- --------------------------
<S> <C> <C>
James W. Disbrow......................... -- --
Sally J. Smith........................... 15,217/30,164 $ 30,434/$60,328
Stephen E. David......................... 6,250/18,750 $ 12,500/$37,500
Mary J. Twinem........................... 3,750/11,250 $ 7,500/$22,500
</TABLE>
- ------------------------
(1) Based on the difference between the fair market value as of December 28,
1997 ($5.00 per share as determined by the Board of Directors) and the
option exercise price.
STOCK OPTIONS
In 1995, the Board of Directors and stockholders of the Company adopted the
1995 Stock Option Plan (the "Plan") in order to provide for the granting of
stock purchase options to employees and officers of the Company. The Plan
permits the granting of incentive stock options meeting the requirements of
Section 422 of the Code. The Company has reserved 750,000 shares of its Common
Stock for issuance upon exercise of options granted under the Plan. As of the
date of this Prospectus, the Company has outstanding options to purchase an
aggregate of 252,685 shares under the Plan.
CERTAIN TRANSACTIONS
In September 1996, in connection with the Company's private placement of
Common Stock at $3.00 per share, Kenneth H. Dahlberg converted $250,500 of
demand promissory notes into 83,500 shares of Common Stock.
34
<PAGE>
In December 1996, Mr. Dahlberg converted $418,682 of demand promissory notes
and accrued interest thereon into an unsecured promissory note in the principal
amount of $418,682. Such note accrues interest at 10% per annum and provides for
payments of principal and interest in 60 equal monthly installments of $5,533
plus a final installment of $262,579. Additionally, in connection with such note
conversion, the Company issued Mr. Dahlberg a warrant to purchase 50,000 shares
of Common Stock at an exercise price of $3.00 per share.
In 1995, Mr. Dahlberg entered into a Loan Collateralization Agreement with
the Company pursuant to which Mr. Dahlberg agreed to pledge up to $1,000,000 if
necessary in connection with commercial loans obtained by the Company prior to
February 1, 1998. In connection with this agreement, among other things, Mr.
Dahlberg was granted the option to receive Common Stock with a fair market value
of $100,000 or a demand promissory note in the principal amount of $100,000 plus
interest accrued at the rate of 8.5% since February 1, 1995. Mr. Dahlberg
elected to receive Common Stock rather than a demand promissory note, and was
issued 20,858 shares of Common Stock, valued at $5.00 per share, in March 1998.
With the issuance of the stock, this agreement has expired.
In April 1998, as part of a financing conducted by the Company, Mr. Dahlberg
purchased convertible notes in the principal amount of $500,000 and five-year
warrants to purchase 45,000 shares of Common Stock, and Sally J. Smith purchased
convertible notes in the principal amount of $50,000 and five-year warrants to
purchase 4,500 shares of the Common Stock. One-half of the principal amount of
the notes are convertible at $5.20 per share (80% of the Price to Public of the
Units offered hereby), at the option of the holder, into shares of the Company's
Common Stock within 20 days following this offering. Accrued interest and the
unconverted portion of the principal amount of the notes are due and payable 20
days following this offering. The warrants are exercisable upon completion of
this offering at an exercise price of $5.20 per share (80% of the Price to
Public of the Units offered hereby).
35
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 1, 1998 on a post 1-for-2 reverse
stock split basis, and as adjusted to reflect the sale of the Units offered
hereby, certain information regarding beneficial ownership of the Company's
Common Stock by (i) each person known by the Company to be the beneficial owner
of more than 5% of the outstanding Common Stock, (ii) each director of the
Company, (iii) the named Executive Officers and (iv) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING SHARES
BENEFICIALLY OWNED ----------------------------------
NAME OF BENEFICIAL OWNER (1) BEFORE OFFERING AFTER OFFERING
- ------------------------------------------------------------ -------------------- ----------------- ---------------
<S> <C> <C> <C>
James W. Disbrow(2)......................................... 251,088 12.6% 7.2%
Sally J. Smith(2)(3)........................................ 37,758 1.9% 1.1%
Stephen E. David(2)(4)...................................... 10,000 * *
Mary J. Twinem(2)(5)........................................ 5,625 * *
Dale M. Applequist(2)....................................... 2,250 -- --
Kenneth H. Dahlberg(2)(7)................................... 472,436 22.1% 13.0%
Michael T. Gillen(2)(6)..................................... 3,000 * *
Warren E. Mack(2)(8)........................................ 9,666 * *
James M. Schmidt(2)(8)...................................... 5,300 * *
Scott A. Lowery............................................. 255,088 12.8% 7.3%
Kenneth F. Seibel, Trustee for The Estate of
John Repasy............................................... 248,916 12.5% 7.1%
Mark A. Lutz................................................ 232,298 11.7% 6.7%
Bernard T. Spencer(9)....................................... 164,500 8.3% 4.7%
Eugenie Redman.............................................. 127,313 6.4% 3.7%
Michael D. Balsom........................................... 120,500 6.1% 3.5%
Arthur L. Bowman, III(10)................................... 102,250 5.1% 2.9%
All executive officers and directors as a group (9
persons)(11).............................................. 797,123 36.3% 21.6%
</TABLE>
- ------------------------
* Less than one percent.
(1) Shares not outstanding but deemed beneficially owned by virtue of the
individual's right to acquire them as of June 1, 1998, or within 60 days of
such date, are treated as outstanding when determining the percent of the
class owned by such individual and when determining the percent owned by
the group. For purposes of calculating the percent of class owned after
this offering, it was assumed that the officers, directors and principal
stockholders will not be purchasing shares in this offering. Unless
otherwise indicated, each person named or included in the group has sole
voting and investment power with respect to the shares of Common Stock set
forth opposite the stockholder's name.
(2) The address of the named individual is 1919 Interchange Tower, 600 South
Highway 169, Minneapolis, Minnesota 55426.
(3) Includes 23,451 shares issuable pursuant to exercisable options, 4,500
shares issuable pursuant to exercisable warrants and 4,807 shares issuable
pursuant to convertible notes. Does not include 46,984 shares issuable
pursuant to options not currently exercisable. See "Certain Transactions."
(4) Represents shares issuable pursuant to exercisable options. Does not
include 35,000 shares issuable pursuant to options not currently
exercisable.
(5) Represents shares issuable pursuant to exercisable options. Does not
include 34,375 shares issuable pursuant to options not currently
exercisable.
(6) Represents shares issuable pursuant to exercisable options.
36
<PAGE>
(7) Includes 3,000 shares issuable pursuant to exercisable options, 95,000
shares issuable pursuant to exercisable warrants and 48,076 shares issuable
pursuant to convertible notes. See "Certain Transactions."
(8) Includes 3,000 shares issuable pursuant to exercisable options.
(9) Includes (i) 8,500 shares held of record by Mr. Spencer, (ii) 150,000
shares held of record by Mr. Spencer as Trustee under the Bernard T.
Spencer Trust dated 12/7/92 and (iii) 6,000 shares held of record by Susan
Coleman but for whom Mr. Spencer acts as attorney-in-fact.
(10) Includes 250 shares issuable pursuant to exercisable options.
(11) Includes 53,326 shares issuable pursuant to exercisable options, 99,500
shares issuable pursuant to exercisable warrants and 52,883 shares
issuable pursuant to convertible notes.
DESCRIPTION OF SECURITIES
Upon completion of this offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of capital stock, no par value, of
which 15,000,000 shares are Common Stock and 5,000,000 shares are undesignated.
COMMON STOCK
As of June 1, 1998, the Company had approximately 48 stockholders of record
holding 1,987,758 shares of issued and outstanding Common Stock. The holders of
the Common Stock: (i) have equal ratable rights to dividends from funds legally
available therefor, when, as and if declared by the Board of Directors of the
Company; (ii) are entitled to share ratably in all the assets of the Company
available for distribution to holders of the Common Stock upon liquidation,
dissolution or winding up of the affairs of the Company; and (iii) are entitled
to one vote per share on all matters which stockholders may vote on at all
meetings of stockholders. All shares of Common Stock now outstanding are fully
paid and nonassessable and the shares of Common Stock to be issued upon
completion of this offering will be fully paid and nonassessable. There are no
redemption, sinking fund, conversion or preemptive rights with respect to the
shares of Common Stock.
The holders of the Common Stock do not have cumulative voting rights.
Subject to the rights of any future series of preferred stock, the holders of
more than 50 percent of such outstanding shares voting for the election of
directors can elect all of the directors of the Company to be elected, if they
so choose. In such event, the holders of the remaining shares will not be able
to elect any of the Company's directors.
UNDESIGNATED STOCK
Under governing Minnesota law and the Company's Restated Articles of
Incorporation, as amended, no action by the Company's stockholders is necessary,
and only action of the Board of Directors is required, to authorize the issuance
of any of the undesignated stock. The Board of Directors is empowered to
establish, and to designate the name of, each class or series of the
undesignated shares and to set the terms of such shares (including terms with
respect to redemption, sinking fund, dividend, liquidation, preemptive,
conversion and voting rights and preferences). Accordingly, the Board of
Directors, without stockholder approval, may issue preferred stock having
rights, preferences, privileges or restrictions, including voting rights, that
may be greater than the rights of holders of Common Stock.
It is not possible to state the actual effect of the issuance of any shares
of preferred stock upon the rights of holders of the Common Stock until the
Board of Directors determines the specific rights of the holders of such
preferred stock. However, the effects might include, among other things,
restricting dividends on the Common Stock, diluting the voting power of the
Common Stock, impairing the liquidation rights of the Common Stock and delaying
or preventing a change in control of the Company
37
<PAGE>
without further action by the stockholders. The Company has no present plans to
issue any shares of preferred stock.
CONVERTIBLE NOTES
In April 1998, in connection with its recent financing, the Company issued
convertible notes in the principal amount of $2,250,000 which accrue interest at
the rate of 10% per annum. One-half of the principal amount of the notes are
convertible at $5.20 per share (80% of the Price to Public of the Units offered
hereby), at the option of the holder, into shares of the Company's Common Stock
within 20 days following the effective date of the Registration Statement of
which this Prospectus is a part. Accrued interest and the unconverted portion of
the principal amount of the notes are due and payable 20 days following this
offering. Affiliates of the Company hold notes in the aggregate principal amount
of $550,000. See "Certain Transactions."
WARRANTS
The Warrants included as part of the Units being offered hereby will be
issued under and governed by the provisions of a Warrant Agreement (the "Warrant
Agreement") between the Company and Norwest Bank Minnesota, N.A. as Warrant
Agent (the "Warrant Agent"). The following summary of the Warrant Agreement is
not complete, and is qualified in its entirety by reference to the Warrant
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
The shares of Common Stock and the Warrants offered as part of the Units
will be immediately detachable and separately transferable. One Warrant entitles
the holder ("Warrantholder") thereof to purchase one share of Common Stock
during the four years following the Effective Date, subject to earlier
redemption, provided that at such time a current prospectus relating to the
shares of Common Stock issuable upon exercise of the Warrants is in effect and
the issuance of such shares is qualified for sale or exempt from qualification
under applicable state securities laws. Although the Company will use its best
efforts to (i) maintain the effectiveness of a current prospectus covering the
shares of Common Stock underlying the Warrants and (ii) maintain the
registration of such Common Stock under the securities laws of the states in
which the Company initially qualifies the Units for sale in the offering, there
can be no assurance that the Company will be able to do so. The Company will be
unable to issue shares of Common Stock to those persons desiring to exercise
their Warrants if a current prospectus covering the shares issuable upon the
exercise of the Warrants is not kept effective or if such shares are not
qualified nor exempt from qualification in the states in which the holders of
the Warrants reside. Each Warrant will be exercisable at an exercise price of
$8.00 per Warrant, subject to adjustment upon the occurrence of certain events.
The Warrants are subject to redemption by the Company, at a price of $0.01
per Warrant, at any time 90 days after the date of this Prospectus following a
period of 20 consecutive trading days where the per share closing sale price of
the Common Stock exceeds $9.25 (subject to adjustment). The Company must give at
least 30 days' written notice of such redemption not more than 15 trading days
following such 20 trading day period, provided that a current prospectus
covering the shares issuable upon the exercise of the Warrants is then effective
under federal securities laws and the issuance of such shares is qualified for
sale or exempt from qualification under applicable state securities laws. For
these purposes, the closing sale price of the Common Stock shall be determined
by the closing sale price as reported by Nasdaq so long as the Common Stock is
quoted on Nasdaq and, if the Common Stock is listed on a national securities
exchange, shall be determined by the last reported sale price on the primary
exchange on which the Common Stock is traded. Holders of Warrants will
automatically forfeit all rights thereunder except the right to receive the $.01
redemption price per Warrant unless the Warrants are exercised before they are
redeemed.
The Warrantholders are not entitled to vote, receive dividends or exercise
any of the rights of holders of shares of Common Stock for any purpose. The
Warrants are in registered form and may be presented
38
<PAGE>
for transfer, exchange or exercise at the office of the Warrant Agent. Although
the Company has applied for listing of the Warrants on the Nasdaq National
Market, there is currently no established market for the Warrants, and there is
no assurance that any such market will develop.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Warrants to
protect Warrantholders against dilution upon the occurrence of certain events,
including stock dividends, stock splits, reclassification, and any combination
of Common Stock, or the merger, consolidation, or disposition of substantially
all the assets of the Company.
The Warrants may be exercised upon surrender of the certificate therefor on
or prior to the expiration date (or earlier redemption date) at the offices of
the Warrant Agent, with the form of "Election to Purchase" on the reserve side
of the certificate properly completed and executed as indicated, accompanied by
payment of the full exercise price (by certified or cashier's check payable to
the order of the Company) for the number of Warrants being exercised.
In April 1998, in connection with its recent financing, the Company issued
warrants to purchase an aggregate of 202,500 shares of the Company's Common
Stock at an exercise price of $5.20 per share. These warrants become exercisable
upon completion of this offering and will expire in April 2003. Of these
warrants, 47,250 warrants are held by affiliates of the Company. See "Certain
Transactions."
The Company also has outstanding warrants to purchase an aggregate of 50,000
shares of Common Stock at an exercise price of $3.00. These warrants expire on
December 26, 2001 and are held by Kenneth Dahlberg, a director and principal
stockholder of the Company. See "Certain Transactions."
MINNESOTA BUSINESS CORPORATION ACT
Certain provisions of Minnesota law described below could have an
anti-takeover effect. These provisions are intended to provide management
flexibility and to enhance the likelihood of continuity and stability in the
composition of the Company's Board of Directors and in the policies formulated
by the Board and to discourage an unsolicited takeover of the Company, if the
Board determines that such a takeover is not in the best interests of the
Company and its stockholders. However, these provisions could have the effect of
discouraging certain attempts to acquire the Company which could deprive the
Company's stockholders of opportunities to sell their shares of Common Stock at
prices higher than prevailing market prices.
Section 302A.671 of the Minnesota Statutes applies, with certain exceptions,
to any acquisition of voting stock of the Company (from a person other than the
Company, and other than in connection with certain mergers and exchanges to
which the Company is a party) resulting in the beneficial ownership of 20
percent or more of the voting stock then outstanding. Section 302A.671 requires
approval of any such acquisitions by a majority vote of the stockholders of the
Company prior to its consummation. In general, shares acquired in the absence of
such approval are denied voting rights and are redeemable at their then fair
market value by the Company within 30 days after the acquiring person has failed
to give a timely information statement to the Company or the date the
stockholders voted not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by the Company, or any subsidiary of the Company, with any
stockholder which purchases 10 percent or more of the Company's voting shares
(an "interested stockholder") within four years following such interested
stockholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company serving before the interested stockholder's share
acquisition date.
39
<PAGE>
CERTAIN LIMITED LIABILITY AND INDEMNIFICATION PROVISIONS
The Company's Restated Articles of Incorporation, as amended, limit the
personal liability of its directors. Specifically, directors of the Company will
not be personally liable to the Company or its stockholders for monetary damages
for any breach of their fiduciary duty as directors, except to the extent that
the elimination or limitation of liability is in contravention of the MBCA, as
amended. This provision will generally not limit liability under state or
federal securities law.
Section 302A.521 of the MBCA provides that a Minnesota business corporation
shall indemnify any director, officer, employee or agent of the corporation made
or threatened to be made a party to a proceeding, by reason of the former or
present official capacity (as defined) of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms regarding
such right of indemnification and reference is made thereto for a complete
statement of such indemnification rights.
Section 5.1 of the Company's Bylaws provides that each director, officer and
employee of the Company shall be indemnified by the Company in accordance with,
and to the fullest extent permissible by, applicable law. The Company maintains
an insurance policy covering director and officer liability.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of the Company
pursuant to the foregoing provisions, the Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to the Company's Common Stock
and Warrants will be Norwest Bank Minnesota, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the securities
of the Company. Future sales of substantial amounts of Common Stock in the open
market may adversely affect the market price of the Shares, Warrants and Units
offered hereby and the ability of the Company to raise equity capital in the
future.
Upon consummation of the offering, the Company will have outstanding an
aggregate of 3,487,758 shares of Common Stock (assuming no exercise of the
Underwriters' over-allotment option). Of the aggregate number of outstanding
shares of Common Stock, the 1,500,000 Shares and 1,500,000 Warrant Shares will
be freely tradable without restriction or further registration under the
Securities Act, unless purchased by an "affiliate" of the Company, as that term
is defined by Rule 144 promulgated under the Securities Act (an "Affiliate"),
whose sales would be subject to certain volume limitations and other
restrictions described below. The remaining 1,987,758 shares of Common Stock
originally issued and sold by the Company in private transactions in reliance
upon exemptions from the Securities Act held by stockholders upon the
consummation of this offering will be "restricted securities" as that term is
defined in Rule 144 under the Securities Act, and may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 or otherwise.
All officers and directors and certain stockholders of the Company, owning
an aggregate of 1,938,612 shares, have entered into "lock-up" agreements,
agreeing not to, directly or indirectly, sell, assign, transfer, encumber, offer
to sell, grant any option for the sale of, or otherwise dispose of, any shares
of Common Stock without the consent of the Representative for a period of 180
days after the date of this Prospectus. The Representative may waive these
restrictions at any time in its discretion. Taking such restrictions into
account, in addition to the 1,500,000 Shares and 1,500,000 Warrant Shares, (i)
30,170 shares will be eligible
40
<PAGE>
for immediate sale on the date of this Prospectus in accordance with Rule 144;
(ii) 62 additional shares will become eligible for sale in the public market
beginning 90 days after the date of this Prospectus in accordance with Rule 144;
(iii) 18,789 additional shares will become eligible for resale in the public
market beginning in December 1998, subject to volume and manner of sale
limitations under Rule 144; (iv) 1,917,754 additional shares will be eligible
for sale beginning 180 days after the date of this Prospectus upon the
expiration of the lock-up agreements, subject, in certain cases, to volume and
manner of sale limitations under Rule 144; and (v) 20,983 additional shares will
be eligible for sale beginning in March 1999, subject to volume and manner of
sale limitations under Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who beneficially owns shares last acquired
privately from the Company or an Affiliate at least one year previously is
entitled to sell, in "brokers' transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (approximately 35,000 shares immediately
after the offering); or (ii) the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of a Form 144
with respect to such sale. Sales under Rule 144 are generally subject to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an Affiliate of the Company at any time
during the 90 days preceding a sale, and who beneficially owns shares last
acquired from the Company or an Affiliate at least two years previously, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Unless
otherwise restricted, "144(k) shares" may therefore be sold immediately upon the
consummation of this offering.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-Affiliates to sell their Rule 701 shares without complying with the public
information, holding period, volume limitation or notice provisions of Rule 144
and which permits Affiliates to sell their Rule 701 shares without complying
with the Rule 144 holding period restrictions, in each case commencing 90 days
after the date of this Prospectus.
The Company intends to file, after expiration of the lockup agreements
referenced above, a Registration Statement on Form S-8 under the Securities Act
to register shares of Common Stock reserved for issuance upon exercise of stock
options, thus permitting the resale of such shares by non-Affiliates in the
public market without restrictions under the Securities Act and by Affiliates
subject to volume and manner of sale limitations under Rule 144. As of the date
of this Prospectus, options to purchase 256,435 shares of Common Stock were
outstanding.
REGISTRATION RIGHTS
The Company has entered into a Registration Rights Agreement with the
investors in the Company's July 1996 private placement relating to an aggregate
of 231,550 shares of Common Stock (the "Registrable Shares"). The agreement
grants such investors certain "piggyback" registration rights with respect to
the Registrable Shares. The registration rights provide that if the Company
determines to register for public sale with the Securities and Exchange
Commission certain of the Company's securities, the Company will use its best
efforts to cause the Registrable Shares to be included in the offering for the
benefit of the holders desiring to sell such shares. The registration rights
relate to certain public offerings of the Company, if any, occurring on or
before November 1999. Such registration rights are subject to various
limitations, including the right of managing underwriter of the Company's Common
Stock to determine that marketing factors require a limitation on the number of
shares that can be sold by the selling stockholders participating in the
registered sales (if necessary, excluding such selling stockholders' shares in
their entirety), the requirement that any selling stockholders enter into an
underwriting agreement in customary form with the managing underwriter selected
by the Company, and the requirement that the
41
<PAGE>
selling stockholders pay their own selling expenses (including selling
commissions and stock transfer taxes). Holders of the Registrable Shares do not
have the right to participate in this offering.
Investors in a recent offering were granted certain S-3 demand registration
rights with respect to the 202,500 shares of Common Stock underlying the
warrants issued in that offering. Such rights are exercisable beginning one year
after the effective date of this offering. See "Description of Securities--
Warrants."
42
<PAGE>
UNDERWRITING
The Underwriters named below, for which R. J. Steichen & Company is
acting as representative (the "Representative"), have severally agreed, subject
to the terms and conditions of the Underwriting Agreement with the Company to
purchase from the Company 1,500,000 Units offered hereby. The number of Units
that each Underwriter has agreed to purchase is set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER UNITS
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
R. J. Steichen & Company...................................................................
----------
Total...................................................................................... 1,500,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the several Underwriters will
be obligated to purchase all of the 1,500,000 Units offered hereby, if any are
purchased. The Underwriters propose to offer the Units to the public at the
Price to Public set forth on the cover page of this Prospectus and to dealers at
such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other brokers and dealers. After the initial
public offering, the Price to Public, concession and reallowance may be changed
by the Representative. Additionally, the Company has agreed to pay the
Representative a nonaccountable expense allowance equal to 2% of the aggregate
public offering price. The Company has paid the Representative $10,000 as an
advance against this nonaccountable expense allowance.
The Company has granted the Underwriters an option exercisable within 45
days after the effective date of the Registration Statement of which this
Prospectus is a part, to purchase up to an additional 225,000 Units at the Price
to Public, less the Underwriting Discount and Commission shown on the cover page
of this Prospectus. The Underwriters may exercise such option only for the
purpose of covering any over-allotments in the sale of the Units offered hereby.
The Company has agreed to sell to the Representative, for nominal
consideration, a warrant to purchase up to 150,000 shares of Common Stock (the
"Representative's Warrant"). The Representative's Warrant may be exercised in
whole or in part commencing twelve months after the effective date of the
Registration Statement of which this Prospectus is a part and for a period of
four years thereafter, at an exercise price equal to 120% of the Price to
Public. The Representative's Warrant may not be transferred,
43
<PAGE>
sold, assigned or hypothecated for a period of one year from the effective date
of this offering except to officers of the Representative or members of the
underwriting syndicate or the selling group. The Representative's Warrant
contains anti-dilution provisions providing for appropriate adjustments on the
occurrence of certain events, and contains customary demand and participatory
registration rights. Any profits realized by the Representative upon the sale of
such warrant or the securities issuable upon exercise thereof may be deemed to
constitute additional underwriting compensation.
The Underwriting Agreement provides for reciprocal indemnification
between the Company, the Underwriters and their controlling persons against
civil liabilities in connection with the Offering, including liabilities under
the Securities Act of 1933, as amended. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted pursuant
to the foregoing provisions, the Company has been informed that, in the opinion
of the Commission, such indemnification is against public policy as expressed in
such Act and is therefore unenforceable.
Holders of Common Stock of the Company, who beneficially own in the
aggregate 1,938,612 shares, have agreed that they will not, without the prior
consent of the Representative, publicly offer, sell or grant any option to sell
any securities of the Company in the open market or otherwise for a period of
180 days from the effective date of this offering.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
In order to facilitate this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of Common
Stock, Warrants or Units. Specifically, the Underwriters may over-allot Units in
connection with the offering, creating a short position for their own account.
In addition, to cover over-allotments or to stabilize the price of the Common
Stock, Warrants or Units, the Underwriters may bid for, and purchase, such
securities in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or dealer for distributing Units in the
offering, if the Underwriters repurchase previously distributed Units in
transactions to cover their short positions, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for, and purchase, Common Stock,
Warrants or Units in market-making transactions and impose penalty bids. These
activities may stabilize or maintain the market price of such securities above
the market level that may otherwise prevail. The Underwriters are not required
to engage in these activities and may end any of these activities at any time.
The Representative acted as the selling agent for the Company in
connection with the April 1998 private financing of convertible notes in the
principal amount of $2,250,000. The Representative received a commission of
$130,000 in connection with such services.
Prior to this offering, there has been no public trading market for the
securities of the Company. The initial offering price of the Units and the
Warrant exercise price have been arbitrarily determined by negotiations between
the Company and the Representative. The initial offering price and the Warrant
exercise price bear no relationship to the Company's assets, book value,
earnings, net worth or other recognized criteria of value. Among the factors
considered in such negotiations were the prevailing market conditions, estimates
of the business potential of the Company and other factors deemed to be
relevant.
The foregoing is a brief summary of the material provisions of the
Underwriting Agreement and Representative's Warrant and does not purport to be a
complete statement of their terms and conditions. The Underwriting Agreement,
including the Representative's Warrant, has been filed as Exhibit 1.1 to the
Registration Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Fredrikson & Byron, P.A., Minneapolis, Minnesota. Warren E. Mack,
an officer of Fredrikson & Byron, P.A., is a
44
<PAGE>
director and shareholder of the Company. See "Management" and "Principal
Stockholders." Certain legal matters for the Underwriters will be passed upon by
Doherty, Rumble & Butler Professional Association, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of Buffalo Wild Wings, Inc. and
Subsidiaries as of December 29, 1996 and December 28, 1997, and for each of the
fiscal years then ended, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the sale of the shares. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the shares being offered hereby, reference is made to the
Registration Statement, including the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement. The Registration Statement may be inspected by anyone without charge
at the principal office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, or at one of the Commission's regional offices: 500 West Madison,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor,
New York, New York, 10048. Copies of all or any part of such material may be
obtained upon payment of the prescribed fees from the Public Reference Section
of the Commission at 450 Fifth Street, N.W. Washington, D.C. The Commission
maintains a World Wide Website at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission, including the Company.
Prior to this offering, the Company has not been subject to the
reporting requirements of the Securities Exchange Act of 1934. After completion
of this offering, the Company intends to comply with such requirements,
including distributing to its stockholders an annual report containing audited
financial statements.
45
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 29, 1996, DECEMBER 28, 1997 AND MARCH 29, 1998
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 29, 1996, December 28, 1997 and March 29, 1998 (unaudited)...... F-3
Consolidated Statements of Earnings for the fiscal years ended December 29, 1996 and December 28, 1997 and
for the three months ended March 30, 1997 (unaudited) and March 29, 1998 (unaudited)..................... F-4
Consolidated Statements of Stockholders' Equity (deficit) for the fiscal years ended December 29, 1996 and
December 28, 1997 and for the three months ended March 29, 1998 (unaudited).............................. F-5
Consolidated Statements of Cash Flows for the fiscal years ended December 29, 1996 and December 28, 1997
and for the three months ended March 30, 1997 (unaudited) and March 29, 1998 (unaudited)................. F-6
Notes to consolidated financial statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
WHEN THE TRANSACTION REFERRED TO IN NOTE 13 OF THE NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN THE POSITION TO RENDER
THE FOLLOWING REPORT.
/s/ KPMG Peat Marwick LLP
The Board of Directors
Buffalo Wild Wings, Inc.:
We have audited the accompanying consolidated balance sheets of Buffalo Wild
Wings, Inc. and Subsidiaries (formerly bw-3, Inc. and Subsidiaries) (the
"Company") as of December 29, 1996 and December 28, 1997, and the related
consolidated statements of earnings, stockholders' equity (deficit), and cash
flows for the fiscal years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Buffalo Wild
Wings, Inc. and Subsidiaries as of December 29, 1996 and December 28, 1997, and
the results of their operations and their cash flows for the fiscal years then
ended, in conformity with generally accepted accounting principles.
March 18, 1998, except
as to note 13 which
is as of July xx, 1998
F-2
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, MARCH 29,
1996 1997 1998
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.......................................................... $ 814 $ 1,182 $ 314
Accounts receivable, net of allowance of $78, $142
and $208, respectively...................................... 980 1,109 1,282
Inventory..................................................... 332 366 401
Prepaid expenses.............................................. 132 100 90
Deferred income taxes......................................... 736 527 516
------ ------ -----------
Total current assets...................................... 2,994 3,284 2,603
------ ------ -----------
Property and equipment, net..................................... 3,715 3,516 5,288
Investment securities--restricted............................... 236 -- --
Restricted cash................................................. 18 117 142
Noncurrent deferred income taxes................................ 35 90 260
Other assets.................................................... 142 112 193
Goodwill, net of accumulated amortization of $33, $65
and $73, respectively......................................... 454 422 414
------ ------ -----------
Total assets.............................................. $ 7,594 $ 7,541 $ 8,900
------ ------ -----------
------ ------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................. $ 477 $ 447 $ 423
Current portion of obligations under capital leases........... 392 460 568
Unearned franchise fees....................................... 360 166 191
Accounts payable.............................................. 581 517 1,001
Accrued income tax............................................ 417 394 516
Accrued expenses.............................................. 1,739 1,467 1,530
------ ------ -----------
Total current liabilities................................. 3,966 3,451 4,229
------ ------ -----------
Long-term liabilities:
Accounts payable to franchise marketing fund.................. 18 110 134
Long-term debt, net of current portion........................ 1,215 774 689
Obligations under capital leases, net of current portion...... 1,159 1,142 1,614
------ ------ -----------
Total long-term liabilities............................... 2,392 2,026 2,437
------ ------ -----------
Commitments and contingencies (notes 3, 6, and 8)
Stockholders' equity (note 13):
Undesignated, 5,000,000 shares................................ -- -- --
Common stock, no par value, 15,000,000 shares authorized;
1,966,713, 1,966,775 and 1,987,633 shares issued and
outstanding, respectively................................... 1,705 1,705 1,810
Retained earnings (accumulated deficit)....................... (469) 359 424
------ ------ -----------
Total stockholders' equity................................ 1,236 2,064 2,234
------ ------ -----------
Total liabilities and stockholders' equity................ $ 7,594 $ 7,541 $ 8,900
------ ------ -----------
------ ------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
-------------------------- --------------------------
DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1996 1997 1997 1998
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Restaurant sales........................................ $ 11,253 $ 12,216 $ 3,173 $ 3,280
Franchising revenues:
Initial franchise fees................................ 338 328 123 50
Royalty income........................................ 3,010 3,502 830 1,000
------------ ------------ ------------ ------------
3,348 3,830 953 1,050
------------ ------------ ------------ ------------
Total revenue........................................... 14,601 16,046 4,126 4,330
Cost of restaurant sales................................ 7,338 7,809 2,068 2,089
Selling, general, and administrative expenses........... 5,836 6,301 1,608 1,817
Preopening expenses..................................... 53 65 23 112
Impairment and disposal charges......................... -- 157 -- 145
------------ ------------ ------------ ------------
Earnings from operations................................ 1,374 1,714 427 167
------------ ------------ ------------ ------------
Other income (expense):
Interest expense...................................... (448) (405) (106) (75)
Miscellaneous and interest income..................... 75 62 13 19
------------ ------------ ------------ ------------
(373) (343) (93) (56)
------------ ------------ ------------ ------------
Earnings before income taxes............................ 1,001 1,371 334 111
Income tax expense...................................... 195 543 136 46
------------ ------------ ------------ ------------
Net earnings............................................ $ 806 $ 828 $ 198 $ 65
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common share............................... $ 0.45 $ 0.42 $ 0.10 $ 0.03
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares of common stock outstanding..... 1,784,000 1,967,000 1,967,000 1,969,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common share--assuming dilution............ $ 0.45 $ 0.41 $ 0.10 $ 0.03
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares of common stock and common stock
equivalents outstanding............................... 1,784,000 2,019,000 1,998,000 2,033,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
--------------------- (ACCUMULATED
SHARES AMOUNT DEFICIT) TOTAL
---------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1995....................................... 1,543,497 $ 429 $ (1,275) $ (846)
Net earnings....................................................... -- -- 806 806
Proceeds from detachable stock warrant............................. -- 50 -- 50
Issuance of common stock for acquisition of Jar-Man................ 191,666 575 -- 575
Issuance of common stock for reduction in note payable............. 83,500 250 -- 250
Issuance of common stock through a private placement,
net of expenses.................................................. 148,050 401 -- 401
---------- --------- ------------- ---------
Balance at December 29, 1996....................................... 1,966,713 1,705 (469) 1,236
Net earnings....................................................... -- -- 828 828
Exercise of stock options.......................................... 62 -- -- --
---------- --------- ------------- ---------
Balance at December 28, 1997....................................... 1,966,775 1,705 359 2,064
Net earnings (unaudited)........................................... -- -- 65 65
Issuance of common stock for loan guarantee (unaudited)............ 20,858 105 -- 105
---------- --------- ------------- ---------
Balance at March 29, 1998 (unaudited).............................. 1,987,633 $ 1,810 $ 424 $ 2,234
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
--------------------------- ------------------------
DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1996 1997 1997 1998
------------ ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings..................................................... $ 806 $ 828 $ 198 $ 65
Adjustments to reconcile net earnings to cash provided by
operations:
Depreciation and amortization.................................. 864 856 221 217
Write-off of impaired assets................................... -- 292 -- --
Deferred income taxes.......................................... (499) 154 (2) (159)
Change in operating assets and liabilities, net of effects of
business combination:
Accounts receivable........................................ 79 (129) -- (173)
Inventory.................................................. 72 (34) (10) (35)
Notes receivable........................................... 131 -- -- --
Prepaid expenses........................................... (60) 32 (10) 10
Restricted cash and other assets........................... (45) 68 (73) (106)
Income taxes............................................... 438 (23) 39 122
Accounts payable........................................... 237 (64) (209) 613
Unearned franchise fees.................................... (151) (194) (86) 25
Accrued expenses........................................... 362 (180) 42 63
------------ ------ ----- -----------
Net cash provided by operating activities................ 2,234 1,606 110 642
------------ ------ ----- -----------
Cash flows from investing activities:
Proceeds from the sale of furniture and equipment................ 250 231 -- --
Decrease (increase) in investment securities..................... (2) 236 135 --
Acquisition of property and equipment............................ (1,411) (794) (228) (1,248)
Cash received in excess of Jar-Man cash acquisition
consideration.................................................. 23 -- -- --
------------ ------ ----- -----------
Net cash used in investing activities.................... (1,140) (327) (93) (1,248)
------------ ------ ----- -----------
Cash flows from financing activities:
Proceeds from notes payable...................................... 322 -- -- --
Principal payments on notes payable and capital lease
obligations.................................................... (743) (911) (226) (262)
Issuance of common stock......................................... 401 -- -- --
Decrease in cash overdraft....................................... (260) -- -- --
------------ ------ ----- -----------
Net cash used in financing activities.................... (280) (911) (226) (262)
------------ ------ ----- -----------
Net increase (decrease) in cash.......................... 814 368 (209) (868)
Cash at beginning of period........................................ -- 814 814 1,182
------------ ------ ----- -----------
Cash at end of period.............................................. $ 814 $ 1,182 $ 605 $ 314
------------ ------ ----- -----------
------------ ------ ----- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company was organized for the purpose of operating Buffalo Wild Wings or
bw-3 restaurants, as well as selling Buffalo Wild Wing or bw-3 restaurant
franchises as selected by Company management. In exchange for the initial and
continuing franchise fees received, the Company provides management assistance
to and gives franchisees the right to use the name "bw-3" or "Buffalo Wild
Wings."
As of March 29, 1998, the Company operated 12 Company-owned restaurants and
had 69 restaurants in operation by franchisees.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited March 30, 1997 and March 29,
1998 interim financial statements reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation. The results of
operations for the three months ended March 29, 1998 are not necessarily
indicative of results expected for fiscal 1998.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Buffalo Wild
Wings, Inc. and its wholly owned subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
FISCAL YEAR
The Company utilizes a 52- or 53-week accounting period that ends on the
last Sunday in December. The fiscal years ended December 29, 1996 and December
28, 1997 were each comprised of 52 weeks.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Leasehold improvements are
amortized using the straight-line method over the lesser of the life of the
lease or the estimated useful lives of the assets, which
F-7
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
range from one to ten years. Furniture and equipment, including equipment under
capital leases, are depreciated using the straight-line method over the
estimated useful lives of the assets, which range from four to eight years.
Maintenance, repairs, and minor renewals are expensed as incurred. Upon
retirement or disposal of assets, the cost and accumulated depreciation are
eliminated from the respective accounts and the related gains or losses are
credited or charged to income.
GOODWILL
Goodwill is capitalized at cost and is amortized on a straight-line basis
over fifteen years.
Management periodically assesses the amortization period and recoverability
of the carrying amounts of goodwill based upon an estimation of the value and
future benefits of the recorded asset. Management has concluded that the
carrying amount of goodwill is realizable.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets related to each restaurant to be
held and used in the business semi-annually for impairment, or whenever events
or changes in circumstances indicate that the carrying amount of a restaurant
may not be recoverable. The Company evaluates restaurants considering a history
of operating losses and negative cash flows as its primary indicators of
potential impairment. An impaired restaurant is written down to its estimated
fair market value by discounting future cash flows based on the best information
available. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates.
INVESTMENT SECURITIES
Investment securities at December 29, 1996 consisted of certificates of
deposits with initial contractual maturities of 1 to 2.5 years. Investment
securities are carried at amortized cost. These securities were collateral on
notes payable to banks.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial assets and liabilities,
because of their short-term nature, approximates fair value. The fair value of
the Company's borrowings, if recalculated based on current interest rates, would
not significantly differ from recorded amounts.
STOCK BASED COMPENSATION
The Company accounts for its employee stock options under the
intrinsic-value method of APB Opinion No. 25 and, accordingly, compensation
costs are recognized in the financial statements when options are granted to
employees below the fair market value of the underlying stock. Effective January
1,
F-8
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
1996, the Company adopted the provisions of SFAS No. 123, ACCOUNTING FOR STOCK
BASED COMPENSATION. Pro forma information is presented reflecting compensation
costs under SFAS No. 123 in note 10.
REVENUE RECOGNITION
The Company recognizes initial franchise fees as revenue when substantially
all services and conditions relating to the sale under the Company's franchise
agreement have been performed. Continuing franchise royalty fees based upon a
percentage of franchisee restaurant revenues are recognized as earned. Expenses
relating to both initial franchise and royalty fees are indirect in nature and
expensed as incurred.
The Company recognizes revenue and expense for Company-owned restaurants as
they are earned and incurred.
The Company operates a commissary, which provides food and restaurant
supplies to company-owned and franchised restaurants. The Company reports the
revenue and expenses relating to the operation of the commissary in the selling,
general, and administrative expense section of the statements of earnings.
ADVERTISING COSTS
Advertising costs are expensed as incurred.
PREOPENING COSTS
Costs associated with the opening of new stores are expensed as incurred.
EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing the
income available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted earnings per share includes
diluted common stock equivalents consisting of stock options and warrants
determined by the treasury stock method, and dilutive convertible securities.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the balance sheet carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
(2) RESERVES FOR SALE OR CLOSING OF RESTAURANTS
On May 24, 1996, the Company sold the assets of three restaurants located in
Colorado for $250. The decision to sell these stores was made in 1995. The
Company established a reserve of $695 in 1995 to cover the estimated loss and
expenses associated with this sale, net of estimated proceeds. During fiscal
1997, the
F-9
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(2) RESERVES FOR SALE OR CLOSING OF RESTAURANTS (CONTINUED)
Company reduced the estimated reserve for future expense related to this sale by
$135. As of December 29, 1996, December 28, 1997 and March 29, 1998 there was a
reserve balance of $384, $210 and $199, respectively, for lease obligations and
miscellaneous other items.
Also, during 1995, the Company decided to close an unprofitable restaurant
and accrued approximately $425 for the write-off of fixed assets, lease
obligations, and closing expenses. As of December 29, 1996 the reserve was $368.
As of December 28, 1997 the reserve was substantially depleted.
During the quarter ended March 29, 1998, the Company decided to close an
older restaurant. As a result, the Company recorded a $145 charge to operations
for estimated lease commitments and other expenses associated with closing this
location.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, DEPRECIABLE
1996 1997 LIVES
------------ ------------- -------------
<S> <C> <C> <C>
Construction in process.......................... $ 90 $ 62 --
Leasehold improvements........................... 1,836 2,063 1 to 8 years
Furniture, fixtures, and equipment............... 1,487 1,545 4 to 8 years
Equipment under capitalized leases............... 2,014 2,382 4 to 8 years
------------ ------
5,427 6,052
Less accumulated depreciation and amortization... (1,712) (2,536)
------------ ------
$ 3,715 $ 3,516
------------ ------
------------ ------
</TABLE>
As of December 28, 1997, the Company had entered into construction contracts
for two restaurants. The December 28, 1997 balance sheet reflects construction
in process for these locations. The estimated contract amount of these
obligations was $648 and were substantially completed by March 1998. During the
quarter ended March 29, 1998, the Company entered into construction contracts
for two additional restaurants with aggregate obligations of $529.
In the fiscal 1997 year end review of impairment of long-lived assets and
long-lived assets to be disposed of, the Company identified certain restaurant
assets for which management believes the carrying amount was not recoverable due
to operating losses and negative cash flow. For the year ended December 29,
1997, the Company recorded a charge to operations of $148 to reduce the carrying
value of the assets to fair value. Fair value was determined based on estimated
discounted future cash flows. In 1997, the Company also identified other
restaurant assets and software to be abandoned and disposed of in 1998. For the
year ended December 29, 1997 the Company recorded a charge to operations of $144
for the abandonment of these assets.
F-10
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(4) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, MARCH 29,
1996 1997 1998
------------- ------------- -----------
<S> <C> <C> <C>
Accrued payroll and bonuses.......................... $ 450 $ 613 $ 446
Store closing accruals (note 2)...................... 752 256 388
Accrued financing.................................... 116 125 --
Other accrued expenses............................... 421 473 696
------ ------ -----------
Total.......................................... $ 1,739 $ 1,467 $ 1,530
------ ------ -----------
------ ------ -----------
</TABLE>
(5) LONG-TERM DEBT
The Company had available a $250 revolving line of credit, bearing interest
at prime rate and due on January 1, 1999. At December 28, 1997 and March 29,
1998 there were no borrowings under this line of credit.
As of December 31, 1995, the Company had a $300 demand note with a Company
stockholder, and during 1996 such note was increased to $600. In September 1996,
the demand note was reduced by $250 through the issuance of 83,500 shares of the
Company's common stock at $3.00 per share. In December 1996, the remaining
unpaid principal and accrued interest of $419 was converted into a term note,
due in monthly installments with an interest rate of 10%, and final balloon
payment due January 2002. In connection with the conversion of the demand note
to a term note, the Company granted the holder a warrant to acquire 50,000
shares of the Company's common stock for $3.00 per share, exercisable over five
years.
For financial statement purposes, $50 of the term note face value was
allocated to the warrant, resulting in a discount on such debt and an increase
in common stock. The discount on the term note is being accreted into earnings
over the five-year life of the debt.
F-11
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(5) LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28, MARCH 29,
1996 1997 1998
------------- ------------- -----------
<S> <C> <C> <C>
Notes payable to banks, interest rate at prime, due
through various dates until 2001, secured by a
certificate of deposit from a shareholder (Note
9)................................................. $ 1,114 $ 731 $ 640
Unsecured promissory notes payable to shareholders
and employees of the Company, interest rates at 10%
to 12%, due through various dates until 2002 (Note
9)................................................. 432 353 348
Other unsecured promissory notes, interest rates at
8.5% - 12%, due through various dates until 2000... $ 128 $ 124 $ 112
Other................................................ 18 13 12
------ ------ -----------
1,692 1,221 1,112
Less current portion................................. (477) (447) (423)
------ ------ -----------
$ 1,215 $ 774 $ 689
------ ------ -----------
------ ------ -----------
</TABLE>
Aggregate annual maturities of long-term debt subsequent to December 28,
1997 are as follows: 1998, $447; 1999, $292; 2000, $186; 2001, $75 and 2002,
$221.
In April of 1998, the Company sold $2,250 debenture units in a Regulation D
private placement bridge financing. Pursuant to the debenture terms, the Company
sold units consisting of notes with a $50 principal amount and warrants to
purchase 4,500 shares of common stock. The notes bear interest at 10% and are
repayable, with interest, at the earlier of November 1, 1998 or 20 days after
completion of an Initial Public Offering ("IPO"). If an IPO is not completed by
November 1, 1998, the Company may extend the maturity date for an additional six
months. Each unit holder has the right to convert 50% of the principal amount of
the notes at a price equal to 80% of the price to the public in an IPO.
(6) LEASE COMMITMENTS
The Company leases all of its restaurants and corporate offices under
noncancelable operating leases, which have various expiration dates. In addition
to base rents, certain leases require the Company to pay its share of
maintenance and real estate taxes, and include provisions for contingent rentals
based upon sales. Certain of the leases contain renewal options under which the
Company may extend the terms from three to five years. Certain leases are
guaranteed by one or more of the stockholders of the Company.
The Company also leases office equipment and restaurant equipment under
noncancelable operating leases with terms ranging from three to eight years.
F-12
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
(6) LEASE COMMITMENTS (CONTINUED)
The gross amount of equipment and related accumulated amortization recorded
under capital leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
------------- -------------
<S> <C> <C>
Equipment........................................................ $ 2,014 $ 2,382
Less accumulated amortization.................................... (522) (859)
------ ------
Total........................................................ $ 1,492 $ 1,523
------ ------
------ ------
</TABLE>
Future minimum rental payments due under capital and noncancelable operating
leases at December 28, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
- -------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
1998.......................................................... $ 697 $ 1,152
1999.......................................................... 631 1,051
2000.......................................................... 410 901
2001.......................................................... 268 820
2002.......................................................... 91 766
Thereafter.................................................... 23 2,489
------ ------
Total future minimum lease payments........................... 2,120 $ 7,179
------
------
Less amounts representing interest, ranging from 8% to 27%.... (518)
------
Present value of net minimum payments......................... 1,602
Less current portion.......................................... (460)
------
$ 1,142
------
------
</TABLE>
Rent expense for all operating leases for the fiscal years ended December
29, 1996 and December 28, 1997, and the three-month periods ended March 30, 1997
and March 29, 1998 was $834, $868, $192 and $219, respectively.
Subsequent to December 28, 1997, the Company has entered into operating
leases for three Company-owned restaurants which the Company intends to open in
fiscal 1998. Future minimum operating lease payments under these leases
aggregate $116, $285, $291, $299, $312 and $1,892 in fiscal 1998, 1999, 2000,
2001, 2002 and thereafter, respectively.
In March 1998, the Company signed a $2.5 million leasing facility for
restaurant and computer equipment available through June 30, 1999. Lease
obligations under this facility will be accounted for as capital leases. Funding
under this facility is subject to certain covenants as defined by the agreement.
F-13
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(7) INCOME TAXES
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
DECEMBER 29, DECEMBER 28,
1996 1997
------------- ---------------
<S> <C> <C>
Current:
Federal........................................................ $ 595 $ 301
State.......................................................... 99 88
Deferred:
Federal........................................................ (448) 122
State.......................................................... (51) 32
----- -----
Total tax expense................................................ $ 195 $ 543
----- -----
----- -----
</TABLE>
A reconciliation of the expected federal income taxes (benefits) at the
statutory rate of 34% with the provision for income taxes is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
DECEMBER 29, DECEMBER 28,
1996 1997
------------- ---------------
<S> <C> <C>
Expected federal income tax expense.............................. $ 340 $ 466
State income tax expense, net of federal effect.................. 59 78
Change in valuation allowance.................................... (290) --
Permanent differences............................................ 18 29
Other............................................................ 68 (30)
----- -----
$ 195 $ 543
----- -----
----- -----
</TABLE>
F-14
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(7) INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities are classified as current and noncurrent
on the basis of the classification of the related asset or liability for
financial reporting. Deferred income taxes are provided for temporary
differences between the basis of assets and liabilities for financial reporting
purposes and income tax purposes. Temporary differences, net of valuation
allowances, comprising the net deferred tax asset on the balance sheets are as
follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 28,
1996 1997
--------------- ---------------
<S> <C> <C>
Current:
Store closing accruals......................................... $ 286 $ 159
Bad debt reserve............................................... 167 57
Deferred revenue............................................... 137 66
Other accruals................................................. 146 245
----- -----
$ 736 $ 527
----- -----
----- -----
Noncurrent:
Depreciation................................................... $ 77 $ 90
Other accruals................................................. (42) --
----- -----
$ 35 $ 90
----- -----
----- -----
</TABLE>
The Company believes that as a result of its historical income, it is more
likely than not that the Company will realize its deferred tax assets.
(8) COMMITMENTS AND CONTINGENCIES
At December 28, 1997, the Company is the guarantor of $508 on leases entered
into by certain franchisees.
The Company receives rebates from food wholesalers on behalf of the
franchisees. These rebates are to be used for various system-wide marketing
efforts, franchise seminars and conventions. The cash received from the
wholesalers is recorded in the financial statements as restricted cash with an
off-setting accounts payable to franchisees. The Company does not reflect these
transactions in their financial results.
The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position.
(9) RELATED PARTY TRANSACTIONS
The Company had $432, $353 and $348 of notes payable to stockholders and
employees at December 29, 1996, December 28, 1997 and March 29, 1998,
respectively. The notes have interest rates of 10% to 12% with maturity dates to
fiscal year 2002.
F-15
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(9) RELATED PARTY TRANSACTIONS (CONTINUED)
In 1995, a stockholder of the Company guaranteed a bank loan on behalf of
the Company up to $1 million. As consideration, the stockholder received 16,500
shares of the Company's common stock. Also, in the event that an initial public
offering of the Company's stock occurred before February 1, 1998, the Company
would issue common stock having a value of $100 to the stockholder. If there was
no offering of the Company's stock by January 1998, the stockholder could elect
to receive common stock of the Company with a fair market value of $100 or a
demand note in the amount of $100 plus accrued interest. The Company accrued
$116 and $125 for this obligation at December 29, 1996 and December 28, 1997,
respectively. On March 18, 1998, the stockholder elected to receive 20,858
shares of common stock with a fair market value of $105.
In connection with the April 1998 debenture unit sale, the Company's
CEO/President and a director acquired $50 and $500, respectively, of the units
sold pursuant to such financing.
(10) STOCKHOLDERS' EQUITY
STOCK OPTIONS
In 1995 and as amended in May 1998, the Company established the Buffalo Wild
Wings, Inc. 1995 Stock Option Plan (the "Plan"), which reserves 750,000 shares
of the Company's common stock for sale to its employees, officers, and
directors. The Plan states that the option price for these shares is to be not
less than the fair market value on the date of grant. Incentive stock options
become exercisable in four equal installments from the date of the grant and
have a contractual life of ten years. Nonqualified stock options issued pursuant
to the Plan become exercisable after one year and have a contractual life of ten
years. Option activity is summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PRICE RANGE
----------- -------------
<S> <C> <C>
Outstanding, December 31, 1995..................................... -- $ --
Granted.......................................................... 103,935 3.00
Exercised........................................................ -- --
Canceled......................................................... (500) 3.00
----------- -------------
Outstanding, December 29, 1996..................................... 103,435 3.00
Granted.......................................................... 11,500 4.50-10.00
Exercised........................................................ (62) 3.00
Canceled......................................................... (4,938) 3.00
----------- -------------
Outstanding, December 28, 1997..................................... 109,935 3.00-10.00
Granted.......................................................... 143,250 5.00
Exercised........................................................ -- --
Canceled......................................................... (375) 3.00
----------- -------------
Outstanding, March 29, 1998........................................ 252,810 $ 3.00-10.00
----------- -------------
----------- -------------
</TABLE>
F-16
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(10) STOCKHOLDERS' EQUITY (CONTINUED)
At December 28, 1997 there were 32,843 options that were exercisable.
The Company applies the intrinsic value method in accounting for its
employee stock option grants and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements. If the Company had
elected to recognize compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net earnings would have
been decreased to the pro forma amounts indicated in the table below.
The pro forma net earnings reflect only options granted in 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net earnings amounts
presented because compensation cost is reflected over the options' vesting
period, typically four years, and compensation cost for options granted prior to
January 1, 1996 is not considered.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------
DECEMBER 29, DECEMBER 28,
1996 1997
--------------- ---------------
<S> <C> <C>
Net earnings:
As reported........................................................................ $ 806 $ 828
Pro forma.......................................................................... 801 811
Net earnings per share:
As reported........................................................................ $ 0.45 $ 0.42
Pro forma.......................................................................... 0.45 0.41
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
DECEMBER 29, DECEMBER 28,
1996 1997
------------- -------------
<S> <C> <C>
Expected dividend yield.......................................... 0% 0%
Expected stock price volatility.................................. 0% 0%
Risk-free interest rate.......................................... 5.5% 5.5%
Expected life of options......................................... 5 years 5 years
</TABLE>
The per share weighted-average fair value of stock options granted during
1996 and 1997 was $2.30 and $6.66, respectively.
F-17
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(11) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
-------------------------------- ----------------------------
DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1996 1997 1997 1998
--------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash paid during the period for:
Interest................................................... $ 465 $ 405 105 76
Income taxes............................................... 277 432 118 12
Noncash financing and investing transactions:
Capital lease obligations incurred......................... 758 491 173 733
Issuance of common stock for liabilities................... 250 -- -- 105
Issuance of common stock for acquisition of Jar-Man........ 575 -- -- --
</TABLE>
(12) EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1996
---------------------------------------
EARNINGS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ----------- -----------
<S> <C> <C> <C>
Earnings per common share................................. $ 806 1,784,000 $ 0.45
Effect of dilutive securities:
Stock options and warrants.............................. -- --
----- -----------
Earnings per common share--assuming dilution.............. $ 806 1,784,000 $ 0.45
----- ----------- -----------
----- ----------- -----------
<CAPTION>
FOR THE YEAR ENDED 1997
---------------------------------------
<S> <C> <C> <C>
Earnings per common share................................. $ 828 1,967,000 $ 0.42
Effect of dilutive securities:
Stock options and warrants.............................. -- 52,000
----- -----------
Earnings per common share--assuming dilution.............. $ 828 2,019,000 $ 0.41
----- ----------- -----------
----- ----------- -----------
<CAPTION>
FOR THREE MONTHS ENDED MARCH 30, 1997
---------------------------------------
<S> <C> <C> <C>
Earnings per common share................................. $ 198 1,967,000 $ ,0.10
Effect of dilutive securities:
Stock options and warrants.............................. -- 31,000
----- -----------
Earnings per common share--assuming dilution.............. $ 198 1,998,000 $ 0.10
----- ----------- -----------
----- ----------- -----------
</TABLE>
F-18
<PAGE>
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
(FORMERLY BW-3, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE THREE MONTHS ENDED MARCH 30, 1997
AND MARCH 29, 1998 IS UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(12) EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED MARCH 29, 1998
---------------------------------------
EARNINGS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ----------- -----------
<S> <C> <C> <C>
Earnings per common share................................. $ 65 1,969,000 $ 0.03
Effect of dilutive securities:
Stock options and warrants.............................. -- 64,000
----- -----------
Earnings per common share--assuming dilution.............. $ 65 2,033,000 $ 0.03
----- ----------- -----------
----- ----------- -----------
</TABLE>
(13) INITIAL PUBLIC OFFERING
In January of 1998, the Company signed a letter of intent to pursue an
Initial Public Offering (IPO) in 1998 for up to 1,725,000 units, consisting of a
share of common stock and a warrant to acquire one share of common stock. A part
of the proceeds would be used to repay the private placement bridge financing
notes described in note 5. Upon effectiveness of the IPO, the Company will
consummate a 1 for 2 reverse stock split. Share and per share amounts contained
herein have been adjusted to reflect this reverse stock split.
(14) ACQUISITION OF JAR-MAN
On January 16, 1996, the Company purchased Jar-Man, Inc. for a purchase
price of $675 consisting of $100 in cash and $575 in Company common stock. The
opening consolidated balance sheet of the Company as of January 16, 1996,
reflects the fair value of assets acquired and liabilities assumed at the date
of acquisition. The excess of purchase price over the estimated fair values of
the net assets acquired by the Company has been recorded as goodwill. The net
purchase price $675 was allocated to tangible and intangible assets as follows:
<TABLE>
<S> <C>
Cash................................................................. $ 123
Other current assets................................................. 30
Property, plant, and equipment....................................... 385
Other assets......................................................... 81
Goodwill............................................................. 487
Current liabilities.................................................. (220)
Long-term liabilities................................................ (211)
---------
$ 675
---------
---------
</TABLE>
F-19
<PAGE>
[LOGO]
HOME
OF THE
REAL
WING
TAKEOUT MENU
<PAGE>
FINGER FAVORITES
<TABLE>
<CAPTION>
<S> <C>
MINI CORN DOGS WITH HONEY MUSTARD SAUCE . . . . . . . . . . . . . . . . $3.29
MOZZARELLA STICKS WITH MARINARA SAUCE . . . . . . . . . . . . . . . . . $3.89
HOT CHEDDAR STUFFED JALAPENOS . . . . . . . . . . . . . . . . . . . . . $3.49
Breaded jalapenos stuffed with cheddar cheese & served with sour cream.
PEPPERONI POCKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.39
Two pockets stuffed with mozzarella & provolone cheese blended with pepperoni &
basil pizza sauce, deep fried to a golden brown.
CATFISH FINGERS
Tasty farm-raised catfish, lightly breaded and deep-fried, served with tartar
sauce.
Four Fingers. . . . . ..$3.79 Six Fingers . . . . . . . . . . . $4.99
QUESADILLAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.79
Strips of chicken breast, cheddar & mozzarella cheese, onion & diced tomato
stuffed inside a large grilled flour tortilla. Served with salsa & sour cream.
Guacamole served on the side upon request.
BLUE CORN CHIPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.89
Tortilla chips made from blue cornmeal. Served with salsa & sour cream.
ULTIMATE NACHOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.99
Blue corn chips topped with chili or grilled chicken. Topped with diced tomato,
onion, shredded lettuce & cheddar cheese. Salsa & sour cream served on the side.
Guacamole served on the side upon request.
</TABLE>
SCRUMPTIOUS SALADS
<TABLE>
<S> <C>
GARDEN SALAD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.99
Crisp iceberg and leaf lettuce topped with onion, tomato, celery, carrots, green
peppers and a side of crunchy croutons. Served with your choice of dressing.
GRILLED CHICKEN SALAD . . . . . . . . . . . . . . . . . . . . . . . . . $3.99
What you'll get when you combine our fresh garden salad and top it with grilled
chicken. Served with your choice of dressing.
TACO SALAD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.59
Crisp lettuce, tomato, onion & cheddar cheese served with your choice of chili
or grilled chicken in a crisp tortilla shell. Served with a side of blue corn
chips, and salsa & sour cream or your choice of salad dressing.
Veggie & Cheese Only. . . . . . . . . . . . . . . . . . . . . . . . . $3.99
CHICKEN CAESAR SALAD. . . . . . . . . . . . . . . . . . . . . . . . . . $3.99
A classic Caesar salad with our flavorful Old World Caesar dressing, topped with
strips of grilled chicken breast.
</TABLE>
WE ARE PROUD TO SERVE T. MARZETTI'S DRESSINGS.
DENOTES A SIGNATURE ITEM
CALL AHEAD FOR TAKE HOME!
Call ahead for take home may not be available at some stores.
<PAGE>
OUR LEGENDARY
WINGS & SAUCES
OUR FAMOUS BUFFALO,
NEW YORK-STYLE CHICKEN WINGS
Here they are in all their lip-smacking, award-winning glory: Buffalo, New
York-style chicken wings spun in your favorite signature sauce. Roll up your
shirt sleeves, grab a pile of napkins & dive in!
<TABLE>
<S> <C>
6 WINGS . . . . . . $2.39
12 WINGS. . . . . . $4.59
18 WINGS. . . . . . $6.49
24 WINGS. . . . . . $8.59
50 WINGS. . . . . . $16.49
100 WINGS . . . . . $31.99
</TABLE>
ADD CELERY, BLEU CHEESE OR
RANCH DRESSING FOR JUST 40CENTS EACH!
AVAILABILITY OF PHONE-IN ORDERS ON TUESDAY VARIES BY LOCATION. LARGER WING
ORDERS AVAILABLE ON REQUEST.
OUR 12 SIGNATURE SAUCES
You won't find our signature sauces anywhere else! Use our handy flame key
below to find a sauce that's right for you. Great on sandwiches & burgers!
TERIYAKI
HONEY MUSTARD
SWEET BBQ
MILD
CURRY
MEDIUM
LEMON PEPPER
SPICY GARLIC
HOTBBQ
HOT
WILD
BLAZIN'TM
TUESDAY
IS 25CENTS
WING DAY!
<TABLE>
<S> <C>
Side of Sauce. . . . .50 CENTS
Bottle . . . . . . . . . $2.99
</TABLE>
WEDNESDAY
IS 50CENTS
LEG DAY!
BUFFALO TENDERS-TM- & LEGS
BUFFALO TENDERS-TM-
Strips of chicken cut from a whole breast fillet, lightly breaded and crispy.
Served with your favorite signature sauce for dipping.
<TABLE>
<S> <C>
4 Tenders. . . . . . . $3.89 6 Tenders . . . . . . .$4.99
</TABLE>
SPICY BBQ BUFFALO TENDERSS-SM-
A twist from the original, these tender strips of chicken offer a spicy breading
and are spun in our sweet BBQ sauce.
<TABLE>
<S> <C>
4 Tenders. . . . . . . $3.89 6 Tenders . . . . . . .$4.99
</TABLE>
BUFFALO LEGS-TM-
Tender drumsticks cooked to a crispy golden brown & spun in your favorite
signature sauce.
<TABLE>
<S> <C>
2 Legs . . . . . . . . $1.59 5 Legs. . . . . . . . .$3.19
</TABLE>
SIGNATURE SIDES
BUFFALO CHIPS-TM-
Not what you think. Natural cut potato slices deep fried to a golden brown. Add
Cajun spice for 20CENTS.
<TABLE>
<S> <C>
Regular. . . . . . . . $1.29 Basket. . . . . . . . .$2.39
with Cheese . . . . $1.69 with Cheese . . . . .$3.19
with Chili & Cheese. . . .$3.99
</TABLE>
POTATO WEDGES
A smooth blend of rich sour cream & chive flavors on a crispy battered skin-on
wedge-cut potato.
<TABLE>
<S> <C>
Regular. . . . . . . . $1.59 Basket. . . . . . . . .$2.69
with Cheese . . . . $2.49 with Cheese . . . . .$3.59
with Chili & Cheese . . .$4.39
</TABLE>
ONION RINGS
Crispy beer battered onion rings. Add Cajun spice for 20CENTS.
<TABLE>
<S> <C>
Regular. . . . . . . . $1.79 Basket. . . . . . . . .$2.79
</TABLE>
<PAGE>
BURGERS & MORE BURGERS
All of our burgers are juicy one-third pounders served with lettuce, tomato and
onion. Choose from a plain Kaiser or a Kimmelweck roll, our special Kaiser roll
topped with rock salt and caraway seeds. We bake our own rolls! Add an extra
one-third pound patty to any of the burgers for just $1.50 extra!
<TABLE>
<S> <C>
THE CLASSIC BURGER . . . . . . . . . . . . . . . . . . . . . . . . . . .$2.99
A juicy one-third pounder, charbroiled to perfection.
THE DOUBLE CLASSIC BURGER. . . . . . . . . . . . . . . . . . . . . . . .$4.49
For the hearty appetite, not one, but two one-third pound beef patties.
CHEESEBURGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$3.29
Choose from cheddar, swiss, mozzarella or jalapeno cheese.
SWISS & 'SHROOM BURGER . . . . . . . . . . . . . . . . . . . . . . . . .$3.79
Topped with swiss cheese and mushrooms.
BLACK & BLEU BURGER. . . . . . . . . . . . . . . . . . . . . . . . . . .$3.79
Blackened with Cajun spice and topped with bleu cheese dressing.
BACON CHEDDAR BURGER . . . . . . . . . . . . . . . . . . . . . . . . . .$3.79
Topped with strips of bacon & cheddar cheese.
WESTERN BURGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$3.79
Topped with bacon & smothered with cheddar cheese & our sweet BBQ sauce.
</TABLE>
CHICKEN SANDWICHES
Choose from a plain Kaiser roll or a Kimmelweck roll, our special Kaiser roll
topped with rock salt and caraway seeds. We bake our own rolls!
<TABLE>
<S> <C>
GRILLED CHICKEN BREAST SANDWICH. . . . . . . . . . . . . . . . . . . . .$3.99
Tender grilled chicken breast served with lettuce, tomato & onion. Try it plain,
or with your favorite signature sauce.
CHICKEN CAESAR SANDWICH. . . . . . . . . . . . . . . . . . . . . . . . .$3.99
Grilled chicken breast served with romaine lettuce, Caesar dressing & romano
cheese.
SPICY BREADED CHICKEN SANDWICH . . . . . . . . . . . . . . . . . . . . .$3.99
Spicy breaded chicken breast, served with lettuce, tomato & onion.
SPICY CHICKEN PARMESAN SANDWICH. . . . . . . . . . . . . . . . . . . . .$4.79
Plump, juicy, breaded chicken breast that's spiced just right. Topped with
mozzarella & romano cheese, marinara sauce, lettuce, tomato and onion.
</TABLE>
SPECIALTY SANDWICHES
<TABLE>
<S> <C>
BEEF ON WECK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$4.29
Tender, thinly-sliced hot roast beef served on our Kimmelweck roll. Served with
any one of our
signature sauces.
HEARTY STEAK SANDWICH. . . . . . . . . . . . . . . . . . . . . . . . . .$4.79
Tender slices of grilled steak with onion, green pepper & mozzarella cheese,
served on a Polish sub roll.
ROASTED TURKEY SANDWICH. . . . . . . . . . . . . . . . . . . . . . . . .$3.79
Thinly sliced roasted turkey piled high on a Kaiser or Kimmelweck roll topped
with lettuce, tomato and onion.
BREADED FISH SANDWICH. . . . . . . . . . . . . . . . . . . . . . . . . .$3.99
For the rebel who insists on ordering fish in a chicken place, we offer a
lightly battered cod fillet on a Kaiser or Kimmelweck roll topped with lettuce,
tomato & onion. Served with tartar sauce on the side.
ULTIMATE CONEY HOT DOG . . . . . . . . . . . . . . . . . . . . . . . . .$3.49
Chicago-style grilled 1/4 lb. Coney hot dog, loaded with chili, shredded cheddar
cheese, and onion. Served on a Polish sub roll.
THE ULTIMATE BLT SANDWICH. . . . . . . . . . . . . . . . . . . . . . . .$3.59
Crispy bacon strips, fresh lettuce & juicy tomato served on your choice of a
Kaiser or Kimmelweck roll.
GARDENBURGER-Registered Trademark- . . . . . . . . . . . . . . . . . . .$3.89
Our favorite, meatless, all-natural patty made from a savory blend of fresh
mushrooms, onions, whole grains and low-fat cheese. Topped with lettuce, tomato
& onion on your choice of roll.
</TABLE>
<PAGE>
SOUTH OF BUFFALO
<TABLE>
<S> <C>
CHICKEN OR STEAK FAJITAS . . . . . . . . . . . . . . . . . . . . . . . .$4.99
Two soft flour tortillas filled with grilled chicken or steak, green pepper,
onion, crisp lettuce, diced tomato & shredded cheddar cheese. Blue corn chips,
salsa & sour cream served on the side. Guacamole served on the side upon
request.
BUFFALITOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.29
Two soft flour tortillas stuffed with your choice of grilled chicken or chili,
lettuce, tomato, cheddar cheese, sour cream, onion & one of our signature
sauces! For the lighter appetite - one tortilla is just $2.29.
Veggie & Cheese only . . . . . . . . . . . . . . . . . .$1.89(one tortilla)$3.49(two tortillas)
BUFFALO BREATH-TM- CHILI . . . . . . . . . . . . . . . . . . . . . . . . .$3.19
Try a bowl of our lip-smackin', signature chili with beef and beans. Add
shredded cheese for 30CENTS. For more kick, try it with Medium, Hot or Wild
sauce for 30CENTS.
</TABLE>
LI'L BUFFALOS
For everyone in the herd 12 & under.
All kid's meals are served with Buffalo Chips-TM- and a 12 oz. soft drink.
HOT DOG BUFFALO LEG FOUR WINGS
SINGLE PEPPERONI POCKET TWO BUFFALO TENDERSTM
All Kids Meals
$2.79
FREE REFILLS!
BEVERAGES
<TABLE>
<S> <C>
SOFT DRINKS & ICED TEA .$1.29
COFFEE & HOT TEA. . . .79CENTS
</TABLE>
HOW THE
LEGEND BEGAN
ONE HUNGRY NIGHT
Our story begins one evening in 1981. Jim Disbrow and Scott Lowery were
craving spicy Buffalo, New York-style chicken wings. After scouring
Kent, Ohio they came up empty-handed and hungry. So they cooked up an
idea: a fun, friendly restaurant with great food, including awesome
Buffalo wings at affordable prices. The initial store opened in 1982 at
Ohio State University and was wildly successful.
MANY WINGS LATER
Originally named Buffalo Wild Wings and Weck, the name was shortened to
bw-3 by loyal customers. It was the first known attempt to develop a
restaurant offering authentic Buffalo, New York-style chicken wings
outside of Buffalo - and we think they'd be proud. Millions of wings
later, we've opened more than 85 college and suburban locations in 16
states.
THE SECRET IS THE SAUCE
What's the secret to our success? It's our twelve signature sauces. From
tasty Teriyaki to Better-Be-Ready Blazin'-TM- we have the taste that's
right for you. Each sauce has a unique recipe, not just more spice. Try
them on our wings or with any sandwich or burger, or take a bottle home
- it's great on the grill!
CALL AHEAD FOR TAKE HOME!
Call ahead for take home may not be available at some stores.
<PAGE>
BW-3/BUFFALO WILD WINGS LOCATIONS
Please don't drink & drive - we will be happy to call a cab for you.
Comments? Call us at 612-593-9943.
Check out our website at www.bw-3.com or www.buffalowildwings.com
Copyright 1998 bw-3, Inc. All Rights Reserved.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 12
Dilution.................................................................. 12
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 17
Business.................................................................. 24
Management................................................................ 32
Certain Transactions...................................................... 34
Principal Stockholders.................................................... 34
Description of Securities................................................. 37
Shares Eligible for Future Sale........................................... 40
Underwriting.............................................................. 43
Legal Matters............................................................. 44
Experts................................................................... 45
Available Information..................................................... 45
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[BUFFALO WILD WINGS LOGO]
1,500,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF
COMMON STOCK AND ONE WARRANT TO
PURCHASE ONE SHARE OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
[RJ STEICHEN & CO LOGO]
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 302A.521, subd. 2, of the Minnesota Statutes requires the Company to
indemnify a person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of the person with respect to
the Company, against judgments, penalties, fines, including, without limitation,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding with
respect to the same acts or omissions if such person (1) has not been
indemnified by another organization or employee benefit plan for the same
judgments, penalties or fines; (2) acted in good faith; (3) received no improper
personal benefit, and statutory procedure has been followed in the case of any
conflict of interest by a director; (4) in the case of a criminal proceeding,
had no reasonable cause to believe the conduct was unlawful; and (5) in the case
of acts or omissions occurring in the person's performance in the official
capacity of director or, for a person not a director, in the official capacity
of officer, board committee member or employee, reasonably believed that the
conduct was in the best interests of the Company, or, in the case of performance
by a director, officer or employee of the Company involving service as a
director, officer, partner, trustee, employee or agent of another organization
or employee benefit plan, reasonably believed that the conduct was not opposed
to the best interests of the Company. In addition, Section 302A.521, subd. 3,
requires payment by the Company, upon written request, of reasonable expenses in
advance of final disposition of the proceeding in certain instances. A decision
as to required indemnification is made by a disinterested majority of the Board
of Directors present at a meeting at which a disinterested quorum is present, or
by a designated committee of the Board, by special legal counsel, by the
stockholders, or by a court.
Provisions regarding indemnification of officers and directors of the
Company are contained in Section 5.1 of the Restated Bylaws (Exhibit 3.2 to this
Registration Statement). The Company maintains a director and officer liability
policy.
Under Section 7 of the Underwriting Agreement, filed as Exhibit 1.1 hereto,
the Underwriters agree to indemnify, under certain conditions, the Company, its
directors, certain of its officers and persons who control the Company within
the meaning of the Securities Act against certain liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following expenses will be paid by the Company in connection with the
distribution of the securities registered hereby and do not include the
underwriting discount to be paid to the Underwriters. All of such expenses,
except for the SEC registration fee, NASD fee and Nasdaq listing fee, are
estimated.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 7,379
NASD Fee.......................................................... 3,002
Nasdaq National Market Listing Fee................................ 63,725
Legal Fees........................................................ 70,000
Accountants' Fees and Expenses.................................... 75,000
Representative's Nonaccountable Expense Allowance................. 195,000
Printing Expenses................................................. 50,000
Blue Sky Fees and Expenses........................................ 2,000
Transfer Agent Fees and Expenses.................................. 5,000
Miscellaneous..................................................... 23,894
---------
Total......................................................... $ 495,000
---------
---------
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Registrant has sold the securities listed
below pursuant to exemptions from registration under the Securities Act. The
information below is presented on a post-reverse stock split basis.
1. In December 1995, the Registrant issued an aggregate of 500 shares of
Common Stock to bw-3, Inc., an Ohio corporation, for $0.20 per share. The shares
were subsequently cancelled as part of the merger of bw-3, Inc. into the
Registrant in June 1997.
2. In June 1997, the Registrant issued 1,966,775 shares of Common Stock in
exchange for all outstanding shares of bw-3, Inc. in connection with the merger
of bw-3, Inc. into the Registrant.
3. In September 1997, the Registrant issued 62 shares of Common Stock to an
employee at a price of $1.50 per share upon exercise of an incentive stock
option.
4. In March 1998, the Registrant issued 20,858 shares of Common Stock to
Kenneth H. Dahlberg, a director of the Registrant, at $5.00 per share in
connection with a Loan Collateralization Agreement between the Registrant's
predecessor and Mr. Dahlberg.
5. In April 1998, in connection with a private financing to accredited
investors, the Registrant issued convertible notes in the principal amount of
$2,250,000 and five-year warrants to purchase 202,500 shares of Common Stock.
One-half of the principal amount of the notes are convertible at $5.20 per share
(80% of the Price to Public of the Units registered pursuant to this
Registration Statement), at the option of the holder, into shares of the
Registrant's Common Stock within 20 days following this offering. Accrued
interest and the unconverted portion of the principal amount of the notes are
due and payable 20 days following this offering. The warrants are exercisable
upon completion of this offering at an exercise price of $5.20 per share (80% of
the Price to Public of the Units registered pursuant to this Registration
Statement). Affiliates of the Registrant purchased convertible notes in the
aggregate principal amount of $550,000 with warrants to purchase 49,500 shares
of Common Stock. R.J. Steichen & Company, the Representative of the Underwriters
in this offering, acted as the placement agent for the financing completed in
April 1998. As placement agent, R.J. Steichen & Company received sales
commissions of $130,000 from the Registrant.
6. In May 1998, the Registrant issued 125 shares of Common Stock to an
employee at a price of $3.00 per share upon exercise of an incentive stock
option.
The sales of securities listed above to employees upon the exercise of stock
options were made in reliance upon Rule 701 under the Securities Act. The other
sales of securities listed above were made in reliance upon Section 4(2) of the
Securities Act, which provide exemptions for transactions not involving a public
offering, and Regulation D thereunder. The purchasers of securities described
above acquired them for their own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear legends stating that the shares are not to be offered, sold or transferred
other than pursuant to an effective registration statement under the Securities
Act, or an exemption from such registration requirements. Except as specified
above, no underwriting commissions or discounts were paid with respect to the
sales of unregistered securities described above.
II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement, including Representative's Warrant
3.1 Restated Articles of Incorporation, including form of Amendment to Restated Articles
of Incorporation (which Amendment is to be effective upon closing of this
offering)
3.2 Restated Bylaws
4.1 Specimen Common Stock Certificate (to be filed by amendment)
4.2 Form of Warrant Agreement, including specimen Warrant Certificate
4.3 Restated Articles of Incorporation (filed as Exhibit 3.1)
4.4 Restated Bylaws (filed as Exhibit 3.2)
5.1 Opinion and Consent of Fredrikson & Byron, P.A.
10.1 Company's 1995 Stock Option Plan, including specimen of Incentive and Non-Qualified
Stock Option Agreements
10.2 Lease Agreement dated February 25, 1997, relating to the office space located at
1919 Interchange Tower, 600 South Highway 169, Minneapolis, Minnesota
10.3 Form of Franchise Agreement
10.4 Form of Area Development Agreement
10.5 Equipment Lease Financing Facility, dated March 11, 1998, between the Company and
Carlton Financial Corporation
10.6 Note, dated December 27, 1996, issued to Kenneth H. Dahlberg
10.7 Warrant, dated December 27, 1996, issued to Kenneth H. Dahlberg
10.8 Form of Convertible Note, dated April 14, 1998, issued to Kenneth H. Dahlberg and
Sally J. Smith
10.9 Form of Warrant, dated April 14, 1998, issued to Kenneth H. Dahlberg and Sally J.
Smith
23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included on signature page of the Registration Statement)
27 Financial Data Schedule
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE>
The undersigned Registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant further undertakes that it will:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) include any additional or changed material information on the
plan of distribution;
(2) for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at the time to be the initial
bona fide offering; and
(3) file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on June 3, 1998.
BUFFALO WILD WINGS, INC.
By /s/ SALLY J. SMITH
-----------------------------------------
Sally J. Smith,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature to this
Registration Statement appears below hereby constitutes and appoints Sally J.
Smith and Mary J. Twinem, and each of them, as his or her true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his or
her behalf individually and in the capacity stated below and to perform any acts
necessary to be done in order to file all amendments and post-effective
amendments to this Registration Statement, any registration statement filed
pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and any and
all instruments or documents filed as part of or in connection with any of such
amendments or registration statements, and each of the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or his or her
substitutes, shall do or cause to be done by virtue hereof.
SIGNATURES TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ JAMES W. DISBROW
- ------------------------------ Chairman of the Board of June 3, 1998
James W. Disbrow Directors
Chief Executive Officer,
/s/ SALLY J. SMITH President and Director
- ------------------------------ (principal executive June 3, 1998
Sally J. Smith officer)
Chief Financial Officer and
/s/ MARY J. TWINEM Treasurer (principal
- ------------------------------ financial and accounting June 3, 1998
Mary J. Twinem officer)
/s/ STEPHEN E. DAVID Executive Vice President,
- ------------------------------ Chief Operating Officer May 29, 1998
Stephen E. David and Director
/s/ DALE M. APPLEQUIST
- ------------------------------ Director June 3, 1998
Dale M. Applequist
II-5
<PAGE>
SIGNATURES TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ KENNETH H. DAHLBERG
- ------------------------------ Director June 3, 1998
Kenneth H. Dahlberg
/s/ MICHAEL T. GILLEN
- ------------------------------ Director June 3, 1998
Michael T. Gillen
/s/ WARREN E. MACK
- ------------------------------ Director June 2, 1998
Warren E. Mack
/s/ JAMES M. SCHMIDT
- ------------------------------ Director June 3, 1998
James M. Schmidt
II-6
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
BUFFALO WILD WINGS, INC.
EXHIBIT INDEX TO FORM SB-2
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement, including Representative's Warrant
3.1 Restated Articles of Incorporation, including form of Amendment to Restated Articles of Incorporation
(which Amendment is to be effective upon closing of this offering)
3.2 Restated Bylaws
4.1 Specimen Common Stock Certificate (to be filed by amendment)
4.2 Form of Warrant Agreement, including specimen Warrant Certificate
4.3 Restated Articles of Incorporation (filed as Exhibit 3.1)
4.4 Restated Bylaws (filed as Exhibit 3.2)
5.1 Opinion and Consent of Fredrikson & Byron, P.A.
10.1 Company's 1995 Stock Option Plan, including specimen of Incentive and Non-Qualified Stock Option
Agreement
10.2 Lease Agreement dated February 25, 1997, relating to the office space located at 1919 Interchange Tower,
600 South Highway 169, Minneapolis, Minnesota
10.3 Form of Franchise Agreement
10.4 Form of Area Development Agreement
10.5 Equipment Lease Financing Facility, dated March 11, 1998, between the Company and Carlton Financial
Corporation
10.6 Note, dated December 27, 1996, issued to Kenneth H. Dahlberg
10.7 Warrant, dated December 27, 1996, issued to Kenneth H. Dahlberg
10.8 Form of Convertible Note, dated April 14, 1998, issued to Kenneth H. Dahlberg and Sally J. Smith
10.9 Form of Warrant, dated April 14, 1998, issued to Kenneth H. Dahlberg and Sally J. Smith
23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (included on signature page of the Registration Statement)
27 Financial Data Schedule
</TABLE>
<PAGE>
1,500,000 UNITS CONSISTING OF 1,500,000 SHARES OF COMMON STOCK
AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
BUFFALO WILD WINGS, INC.
UNDERWRITING AGREEMENT
_________, 1998
R. J. Steichen & Company
As Representative of the Several Underwriters
One Financial Plaza
120 South Sixth Street
Minneapolis, MN 55402
Ladies and Gentlemen:
Buffalo Wild Wings, Inc., an Minnesota corporation (the "COMPANY"),
proposes to issue and sell to you (the "REPRESENTATIVE") and the other
Underwriters named in Schedule I hereto, an aggregate of 1,500,000 Units
("UNITS"), each Unit consisting of one share of Common Stock ("COMMON STOCK")
and one Redeemable Common Stock Purchase Warrant (the "WARRANT") exercisable
for a period of four (4) years commencing on the effective date of the
Registration Statement to purchase one share of Common Stock of the Company
at a price of $8.00 per share. The Warrants shall be immediately exercisable
and are detachable immediately after the effective date of the Registration
Statement under the Act. The Warrants shall be redeemable at the option of
the Company at $.01 per Warrant at any time ninety (90) days after the
effective date and upon thirty (30) days' prior notice in writing of the
Company's intention to redeem, provided that the average closing bid price
for the Common Stock exceeds $9.25 per share (subject to adjustment) for any
20 consecutive trading days prior to such notice, on such other terms set
forth in the Preliminary Prospectus (defined herein).
The 1,500,000 Units to be purchased from the Company are referred to
herein as the "FIRM UNITS." In addition, solely for the purpose of covering
overallotments with respect to the Firm Units, the Company proposes to grant
to the Underwriters, for their account, the option to purchase up to an
additional 225,000 Units (the "OPTION UNITS"). The Firm Units and any Option
Units purchased pursuant to this Underwriting Agreement are herein referred
to as the "UNITS."
<PAGE>
The Company hereby confirms its agreement with respect to the purchase of
the Units by the Underwriters.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters as
follows:
(a) The Company has prepared in conformity in all material respects
with the requirements of the Securities Act of 1933, as amended (the
"ACT"), and the applicable rules and regulations of the Securities and
Exchange Commission (the "COMMISSION") thereunder, and has filed with the
National Office of the Commission in Washington, D.C., a registration
statement on Form SB-2, File No. 333-________, including a Prospectus
relating to the Units, and will file with the Commission before the
effective date of the registration statement one or more amendments
thereto. Copies of such registration statement and amendments (including
all forms of the preliminary prospectus) have been delivered to the
Representative. Any such preliminary prospectus (as described in Rule 430
under the Act) included at any time as part of such registration statement
is herein called a "PRELIMINARY PROSPECTUS." As used herein, the term
"REGISTRATION STATEMENT" shall, except where the context otherwise
requires, mean said registration statement (and all exhibits thereto) as
amended by all amendments filed prior to its effective date; and the term
"PROSPECTUS" shall, except where the context otherwise requires, mean said
final prospectus on file with the Commission when the Registration
Statement becomes effective (except that, if the prospectus filed by the
Company pursuant to Rule 424(b) under Act shall differ from the prospectus
included in the Registration Statement, the term "PROSPECTUS" shall, except
where the context otherwise requires, mean the prospectus so filed pursuant
to Rule 424(b) from and after the date on which it shall have been first
used.) Reference herein to the Registration Statement, to any Preliminary
Prospectus, to the Prospectus or to any amendment of or supplement to the
Prospectus includes all documents and information incorporated therein by
reference.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus, at
the time of filing thereof with the Commission, did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, that none of the representations and warranties in this
subparagraph shall apply to statements in, or omissions from, any
Preliminary Prospectus which are based upon and conform to written
information furnished to the Company by or on behalf of the Representative
specifically for use in the preparation thereof.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to each Closing Date (defined hereinafter) and
upon the effective date of any post-effective amendment to the Registration
Statement, the Registration Statement and the Prospectus, and any
amendments thereof or supplements thereto, will in all material respects
conform to the requirements of the Act and of the applicable rules
2
<PAGE>
and regulations of the Commission thereunder (the "RULES AND REGULATIONS").
When the Registration Statement becomes effective and at all times
subsequent thereto, up to each Closing Date and the effective date of any
post-effective amendment to the Registration Statement, neither the
Registration Statement (as amended, if the Company shall have filed with
the Commission any post-effective amendment thereto), nor the Prospectus,
will include an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by the Representative specifically for use in the
preparation thereof. There is no contract or document required to be
described in the Registration Statement or Prospectus, or to be filed as an
exhibit to the Registration Statement, which was not described or filed as
required.
(d) [Deleted]
(e) KPMG Peat Marwick LLP, the accountants who have examined certain
financial statements and schedules of the Company, filed and to be filed
with the Commission as part of the Registration Statement and the
Prospectus, are independent public accountants within the meaning of the
Act and the Rules and Regulations. The financial statements of the
Company, together with related notes and summaries thereof, set forth in
the Registration Statement and Prospectus, in all material respects present
fairly the financial position and results of operations and changes in
financial position of the Company as of the dates and for the periods
indicated. To the Company's knowledge, all such financial statements
(including the related notes) have been prepared in accordance with
generally accepted accounting principles consistently applied throughout
the periods concerned except as may be otherwise stated therein.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and other than as
described in the Registration Statement and Prospectus, (i) the Company has
not incurred any material liabilities or obligations, contingent or
otherwise, or entered into any material transaction, except obligations
incurred in the ordinary course of business that in the aggregate are not
material; (ii) the Company has not paid or declared any dividend or other
distribution on its Common Stock; (iii) there has not been any change in
the Common Stock (except pursuant to currently outstanding options or
warrants described in the Prospectus) or increase in the long-term debt of
the Company (including any capitalized lease obligation), or any issuance
of options, warrants, or rights to purchase Common Stock of the Company, or
any material adverse change in the business, financial position, results of
operations, key personnel, capitalization, properties, or net worth of the
Company, considered as a whole; and (iv) no material loss or damage
(whether or not insured) to the property of the Company has been sustained.
3
<PAGE>
(g) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own its properties and
conduct its business as it is currently being carried on and as described
in the Prospectus and is duly qualified to do business as a foreign
corporation and is in good standing in all states or jurisdictions in which
the ownership or lease of property or the conduct of its business requires
such qualification and in which the failure to so qualify would have a
material adverse effect on its business condition (financial or other), or
properties. To the Company's knowledge, the Company has all necessary and
material authorizations, approvals and orders of and from all governmental
regulatory officials and bodies to own its properties and conduct its
business as described in the Prospectus and is conducting its business in
substantial compliance with all applicable laws, rules and regulations of
the jurisdictions in which it is conducting business.
(h) The Company is not in violation of its Articles of Incorporation,
Bylaws, or other governing documents and is not in default in the
performance of any obligation, agreement or condition contained in any
lease agreement or in any bond, debenture, note or any other evidence of
indebtedness or in any material contract, indenture, loan agreement or
license where such default would have a material adverse effect on the
business condition (financial or other) or properties of the Company,
considered as a whole which violation or default has not been waived. The
consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a material breach of
any of the terms or provisions of, or constitute a material default under,
the Articles of Incorporation or Bylaws, or other governing documents of
the Company, or any indenture, mortgage, agreement or other instrument to
which the Company is a party or by which it is bound, or to which any
property of the Company is subject, or conflict with or violate any law or
any order, rule or regulation, applicable to the Company of any court, or
of any federal or state regulatory body or administrative agency, having
jurisdiction over the Company or any of its properties which conflict,
breach or default has not been waived.
(i) The Company will, as of each Closing Date, have the duly
authorized and outstanding capitalization set forth in the Prospectus. The
outstanding Common Stock of the Company is duly authorized and validly
issued, fully paid and nonassessable. The Common Stock of the Company
conform in all material respects in substance to all statements in relation
thereto contained in the Registration Statement and the Prospectus. The
Company has all requisite power and authority (corporate and other) to
issue, sell, and deliver the Units, including the Common Stock issuable
upon exercise of the Warrants, in accordance with and upon the terms and
conditions set forth in this Agreement and in the Registration Statement
and Prospectus; and all corporate action required to be taken by the
Company for the due and proper authorization, issuance, sale, and delivery
of the Units, including the Common Stock issuable upon exercise of the
Warrants, has been validly and sufficiently taken.
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(j) The Company has full legal power, right and authority (corporate
and other) to enter into this Underwriting Agreement and to perform and
discharge its obligations hereunder, and this Underwriting Agreement has
been duly authorized, executed and delivered on behalf of the Company and
is the valid and binding obligation of the Company, subject, as
enforceability may be limited by, applicable bankruptcy, insolvency,
moratorium and other laws affecting the rights of creditors generally, and
except as enforceability of the indemnification or contribution provisions
may be limited by federal or state securities laws or principles of public
policy.
(k) The Company will apply the proceeds of the sale of the Units by
it substantially to the purposes set forth in the Prospectus.
(l) To the Company's knowledge, no approval, authorization, consent
or order of any public board or body (other than in connection with or in
compliance with the provisions of the Act and the securities or Blue Sky
laws of various jurisdictions) is legally required for the sale of the
Units by the Company.
(m) The Company's only subsidiary is bw-3 Franchise Systems, Inc.
(n) The Company has good and marketable title, free and clear of all
liens, encumbrances, equities, charges or claims, to all of the property,
real and personal, described in the Registration Statement and Prospectus
as being owned by it, except as otherwise set forth in the Registration
Statement and Prospectus and except for such as are not in the aggregate
material in relation to the property of the Company considered as a whole
and do not materially affect the value of such property, and, except as
otherwise stated in the Registration Statement and Prospectus, has valid
and binding leases to the real and/or personal property described in the
Registration Statement and Prospectus as under lease to it with such
exceptions as could not materially interfere with the conduct of the
business.
(o) There are no actions, suits or proceedings or investigations
pending before any court or governmental agency, authority or body to which
the Company is a party or of which the business or property of the Company
is the subject which, if decided adversely, would have a material adverse
effect on the general affairs, condition (financial or other), business,
properties, net worth, or results of operations of the Company, and, to the
best of the Company's knowledge, no such actions, suits or proceedings are
threatened.
(p) The Company has not taken or will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in stabilization or manipulation
as defined in the Securities Exchange Act of 1934, as amended, of the price
of the Company's securities to facilitate the sale or resale of the Units.
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(q) The Company has not, directly or indirectly, at any time during
the past five years (i) made any contributions to any candidate for
political office, or failed to disclose fully any contribution in violation
of law, or (ii) made any payment to any state, Federal or foreign
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
applicable law.
(r) Except as described in the Prospectus and to the knowledge of the
Company, the Company owns or possesses the right to utilize all the
patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets, and similar rights necessary for the present
conduct of its business as described in the Prospectus, without any known
conflict with the asserted rights of others in respect of such matters.
Except as may be stated in the Prospectus, the Company has not received any
notice of any infringement of, or license or similar fees for, any patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets, or other similar rights of others, or any claim
with respect thereto, which would have a material adverse effect on the
business of the Company.
(s) The Company has filed all necessary federal, state and foreign
income and franchise tax returns or if not filed, has obtained all
necessary extensions and has paid all taxes as shown as due on any such
returns; and the Company has no knowledge of any material tax deficiency
which has been asserted against the Company, and, to the best of the
Company's knowledge, the Company has no material obligation to pay any
taxes except as may be stated in the Prospectus.
(t) All prior offers or sales of the securities of the Company were
exempt from registration under the Act and all applicable state blue sky
laws.
(u) No securities of the Company have been sold within three years
prior to the date hereof, except as set out in Item 26 of Part II of the
Registration Statement.
(v) The Company knows of no outstanding claims for services in the
nature of a finder's fee or origination fee with respect to the sale of the
Units or Underwriter's Warrants (defined hereinafter) hereunder resulting
from its acts for which the Underwriters may be responsible. The Company
will indemnify the Underwriters for and hold the Underwriters harmless
against any claim for such finder's fees or origination fees.
(w) All material contracts or agreements are properly filed as an
exhibit to the Registration Statement. Each contract to which the Company
is a party and which is filed as a part of or incorporated by reference
into the Registration Statement has been duly and validly executed, is in
full force and effect in all material respects in accordance with its
terms, except as enforceability may be limited by federal or state laws or
principles of public policy, and none of such contracts have been assigned
by the Company, and the
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Company knows of no present situation or condition or fact which would
prevent compliance by the Company with the terms of such contracts, as
amended to date. Except for amendments or modifications of such contracts
in the ordinary course of business, the Company has no intention of
exercising any right which it may have to cancel any of its obligations
under any of such contracts, and has no knowledge that any other party to
any of such contracts has any intention not to render full performance
under such contracts.
(x) The Company maintains insurance which is in full force and
effect, of the types and in an amount, in the judgment of the Company and
except as otherwise disclosed in the Prospectus, which is reasonable for
its present business taking into account its operations and assets,
including, but not limited to, insurance covering all personal property
owned or leased by the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against.
(y) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(z) All material transactions between the Company and its officers,
directors, promoters, and its shareholders who beneficially own 5% or more
of any class of the Company's voting securities required to be disclosed in
the Prospectus have been accurately disclosed in the Prospectus, and the
terms of each such transaction are fair to the Company and no less
favorable to the Company than the terms that could have been obtained from
unrelated parties.
2. PURCHASE OF THE UNITS BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company agrees to sell to the several Underwriters, and the Underwriters,
severally and not jointly, agree to purchase from the Company, the Firm
Units. The purchase price for each Firm Unit shall be $5.98 per Unit.
(b) The Company hereby grants to the Underwriters, for their account,
an option to purchase from the Company, solely for the purpose of covering
overallotments in the sale of Firm Units, all or any portion of an
aggregate of 225,000 Option Units for a period of 45 days from the date
hereof at the same purchase price per Option Unit as the purchase price per
Firm Unit set forth in Section 2(a) above.
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3. DELIVERY OF AND PAYMENT FOR UNITS. Delivery of certificates for
the Firm Units and payment therefor shall be made at the offices of
Fredrikson & Byron, P.A. (or such other place as mutually may be agreed
upon), at 10:00 a.m., Minneapolis, Minnesota time, on or before the third
full business day following the effective date of the Registration Statement
(the "FIRST CLOSING DATE").
The option to purchase Option Units granted in Section 2(b) hereof may
be exercised at any time during the 45-day term thereof by written notice to
the Company from the Representative. Such notice shall set forth the
aggregate number of Option Units as to which the option is being exercised,
and the time and date, not earlier than either the First Closing Date or the
second business day after the day on which the option shall have been
exercised but not later than the third full business day after the date of
such exercise, as determined by the Representative, when the Option Units are
to be delivered (the "SECOND CLOSING DATE"). Delivery and payment for such
Option Units to be purchased by the Representative are to be at the offices
set forth above for delivery and payment of the Firm Units. The First
Closing Date and the Second Closing Date are sometimes herein individually
called the "CLOSING DATE" and collectively called the "CLOSING DATES."
Delivery of facsimile certificates for the Units shall be made by or on
behalf of the Company to the Representative against payment by the
Representative of the purchase price therefor by wire transfer or certified
or official bank check in clearing house funds to the order of the Company.
The certificates for such Units shall be registered in such names and
denominations as the Representative shall have requested at least two full
business days prior to the applicable Closing Date. Time shall be of the
essence and delivery at the time and place specified in this Agreement is a
further condition to your obligations hereunder.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
each Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become and remain effective, up to each Closing Date. The
Company will notify the Representative promptly of any request by the
Commission for any amendment of or supplement to the Registration Statement
or the Prospectus or for additional information, will prepare and file with
the Commission, promptly upon the Representative's request, any amendments
of or supplements to the Registration Statement or Prospectus which, in the
Representative's reasonable opinion, may be necessary or advisable in
connection with the distribution of the Units; and will not file any
amendments and supplements to the Registration Statement as originally
filed with the Commission unless it shall first have delivered copies of
such amendments or supplements to the Representative, or file any such
amendment or supplement to which the Representative shall have reasonably
objected in writing to the Company. The Company will immediately advise
the Representative by telephone, confirming such advice in writing (i) when
notice is received from the Commission that the Registration Statement has
become effective, (ii) of any order suspending the effectiveness of the
Registration Statement or of any proceedings or
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<PAGE>
examination under the Act, as soon as the Company is advised thereof, and
(iii) of any order or communication of any public authority addressed to
the Company suspending or threatening to suspend qualification of the Units
for sale in any state. The Company will use its best efforts to prevent
the issuance of any stop order or other such order, and, should a stop
order or other such order be issued, to obtain as soon as possible the
lifting thereof.
(b) If, at any time when a prospectus relating to the Units is
required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or in the
reasonable opinion of counsel for the Representative, the Prospectus, as
then amended or supplemented, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or if it is
necessary at any time to amend or supplement the Prospectus to comply with
the Act, the Company will notify the Representative promptly and prepare
and file with the Commission an appropriate amendment or supplement.
(c) The Company will use its best efforts to take or cause to be
taken all necessary action and furnish to whomever the Representative may
reasonably direct such information as may be required in qualifying the
Units for offering and sale under the Blue Sky or securities laws of such
states as the Representative and the Company shall designate. The
necessary legal work for such qualifications will be undertaken by counsel
for the Company, at the Company's expense. The Company shall not, however,
be required to register or qualify as a foreign corporation or as a dealer
in securities or, except as to matters and transactions related to the
offering or sale of the Units, consent to service of process in any state.
(d) The Company will furnish to each of the several Underwriters,
from time to time and without charge, copies of the Registration Statement,
each Preliminary Prospectus, the Prospectus (including all documents from
which information is incorporated by reference), and all amendments of and
supplements to any of such documents, in each case as soon as available and
in such quantities as the Representative may from time to time reasonably
request for the purposes contemplated by the Act. The Company authorizes
the several Underwriters and all dealers to whom any of the Units may be
sold by the Underwriters to use the Preliminary Prospectuses and
Prospectuses supplied, as from time to time amended or supplemented, in
connection with the sale of the Units as and to the extent permitted by
federal and applicable state and local securities laws.
(e) The Company will furnish to the Representative two copies of the
Registration Statement and all amendments thereof which are signed and
include all exhibits and schedules.
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<PAGE>
(f) The Company will, for a period of five (5) years after the
Effective Date, furnish directly to the Representative, and to each
Underwriter who may so request in writing, as soon as the same shall be
sent to shareholders generally, copies of all annual or interim shareholder
reports of the Company, and will, for the same period, also furnish the
Representative, and to each Underwriter who may so request in writing, with
the following:
(i) two copies of any report, application, or document
(other than exhibits, which, however, will be furnished on request)
which the Company shall file with the Commission or any securities
exchange;
(ii) as soon as the same shall be sent to shareholders
generally, copies of each communication which shall be sent to
shareholders; and
(iii) from time to time such other information concerning the
Company as the Representative may reasonably request, provided that
the Company shall not be required to furnish any information pursuant
hereto that is not furnished to its shareholders or not otherwise made
publicly available.
(g) The Company will, for a period of five (5) years after the
Effective Date, furnish directly to the Representative, quarterly profit
and loss statements, reports of the Company's cash flow filed by the
Company with the Commission.
(h) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than eighteen months
after the effective date of the Registration Statement, a statement of
earnings of the Company (which need not be audited) complying with Section
11(a) of the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158).
(i) Whether or not this Agreement becomes effective or is terminated
or cancelled or the sale of the Units to the Representative is consummated,
and regardless of the reason for or cause of any such termination,
cancellation, or failure to consummate, the Company will pay or cause to be
paid (A) all expenses (including any transfer taxes) incurred in connection
with the delivery to the Representative of the Units, (B) all expenses and
fees (including, without limitation, fees and expenses of the Company's
accountants and counsel, excluding, however, fees of the Underwriters'
counsel) in connection with the preparation, printing, filing, delivery,
and shipping of the Registration Statement (including the financial
statements therein and all amendments, schedules, and exhibits thereto),
each Preliminary Prospectus, the Prospectus, and any amendment thereof or
supplement thereto, (C) all fees and expenses incurred by the Company in
connection with the Registration Statement, including all Company counsel
fees, (D) fees and expenses of the Company's counsel, incurred in
connection with the qualification of the Units for offering and sale by the
Underwriters or by dealers under the securities or Blue Sky laws of the
states and other jurisdictions designated in accordance with Section 4(c)
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<PAGE>
hereof, (E) subject to the further provisions of this Section 4(i), all
fees and expenses, including all counsel fees, excluding, however, fees of
the Underwriters' counsel, incurred in connection with the review of the
offering by the National Association of Securities Dealers, Inc. and
listing fees, if any, (F) all costs and expenses incident to qualification
of the Common Stock and the Warrants with The Nasdaq National Market, and
(G) postage and express charges, due diligence meetings for the investment
community and other expenses in connection with delivery of the Preliminary
and Final Prospectus to the Underwriters and Blue Sky Registrations,
filings and legal expenses. In addition to and not in lieu of the
foregoing, the Company shall pay to the Representative on each Closing
Date, for out-of-pocket expenses (including fees of Representative's
counsel), a nonaccountable expense allowance equal to two percent (2%) of
the aggregate purchase price for the Units sold to all the Underwriters on
each Closing Date, less the $10,000 refundable retainer (the "Retainer")
previously paid by the Company, receipt of which is acknowledged by the
Representative. If the Underwriters withdraw from the sale of the Units as
herein proposed for any reason other than their inability to sell the Units
and through no other fault of their own, or if the sale of the Units as
herein proposed is abandoned by the Company, the Company will reimburse the
Representative in the amount of all accountable expenses (including fees
and disbursements of counsel), in excess of the $10,000 Retainer, incurred
by the Representative in connection with the contemplated purchase, offer,
and sale of the Units, including without limitation, expenses incurred in
their investigation, preparation to market, and marketing of the Units, and
in contemplation of performing and in performance of its obligations
hereunder, up to an aggregate of $20,000, such expenses and fees to be
evidenced by appropriate receipts, invoices, or other documentation.
Should the offering as contemplated herein not occur, and should the
Representative's accountable expense not exceed the amount of the Retainer,
the Representative shall refund to the Company the difference between the
Retainer amount and its accountable expenses.
(j) The Company will cause all officers, directors and shareholders
of the Company to furnish to the Representative, on or prior to the date of
this Agreement, a letter or letters, in form and substance satisfactory to
counsel for the Representative, pursuant to which each such person shall
agree not to offer for sale, sell, distribute or otherwise dispose of any
securities of the Company for a period of 180 days from the date hereof.
(k) The Company will not, during the 180 days following the effective
date of the Registration Statement, except with the Representative's prior
written consent, offer for sale, sell, distribute, or otherwise dispose of
any Common Stock or sell or grant options, rights, or warrants with respect
to any Common Stock (except for the grants, options, rights, warrants or
convertible securities pursuant to the Company's 1995 Stock Option Plan or
sales upon the exercise of options or warrants or the conversion of
convertible notes outstanding on the date hereof), otherwise than in
accordance with this Agreement or as contemplated by the Prospectus. The
Company shall not register the
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<PAGE>
Common Stock or options underlying such 1995 Stock Option Plan within the
180 day period immediately following the date hereof.
(l) The Company authorizes the Underwriters and all dealers to whom
any of the Units may be sold by the Underwriters in connection with the
distribution of the Units, to use the Prospectus as from time to time
amended or supplemented in connection with the offering and sale of the
Units and in accordance with the applicable provisions of the Act and the
applicable Rules and Regulations and applicable state Blue Sky or
securities laws.
(m) The Company shall not request an effective date nor allow the
Registration Statement to be declared effective without the prior approval
of the Representative.
(n) Within the time during which the Prospectus is required to be
delivered under the Act, the Company will comply, at its own expense, with
all requirements imposed upon it by the Act, by the Rules and Regulations,
by the Exchange Act, and by any order of the Commission, so far as
necessary to permit the continuance of sales or dealings in the Units.
(o) The Company shall file an application and take all other steps
necessary to have the Common Stock and Warrants actually listed on The
Nasdaq National Market on or prior to the effective date of the
Registration Statement under the Act.
(p) The Company will reserve and keep available that maximum number
of its authorized but unissued shares of Common Stock which are issuable
upon exercise of Warrants and the Underwriter's Warrants during the term of
the Warrants and the Underwriter's Warrants (as described in Section 12
hereof).
(q) Prior to the Closing Date, no discussions will be held by
officers or directors of the Company with any member of the news media and
no news release or other publicity about the Company will be issued or
authorized by the Company without prior approval of the Company's and the
Representative's respective legal counsel; further, the Company will use
its best efforts to prevent discussions by any affiliate or associate of
the Company with any member of the news media and the Company will use its
best efforts to prevent the issuance of any news release or other publicity
by any affiliate or associate of the Company without the prior approval of
the Company's and the Representative's respective legal counsel.
(r) The Company shall have obtained a CUSIP number for the Units (and
its components) prior to the effective date of the Registration Statement
under the Act.
(s) The Company shall supply to the Representative, and its legal
counsel, at the Company's cost, one complete bound volume each of all of
the documents relating to
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<PAGE>
the public offering, within a reasonable time after the Closing Date, not
to exceed four (4) months. The volume shall be hard cover bound in book
format.
(t) The Company will apply the proceeds from the sale of the Units by
it to the purposes and in the manner set forth in the Registration
Statement and, pending such application, shall invest such net proceeds
only in one or more of the following, except as otherwise provided by prior
written consent of the Underwriters: (i) interest-bearing obligations
issued by the United States Government or issued by an agency or
instrumentality of the United States Government and guaranteed by the
United States Government and having a maturity not in excess of one year,
(ii) interest-bearing domestic commercial paper having a maturity of not
more than 365 days and, at the time of purchase by the Company, rated
investment grade by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, (iii) interest-bearing certificates of deposit issued by a
commercial bank chartered by the United States Government or by any state
of the United States having shareholders' equity of at least $500,000,000
except that the foregoing notwithstanding, the Company may invest no more
than $100,000 of such net proceeds in certificates of deposit issued by any
such commercial bank regardless of shareholders' equity, and (iv) shares or
other units of interest in a registered open-ended investment company the
assets of which aggregate at least $200,000,000 and are invested solely in
so-called "money market" obligations.
(u) The Company shall supply to the Representative and its counsel
such financial statements, contracts and other corporate documents as the
Representative or its counsel may reasonably request, and the Company shall
make reasonably available for consultation, such persons involved with the
Company's business as the Representative or its counsel shall deem
necessary in connection with the Representative's due diligence examination
of the Company.
(v) The President of the Company will certify that projections
presented to the Representative for its review were prepared in good faith
and represent the President's best present estimate of the Company's
financial condition following completion of the Initial Public Offering.
The President of the Company shall also provide the Representative with her
assurance that the proceeds of the Initial Public Offering are sufficient
to fund the Company over the next twelve months from the date of receipt.
(w) All documents to be filed with the Commission shall be submitted
to the Representative and its counsel for prior approval and no amendment
will be made to the Registration Statement or to any preliminary or final
prospectus without the prior consent of such counsel, which approval and
consent shall not be unreasonably withheld.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters herein shall be subject to the accuracy of the
representations and warranties on the part of the Company herein as of the date
hereof, and as of each Closing Date, to the accuracy of the written statements
of Company officers made pursuant to the provisions hereof, to the
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performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., Minneapolis, Minnesota time, on the date of this Agreement
or on such later time and date as shall be satisfactory to the
Representative, as the representative of the several Underwriters, no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereof or supplement or the qualification of the Units for
offering or sale shall have been issued and no proceedings for that purpose
shall have been instituted or shall be pending or shall be threatened by
the Commission or by any state securities authority, and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to
the Representative's satisfaction.
(b) The Representative shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains an untrue statement of fact that, in the
Representative's reasonable opinion, is material, or omits to state a fact
that, in the Representative's reasonable opinion, is material and is
required to be stated therein or is necessary to make the statements
therein not misleading provided that this Section 5(b) shall not apply to
statements in, or omissions from, the Registration Statement or Prospectus,
or any amendment thereof or supplement thereto that are based upon and
conform to written information provided by the Representative specifically
for use in the Registration Statement or Prospectus.
(c) On or prior to each Closing Date, the form and validity of the
Units, the legality and sufficiency of the corporate proceedings and
matters relating to the incorporation of the Company and other matters
incident to the issuance of the Units, the form of the Registration
Statement and the Prospectus and of any amendments thereof or supplements
thereto filed prior to such Closing Date (other than financial statements
and schedules and other financial or statistical data included therein),
the authorization, execution, and delivery of this Agreement and the
description of the Units contained in the Prospectus shall have been
reasonably approved by the Representative. In connection with such
determination, the Company shall have furnished to the Representative such
documents as the Representative may have requested for the purpose of
enabling the Representative to pass upon such matters.
(d) On each Closing Date there shall have been furnished to the
Representative, the opinion (addressed to the Underwriters) of Fredrikson &
Byron, P.A., counsel for the Company, dated such Closing Date, and in form
reasonably satisfactory to counsel for the Underwriters, to the effect
that:
(i) The Company (and any subsidiary) is a corporation duly
incorporated, validly existing and in good standing under the laws of
its state of incorporation, with corporate power and authority to own
or lease its properties and conduct its
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business as described in the Prospectus. To such counsel's knowledge,
the Company's sole subsidiary is bw-3 Franchise Systems, Inc.
(ii) The authorized capital stock of the Company as of the date
of this Agreement is as set forth in the Prospectus. To such
counsel's knowledge, the outstanding shares of the Common Stock of the
Company have been duly authorized and validly issued and are fully
paid and nonassessable. The Units (and their components) have been
duly authorized and, upon issuance, delivery and payment therefor as
described in this Agreement, will be validly issued, fully paid and
nonassessable. The shares of Common Stock underlying the Warrants
have been duly authorized and reserved for issuance and when issued,
sold and delivered in accordance with the terms of the Warrant
Agreement, will be validly issued, fully paid and nonassessable. The
issuance, sale and delivery of the Underwriter's Warrant has been duly
authorized and the shares (the "WARRANT SHARES") of Common Stock
issuable upon the exercise thereof have been reserved for issuance
upon such exercise. The Warrant Shares, when issued, sold and
delivered in accordance with the terms of the Underwriter's Warrant,
will be validly issued, fully paid and nonassessable. No preemptive
rights of, or rights of refusal in favor of, stockholders of the
Company exist with respect to the Units (or any component thereof),
the Underwriter's Warrant or the Warrant Shares, or the issue and sale
thereof, pursuant to the Company's Articles of Incorporation or
Bylaws.
(iii) The authorized securities of the Company conform as to
legal matters in all material respects to the description thereof set
forth in the Prospectus under the caption "Description of Securities."
The form of stock and warrant certificate filed as Exhibits 4.1 and
4.2, respectively, to the Registration Statement comply as to form
with the applicable provisions of the Minnesota Business Corporation
Act.
(iv) The Registration Statement has become effective under the
Securities Act and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and,
to such counsel's knowledge, no proceedings for that purpose have been
instituted or are pending by the Commission.
(v) To such counsel's knowledge, the Registration Statement and
the Prospectus comply as to form in all material respects with the
requirements of the Securities Act and with the Rules and Regulations,
except the financial statements, the notes thereto and the related
schedules and other financial and statistical data contained therein,
as to which counsel need express no opinion.
(vi) Counsel knows of no contracts, leases, documents or pending
legal proceedings that are required to be described in the Prospectus
or to be filed as exhibits to the Registration Statement that are not
so described or filed.
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(vii) The Underwriting Agreement, the Warrant Agreement and
the Underwriter's Warrant have been duly authorized by all requisite
corporate action, executed and delivered by the Company and constitute
the valid and binding obligations of the Company enforceable in
accordance with their respective terms, except as enforceability is
limited.
(viii) The execution and delivery of the Underwriting
Agreement and the issue and sale of the Underwriter's Warrant, the
Units (and their components) and the shares underlying the
Underwriter's Warrant will not violate or conflict with the Articles
of Incorporation or the Bylaws of the Company or any material
provision of any material contract or instrument filed as an exhibit
to the Registration Statement to which the Company is a party or by
which the Company is bound or to such counsel's knowledge (i) any law
of the United States or the State of Minnesota, (ii) any rule or
regulation of any governmental authority or regulatory body of the
United States or the State of Minnesota, or (iii) any judgment, order
or decree known to us and applicable to the Company of any court or
governmental authority.
(ix) No holders of capital stock of the Company, or securities
convertible into capital stock of the Company, have the right to cause
the Company to include such holder's capital stock in the Registration
Statement pursuant to the Company's Articles of Incorporation or
Bylaws or any contract or agreement.
(x) No consent, approval, authorization or order of, and no
notice to or filing with, any governmental agency or body or any court
is required to be obtained or made by the Company for the issue and
sale of the Units pursuant to the Underwriting Agreement, except such
as have been obtained or made and such as may be required under
applicable state securities or blue sky laws or by the National
Association of Securities Dealers, Inc. (as to latter which counsel
need express no opinion).
Although counsel to the Company is not opining to and cannot guarantee
the accuracy and completeness of the statements contained in the
Registration Statement or in the Prospectus, and such counsel makes no
representation that they have independently verified the accuracy,
completeness, or fairness of such statements, in connection with such
counsel's representation of the Company in the preparation of the
Registration Statement and Prospectus, nothing came to counsel's attention
that led counsel to conclude that the Registration Statement, as of the
date it was declared effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus, as of its date or on the date hereof, contained or contains an
untrue statement of a material fact or omitted or omits to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (provided that counsel need express no view with respect to the
content of
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financial statements, the notes thereto and the related schedules
included in the Registration Statement or the Prospectus or as to
statements in the Registration Statement or Prospectus which are based
on and conform to written information furnished to the Company by or on
the Representative's behalf specifically for use in the preparation of
the Underwriting section of the Registration Statement).
In rendering such opinion, such counsel may rely (A) as to questions
of the law of jurisdictions other than the State of Minnesota or the United
States upon an opinion or opinions (dated the Closing Date, addressed to
the Representative and in form satisfactory to the Representative) of
counsel acceptable to the Representative and (B) as to matters of fact, to
the extent counsel to the Representative reasonably deems such reliance
proper, on certificates of appropriate officers of the Company, of the
transfer agent and registrar for the Units and of public officials;
PROVIDED, such opinions and certificates must be attached to the opinion of
counsel.
(e) At the time of execution of this Agreement, the Underwriters
shall have received from KPMG Peat Marwick LLP, a letter dated the date of
such execution, in form and substance satisfactory to the Representative,
to the effect that they are independent accountants with respect to the
Company within the meaning of the Act and the applicable published
instructions, and Regulations thereunder, and further stating in effect
that:
(i) In their opinion, the audited financial statements
included in the Registration Statement and Prospectus covered by their
report included therein, comply as to form in all material respects
with the applicable requirements of the Act and the published
instructions, and Regulations, thereunder.
(ii) On the basis of (A) a reading of the minutes of the
shareholders' and directors' meetings of the Company since inception,
(B) inquiries of certain officials of the Company responsible for
financial and accounting matters, (C) a reading of the Company's
monthly operating statements subsequent to March 29, 1998, and (D)
other specified procedures and inquiries (but not an audit in
accordance with generally accepted auditing standards), nothing came
to their attention causing them to believe that:
(1) that the unaudited financial statements of the Company,
contained in the Prospectus and any amendment thereof or
supplement thereto, do not comply as to form, in all material
respects, with the applicable accounting requirements of the Act
and the published Rules and Regulations or were not prepared in
conformity with generally-accepted accounting principles and
practices applied on a basis consistent in all material respects
with those followed in the preparation of, the audited financial
statements of the Company included therein; or
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<PAGE>
(2) that the unaudited amounts of revenues, income before
provision for income taxes, net income and ratio of earnings to
fixed charges of the Company contained in the Prospectus, or any
amendment thereof or supplement thereto, were not derived from
financial statements prepared in conformity with generally-
accepted accounting principles and practices applied on a basis
consistent in all material respects with those followed in the
preparation of the audited financial statements of the Company
included therein; or
(3) that the unaudited pro forma financial statements of
the Company and recently-acquired companies, if any, contained in
the Prospectus or any amendment thereof or supplement thereto,
were not properly compiled in accordance with generally-accepted
accounting principles or did not provide for all adjustments
necessary for a fair presentation of the information purported to
be shown thereby; or
(4) with respect to the period subsequent to March 29,
1998, there were, at a specified date, not more than five (5)
business days prior to the date of the letter, any changes or any
material increases or decreases in capital stock, long-term or
short-term debt or shareholders' equity, decreases in net assets,
net current assets, or net worth or any material decrease, as
compared with the corresponding period of the prior year, in
revenues or net income of the Company as compared with the
amounts shown in the March 29, 1998 balance sheet included in the
Registration Statement, except as disclosed or referred to in the
Prospectus and Registration Statement.
(iii) Certain information set forth on the cover of the
Prospectus, and in the Prospectus under the headings "Prospectus
Summary," "The Offering," "Summary Consolidated Financial Data," "Risk
Factors," "Use of Proceeds," "Dilution," "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business,"
"Management," "Certain Transactions," "Principal Stockholders" and
"Description of Securities" and that are expressed in dollars (or
percentages derived from dollar amounts) or numbers have been compared
to accounting records of the Company which were subject to the
internal accounting controls of the Company and are in agreement with
such records or computations made therefrom, excluding any questions
of legal interpretation.
(f) The Underwriters shall have received from KPMG Peat Marwick LLP,
a letter dated as of each Closing Date, to the effect that such accountants
reaffirm, as of such Closing Date, and as though made on such Closing Date,
the statements made in the letter furnished by such accountants pursuant to
subparagraph (e) of this Section 5, except that
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<PAGE>
the specified date referred to in such letter will be a date not more than
five (5) business days prior to such Closing Date.
(g) At each Closing Date, the Company shall have performed all
material obligations and satisfied all material conditions on its part to
be performed or satisfied on or prior thereto (except any condition
satisfaction of which shall have been waived as herein provided) and
compliance with the provisions of this subparagraph (g) shall be evidenced
by a certificate of an executive officer of the Company.
(h) On each Closing Date there shall have been furnished to the
Representative a certificate, dated as of such Closing Date and addressed
to the Representative, as representative of the several Underwriters,
signed by the principal executive officer and principal financial officer
of the Company to the effect that:
(i) the representations and warranties and covenants of the
Company in this Agreement are true and correct in all material
respects as if made at and as of such Closing Date and the Company has
complied in all material respects with all the agreements and
satisfied all the material conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date;
(ii) no stop order or other order suspending the effectiveness
of the Registration Statement or any amendment or supplement thereto
or the qualification of the Units for offering or sale has been issued
and, to the Company's knowledge, no proceedings for that purpose have
been instituted or are pending or, to the knowledge of the respective
signers thereof, are threatened by the Commission or any state or
regulatory body;
(iii) neither the Registration Statement, as of the date it was
declared effective, nor the Prospectus, as of its date and the Closing
Date, included any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading; (B) since the effective date of the
Registration Statement, no event has occurred which should have been
set forth in an amendment or supplement to the Prospectus which has
not been set forth in such an amendment or supplement; (C) subsequent
to the respective dates as of which information is given in the
Registration Statement and Prospectus and except as set forth in or
contemplated by the Prospectus, the Company has not incurred any
material liability or obligation, direct or contingent, whether or not
in the ordinary course of business, or entered into any material
transaction, outside of the ordinary course of business, and there has
not been any material change in the Common Stock, or any increase in
the short-term or long-term debt, including any capitalized lease
obligation (other than in the ordinary course of its business and in
an amount which is not material) or any issuance of options, warrants,
convertible securities or other rights to purchase the Common Stock of
the
19
<PAGE>
Company or any material adverse change in the general affairs,
business, key personnel, capitalization or financial position of the
Company considered as a whole (other than the issuance of Common Stock
pursuant to existing options described in the Prospectus); and
subsequent to the date of this Agreement, the Company has not
sustained any material loss or damage to its property or interference
with its business by strike, fire, flood, accident or other calamity,
whether or not any of the foregoing is insured, that would have a
material adverse effect upon the Company considered as a whole,
(D) the projections of the Company previously presented to the
Representative showing that the Company will be able to meet the
maintenance requirements for listing on The Nasdaq National Market for
a period of 24 months from the date hereof, were prepared in good
faith and continue to represent the signers' best present estimate of
the Company's financial condition following the Closing of the sale of
the Units.
(i) The Representative shall receive a Blue Sky Memorandum reasonably
satisfactory to the Representative from Fredrikson & Byron, P.A.,
confirming that all requisite action for the offer and sale of the Units in
all jurisdictions requested has been taken.
(j) The Representative shall have received "lock up" agreements, in
form and substance acceptable to the Representative, from all directors,
officers and shareholders of the Company restricting the sale, assignment
or other conveyance of any securities of the Company without the prior
written consent of the Representative for a period of 180 days from the
effective date of the Registration Statement under the Act.
(k) The Company's Common Stock and Warrants shall be approved for
quotation on The Nasdaq National Market on or prior to the effective date
of the Registration Statement under the Act.
(l) Prior to the First Closing, the number of issued and outstanding
shares of common stock of the Company shall not exceed 1,987,758 shares
(after considering the one for two reverse split of the Company's Common
Stock) and options and warrants to acquire 505,185 shares of common stock
(after considering the one for two reverse split of the Company's Common
Stock), and there shall be no change in the capitalization of the Company
without the prior written consent of the Representative, except pursuant to
the outstanding options, warrants and convertible notes described in the
Prospectus.
(m) The Company's Common Stock and Warrants shall be registered under
the Securities Exchange Act of 1934, as amended, pursuant to Form 8-A, on
or prior to the effective date of the Registration Statement under the Act.
(n) The Company shall have furnished to the Representative and
Doherty, Rumble & Butler Professional Association, counsel for the
Representative, such further
20
<PAGE>
certificates and documents as Underwriters' counsel may reasonably request,
relating to the fulfillment of the conditions set forth in this Section 5.
(o) The Company shall effect a one for two reverse stock split of its
Common Stock simultaneous with the effectiveness of the Registration
Statement and shall promptly provide counsel to the Representative evidence
of the effectiveness of such reverse split.
(p) The Representative shall have received an opinion of Doherty,
Rumble & Butler Professional Association, in form and substance
satisfactory to it as to certain matters pertaining to the registration of
the Units.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to the Representative and to counsel for the Representative. The Company will
furnish the Representative with such conformed copies of such opinions,
certificates, letters, and other documents as the Representative shall
reasonably request. The Representative, on behalf of the several Underwriters,
may waive in writing the performance of any one or more of the conditions
specified in this Section 5 or extend the time for their performance.
If any of the conditions specified in this Section 5 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this Agreement
and all obligations of the several Underwriters hereunder may be cancelled by
the Representative, as the representative of the several Underwriters, at, or at
any time prior to, each Closing Date. Any such cancellation shall be without
liability of the Underwriters to the Company or any liability of the Company to
the Underwriters, except pursuant to Section 4(i) hereof. Notice of such
cancellation shall be given to the Company in writing, or by telefax or
telephone confirmed in writing.
The Representative may waive in writing the performance of any one or more
of the foregoing conditions or extend the time for their performance.
6. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at immediately after the
time at which the Registration Statement shall have become effective under
the Act.
(b) Until the First Closing Date, this Agreement may be terminated by
the Representative by giving notice to the Company, if (i) the Company
shall have sustained a loss or damage by fire, flood, accident, or other
calamity which is material to the property, business, or condition
(financial or other) of the Company considered as a whole, any properties
of the Company shall have become a party or subject to litigation material
to the Company considered as a whole, or there shall have been, since the
respective dates as of which information is given in the Registration
Statement or the Prospectus, any material adverse change or development in
the general affairs, condition (financial or other), business, key
personnel, capitalization, properties, results of
21
<PAGE>
operations or net worth, of the Company considered as a whole, whether or
not arising in the ordinary course of business, which loss, damage, or
change, in the Representative's judgment, shall render it inadvisable to
proceed with the delivery of the Units, whether or not such loss shall
have been insured, (ii) trading in securities generally on the New York
Stock Exchange, the American Stock Exchange, The Nasdaq National Market,
The Nasdaq SmallCap Market or the over-the-counter market shall have been
suspended or minimum prices shall have been established on such exchange
or market by the Commission or by such exchange, (iii) a general banking
moratorium shall have been declared by federal or state authorities, or
(iv) there shall have been such a serious, unusual and material adverse
change in general economic, political, or financial conditions or the
effect of international conditions on the financial markets in the United
States shall be such as, in the Representative's reasonable judgment, makes
it inadvisable to proceed with the delivery of the Units. Any termination
of this Agreement pursuant to this Section 6 shall be without liability of
the Company to the Underwriters, except as otherwise provided in Sections
4(i), 7 and 8 hereof, and without liability of the Underwriters to the
Company, except as provided in Sections 7 and 8 hereof.
(c) Any notice referred to in this Section 6 may be given at the
address specified in Section 11 hereof in writing or by telegraph or
telephone, and if by telefax or telephone, shall be immediately confirmed
in writing.
7. INDEMNIFICATION. (a) The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such controlling
person may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment thereof or supplement thereto,
or (B) in any Blue Sky application or other document executed by the Company
specifically for that purpose or based upon and conforming to written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Units under the securities laws thereof (any
such application, document or information being hereinafter called a "Blue Sky
Application"), or (ii) the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, or the Prospectus, or any
amendment thereof or supplement thereto, or in any Blue Sky Application a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and will reimburse the Underwriters, their officers and directors
and each such controlling person for any legal or other expenses reasonably
incurred by the Underwriters, their officers and directors or such controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent, but only to the extent, that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with
22
<PAGE>
written information furnished to the Company through you or on your behalf
specifically for use in the preparation of the Registration Statement or any
amendment thereof or supplement thereto, or any such Blue Sky Application or
any such Preliminary Prospectus or the Prospectus or any such amendment
thereof or supplement thereto; and provided, further, that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates
to any untrue statement, alleged untrue statement, omission or alleged
omission made in any Preliminary Prospectus but eliminated or remedied in the
Prospectus (as amended or supplemented), such indemnity agreement shall not
inure to the benefit of any Underwriter (or to the benefit of any person who
controls any Underwriter), if the person asserting any loss, liability, claim
or damage purchased the Units which are the subject thereof and a copy of the
Prospectus (as then supplemented or amended) was not sent or given to such
person with or prior to the written confirmation of the sale of such Units to
such person.
(b) Each Underwriter, severally, but not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director or
officer, or controlling person, may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in the Registration Statement,
any Preliminary Prospectus, or the Prospectus, or any amendment thereof or
supplement thereto, or (B) in any Blue Sky Application, or (ii) the omission or
alleged omission to state in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment thereof or supplement thereto or in
any Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through the Representative, as
representative of the Underwriters by or on behalf of such Underwriter,
specifically for use with reference to the Underwriter in the preparation of the
Registration Statement or any amendment thereof or supplement thereto or any
such Blue Sky Application or any such Preliminary Prospectus or the Prospectus
or any such amendment thereof or supplement thereto; and will reimburse the
Company, any such director or officer, or controlling person, for any legal or
other expenses reasonably incurred by the Company or any such director or
officer, or controlling person, in connection with investigating or defending
any such loss, claim, damage, liability or action. This indemnity agreement
will be in addition to any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 7, notify in writing the indemnifying party of the commencement thereof;
no indemnification shall be available to any party who shall fail to give notice
as provided in this Section 7(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the
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<PAGE>
failure to give such notice, but the omission so to notify such indemnifying
party of any such action, suit or proceeding shall not relieve it from any
liability that it may have to any indemnified party for contribution or
otherwise than under this section. In case any such action is brought
against any indemnified party, and the indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel who shall be to the reasonable satisfaction of
such indemnified party, and (notwithstanding subparagraphs (a) and (b) of
this Section 7) after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 7 for
any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation except as provided below. The indemnified party shall have the
right to employ its counsel in any such action, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized in
writing by the indemnifying parties, (ii) the indemnified party shall have
reasonably concluded that there may be a conflict of interest between the
indemnifying parties, or any of them, and the indemnified party in the
conduct of the defense of such action (in which case the indemnifying parties
shall not have the right to direct the defense of such action on behalf of
the indemnified party) or (iii) the indemnifying parties shall not have
employed counsel to assume the defense of such action within a reasonable
time after notice of the commencement thereof, in each of which cases the
fees and expenses of counsel shall be at the expense of the indemnifying
parties; provided, however, that the indemnifying parties shall not be liable
for the fees and expenses of more than one counsel for the indemnified
parties. Any such indemnifying party shall not be liable to any such
indemnified party on account of any settlement of any claim or action
effected by the indemnified party without the consent of such indemnifying
party.
8. CONTRIBUTION. In order to provide for just and equitable contribution
in circumstances in which indemnification provided for in Section 7 is
unavailable, each indemnifying party shall contribute to the aggregate losses,
claims, damages, expenses and liabilities to which the indemnified parties may
be subject in such proportion so that the several Underwriters are responsible
for that portion (the "UNDERWRITING PORTION") represented by the percentage that
the underwriting commissions appearing on the cover page of the Prospectus bear
to the public offering price (net of Underwriting Commissions) appearing thereon
and the Company is responsible for the remaining portion (the "RESIDUAL
PORTION"); provided, however, (i) that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation; and (ii) if such allocation is not permitted by applicable
law, then the relative fault of the Company, its directors, officers and
controlling persons, on the one hand, and the several Underwriters, and their
respective officers, directors and its controlling persons, on the other, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied
24
<PAGE>
by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
untrue statement or omission. The Company and the several Underwriters agree
that it would not be just and equitable if the respective obligations of the
Company on the one hand, and the Underwriters, on the other, to contribute
pursuant to this Section 8 were to be determined by pro rata or per capita
allocation of the aggregate damages (even if the Underwriters, and their
respective officers, directors and their respective controlling persons in
the aggregate were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable
considerations referred to in this Section 8. For purposes of this Section 8,
the term "DAMAGES" shall include any legal or other expense reasonably
incurred by the indemnified party in connection with investigating or
defending any action or claim that is the subject of the contribution
provisions of this Section 8. Notwithstanding the provisions of this Section
8, the several Underwriters, their respective officers, directors and its
controlling persons in the aggregate shall not be required to contribute any
amount in excess of the amount by which the total purchase price of the Units
purchased by it, directly or indirectly, from the Company pursuant to this
Agreement exceeds the amount of any damages that the several Underwriters,
their respective officers, directors and their respective controlling persons
in the aggregate have otherwise been required to pay by reason of such untrue
statement or omission. For purposes of this Section 8, each person, if any,
who controls any Underwriter within the meaning of the Act shall have the
same rights to contribution as such Underwriter, and each person, if any, who
controls the Company within the meaning of the Act, each officer who shall
have signed the Registration Statement and each director of the Company shall
have the same rights to contribution as the Company. Each party entitled to
contribution agrees that, upon the service of a summons or other initial
legal process upon it in any action instituted against it in respect of which
contribution may be sought, it will promptly give written notice of such
service to the party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall not
relieve the party from whom contribution may be sought from any obligation it
may have hereunder or otherwise. In case any such action, suit, or
proceeding is brought against any party, and such person so notifies a
contributing party of the commencement thereof, the contributing party will
be entitled to participate therein with the notifying party and any other
contributing party similarly notified.
9. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall fail or refuse (otherwise than for a reason sufficient to justify the
cancellation or termination of this Agreement under the provisions of Sections 5
or 6 hereof) to purchase and pay for the number of Units agreed to be purchased
by such Underwriter or Underwriters upon tender to the Representative of such
Units in accordance with the terms hereof, and the number of such Units shall
not exceed 10% of the total number of units to be purchased by the Underwriters
hereunder, then, each of the nondefaulting Underwriters shall purchase and pay
for (in addition to the number of Units which it has severally agreed to
purchase hereunder) that proportion of the number of Units which the defaulting
Underwriter or Underwriters shall have so failed or refused to purchase which
the number of Units agreed to be purchased by the nondefaulting Underwriter
bears to the aggregate number of Units so agreed to be purchased by all such
nondefaulting Underwriters. In such case, the Representative or the Company
shall have the right to postpone each Closing Date specified in Section 3 hereof
to a date not later than the seventh full business day after the date
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originally fixed as such Closing Date pursuant to said Section 3 in order
that any necessary changes in the Registration Statement, the Prospectus, or
any other documents or arrangements may be made.
If one or more of the Underwriters shall fail or refuse (otherwise than for
a reason sufficient to justify the cancellation or termination of this Agreement
under the provisions of Sections 5 or 6 hereof) to purchase and pay for the
number of Units agreed to be purchased by such Underwriter or Underwriters upon
tender to the Representative of such Units in accordance with the terms hereof
and the number of such Units shall exceed 10% of the total number of Units to be
purchased by the Underwriters, hereunder, then (unless within forty-eight hours
after such default arrangements to your satisfaction shall have been made for
the purchase of the defaulted Units by an Underwriter or Underwriters) this
Agreement shall terminate without liability on the part of any nondefaulting
Underwriter or on the part of the Company except as otherwise provided in
Sections 4(i), 7 and 8 hereof. As used in this Agreement, the term
"UNDERWRITER" includes any person substituted for an Underwriter under this
paragraph. Nothing in this Section 9, and no action taken hereunder, shall
relieve an defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. SURVIVAL OF INDEMNITIES, CONTRIBUTION, WARRANTIES AND REPRESENTATIONS.
The respective indemnity and contribution agreements of the Company and the
Underwriters contained in Sections 7 and 8 hereof, the representations,
warranties, and covenants of the Company contained in Sections 1 and 4 hereof
and the representations and warranties of the Underwriters contained in Section
15 hereof shall remain operative and in full force and effect, regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of any of the Underwriters or the Company or any of their respective
directors or officers, or any controlling person referred to in said Sections 7
and 8, and shall survive the delivery of, and payment for, the Units.
11. NOTICES. Except as otherwise expressly provided in this Agreement,
all notices and other communications hereunder shall be in writing and, if
given to the Underwriters, shall be mailed, delivered or telefaxed to R. J.
Steichen & Company, One Financial Plaza, 120 South Sixth Street, Minneapolis,
MN 55402, Attention: President, with a copy to Girard P. Miller, Doherty,
Rumble & Butler, Professional Association, 150 South Fifth Street, Suite
3500, Minneapolis, MN 55402, or if given to the Company, shall be mailed,
delivered or telefaxed to it at Buffalo Wild Wings, Inc., 600 South Highway
169, Suite 1919, Minneapolis, MN 55426, Attention: President, with a copy
to Melodie R. Rose, Fredrikson & Byron, P.A., 900 Second Avenue South, Suite
1100, Minneapolis, MN 55402.
12. UNDERWRITER'S WARRANT. Upon payment of a purchase price of $50 by the
Representative, the Company will issue and deliver to R. J. Steichen & Company,
for its account, Warrants to purchase Common Stock in an amount equal to 150,000
shares of Common Stock. Such Warrants shall be issued on the Closing Date and
shall be dated as of the Closing Date. Such Warrants shall be exercisable
commencing one (1) year after the Effective Date for a period of four years
thereafter at a price per share of $7.80. Such Warrant shall contain such terms
and
26
<PAGE>
conditions as contained in the form of Underwriter's Warrant attached hereto
and labeled Appendix A.
13. INFORMATION FURNISHED BY UNDERWRITERS. The statements relating to
stabilization activities of the Underwriters on the inside front cover of the
Preliminary Prospectus and the Prospectus, and under the caption "UNDERWRITING"
in any Preliminary Prospectus and in the Prospectus, and, to the extent the same
relate to you, in any Blue Sky application, constitute the written information
furnished by or on behalf of the Representative referred to in Section 1 hereof,
Section 5(d) hereof and in paragraphs (a) and (b) of Section 7 hereof.
14. PARTIES. This Agreement is made solely for the benefit of the several
Underwriters, the Company, any director, officer, or controlling person referred
to in Sections 7 and 8 hereof, and their respective personal representatives,
successors and assigns, and no other person shall acquire or have any right by
virtue of this Agreement. The term "personal representatives, successors and
assigns," as used in this Agreement, shall not include any purchaser of Units
(as such purchaser) from the Underwriters.
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE REPRESENTATIVE. The
Representative, on behalf of the several Underwriters, represents, warrants to
and agrees with the Company that:
(a) The Underwriters are corporations or partnerships duly formed and
validly existing in good standing under the laws of the jurisdiction in
which they are incorporated or formed.
(b) Each Underwriter is duly registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, and under the securities laws
of Minnesota and of such other states in which it intends to offer or sell
the Units, if such registration is required in any such other state, and is
a member in good standing of the National Association of Securities
Dealers, Inc., and no proceedings have been initiated or threatened to
suspend any such registration or membership.
(c) The execution, delivery and performance of this Agreement by the
Representative on behalf of the several Underwriters, and the consummation
of the transactions contemplated hereby, have been duly authorized by the
Underwriters, and at the time of its execution, performance, or
consummation, will not constitute or result in any breach or violation by
the Underwriters of any of the terms, provisions or conditions of, or
constitute a default under, any federal statute or regulation (including,
without limitation, the net capital requirements under Rule 15c-1 of the
Securities Exchange Act of 1934) or any statute or regulation of any state
in which any Underwriter intends to offer or sell the Units, or any order,
judgment, decree, rule or regulation of any court or governmental agency or
body having jurisdiction over the Underwriters or any of their activities
or property.
27
<PAGE>
(d) Each of the Underwriters will abide by the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. in making sales
within the United States, its territories and possessions, and will comply
with the requirements of the National Association of Securities Dealers,
Inc.'s interpretation with respect to free riding and withholding.
(e) The Units will be offered by the Underwriters only to persons
resident in such states as are designated pursuant to Section 4(c) hereof.
All of such persons shall be persons and entities for whom the purchase of
the Units is a suitable investment and the Underwriters shall employ or
engage no Selected Dealer, sales person, agent or representative in the
offer or sale of the Units, which Selected Dealer, sales person, agent or
representative is not properly registered and licensed for the purpose of
such offer or sale. All such registrations and licenses shall remain in
full force and effect until after the Closing Dates.
(f) The Representative, on behalf of the several Underwriters, agrees
that neither any Underwriter nor any officer or other person employed by
any Underwriter or any Selected Dealer will provide any information or make
any representations to offerees of the Units, other than such information
and representations as are either contained in the Prospectus or the
Registration Statement or are not inconsistent with information set forth
in the Prospectus or the Registration Statement.
(g) The Representative, on behalf of the several Underwriters, agrees
that in any event the Representative learns of any circumstances or fact
which it believes would make any Preliminary Prospectus, the Prospectus, or
the Registration Statement inaccurate or misleading in any material
respect, it will immediately bring such circumstances or facts to the
attention of the Company.
16. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Minnesota, without regard
to its choice of law provisions.
BUFFALO WILD WINGS, INC.
By
----------------------------------------
Its
----------------------------------
"COMPANY"
28
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written:
R. J. STEICHEN & COMPANY
By
----------------------------------
Authorized Officer
------------------------------------
Print Name
"REPRESENTATIVE OF THE SEVERAL UNDERWRITERS"
29
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF FIRM UNITS
UNDERWRITERS TO BE PURCHASED
------------ ---------------
<S> <C>
R.J. Steichen & Company . . . . . . . . . ________
_____________________ . . . . . . . . . . ________
_____________________ . . . . . . . . . . ________
_____________________ . . . . . . . . . . ________
TOTAL. . . . . . . . . . . . . . . . 1,500,000
---------
---------
</TABLE>
<PAGE>
APPENDIX A
COMMON STOCK PURCHASE WARRANT
(FORM OF)
<PAGE>
BUFFALO WILD WINGS, INC.
COMMON STOCK PURCHASE WARRANT
Buffalo Wild Wings, Inc., an Minnesota corporation (the "COMPANY"),
hereby agrees that, for value received, ________________________________, or
its assigns, is entitled, subject to the terms set forth below, to purchase
from the Company at any time or from time to time after ____________, 1999,
and before 4:30 p.m., Minneapolis, Minnesota time, on __________, 2003 One
Hundred Fifty Thousand (150,000) shares of the $.01 par value Common Stock of
the Company, at an exercise price of $7.80 per Share, subject to adjustment
as provided herein.
1. EXERCISE OF WARRANT. The purchase rights granted by this Warrant
shall be exercised (in minimum quantities of 100 shares) by the holder
surrendering this Warrant with the form of exercise attached hereto duly
executed by such holder, to the Company at its principal office, accompanied
by payment, in cash or by cashier's check payable to the order of the
Company, of the purchase price payable in respect of the Shares being
purchased. If less than all of the Shares purchasable hereunder is
purchased, the Company will, upon such exercise, execute and deliver to the
holder hereof a new Warrant (dated the date hereof) evidencing the number of
Shares not so purchased. As soon as practicable after the exercise of this
Warrant and payment of the purchase price, the Company will cause to be
issued in the name of and delivered to the holder hereof, or as such holder
may direct, a certificate or certificates representing the Shares purchased
upon such exercise. The Company may require that such certificate or
certificates contain on the face thereof a legend substantially as follows:
"The transfer of the shares represented by this certificate is
restricted pursuant to the terms of a Common Stock Purchase Warrant
dated , 1998, issued by Buffalo Wild Wings, Inc., a
copy of which is available for inspection at the offices of Buffalo
Wild Wings Discovery, Inc. Transfer may not be made except in
accordance with the terms of the Common Stock Purchase Warrant. In
addition, no sale, offer to sell or transfer of the shares represented
by this certificate shall be made unless a Registration Statement
under the Securities Act of 1933, as amended (the "ACT"), with respect
to such shares is then in effect or an exemption from the registration
requirements of the Act is then in fact applicable to such shares."
___________________________
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH AT
THE BOTTOM OF PAGE 8 HEREOF.
<PAGE>
2. NEGOTIABILITY AND TRANSFER. This Warrant is issued upon the following
terms, to which each holder hereof consents and agrees:
(a) Except where directed by a court of competent jurisdiction
pursuant to the dissolution or liquidation of a corporate holder
hereof, for the period ending one year from _________________ ,
1998, title to this Warrant may not be sold, transferred,
assigned or hypothecated, except that within such one-year period
title to this Warrant may be transferred only to R.J. Steichen &
Company (the "UNDERWRITER"), or to a person who is both an
officer and shareholder, or both an officer and employee, of the
Underwriter, or to a successor (or both an officer and
shareholder, or both an officer and employee) in interest to the
business of the Underwriter, by endorsement (by the holder hereof
executing the form of assignment attached hereto) and delivery in
the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery subject to the
requirements of Section 4 hereof.
(b) Until this Warrant is duly transferred on the books of the
Company, the Company may treat the registered holder of this
Warrant as absolute owner hereof for all purposes without being
affected by any notice to the contrary.
(c) Each successive holder of this Warrant, or of any portion of the
rights represented thereby, shall be bound by the terms and
conditions set forth herein.
3. ANTIDILUTION ADJUSTMENTS. If the Company shall at any time
hereafter subdivide or combine its outstanding shares of Common Stock, or
declare a dividend payable in Common Stock, the exercise price in effect
immediately prior to the subdivision, combination or record date for such
dividend payable in Common Stock shall forthwith be proportionately
increased, in the case of combination, or proportionately decreased, in the
case of subdivision or declaration of a dividend payable in Common Stock, and
the number of Shares purchasable upon exercise of this Warrant, immediately
preceding such event, shall be changed to the number determined by dividing
the then current exercise price by the exercise price as adjusted after such
subdivision, combination or dividend payable in Common Stock and against the
number of Shares purchasable upon the exercise of this Warrant immediately
preceding such event, so as to achieve an exercise price and number of Shares
purchasable after such event proportional to such exercise price and number
of Shares purchasable immediately preceding such event. No adjustment in
exercise price shall be required unless such adjustment would require an
increase or decrease of at least five cents ($0.05) in such price; PROVIDED,
HOWEVER, that any adjustments which are not required to be so made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations hereunder shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be.
2
<PAGE>
No fractional Shares are to be issued upon the exercise of the Warrant,
but the Company shall pay a cash adjustment in respect of any fraction of a
Share which would otherwise be issuable in an amount equal to the same
fraction of the market price per share of Common Stock on the day of exercise
as determined in good faith by the Company.
In case of any capital reorganization or any reclassification of the
Common Stock of the Company, or in the case of any consolidation with or
merger of the Company into or with another corporation, or the sale of all or
substantially all of its assets to another corporation, which is effected in
such a manner that the holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a part of such reorganization, reclassification, consolidation,
merger or sale, as the case may be, lawful provision shall be made so that
the holder of the Warrant shall have the right thereafter to receive, upon
the exercise hereof, the kind and amount of shares of stock or other
securities or property which the holder would have been entitled to receive
if, immediately prior to such reorganization, reclassification,
consolidation, merger or sale, the holder had held the number of Shares which
were then purchasable upon the exercise of the Warrant. In any such case,
appropriate adjustment (as determined in good faith by the Board of Directors
of the Company) shall be made in the application of the provisions set forth
herein with respect to the rights and interest thereafter of the holder of
the Warrant, to the end that the provisions set forth herein (including
provisions with respect to adjustments of the exercise price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exercise of
the Warrant.
When any adjustment is required to be made in the exercise price,
initial or adjusted, the Company shall forthwith determine the new exercise
price, and
(a) prepare and retain on file a statement describing in reasonable detail
the method used in arriving at the new exercise price; and
(b) cause a copy of such statement to be mailed to the holder of the
Warrant as of a date within ten (10) days after the date when the
circumstances giving rise to the adjustment occurred.
4. TRANSFER AND REGISTRATION RIGHTS. Prior to making any disposition
of the Warrant or of any Shares purchased upon exercise of the Warrant, the
holder will give written notice to the Company describing briefly the manner
of any such proposed disposition. The holder will not make any such
disposition until (i) the Company has notified him that, in the opinion of
its counsel, registration under the Act is not required with respect to such
disposition, or (ii) a Registration Statement covering the proposed
distribution has been filed by the Company and has become effective. The
Company agrees that, upon receipt of written notice from the holder hereof
with respect to such proposed distribution, it will use its best efforts, in
the consultation with the holder's counsel, to ascertain as promptly as
possible whether or not registration is required, and will advise the holder
promptly with respect thereto, and the holder will cooperate in providing the
Company with information necessary to make such determination.
3
<PAGE>
If, at any time prior to the expiration of seven (7) years from the date
hereof, the Company shall propose to file any Registration Statement (other
than any registration on Forms S-4, S-8 or any other similarly inappropriate
form or Registration Statement with respect to a public offering in which
there are no selling shareholders) under the Securities Act of 1933, as
amended, covering a public offering of the Company's securities, it will
notify the holder hereof at least thirty (30) days prior to each such filing
and will include in the Registration Statement (to the extent permitted by
applicable regulation), the shares purchased by the holder or purchasable by
the holder upon the exercise of the Warrant to the extent requested by the
holder hereof. Notwithstanding the foregoing, the number of shares of the
holders of the Warrants proposed to be registered thereby shall be reduced
pro rata with any other selling shareholder (other than the Company) upon the
reasonable request of the managing underwriter of such offering. If the
Registration Statement or Offering Statement filed pursuant to such thirty
(30) day notice has not become effective within six months following the date
such notice is given to the holder hereof, the Company must again notify such
holder in the manner provided above.
At any time prior to the expiration of five (5) years from the date
hereof, and provided that a registration statement on Form S-3 (or its
equivalent) is then available to the Company, and on a one-time basis only,
if the holders of 50% or more of the Warrants and/or the Shares acquired upon
exercise of the Warrants request the registration of the Shares on Form S-3
(or its equivalent), the Company shall promptly thereafter use its best
efforts to effect the registration under the Securities Act of 1933, as
amended, of all such shares which such holders request in writing to be so
registered, and in a manner corresponding to the methods of distribution
described in such holders' request.
All expenses of any such registrations referred to in this Section 4,
except the fees of counsel to and accountants for such holders and
underwriting commissions or discounts, filing fees, and any transfer or other
taxes applicable to such shares, shall be borne by the Company.
Upon effectiveness of a Registration Statement which includes Common
Stock purchased or purchasable upon the exercise of this Warrant in
accordance with a valid demand under this Section 4, the rights under this
Warrant of all holders to make another such demand shall terminate. Each
purchaser or transferee of a portion of this Warrant is responsible to
determine whether his or her demand rights under this paragraph have been
terminated by such an exercise. Any Warrants issued upon transfers
subsequent to such an exercise shall have all of the demand registration
provisions under this Section 4 deleted.
The Company will mail to each record holder, at the last known post
office address, written notice of any exercise of the rights granted under
this paragraph 4, by certified or registered mail, return receipt requested,
and each holder shall have twenty (20) days from the date of deposit of such
notice in the U.S. Mail to notify the Company in writing whether such holder
wishes to join in such exercise.
The Company will furnish the holder hereof with a reasonable number of
copies of any prospectus included in such filings and will amend or
supplement the same as required during the
4
<PAGE>
period of required use thereof. The Company will maintain, at its expense,
the effectiveness of any Registration Statement or the Offering Statement
filed by the Company, whether or not at the request of the holder hereof, for
at least six (6) months following the effective date thereof.
In the case of the filing of any Registration Statement, and to the
extent permissible under the Securities Act of 1933, as amended, and
controlling precedent thereunder, the Company and the holder hereof shall
provide cross indemnification agreements to each other in customary scope
covering the accuracy and completeness of the information furnished by each.
The holder of the Warrant agrees to cooperate with the Company in the
preparation and filing of any such Registration Statement or Offering
Statement, and in the furnishing of information concerning the holder for
inclusion therein, or in any efforts by the Company to establish that the
proposed sale is exempt under the Act as to any proposed distribution.
The Registration Rights described in this Section 4 shall terminate as
to any holder when all such holder's shares are eligible for resale under
Rule 144 (or successor rule) of the Securities Act.
5. RIGHT TO CONVERT.
(a) Provided the Company's Common Stock shall then be traded on an
exchange or quoted by NASDAQ or otherwise traded as described in
5(d) hereof, the holder of this Warrant shall have the right to
require the Company to convert this Warrant (the "CONVERSION
RIGHT"), at any time from ___________, 1999, and prior to its
expiration, into shares of Common Stock as provided for in this
Section 5. Upon exercise of the Conversion Right, the Company
shall deliver to the holder (without payment by the holder of any
exercise price) that number of shares of Common Stock equal to
the number of shares of Common Stock resulting from multiplying
the number of shares of Common Stock issuable to the holder upon
exercise of the Warrant (and desired to be converted) times the
quotient obtained by dividing (x) the value of the Warrant at the
time the Conversion Right is exercised (determined by subtracting
the exercise price for one Warrant Share in effect immediately
prior to the exercise of the Conversion Right from the Fair
Market Value (as determined below) for one Warrant Share
immediately prior to the exercise of the Conversion Right) by (y)
the Fair Market Value of one share of Common Stock immediately
prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time
or from time to time, prior to its expiration, on any business
day, by delivering a written notice (the "CONVERSION NOTICE") to
the Company at the offices of the Company exercising the
Conversion Right and specifying (i) the total number of shares of
Stock the Warrantholder will purchase pursuant to such
5
<PAGE>
conversion, and (ii) a place, and a date not less than five (5)
nor more than twenty (20) business days from the date of the
Conversion Notice for the closing of such purchase.
(c) At any closing under Section 5(b) hereof, (i) the holder will
surrender the Warrant, (ii) the Company will deliver to the
holder a certificate or certificates for the number of shares of
Common Stock issuable upon such conversion, together with cash,
in lieu of any fraction of a share, and (iii) the Company will
deliver to the holder a new Warrant representing the number of
shares, if any, with respect to which the Warrant shall not have
been exercised.
(d) "FAIR MARKET VALUE" of a share of Common Stock as of a particular
date (the "DETERMINATION DATE") shall mean:
(i) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") National
Market System, or The SmallCap Market, then the average
closing or last sale prices, respectively, reported for the
ten (10) business days immediately preceding the
Determination Date.
(ii) If the Company's Common Stock is not traded on an exchange
or on The NASDAQ National Market System, or The SmallCap
Market, but is traded in the over-the-counter market, then
the average of the closing bid and asked prices reported
for the ten (10) business days immediately preceding the
Determination Date.
(iii) If the Company's Common Stock is not publicly traded
and there has been a bona fide sale for cash on an
arm's-length basis within 10 days prior to the
Determination Date of such Common Stock by the Company
privately to one or more investors unaffiliated with
the Company (a "Qualifying Sale"), then the most recent
such sales price.
(iv) If the Company's Common Stock is not publicly traded and
there has been no Qualifying Sale, then the appraised fair
market value of such stock, as determined by mutual
agreement of the Company and the holder of the Warrant; or
if the parties cannot agree to such valuation, then each of
the Company and the holder shall select an arbitrator and
such arbitrators shall select a third, and such three
arbitrators shall determine (in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association, such expenses to be borne equally by the
parties) the fair market value
6
<PAGE>
(without any discount for lack of marketability or minority
interest) of a share of Common Stock of the Company.
6. NOTICES. The Company shall mail to the registered holder of the
Warrant, at his or her last known post office address appearing on the books
of the Company, not less than fifteen (15) days prior to the date on which
(a) a record will be taken for the purpose of determining the holders of
Common Stock entitled to dividends (other than cash dividends) or
subscription rights, or (b) a record will be taken (or in lieu thereof, the
transfer books will be closed) for the purpose of determining the holders of
common stock entitled to notice of and to vote at a meeting of shareholders
at which any capital reorganization, reclassification of common stock,
consolidation, merger, dissolution, liquidation, winding up or sale of
substantially all of the Company's assets shall be considered and acted upon.
7. RESERVATION OF COMMON STOCK. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant and the shares of
Common Stock included therein upon the basis herein set forth shall at all
times be reserved for the exercise thereof.
8. MISCELLANEOUS. Whenever reference is made herein to the issue or
sale of shares of Common Stock, the terms "COMMON STOCK" or "SHARES" shall
include any stock of any class of the Company other than preferred stock that
has a fixed limit on dividends and a fixed amount payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company.
The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act or deed, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Company, but will, at all times in
good faith, assist, insofar as it is able, in the carrying out of all
provisions hereof and in the taking of all other action which may be
necessary in order to protect the rights of the holder hereof against
dilution.
Upon written request of the holder of this Warrant, the Company will
promptly provide such holder with a then current written list of the names
and addresses of all holders of warrants originally issued under the terms
of, and concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. References to the "holder of" include
the immediate holder of shares purchased on the exercise of this Warrant, and
the word "holder" shall include the plural thereof. This Common Stock
Purchase Warrant shall be interpreted under the laws of the State of
Minnesota, without regard to its choice of law provisions.
All Shares or other securities issued upon the exercise of the Warrant
shall be validly issued, fully paid and non-assessable, and the Company will
pay all taxes in respect of the issuer thereof.
7
<PAGE>
Notwithstanding anything contained herein to the contrary, the holder of
this Warrant shall not be deemed a stockholder of the Company for any purpose
whatsoever until and unless this Warrant is duly exercised.
IN WITNESS WHEREOF, this Warrant has been duly executed by Buffalo Wild
Wings, Inc., this _____ day of ___________________ , 1998.
BUFFALO WILD WINGS, INC.
By
-----------------------------------
Its
----------------------------
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAW. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED
FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE
COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
8
<PAGE>
WARRANT EXERCISE FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ____________ shares of Common Stock of Buffalo Wild
Wings, Inc. to which such Warrant relates and herewith makes payment of
$_______ therefor in cash or by certified check, and requests that
such shares be issued and be delivered to, _________________________ , the
address for which is set forth below the signature of the undersigned.
Dated:
------------------------
- ------------------------------ ---------------------------------
(Taxpayer's I.D. Number) Signature)
---------------------------------
(Address)
---------------------------------
___________________________
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto ________________________ the right to purchase shares of Common Stock of
Buffalo Wild Wings, Inc. to which the within Warrant relates and appoints
________________________ , attorney, to transfer said right on the books of
Buffalo Wild Wings, Inc. with full power of substitution in the premises.
Dated:
-----------------------
---------------------------------
(Signature)
---------------------------------
(Address)
---------------------------------
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant pursuant to Section 5)
The undersigned hereby irrevocably elects a cashless exercise of the
right of purchase represented by the within Common Stock Purchase Warrant
for, and to purchase thereunder, ______________________ shares of Common
Stock, as provided for in Section 5 therein.
If said number of shares shall not be all the shares purchasable under
the within Common Stock Purchase Warrant, a new Warrant is to be issued in
the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional shares to:
NAME
--------------------------------------------------------------------
(PLEASE PRINT NAME)
ADDRESS
--------------------------------------------------------------------
--------------------------------------------------------------------
SOCIAL SECURITY NO.
---------------------------------------------------------
SIGNATURE
--------------------------------------------------------------------
NOTE: The above signature should correspond exactly with the
name on the first page of this Common Stock Purchase Warrant or
with the name of the assignee appearing in the assignment form on
the preceding page.
<PAGE>
ARTICLES OF AMENDMENT AND
RESTATED ARTICLES OF INCORPORATION
OF
BUFFALO WILD WINGS, INC.
The undersigned hereby certifies that Restated Articles of Incorporation of
Buffalo Wild Wings, Inc., in the form attached hereto as Exhibit A, were duly
adopted pursuant to Minnesota Statutes chapter 302A.
I swear that the foregoing is true and accurate and that I have the
authority to sign this document on behalf of the corporation.
Dated: June 1, 1998 /s/ Sally J. Smith
-----------------------------------
Sally J. Smith, President
<PAGE>
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
BUFFALO WILD WINGS, INC.
ARTICLE 1 - NAME
1.1) The name of the corporation shall be Buffalo Wild Wings, Inc.
ARTICLE 2 - REGISTERED OFFICE
2.1) The registered office of the corporation is located at 1919
Interchange Tower, 600 South Highway 169, Minneapolis, Minnesota 55426.
ARTICLE 3 - CAPITAL STOCK
3.1) AUTHORIZED SHARES. The aggregate number of shares the corporation
has authority to issue shall be 20,000,000 shares, which shall have a par value
of $.01 per share solely for the purpose of a statute or regulation imposing a
tax or fee based upon the capitalization of the corporation, and which shall
consist of 15,000,000 shares of Common Stock and 5,000,000 shares of
Undesignated Stock. The Board of Directors of the corporation is authorized to
establish from the Undesignated Stock, by resolution adopted and filed in the
manner provided by law, one or more classes or series of shares, to designate
each such class or series (which may include but is not limited to designation
as additional Common Stock), and to fix the relative rights and preferences of
each such class or series.
3.2) ISSUANCE OF SHARES. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell and
deliver shares of any class or series of the corporation to such persons, at
such times and upon such terms and conditions as the Board shall determine,
establishing a price in money or other consideration, or a minimum price, or a
general formula or method by which the price will be determined.
3.3) ISSUANCE OF RIGHTS TO PURCHASE SHARES. The Board of Directors is
further authorized from time to time to grant and issue rights to subscribe for,
purchase, exchange securities for, or convert securities into, shares of the
corporation of any class or series, and to fix the terms, provisions and
conditions of such rights, including the exchange or conversion basis or the
price at which such shares may be purchased or subscribed for.
<PAGE>
ARTICLE 4 - RIGHTS OF SHAREHOLDERS
4.1) NO PREEMPTIVE RIGHTS. No shares of any class or series of the
corporation shall entitle the holders to any preemptive rights to subscribe for
or purchase additional shares of that class or series or any other class or
series of the corporation now or hereafter authorized or issued.
4.2) NO CUMULATIVE VOTING RIGHTS. There shall be no cumulative voting by
the shareholders of the corporation.
ARTICLE 5 - DIRECTORS
5.1) WRITTEN ACTION BY DIRECTORS. Any action required or permitted to be
taken at a Board meeting may be taken by written action signed by all of the
directors.
ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS, AND DISSOLUTION
6.1) Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all shares
entitled to vote shall be required to authorize the corporation (i) to merge
into or with one or more other corporations, (ii) to exchange its shares for
shares of one or more other corporations, (iii) to sell, lease, transfer or
otherwise dispose of all or substantially all of its property and assets,
including its good will, or (iv) to commence voluntary dissolution.
ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION
7.1) After the issuance of shares by the corporation, any provision
contained in these Articles of Incorporation may be amended, altered, changed or
repealed by the affirmative vote of the holders of at least a majority of the
voting power of all shares entitled to vote or such greater percentage as may be
otherwise prescribed by the laws of the State of Minnesota.
ARTICLE 8 - LIMITATION OF DIRECTOR LIABILITY
8.1) To the fullest extent permitted by Chapter 302A, Minnesota Statutes,
as the same exists or may hereafter be amended, a director of this corporation
shall not be personally liable to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director.
<PAGE>
FORM OF
ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
BUFFALO WILD WINGS, INC.
(to be effective upon closing of the offering)
Pursuant to the provisions of Minnesota Statutes, Section 302A.135, the
following amendment to the Restated Articles of Incorporation of Buffalo Wild
Wings, Inc. was duly adopted at a meeting of the shareholders of the corporation
on May 21, 1998:
Section 7.1 of Article 7 was amended and restated in its entirety to read
as follows:
"7.1) After the issuance of shares by the corporation, any
provision contained in these Articles of Incorporation may be
amended, altered, changed or repealed by the affirmative vote of the
holders of at least a majority of the voting power of the shares
present and entitled to vote at a duly held meeting or such greater
percentage as may be otherwise prescribed by the laws of the State
of Minnesota."
The undersigned swears that the foregoing is true and accurate and that the
undersigned has the authority to sign this document on behalf of the
corporation.
Dated: , 1998 BUFFALO WILD WINGS, INC.
-----------------
By:
------------------------------------------
Sally J. Smith
President and Chief Executive Officer
<PAGE>
RESTATED BYLAWS
OF
BUFFALO WILD WINGS, INC.
ARTICLE 1.
OFFICES
1.1) OFFICES. The address of the registered office of the corporation
shall be designated in the Articles of Incorporation, as amended from time to
time. The principal executive office of the corporation shall initially be
located at 1919 Interchange Tower, 600 South Highway 169, Minneapolis, Minnesota
55426, and the corporation may have offices at such other places within or
without the State of Minnesota as the Board of Directors shall from time to time
determine or the business of the corporation requires.
ARTICLE 2.
MEETINGS OF SHAREHOLDERS
2.1) REGULAR MEETINGS. Regular meetings of the shareholders of the
corporation entitled to vote shall be held on an annual or other less frequent
basis as shall be determined by the Board of Directors or by the chief executive
officer; provided, that if a regular meeting has not been held during the
immediately preceding 15 months, a shareholder or shareholders holding three
percent or more of the voting power of all shares entitled to vote may demand a
regular meeting of shareholders by written notice of demand given to the chief
executive officer or chief financial officer of the corporation. At each
regular meeting, the shareholders, voting as provided in the Articles of
Incorporation and these Bylaws, shall elect qualified successors for directors
who serve for an indefinite term or for directors whose terms have expired or
are due to expire within six months after the date of the meeting, and shall
transact such other business as shall come before the meeting. No meeting shall
be considered a regular meeting unless specifically designated as such in the
notice of meeting or unless all the shareholders entitled to vote are present in
person or by proxy and none of them objects to such designation.
2.2) SPECIAL MEETINGS. Special meetings of the shareholders entitled to
vote may be called at any time by the Chairman of the Board, the chief executive
officer, the chief financial officer, two or more directors, or a shareholder or
shareholders holding 10 percent or more of the voting power of all shares
entitled to vote who shall demand such special meeting by giving written notice
of demand to the chief executive officer or the chief financial officer
specifying the purposes of the meeting.
2.3) MEETINGS HELD UPON SHAREHOLDER DEMAND. Within 30 days after receipt
by the chief executive officer or the chief financial officer of a demand from
any shareholder or shareholders entitled to call a regular or special meeting of
shareholders, the Board of Directors shall cause such meeting to be called and
held on notice no later than 90 days after receipt of such demand. If the Board
of Directors fails to cause such a meeting to be called and held, the
shareholder or shareholders making the demand may call the meeting by giving
notice as provided in Section 2.5 hereof at the expense of the corporation.
2.4) PLACE OF MEETINGS. Meetings of the shareholders shall be held at
the principal executive office of the corporation or at such other place, within
or without the State of Minnesota, as is designated by the Board of Directors,
or if not so designated then as shall be specified in the respective notices or
waivers of notice of such meetings, except that a regular meeting called by or
at the demand of a shareholder shall be held in the county where the principal
executive office of the corporation is located.
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2.5) NOTICE OF MEETINGS. Except as otherwise specified in Section 2.6 or
required by law, a written notice setting out the place, date and hour of any
regular or special meeting shall be given to each holder of shares entitled to
vote not less than seven days nor more than 60 days prior to the date of the
meeting; provided, that notice of a meeting at which there is to be considered a
proposal (i) to dispose of all, or substantially all, of the property and assets
of the corporation or (ii) to dissolve the corporation shall be given to all
shareholders of record, whether or not entitled to vote; and provided further,
that notice of a meeting at which there is to be considered a proposal to adopt
a plan of merger or exchange shall be given to all shareholders of record,
whether or not entitled to vote, at least 14 days prior thereto. Notice of any
special meeting shall state the purpose or purposes of the proposed meeting, and
the business transacted at all special meetings shall be confined to the
purposes stated in the notice.
2.6) WAIVER OF NOTICE. A shareholder may waive notice of any meeting
before, at or after the meeting, in writing, orally or by attendance.
Attendance at a meeting by a shareholder is a waiver of notice of that meeting
unless the shareholder objects at the beginning of the meeting to the
transaction of business because the meeting is not lawfully called or convened,
or objects before a vote on an item of business because the item may not be
lawfully considered at such meeting and does not participate in the
consideration of the item at such meeting.
2.7) QUORUM AND ADJOURNED MEETING. The holders of a majority of the
voting power of the shares entitled to vote at a meeting, represented either in
person or by proxy, shall constitute a quorum for the transaction of business at
any regular or special meeting of shareholders. If a quorum is present when a
duly called or held meeting is convened, the shareholders present may continue
to transact business until adjournment, even though the withdrawal of a number
of shareholders originally present leaves less than the proportion or number
otherwise required for a quorum. In case a quorum is not present at any
meeting, those present shall have the power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until the requisite
number of shares entitled to vote shall be represented. At such adjourned
meeting at which the required amount of shares entitled to vote shall be
represented, any business may be transacted which might have been transacted at
the original meeting.
2.8) VOTING. At each meeting of the shareholders, every shareholder
having the right to vote shall be entitled to vote in person or by proxy duly
appointed by an instrument in writing subscribed by such shareholder. Each
shareholder shall have one vote for each share having voting power standing in
each shareholder's name on the books of the corporation except as may be
otherwise provided in the terms of the share. Upon the demand of any
shareholder, the vote for directors or the vote upon any question before the
meeting shall be by ballot. All elections shall be determined and all questions
decided by a majority vote of the number of shares entitled to vote and
represented at any meeting at which there is a quorum except in such cases as
shall otherwise be required by statute or the Articles of Incorporation.
2.9) ORDER OF BUSINESS. The suggested order of business at any regular
meeting and, to the extent appropriate, at all other meetings of the
shareholders shall, unless modified by the presiding chairman, be:
(a) Call of roll
(b) Proof of due notice of meeting or waiver of notice
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Reports of officers and committees
(f) Election of directors
(g) Unfinished business
(h) New business
(i) Adjournment.
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ARTICLE 3.
DIRECTORS
3.1) GENERAL POWERS. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors.
3.2) NUMBER, TERM AND QUALIFICATIONS. The Board of Directors shall
consist of one or more members. At each regular meeting, the shareholders shall
determine the number of directors; provided, that between regular meetings the
authorized number of directors may be increased or decreased by the shareholders
or increased by the Board of Directors. Each director shall serve for an
indefinite term that expires at the next regular meeting of shareholders, and
until his or her successor is elected and qualified, or until his or her earlier
death, resignation, disqualification or removal as provided by statute.
3.3) VACANCIES. Vacancies on the Board of Directors may be filled by the
affirmative vote of a majority of the remaining members of the Board, though
less than a quorum; provided, that newly created directorships resulting from an
increase in the authorized number of directors shall be filled by the
affirmative vote of a majority of the directors serving at the time of such
increase. Persons so elected shall be directors until their successors are
elected by the shareholders, who may make such election at the next regular or
special meeting of the shareholders.
3.4) QUORUM AND VOTING. A majority of the directors currently holding
office shall constitute a quorum for the transaction of business. In the
absence of a quorum, a majority of the directors present may adjourn a meeting
from time to time until a quorum is present. If a quorum is present when a duly
called or held meeting is convened, the directors present may continue to
transact business until adjournment even though the withdrawal of a number of
directors originally present leaves less than the proportion or number otherwise
required for a quorum. Except as otherwise required by law or the Articles of
Incorporation, the acts of a majority of the directors present at a meeting at
which a quorum is present shall be the acts of the Board of Directors.
3.5) BOARD MEETINGS; PLACE AND NOTICE. Meetings of the Board of
Directors may be held from time to time at any place within or without the State
of Minnesota that the Board of Directors may designate. In the absence of
designation by the Board of Directors, Board meetings shall be held at the
principal executive office of the corporation, except as may be otherwise
unanimously agreed orally, or in writing, or by attendance. Any director may
call a Board meeting by giving two days' notice to all directors of the date and
time of the meeting. The notice need not state the purpose of the meeting, and
may be given by mail, telephone, telegram, or in person. If a meeting schedule
is adopted by the Board, or if the date and time of a Board meeting has been
announced at a previous meeting, no notice is required.
3.6) WAIVER OF NOTICE. A director may waive notice of any meeting
before, at or after the meeting, in writing, orally or by attendance.
Attendance at a meeting by a director is a waiver of notice of that meeting
unless the director objects at the beginning of the meeting to the transaction
of business because the meeting is not lawfully called or convened and does not
participate thereafter in the meeting.
3.7) ABSENT DIRECTORS. A director may give advance written consent or
opposition to a proposal to be acted on at a Board meeting. If the director is
not present at the meeting, consent or opposition to a proposal does not
constitute presence for purposes of determining the existence of a quorum, but
consent or opposition shall be counted as a vote in favor of or against the
proposal and shall be entered in the minutes of the meeting, if the proposal
acted on at the meeting is
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substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
3.8) COMPENSATION. Directors who are not salaried officers of the
corporation shall receive such fixed sum and expenses per meeting attended or
such fixed annual sum or both as shall be determined from time to time by
resolution of the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving this corporation in any other
capacity and receiving proper compensation therefor.
3.9) COMMITTEES. The Board of Directors may, by resolution approved by
affirmative vote of a majority of the Board, establish committees having the
authority of the Board in the management of the business of the corporation only
to the extent provided in the resolution. Committees may include a special
litigation committee consisting of one or more independent directors or other
independent persons to consider legal rights or remedies of the corporation and
whether those rights and remedies should be pursued. Each such committee shall
consist of one or more natural persons (who need not be directors) appointed by
the affirmative vote of a majority of the directors present, and shall, other
than special litigation committees, be subject at all times to the direction and
control of the Board. A majority of the members of a committee present at a
meeting shall constitute a quorum for the transaction of business.
3.10) ORDER OF BUSINESS. The suggested order of business at any meeting
of the Board of Directors shall, to the extent appropriate and unless modified
by the presiding chairman, be:
(a) Roll call
(b) Proof of due notice of meeting or waiver of notice, or unanimous
presence and declaration by presiding chairman
(c) Determination of existence of quorum
(d) Reading and disposal of any unapproved minutes
(e) Reports of officers and committees
(f) Election of officers
(g) Unfinished business
(h) New business
(i) Adjournment.
ARTICLE 4.
OFFICERS
4.1) NUMBER AND DESIGNATION. The corporation shall have one or more
natural persons exercising the functions of the offices of chief executive
officer and chief financial officer. The Board of Directors may elect or
appoint such other officers or agents as it deems necessary for the operation
and management of the corporation including, but not limited to, a Chairman of
the Board, a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall have the powers, rights, duties and
responsibilities set forth in these Bylaws unless otherwise determined by the
Board. Any of the offices or functions of those offices may be held by the same
person.
4.2) ELECTION, TERM OF OFFICE AND QUALIFICATION. At the first meeting of
the Board following each election of directors, the Board shall elect officers,
who shall hold office until the next election of officers or until their
successors are elected or appointed and qualify; provided, however, that any
officer may be removed with or without cause by the affirmative vote of a
majority of the Board of Directors present (without prejudice, however, to any
contract rights of such officer).
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4.3) RESIGNATION. Any officer may resign at any time by giving written
notice to the corporation. The resignation is effective when notice is given to
the corporation, unless a later date is specified in the notice, and acceptance
of the resignation shall not be necessary to make it effective.
4.4) VACANCIES IN OFFICE. If there be a vacancy in any office of the
corporation, by reason of death, resignation, removal or otherwise, such vacancy
may, or in the case of a vacancy in the office of chief executive officer or
chief financial officer shall, be filled for the unexpired term by the Board of
Directors.
4.5) CHIEF EXECUTIVE OFFICER. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief executive officer (a) shall have
general active management of the business of the corporation; (b) shall, when
present and in the absence of the Chairman of the Board, preside at all meetings
of the shareholders and Board of Directors; (c) shall see that all orders and
resolutions of the Board are carried into effect; (d) shall sign and deliver in
the name of the corporation any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the corporation, except in cases in
which the authority to sign and deliver is required by law to be exercised by
another person or is expressly delegated by the Articles, these Bylaws or the
Board to some other officer or agent of the corporation; (e) may maintain
records of and certify proceedings of the Board and shareholders; and (f) shall
perform such other duties as may from time to time be assigned to the chief
executive officer by the Board.
4.6) CHIEF FINANCIAL OFFICER. Unless provided otherwise by a resolution
adopted by the Board of Directors, the chief financial officer (a) shall keep
accurate financial records for the corporation; (b) shall deposit all monies,
drafts and checks in the name of and to the credit of the corporation in such
banks and depositories as the Board of Directors shall designate from time to
time; (c) shall endorse for deposit all notes, checks and drafts received by the
corporation as ordered by the Board, making proper vouchers therefor; (d) shall
disburse corporate funds and issue checks and drafts in the name of the
corporation, as ordered by the Board; (e) shall render to the chief executive
officer and the Board of Directors, whenever requested, an account of all
transactions undertaken as chief financial officer and of the financial
condition of the corporation; and (f) shall perform such other duties as may be
prescribed by the Board of Directors or the chief executive officer from time to
time.
4.7) CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board and shall exercise general
supervision and direction over the more significant matters of policy affecting
the affairs of the corporation, including particularly its financial and fiscal
affairs.
4.8) PRESIDENT. Unless otherwise determined by the Board, the President
shall be the chief executive officer. If an officer other than the President is
designated chief executive officer, the President shall perform such duties as
may from time to time be assigned to the President by the Board. If the office
of Chairman of the Board is not filled, the President shall also perform the
duties set forth in Section 4.7.
4.9) VICE PRESIDENT. Each Vice President shall have such powers and
shall perform such duties as may be specified in these Bylaws or prescribed by
the Board of Directors. In the event of absence or disability of the President,
the Board of Directors may designate a Vice President or Vice Presidents to
succeed to the power and duties of the President.
4.10) SECRETARY. The Secretary shall, unless otherwise determined by the
Board, be secretary of and attend all meetings of the shareholders and Board of
Directors, and may record the proceedings of such meetings in the minute book of
the corporation and, whenever necessary, certify such proceedings. The
Secretary shall give proper notice of meetings of shareholders and
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shall perform such other duties as may be prescribed by the Board of Directors
or the chief executive officer from time to time.
4.11) TREASURER. Unless otherwise determined by the Board, the Treasurer
shall be the chief financial officer of the corporation. If an officer other
than the Treasurer is designated chief financial officer, the Treasurer shall
perform such duties as may be prescribed by the Board of Directors or the chief
executive officer from time to time.
4.12) DELEGATION. Unless prohibited by a resolution approved by the
affirmative vote of a majority of the directors present, an officer elected or
appointed by the Board may delegate in writing some or all of the duties and
powers of such officer to other persons.
ARTICLE 5.
INDEMNIFICATION
5.1) INDEMNIFICATION. The corporation shall indemnify such persons, for
such expenses and liabilities, in such manner, under such circumstances, and to
such extent, as permitted by Minnesota Statutes, Section 302A.521, as now
enacted or hereafter amended.
ARTICLE 6.
SHARES AND THEIR TRANSFER
6.1) CERTIFICATE OF STOCK. Every owner of stock of the corporation shall
be entitled to a certificate, in such form as the Board of Directors may
prescribe, certifying the number of shares of stock of the corporation owned by
such shareholder. The certificates for such stock shall be numbered (separately
for each class) in the order in which they are issued and shall, unless
otherwise determined by the Board, be signed by the chief executive officer, the
chief financial officer, or any other officer of the corporation. A signature
upon a certificate may be a facsimile. Certificates on which a facsimile
signature of a former officer, transfer agent or registrar appears may be issued
with the same effect as if such person were such officer, transfer agent or
registrar on the date of issue.
6.2) STOCK RECORD. As used in these Bylaws, the term "shareholder" shall
mean the person, firm or corporation in whose name outstanding shares of capital
stock of the corporation are currently registered on the stock record books of
the corporation. The corporation shall keep, at its principal executive office
or at another place or places within the United States determined by the Board,
a share register not more than one year old containing the names and addresses
of the shareholders and the number and classes of shares held by each
shareholder. The corporation shall also keep at its principal executive office
or at another place or places within the United States determined by the Board,
a record of the dates on which certificates representing shares were issued.
Every certificate surrendered to the corporation for exchange or transfer shall
be cancelled and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
cancelled (except as provided for in Section 6.4 of this Article 6).
6.3) TRANSFER OF SHARES. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate
(or the shareholder's legal representative or duly authorized attorney-in-fact)
and upon surrender for cancellation of the certificate or certificates for such
shares. The shareholder in whose name shares of stock stand on the books of the
corporation shall be deemed the owner thereof for all purposes as regards the
corporation; provided, that when any transfer of shares shall be made as
collateral security and not absolutely, such fact, if known to the corporation
or to the transfer agent, shall be so expressed in the entry of
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transfer; and provided, further, that the Board of Directors may establish a
procedure whereby a shareholder may certify that all or a portion of the shares
registered in the name of the shareholder are held for the account of one or
more beneficial owners.
6.4) LOST CERTIFICATE. Any shareholder claiming a certificate of stock
to be lost or destroyed shall make an affidavit or affirmation of that fact in
such form as the Board of Directors may require, and shall, if the directors so
require, give the corporation a bond of indemnity in form and with one or more
sureties satisfactory to the Board of at least double the value, as determined
by the Board, of the stock represented by such certificate in order to indemnify
the corporation against any claim that may be made against it on account of the
alleged loss or destruction of such certificate, whereupon a new certificate may
be issued in the same tenor and for the same number of shares as the one alleged
to have been destroyed or lost.
ARTICLE 7.
GENERAL PROVISIONS
7.1) RECORD DATES. In order to determine the shareholders entitled to
notice of and to vote at a meeting, or entitled to receive payment of a dividend
or other distribution, the Board of Directors may fix a record date which shall
not be more than 60 days preceding the date of such meeting or distribution. In
the absence of action by the Board, the record date for determining shareholders
entitled to notice of and to vote at a meeting shall be at the close of business
on the day preceding the day on which notice is given, and the record date for
determining shareholders entitled to receive a distribution shall be at the
close of business on the day on which the Board of Directors authorizes such
distribution.
7.2) DISTRIBUTIONS; ACQUISITIONS OF SHARES. Subject to the provisions of
law, the Board of Directors may authorize the acquisition of the corporation's
shares and may authorize distributions whenever and in such amounts as, in its
opinion, the condition of the affairs of the corporation shall render it
advisable.
7.3) FISCAL YEAR. The fiscal year of the corporation shall be
established by the Board of Directors.
7.4) SEAL. The corporation shall have such corporate seal or no
corporate seal as the Board of Directors shall from time to time determine.
7.5) SECURITIES OF OTHER CORPORATIONS.
(a) VOTING SECURITIES HELD BY THE CORPORATION. Unless otherwise ordered
by the Board of Directors, the chief executive officer shall have full
power and authority on behalf of the corporation (i) to attend and to vote
at any meeting of security holders of other companies in which the
corporation may hold securities; (ii) to execute any proxy for such meeting
on behalf of the corporation; and (iii) to execute a written action in lieu
of a meeting of such other company on behalf of this corporation. At such
meeting, by such proxy or by such writing in lieu of meeting, the chief
executive officer shall possess and may exercise any and all rights and
powers incident to the ownership of such securities that the corporation
might have possessed and exercised if it had been present. The Board of
Directors may from time to time confer like powers upon any other person or
persons.
(b) PURCHASE AND SALE OF SECURITIES. Unless otherwise ordered by the
Board of Directors, the chief executive officer shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or
encumber securities of any other company owned by the corporation which
represent not more than 10 percent of the outstanding securities of
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such issue, and may execute and deliver such documents as may be necessary
to effectuate such purchase, sale, transfer or encumbrance. The Board of
Directors may from time to time confer like powers upon any other person or
persons.
7.6) SHAREHOLDER AGREEMENTS. In the event of any conflict or
inconsistency between these Bylaws, or any amendment thereto, and any
shareholder control agreement as defined in Minnesota Statutes, Section
302A.457, whenever adopted, such shareholder control agreement shall govern.
ARTICLE 8.
MEETINGS
8.1) TELEPHONE MEETINGS AND PARTICIPATION. A conference among
shareholders or directors or committee members by any means of communication
through which the participants may simultaneously hear each other during the
conference constitutes a shareholder, Board or Committee meeting, respectively,
if the same notice is given of the conference as would be required for such
meeting, and if the number of participants in the conference would be sufficient
to constitute a quorum at such meeting. Participation in a meeting by that
means constitutes presence in person at the meeting. A shareholder, director or
committee member may participate in a meeting not heretofore described in this
paragraph, by any means of communication through which such shareholder,
director or committee member and others participating by similar means of
communication, and all participants physically present at the meeting, may
simultaneously hear each other during the meeting. Participation in a meeting
by that means constitutes presence in person at the meeting.
8.2) AUTHORIZATION WITHOUT MEETING. Any action of the shareholders, the
Board of Directors, or any committee of the corporation which may be taken at a
meeting thereof, may be taken without a meeting if authorized by a writing
signed by all of the holders of shares who would be entitled to vote on such
action, by all of the directors (unless less than unanimous action is permitted
by the Articles of Incorporation), or by all of the members of such committee,
as the case may be.
ARTICLE 9.
AMENDMENTS OF BYLAWS
9.1) AMENDMENTS. Unless the Articles of Incorporation provide otherwise,
these Bylaws may be altered, amended, added to or repealed by the affirmative
vote of a majority of the members of the Board of Directors. Such authority in
the Board of Directors is subject to the power of the shareholders to change or
repeal such Bylaws, and the Board of Directors shall not make or alter any
Bylaws fixing a quorum for meetings of shareholders, prescribing procedures for
removing directors or filling vacancies on the Board, or fixing the number of
directors or their classifications, qualifications or terms of office, but the
Board may adopt or amend a Bylaw to increase the number of directors.
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The undersigned, Mary J. Twinem, Secretary of Buffalo Wild Wings, Inc.,
hereby certifies that the foregoing Restated Bylaws were duly adopted as the
Bylaws of the corporation by its Board of Directors as of June 1, 1998.
/s/ Mary J. Twinem
------------------------------------
Mary J. Twinem, Secretary
Attest:
/s/ Sally J. Smith
- -------------------------------
Sally J. Smith, President
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FORM OF WARRANT AGREEMENT
PARTIES:
Buffalo Wild Wings, Inc. ("Company")
1919 Interchange Tower
600 South Highway 169
Minneapolis, MN 55426
Norwest Bank Minnesota, N.A. ("Warrant Agent")
Shareholder Services
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
DATE:________________, 1998
RECITALS:
A. The Company proposes to issue up to 1,725,000 Common Stock Purchase
Warrants (the "Warrants") evidencing the right to purchase an aggregate of up to
1,725,000 authorized but previously unissued shares of Common Stock, no par
value, of the Company (the "Common Stock"). The Warrants would be issued in
connection with the issuance by the Company of up to 1,725,000 Units, each Unit
consisting of one share of Common Stock and one Warrant to purchase one share of
Common Stock, in connection with the Company's Registration Statement on Form
SB-2.
B. The Company desires the Warrant Agent to act on behalf of the Company,
and the Warrant Agent desires so to act, in connection with the issuance,
registration, transfer, exchange and exercise of the Warrants.
AGREEMENT:
The Company and the Warrant Agent, each intending to be legally bound,
hereby covenant and agree as follows:
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ARTICLE I.
APPOINTMENT OF WARRANT AGENT; ISSUANCE,
FORM AND EXECUTION OF WARRANT CERTIFICATES
SECTION 1.1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints
the Warrant Agent to act as agent for the Company, and the Warrant Agent hereby
accepts the agency established herein and agrees to perform its agency duties in
accordance with the terms and conditions of this Warrant Agreement.
SECTION 1.2. WARRANT CERTIFICATES. The Company shall execute and deliver
to the Warrant Agent certificates which the Company has authorized to represent
the Warrants ("Warrant Certificates"). The Warrant Certificates shall be
substantially as set forth in Exhibit A hereto and may have such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of
this Warrant Agreement, or as may be required to comply with any law or with any
rule or regulation relating to the listing of the Warrants on the Nasdaq
National Market, the Nasdaq SmallCap Market or any stock exchange or
over-the-counter market, or to conform to usage. The Warrant Certificates shall
be dated with the date of their issuance.
SECTION 1.3 EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be executed on behalf of the Company by a duly authorized officer of the
Company, either manually or by facsimile signature printed thereon. The Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. Any Warrant Certificate may
be signed on behalf of the Company by the person who at the actual date of the
signing of such Warrant Certificate shall have been the proper officer of the
Company, although at the date of issuance of such Warrant Certificate any such
person shall not be such officer of the Company.
ARTICLE II.
EXERCISE OF WARRANTS
SECTION 2.1. EXERCISE. Any or all of the Warrants represented by each
Warrant Certificate may be exercised by the holder thereof on or before _______
p.m., Minneapolis time, on ________________, 2002, by surrender of the Warrant
Certificate with the Exercise Form (which is printed on the reverse thereof) or
a reasonable facsimile thereof duly executed by such holder, to the Warrant
Agent at its principal office in Minneapolis, Minnesota, accompanied by payment,
in cash or by certified or official bank check payable to the order of the
Company, in an amount equal to the product of the number of shares of Common
Stock issuable upon exercise of the Warrant represented by such Warrant
Certificate, as adjusted pursuant to the provisions of Article III hereof,
multiplied by the exercise price of $8.00, as adjusted pursuant to the
provisions of Article III hereof (such price as so adjusted from time to time
being herein called the "Exercise Price"), and such holder shall be entitled to
receive such number of fully paid and nonassessable shares of Common Stock, as
so adjusted, at the time of such exercise.
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SECTION 2.2. TIME OF EXERCISE. Each exercise of Warrants shall be
deemed to have been effective immediately prior to the close of business on the
business day on which the Warrant Certificate relating to such Warrants shall
have been surrendered to the Warrant Agent as provided in Section 2.1, and at
such time the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such exercise as
provided in Section 2.3, shall be deemed to have become the holder or holders of
record thereof.
SECTION 2.3. ISSUANCE OF SHARES OF COMMON STOCK; NO FRACTIONAL SHARES. As
soon as practicable after the exercise of any Warrant, and in any event within
ten (10) days after receipt by the Company of the notice of exercise under
Section 2.1, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the holder thereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which such holder shall be entitled
upon such exercise plus, in lieu of any fractional share to which such
holder would otherwise be entitled, an amount in cash equal to such
fraction multiplied by the then current value of a share of Common Stock,
such current value to be determined as follows:
(i) if the Common Stock shall be listed or admitted to unlisted
trading privileges on any national securities exchange, or listed on
the Nasdaq National Market or Nasdaq SmallCap Market then such current
value shall be computed on the basis of the last reported sale price
of the Common Stock on such exchange or market on the last business
day prior to the date of the exercise of such Warrant upon which a
sale shall have been effected, or in the event such last reported sale
is unavailable, the average of the closing bid and asked prices on the
last business day prior to the date of exercise of such Warrant; or
(ii) if the Common Stock shall not be so listed or admitted to
unlisted trading privileges and bid and asked prices therefor in the
over-the-counter market shall be reported by a recognized reporting
agency, then such current value shall be computed on the basis of the
average mean of such bid and asked prices on the last business day
prior to the date of the exercise of such Warrant as so reported; or
(iii) if the Common Stock shall be listed or admitted to unlisted
trading privileges on more than one national securities exchange or
Nasdaq market or in the over-the-counter market, then such current
value shall, if different as a result of calculation under the
applicable method(s) described above in this Section, be deemed to be
the higher number calculated in connection therewith; or
(iv) if the Common Stock shall not be so listed or admitted to
unlisted trading privileges and such bid and asked prices shall not be
so reported, then such current value shall be computed on the basis of
the book value of Common Stock as of the close of business on the last
day of the month immediately preceding the date upon which such
Warrant was exercised, as determined by the Company, and
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(b) in case such exercise includes only part of the Warrants
represented by any Warrant Certificate, a new Warrant Certificate or
Warrant Certificates of like tenor, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock equal (without
giving effect to any adjustment therein) to the number of such shares
called for on the face of such Warrant Certificate minus the number of such
shares designated by the holder for such exercise as provided in Section
2.1. Warrants, represented by a properly assigned Warrant Certificate, may
be exercised by a new holder without first having a new Warrant Certificate
issued.
SECTION 2.4. EXTENSION OF EXERCISE PERIOD; CHANGE OF EXERCISE PRICE. The
Company may, upon notice given to the Warrant Agent, and without the consent of
the holders of the Warrant Certificates, (i) reduce the Exercise Price during
the originally stated exercise period or (ii) extend the period over which the
Warrants are exercisable beyond ___________________, 2002 and decrease, increase
or retain the Exercise Price for any period the Warrant exercise period is
extended. In the case of the extension of the exercise period or a change in
the Exercise Price, the Company must provide the Warrant Agent and the
Warrantholders of record notice of such change a reasonably time prior to the
date such extension or new Exercise Price is to take effect. Such reasonable
time shall be commercially reasonable and consistent with applicable securities
laws and regulations. The notice shall specify, as the case may be, the time to
which such exercise period is extended or the new Exercise Price and the periods
for which such new Exercise Price is in effect.
ARTICLE III.
ANTIDILUTION PROVISIONS
SECTION 3.1. ADJUSTMENT OF EXERCISE PRICE.
(a) The Exercise Price shall be subject to the following adjustments.
In the event that:
(i) any dividends on any class of stock of the Company payable
in Common Stock or securities convertible into Common Stock shall be
paid by the Company;
(ii) the Company shall subdivide its then outstanding shares of
Common Stock into a greater number of shares; or
(iii) the Company shall combine outstanding shares of Common
Stock, by reclassification or otherwise;
then, in any such event, the Exercise Price in effect immediately prior to
such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full
cent) determined by dividing (a) the number of shares of Common Stock
outstanding immediately prior to such event, multiplied by the then
existing Exercise Price, by (b) the total number of shares of Common Stock
outstanding
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immediately after such event (including the maximum number of shares of
Common Stock issuable in respect of any securities convertible into Common
Stock), and the resulting quotient shall be the adjusted Exercise Price per
share.
(b) No adjustment of the Exercise Price shall be made if the amount
of such adjustments shall be less than $0.01 per share, but in such case
any adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to not less than $.05 per share.
SECTION 3.1. ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE ON EXERCISE OF
WARRANTS. Upon each adjustment of the Exercise Price pursuant to Section 3.1
above, the registered holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Exercise Price the
number of shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in such Warrant (as adjusted as a result of all
adjustments in the Exercise Price in effect prior to such adjustment) by the
Exercise Price in effect prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
SECTION 3.3. NOTICE AS TO ADJUSTMENT. Upon any adjustment of the Exercise
Price and an increase or decrease in the number of shares of Common Stock
purchasable upon the exercise of the Warrants, then, and in each such case, the
Company shall within ten (10) days after the effective date of such adjustment
give written notice thereof, by first class mail, postage prepaid, addressed to
each registered Warrantholder at the address of such Warrantholder as shown on
the books of the Company, which notice shall state the adjusted Exercise Price
and the increased or decreased number of shares purchasable upon the exercise of
the Warrants, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
SECTION 3.4. EFFECT OF REORGANIZATION, RECLASSIFICATION, MERGER, ETC. If
at any time while any Warrant is outstanding there should be any capital
reorganization or reclassification of the capital stock of the Company (other
than the issue of any shares of Common Stock in subdivision of outstanding
shares of Common Stock by reclassification or otherwise and other than a
combination of shares provided for in Section 3.1 hereof) or any consolidation
or merger of the Company with another corporation or any sale, conveyance, lease
or other transfer by the Company of all or substantially all of its property to
any other corporation, the holder of any Warrant shall thereafter be entitled to
receive the number of shares of stock or other securities or property of the
Company, or of the successor corporation resulting from such consolidation or
merger or of the corporation to which the property of the Company has been sold,
conveyed, leased or otherwise transferred, as the case may be, to which the
Common Stock (and any other securities and property) of the Company, deliverable
upon the exercise of such Warrant, would have been entitled upon such capital
reorganization, reclassification of capital stock, consolidation, merger, sale,
conveyance, lease or other transfer if such Warrant had been exercised
immediately prior to such capital reorganization, reclassification of capital
stock, consolidation, merger, sale, conveyance, lease or other transfer; and, in
any such case, appropriate adjustment (as determined by the Board of Directors
of the Company) shall be made in the application of the provisions set forth in
this Warrant Agreement with respect to the rights and interests thereafter of
the Warrantholders to the end that the provisions set forth in this Warrant
Agreement (including the adjustment of the
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Exercise Price and the number of shares issuable upon the exercise of the
Warrants) shall thereafter be applicable, as near as reasonably may be, in
relation to any shares or other property thereafter deliverable upon the
exercise of the Warrants as if the Warrants had been exercised immediately prior
to such capital reorganization, reclassification of capital stock, such
consolidation, merger, sale, conveyance, lease or other transfer and the
Warrantholders had carried out the terms of the exchange as provided for by such
capital reorganization, reclassification, consolidation or merger. The Company
shall not effect any such capital reorganization, consolidation, merger or
transfer unless, upon or prior to the consummation thereof, the successor
corporation or the corporation to which the property of the Company has been
sold, conveyed, leased or otherwise transferred shall assume by written
instrument the obligation to deliver to the holder of each Warrant such shares
of stock, securities, cash or property as in accordance with the foregoing
provisions such holder shall be entitled to purchase.
SECTION 3.5. PRIOR NOTICE AS TO CERTAIN EVENTS. In case at any time:
(a) The Company shall pay any dividend upon its Common Stock payable
in stock or make any distribution (other than cash dividends) to the
holders of its Common Stock; or
(b) The Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or any
other rights; or
(c) There shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale, conveyance, lease or other transfer of all or substantially
all of its assets to, another corporation; or
(d) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then in any one or more of such cases, the Company shall give prior written
notice, by first class mail, postage prepaid, addressed to each registered
Warrantholder at the address of such Warrantholder as shown on the books of the
Company, of the date on which (a) the books of the Company shall close or a
record shall be taken for such stock dividend, distribution or subscription
rights or (b) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of the
Common Stock of record shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up, as the case may be. Such written notice shall be given at least
twenty (20) days prior to the action in question and not less than twenty (20)
days prior to the record date or the date on which the Company's transfer books
are closed in respect thereto.
SECTION 3.6. CERTAIN OBLIGATIONS OF THE COMPANY. The Company will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation,
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merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant Agreement or the Warrant Certificate, but will at all times in good
faith assist in the carrying out of all such terms. Without limiting the
generality of the foregoing, the Company (a) will not establish a par value for
the shares of any stock which are at the time issuable upon exercise of any
Warrant above the then prevailing Exercise Price and before taking any action
which would cause an adjustment of the Exercise Price below the then par value
of the shares of any stock issuable upon exercise of any Warrant, will take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of such stock upon
the exercise of all Warrants from time to time outstanding, and (b) will not (i)
transfer all or substantially all of its properties and assets to any other
person or entity, or (ii) consolidate with or merge into any other entity where
the Company is not the continuing or surviving entity, or (iii) permit any other
entity to consolidate with or merge into the Company where the Company is the
continuing or surviving entity but, in connection with such consolidation or
merger, the Common Stock then issuable upon the exercise of the Warrants shall
be changed into or exchanged for shares or other securities or property of any
other entity unless, in any such case, the other entity acquiring such
properties and assets, continuing or surviving after such consolidation or
merger or issuing or distributing such shares or other securities or property,
as the case may be, shall expressly assume in writing and be bound by all the
terms of this Warrant Agreement and the Warrant Certificates.
SECTION 3.7. RESERVATION AND LISTING OF COMMON STOCK. The Company will at
all times reserve and keep available, solely for issuance and delivery upon the
exercise of the Warrants, all shares of Common Stock from time to time issuable
upon such exercise. All such shares shall be authorized and, when issued upon
such exercise, shall be validly issued, fully paid and nonassessable with no
liability on the part of the holder thereof. The Company, at its expense, will
list on each national securities exchange on which any Common Stock may at any
time be listed, subject to official notice of issuance, and will maintain such
listing of, the shares of Common Stock from time to time issuable upon the
exercise of the Warrants.
SECTION 3.8. REGISTRATION OR EXEMPTION FOR COMMON STOCK. The Company
will use its best efforts to, at all times the Warrants are exercisable, (i)
maintain an effective registration statement under the Securities Act of
1933, as amended (the "Act"), covering Common Stock issuable upon exercise of
the Warrants, or shall qualify for exemption from the registration
requirements of the Act the Common Stock issuable upon exercise of the
Warrants, and (ii) maintain exemptions or qualifications, in those
jurisdictions in which the Units were initially sold, to permit the exercise
of the Warrants and the issuance of the Common Stock pursuant to such
exercise. The Warrant Agent shall have no responsibility for the maintenance
of such exemptions or qualifications or for liabilities arising from the
exercise or attempted exercise of Warrants in jurisdictions where exemptions
or qualifications have not been maintained or are otherwise unavailable.
ARTICLE IV.
REDEMPTION OF WARRANTS
SECTION 4.1. REDEMPTION PRICE. The Warrants may be redeemed at the option
of the Company as a whole or in part at any time 90 days after the date hereof
following a period of 20
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consecutive trading days where the closing bid price of the Common Stock exceeds
$9.25, on notice given not more than 15 trading days following such period, as
set forth in Section 4.2. The redemption price shall equal $0.01 per Warrant.
For purposes of this Section, the closing bid price of the Common Stock shall be
determined by the closing bid price as reported by Nasdaq so long as the Common
Stock is quoted on Nasdaq and, if the Common Stock is listed on a national
securities exchange, shall be determined by the last reported sale price on the
primary exchange on which the Common Stock is traded.
SECTION 4.2. NOTICE OF REDEMPTION. In the case of any redemption of
Warrants, the Company or, at its request, the Warrant Agent in the name of and
at the expense of the Company shall give notice of such redemption to the
holders of the Warrants to be redeemed as hereinafter provided in this
Section 4.2. Notice of redemption to the holders of Warrants shall be given by
mailing by first-class mail a notice of such redemption not less than 30 days
prior to the date fixed for redemption. Any notice which is given in the manner
herein provided shall be conclusively presumed to have been duly given, whether
or not the holder receives the notice. In any case, failure duly to give such
notice, or any defect in such notice, to the holder of any Warrant Certificate
shall not affect the validity of the proceedings for the redemption of Warrants
represented by any other Warrant Certificate. Each such notice shall specify
the date fixed for redemption, the place of redemption and the redemption price
of $0.01 at which each Warrant is to be redeemed, and shall state that payment
of the redemption price of the Warrants will be made on surrender of the
Warrants at said place of redemption, and that after said date, the exercise
rights of the Warrants identified for redemption shall expire. Such notice
shall also state the current Exercise Price and the date on which the right to
exercise the Warrants will expire unless extended by the Company.
SECTION 4.3. PAYMENT OF WARRANTS ON REDEMPTION; DEPOSIT OF REDEMPTION
PRICE. If notice of redemption shall have been given as provided in Section
4.2, the redemption price of $0.01 per Warrant shall, unless the Warrant is
theretofore exercised pursuant to the terms hereof, become due and payable on
the date and at the place stated in such notice. On and after such date of
redemption, provided that cash sufficient for the redemption thereof shall then
be deposited by the Company with the Warrant Agent for that purpose, the
exercise rights of the Warrants identified for redemption shall expire. On
presentation and surrender of Warrant Certificates at said place of payment in
said notice specified, the Warrants identified for redemption shall be paid and
redeemed at the redemption price of $0.01 per Warrant. Prior to the date fixed
for redemption, the Company shall deposit with the Warrant Agent an amount of
money sufficient to pay the redemption price of all the Warrants identified for
redemption. Any moneys which shall have been deposited with the Warrant Agent
for redemption of Warrants and which are not required for that purpose by reason
of exercise of Warrants shall be repaid to the Company upon delivery to the
Warrant Agent of evidence satisfactory to it of such exercise.
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ARTICLE V.
CERTAIN OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANT CERTIFICATES
SECTION 5.1. NO RIGHTS OF SHAREHOLDERS. The Warrant Certificates shall be
issued in registered form only. No Warrant Certificate shall entitle the holder
thereof to any of the rights of a holder of shares of Common Stock of the
Company, including, without limitation, the right to vote, to receive dividends
and other distributions, or to receive any notice of, or to attend, meetings of
holders of Common Stock or any other proceedings of the Company.
SECTION 5.2. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
CERTIFICATES. Upon receipt by the Warrant Agent of evidence reasonably
satisfactory to the Warrant Agent of the loss, theft, destruction or mutilation
of any Warrant Certificate, and (i) in the case of any such loss, theft, or
destruction, upon delivery to the Warrant Agent of an indemnity bond in form and
amount, and issued by a bonding company, reasonably satisfactory to the Company,
or (ii) in the case of any such mutilation, upon surrender to and cancellation
by the Warrant Agent of such Warrant Certificate, the Company at its expense
will execute and cause the Warrant Agent to countersign and deliver, in lieu
thereof, a new Warrant Certificate of like tenor.
SECTION 5.3. TRANSFER AGENT; CANCELLATION OF WARRANT CERTIFICATES;
UNEXERCISED WARRANTS. Norwest Bank Minnesota, N.A. (and any successor), as
transfer agent (the "Transfer Agent"), is hereby irrevocably authorized and
directed at all times to reserve such number of authorized and unissued shares
of Common Stock as shall be sufficient to permit the exercise in full of all
Warrants from time to time outstanding. The Company will keep a copy of this
Agreement on file with the Transfer Agent. The Warrant Agent, and any successor
thereto, is hereby irrevocably authorized to requisition from time to time from
the Transfer Agent certificates for shares of Common Stock required for exercise
of Warrants. The Company will supply the Transfer Agent with duly executed
certificates for shares of Common Stock for such purpose and will make available
any cash required in settlement of fractional share interests. All Warrant
Certificates surrendered upon the exercise or redemption of Warrants shall be
cancelled by the Warrant Agent and shall thereafter be delivered to the Company;
such cancelled Warrant Certificates, with the Exercise Form on the reverse
thereof duly filled in and signed, shall constitute conclusive evidence as
between the parties hereto of the numbers of shares of Common Stock which shall
have been issued upon exercises of Warrants. Promptly after the last day on
which the Warrants are exercisable (set forth in Section 2.1 above), the Warrant
Agent shall certify to the Company the aggregate number of Warrants then
outstanding and unexercised. No shares of Common Stock shall be subject to
reservation with respect to Warrants not exercised prior to the time and date
identified in Section 2.1 above as the last time and date at which Warrants may
be exercised.
ARTICLE VI.
TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES
SECTION 6.1. WARRANT REGISTER; TRANSFER OR EXCHANGE OF WARRANT
CERTIFICATES. The Warrant Agent shall cause to be kept at the principal office
of the Warrant Agent a register (the "Warrant
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Register") in which, subject to such reasonable regulations as the Company may
prescribe, provisions shall be made for the registration of transfers and
exchanges of Warrant Certificates. Upon surrender for transfer or exchange of
any Warrant Certificates, properly endorsed, to the Warrant Agent, the Warrant
Agent at the Company's expense will issue and deliver to or upon the order of
the holder thereof a new Warrant Certificate or Warrant Certificates of like
tenor, in the name of such holder or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock called for on the
face of the Warrant Certificate so surrendered. Any Warrant Certificate
surrendered for transfer or exchange shall be cancelled by the Warrant Agent and
shall thereafter be delivered to the Company.
SECTION 6.2. IDENTITY OF WARRANTHOLDERS. Until a Warrant Certificate is
transferred in the Warrant Register, the Company and the Warrant Agent may treat
the person in whose name the Warrant Certificate is registered as the absolute
owner thereof and of the Warrants represented thereby for all purposes,
notwithstanding any notice to the contrary, except that, if and when any Warrant
Certificate is properly assigned in blank, the Company and the Warrant Agent may
(but shall not be obligated to) treat the bearer thereof as the absolute owner
of the Warrant Certificate and of the Warrants represented thereby for all
purposes, notwithstanding any notice to the contrary.
ARTICLE VII.
CONCERNING THE WARRANT AGENT
SECTION 7.1. TAXES. The Company will, from time to time, promptly pay to
the Warrant Agent, or make provision satisfactory to the Warrant Agent for the
payment of, all taxes and charges that may be imposed by the United States or
any State upon the Company or the Warrant Agent upon the transfer or delivery
of shares of Common Stock upon the exercise of Warrants, but the Company shall
not be obligated to pay any tax imposed in connection with any transfer involved
in the delivery of a certificate for shares of Common Stock in any name other
than that of the registered holder of the Warrant Certificate surrendered in
connection with the purchase thereof.
SECTION 7.2. REPLACEMENT OF WARRANT AGENT IN CERTAIN CIRCUMSTANCES.
(a) The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder after giving 30 days notice in
writing to the Company, except that such shorter notice may be given as the
Company shall, in writing, accept as sufficient. The Company may discharge
the Warrant Agent at any time with or without reason, effective upon 30
days written notice to the Warrant Agent or such shorter period as the
Warrant Agent shall, in writing, accept as sufficient. If the office of
Warrant Agent becomes vacant by resignation, discharge, incapacity to act
or otherwise, the Company shall appoint in writing a new Warrant Agent. If
the Company shall fail to make such appointment within a period of 30 days
after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Warrant Agent or by the holder of a Warrant
Certificate, then the holder of any Warrant Certificate may apply to any
court of competent jurisdiction for the appointment of a new Warrant Agent.
Any new Warrant
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Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United and
good standing under the laws of its state of incorporation and is
authorized under such laws to exercise corporate trust powers and is
subject to supervision or examination by Federal or State authority. Any
new Warrant Agent appointed hereunder shall execute, acknowledge and
deliver to the Company an instrument accepting such appointment hereunder
and thereupon such new Warrant Agent without any further act or deed shall
become vested with all the rights, powers, duties and responsibilities of
the Warrant Agent hereunder with like effect as if it had been named as the
Warrant Agent; but if for any reason it becomes necessary or expedient to
have the former Warrant Agent execute and deliver any further assurance,
conveyance, act or deed, the same shall be done and shall be legally and
validly executed and delivered by the former Warrant Agent. Not later than
the effective date of any such appointment the Company shall file notice
thereof with the former Warrant Agent. The Company shall promptly give
notice of any such appointment to the holders of the Warrant Certificates
by mail to their addresses as shown in the Warrant Register. Failure to
file or give such notice, or any defect therein, shall not affect the
legality or validity of the appointment of the successor Warrant Agent.
(b) Any company into which the Warrant Agent or any new Warrant Agent
may be merged or converted or with which it may be consolidated or any
company resulting from any merger, conversion or consolidation to which the
Warrant Agent or any new Warrant Agent shall be a party shall be the
successor Warrant Agent under this Warrant Agreement without any further
act; provided that if such company would not be eligible for appointment as
a successor Warrant Agent under the provisions of paragraph (a) of this
Section 7.2 the Company shall forthwith appoint a new Warrant Agent in
accordance with such provisions. Any such successor Warrant Agent may
adopt the prior countersignature of any predecessor Warrant Agent and
deliver Warrant Certificates countersigned and not delivered by such
predecessor Warrant Agent or may countersign Warrant Certificates either in
the name of any predecessor Warrant Agent or the name of the successor
Warrant Agent.
SECTION 7.3. REMUNERATION OF WARRANT AGENT. The Company will pay the
Warrant Agent reasonable remuneration for its services as Warrant Agent
hereunder and will reimburse the Warrant Agent upon demand for all expenditures
that the Warrant Agent may reasonably incur in the execution of its duties
hereunder.
SECTION 7 4. FURTHER ASSURANCES. The Company will perform, exercise,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Warrant Agent for the carrying out or performing
by the Warrant Agent of the provisions of this Warrant Agreement.
SECTION 7.5. LIMITATIONS ON LIABILITIES OF THE WARRANT AGENT.
(a) The Warrant Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be
full and complete
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<PAGE>
authorization and protection of the Warrant Agent as to any action taken or
omitted by it in good faith and in accordance with such opinion.
(b) Whenever, in the performance of its duties under this Warrant
Agreement, the Warrant Agent shall deem it necessary or desirable that any
matter be proved or established, or that any instructions with respect to
the performance of its duties hereunder be given, by the Company prior to
taking or suffering any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established, or such instructions may
be given, by a certificate or instrument signed by an officer of the
Company and delivered to the Warrant Agent; and such certificate or
instrument shall be full authorization to the Warrant Agent for any action
taken or suffered in good faith by it under the provisions of this Warrant
Agreement in reliance upon such certificate or instrument; but in its
discretion the Warrant Agent may in lieu thereof accept other evidence of
such matter or may require such further or additional evidence as it may
deem reasonable.
(c) The Warrant Agent shall be liable hereunder only for its own
negligence or willful misconduct. The Warrant Agent shall act hereunder
solely as agent, and its duties shall be determined solely by the
provisions hereof. The Company agrees to indemnify the Warrant Agent and
save it harmless against any and all liabilities, including judgments,
costs and counsel fees, for anything done or omitted by the Warrant Agent
in the execution of this Warrant Agreement except as a result of the
Warrant Agent's negligence or willful misconduct.
(d) The Warrant Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Warrant Agreement or
in the Warrant Certificates (except its countersignature thereof) or be
required to verify the same, but all such statements and recitals are and
shall be deemed to have been made by the Company only.
(e) The Warrant Agent shall not be under any responsibility in
respect to the validity or execution of any Warrant Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Warrant
Agreement or in any Warrant Certificate; nor shall it be responsible for
the making of any adjustment in the Exercise Price, or number of shares
issuable upon exercise of the Warrant Certificates or responsible for the
manner, method or amount of any such adjustment or the facts that would
require any such adjustment; nor shall it by any act hereunder be deemed to
make any representation or warranty as to the authorization or reservation
of any shares of Common Stock to be issued pursuant to this Warrant
Agreement or any Warrant Certificate or as to whether any shares of Common
Stock or other securities are or will be validly authorized and issued and
fully paid and nonassessable.
SECTION 7.6. AMENDMENT AND MODIFICATION. The Warrant Agent may, without
the consent or concurrence of the holders of the Warrant Certificates, by
supplemental agreement or otherwise, join with the Company in making any changes
or corrections in this Warrant Agreement that they
-12-
<PAGE>
shall have been advised by counsel (i) are required to cure any ambiguity or to
correct any defective or inconsistent provision or clerical omission or mistake
or manifest error herein contained, (ii) add to the obligations of the Company
in this Warrant Agreement further obligations thereafter to be observed by it,
or surrender any right or power reserved to or conferred upon the Company in
this Warrant Agreement, or (iii) do not or will not adversely affect, alter or
change the rights, privileges or immunities of the holders of Warrant
Certificates not provided for under this Warrant Agreement; provided, however,
that any term of this Warrant Agreement or any Warrant Certificate may be
changed, waived, discharged or terminated by an instrument in writing signed by
each party against which enforcement of such change, waiver, discharge or
termination is sought, or by which the same is to be performed or observed.
ARTICLE VIII.
OTHER MATTERS
SECTION 8.1. SUCCESSORS AND ASSIGNS. All the covenants and provisions of
this Warrant Agreement by or for the benefit of the Company or the Warrant Agent
shall bind and inure to the benefit of their respective successors and assigns.
SECTION 8.2. NOTICES. Any notice or demand authorized by this Warrant
Agreement to be given or made by the Warrant Agent or by the holder of any
Warrant Certificate to or on the Company shall be sufficiently given or made if
sent by first class or registered mail, postage prepaid, addressed to the
address set forth on the first page hereof (until another address is filed in
writing by the Company with the Warrant Agent).
Any notice or demand authorized by this Warrant Agreement to be given or made by
the holder of any Warrant Certificate or by the Company to or on the Warrant
Agent shall be sufficiently given or made if sent by first class or registered
mail, postage prepaid, addressed to the address set forth on the first page
hereof (until another address is filed in writing by the Warrant Agent with the
Company).
SECTION 8.3. GOVERNING LAW. This Warrant Agreement and the Warrant
Certificates are being delivered in the State of Minnesota and shall be
construed and enforced in accordance with and governed by the laws of such
State.
SECTION 8.4. NO BENEFITS CONFERRED. Nothing in this Warrant Agreement
expressed and nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the Company, the Warrant Agent, and the holders of the
Warrant Certificates, any right, remedy or claim under or by reason of this
Agreement or of any covenant, condition, stipulation, promise or agreement
herein; and all covenants, conditions, stipulations, promises and agreements in
this Warrant Agreement contained shall be for the sole and exclusive benefit of
the Company, the Warrant Agent, their respective successors and the holders of
the Warrant Certificates.
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<PAGE>
SECTION 8.5. HEADINGS. The descriptive headings used in this Warrant
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the
parties hereto as of the day and year first above written.
BUFFALO WILD WINGS, INC.
By
------------------------------------
Its
-------------------------
NORWEST BANK MINNESOTA, N.A.
By
------------------------------------
Its
-------------------------
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<PAGE>
EXHIBIT A
No. __________ Certificate for ______ Warrants
THIS WARRANT CERTIFICATE MAY BE
TRANSFERRED SEPARATELY FROM THE COMMON STOCK CERTIFICATE
WITH WHICH IT IS INITIALLY ISSUED AFTER __________, 1998
EXERCISABLE ON OR BEFORE, AND VOID AFTER,
______ P.M. MINNEAPOLIS TIME _____________________, 2002
WARRANTS TO PURCHASE COMMON STOCK OF
BUFFALO WILD WINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
CUSIP #_____________
THIS CERTIFIES that _________________________________________ or assigns, is the
owner of the number of Warrants set forth above, each of which represents the
right to purchase from Buffalo Wild Wings, Inc., a Minnesota corporation (herein
called the "Company"), at any time on or before ______ p.m., Minneapolis time,
on _______________, 2002, upon compliance with and subject to the conditions set
forth herein and in the Warrant Agreement hereinafter referred to, one share
(subject to adjustments referred to below) of the Common Stock, no par value, of
the Company (such shares or other securities or property purchasable upon
exercise of the Warrants being herein called the "Shares"), by surrendering this
Warrant Certificate, with the Purchase Form on the reverse side duly executed,
at the principal office of Norwest Bank Minnesota, N.A., or its successor, as
warrant agent (the "Warrant Agent"), and by paying in full, in cash or by
certified or official bank check payable to the order of the Company, the
exercise price of $8.00 as adjusted from time to time in accordance with the
terms of the Warrant Agreement.
Upon any exercise or redemption of less than all the Warrants evidenced by
this Warrant Certificate, there shall be issued to the holder a new Warrant
Certificate in respect of the Warrants as to which this Warrant Certificate was
not exercised or redeemed.
Upon the surrender for transfer or exchange hereof, properly endorsed, to
the Warrant Agent, the Warrant Agent at the Company's expense will issue and
deliver to the order of the holder hereof, a new Warrant Certificate or Warrant
Certificates of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face hereof.
The Warrant Certificates are issued only as registered Warrant
Certificates. Until this Warrant Certificate is transferred in the Warrant
Register, the Company and the Warrant Agent may treat the person in whose name
this Warrant Certificate is registered as the absolute owner
<PAGE>
hereof and of the Warrants represented hereby for all purposes, notwithstanding
any notice to the contrary.
This Warrant Certificate is issued under the Warrant Agreement dated as of
___________________, 1998 between the Company and the Warrant Agent and is
subject to the terms and provisions contained in said Warrant Agreement, to all
of which terms and provisions the registered holder of this Warrant Certificate
consents by acceptance hereof. Copies of said Warrant Agreement are on file at
the principal office of the Warrant Agent in Minneapolis, Minnesota, and may be
obtained by writing to the Warrant Agent.
The number of Shares receivable upon the exercise of the Warrants
represented by this Warrant Certificate and the exercise price per share are
subject to adjustment upon the happening of certain events specified in the
Warrant Agreement (which provisions are contained in Article III of the Warrant
Agreement and are hereby incorporated by reference).
No fractional shares of the Company's Common Stock will be issued upon the
exercise of Warrants. As to any final fraction of a share which a holder of
Warrants exercised in the same transaction would otherwise be entitled to
purchase on such exercise, the Company shall pay a cash adjustment in lieu of
any fractional share determined as provided in the Warrant Agreement.
The Warrants may be redeemed, in whole or in part, at the option of the
Company, at any time following a period of 20 consecutive trading days where the
closing bid price of the Common Stock exceeds $9.25, on notice as set forth in
the Warrant Agreement, and at a redemption price equal to $0.01 per Warrant. If
notice of redemption shall have been given as provided in the Warrant Agreement
and cash sufficient for the redemption be deposited by the Company for that
purpose, the exercise rights of the Warrants identified for redemption shall
expire at the close of business on such date of redemption unless extended by
the Company.
This Warrant Certificate shall not entitle the holder hereof to any of the
rights of a holder of Common Stock of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, to
exercise any preemptive right, or to receive any notice of, or to attend
meetings of holders of Common Stock or any other proceedings of the Company.
This Warrant Certificate shall be void and the Warrants and any rights
represented hereby shall cease unless exercised on or before ______ p.m.
Minneapolis time on _______________, 2002.
This Warrant Certificate shall not be valid for any purpose until it shall
have been countersigned by the Warrant Agent.
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<PAGE>
WITNESS the facsimile signature of the Company's duly authorized officers.
BUFFALO WILD WINGS, INC.
Dated: By
------------------------------------
Its
-----------------------------------
COUNTERSIGNED AND REGISTERED:
NORWEST BANK MINNESOTA, N.A.
as Warrant Agent
By
------------------------------------
Its
-----------------------------------
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<PAGE>
[REVERSE OF WARRANT CERTIFICATE]
TO: Buffalo Wild Wings, Inc.
c/o Norwest Bank Minnesota, N.A.
Warrant Agent
PURCHASE FORM
(To be Executed by the Registered Holder
in Order to Exercise Warrant Certificates)
The undersigned hereby irrevocably elects to exercise ______________* of
the Warrants represented by the Warrant Certificate and to purchase for cash the
Shares issuable upon the exercise of said Warrants and requests that
certificates for such Shares shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR ------------------------------
OTHER IDENTIFYING NUMBER OF REGISTERED
HOLDER OF CERTIFICATE ------------------------------
------------------------------------------
(Print Name)
------------------------------------------
(Address)
------------------------------------------
Dated:
------------------- ------------------------------------------
(Signature)
*Insert here the number of Warrants evidenced on the face of this Warrant
Certificate (or, in the case of a partial exercise, the portion thereof being
exercised), in either case without making any adjustment for additional Common
Stock or any other securities or property or cash which, pursuant to the
adjustment provisions referred to in this Warrant Certificate, may be
deliverable upon exercise.
<PAGE>
ASSIGNMENT FORM
(To be Executed by the Registered Holder
in Order to Transfer Warrant Certificates)
PLEASE INSERT SOCIAL SECURITY OR ------------------------------
OTHER IDENTIFYING NUMBER OF
ASSIGNEE ------------------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
______________________________ of the Warrants represented by this Warrant
Certificate unto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee)
and does hereby irrevocably constitute and appoint
-----------------------------
- --------------------------------------------------------------------------------
Attorney to transfer this Warrant Certificate on the records of the Company with
full power of substitution in the premises.
Dated: Signature(s)
------------------------ ---------------------------
Signature(s)
Guaranteed:
----------------------------
----------------------------------
NOTICE
The Signature(s) to the Purchase Form or the Assignment Form must
correspond to the name as within upon the face of this Warrant Certificate in
every particular without alteration or enlargement or any change whatsoever.
Signature(s) should be guaranteed by a commercial bank or trust company, or by a
member firm of any national securities exchange whose signature is known to the
Warrant Agent.
<PAGE>
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
June 4, 1998
Buffalo Wild Wings, Inc..
1919 Interchange Tower
600 South Highway 169
Minneapolis, Minnesota 55426
RE: REGISTRATION STATEMENT ON FORM SB-2 - EXHIBIT 5.1
Gentlemen/Ladies:
We have acted as counsel for Buffalo Wild Wings, Inc. (the "Company") in
connection with the Company's filing of a Registration Statement on Form SB-2
(the "Registration Statement") relating to the registration under the
Securities Act of 1933 (the "Act") of 1,725,000 units (the "Units"), each
Unit consisting of one share of Common Stock (the "Share") and one redeemable
warrant (the "Warrant") to purchase one share of Common Stock (the "Warrant
Share"), including 225,000 Units subject to an over-allotment option.
In connection with rendering this opinion, we have reviewed the following:
1. The Company's Restated Articles of Incorporation;
2. The Company's Restated Bylaws; and
3. Certain corporate resolutions, including resolutions of the Company's
Board of Directors pertaining to the issuance by the Company of the
Units, Shares, Warrants and Warrant Shares covered by the Registration
Statement.
Based upon the foregoing and upon representations and information provided
by the Company, we are of the opinion that the Units, Shares, Warrants and
Warrant Shares to be issued by the Company as described in the Registration
Statement have been duly authorized by all requisite corporate action and, upon
issuance, delivery and payment thereof as described in the Registration
Statement, will be validly issued, fully paid and non-assessable.
<PAGE>
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" included in the Registration Statement and the related Prospectus.
Very truly yours,
FREDRIKSON & BYRON, P.A.
By /s/ Melodie R. Rose
-
Melodie R. Rose, Vice President
<PAGE>
FIRST AMENDED AND RESTATED
BUFFALO WILD WINGS, INC.
1995 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated
below:
(a) "Affiliates" shall mean a Parent or Subsidiary of the Company.
(b) "Committee" shall mean a Committee of two or more directors who shall
be appointed by and serve at the pleasure of the Board. In the event the
Company's securities are registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, each of the members of the
Committee shall be a "Non-Employee Director" within the meaning of Rule
16b-3, or any successor provision, as then in effect, of the General Rules
and Regulations under the Securities Exchange Act of 1934 as amended.
(c) The "Company" shall mean Buffalo Wild Wings, Inc., a Minnesota
corporation.
(d) "Fair Market Value" shall mean (i) if such stock is reported in the
national market system or is listed upon an established stock exchange or
exchanges, the reported closing price of such stock in such national market
system or on such stock exchange or exchanges on the date the option is
granted or, if no sale of such stock shall have occurred on that date, on
the next preceding day on which there was a sale of stock; (ii) if such
stock is not so reported in the national market system or listed upon an
established stock exchange, the average of the closing "bid" and "asked"
prices quoted by a recognized specialist in the Common Stock of the Company
on the date the option is granted, or if there are no quoted "bid" and
"asked" prices on such date, on the next preceding date for which there are
such quotes; or (iii) if such stock is not publicly traded as of the date
the option is granted, the per share value as determined by the Board, or
the Committee, in its sole discretion by applying principles of valuation
with respect to all such options.
(e) The "Internal Revenue Code" is the Internal Revenue Code of 1986, as
amended from time to time.
(f) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 12) reserved for options pursuant to
this Plan.
(g) The "Optionee" means an employee of the Company or any Subsidiary to
whom an incentive stock option has been granted pursuant to Section 9, or a
consultant or
<PAGE>
advisor to or director, employee or officer of the Company or any
Subsidiary to whom a nonqualified stock option has been granted pursuant to
Section 10.
(h) "Parent" shall mean any corporation which owns, directly or indirectly
in an unbroken chain, fifty percent (50%) or more of the total voting power
of the Company's outstanding stock.
(i) The "Plan" means the bw-3, Inc. 1995 Stock Option Plan, formerly known
as the JMS Associates, Inc. 1995 Stock Option Plan, as amended from time to
time, including the form of Option Agreements as they may be modified by
the Board from time to time.
(j) A "Subsidiary" shall mean any corporation of which fifty percent (50%)
or more of the total voting power of outstanding stock is owned, directly
or indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and its
Subsidiaries by facilitating the employment and retention of competent personnel
and by furnishing incentive to officers, directors, employees, consultants and
advisors, upon whose efforts the success of the Company and its Subsidiaries
will depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "Incentive Stock Options" under
the provisions of Section 422 of the Internal Revenue Code, and through the
granting of "Nonqualified Stock Options" pursuant to Section 10 of this Plan.
Adoption of this Plan shall be and is expressly subject to the condition of
approval by the shareholders of the Company within twelve (12) months before or
after the adoption of the Plan by the Board of Directors.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan became effective as of its date of adoption by the Board of
Directors of the Company on April 18, 1995.
-2-
<PAGE>
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(the "Board") or, to the extent empowered by the Board, by a Stock Option
Committee (the "Committee") and as defined in Section 1(f) of this Plan, which
may be appointed by the Board from time to time (the Board and Committee are
sometimes hereinafter referred to as the "Administrator"). The Administrator
shall have all of the powers vested in it under the provisions of the Plan,
including but not limited to exclusive authority (where applicable and within
the limitations described herein) to determine, in its sole discretion, whether
an incentive stock option or nonqualified stock option shall be granted, the
individuals to whom, and the time or times at which, options shall be granted,
the number of shares subject to each option and the option price and terms and
conditions of each option. The Administrator shall have full power and
authority to administer and interpret the Plan, to make and amend rules,
regulations and guidelines for administering the Plan, to prescribe the form and
conditions of the respective stock option agreements (which may vary from
Optionee to Optionee) evidencing each option and to make all other
determinations necessary or advisable for the administration of the Plan. The
Administrator's interpretation of the Plan and all actions taken and
determinations made by the Administrator pursuant to the power vested in it
hereunder, shall be conclusive and binding on all parties concerned. No member
of the Board or the Committee shall be liable for any action taken or
determination made in good faith in connection with the administration of the
Plan.
In the event the Board appoints a Committee as provided hereunder, any
action of the Committee with respect to the administration of the Plan shall be
taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion and without
approval of the shareholders, designate those employees, directors, officers,
directors, consultants, and advisors of the Company or of any subsidiary to whom
nonqualified stock options shall be granted under this Plan; provided, however,
that consultants or advisors shall not be eligible to receive stock options
hereunder unless such consultant or advisor renders bona fide services to the
Company or Subsidiary and such services are not in connection with the offer or
sale of securities in a capital raising transaction. The Administrator shall,
from time to time, at its discretion and without approval of the shareholders,
designate those employees of the Company or any Subsidiary to whom incentive
stock options shall be granted under this Plan. The Administrator may grant
additional incentive stock options or nonqualified stock options under this Plan
to some or all participants then holding options or may grant options solely or
partially to new participants. In designating participants, the Administrator
shall also determine the number of shares to be optioned to each such
participant. The Board may from time to time designate individuals as being
ineligible to participate in the Plan.
-3-
<PAGE>
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized but
unissued shares of Common Stock. Two Hundred Fifty Thousand (250,000) shares of
Common Stock shall be reserved and available for options under the Plan, subject
to adjustment as provided in Section 12 of the Plan. In the event that any
outstanding option granted under this Plan for any reason expires or is
terminated prior to the exercise thereof, the shares of Common Stock allocable
to the unexercised portion of such option shall continue to be reserved for
options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time to
time during a period of ten (10) years from April 18, 1995, the date the Plan
was approved by the Board of Directors. Nonqualified stock options may be
granted pursuant to the Plan from time to time after the date the Plan is
adopted by the Board of Directors and until the Plan is discontinued or
terminated by the Board.
SECTION 8.
PAYMENT
Subject to the approval of the Administrator, Optionees may pay for shares
upon exercise of options granted pursuant to this Plan with cash, certified
check, Common Stock of the Company valued at such stock's then Fair Market
Value, or such other form of payment as may be authorized by the Administrator.
The Administrator may, in its sole discretion, limit the forms of payment
available to the Optionee and may exercise such discretion any time prior to the
termination of the option granted to the Optionee or upon any exercise of the
Option by the Optionee. With respect to payment in the form of Common Stock of
the Company, the Administrator may adopt such rules as it deems necessary to
assure compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities Exchange Act
of 1934, if applicable.
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to the Plan shall be evidenced
by a written stock option agreement (the "Option Agreement"). The Option
Agreement shall be in such form
-4-
<PAGE>
as may be approved from time to time by the Administrator and may vary from
Optionee to Optionee; provided, however, that each Optionee and each Option
Agreement shall comply with and be subject to the following terms and
conditions:
(a) NUMBER OF SHARES AND OPTION PRICE. The Option Agreement shall state
the total number of shares covered by the incentive stock option. The
option price per share shall not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock per share on the date the
Administrator grants the option; provided, however, that, if an Optionee
owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of its Parent or any
Subsidiary, the option price per share of an incentive stock option granted
to such Optionee shall not be less than one hundred ten percent (110%) of
the Fair Market Value of the Common Stock per share on the date of the
grant of the option.
(b) TERM AND EXERCISABILITY OF INCENTIVE STOCK OPTION. The term during
which any incentive stock option granted under the Plan may be exercised
shall be established in each case by the Administrator, but in no event
shall any incentive stock option be exercisable during a term of more than
ten (10) years after the date on which it is granted; provided, however,
that if an Optionee owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its
Parent or any Subsidiary, then in no event shall any incentive stock option
be exercisable during a term of more than five years after the date on
which it is granted. The Option Agreement shall state when the incentive
stock option becomes exercisable and shall also state the maximum term
during which the option may be exercised. In the event an incentive stock
option is exercisable immediately, the manner of exercise of the option in
the event it is not exercised in full immediately shall be specified in the
Option Agreement. The Administrator may accelerate the exercise date of
any incentive stock option granted hereunder which is not immediately
exercisable as of the date of grant.
(c) OTHER PROVISIONS. The Option Agreement authorized under this Section
9 shall contain such other provisions as the Administrator shall deem
advisable. Any such Option Agreement shall contain such limitations and
restrictions upon the exercise of the option as shall be necessary to
ensure that such option will be considered an "Incentive Stock Option" as
defined in Section 422 of the Internal Revenue Code or to conform to any
change therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to the Plan shall be
evidenced by a written Option Agreement. The Option Agreement shall be in such
form as may be approved from time to time by the Administrator, and may vary
from Optionee to Optionee; provided,
-5-
<PAGE>
however, that each Optionee and each Option Agreement shall comply with and be
subject to the following terms and conditions:
(a) NUMBER OF SHARES AND OPTION PRICE. The Option Agreement shall state
the total number of shares covered by the nonqualified stock option. unless
otherwise determined by the Administrator, the option price per share shall
be equal to one hundred percent (100%) of the Fair Market Value of the
Common Stock per share on the date the Administrator grants the option.
(b) TERM AND EXERCISABILITY OF NONQUALIFIED STOCK OPTION. The term during
which any nonqualified stock option granted under the Plan may be exercised
shall be established in each case by the Administrator. The Option
Agreement shall state when the nonqualified stock option becomes
exercisable and shall also state the maximum term during which the option
may be exercised. In the event a nonqualified stock option is exercisable
immediately, the manner of exercise of the option in the event it is not
exercised in full immediately shall be specified in the stock option
agreement. The Administrator may accelerate the exercise date of any
nonqualified stock option granted hereunder which is not immediately
exercisable as of the date of grant.
(c) WITHHOLDING. The Company shall be entitled to withhold and deduct
from future wages of the Optionee all legally required amounts necessary to
satisfy any and all federal, state and local withholding and employment-
related taxes attributable to the Optionee's exercise of a nonqualified
stock option. In the event the Optionee is required under the Option
Agreement to pay to the Company, or make arrangements satisfactory to the
Company respecting payment of, any federal, state, local or other taxes
required by law to be withheld with respect to the option's exercise, the
Administrator may, in its discretion and pursuant to such rules as it may
adopt, permit the Optionee to satisfy such obligation, in whole or in part,
by electing to have the Company withhold shares of Common Stock otherwise
issuable to Optionee as a result of the option's exercise equal to the
amount required to be withheld for tax purposes. Any stock elected to be
withheld shall be valued at its "Fair Market Value," as of the date the
amount of tax to be withheld is determined under applicable tax law. The
Optionee's election to have shares withheld for this purpose shall be made
on or before the date the option is exercised, or if later, the date that
the amount of tax to be withheld is determined under applicable tax law.
Such election shall also comply with such rules as may be adopted by the
Administrator to assure compliance with Rule 16b-3, as then in effect, of
the General Rules-and Regulations under the Securities Exchange Act of
1934, if applicable.
(d) OTHER PROVISIONS. The Option Agreement authorized under this Section
10 shall contain such other provisions as the Administrator shall deem
advisable.
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<PAGE>
SECTION 11.
TRANSFER 'OF OPTION
No incentive stock option shall be transferable, in whole or in part, by
the Optionee other than by will or by the laws of descent and distribution and,
during the Optionee's lifetime, the option may be exercised only by the
Optionee. If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.
The Administrator may, in its sole discretion, permit the Optionee to
transfer any or all nonqualified stock options to any member of the Optionee's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any successor provision, or to one or
more trusts whose beneficiaries are members of such Optionee's "immediate
family" or partnerships in which such family members are the only partners;
provided, however, that the Optionee receives no consideration for the transfer
and such transferred nonqualified stock option shall continue to be subject to
the same terms and conditions as were applicable to such -nonqualified stock
option immediately prior to its transfer.
SECTION 12.
RECAPITALIZATION, SALE, MERGER, EXCHANGE
CONSOLIDATION OR LIOUIDATION
In the event of an increase or decrease in the number of shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company, the
number of shares of Common Stock covered by each outstanding option and the
price per share thereof shall be equitably adjusted by the Board of Directors to
reflect such change. Additional shares which may be credited pursuant to such
adjustment shall be subject to the same restrictions as are applicable to the
shares with respect to which the adjustment relates.
Unless otherwise provided in the stock option agreement, in the event of
the sale by the Company of substantially all of its assets and the consequent
discontinuance of its business, or in the event of a merger, consolidation,
exchange, reorganization, reclassification, extraordinary dividend, divestiture
(including a spin-off) or liquidation of the Company (collectively referred to
as a "transaction"), the Board may provide for one or more of the following:
(a) the equitable acceleration of the exercisability of any outstanding
options hereunder;
(b) the complete termination of this Plan and cancellation of outstanding
options not exercised prior to a date specified by the Board (which date
shall give Optionees a
-7-
<PAGE>
reasonable period of time in which to exercise the options prior the
effectiveness of such transaction);
(c) that Optionees holding outstanding incentive or nonqualified options
shall receive, with respect to each share of Option Stock subject to such
options, as of the effective date of any such transaction, cash in an
amount equal to the excess of the Fair Market Value of such option stock on
the date immediately preceding the effective date of such transaction over
the option price per share of such options; provided that the Board may, in
lieu of such cash payment, distribute to such Optionees shares of stock of
the Company or shares of stock of any corporation succeeding the company by
reason of such transaction, such shares having a value equal to the cash
payment herein; or
(d) the continuance of the Plan with respect to the exercise of options
which were outstanding as of the date of adoption by the Board of such plan
for such transaction and provide to Optionees holding such options the
right to exercise their respective options as to an equivalent number of
shares of stock of the corporation succeeding the Company by reason of such
transaction.
The Board may restrict the rights of or the applicability of this Section 12 to
the extent necessary to comply with Section 16(b) of the Securities Exchange Act
of 1934, the Internal Revenue Code or any other applicable law or regulation.
The grant of an option pursuant to the Plan shall not limit in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge, exchange or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 13.
INVESTMENT PURPOSE
No shares of Common Stock shall be issued pursuant to the Plan unless and
until there has been compliance, in the opinion of Company's counsel, with all
applicable legal requirements, including without limitation, those relating to
securities laws and stock exchange listing requirements. As a condition to the
issuance of Common Stock to Optionee, the Administrator may require Optionee to
(a) represent that the shares of Common Stock are being acquired for investment
and not resale and to make such other representations as the Administrator shall
deem necessary or appropriate to qualify the issuance of the shares as exempt
from the Securities Act of 1933 and any other applicable securities laws, and
(b) represent that Optionee shall not dispose of the shares of Common Stock in
violation of the Securities Act of 1933 or any other applicable securities laws.
Company reserves the right to place a legend on any stock certificate issued
upon exercise of an option granted pursuant to the Plan to assure compliance
with this Section 13.
-8-
<PAGE>
SECTION 14.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no
rights as a shareholder with respect to any shares covered by an option until
the date of the issuance of a stock certificate evidencing such shares (except
as otherwise provided in Section 12 above). No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to
the date such stock certificate is actually issued (except as otherwise provided
in Section 12).
SECTION 15.
AMENDMENT OF THE PLAN
The Board of Directors of the Company may from time to time, insofar as
permitted by law, suspend or discontinue the Plan or revise or amend it in any
respect; provided, however, that no such revision or amendment shall impair the
terms and conditions of any option which is outstanding on the date of such
revision or amendment to the material detriment of the Optionee without the
consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall, (i) increase the number of shares subject to the Plan except as
provided in Section 12 hereof, (ii) change the designation of the class of
employees eligible to receive options, (iii) decrease the price at which options
may be granted, or (iv) increase the benefits accruing to Optionees under the
Plan, unless such revision or amendment is approved by the shareholders of the
Company. Furthermore, the Plan may not, without the approval of the
shareholders, be amended in any manner that will cause incentive stock options
to fail to meet the requirements of "Incentive Stock Options" as defined in
Section 422 of the Internal Revenue Code.
SECTION 16.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee to
exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
-9-
<PAGE>
BUFFALO WILD WINGS, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made this _____ day of ________, 1998, by and between
BUFFALO WILD WINGS, INC., a Minnesota corporation (the "Company"), and
________________ (the "Optionee").
WITNESSETH:
WHEREAS, the Optionee on the date hereof is an employee of the Company or a
Subsidiary of the Company; and
WHEREAS, to induce the Optionee to continue in its employ and to further
the Optionee's efforts in its behalf, the Company desires to grant to the
Optionee an incentive stock option to purchase shares of its Common Stock;
WHEREAS, the Company's Board of Directors has adopted a stock option plan
providing for the grant of incentive stock options known as the "bw-3, Inc. 1995
Stock Option Plan" (hereinafter referred to as the "Plan"); and
WHEREAS, on the date hereof, the Company's Board of Directors authorized
the grant of this incentive stock to the Optionee;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Optionee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee, on the
date of this Agreement, ("Date of Grant") the option to purchase ______________
shares of Common Stock of the Company (the "Option Stock") subject to the terms
and conditions herein contained, and subject only to adjustment in such number
of shares as provided in Section 12 of the Plan. To the extent permitted under
Section 422(d) of the Internal Revenue Code, the option granted herein is
intended by the parties to be, and shall be treated as, an incentive stock
option as such term is defined under Section 422 of the Internal Revenue Code.
2. OPTION PRICE. During the term of this option, the purchase price for
the shares of Option Stock granted herein is _______ per share, subject only to
adjustment of such price as provided in Section 12 of the Plan.
3. TERM OF OPTION. The term during which this option may be exercised
expires at the close of business on _______, unless terminated earlier under the
provisions of Paragraphs 10, 11 or 12 below. This option shall not be
exercisable during the first year after the Date of Grant. Thereafter, on each
succeeding anniversary of the Date of Grant, this Option shall become
exercisable to the extent of twenty-five percent (25%) of the aggregate number
of shares specified in paragraph 1, until the earlier of: (i) the time the
option shall have become exercisable to the extent of one hundred percent (100%)
of the total number of shares granted, and (ii) the
<PAGE>
termination of the option as provided herein. Once the option becomes
exercisable to the extent of one hundred percent (100%) of the aggregate number
of shares specified in Paragraph 1, the Optionee may continue to exercise this
option under the terms and conditions of this Agreement until the termination of
the option as provided herein. If Optionee does not purchase upon an exercise
of this option the full number of shares which Option is then entitled to
purchase, Optionee may purchase upon any subsequent exercise prior to this
option's termination such previously unpurchased shares in addition to those
Optionee is otherwise entitled to purchase. If this option has been granted
prior to approval of the Plan by the Company's shareholders, this option shall
not be exercisable until such approval is obtained.
4. PERSONAL EXERCISE BY OPTIONEE. This option shall, during the lifetime
of the Optionee, be exercisable only by said Optionee and shall not be
transferable by the Optionee, in whole or in part, other than by will or by the
laws of descent and distribution.
5. MANNER OF EXERCISE OF OPTION. This option is to be exercised by the
Optionee (or by the Optionee's successor or successors) by giving written notice
to the Company of an election to exercise such option. Such notice shall
specify the number of shares to be purchased hereunder and shall specify a date
(not more than 30 calendar days and not less than 10 calendar days from the date
of delivery of the notice to the Company) on which the Optionee shall deliver
payment of the full purchase price for the shares being purchased and the
Company shall deliver certificates to the Optionee representing the shares so
purchased. Such notice shall be delivered to the Company at its principal place
of business. An option shall be considered exercised at the time the Company
receives such notice. Upon receipt of such notice and subject to the provisions
of Paragraph 9 below, the Company shall, on the date specified in such notice
and upon payment by the Optionee of the required purchase price, deliver to the
Optionee certificates for the shares so purchased. Payment for shares of Option
Stock may be made in the form of cash, certified check, Common Stock of the
Company, or any combination thereof. Any stock so tendered as part of such
payment shall be valued at its then "fair market value" as provided in the Plan.
6. RIGHTS AS A SHAREHOLDER. The Optionee or a transferee of this option
shall have no rights as a shareholder with respect to any shares covered by this
option until the date of the issuance of a stock certificate for such shares.
No adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Section 12 of the Plan.
7. STOCK OPTION PLAN. The option evidenced by this Agreement is granted
pursuant to the Plan, a copy of which Plan is attached hereto or has been made
available to the Optionee and is hereby made a part of this Agreement. This
Agreement is subject to and in all respects limited and conditioned as provided
in the Plan. The Plan governs this option and the Optionee, and in the event of
any question as to the construction of this Agreement or of a conflict between
the Plan and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
-2-
<PAGE>
8. WITHHOLDING TAXES ON DISQUALIFYING DISPOSITION BY OPTIONEE. In the
event of a disqualifying disposition of Option Stock by Optionee, Optionee
hereby agrees to inform the Company of such disposition. Upon notice of a
disqualifying disposition or upon independently learning of such a disposition,
the Company shall withhold from whatever payments are due Optionee appropriate
state and federal income taxes as required by law. In the event the Company is
unable to withhold such taxes, for whatever reason, Optionee hereby agrees to
pay to the Company an amount equal to the amount the Company would otherwise be
required to withhold under state or federal law.
9. INVESTMENT PURPOSE. The Company requires as a condition to the grant
and exercise of this option that any stock acquired pursuant to this option be
acquired for only investment if, in the opinion of counsel for the Company, such
is required or deemed advisable under securities laws or any other applicable
law, regulation or rule of any government or governmental agency. In this
regard, if requested by the Company, the Optionee, prior to the acquisition of
any shares pursuant to this option, shall execute an investment letter to the
effect that the Optionee is acquiring shares pursuant to the option for
investment purposes only and not with the intention of making any distribution
of such shares and will not dispose of the shares in violation of the applicable
federal and state securities laws.
10. TERMINATION OF EMPLOYMENT (OTHER THAN DISABILITY OR DEATH). If
Optionee ceases to be an employee of the Company or any Subsidiary for any
reason (including without limitation, termination of employment as a result of
the reorganization, sale or liquidation by the Company or the Subsidiary which
employs Optionee where Optionee does not thereafter continue as an employee of
the Company or other Subsidiary), other than because of disability or death,
this Option shall completely terminate on the earlier of (I) the close of
business on the three month anniversary date of such termination of employment,
and (ii) the expiration date of this Option stated in Paragraph 3 above. In
such period following such termination of employment, this Option shall be
exercisable only to the extent the Option was exercisable on the date of the
Optionee's termination of employment but had not previously been exercised. To
the extent this Option was not exercisable upon such termination of employment,
or if the Optionee does not exercise the Option within the term specified in
this Paragraph, all rights of the Optionee under this Option shall be forfeited.
11. DEATH OF OPTIONEE. If the Optionee dies (I) while in the employ of
the Company or any Subsidiary, or (ii) within the period of three months after
the termination of his/her employment with the Company or any Subsidiary as
provided in Paragraph 10, or (iii) within one year after termination of
employment because of disability as provided in Paragraph 12, this option shall
terminate on the earlier of (I) the close of business on the one year
anniversary date of the Optionee's death, and (ii) this option's originally
stated expiration date. In such period following the Optionee's death, this
option may be exercised only by the person or persons to whom the Optionee's
rights under this option shall have passed by the Optionee's will or by the laws
of descent and distribution, and only to the extent the option was exercisable
on the date of death but had not previously been exercised.
-3-
<PAGE>
12. TERMINATION OF EMPLOYMENT BY REASON OF DISABILITY. If Optionee ceases
to be an employee of the Company or any Subsidiary before the original stated
expiration of this option and such termination of employment is due to
disability (as defined in Section 22 (3)(3) of the Internal Revenue Code of
1986, as amended),; this option shall terminate on the earlier of (I) one year
after the date of such termination of employment due to disability and (ii) this
option's originally stated expiration date. In such period following such
termination of employment due to disability, this option shall be exercisable
only to the extent that it was exercisable on the date of termination of
employment due to disability but had not previously been exercised.
13. RECAPITALIZATION, SALES, MERGERS, EXCHANGES, CONSOLIDATIONS,
LIQUIDATION. In the event of a stock dividend or stock split, the number of
shares of Option Stock and option exercise price shall be adjusted as provided
in Section 12 of the Plan. Similarly, in the event of a sale, merger, exchange,
consolidation or liquidation of the Company, this option shall be adjusted as
provided in Section 12 of the Plan.
14. SCOPE OF AGREEMENT. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Paragraph 4 above.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement in the manner appropriate to each, as of the day and year first above
written.
BUFFALO WILD WINGS, INC.
By
------------------------------------------
President
---------------------------------------------
Optionee
-4-
<PAGE>
BUFFALO WILD WINGS, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made this ____ day of ___________ by and between BUFFALO
WILD WINGS, INC., a Minnesota corporation (the "Company"), and (the
"Optionee");
WITNESSETH:
WHEREAS, the Optionee on the date hereof is a director of the Company; and
WHEREAS, to induce the Optionee to further the Optionee's efforts in its
behalf, the Company desires to grant to the Optionee a nonqualified stock option
to purchase shares of its Common Stock;
WHEREAS, the Company's Board of Directors has adopted a stock option plan
providing for the grant of nonqualified stock options known as the "First
Amended and Restated bw-3, Inc. 1995 Stock Option Plan" (hereinafter referred to
as the "Plan"); and
WHEREAS, on the date hereof, the Company's Board of Directors authorized
the grant of this nonqualified stock option to the Optionee;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the Company and the Optionee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee, on the
date of this Agreement, the option to purchase shares of
Common Stock of the Company (the "Option Stock") subject to the terms and
conditions herein contained, and subject only to adjustment in such number of
shares as provided in Section 12 of the Plan. The parties intend that the
option granted herein shall not be, and shall not be treated as, an incentive
stock option as such term is defined under Section 422 of the Internal Revenue
Code.
2. OPTION PRICE. During the term of this option, the purchase price for
the shares of Option Stock granted herein is ____ per share, subject only to
adjustment of such price as provided in Section 12 of the Plan.
3. TERM OF OPTION. The term during which this option may be exercised
expires at the close of business on , unless terminated earlier under
the provisions of Paragraphs 10, 11 or 12 below. This option shall not be
excercisable until the anniversary date of the execution of this Agreement or
until the date of the next Shareholders' meeting for the election of directors,
whichever occurs first. Upon such date, and thereafter, until this option
expires or is terminated as provided herein, this option shall be exercisable to
the extent of one hundred (100%) of the aggregate number of shares specified in
paragraph 1. If Optionee does not purchase upon an exercise of this option the
full number of shares which Optionee is then
<PAGE>
entitled to purchase, Optionee may purchase upon any subsequent exercise prior
to this option's termination such previously unpurchased shares in addition to
those Optionee is otherwise entitled to purchase. If this option has been
granted prior to approval of the Plan by the Company's shareholders, this option
shall not be exercisable until such approval is obtained.
4. PERSONAL EXERCISE BY OPTIONEE. This option shall, during the lifetime
of the Optionee, be exercisable only by said Optionee and shall not be
transferable by the Optionee, in whole or in part, other than by will or by the
laws of descent and distribution.
5. MANNER OF EXERCISE OF OPTION. This option is to be exercised by the
Optionee (or by the Optionee's successor or successors) by giving written notice
to the Company of an election to exercise such option. Such notice shall
specify the number of shares to be purchased hereunder and shall specify a date
(not more than 30 calendar days and not less than 10 calendar days from the date
of delivery of the notice to the Company) on which the Optionee shall deliver
payment of the full purchase price for the shares being purchased and the
Company shall deliver certificates to the Optionee representing the shares so
purchased. Such notice shall be delivered to the Company at its principal place
of business. An option shall be considered exercised at the time the Company
receives such notice. Upon receipt of such notice and subject to the provisions
of Paragraph 9 below, the Company shall, on the date specified in such notice
and upon payment by the Optionee of the required purchase price, deliver to the
Optionee certificates for the shares so purchased. Payment for shares of Option
Stock may be made in the form of cash, certified check, Common Stock of the
Company, or any combination thereof. Any stock so tendered as part of such
payment shall be valued at its then "fair market value" as provided in the Plan.
6. RIGHTS AS A SHAREHOLDER. The Optionee or a transferee of this option
shall have no rights as a shareholder with respect to any shares covered by this
option until the date of the issuance of a stock certificate for such shares.
No adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Section 12 of the Plan.
7. STOCK OPTION PLAN. The option evidenced by this Agreement is granted
pursuant to the Plan, a copy of which Plan is attached hereto or has been made
available to the Optionee and is hereby made a part of this Agreement. This
Agreement is subject to and in all respects limited and conditioned as provided
in the Plan. The Plan governs this option and the Optionee, and in the event of
any question as to the construction of this Agreement or of a conflict between
the Plan and this Agreement, the Plan shall govern, except as the Plan otherwise
provides.
8. WITHHOLDING TAXES. In order to permit the Company to receive a tax
deduction in connection with the exercise of this option, the Optionee agrees
that as a condition to any exercise of this option, the Optionee will also pay
to the Company, or make arrangements satisfaction, to the Company regarding
payment of any federal, state, local or other taxes required by law to be
withheld with respect to the option's exercise.
-2-
<PAGE>
9. INVESTMENT PURPOSE. The Company requires as a condition to the grant
and exercise of this option that any stock acquired pursuant to this option be
acquired for only investment if, in the opinion of counsel for the Company, such
is required or deemed advisable under securities laws or any other applicable
law, regulation or rule of any government or governmental agency. In this
regard, if required by the Company, the Optionee, prior to the acquisition of
any shares pursuant to this option, shall execute an investment letter to the
effect that the Optionee is acquiring shares pursuant to the option for
investment purposes only and not with the intention of making any distribution
of such shares and will not dispose of the shares in violation of the applicable
federal and state securities laws.
10. TERMINATION OF EMPLOYMENT (OTHER THAN DISABILITY OR DEATH). If
Optionee ceases to be a director of the Company or any Subsidiary for any reason
(including without limitation, termination as a director as a result of the
reorganization, sale or liquidation by the Company or the Subsidiary or which
Optionee is a director where Optionee does not thereafter continue as a director
of the Company or another Subsidiary), other than because of disability or
death, this option shall completely terminate on the earlier of (i) the close of
business on the three month anniversary date of such termination as a director,
and (ii) the expiration date of this option stated in Paragraph 3 above. In
such period following such termination as a director, this option shall be
exercisable only to the extent the option was exercisable on the date of the
Optionee's termination as a director but had not previously been exercised. To
the extent this option was not exercisable upon such termination as a director,
or if the Optionee does not exercise the option within the term specified in
this paragraph, all rights of the Optionee under this option shall be forfeited.
11. DEATH OF OPTIONEE. If the Optionee dies (i) while a director of the
Company or any Subsidiary, or (ii) within the period of three months after the
termination as a director with the Company or any Subsidiary as provided in
Paragraph 10, or (iii) within one year after the termination as a director
because of disability as provided in Paragraph 12, this option shall terminate
on the earlier of (i) the close of business on the one year anniversary date of
the Optionee's death, and (ii) this option's originally stated expiration date.
In such period following the Optionee's death, this option may be exercised only
by the person or persons to whom the Optionee's rights under this option shall
have passed by the Optionee's will or by the laws of descent and distribution,
and only to the extent the option was exercisable on the date of death but had
not previously been exercised.
12. TERMINATION OF EMPLOYMENT BY REASON OF DISABILITY. If Optionee ceases
to be a director of the Company or any Subsidiary before the original stated
expiration of this option and such termination as a director is due to
disability (as defined in Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended), this option shall terminate on the earlier of (i) one year after
the date of such termination as a director due to disability and (ii) this
option's originally stated expiration date. In such period following such
termination as a director, this option shall be exercisable only to the extent
that it was exercisable on the date of termination of employment due to
disability but had not previously been exercised.
-3-
<PAGE>
13. RECAPITALIZATION, SALES, MERGERS, EXCHANGES, CONSOLIDATIONS,
LIQUIDATION. In the event of a stock dividend or stock split, the number of
shares of Option Stock and option exercise price shall be adjusted as provided
in Section 12 of the Plan. Similarly, in the event of a sale, merger, exchange,
consolidation or liquidation of the Company, this option shall be adjusted as
provided in Section 12 of the Plan.
14. SCOPE OF AGREEMENT. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Paragraph 4 above.
BUFFALO WILD WINGS, INC.
By
------------------------------------------
President
---------------------------------------------
Optionee
-4-
<PAGE>
LEASE
LANDLORD: WHIOP REAL ESTATE LIMITED PARTNERSHIP
TENANT: BW3, INC.
DATE: February 25, 1997
<TABLE>
<CAPTION>
<S> <C>
1. Premises and Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
4. Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
5. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
6. Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
7. Condition of Premises. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
8. Repairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
9. Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
10. Damage or Destruction. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
11. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
12. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. Waiver of Claims and Indemnity . . . . . . . . . . . . . . . . . . . . . . . 10
14. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
15 Defaults and Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
16. Surrender of Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
17. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
18. Costs, Expenses and Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . 12
19. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
20. Rights Reserved By Landlord. . . . . . . . . . . . . . . . . . . . . . . . . 13
21. Estoppel Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
22. Rules and Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
23. Relocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
24. Assignment and Subletting. . . . . . . . . . . . . . . . . . . . . . . . . . 15
25. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
26. Conveyance by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
27. Subordination of Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
28 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
29. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
30. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
31. Exculpation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Rider to Lease Agreement
Exhibit A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premises
Exhibit B. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Description of Land
<PAGE>
Exhibit C. . . . . . . . . . . . . . . . . . . . . . . . . . . .Rules and Regulations
Exhibit D. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tenant Improvements
</TABLE>
<PAGE>
LEASE
This Lease is made and entered into as of February 25, 1997, between WHIOP REAL
ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership, as ("Landlord"), and
BW-3, INC., an Ohio corporation, as ("Tenant").
1. PREMISES AND TERM.
Landlord leases to Tenant, and Tenant leases from Landlord the space known as
Suite 1950 and shown hatched on the drawing attached to this Lease as Exhibit A
(the "Premises"), consisting of approximately 6,800 square feet and located on
the nineteenth (19th) floor(s) in the building known as Interchange Tower,
located at 600 South Highway 169, St. Louis Park, Minnesota 55426 (the
"Building"), which is one of the two buildings (together referred to as
"Tower/South") located on the land in Hennepin County, Minnesota legally
described on the attached Exhibit B (the "Land"), for a term commencing on April
15, 1997 and ending on April 30, 2002 (the "Term"), unless sooner terminated as
provided in this Lease, subject to all of the terms, covenants and agreements
contained in this Lease.
2. RENT.
Tenant shall pay to Landlord at COMPASS Management and Leasing, Interchange
Tower, 600 South Highway 169, Suite 1585, St. Louis Park, MN 55426, or at such
other place as Landlord may from time to time designate, annual base rent (the
"Base Rent") of One Hundred Forty Seven Thousand One Hundred Fifty-six and
00/100 Dollars ($147,156.00), in equal monthly installments of Twelve Thousand
Two Hundred Sixty-three and 00/100 Dollars ($12,263.00), each in advance on the
first day of each calendar month during the Term. If the Term commences on a
day other than the first day of a month, or ends on a day other than the last
day of a month, then the Base Rent for such fractional month will be prorated on
the basis of 1/365th of the annual Base Rent for each day of the fractional
month. Base Rent shall be payable without any prior demand and without any
deductions or setoffs.
3. ADJUSTMENTS.
The Base Rent of $21.64 per rentable square foot includes Landlord's estimate of
the 1996 ("Base Year") Taxes (as hereinafter defined) in the amount of $2.97 per
rentable square foot ("Base Year Taxes") and Operating Expenses (as hereinafter
defined) in the amount of $5.17 per rentable square foot ("Base Year Operating
Expenses").
Tenant shall pay to Landlord as additional rent per rentable square foot in the
Premises the amount by which all taxes and assessments assessed, levied or
imposed on, or allocated to, the Land and Tower/South, which are due and payable
with respect to the term, including interest on deferred assessments, and all
attorneys' fees, witness fees, court costs and other expenses of Landlord in
contesting such taxes and assessments (all of which are herein referred to as
"Taxes") per rentable square foot exceed the Base Year Taxes.
<PAGE>
Tenant shall pay to Landlord as additional rent per rentable square foot in the
Premises the amount by which the Operating Expenses for each calendar year of
the Term per rentable square foot exceed the Base Year Operating Expenses.
Taxes and operating expenses shall be allocated to the Premises on a square foot
basis in the same manner they are allocated to all other office space in the
Building.
Operating Expenses shall mean all costs, charges and expenses incurred by
Landlord, and not paid directly or separately by Tenant, in connection with
ownership, operation, security, maintenance and repair of the Land, Tower/South,
other improvements on the Land, appurtenances to the Tower/South, parking
driveways, landscaping, lighting. sidewalks, and common or public areas ,
including but not limited to real estate taxes and insurance on common areas,
interior and exterior maintenance, insurance, utilities, fees or expenses for
management by Landlord or any other party, and amortization of capital
expenditures made to reduce Operating Expenses or to comply with the
requirements of any federal, state or local law or regulation, or for repairs to
Tower/South or purchase of equipment. Operating Expenses shall not include
leasing fees, Landlord's income taxes, and capital expenditures other than those
expressly referred to in this paragraph.
If during any calendar year of the Term, less than 95% of the Building's
rentable area is occupied by tenants, the variable Operating Expenses for that
year will be equitably adjusted to reflect Operating Expenses as though
Tower/South had been 95% occupied throughout the year.
To provide for current payments for Taxes and Operating Expenses during the
Term, Tenant shall pay monthly, as additional rent together with the Base Rent,
Landlord's estimate from time to time of the Taxes and Operating Expenses for
each calendar year in excess of the respective Base Year Taxes and Base Year
Operating Expenses. Landlord will keep books and records showing the Operating
Expenses, and will deliver to Tenant after the close of each calendar year
(including the calendar year in which this Lease terminates), a statement
setting forth the actual Taxes and Operating Expenses for the year, the
estimated amounts paid by Tenant and the amount owed by Tenant or to be credited
to Tenant, as the case may be. Within I 0 days after receipt of the statement
Tenant shall pay to Landlord the amount of any underpayment, or Landlord shall
credit Tenant for the amount of any overpayment. No decrease in Taxes and/or
Operating Expenses shall reduce the amount of Base Rent, and no increase or
decrease shall change the amounts of the Base Year Taxes and Base Year Operating
Expenses set forth in the first paragraph of this Section. Operating Expenses
and Taxes shall at all times be computed separately.
The obligation of Tenant for payment of Base Rent and rent adjustments shall
survive the expiration or termination of this Lease. If Tenant does not give
Landlord written notice within one year after receiving Landlord's statement
that Tenant disagrees with the statement and,, specifying the amounts in
dispute, Tenant will be deemed to have waived the right to contest the
statement. Tenant will file no petition in Tax Court regarding the Taxes
without Landlord's prior
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written consent. The portion of Taxes and Operating Expenses to be paid by
Tenant for the years in which the Term begins and ends will be prorated.
Although Landlord treats Tower/South as one building for purposes of computing
and allocating Operating Expenses and Taxes, Landlord shall have the right,
after at least 30 days prior written notice to Tenant, to compute Operating
Expenses and Taxes with respect to only the building in which Tenant is located
and to separately allocate the Operating Expenses and Taxes for the Tower
Building and the South Building and those portions of the Land on which each is
located, as described in Exhibit B.
4. USE.
Tenant shall use and occupy the Premises for general office purposes and for no
other purpose. Tenant shall not use or permit upon the Premises anything that
will invalidate or increase the cost of any policies of insurance now or
hereafter carried on the Premises or the Building. Tenant will pay all extra
insurance premiums which may be caused by the use which Tenant shall make of the
Premises. Tenant will not use or permit upon the Premises anything that may be
dangerous to life or limb. Tenant will not in any manner deface or injure the
Building or any part thereof or overload the floors of the Premises. Tenant
will not do anything or permit anything to be done upon the Premises in any way
tending to create a nuisance, or tending to disturb any other tenant in the
Building or the occupants of neighboring property or tending to injure the
reputation of the Building. Tenant will promptly and fully comply with all
governmental, health and police requirements and regulations respecting Tenant's
specific business operation in the Premises. Tenant will not use the Premises
for lodging or sleeping purposes or for any immoral or illegal purposes. Tenant
shall not conduct nor permit to be conducted on the Premises any business which
is contrary to any local, state or federal laws, ordinances or regulations.
Tenant shall not use, handle, generate, treat, store or dispose of, or permit
the handling, generation, treatment, storage or disposal of any Hazardous
Materials in, on, under, around or above the Premises. Tenant will indemnify,
defend and save Landlord harmless from any actions, proceedings, claims, costs,
expenses and losses of any kind, including, but not limited to, those arising
from injury to any person, including death, damage to or loss of use or value of
real or personal property, and costs of investigation and cleanup with respect
to any breach by Tenant of the preceding sentence. The term "Hazardous
Materials", when used herein, shall include, but shall not be limited to, any
substances, materials or wastes to the extent quantities thereof are regulated
by any local, state or federal governmental authority, because of toxic,
flammable, explosive, corrosive, reactive, radioactive or other properties that
may be hazardous to human health or the environment. including asbestos and
including any materials or substances that are listed in the United States
Department of Transportation Hazardous Materials Table, as amended, 49 C.F.R.
172.101, or in the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. subsections 9601 et seq., or the Resources
Conservation and Recovery Act, as amended, 42 U.S.C. subsections 6901 et seq.,
or any other applicable governmental regulation imposing liability or standards
of conduct concerning any hazardous, toxic or dangerous substances, waste or
material, now or hereafter in effect. Tenant's obligations and liabilities
under this Section shall survive the expiration of the Term.
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Tenant shall not at any time manufacture, sell, or give away, and shall not at
any time permit the manufacture, sale, use or gift of, any spirituous,
intoxicating or alcoholic liquors or controlled substances on the Premises,
except that the foregoing shall not be deemed to prohibit the as Tenant has in
full occasional use of alcoholic beverages for entertainment purposes, so long
force and effect a policy of host liquor liability or dram-shop insurance in
form and amounts at all times satisfactory to Landlord and has delivered to
Landlord a certificate of insurance with respect thereto. The Tenant may have
in the Premises alcoholic substances to be given as gifts to customers. Said
alcoholic substances shall remain sealed and shall not be consumed in the
Premises.
5. SERVICES.
Landlord shall provide reasonable janitor service and elevator service for the
Premises, consistent with other class A office buildings in the Twin Cities
metropolitan area. Landlord shall also provide heating, ventilating and air
conditioning during the periods from 8:00 a.m. to 5:00 p.m. (Saturdays to 1:00
p.m.), Sundays and holidays excepted ("Normal Business Hours"). Landlord shall
provide electricity in reasonable amounts for ordinary office purposes. The
cost of all such services will be a part of the Operating Expenses. Neither
Landlord nor any agent or contractor of Landlord will be liable for any loss or
damage resulting from any temporary interruption of these services due to
repairs, alterations or improvements, or any variation, interruption or failure
of these services due to governmental controls, unavailability of energy, or any
other cause beyond Landlord's control. No such interruption or failure of these
services will be deemed an eviction of Tenant or will relieve Tenant from any of
its obligations under this Lease. Except for payment of Tenant's Share of
Operating Expenses, Tenant will not be required to pay for these services for
ordinary office purposes, but Tenant will pay to Landlord any charges Landlord
establishes for utilities or services provided outside Normal Business Hours at
Tenant's request, or provided because of uses other than ordinary office uses.
Whenever heat-generating machines or equipment installed by Tenant affect the
temperature otherwise maintained by Landlord in the Premises, or whenever the
occupancy or electrical load exceeds usual and customary office standards,
Landlord reserves the right to require Tenant to discontinue use of such
heat-generating machines or equipment, or install supplementary air conditioning
units in the Premises, the costs of installation, operation and maintenance of
which shall be paid by Tenant. Tenant will cooperate with Landlord and abide by
all reasonable regulations and requirements which Landlord may prescribe for the
proper functioning of the ventilating and air conditioning systems. Tenant
shall not waste or permit the waste of water.
If services are interrupted for a period of five consecutive days and all or a
portion of the Premises are untenantable because of the lack of services, the
rent will abate for the period the Premises are untenantable in proportion to
the portion of the Premises which is untenantable.
All charges for any such services shall be deemed rent payable at the same time
as the installment of rent with which they are billed, or, if billed separately,
within 10 days after billing.
6. POSSESSION.
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If the Premises are not completed and ready for occupancy on the first day of
the Term, this Lease shall nevertheless continue in full force and effect, and
no liability shall arise against Landlord out of any such delay beyond the
abatement of rent until the Premises are ready for occupancy; provided, however,
there shall be no abatement of rent if the space is not ready for occupancy
because of failure to complete the installation of special equipment, fixtures
or materials ordered by Tenant, or due to Tenant's failure or inability to
complete plans for any leasehold improvements in the Premises prior to a date
agreed upon by Landlord and Tenant, or due to any act, failure to act, or fault
of Tenant, its employees or agents. The Premises shall not be deemed incomplete
or not ready for occupancy if only insubstantial details of construction,
decoration or mechanical adjustments remain to be done. The determination of
Landlord's architect or interior space planner for the Building shall be
conclusive as to whether the Premises are complete and ready for occupancy.
Tenant agrees upon request of Landlord to promptly acknowledge in writing the
date of substantial completion of the Premises. If Tenant shall enter into
possession of all or any part of the Premises prior to the first day of the
Term, all of the covenants and conditions of this Lease will apply as of the
date of such possession and Tenant shall pay to Landlord as rent for the period
prior to the first day of the Term of this Lease a proportionate amount of the
rent set forth in Section 2.
Landlord shall use its best efforts to substantially complete the Tenant
improvements referred to in the attached Exhibit D on or before the Lease
Commencement (the "Deadline"). If such improvements have not been completed on
or before the Deadline, the Deadline may be extended by the period of any delays
suffered by Landlord or any of its contractors, subcontractors or materialmen as
a direct result of action or inaction by Tenant, or by the City of St. Louis
Park or any other governmental authority or agency, labor disputes, unavoidable
accidents, injunctions by third parties, civil disturbance, fire, acts of God or
the public enemy, shortage of construction labor or materials, or other
conditions beyond the reasonable control of Landlord. Tenant shall have the
right to abatement of one day's Base Rent for each day completion is delayed
beyond the Deadline as extended by any such unavoidable delays.
7. CONDITION OF PREMISES.
Tenant's occupancy of the Premises shall be deemed acceptance of the Premises,
except as to latent defects (which exception shall be effective for one year)
and so called "punchlist" items to be completed after occupancy. No promise of
the Landlord to alter, remodel, repair or improve the Premises or the Building
and no representations respecting the condition of the Premises or the Building
have been made by Landlord to Tenant, other than as may be contained herein or
in any Exhibit to this Lease.
8. REPAIRS.
Except as otherwise provided in Section 10 of this Lease, and subject to the
provisions of Section 9 of this Lease, Tenant shall, at its sole cost and
expense, keep the Premises in good order, repair and tenantable condition at all
times during the Term. Tenant shall promptly arrange with Landlord at Tenant's
sole cost and expense for the repair of all damages to the Premises, except
5
<PAGE>
for those portions of the Premises which are the responsibility of the Landlord
to repair and which would be covered by an all-risk casualty insurance policy
and for the replacement or repair of all damaged or broken glass, fixtures and
appurtenances, except for exterior window glass broken through no fault of
Tenant or its employees, agents, invitees or guests. If Tenant does not
promptly make such arrangements, Landlord may, but need not, make such repairs
and replacements and the costs paid or incurred by Landlord for such repairs and
replacements (including Landlord's overhead and profit, and the cost of general
conditions) shall be deemed additional rent due and payable within 10 days after
receipt of a statement from Landlord. Landlord may enter the Premises at all
reasonable times to make any repairs, alterations, improvements or additions,
including, but not limited to, ducts and all other facilities for heating and
air conditioning service, as Landlord shall desire or deem necessary for the
safety, maintenance, repair, preservation or improvement of the Building, or as
Landlord may be required or requested to do by governmental authorities.
Landlord will use reasonable efforts not to interfere with the Tenant's
business. Such work and any resultant interruption of services and facilities
shall not be deemed an eviction of Tenant, and the rent shall in no way abate,
and Tenant shall not be entitled to any setoff or damages. The Landlord will
maintain in good order and condition the common areas of the Building as well as
the building systems.
If Landlord's repairs render the Premises untenantable for a period of five
consecutive days the rent will abate for the period the Premises are
untenantable in proportion to the portion of the Premises which is untenantable.
9. ALTERATIONS.
Tenant shall not make any repairs, replacements, alterations, improvements or
additions ("Alterations") to the Premises without the prior written consent of
Landlord, which consent will not be unreasonably withheld. In requesting such
consent and prior to commencing any such work, Tenant shall at its sole cost and
expense:
(a) Submit to Landlord for review plans and specifications showing such
work in reasonable detail and pay to Landlord all costs incurred by Landlord in
connection with such review.
(b) Furnish Landlord with the names and addresses of all contractors and
copies of all contracts.
(c) Provide Landlord with such security as Landlord may require, as well
as all necessary permits evidencing compliance with all applicable laws,
ordinances and regulations.
(d) Provide Landlord with certificates of insurance in forms and amounts
satisfactory to Landlord naming Landlord as an additional insured when required
by Landlord.
(e) Comply with such other requests as Landlord may reasonably make in
connection with such work.
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All such work shall, at Landlord's election, be subject to supervision by
Landlord, in which case Tenant shall promptly pay to Landlord a supervision fee
equal to 12% of the cost of the work.
Tenant shall protect, defend, indemnify and hold Landlord, the Building and
other tenants of the Building harmless from and against any liabilities which
may arise out of or in connection with the Alterations, except for those
liabilities which arise out of acts or omissions of Landlord or its agents with
respect to the Alterations.
Upon completing any Alterations, Tenant shall furnish Landlord with contractors'
affidavits, sworn statements and full and final waivers of lien and receipted
bills covering all labor and material expended and used. All Alterations shall
comply with all insurance requirements and with all applicable laws, ordinances
and regulations. All Alterations shall be completed in a good and workmanlike
manner and only good grades of material shall be used.
All Alterations, whether temporary or permanent in character, including, without
limitation, wall coverings, carpeting and other floor coverings, special
lighting installations, built-in or attached shelving, cabinetry and mirrors,
installed by Landlord or Tenant in the Premises shall become Landlord's property
and shall remain in the Premises at the expiration or termination of this Lease
without compensation to Tenant, except for Tenant's movable office furniture,
trade fixtures and office equipment. Landlord shall have the right to condition
its approval of the Alterations upon Tenant's agreement to remove Alterations at
Tenant's sole cost and expense in accordance with the provisions of Section 16
of this Lease.
Nothing contained in this Lease shall authorize or empower Tenant to do anything
to encumber Landlord's title to the Building, Land or Premises, nor in any way
subject Landlord's title to any claims of lien or encumbrance whether claimed by
operation of law or by virtue of any expressed or implied contract of Tenant.
If Tenant has not removed any such lien or encumbrance within 15 days after
written notice to Tenant by Landlord, Landlord may, but shall not be obligated
to, pay the amount necessary to remove the lien or encumbrance, without being
responsible for making any investigation as to the validity or accuracy thereof,
and the amount so paid, together with all costs and expenses (including
reasonable attorneys' fees) incurred by Landlord in connection therewith, shall
be deemed additional rent due and payable within 10 days after receipt of a
statement from Landlord.
10. DAMAGE OR DESTRUCTION.
(a) If the Premises or any part of the Building is damaged by fire or
other casualty and if such damage does not render all or a substantial portion
of the Premises or the Building untenantable, then Landlord shall proceed to
repair and restore the same to its prior existing condition with reasonable
promptness, subject to reasonable delays for insurance adjustments and delays
caused by matters beyond Landlord's control. If any such damage renders all or
a substantial portion of the Premises or the Building untenantable, Landlord
shall, with reasonable promptness after the occurrence of such damage and in
good faith, estimate the length of time that will be required to substantially
complete the repair and restoration of such damage and shall
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by notice advise Tenant of such estimate. If it is so estimated that the amount
of time required to substantially complete such repair and restoration will
exceed 270 days from the date such damage occurred, then either Landlord or
Tenant shall have the right to terminate this Lease as of the date of such
damage upon giving notice to the other at any time within 20 days after Landlord
gives Tenant the notice containing said estimate (it being understood that
Landlord may, if it elects to do so, also give such notice of termination
together with the notice containing said estimate). Unless this Lease is
terminated as provided in the preceding sentence, Landlord shall proceed with
reasonable promptness and all due diligence to repair and restore the Premises,
subject to reasonable delays for insurance adjustments and delays caused by
matters beyond Landlord's control, and also subject to zoning laws and building
codes then in effect. Landlord shall have no liability to Tenant, and Tenant
shall not be entitled to terminate this Lease (except as hereinafter provided)
if such repairs and restoration are not in fact completed within the time period
estimated by Landlord. as aforesaid, or within said 270 days, so long as
Landlord shall proceed with reasonable promptness and due diligence.
Notwithstanding anything to the contrary herein set forth: (i) if any such
damage rendering all or a substantial portion of the Premises or Building
untenantable shall occur during the last 3 years of the Term, then Landlord
shall have the option to terminate this Lease by written notice to Tenant within
30 days after the date such damage occurred, and if such option is so exercised,
this Lease shall terminate as of the date of such damage; (ii) Landlord shall
have no duty to repair or restore any Alterations made by or on behalf of Tenant
in the Premises or improvements which are not then building standard
improvements; (iii) Landlord shall not be obligated (but may, at its option, so
elect) to repair or restore the Premises or Building if any mortgagee applies
proceeds of insurance to reduce its loan balance, and the remaining proceeds, if
any, available to Landlord are not sufficient to pay for such repair or
restoration.
(b) In the event any such fire or casualty renders the Premises
substantially untenatable and Tenant is not occupying the Premises, and this
Lease is not terminated, then rent shall abate beginning with the date of such
damage and ending with the date when Landlord substantially completes its repair
and restoration work. In the event of termination of this Lease pursuant to this
Section, rent shall be apportioned on a per diem basis and be paid to the date
of such fire or other casualty.
(c) In the event of any such fire or other casualty, and if this Lease is
not terminated, Tenant shall repair and restore any portion of Alterations made
by or on behalf of Tenant in the Premises, and during any such period of
Tenant's repair and restoration of the Alterations following substantial
completion of Landlord's repair and restoration of the Premises, rent shall be
payable as if said fire or other casualty had not occurred.
11. INSURANCE.
Tenant, at its sole cost and expense but for the mutual benefit of Landlord and
Tenant (when used in this Section the term "Landlord" shall include Landlord and
its officers, agents and employees), shall purchase and keep and maintain in
force and effect during the Term, insurance under policies issued by insurers of
recognized responsibility on its personal property, fixtures and tenant
improvements including, but not limited to, special wall and floor coverings,
special
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lighting fixtures, built-in cabinets and bookshelves and on its merchandise,
inventory, contents, furniture, equipment or other personal property located in
the Premises protecting Landlord and Tenant from damage or other loss caused by
fire or other casualty including, but not limited to, vandalism and malicious
mischief, perils covered by all risk and extended coverage, theft, sprinkler
leakage, water damage (however caused), explosion, malfunction or failure of
heating and cooling or other apparatus, and other similar risks in amounts not
less than the full insurable replacement value of such property. Such insurance
shall provide that it is specific and not contributory and shall name the
Landlord as an additional insured and shall contain a replacement cost
endorsement and a clause pursuant to which the insurance carriers waive all
rights of subrogation against the Landlord with respect to losses payable under
such policies. At Landlord's request, Tenant shall deliver certificates of
insurance evidencing such coverage upon execution hereof and thereafter not less
than 15 days prior to the expiration date of any such policy.
Landlord shall maintain insurance on the Building against fire and such other
risks as may be included in extended coverage insurance from time-to-time
available in an amount not less than the greater of 80% of the full insurable
value of the Building or the amount sufficient to prevent Landlord from becoming
a co-insurer under the terms of the applicable policies. Such policies shall
contain a replacement cost endorsement and a clause pursuant to which the
insurance carriers waive all rights of subrogation against the Tenant with
respect to losses payable under such policies.
By this Section, Landlord and Tenant intend that the risk of loss or damage
referred to in this Section be borne by responsible insurance carriers to the
extent above provided, and Landlord and Tenant hereby release each other and
agree to look solely to, and to seek recovery only from, their respective
insurance carriers in the event of a loss of a type referred to in this Section
to the extent that coverage is to be provided under this Section. For this
purpose, any applicable deductible amount shall be treated as though it were
recoverable under such policies. Landlord and Tenant agree that applicable
portions of all monies collected from such insurance shall be used toward the
fall compliance of the obligations of Landlord and Tenant under this Lease in
connection with loss or damage referred to in this Section.
Tenant shall, at Tenant's expense, maintain during the Term comprehensive public
liability insurance, contractual liability insurance and property damage
insurance, under policies issued by insurers of recognized responsibility, with
limits of not less than $3,000,000 for personal injury, bodily injury, sickness,
disease or death and $ 1,000,000 for damage or injury to or destruction of
property (including the loss of use thereof) for any one occurrence. Tenant's
policies shall name Landlord and its officers, agents and employees as
additional insureds. At Landlord's request, Tenant shall deliver certificates
of insurance evidencing such coverage upon execution hereof and thereafter not
less than 15 days prior to the expiration date of any such policy.
12. CONDEMNATION.
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If all or part of the Premises, Building or Land is taken or condemned by any
competent authority for any public or quasi-public use or purpose or if any
adjacent property or street is condemned or improved in such manner as to
require the use of any part of the Premises or of the Building, the Term, at the
option of Landlord, shall end upon the date when the possession of the part so
taken shall be required for such use or purpose and Landlord shall be entitled
to receive the entire award without any payment to Tenant, the Tenant hereby
assigning to the Landlord the Tenant's interest therein, if any, except for
amounts specifically awarded for Tenant's trade fixtures or as a relocation
payment or allowance which does not reduce Landlord's award. Current rent shall
be apportioned as of the date of such termination.
13. WAIVER OF CLAIMS AND INDEMNITY.
Tenant agrees that, to the extent not expressly prohibited by law, Landlord and
its officers agents, servants and employees shall not be liable for (nor shall
rent abate as a result of) any direct or consequential damage (including damage
claimed for actual or constructive eviction) either to person or property
sustained by Tenant, its employees, agents, invitees or guests due to the
Building or any part thereof or any appurtenances thereof becoming out of
repair, or due to the happening of any accident in or about the Building, or due
to any act or neglect of any tenant or occupant of the Building or of any other
person, except for damage to person caused by Landlord's negligence or willful
misconduct arising out of an occurrence outside of the Premises. This provision
shall apply particularly (but not exclusively) to damage caused by water, snow,
frost, steam, sewage, gas, electricity, sewer gas or odors or by the bursting,
leaking or dripping of pipes, faucets and plumbing fixtures and windows, and
shall apply without distinction as to the person whose act or neglect was
responsible for the damage and whether the damage was due to any of the causes
specifically enumerated above or to some other cause of an entirely different
kind, except for damage to person caused by Landlord's negligence or willful
misconduct arising out of an occurrence outside of the Premises. Tenant further
agrees that all of Tenant's personal property in the Premises or the Building
shall be at the risk of Tenant only and that Landlord shall not be liable for
any loss or damage thereto or theft thereof. Tenant shall protect, indemnify
and save Landlord and its officers, agents and employees harmless from and
against any and all obligations liabilities, costs, damages, claims and expenses
of whatever nature arising from injury to persons or damage to property on the
Premises or in or about the Building arising out of or in connection with
Tenant's use or occupancy of the Premises or Tenant's activities in the
Building, or arising from any act or negligence of Tenant, or its agents,
contractors, servants, employees, or invitees, unless the same was caused by the
negligence or willful misconduct of the Landlord or its employees or agents.
14. WAIVERS.
No waiver of any provision of this Lease shall be implied by Landlord's failure
to enforce any remedy, and no express waiver shall affect any provision other
than the one specified in such waiver and that one only for the time and in the
manner specifically stated. No receipt of moneys by Landlord from Tenant after
expiration or termination of the Term or of Tenant's right of possession shall
reinstate, continue or extend the Term or affect any notice given to Tenant
prior to the receipt of such moneys.
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Except as provided in Section 15 hereof, Tenant hereby expressly waives the
service of any notice of intention to terminate this Lease or to re-enter the
Premises and waives the service of any demand for payment of rent or for
possession and waives the service of any other notice or demand prescribed by
any statute or other law.
15 DEFAULTS AND REMEDIES.
If (a) Tenant defaults in the payment of rent or any other sum to be paid by
Tenant under this Lease, or under the terms of any other agreement between
Landlord and Tenant, and (with respect to the first two of such defaults in any
12-month period) such default continues for 10 days after written notice to
Tenant, or (b) Tenant defaults in the full and prompt performance of any other
obligations of Tenant under this Lease and such default continues for 30 days
after written notice to Tenant (or if such default involves a hazardous
condition and is not cured by Tenant immediately upon written notice to Tenant),
or (c) if the interest of Tenant in this Lease is levied on under execution or
other legal process, or (d) if any petition is filed by or against Tenant to
declare Tenant a bankrupt or to delay, reduce or modify Tenant's debts or
obligations, or (f) if Tenant is declared insolvent according to law or if any
assignment of Tenant's property is made for the benefit of creditors, or (g) if
a receiver or trustee is appointed for Tenant or its property, or (i) Tenant
defaults in any other lease for space in the Building, then Landlord may treat
the occurrence of any one or more of the foregoing events as a breach of this
Lease, and may, without notice or demand of any kind to Tenant or any other
person, have any one or more of the following described remedies in addition to
all other rights and remedies provided at law or in equity:
(a) Landlord may terminate this Lease and the Term, repossess the
Premises and recover damages equal to the value of the Base Rent and rent
adjustments for the balance of the Term, less the fair rental value of the
Premises for said period, plus any other sums or damages owed by Tenant to
Landlord.
(b) Landlord may terminate Tenant's right of possession and repossess the
Premises without terminating this Lease, in which event Landlord may, but shall
not be obligated to, relet all or any part of the Premises, for such rent and
upon such terms as shall be satisfactory to Landlord. Landlord may relet all or
a part of the Premises for a term greater or lesser than the remaining Term for
the same or a different use, and may decorate to make repairs, changes,
alterations or additions. If Landlord does not relet the Premises, or if the
Premises are relet and a sufficient amount is not received by Landlord after
paying all costs and expenses of decorations, repairs, changes, alterations and
additions and expenses of relenting and collection of rent to satisfy all
amounts to be paid under this Lease, Tenant shall pay to Landlord as damages a
sum equal to the amount of the Base Rent and rent adjustments, or, if the
Premises have been relet, any such deficiency, upon demand. Landlord may sue to
recover any sums due under this paragraph and any other sums due under this
Lease from time to time. No suit or recovery of any portion due Landlord shall
be any defense to any subsequent action brought for any amount not previously
reduced to judgment in favor of Landlord.
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16. SURRENDER OF POSSESSION.
(a) Before the date the Term expires or Tenant's right of possession
otherwise terminates, Tenant shall (i) restore the Premises to the same
condition as they were in at the beginning of the Term (except as otherwise
provided in Section 10 and normal wear and tear due to Tenant's use) and remove
those alterations, improvements or additions installed during Tenant's
occupancy, whether installed by Landlord or Tenant, which Landlord shall request
Tenant to remove; (ii) remove all of Tenant's personal property; and (iii)
surrender possession of the Premises to Landlord in a clean condition free of
all rubbish and debris.
(b) If Tenant does not comply with paragraph (a) of this Section,
Landlord may enter the Premises, put the Premises in such condition, and recover
from Tenant Landlord's cost of doing so.
Any property left in the Premises after expiration or termination of this Lease
or after the Premises have been vacated by Tenant will become the property of
Landlord to dispose of as Landlord chooses.
17. HOLDING OVER.
Tenant shall pay to Landlord 150% the Base Rent plus 150% the rent adjustments
then applicable for each month or portion thereof Tenant shall retain possession
of the Premises or any part thereof after the termination of this Lease, whether
by lapse of time or otherwise, and also shall pay all damages sustained by
Landlord, whether direct or consequential, on account thereof. At the option of
Landlord, expressed in a written notice to Tenant and not otherwise, such
holding over shall constitute a renewal of this Lease for a period of one month.
The provisions of this Section shall not operate as a waiver by Landlord of any
right of re-entry.
18. COSTS, EXPENSES AND ATTORNEYS' FEES.
If any action or proceeding is brought by Landlord or Tenant to interpret or
enforce the provisions hereof, the prevailing party shall be entitled to recover
from the unsuccessful party therein, in addition to all other remedies all costs
incurred by the prevailing party in such action or proceeding, including
reasonable attorney's fees to be fixed by the court having jurisdiction thereof.
19. COMPLIANCE WITH LAWS.
Tenant will, at its expense, promptly comply with all laws, ordinances, rules,
orders, regulations and other requirements of governmental authorities now or
subsequently pertaining to the Tenant's specific business operation in the
Premises. Landlord shall promptly and fully comply with all governmental,
health and police requirements and regulations that apply generally to office
buildings. Tenant will pay any taxes or other charges by any governmental
authority on Tenant's property or trade fixtures in the Premises or relating to
Tenant's use of the Premises.
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20. RIGHTS RESERVED BY LANDLORD.
Landlord shall have the following rights, exercisable without notice and without
liability to Tenant for damage, eviction, disturbance of Tenant's use or
possession, or abatement of rent:
(a) To name the Building and to change the Building's name or street
address.
(b) To install, affix and maintain any and all signs on the exterior and
interior of the Building.
(c) To designate and approve, prior to installation, all types of window
shades, blinds, drapes, and other similar equipment, and to control all internal
lighting that may be visible from the exterior of the Building.
(d) To designate, restrict and control all sources from which Tenant may
obtain ice, drinking water, towels, toilet supplies, shoe shining, catering,
food and beverages, or like or other services on the Premises, and, in general,
to reserve to Landlord the exclusive right to designate, limit, restrict and
control any business and any service in or to the Building and its tenants. The
Tenant may have events within its Premises catered so long as the serving of
food does not become disruptive or otherwise cause complaints from other
tenants.
(e) On reasonable prior notice to Tenant, to show the Premises to
prospective tenants at reasonable hours during the last -12 months of the Term
and, if vacated during such period to decorate, remodel, repair or otherwise
prepare the Premises for re-occupancy without affecting Tenant's obligation to
pay rent.
(f) To retain at all times, and to use in appropriate instances, keys to
all doors within and into the Premises. No locks shall be changed without the
prior written consent of Landlord.
(g) To decorate or to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the Building, enter
the Premises, temporarily close doors, entryways, public space and corridors,
interrupt Building services and facilities, all without abatement of rent or
affecting any of Tenant's obligations, so long as the Premises are reasonably
accessible, and otherwise tenantable.
If services are interrupted for a period of five consecutive days and all or a
portion of the Premises are untenantable because of the lack of services, the
rent will abate for the period the Premises are untenantable in proportion to
the portion of the Premises which is untenantable.
(h) To have and retain a paramount title to the Premises free and clear
of any act of Tenant purporting to burden or encumber it.
(i) To grant to anyone the exclusive right to conduct any business or
render any service in or to the Building, if it does not exclude Tenant's
permitted use of the Premises.
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(j) To approve the weight, size and location of safes and other heavy
equipment and bulky articles in and about the Premises and the Building (so as
not to overload the floors of the Premises), and to require all such items and
furniture and similar items to be moved into and out of the Building and
Premises only at such times and in such manner as Landlord shall direct. Any
damages done to the Building or Premises or to other tenants in the Building by
taking in or putting out safes, furniture and other items, or from overloading
the floor in any way, shall be paid by Tenant. Furniture, boxes, merchandise or
other bulky articles shall be transported within the Building only upon or by
vehicles equipped with rubber tires and shall be carried only in the freight
elevators and at such times as the management of the Building shall require.
Movements of Tenant's property into or out of the Building and within the
Building are entirely at the risk and responsibility of Tenant.
21. ESTOPPEL CERTIFICATES.
Tenant agrees that from time to time upon not less than 10 days' prior request
by Landlord, Tenant shall deliver to Landlord a statement provided by Landlord
certifying (a) that this Lease is unmodified and in full force and effect (or if
there have been modifications that the Lease as modified is in full force and
effect); (b) the dates to which the rent and other charges have been paid; (c)
that neither Landlord nor Tenant is in default under any provision of this
Lease, or, if in default, the nature thereof in detail; and (d) that there are
no offsets or defenses to the payment of Base Rent, additional rent or any other
sums payable under this Lease or, if there are any such offsets or defenses,
specifying such in detail.
22. RULES AND REGULATIONS.
Tenant shall observe and comply with the rules and regulations set forth in
Exhibit C attached to this Lease, and with such reasonable modifications and
additions as Landlord may make for the safety, care and cleanliness of the
Building and Premises and for the preservation of good order. Landlord shall
not be liable to Tenant for violation of such rules and regulations by any other
tenant or any other person. The Landlord shall use reasonable efforts to
enforce the rules and regulations as to all tenants in the building.
23. RELOCATION.
Upon at least 3 0 days' prior notice to Tenant, Landlord may substitute for the
Premises other premises similar to the Premises in area (at least as large) and
use for Tenant's purposes (the "New Premises"). If Tenant is in occupancy of
the Premises, Landlord shall pay the expense of Tenant for moving from the
Premises to the New Premises and improving the New Premises so that they are
substantially similar to the Premises. In addition, the Landlord will be
responsible for paying the full cost of new letterhead, business cards, notices,
telephone connections and other reasonable expenses incurred as a result of the
move.
24. ASSIGNMENT AND SUBLETTING.
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Tenant shall not, without the prior written consent of Landlord, (i) assign,
convey, mortgage, pledge or otherwise transfer this Lease, or any part thereof,
or any interest hereunder; (ii) permit any assignment of this Lease, or any part
thereof, by operation of law; (iii) sublet the Premises or any part thereof-, or
(iv) permit the use of the Premises, or any part thereof, by any parties other
than Tenant, its agents and employees. Tenant shall, by notice in writing,
advise Landlord of any intention to assign this Lease or to sublet all or any
part of the Premises. Tenant's notice shall include all of the terms of, and
consideration for, the proposed assignment or sublease, the proposed effective
date, the name and address of the proposed assignee or subtenant and a true and
complete copy of the proposed assignment or sublease and any other related
agreements. In order to be effective, Tenant's notice must also be accompanied
by audited financial statements, if available, for the proposed assignee or
subtenant, prepared by an independent certified public accountant, for the two
most recently ended fiscal years of such proposed assignee or subtenant.
Landlord shall have the right by written notice to Tenant within 30 days after
receipt of Tenant's notice, to recapture the space described in Tenant's notice.
The recapture notice shall, if given, cancel and terminate this Lease with
respect to the space therein described as of the date stated in Tenant's notice.
If Tenant's notice covers all of the Premises. and Landlord exercises its
recapture right, the Term shall expire on the date stated in Landlord's
recapture notice. If this Lease is canceled with respect to less than the
entire Premises, Base Rent and rent adjustments shall be adjusted on the basis
of the number of square feet retained by Tenant in proportion to the number of
square feet contained in the Premises, and this Lease as so amended shall
continue in full force and effect.
If Landlord after receiving Tenant's notice does not exercise its recapture
right, and if Tenant is not in default, Landlord will not unreasonably withhold
its consent to Tenant's proposed assignment or subletting to the party
identified in Tenant's notice. If Landlord consents to any such assignment or
subletting, Tenant shall pay to Landlord any profit derived by Tenant from such
assignment or subletting. Profit shall be deemed to include, but shall not be
limited to, the amount paid or payable to Tenant to effect or to induce Tenant
to enter into any such transaction, and the amount of all rent and other
consideration of whatever nature payable by the assignee or sublessee in excess
of the Base Rent and rent adjustments payable by Tenant under this Lease. If
part of the consideration for the assignment or subletting is payable other than
in cash, the payment to Landlord of its share of the non-cash consideration
shall be in such form as is satisfactory to Landlord. Tenant shall and hereby
agrees that it will furnish to Landlord upon request from Landlord a complete
statement, certified by an independent certified public accountant, setting
forth in detail the computation of all profit derived and to be derived from
such assignment or subletting, such computation to be made in accordance with
generally accepted accounting principles. Tenant agrees that Landlord or its
authorized representatives shall be given access at all reasonable times to the
books, records and papers of Tenant relating to any such assignment or
subletting, and Landlord shall have the right to make copies thereof. The
profit due Landlord shall be paid to Landlord within 10 days of receipt by
Tenant of all payments made from time to time by the assignee or subtenant.
Any change in the ownership of Tenant, by sale, assignment, operation of law or
otherwise, resulting in a change in the present control of such corporation,
shall be deemed to be an assignment within the meaning of this Section. But,
the same will not result in any right of
15
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Landlord to recapture the Premises and Landlord will not unreasonably withhold
its consent to such assignment.
No subletting or assignment shall release or discharge Tenant of or from any
liability, whether past, present or future, under this Lease, and Tenant shall
continue fully liable. Any subtenant or assignee shall agree in a form
satisfactory to Landlord to comply with and be bound by all provisions of this
Lease to the extent of the space sublet or assigned. Tenant shall deliver such
agreement to Landlord promptly after execution, together with an executed copy
of each such sublease or assignment. Tenant shall pay to Landlord, on demand,
all reasonable costs incurred by Landlord (including fees paid to consultants
and attorneys) in connection with any request by Tenant for Landlord to consent
to any assignment or subletting by Tenant. Any sale, assignment, mortgage,
transfer, or subletting of this Lease not in compliance with this Section shall
be void.
25. NOTICE.
All notices, demands, approvals and consents which may or are required to be
given by one party to the other under this Lease shall be in writing and shall
be delivered personally or by a nationally-recognized air courier service or
mailed by United States certified mail, postage prepaid, (a) if for the Tenant,
addressed to the Tenant at the Premises or at such other place as Tenant may
from time to time designate by notice to Landlord, or (b) if for the Landlord,
addressed to:
WHIOP Real Estate Limited Partnership
Attn: John F. Markey
Senior Vice President - East
c/o WCB Properties
3400 Park Lane
Pittsburgh, PA 15275
With a copy to:
COMPASS Management and Leasing, Inc.
600 So Hwy. 169, Suite 1585
St. Louis Park, MN 55426
or at such other place as Landlord may from time to time designate by notice to
Tenant. Mailed notices shall be deemed given upon posting in the United States
mails.
26. CONVEYANCE BY LANDLORD.
If Landlord or any successor owner of the Premises shall convey or otherwise
transfer the Premises to another party, the other party shall become Landlord
under this Lease and shall assume all liabilities and obligations of this Lease
to be performed by Landlord which first arise after the date of conveyance or
transfer, and the conveying or transferring Landlord shall, from
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and after the date of conveyance, be free of all liabilities and obligations
relating to the period after said date.
27. SUBORDINATION OF LEASE.
The rights of the Tenant under this Lease shall be and are subject and
subordinate at all times to all ground leases and underlying leases, if any, now
or hereafter in force against the Property, and to the lien of any mortgages now
or hereafter in force against such leases, the Land or the Building, or all of
them, and to all advances made or hereafter to be made, and to all renewals,
modifications, amendments, consolidations, replacements and extensions thereof.
This Section is self-operative and no further instrument of subordination shall
be required. Any mortgagee may, however, elect to have this Lease be superior
to its mortgage. At Landlord's request, Tenant shall execute a document in
recordable form confirming that this Lease is subordinate (or at the mortgagee's
election, superior) to any mortgage. Tenant hereby irrevocably appoints
Landlord as attorney-in-fact for Tenant with full power and authority to execute
and deliver in the name of Tenant any such documents. Tenant, at the option of
any mortgagee, agrees to attorn to such mortgagee in the event of a foreclosure
sale or deed in lieu thereof.
28 BROKERS.
Tenant represents and warrants to Landlord that neither it nor its officers or
agents nor anyone acting on its behalf has dealt with any real estate broker
other than COMPASS Management and Leasing, Inc. in the negotiation or making of
this Lease, and Tenant agrees to indemnify and hold harmless Landlord from the
claim or claims of any other broker or brokers claiming to have interested
Tenant in the Building or Premises or claiming to have caused Tenant to enter
into this Lease.
29. SECURITY DEPOSIT
30. MISCELLANEOUS.
(a) All rights and remedies of Landlord under this Lease shall be
cumulative and none shall exclude any other rights and remedies allowed by law.
(b) All payments due from Tenant shall be considered as rent, and if not
paid when due shall bear interest from such date until paid at the rate of 2%
per annum in excess of the corporate base rate in effect from time to time at
The First National Bank of Chicago (unless a lesser rate shall then be the
maximum rate permissible by law with respect thereto, in which event such lesser
rate shall be charged).
(c) The word "Tenant" means Tenants in all cases where there is more than
one Tenant, and the necessary grammatical changes are deemed made to apply
either to corporations, partnerships or individuals, men or women.
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(d) Each of the provisions of this Lease shall extend to and shall, as
the case may require, bind or inure to the benefit, not only of Landlord and of
Tenant, but also of their respective heirs, legal representatives, successors
and assigns, provided this clause shall not permit any assignment contrary to
Section 24.
(e) All of the representations and obligations of Landlord are contained
herein, and no modification, waiver or amendment of this Lease or of any of its
conditions or provisions shall be binding upon the Landlord unless in writing
signed by Landlord or by a duly authorized agent of Landlord empowered by a
written authority signed by Landlord.
(f) Submission of this instrument for examination shall not bind Landlord
in any manner, and no lease or obligation on Landlord shall arise until this
instrument is signed and delivered by Landlord and Tenant.
(g) No rights to light or air over any property, whether belonging to
Landlord or any other person, are granted to Tenant by this Lease.
(h) Sectional headings in this Lease are solely for convenience of
reference and shall not in any way limit or amplify the terms and provisions
hereof.
(i) The laws of the State of Minnesota shall govern the validity,
performance and enforcement of this Lease. The invalidity or unenforceability
of any provision of this Lease shall not offset or impair any other provision.
If any provision of this Lease is capable of two constructions, one of which
would render the provision invalid and the other of which would make the
provision valid, then the provision shall have the meaning which renders it
valid.
(j) Nothing contained in this Lease shall be deemed or construed to
create any relationship between Landlord and Tenant other than the relationship
of landlord and tenant.
(k) Landlord shall have the right to apply payments received from Tenant
pursuant to this Lease (regardless of Tenant's designation of such payments) to
satisfy any obligations of Tenant hereunder, in such order and amounts, as
Landlord in its sole discretion, may elect.
(l) All indemnities, covenants and agreements of Tenant contained herein
which inure to the benefit of Landlord shall be construed to also inure to the
benefit of Landlord's officers, shareholders, directors, partners, agents and
employees.
31. EXCULPATION.
Any obligation of Landlord, or its agent, under or with respect to this
Lease or the Building shall be enforceable only against and payable out of
Landlord's interest in the Building and Land. Neither Tenant nor any other
person shall have or may assert any right, recourse or remedy to or against
Landlord or its agent or any assets of Landlord, except to the extent (if any)
of their respective interests in the Building and Land. No officer,
shareholder, director,
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employee, partner, trustee or beneficiary of Landlord or its agent assumes or
shall have any personal liability of any kind whatsoever under this Lease.
LANDLORD:
WHIOP Real Estate Limited Partnership
By: WHIOP Gen-Par, Inc.
a Delaware corporation, general partner
By: /s/ John F. Markey
-----------------------------------------
John F. Markey
--------------------------------------------
Senior Vice President - East
--------------------------------------------
TENANT:
BW-3, INC.
By: /s/ Sally J. Smith
-----------------------------------------
Sally J. Smith
--------------------------------------------
PRINT NAME
President
--------------------------------------------
(Title)
19
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CERTIFICATE
(If Tenant is a corporation)
As Secretary of the Tenant named in the foregoing Lease, I hereby certify
that the officer executing the foregoing Lease on behalf of Tenant was duly
authorized to act in his/her capacity as PRESIDENT of the corporation, and
his/her action is the action of Tenant.
/s/ Mary J. Twinem
-----------------------------------
Asst. Secretary
20
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RIDER TO LEASE AGREEMENT
THIS RIDER to Lease Agreement is attached to and forms a part of that
certain Lease dated February 25, 1997, by and between WHIOP REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership, as Landlord ("Landlord") and BW-3,
INC., an Ohio corporation, as Tenant ("Tenant"), as the same shall modify,
amend, supplement or alter the terms and provisions of said Lease Agreement and
by these presents shall be incorporated therein by reference and form a part
thereof for all purposes.
In consideration of the Premises, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Parties hereto further mutually agree as follows:
RENT ABATEMENT. Provided that Tenant is occupying the Premises and is not in
default under the covenants or provisions of this Lease, Tenant will not be
obligated to pay installments of base rent and operating costs (as those terms
are defined in the body of this Lease) otherwise payable hereunder for the first
three months of the term of this Lease, commencing April 15, 1997 and extending
through and including July 15, 1997, such rent abatement shall equal $36,789.00.
As of July 16, 1997 all rental payments and other sums payable by Tenant will be
due and payable as provided in this Lease, and will continue for the remaining
term of this Lease unless otherwise specified.
EXPANSION. Landlord will give Tenant written notice of the availability of any
portion of space on the 19th floor of the Building prior to the date when that
space (the "Offer Space") is available to Landlord for leasing and the party in
possession of the Offer Space has no desire to remain in possession. The notice
will state the Base Rent for the Offer Space. Tenant will have the right to
lease the Offer space under this Section if:
a) Tenant is not in default under this Lease.
b) Other tenants in the Building with present or future rights to lease
the Offer Space have no desire to lease it.
c) Tenant delivers to Landlord written notice exercising its right to
lease the Offer Space within 10 business days of receipt of Landlord's
notice.
If Tenant fails to exercise its right to lease the Offer Space, Tenant will have
no further right to lease the Offer Space under this Section.
A lease of space under this Section will contain the following:
1. Base Rent will be the amount stated in Landlord's notice.
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2. Taxes and Operating Expenses will be determined in the manner set out
Landlord's then-current standard form of lease for the Building.
3. The commencement date for the lease will be the later of the date the
Offer Space becomes available to Landlord for occupancy or 30 days after
notice from Landlord that the Offer Space is available.
4. The Term will end on the expiration or earlier termination of this
Lease, subject to any renewal option contained in this Lease.
5. Tenant will take the space in an "as-is" condition with all
improvements to be Tenant's responsibility at Tenant's cost.
6. All other terms and conditions will be the same as contained in this
Lease, except that there will be no rent concessions, inducements,
allowances, or similar provisions applicable to the Offer Space.
IN WITNESS WHEREOF, Landlord and Tenant respectively have executed this
Rider to Lease Agreement this 7th day of March. 1997.
LANDLORD:
WHIOP Real Estate Limited Partnership
By: WHIOP Gen-Par, Inc.
a Delaware corporation, general partner
By: /s/ John F. Markey
-----------------------------------------------
John F. Markey
- --------------------------------------------------
Senior Vice President - East
- --------------------------------------------------
TENANT:
BW-3, INC.
By: /s/ Sally J. Smith
-----------------------------------------------
Sally J. Smith
- --------------------------------------------------
PRINT NAME
President
- --------------------------------------------------
(Title)
R-2
<PAGE>
Exhibit "A"
[Typical Floor Plan]
<PAGE>
EXHIBIT B
DESCRIPTION OF LAND ON WHICH
INTERCHANGE TOWER AND INTERCHANGE SOUTH
ARE LOCATED
LEGAL DESCRIPTION FOR INTERCHANGE TOWER/SOUTH
Parcel 1:
Lot 2, Block 7, Shelard Park, AND that part of Lot 1, Block 7, Shelard Park,
lying Easterly of a line drawn from a point on the North line of said lot
distance 64.51 feet Westerly of the Northeast comer of said Lot to a point on
the South line of said Lot distant 68.97 feet Westerly of the Southeast comer of
said Lot, according to the plat of Shelard Park on file and of record in the
office of the Register of Deeds in and for said County and State.
Parcel 2:
Reciprocal easement in favor of Parcel 1 for pedestrian passageway and arcade
over that part of Lot 3, Block 7, Shelard Park described as follows: Commencing
at the Northeast comer of Lot 2, Block 7, Shelard Park, thence on an assumed
bearing of North 88 degrees, 6 minutes West along the North line of Lot 2 a
distance of 180.24 feet to the point of beginning of the parcel of land to be
described; thence North 46 degrees 54 minutes East a distance of 61.46 feet;
thence North 1 degree 54 minutes East a distance of 40.43 feet; thence North 88
degrees 6 minutes West a distance of 12.17 feet; thence South 1 degree 54
minutes West a distance of 33.71 feet; thence South 46 degrees 54 minutes West a
distance of 70.97 feet more or less to the North line of Lot 2, thence Easterly
to the point of beginning, as set forth in Document No. 4071903.
Parcel 3:
An easement in favor of Parcel 1 for driveway purposes over that part of Lot 4,
Block 7, Shelard Park, lying Northerly of a line run from a point on the
Northwesterly line of Lot 4, distant 1 10 feet Southwesterly from the most
Northerly comer of said Lot 4, to a point on the Easterly line of said Lot 4,
distant 105 feet Southerly from the most Northerly comer of said Lot 4, and
lying Southerly of a line run from a point on the Northwesterly line of Lot 4,
distant 69 feet Southwesterly from the most Northerly corner of said Lot 4, to a
point on the Easterly line of said Lot 4, distant 66 feet Southerly from the
most Northerly comer of said Lot 4, as set forth in Document No. 4070549.
Parcel 4:
An easement in favor of Parcel 1 32 feet in width for driveway purposes running
in an east and west direction across Lot 4, Block 7, Shelard Park, the Southerly
line of said easement runs from a point on the Northwesterly line of Lot 4,
distant 515.2 feet Southwesterly from the most
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Northerly comer of said Lot 4, to a point on the Easterly line of said Lot 4,
distant 418.5 feet Southerly from the most Northerly comer of said Lot 4, as set
forth in Document No. 4070550.
Parcel 5:
Easement in favor of Parcel 1 for purposes of construction and maintenance of a
pedestrian concourse building over the following described premises.
That part of the utility and drainage easement on Lots 2 and 3, Block 7, Shelard
Park lying within the following described parcel:
Commencing at the Northeast comer of Lot 2, Block 7, Shelard Park, thence on an
assumed bearing of North 88 degrees 6 minutes West along the North line of Lot 2
a distance of 180.24 feet to the point of beginning of the parcel of land to be
described; thence North 46 degrees 54 minutes Fast a distance of 11 feet; thence
North 88 degrees 6 minutes West a distance of 18.89 feet; thence South 46
degrees 54 minutes West a distance of 22 feet; thence South 88 degrees 6 minutes
east a distance of 18.89 feet; thence North 46 degrees 54 minutes East a
distance of 11 feet more or less to the point of beginning, except that portion
lying below the bottom of the footings of said buildings constructed above said
easement, as set forth in Document No. 4079834.
Parcel 6:
Lot 3, Block 7, Shelard Park.
Parcel 7:
Reciprocal easement in favor of Parcel 6 for pedestrian passageway and arcade
over that part of Lot 2, Block 7, Shelard Park described as follows: Commencing
at the Northeast comer of Lot 2, Block 7, Shelard Park, thence on an assumed
bearing of North 88 degrees 6 minutes West along the North line of Lot 2 a
distance of 180.24 feet to the point of beginning of the parcel of land to be
described; thence South 46 degrees 54 minutes West a distance of 61.39 feet;
thence South 1 degree 54 minutes West a distance of 28.29 feet; thence North 88
degrees 6 minutes West a distance of 30.19 feet; thence South 46 degrees 54
minutes West a distance of 3 1. I 1 feet; thence North 43 degrees 6 minutes West
a distance of 12. 00 feet; thence North 46 degrees 54 minutes East a distance of
120.50 feet more or less to the North line of Lot 2, thence Easterly to the
point of beginning.
Parcel 8:
Easement in favor of Parcel 6 for purposes of construction and maintenance of a
pedestrian concourse building over the following described premises:
That part of the utility and drainage easement on Lots 2 and 3, Block 7, Shelard
Park lying within the following described parcel:
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Commencing at the Northeast comer of Lot 2, Block 7, Shelard Park, thence on an
assumed bearing of North 88 degrees 6 minutes West along the North line of Lot 2
a distance of 180.24 feet to the point of beginning of the parcel of land to be
described; thence North 46 degrees 54 minutes Fast a distance of 11 feet; thence
North 88 degrees 6 minutes West a distance of 18.89 feet; thence South 46
degrees 54 minutes West a distance of 22 feet; thence South 88 degrees 6 minutes
East a distance of 18.89 feet; thence North 46 degrees 54 minutes East a
distance of 11 feet more or less to the point of beginning, except that portion
lying below the bottom of the footings of said buildings constructed above said
easement, as set forth in Document No. 4079834.
B-3
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EXHIBIT C
RULES AND REGULATIONS
To the extent that there is any inconsistency between the provisions of the
Lease and these Rules and Regulations, the provisions of the Lease shall
control. For purposes of these Rules and Regulations, the term Tenant means
Tenant and the employees, agents, visitors or licensees of Tenant.
(1) The sidewalks, walks, entries, corridors, concourses, ramps, staircases,
escalators and elevators shall not be obstructed or used by Tenant for any
purpose other than ingress and egress to and from the Premises. No bicycle or
motorcycle shall be brought into the Building or kept on the Premises without
the consent of Landlord.
(2) No freight, furniture or bulky matter will be received into the Building
or carried into the elevators except as may be approved by Landlord. Any hand
trucks, carryalls, or similar appliances used for the delivery or receipt of
merchandise or equipment shall be equipped with rubber tires, side guards and
such other safeguards as Landlord shall require.
(3) Tenant shall not at any time place, leave or discard any rubbish, paper,
articles, or objects of any kind outside the doors of the Premises or in the
corridors or passageways of the Building. No animals or birds shall be brought
or kept in or about the Building except seeing-eye dogs.
(4) Tenant shall not place, or cause or allow to be placed, any sign or
lettering in the windows of the Premises. Tenant shall not place any sign or
lettering in or about the Premises on multi-tenant floors which are visible from
public lobbies or corridors except in and at such places as may be designated by
Landlord and consented to by Landlord in writing. All lettering and graphics on
corridor doors on multi-tenant floors shall conform to the standard prescribed
by Landlord.
(5) Canvassing, soliciting or peddling in the Building is prohibited and
Tenant shall cooperate to prevent same.
(6) Any person in the Building will be subject to identification by employees
and agents of Landlord. All persons in leaving or entering the Building shall
be required to comply with the security policies of the Building. Tenant shall
keep doors to unattended areas locked and shall otherwise exercise reasonable
precautions to protect property from theft, loss, or damage. Neither Tenant nor
Landlord shall not be responsible for the theft, loss, or damage of any
property-
(7) Tenant shall not do any cooking (other than microwave heating of food for
employees) or conduct any restaurant, luncheonette, automate or cafeteria for
the sale of food, or permit the delivery of any food or beverage to the
Premises, except by such persons delivering the same as shall be approved by
Landlord and only under regulations fixed by Landlord. Tenant is permitted
C-1
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to make coffee and have events catered by an outside catering service within the
Premises so long as the serving of food does not become disruptive or otherwise
cause complaints from other tenants.
(8) Tenant shall not without Landlord's prior written approval bring or permit
to be brought or kept in or on the Premises any flammable, combustible,
corrosive, caustic, poisonous, or explosive substance, or cause or permit any
odors to permeate in or emanate from the Premises.
(9) No additional locks or bolts of any kind shall be placed on any door in
the Building or the Premises and no lock on any door therein shall be changed or
altered in any respect without the consent of Landlord which shall not be
unreasonably withheld. Any additional locks or bolts shall be consistent with
Landlord's security system in the Building. If Landlord permits Tenant to have
additional locks, Tenant shall furnish Landlord the keys and combinations of
such locks. Landlord shall furnish two keys for each lock on exterior doors to
the Premises and shall, on Tenant's request and at Tenant's expense, provide
additional duplicate keys. All keys shall be returned to Landlord upon
termination of the Lease. Landlord may at all times keep a pass key to the
Premises. All entrance doors to the Premises shall be left closed at all times,
and left locked when the Premises are not in use.
(10) Tenant shall endeavor to give immediate notice to Landlord in case of
theft, unauthorized solicitation, or accident in the Premises or in the Building
or of defects therein or in any fixtures or equipment, or of any known emergency
in the Building.
(11) The requirements of Tenant will be attended to only upon application at
the office of Landlord in the Building. Employees of Landlord shall not perform
any work or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
(12) No awnings, draperies, shutters, or other interior or exterior window
coverings that are visible from the exterior of the Building or from the
exterior of the Premises within the Building may be installed by Tenant except
as otherwise provided for therein.
(13) Tenant shall not make excessive noises, cause disturbances or vibrations
or use or operate any electrical or mechanical devices that emit excessive sound
or other waves or disturbances or create obnoxious odors, any of which may be
offensive to the other tenants and occupants of the Building, and shall not
place or install any projections, antennas, aerials or similar devices inside or
outside of the Premises or on the Building other than in accordance with a
written agreement of Landlord and Tenant.
(14) The water and wash closets, drinking fountains and other plumbing fixtures
shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, coffee grounds or other substances
shall be thrown therein. All damages resulting from any misuse of the fixtures
by Tenant shall be borne by Tenant. No person shall waste water by interfering
or tampering with the faucets or otherwise.
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(15) Tenant shall, when using the parking facilities in and around the
Building, observe and obey all signs regarding fire lanes and no parking zones,
and when parking always park between the designated lines. Landlord reserves
the right to tow away, at the expense of the owner, any vehicle which is
improperly parked or parked in a no parking zone. All vehicles shall be parked
at the sole risk of the owner, and Landlord assumes no responsibility for any
damage to or loss of vehicles.
(16) Landlord shall have the right to prohibit any advertising by Tenant which,
in Landlord's opinion, tends to impair the reputation of the Building or its
desirability for offices, and, upon written notice from Landlord, Tenant will
refrain from or discontinue such advertising. In no event shall Tenant, without
the prior written consent of Landlord, use the name of the Building or use
pictures or illustrations of the Building other than as used in the ordinary
course of business.
(17) Tenant shall not mark, paint, drill into, or in any way deface any part of
the Building or Premises. No coring, boring, driving of nails or screws,
cutting, or stringing of wires shall be permitted, except with the prior written
consent of Landlord, and as Landlord may direct. Tenant shall not install any
resilient tile or similar floor covering in the Premises except wit I the prior
approval of Landlord. Tenant may bang pictures on the walls within the Premises.
(18) Tenant shall not use the Premises or permit the Premises to be used for
photographic, multilith or multigraph reproductions, except in connection with
its own business and not as a service for others, without Landlord's prior
permission.
(19) Tenant shall not use or permit any portion of the Premises to be used as
an office for a public stenographer or typist, offset printing, the sale of
liquor or tobacco, a barber or manicure shop, an employment bureau, a labor
union office, a doctor's or dentist's office, a dance or music studio, any type
of school, or for any use other than those specifically granted in this Lease.
(20) Tenant shall not advertise for construction laborers giving the Premises
as an address, nor pay such construction laborers at a location in the Premises.
(21) Tenant shall at all times keep the Premises neat and orderly.
(22) All telegraph, telephone, and electric connections which Tenant may desire
shall be first approved by Landlord in writing, by contractors approved by
Landlord and subject to the direction of Landlord. Landlord reserves the right
to control access to telephone cabinets and limit access to vendors or
contractors specified by Landlord. Tenant shall pay all costs in connection
with installation of telephone cables and related wiring in the Premises,
including, without limitation, any hook-up, access and maintenance fees. Upon
expiration of the Term hereof, by lapse of time or otherwise, Tenant shall, if
requested by Landlord at the time of installation, remove all telephone cables
and related wiring installed by Tenant for and during Tenant's occupancy.
C-3
<PAGE>
EXHIBIT D
THIS RIDER is attached to and forms a part of a certain lease dated February 25,
1997, between WHIOP Real Estate Limited Partnership, as Landlord, and BW-3,
Inc., as Tenant.
The Landlord agrees that, subject to delays due to causes beyond the Landlord's
control, it will contribute $65,211.00 towards the Building Standard Work,
inclusive of construction drawings and construction supervision fees, to be done
in the Premises in accordance with the drawings prepared by Wirtanen Clark
Larsen Architects, Inc., dated 02/3/97 and revised 2/17/97.
The Landlord shall provide the Building Standard finishes including walkover,
carpet and carpet base, as well as electric telecommunications and computer
conduit and wall outlets. Tenant is responsible for the installation of its
computer and telephone cable and equipment. The existing ceiling grid and tile,
doors, door frames, exterior window blinds and light mixtures shall be reused
and the Landlord shall, prior to occupancy, ensure that all the materials are in
good working order and Class A condition.
In the event Tenant fails to approve its plans within the time required below or
in the event that Tenant modifies or changes its plans thereafter, then it shall
be conclusively presumed that delivery of the Premises was delayed by the amount
of time equivalent to such delay in delivery of plans or by the amount of time
required to make revised plans, correct work and otherwise make the changes
required by Tenant and in this event Tenant shall pay to Landlord all its costs
for such changes and a sum equal to the base annual rent for the period of such
delay.
If the Tenant desires alterations and improvements in excess of or other than
the work heretofore provided for in this section ("Tenant's Additional Work"),
the Landlord shall do the same at the Tenant's expense, provided the work shall
be approved by the Landlord, which approval shall not be unreasonably withheld,
and further provided that no part of the work shall be of a character which will
require changes outside the Premises or will adversely affect the legality of
the use of the Building at the cost of fire insurance for the Building.
The Tenant shall reimburse the Landlord from time to time on demand for the cost
of Tenant's Additional Work, including the cost of architectural or engineering
services required to coordinate Tenant's Additional Work with the Landlord's
Work. Costs as used herein shall include all bona fide charges to Landlord
either from a general contractor or from suppliers, materialmen, laborers or
other contractors for material, labor, contractor's charges and other out-of-
pocket costs plus 7% for overhead and profit, other expenses and contingencies.
Any amount for which the Tenant fails to reimburse the Landlord on demand shall
be considered Additional Rent hereunder, and may be added to any installation of
Rent thereafter becoming due, and the
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Landlord shall have the same remedies for a default in such reimbursement as for
a default in the payment of Rent.
In order to permit integration with other work being done by the Landlord in the
Premises and the Building without causing an), delays in such work, the Tenant
shall approve the drawings not later than MARCH 7, 1997 and color selections not
later than MARCH 14, 1997 for any work to be done pursuant to this Section.
D-2
<PAGE>
BW-3 FRANCHISE SYSTEMS, INC.
FRANCHISE AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
I. APPOINTMENT AND FRANCHISE FEE. . . . . . . . . . . . . . . . . . . . .1
II. TERM AND RENEWAL . . . . . . . . . . . . . . . . . . . . . . . . . . .3
III. RESTAURANT AND LOCATION. . . . . . . . . . . . . . . . . . . . . . . .4
IV. TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
V. PROPRIETARY MARKS. . . . . . . . . . . . . . . . . . . . . . . . . . .6
VI. CONFIDENTIAL MANUALS . . . . . . . . . . . . . . . . . . . . . . . . .7
VII. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . .7
VIII. MODIFICATION OF THE SYSTEM . . . . . . . . . . . . . . . . . . . . . .8
IX. ADVERTISING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
X. CONTINUING FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XI. ACCOUNTING AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . 12
XII. STANDARDS OF QUALITY AND PERFORMANCE . . . . . . . . . . . . . . . . 13
XIII. OPERATIONS ASSISTANCE. . . . . . . . . . . . . . . . . . . . . . . . 17
XIV. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
XV. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
XVI. DEFAULT AND TERMINATION. . . . . . . . . . . . . . . . . . . . . . . 20
XVII. RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR
TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
XVIII. TRANSFERABILITY OF INTEREST. . . . . . . . . . . . . . . . . . . . . 24
XIX. YOUR DEATH OR INCAPACITY . . . . . . . . . . . . . . . . . . . . . . 26
XX. RIGHT OF FIRST REFUSAL . . . . . . . . . . . . . . . . . . . . . . . 26
XXI. OPERATION IN THE EVENT OF ABSENCE, DISABILITY OR DEATH . . . . . . . 26
XXII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION . . . . . . . . . . . . . 27
XXIII. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
XXIV. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
XXV. DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . 29
XXVI. OWNER AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
XXVII. ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
EXHIBITS:
A. OWNER AGREEMENT
B. DESCRIPTION OF DESIGNATED AREA
C. LEASE ADDENDUM
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bw-3 FRANCHISE SYSTEMS, INC.
FRANCHISE AGREEMENT
This Franchise Agreement ("Agreement") made this _____ day of ________,
19____, by and between bw-3 FRANCHISE SYSTEMS, INC. an Ohio corporation which
has its principal place of business at 1919 Interchange Tower, 600 South Highway
169, Minneapolis, Minnesota 55426 ("we" or "us"), and __________________________
________________________________________________________________________________
________________________________________________________________________________
_______________ ("you"). If you are a corporation, partnership or limited
liability company, certain provisions of the Agreement also apply to your owners
and will be noted.
BACKGROUND:
A. Our parent company has developed a unique system ("System") for
establishing and operating restaurants which use the service mark "BUFFALO WILD
WINGS" and which feature chicken wings, sandwiches, and other products and
beverages, which are all prepared according to specified recipes and procedures
("Menu Items"), some of which use proprietary mixes ("Trade Secret Food
Products"), and has granted to us the right to sublicense the System to others.
B. The distinguishing characteristics of the System include, without
limitation, distinctive exterior and interior layout, design and color scheme,
signage, decorations, furnishings and materials, special recipes, formulae,
menus and food and beverage designations, Confidential Manuals, food and
beverage storage, preparation service and delivery procedures and techniques,
operating procedures for sanitation and maintenance, and methods and techniques
for inventory and cost controls, record keeping and reporting, purchasing, sales
promotion and advertising, Trade Secret Food Products, all of which may be
changed, improved and further developed from time to time.
C. Our parent company is the owner of the trade names, service marks
and trademarks "BUFFALO WILD WINGS", "bw-3" and other logos and commercial
symbols, and such other trade names, service marks, and trademarks as are now
designated (and may later be designated by us in writing) as part of the System
("Marks").
D. We grant franchises to qualified candidates for the operation of
"Buffalo Wild Wings" Restaurants offering the Menu Items and utilizing the
System and Marks. You desire to operate a Buffalo Wild Wings Restaurant using
the System and Marks and have applied for a franchise, which application has
been approved by us in reliance upon all of the representations you have made.
E. You understand and acknowledge the importance of our high and
uniform standards of quality and service and the necessity of operating the
Buffalo Wild Wings business in conformity with our standards and specifications.
AGREEMENTS:
We and you agree as follows:
I. APPOINTMENT AND FRANCHISE FEE
A. Subject to the provisions stated below, we hereby grant you a
license to use the "Buffalo Wild Wings" Marks and System, and you undertake the
obligation to operate a Buffalo Wild Wings restaurant facility featuring the
Menu Items and providing sit-down, carry-out and other restaurant services
("Franchised
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Restaurant"), and to use the Marks solely in connection with the System, as it
is currently established, and as it may be changed, improved and further
developed from time to time, at one (1) location only, such location to be:
1) ____________________________________________________________________________
___________________________________________________________________________, or
2) at a location to be designated, as provided in Paragraph III within the area
described on EXHIBIT B. When a location has been designated and approved by you
and us, it will become part of Paragraph I.A.1., as if originally incorporated
in that Paragraph. You shall not relocate your Franchised Restaurant without
our prior written approval.
B. You receive a Designated Area within which we and our affiliates
shall not operate or grant to anyone else a franchise to operate a Buffalo Wild
Wings or bw-3 Restaurant so long as this Agreement is in force and effect. The
Designated Area is described in writing and on a map attached to the Agreement
as EXHIBIT B and is made a part of the Agreement. You do not have any right to
sublicense or subfranchise others within or outside of the Designated Area and
do not have the right to operate more than one (1) Franchised Restaurant within
the Designated Area.
C. You acknowledge and agree that we have the right, in our sole
discretion, to grant other franchises outside of the Designated Area as we deem
appropriate. Although we will not operate a Buffalo Wild Wings or bw-3 business
within the Designated Area, we reserve the right, both within and outside of the
Designated Area, to offer and sell at special events (at our option, if you
elect not to participate in such events) or at wholesale, through channels of
distribution distinct from those of a Franchised Restaurant, products and
services which comprise, or may in the future comprise a part of the System,
which products may be resold at retail to the general public by such entities.
Further, you acknowledge that certain locations within the Designated Area are
by their nature unique and separate in character from sites generally developed
as Franchised Restaurants. As a result, you agree that the following locations
("Special Sites") are excluded from the Designated Area and we shall have the
right to develop (by direct ownership or franchising) such locations:
1) public transportation facilities, including airports, train stations and bus
stations; 2) military bases; 3) sports facilities, including race tracks; and 4)
amusement and/or theme parks.
D. We and our affiliated companies shall not engage in catering and
delivery services and activities in the Designated Area. You shall not engage
in catering and delivery services and activities outside of the Designated Area.
We shall have no obligation to enforce similar covenants against any other
System franchisee. Other System franchisees shall be deemed third party
beneficiaries of such. You shall not offer for sale any Menu Items or
Proprietary Products by means of Internet/World Wide Web programming or
advertising. We reserve the right to market and sell Menu Items and Trade
Secret Food Products on the Internet/World Wide Web.
E. You pay us a nonrefundable Initial Franchise Fee of ________________
_______________________ Dollars ($________) which is payable in full on the date
of this Agreement. The Initial Franchise Fee has been fully earned upon receipt
and is nonrefundable in consideration of the expenses incurred by us in granting
this franchise and for the lost or deferred opportunity to franchise others.
F. You acknowledge that because complete and detailed uniformity under
many varying conditions may not be possible or practical, we specifically
reserve the right, at our sole discretion, to vary standards for any System
franchisee based upon the peculiarities of the particular site or circumstance,
density of population, business potential, population of trade area, existing
business practices or any other condition which we deem to be of importance to
the successful operation of such franchisee's business. You shall not be
entitled to require us to grant to you a like or similar variation.
G. In consideration of our agreement not to grant another franchise in
the area described in Paragraph I.C., you at all times shall use your best
efforts to promote and increase the sales and service of Menu
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Items and to effect the widest and best possible distribution throughout the
Designated Area, soliciting and servicing all potential customers and accounts
for Buffalo Wild Wings food products and services.
II. TERM AND RENEWAL
A. The term of this Agreement is for ten (10) years commencing on the
date of this Agreement, unless terminated as provided by this Agreement.
B. You have the right to renew the franchise for two (2) successive
terms equal to five (5) years each, providing you meet all of the following
conditions:
1. You have, during the entire term, complied with all the
provisions of the Agreement;
2. The premises of the Franchised Restaurant meet our
then-current standards for Buffalo Wild Wings restaurants and you are able to
maintain possession of the Franchised Restaurant. Before the expiration date of
this Agreement you must bring the Franchised Restaurant into full compliance
with the specifications and standards then applicable for new or renewing
Buffalo Wild Wings businesses and present us with evidence satisfactory that you
have the right to remain in possession of the Franchised Restaurant premises for
the duration of the renewal term. In the event you are unable to maintain
possession of the premises of the Franchised Restaurant or if the premises do
not meet our then-current standards, you may secure substitute premises approved
by us and provided that you have furnished, stocked and equipped such premises
to bring the Franchised Restaurant at its substituted premises into full
compliance with the then-current specifications and standards before the
expiration date of this Agreement;
3. You have given us written notice of your desire to renew at
least six (6) months but not more than twelve (12) months prior to the end of
the term;
4. You have satisfied all of your monetary obligations to us and
our affiliates and have timely met these obligations throughout the term of this
Agreement;
5. You have executed for the renewal term our then-current form
of Franchise Agreement (with appropriate modifications to reflect the fact that
the agreement relates to the grant of a renewal franchise), which shall
supersede in all respects this Agreement, and the terms of which may differ from
the terms of this Agreement, including, without limitation, a different
percentage Continuing Fee and advertising contribution; provided, however, that
the percentage Continuing Fee shall not exceed seven percent (7%) during any
renewal period. You will not be required to pay the then-current initial
franchise fee or its equivalent;
6. You have complied with our then-current qualification and
training requirements; and
7. You have executed a general release, in a form prescribed by
us, of all claims against us and our affiliates, and respective officers,
directors, agents, shareholders and employees.
C. Within ninety (90) days of our receipt of your notice to renew, we
will furnish you with written notice of: (i) reasons which could cause us not
to grant a renewal to you including but not limited to any deficiencies which
require correction and a schedule for correction by you; and (ii) our
then-current requirements relating to the image, appearance, decoration,
furnishing, equipping and stocking of Buffalo Wild Wings businesses, and a
schedule for effecting upgrading or modifications in order to bring the
Franchised Restaurant in compliance, as a condition of renewal. Renewal of the
franchise shall be conditioned upon your compliance with such requirements and
continued compliance with all the terms and conditions of this Agreement up to
the date of termination of the initial term.
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D. We shall give you written notice of our election not to renew the
franchise at least three (3) months prior to the expiration of the initial or
first renewal term of this Agreement.
III. RESTAURANT AND LOCATION
A. You shall operate the Franchised Restaurant only at the location
specified in Paragraph I of this Agreement. If the lease for the site of the
Franchised Restaurant expires or terminates for reasons other than your breach,
or if the site is destroyed, condemned or otherwise rendered unusable, or as
otherwise may be agreed upon in writing by us and you, we will grant permission
for relocation of the Franchised Restaurant within your Designated Area at a
location and site acceptable to us. Any such relocation shall be at your sole
expense and we shall have the right to charge you for any and all reasonable
costs incurred by us, and a reasonable fee for our services, in connection with
any such relocation of the Franchised Restaurant.
B. You shall be responsible for purchasing or leasing a suitable site
for the Franchised Restaurant. Prior to the acquisition by lease or purchase of
any site for the premises of the Franchised Restaurant, you shall submit a
description of the proposed site to us, together with a letter of intent or
other evidence satisfactory to us which confirms your favorable prospects for
obtaining the proposed site. We shall provide you written notice of approval or
disapproval of the proposed site within fifteen (15) business days after
receiving your written proposal. Our approval is not a determination or
warranty that the proposed site will be a profitable location for the Franchised
Restaurant.
C. After receiving our written approval of the location of the
Franchised Restaurant as provided in Paragraph III.B. above, you shall, subject
to our prior approval of terms, execute a lease (if the premises are to be
leased) or a binding agreement to purchase the site. All leases pertaining to
the Franchised Restaurant premises must contain an Addendum in the form of
EXHIBIT C attached hereto, or contain terms and conditions substantially similar
to those contained in EXHIBIT C that we approve. You shall provide us with a
copy of the executed lease for the Franchised Restaurant within five (5) days of
its execution, and prior to its execution, provide us with a copy for our
approval. A copy of the executed Addendum must also be provided to us.
D. You shall promptly after obtaining possession of the site for the
Franchised Restaurant: (i) retain the services of an architect and a contractor
each of whom has been approved by us; (ii) have prepared and submitted for our
approval a site survey and basic architectural plans and specifications (not for
construction) consistent with our general atmosphere, image, color scheme and
ambience requirements as set forth from time to time in the Manuals for a
Buffalo Wild Wings restaurant (including requirements for dimensions, exterior
design, materials, interior design and layout, equipment, fixtures, furniture,
signs and decorating); (iii) obtain all required zoning changes, building,
utility, health, sanitation, liquor and sign permits and licenses and any other
required permits and licenses; (iv) purchase or lease equipment, fixtures,
furniture and signs as provided herein; (v) complete the construction and/or
remodeling, equipment, fixtures, furniture and sign installation and decorating
of the Franchised Restaurant in full and strict compliance with plans and
specifications therefore approved by us and all applicable ordinances, building
codes and permit requirements; (vi) obtain all customary contractors' sworn
statements and partial and final waivers of lien for construction, remodeling,
decorating and installation services; and (vii) otherwise complete development
of and have the Franchised Restaurant ready to open and commence the conduct of
its business in accordance with Paragraph XII of this Agreement. Our approval
of your site survey and architectural plans is not a representation or warranty
of any type.
E. You shall be required to periodically make reasonable capital
expenditures to remodel, modernize and redecorate the premises of the Franchised
Restaurant so that the Franchised Restaurant will reflect the then-image
intended to be portrayed by Buffalo Wild Wings businesses. All remodeling,
modernization, or redecoration of the premises of the Franchised Restaurant must
be done in accordance with the standards and specifications as prescribed by us
from time to time and with our prior written approval. All replacements must
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conform to our then-current quality standards and specifications and must be
approved in writing. Your total expenditures during the term of the Franchise
Agreement for such remodeling, modernizing and redecorating will not exceed ONE
HUNDRED THOUSAND Dollars ($100,000.00) adjusted for inflation from the date of
this Agreement. Maintenance of the premises of the Franchised Restaurant and
modifying or replacing equipment may exceed this amount, and maintenance costs
and equipment costs may not be credited to remodeling, modernization or
redecoration expenditures.
IV. TRAINING
A. Before you commence operations, we shall make initial training
available to you. At least three (3) persons designated by you and approved by
us must attend and successfully complete the training to our satisfaction. The
training will be at least three (3) weeks in duration and will be conducted at
either our Cincinnati, or Columbus, Ohio training facilities or at such other
place as we may designate. The training program covers material aspects of the
operation of a Buffalo Wild Wings business, including financial controls,
general bookkeeping procedures, food preparation, service and operational
techniques, familiarization with recipes and cooking procedures, marketing and
advertising techniques, sanitation and maintenance procedures, deployment of
labor, and maintenance of quality standards. We reserve the right to provide
less training if you have one or more Franchised Restaurants in operation. All
expenses incurred by you and your employees in attending the program, including
without limitation, travel costs, room and board expenses, and the employee
compensation shall be your sole responsibility.
B. We will, from time to time upon your written request, make
available, at your expense, training for additional managers designated by you
and approved by us. Such training shall take place at our Cincinnati, or
Columbus, Ohio training facilities or such other place as we may designate. You
acknowledge that the time period within which we provide additional training
will be subject to available openings in our regular training program with
preference being given to initial training for new franchisees.
C. We will schedule the opening of your Franchised Restaurant. For one
(1) week prior to and one (1) week concurrent with the commencement of
operations of the Franchised Restaurant, we will furnish to you, at your
Restaurant and at our expense, one (1) or more of our representatives for the
purpose of training your employees and management team in the operation of a
Franchised Restaurant. During this period, the representatives will assist in
establishing and standardizing procedures and techniques essential to the
operation of a Buffalo Wild Wings business. If you request additional
assistance from us in order to facilitate the opening of the Franchised
Restaurant, and if, we, in our discretion, deem it necessary, feasible and
appropriate to comply with the request, you will reimburse us for our expenses
in providing such additional assistance, which may include our then-current
service fee. You agree that during the week preceding the opening, you will
have four (4) full days during which the Restaurant is fully operational and
will host two (2) opening parties.
D. If we determine, in our sole discretion, that you or your manager is
unable to satisfactorily complete the required training program, you will have
thirty (30) days to provide an alternate person to complete the training program
at your sole expense. At least three (3) persons actively involved in the
management and operation of the Franchised Restaurant must successfully complete
the training program. If you fail to provide three (3) persons who can complete
the training program, we will have the right to terminate this Agreement and you
will not be entitled to a refund of any portion of the franchise fees paid.
E. From time to time we may provide and if we do, may require that
previously-trained and experienced franchisees, their managers and/or employees
attend and successfully complete refresher training programs or seminars to be
conducted at our training facility or at such other place as we shall designate.
Attendance at such refresher training programs or seminars will be at your sole
expense, provided, however, that attendance will not be required at more than
two (2) such programs in any calendar year.
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V. PROPRIETARY MARKS
A. You acknowledge that our parent company is the owner of all right,
title and interest together with all the goodwill of the Marks and has licensed
the use of such Marks to us with the right to sublicense others. You further
acknowledge that your right to use the Marks is derived solely from this
Agreement and is limited to the conduct of business by you pursuant to and in
compliance with this Agreement and all applicable standards, specifications, and
operating procedures prescribed by us from time to time during the term of the
Agreement. Any unauthorized use of the Marks by you is a breach of this
Agreement and an infringement of the rights of us in and to the Marks. You
acknowledge that your usage of the Marks and any goodwill established by your
use of the Marks shall inure to the exclusive benefit of us and our affiliate,
and that this Agreement does not confer any goodwill or other interests in the
Marks upon you. Any developments and improvements by you relating to the Marks
or the System shall be our sole property. You will not, at any time during the
term of this Agreement or after its termination or expiration, contest the
validity or ownership of any of the Marks or assist any other person in
contesting the validity or ownership of the Marks. All provisions of this
Agreement applicable to the Marks apply to any and all additional trademarks,
service marks, and commercial symbols authorized for use by and licensed to you
by us after the date of this Agreement.
B. You will not use any Mark or portion of any Mark as part of a
corporate or trade name, or with any prefix, suffix, or other modifying words,
terms, designs, or symbols, or in any modified form. You will not use any Mark
in connection with the sale of any unauthorized product or service or in any
other manner not expressly authorized in writing by us. You shall give such
notices of trademark and service mark registrations as we specify and to obtain
such fictitious or assumed name registrations as may be required under
applicable law. Your use of any of the Marks on the Internet/World Wide Web
(including any Home Page) or any other medium must have our prior written
approval. We reserve the right to prohibit your use of the Marks on the
Internet.
C. You will promptly notify us of any claim, demand or cause of action
based upon or arising from any attempt by any other person, firm or corporation
to use the Marks or any colorable imitation of the Marks. You shall also notify
us of any action, claim or demand against you relating to the Marks within ten
(10) days after you receive notice of said action, claim or demand. Upon
receipt of timely notice of an action, claim or demand against you relating to
the Marks, we and our affiliate shall have the sole right and duty to defend any
such action. We and our affiliate will have the exclusive right to contest or
bring action against any third party regarding the third party's use of any of
the Marks and will exercise such right in our and our affiliate's sole
discretion. In any defense or prosecution of any litigation relating to the
Marks or components of the System undertaken by us, you shall cooperate in all
respects with us and our affiliate and execute any and all documents and take
all actions as may be desirable or necessary in the opinion of our counsel, to
carry out such defense or prosecution. Both parties shall make every effort
consistent with the foregoing to protect, maintain, and promote the Marks as
identifying the System and only the System.
D. If, in our sole discretion, it becomes advisable at any time, for us
to modify or discontinue use of any Mark, and/or use one or more additional or
substitute trade names, trademarks, service marks, or other commercial symbols,
either systemwide or with respect to use by any selected franchisee, you will
comply with our directions within a reasonable time after notice to you. We
will have no liability or obligation whatsoever with respect to your
modification or discontinuance of any Mark.
E. In order to preserve the validity and integrity of the Marks and
copyrighted material licensed to you and to assure that you are properly
employing the same in the operation of your Franchised Restaurant, we and our
agents have the right of entry and inspection of your premises and operating
procedures at all reasonable times. We will have the right to observe the
manner in which you are rendering your services and conducting your operations,
to confer with your employees and customers, and to select Menu Items,
ingredients, food and
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non-food products, beverages, and other items, products, delivery vehicles,
products and supplies for test of content and evaluation purposes to make
certain that the Menu Items, ingredients, food and non-food products, beverages
and other items, products, delivery vehicles, materials and supplies are
satisfactory and meet our quality control provisions and performance standards.
VI. CONFIDENTIAL MANUALS
A. We will loan to you during the term of the franchise one (1) copy of
our Confidential Operations Manual and other confidential manuals and written
materials (all of which are collectively referred to herein as the "Manuals")
containing reasonable, mandatory and suggested specifications, standards,
operating procedures and rules prescribed from time to time by us for Buffalo
Wild Wings businesses and information relative to your other obligations. You
will not at any time, without our prior written consent, copy, duplicate, record
or otherwise reproduce the Manuals in whole or in part or otherwise make the
same available to any person. Any authorized duplication or copying of any of
the Manuals shall be performed by us at your expense. We have the right to add
to and otherwise modify, combine, or replace the Manuals from time to time to
reflect changes in the specifications, standards, operating procedures and rules
prescribed by us for Buffalo Wild Wings businesses, provided that no such
addition or modification shall alter your fundamental status and rights under
this Franchise Agreement.
B. The Manuals shall at all times remain our sole property and shall
promptly be returned upon the expiration or termination of this Agreement.
C. The Manuals contain our proprietary information which you shall keep
confidential both during the term of the franchise and subsequent to the
expiration and/or termination of the franchise. You will at all times insure
that your copy of the Manuals are available at the Franchised Restaurant
premises in a current and up-to-date manner. At all times that the Manuals are
not in use by authorized personnel, you will maintain the Manuals in a locked
receptacle at the premises of the Franchised Restaurant, and will only grant
authorized personnel, as defined in the Manuals, access to the key or lock
combination of such receptacle. In the event of any dispute as to the contents
of the Manuals, the terms of the master copy of the Manuals maintained by us at
our home office will be controlling.
VII. CONFIDENTIAL INFORMATION
A. You acknowledge that your entire knowledge of the operation of a
Buffalo Wild Wings business, including, without limitation, the method of
preparation of Menu Items and other food products, and other specifications,
recipes, standards and operating procedures of a Buffalo Wild Wings business is
derived from information disclosed to you by us and that such information is
proprietary, confidential and our trade secret. You will maintain the absolute
confidentiality of all such information during and after the term of the
franchise and you will not use any such information in any other business or in
any manner not specifically authorized or approved in writing by us.
B. You will divulge such confidential information only to the extent
and only to such of your employees as must have access to it in order to operate
the Franchised Restaurant. Any and all information, knowledge and know-how,
including, without limitation, drawings, materials, equipment, techniques,
restaurant systems, product formulae, recipes and other data which we designate
as confidential will be deemed confidential for purposes of this Agreement,
except information: 1) which you can demonstrate lawfully came to your attention
prior to disclosure thereof by us, or 2) which, at the time of disclosure by us
to you, had lawfully become a part of the public domain, through publication or
communication by others, or 3) which, after disclosure to you by us, lawfully
becomes a part of the public domain, through publication or communication by
others.
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C. Due to the special and unique nature of our confidential
information, Marks and Manuals, you acknowledge that we will be entitled to
immediate equitable remedies, including but not limited to, restraining orders
and injunctive relief in order to safeguard our proprietary, confidential,
unique, and special information and you acknowledge that money damages alone
would be an insufficient remedy with which to compensate us for any breach of
the terms of Paragraph V, VI and VII of this Agreement. All of your employees
having access to our confidential and proprietary information and all of your
shareholders, directors, officers, partners and/or members will be required to
execute non-disclosure agreements in the form acceptable to us.
VIII. MODIFICATION OF THE SYSTEM
You acknowledge that from time to time we may change or modify the System
presently identified by the Marks, including, without limitation, the adoption
and use of new or modified trade names, trademarks, service marks or copyrighted
materials, new Menu Items, new products, new equipment or new techniques. You
will accept, use and display for the purpose of this Agreement any such changes
in the System, as if they were part of this Agreement at the time of execution.
You will make such expenditures as are reasonably required by such changes or
modifications in the System. Except as directed by us, you will not change,
modify or alter the System in any way.
IX. ADVERTISING
Recognizing the value of advertising and the importance of the
standardization of advertising and promotion to the furtherance of the goodwill
and the public image of Buffalo Wild Wings businesses, you agree:
A. Before using any promotional and advertising materials, you will
submit to us or our designated agency, for our prior approval, all information
pertaining to promotional materials and advertising initiated by you, including,
but not limited to, newspapers, radio and television advertising, Internet or
any other medium, specialty and novelty items, signs, boxes, napkins, bags and
wrapping papers. In the event written disapproval of any such advertising and
promotional material has not been given by us to you within twenty (20) days
from the date such information has been received by us, the materials will be
deemed approved. Your failure to conform with these provisions and subsequent
nonaction by us to require you to cure or remedy any such failure and default
will not be deemed a waiver of future or additional failures and defaults by you
under this provision and/or any other provision of this Agreement. The
submission of advertising information to us for our approval will not affect
your right to determine the prices at which you sell your products and/or
services.
B. You will contribute to the Buffalo Wild Wings Advertising and
Development Fund ("Fund") (which may be one of several regional Funds, if we
elect to establish separate Funds to serve various regions in which multiple
franchisees are located) an amount equal to three percent (3%) of your Gross
Sales, as defined in Paragraph X. Your required payments to the Fund will be
made on or before the fifteenth day of the month for the preceding month. These
contributions may be withdrawn from your bank account as provided in Paragraph
X. We will use such funds to conduct local, regional or national advertising.
Such payments shall be made in addition to and exclusive of any sums that you
may be required to spend on system or grand opening advertising and promotion.
The Fund shall be maintained and administered by us or our designee, as follows:
1. We will oversee all advertising programs and have sole
discretion over the creative concepts, materials and media used in such programs
including the placement and allocation. We will use the Fund to conduct
national advertising, and/or, if regional Funds are developed, to conduct
regional or local advertising on your behalf, at our sole discretion. We may
also use such funds to conduct advertising in your local advertising market.
However, we cannot and do not ensure that any particular franchisee will benefit
directly or pro rata from the placement of advertising.
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2. For each of our company-owned and affiliate-owned Restaurants
(except Special Sites identified in Paragraph I.C.) offering products and
services similar to the Franchised Restaurant we will make contributions to the
Fund or to regional Funds equivalent to the contributions required of Franchised
Restaurants within the System or, if applicable, region in which the
company-owned or affiliate-owned store is located.
3. We will administer and control the Fund and we will have the
absolute and unilateral right to determine how, when and where the monies in the
Fund will be spent. This includes the right to use Fund monies for (1) the
creation, development and production of advertising and promotional materials,
(2) any marketing or related research and development, and (3) advertising and
marketing expenses, including without limitation, the absolute right to purchase
and pay for product and food research and development, advertising materials,
production costs, brochures, ad slicks, radio, film and television commercials,
videotapes, newspaper, magazine and other print advertising, direct mail pieces,
photographer costs, photographs, pictures, designs, services provided by
advertising agencies, public relations firms or other marketing, research or
consulting firms or agencies, market research and marketing surveys, menu design
and graphics, customer incentive programs, sponsorships, marketing meetings and
sales incentives, development of Home Pages on the Internet, Internet access
provider costs, Internet/World Wide Web programming and advertising,
subscriptions to industry newsletters or magazines, marketing or industry
studies, books and research materials, administrative costs and salaries for
marketing support personnel. All sums paid by you to the Fund will be
maintained in a separate account from our other funds and shall not be used to
defray any of our general operating expenses, except for such reasonable
administrative costs and overhead, if any, as we may incur in activities
reasonably related to the administration or direction of the Fund and
advertising programs including, without limitation, costs incurred in collecting
and accounting for assessments for the Fund.
4. It is our intent that all contributions to the Fund will be
expended for advertising and promotional purposes during our fiscal year within
which contributions are made. Any monies not expended in the fiscal year in
which they were contributed will be applied and used for Fund expenses in the
following year.
5. Although we intend the Fund to be of perpetual duration, we
have the right to terminate the Fund. We will not terminate the Fund, however,
until all monies in the Fund have been expended for advertising and promotional
purposes.
6. An unaudited accounting of Fund contributions and expenditures
will be prepared annually and will be made available to you upon request. At
our option, any such annual accounting may include an audit of the contributions
and expenditures of the Fund prepared by an independent certified public
accountant selected by us and prepared at the expense of the Fund.
7. Once you make contributions to the Fund, all such monies will
be used as required by this Paragraph IX and will not be returned to you.
C. In addition to your contributions to the Fund, you may be required
to spend up to two percent (2%) of your Gross Sales on approved local
advertising. We may direct that your local advertising expenditures be made
either individually or to a local advertising group as described below.
1. We shall have the right to designate local advertising markets
and you will participate in cooperative advertising and marketing programs in
your designated local advertising market as described in this Paragraph. Each
Buffalo Wild Wings and bw-3 Restaurant (except Special Sites identified in
Paragraph I.C.) within the designated local advertising area shall be a member
of the local advertising group and each member shall have one vote on all
matters requiring a vote. We reserve the right to designate the Bylaws which
will govern the operation of local advertising groups.
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2. If we direct you to spend your advertising funds locally, all
such expenditures will be made directly by you or the local advertising group,
subject to approval and direction by us or our designated advertising agency.
You acknowledge that we may direct local advertising to be spent according to a
seasonally adjusted schedule; however, such expenditures shall not exceed two
percent (2%) of your annual Gross Sales. You shall furnish to us an accurate
accounting of all expenditures on local advertising and promotion.
3. You will submit documentation of your advertising expenditures
at such times and in such form as we designate. If you fail to make any
required advertising expenditures, we have the right to require you to
contribute the amount of any deficiency to the Fund to be used by us for general
advertising and promotion.
D. We may require you to expend up to FIVE THOUSAND Dollars ($5,000) on
newspaper, direct mail or advertising through other media prior to your opening
and during your initial ninety (90) days of operation of the Franchised
Restaurant. We retain the right to collect such funds directly from you and
expend the funds on your behalf. Such advertising and promotion will be
designated as "Grand Opening" advertising and promotion and will be conducted in
accordance with the specifications set forth in the Manuals.
E. You must carry and offer for sale to your customers a representative
supply of trademarked clothing. We may, from time to time, develop and market
special promotional items which will be made available to you at our cost plus a
reasonable mark up and you will maintain a representative inventory of such
promotional items to meet public demand. You will have the right to purchase
alternative promotional items provided that such alternative goods conform to
the specifications and quality standards established by us. You will, on an
annual basis, participate in a minimum of fifty percent (50%) of the promotional
programs introduced by us from time to time. You will participate in the
specific promotional programs designated by us.
F. You will maintain a business phone and advertise continuously in the
classified or Yellow Pages of a local telephone directory approved by us or such
other directories under the listing "Restaurant", or such other listings as
deemed appropriate by us using mats of the type and size approved in advance by
us. We reserve the right to require you to advertise in more than one local
telephone directory. When more than one (1) Buffalo Wild Wings and/or bw-3
restaurant serves a metropolitan area, classified advertisements shall list all
such restaurants operating within the distribution area of the classified
directories, and you shall contribute your equal share in the cost of such
advertisement.
G. You will not use in advertising or any other form of promotion, or
in any manner any of the marks without the appropriate -Registered
Trademark- registration mark or the designations TM or SM where applicable.
X. CONTINUING FEE
A. You will pay us without offset, credit or deduction of any nature,
so long as this Agreement is in effect, a monthly Continuing Fee equal to five
percent (5%) of the Gross Sales derived from the Franchised Restaurant. The
Continuing Fee will be paid monthly in the manner specified below or as
otherwise prescribed in the Manuals.
1. We must receive from you within five (5) days after the end of
each month, a correct statement of your Gross Sales for the preceding fiscal
month as determined by us on a form approved by us and signed by you. Each
monthly statement of Gross Sales shall be accompanied by the Continuing Fee
payment based on the Gross Sales reported in the statement so submitted. You
will make available to us all original books and records that we may deem
necessary to ascertain your Gross Sales for reasonable inspection at reasonable
times.
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2. The term "Gross Sales", as used in this Agreement, means and
includes the total amount of all revenue from the sale of services, products and
merchandise and all income of every kind and nature related to the Franchised
Restaurant whether or not sold or performed at or from the Franchised Restaurant
and the proceeds from all games, cover charges, service, license, use and
similar fees collected by the Franchised Restaurant. Gross sales do not include
any sales tax, use tax, or service taxes collected and paid to the appropriate
taxing authority.
B. Prior to the opening of your Restaurant (and thereafter as requested
by us), you shall execute and deliver to us, our bank(s) and your bank, as
necessary, all forms and documents that we may request to permit us to debit
your account, either by check, via electronic funds transfer or other means or
such alternative methods as we may designate ("Payment Methods"). You must
comply with all procedures specified by us from time to time to take such
actions as we may request to assist in utilizing any of the Payment Methods. We
may use the Payment Methods to collect the amount of each month's Continuing
Fee, Advertising Contributions, and any other amounts due to us or our
affiliates under this Agreement or otherwise. The Continuing Fee shall be
withdrawn from your designated bank account by electronic fund transfer on the
fifth of each month for the previous month, or if the fifth falls on a weekend
or bank holiday, then on the next business day. Advertising Contributions will
be withdrawn on the fifteenth of each month or on the next business day.
Payments for commissary purchases will be debited one business day after
products are delivered to the Restaurant. We will determine your Gross Sales by
means of the approved information system, or if we are unable to do so, you
shall report your Gross Sales in writing on or before the fifth day of the month
for the preceding month. You shall notify us at least twenty (20) days before
closing or changing the account against which such debits are to be made. If
such account is closed or ceases to be used, you shall immediately provide all
documents and information necessary to permit us to debit the amounts due from
an alternative account. You acknowledge that these requirements are only a
method to facilitate prompt and timely payment of amounts due and shall not
affect any obligation or liability for amounts owed. If for any reason your
account cannot be electronically debited, you shall submit payments by check
(certified or cashier's check if requested by us) on or before the dates when
due. You shall indemnify, defend and hold us harmless from and against all
claims, damages, losses, costs and expenses resulting from any dishonored debit
against your account, regardless whether resulting from the act or omission of
you or your bank; provided that you shall not be obligated to indemnify us for
any dishonored debit caused by our negligence or mistake.
C. All Continuing Fees, Advertising Contributions, amounts due for
purchases by you from us and our affiliates, and other amounts which you owe us
or our affiliates shall bear interest after due date at the highest applicable
legal rate for open account business credit, not to exceed one and one-half
percent (1.5%) per month. You acknowledge that this Paragraph does not
constitute agreement by us or our affiliates to accept such payments after same
are due or a commitment by us to extend credit to, or otherwise finance your
operation of, the Franchised Restaurant. Further, you acknowledge that your
failure to pay all amounts when due shall constitute grounds for termination of
this Agreement, as provided in Paragraph XVI hereof, notwithstanding the
provisions of this Paragraph.
D. Notwithstanding any designation by you, we have the sole discretion
to apply any payments by you to any past due indebtedness of yours for
Continuing Fees, Advertising Contributions, purchases from us and our
affiliates, interest or any other indebtedness. Further, if you are delinquent
in the payment of any fees or indebtedness we have the right to require you to
prepay estimated Continuing Fees and Advertising Contributions.
XI. ACCOUNTING AND RECORDS
A. You will maintain during the term of this Agreement, and preserve
for the time period specified by us, full, complete, and accurate books,
records, and accounts in accordance with the standard accounting
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system prescribed by us from time to time in writing. You will retain for a
period of three (3) years all books and records related to the Franchised
Restaurant, including without limitation, sales checks, purchase orders,
invoices, payroll records, customer lists, check stubs, sales tax records and
returns, cash receipts and disbursement journals and general ledgers. If a
computerized accounting system is developed by us for use throughout the
franchise System, you will at your expense implement and utilize such a system
according to the standards and procedures established by us.
B. You will supply to us on or before the twenty-eighth (28th) day
after the end of each fiscal quarter, in the form approved by us, an activity
report and a detailed profit and loss statement, balance sheet and statement of
cash flow for the last preceding fiscal quarter. Additionally, you will, at
your expense, submit to us within ninety (90) days after the end of each fiscal
year during the term of this Agreement, a detailed profit and loss statement and
statement of cash flow for such fiscal year and a balance sheet as of the last
day of such fiscal year, prepared on an accrual basis including all adjustments
necessary for fair presentation of the financial statements. Such financial
statements must be certified to be true and correct by you and be reviewed by an
independent certified public account.
C. You will submit to us such other periodic reports, forms and records
as specified, and in the manner and at the time as specified in the Manuals or
as we otherwise require in writing from time to time.
D. You will record all sales on electronic cash registers approved by
us or on such other types of cash registers as may be designated by us in the
Manuals or otherwise in writing. We reserve the right to designate the
information system used in your Franchised Restaurant including the computer
hardware, software, other equipment and enhancements. At such time as we
designate the approved information system, you will have one hundred eighty
(180) days in which to install and commence using the approved information
system. In connection with the approved information system, you agree to the
following:
1. You understand that you will be required to acquire the right
to use the information system, obtain peripheral equipment and accessories and
arrange for required maintenance and support services, all at your cost.
2. We shall have the right at all times to access the information
system and to retrieve, analyze, download and use all software, data and files
stored or used on the information system. We may access the information system
in the Franchised Restaurant or from other locations. You shall store all data
and information on the information system that we designate from time to time.
3. All modifications and enhancements made to the approved
information system shall be our property (or the appropriate vendor if we so
designate), without regard to the source of the modification or enhancement.
You agree to execute any documents, in the form provided by us, that we
determine are necessary to reflect such ownership.
4. Upon expiration or termination of this Agreement, you shall
allow our employees or agents to remove the required software from the
information system, shall immediately return to us the software, each component
thereof, any data generated by the use thereof, all documentation for the
software and other materials or information that relate to or reveal the
software and its operation. You shall immediately destroy any and all back-up
or other copies of the software or parts thereof, and any data generated by the
use of the software (other than financial information relating solely to you).
5. You acknowledge and agree that there will be fees payable by
you in connection with the installation, use, support, maintenance, and periodic
enhancements of the approved information system. These fees will include but
are not necessarily limited to an on-site installation and support fee,
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software support fees and software maintenance fees. These fees will be payable
to us or a vendor designated by us and may be increased from time to time.
6. You will be required to execute a software license agreement
setting forth in more detail your rights and obligations in connection with your
use of the approved information system.
You agree that we have the right to use your data as part of our earnings claim
in our Franchise Offering Circular.
E. We or our designated agents have the right at all reasonable times
to examine and copy, at our expense, your books, records, and tax returns. We
also have the right, at any time, to have an independent audit made of your
books and records at our expense. If an inspection reveals that any payments
due to us have been understated in any report to us, then you will immediately
pay to us the amount understated upon demand, in addition to interest from the
date such amount was due until paid, at the maximum rate permitted by law not to
exceed one and half percent (1.5%) per month. If an inspection discloses an
understatement in any report of two percent (2%) or more, you will also
reimburse us for any and all costs and expenses connected with the inspection
(including, without limitation, reasonable accounting and attorneys' fees), and
we will thereafter have the right to require you to submit annual financial
statements, prepared in accordance with generally accepted accounting
principles, audited by an independent certified public accountant. The
foregoing remedies shall be in addition to any other remedies we may have.
F. You acknowledge that nothing contained in this Agreement constitutes
our agreement to accept any payments after they are due or a commitment by us to
extend credit to or otherwise finance your operation of the Franchised
Restaurant. Further, you acknowledge that your failure to pay all amounts when
due constitutes a material default of, and grounds for, termination of this
Agreement.
XII. STANDARDS OF QUALITY AND PERFORMANCE
In order to promote and protect the value of the Marks and the System,
and to insure optimum quality control as to products and services provided and
sold in Franchised Restaurants, you acknowledge and agree that substantial
uniformity must be maintained in the quality, type and standard of Franchised
Restaurant, and in their facilities, products, services and operations.
Therefore, you will comply with all requirements described in this Agreement,
the Manuals and other written policies supplied by us. Mandatory
specifications, standards, operating procedures and rules prescribed from time
to time by us in the Manuals or otherwise communicated to you in writing, shall
constitute provisions of this Agreement as if fully set forth herein. All
references herein to this Agreement shall include all such mandatory
specifications, standards and operating procedures and rules.
A. You will commence operation of your Franchised Restaurant within
nine (9) months of the execution of this Agreement or as otherwise required or
approved in writing by us. Before opening, you will have procured all necessary
licenses, permits, and approvals, including, but not limited to, liquor and
construction permits; hired and trained personnel, made all leasehold
improvements, and acquired initial inventory. At the time of opening you must
have a minimum of Fifty Thousand Dollars ($50,000) in immediately accessible
working capital funds to be used solely to defray the costs of operating the
Restaurant for the initial several months. If for any reason you fail to
commence operation within the nine (9) month period, we may terminate this
Agreement immediately upon delivery of written notice of termination to you.
B. You will maintain the condition and appearance of the premises of the
Franchised Restaurant consistent with our quality controls and standards. You
will effect reasonable maintenance of the Franchised Restaurant as is from time
to time required to maintain or improve the appearance and efficient operation
of the Franchised Restaurant, including but not limited to replacement of worn
out or obsolete fixtures and signs, repair of the exterior and interior of the
premises of the Franchised Restaurant, and purchasing and installation of new or
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modified equipment. If at any time in our judgment the general state of repair
or the appearance of the premises of the Franchised Restaurant or its equipment,
fixtures, signs or decor does not meet our quality control and standards
therefor, we will notify you, specifying the action to be taken by you to
correct such deficiency. If you fail or refuse to initiate a bona fide program
to complete any required maintenance, within thirty (30) days after receipt of
such notice, we will have the right, but not the obligation, in addition to all
other remedies, to enter upon the premises of the Franchised Restaurant and
effect such repairs, painting, maintenance or replacements of equipment,
fixtures or signs on your behalf and you shall pay the entire costs thereof on
demand.
C. You will not make any material alterations to the premises of the
Franchised Restaurant make any material replacements of or alterations to the
equipment, fixtures or signs of the Franchised Restaurant without our prior
written approval.
D. The Franchised Restaurant may be used solely for the purpose of
conducting a Buffalo Wild Wings Franchised Restaurant. The operating entity
(corporation, partnership or limited liability company) will be dedicated solely
to the operation of your Franchised Restaurant(s) and will not hold any interest
in, operate or manage any other business of any kind without our prior written
approval.
E. We have developed and own proprietary sauces for use in preparing
chicken wings, the weck kaiser roll and other menu items and specially prepared
pocket pizza mix and "Buffalo Breath Chili" mix ("Trade Secret Food Products").
In order to protect our trade secrets and to monitor the manufacture, packaging,
processing and sale of Trade Secret Food Products, we will (i) manufacture,
supply, and sell Trade Secret Food Products to our franchisees; (ii) disclose
the formulae for and methods for preparation of the Trade Secret Food Products
to a limited number of suppliers who may be authorized by us to manufacture
Trade Secret Food Products to our precise specifications and sell Trade Secret
Food Products to our franchisees; and/or (iii) disclose the formulae for and
methods for preparation of the pocket pizza mix and the Buffalo Breath Chili mix
to you who will be authorized by us to manufacture them to our precise
specifications for sale only at the location of the Franchised Restaurant
specified herein, unless otherwise approved by us. Under no circumstances will
we disclose the formulae for and methods of preparation of any of our
proprietary sauces to you. You acknowledge that you may be required to purchase
Trade Secret Food Products (and other products whose consistency and quality is
key to the success of the System) from us or a limited number of suppliers so
authorized by us and will be required to use Trade Secret Food Products as
designated by us.
F. You will offer for sale and sell at the Franchised Restaurant all
Menu Items, other food and beverage products and other products that we from
time to time require and shall not offer for sale or sell at the Franchised
Restaurant or the premises which you occupy any unapproved products or menu
items or use such premises for any purpose other than the operation of a
Franchised Restaurant in full compliance with this Agreement. You will offer
all Menu Items on a menu specified by us.
G. In order to ensure that all Menu Items produced by you meet our high
standards of taste, texture, appearance and freshness, and in order to protect
our goodwill and Marks, all Menu Items and other food products shall be prepared
only by properly trained personnel strictly in accordance with our recipes,
cooking techniques and processes, and the Manuals, and shall be sold only at
retail to customers in conformity with our marketing plan and concept. You
acknowledge that such recipes, cooking techniques and processes are integral to
the System and failure to adhere to such recipes, cooking techniques and
processes shall be detrimental to the System and Marks.
H. From time to time, we will provide you with a list of approved
manufacturers, suppliers and distributors ("Approved Suppliers List") and
approved inventory products, fixtures, furniture, equipment, signs, stationery,
supplies, and other items or services necessary to operate the Franchised
Restaurant ("Approved Supplies List"). The list will specify the manufacturer,
supplier and distributor and the inventory products,
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fixtures, furniture, equipment, signs, stationery, supplies and services which
we have approved to be carried or used in the System. We may revise the
Approved Suppliers List and Approved Supplies List from time to time in our sole
discretion and such lists shall be submitted to you as we deem advisable. If
you propose to offer for sale at the Franchised Restaurant any brand of product,
or to use in the operation of the Franchised Restaurant any brand of food
ingredient or other material or supply which is not then approved by us as
meeting its minimum specifications and quality standards, or to purchase any
product from a supplier that is not then designated by us as an approved
supplier, you must first notify us and shall upon our request submit samples and
such other information as we require for examination and/or testing or to
otherwise determine whether such product, material or supply, or such proposed
supplier meets its specifications and quality standards. We may charge you a
fee in connection with such examination and/or testing which will not exceed the
reasonable cost of the inspection and evaluation and the actual cost of the
test. In some cases we may refuse to consider an alternate supplier of certain
items. We reserve the right to re-inspect the facilities and products of any
supplier of an approved item and to revoke its approval of any item or supplier
which fails to continue to meet any of our criteria.
I. All inventory, products and materials, and other items and supplies
used in the operation of the Franchised Restaurant which are not specifically
required to be purchased in accordance with our Approved Supplies List and
Approved Suppliers List must conform to the specifications and quality standards
established by us from time to time.
J. You will fully comply with all mandatory specifications, standards,
operating procedures and rules as in effect from time to time relating to:
1. The safety, maintenance, cleanliness, sanitation, function and
appearance of the Franchised Restaurant premises and its equipment, fixtures,
decor and signs and maintenance and service agreements therefor;
2. Training, dress, general appearance and demeanor of Franchised
Restaurant employees;
3. Type, quality, taste, portion control and uniformity, and
manner of preparation, packaging, displays and sale of all Menu Items, beverages
and other food items sold by the Franchised Restaurant and of all food,
beverages and other products used in the preparation and packaging thereof;
4. The promotion and sale of novelty items bearing the Marks,
such as cups, T-shirts and related merchandise and accessories;
5. Hours during which the Franchised Restaurant will be open for
business;
6. Advertising and promotional programs;
7. Use and retention of standard forms;
8. Our recipes;
9. Use and illumination of signs, posters, displays, menu boards
and similar items;
10. Your identification as the owner of the Franchised Restaurant;
11. The handling of customer complaints; and
12. Any other standard, specification or procedure designated by
us.
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K. You will secure and maintain in force all required licenses,
including liquor licenses, permits and certificates relating to the operation of
the Franchised Restaurant and will operate the Franchised Restaurant in full
compliance with all applicable laws, ordinances and regulations, including
without limitation all government regulations relating to occupational hazards
and health, dispensing of food products, consumer protection, trade regulation,
worker's compensation, unemployment insurance and withholding and payment of
Federal and State income taxes and social security taxes and sales, use and
property taxes.
L. You will refrain from any merchandising, advertising or promotional
practice which is unethical or may be injurious to our business and/or the
business of other Franchised Restaurants or to the goodwill associated with the
Marks or System.
M. In the operation of the Franchised Restaurant you will use only
displays, trays, boxes, bags, wrapping paper, labels, forms and other paper and
plastic products imprinted with the Marks and colors as prescribed from time to
time by us.
N. You acknowledge that the Franchised Restaurant shall at all times
maintain an inventory of ingredients, food and beverage products and other
products, materials and supplies that will permit operation of the Franchised
Restaurant at maximum capacity.
O. The Franchised Restaurant shall at all times be under your direct,
on-premises supervision, unless, upon sixty (60) days prior written notice and
approval by us you designate a trained and competent employee to act as
full-time general manager. Your designation of a general manager shall be
subject to our prior written approval, and shall further be subject to the
designated general manager successfully completing our training course. All
costs for the attendance of the designated general manager at our training
course shall be at your cost, except as set forth in Section IV(A). We will
have the right at any time to revoke our approval of a designated manager. The
use of a general manager will in no way relieve you of your obligations to
observe, perform and comply with this Agreement and the Manuals and to insure
that the Franchised Restaurant is properly managed and operated or the
responsibility for the on-site, day to day operation of the Franchised
Restaurant. You will employ a sufficient number of competent and trained
employees to insure efficient service to your customers.
P. You will not install or maintain on the premises of the Franchised
Restaurant any newspaper racks, video games, jukeboxes, gaming machines, gum
machines, games, rides, vending machines, pool tables, automated teller
machines, or other similar devices without our written approval. The income
derived from any approved machines will be included in gross sales for purposes
of your Continuing Fee and advertising contribution.
Q. You will timely pay all of your obligations and liabilities due to
us, our parent, bw-3, Inc., our affiliates and other suppliers, lessors and
creditors.
R. You will notify us in writing within five (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 Franchised Restaurant.
S. We reserve the right to require you to offer delivery service to
customers located within a reasonable radius of the Franchised Restaurant. As
of the date of this Agreement, such delivery service is at your option. If the
Franchised Restaurant offers delivery service to customers located within its
Designated Area, in order to maintain the quality of all food products, the
Franchised Restaurant will not offer delivery service to any customer whose
order cannot be delivered within a reasonable time from when such order is
placed, in
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accordance with our standards. You will charge the same price for products
offered by the Franchised Restaurant whether delivered or sold over the counter
in the Franchised Restaurant, plus a reasonable delivery charge.
XIII. OPERATIONS ASSISTANCE
A. We may from time to time advise or offer guidance to you relative to
prices for the food and other products offered for sale by the Franchised
Restaurant that in our judgment constitute good business practice. Such
guidance will be based on our experience in operating and franchising
Restaurants and an analysis of the costs of such products and prices charged for
competitive products. You will not be obligated to accept any such advice or
guidance and shall have the sole right to determine the prices to be charged
from time to time by the Franchised Restaurant and no such advice or guidance
shall be deemed or construed to impose upon you any obligation to charge any
fixed, minimum or maximum prices for any product offered for sale by the
Franchised Restaurant. We may from time to time establish promotional practices
which you are required to follow such as "free refill," "buy one and get one
free" or similar practices.
B. Before the opening of the Franchised Restaurant we will provide you
with the following:
1. A comprehensive list of established sources of equipment,
foods, supplies and containers necessary for the operation of the Franchised
Restaurant and provide specifications for such products;
2. Coordination of product distribution for local, regional and
national suppliers; and
3. Regulation of quality standards and products in conformance
throughout the network of Franchised Restaurants.
C. We may furnish you with such assistance in connection with the
operation of the Franchised Restaurant as we reasonably determined to be
necessary from time to time. Operations assistance may consist of advice and
guidance with respect to:
1. Proper utilization of procedures to be utilized by the
Franchised Restaurant regarding the service and sale of all Menu Items and other
food and beverage items, and related items and materials as approved by us;
2. Additional products and services authorized for sale by
Franchised Restaurants;
3. Purchase of ingredients and other food and beverage items,
materials and supplies;
4. The institution of proper administrative, bookkeeping,
accounting, inventory control, supervisory and general operating procedures for
the effective operation of the Franchised Restaurant; and
5. Advertising and promotional programs.
D. We will make periodic visits to the Franchised Restaurant for the
purposes of consultation, assistance, and guidance in all aspects of the
operation and management of the Franchised Restaurant as we reasonably determine
to be necessary from time to time. We or our representatives who visit the
Franchised Restaurant will prepare, for the benefit of both us and you, written
reports with respect to such visits outlining any suggested changes or
improvements in the operations of the Franchised Restaurant and detailing any
defaults in such operations which become evident as a result of any such visit,
and a copy of each such written report shall be provided to both us and you. We
will advise you of problems arising out of the operation of the Franchised
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Restaurant as disclosed by reports submitted to us by you or by inspections
conducted by us of the Franchised Restaurant.
E. We will provide to you the specifications, Approved Suppliers Lists,
Approved Supplies Lists, training and Manuals at various times between the
execution of this Agreement and the opening of the Franchised Restaurant.
F. In the event you request additional operational assistance or
services, we have the right to condition the rendering of such services upon the
payment of a per diem fee and all of our expenses incurred in rendering the
services.
XIV. INSURANCE
A. You will procure at your expense and maintain in full force and
effect during the term of this Agreement, an insurance policy or policies
protecting you, us and our designated affiliates, and their officers, directors,
partners and employees against any loss, liability, personal injury, death, or
property damage or expense whatsoever arising or occurring upon or in connection
with the Franchised Restaurant, as we may reasonably require for our own and
your protection. We will be named an additional insured in such policy or
policies.
B. The policy or policies shall be written by an insurance company
satisfactory to us in accordance with standards and specifications set forth in
the Manuals or otherwise in writing, and shall include, at a minimum (except as
different coverages and policy limits may reasonably be specified for all
franchisees from time to time by us in the Manuals or otherwise in writing) the
following:
1. All risks coverage insurance on the Franchised Restaurant and
all fixtures, equipment, supplies and other property used in the operation of
the Franchised Restaurant, for full repair and replacement value of the
machinery, equipment, improvements and betterments, without any applicable
co-insurance clause, except that an appropriate deductible clause shall be
permitted.
2. Worker's compensation and employer's liability insurance as
well as such other insurance as may be required by statute or rule of the state
in which the Franchised Restaurant is located and operated.
3. Comprehensive general liability insurance and product
liability insurance with minimum limits of ONE MILLION Dollars ($1,000,000)
combined single limit including the following coverages: contractual liability;
personal injury; products/completed operation; and tenant's fire legal
liability; insuring against all claims, suits, obligations, liabilities and
damages, including attorneys' fees, based upon or arising out of actual or
alleged personal injuries or property damage resulting from, or occurring in the
course of, or on or about or otherwise relating to the Franchised Restaurant,
provided that the required amounts herein may be modified from time to time by
us to reflect inflation or future experience with claims.
4. If you offer delivery service or utilize motor vehicles for
any other purpose in the operation of the Franchised Restaurant, automobile
liability insurance, including owned, hired and non-owned vehicle coverage, with
a combined single limit of at least ONE MILLION Dollars ($1,000,000).
5. Such insurance and types of coverage as may be required by the
terms of any lease for the Franchised Restaurant, or as may be required from
time to time by us.
6. Liquor liability coverage in a minimum amount of ONE MILLION
Dollars ($1,000,000) or such other amount as may be specified by us.
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C. The insurance afforded by the policy or policies respecting
liability shall not be limited in any way by reason of any insurance which may
be maintained by us. The insurance coverage must commence as of the date the
location of the Franchised Restaurant has been secured. You agree to deliver to
us prior to opening and periodically at any time upon our request, proper
certificate evidencing the existence of the insurance coverage which names us as
a named insured. Such certificate shall state that said policy or policies will
not be canceled or altered without at least twenty (20) days prior written
notice to us and shall reflect proof of payment of premiums. Maintenance of
such insurance and the performance by you of the obligations under this
Paragraph will not relieve you of liability under the indemnity provision set
forth in this Agreement. Minimum limits as required above may be modified from
time to time, as conditions require, by written notice to you and we may require
you to provide periodic proof of payment of premiums.
D. If you, for any reason, do not procure and maintain such insurance
coverage as required by this Agreement, we have the right and authority
(without, however, any obligation to do so) immediately to procure such
insurance coverage and to charge same to you, which charges, together with a
reasonable fee for expenses incurred by us in connection with such procurement,
shall be payable by you immediately upon notice.
XV. COVENANTS
A. Unless otherwise specified, the term "you" as used in this Paragraph
XV shall include, collectively and individually, all officers, directors,
managers, and holders of a beneficial interest of your securities, and of any
corporation directly or indirectly controlling you, if you are a corporation,
the general and limited partners (including any corporation and the officers,
directors, and holders of a beneficial interest of your securities, of a
corporation which controls, directly or indirectly, any general or limited
partner), if you are a partnership, and all members if you are a limited
liability company.
B. You covenant that during the term of this Agreement, except as
otherwise approved in writing by us, you (if you are an individual), a
shareholder of a beneficial interest of ten percent (10%) or more of your
securities (if you are a corporation), a general partner of yours (if you are a
partnership), a member (if you are a limited liability company) or your
full-time manager approved by us shall devote full time, energy and best efforts
to the management and operation of the Franchised Restaurant. At all times
during the term of this Agreement, the on-site day to day management and
operation of the Franchised Restaurant shall be conducted by someone who has
been approved by us and who has satisfactorily completed our training program.
C. You covenant that during the term of this Agreement, except as
otherwise approved in writing by us, you will not, either directly or
indirectly, for yourself, or through, on behalf of, or in conjunction with any
person, persons, partnership, corporation or company:
1. Divert or attempt to divert any business or customer of the
Franchised Restaurant to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with the Marks or the System.
2. Employ or seek to employ any person who is at that time
employed by us, our affiliates, or by any other franchisee of ours, or otherwise
directly or indirectly induce or seek to induce such person to leave his or her
employment thereat.
3. Directly or indirectly, for yourself or through, on behalf of,
or in conjunction with any person or entity, own, manage, operate, maintain,
engage in, consult with or have any interest in: a) any restaurant business, b)
any prepared food business, or c) any other business which sells or offers to
dispense prepared food products the same as or similar to the type sold in the
System.
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D. You specifically acknowledge that, pursuant to this Agreement, you
will receive valuable training and confidential information, including, without
limitation, information regarding our promotional, operational, sales and
marketing methods and techniques and the System. Accordingly, you covenant
that, except as otherwise approved in writing by us, you will not, for a period
of two (2) years after the expiration or termination of this Agreement,
regardless of the cause of termination, or within two (2) years of the sale of
the Franchised Restaurant or any interest in you, either directly or indirectly,
for yourself, or through, on behalf of, or in conjunction with any person or
entity, own, manage, operate, maintain, engage in, consult with or have any
interest in: i) any restaurant business, ii) any prepared food business, or iii)
any other business which sells or offers to dispense prepared food products the
same as or similar to the type sold in the System:
1. At the premises of the former Franchised Restaurant;
2. Within a radius of ten (10) miles of the former Franchised
Restaurant; or
3. Within a radius of ten (10) miles of the location of any other
business using the System, whether franchised or owned by us or our affiliates.
E. You will not, at any time during or after the term of this
Agreement, divulge to any person, partnership, corporation or any other entity
any information, trade secrets, the ingredients, recipes, cooking techniques and
processes, used in the Trade Secret Food Products, and other food and beverage
products and Menu Items used in the System or any information stated in the
Manuals.
F. 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 Paragraph XV is held unreasonable or
unenforceable by a court or agency having valid jurisdiction in an unappealed
final decision to which we are a party, you will be bound by any lesser covenant
subsumed within the terms of such covenant that imposes the maximum duty
permitted by law, as if the resulting covenant were separately stated in and
made a part of this Paragraph XV.
G. You understand and acknowledge that we have the right, in our sole
discretion, to reduce the scope of any covenant set forth in Paragraphs XV.C.
and XV.D. in this Agreement, or any portion thereof, without your consent,
effective immediately upon receipt by you of written notice thereof, and you
shall comply forthwith with any covenant as so modified, which shall be fully
enforceable notwithstanding the provisions of Paragraph XXVI hereof.
H. We have the right to require all of your current and future
shareholders, directors, officers, partners, members, managers and all personnel
performing managerial or supervisory functions and all personnel receiving
training from us to execute similar covenants in a form satisfactory to us.
XVI. DEFAULT AND TERMINATION
A. If you are in substantial compliance with this Agreement and we
materially breach this Agreement and fail to cure such breach within a
reasonable time after written notice thereof is delivered to us, you may
terminate this Agreement. "Reasonable time," as used herein, shall be construed
as allowing us at least thirty (30) days within which to commence curing any
such material breach. Such termination shall be effective thirty (30) days
after delivery to us of written notice that such breach has not been cured and
you elect to terminate this Agreement. An attempted termination of this
Agreement by you except as provided in this Paragraph shall be deemed a
termination without cause and a breach of this Agreement.
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B. This Agreement shall terminate automatically upon delivery of
written notice of termination to you, if you or any shareholder, officer,
partner, member or manager:
1. Fails to satisfactorily complete the training program,
including the opportunity to provide an alternate manager, as provided in
Paragraph IV of this Agreement;
2. Has made any material misrepresentation or omission in your
application for the franchise;
3. Is convicted of or pleads no contest to a felony or other
crime or offense that is likely to adversely affect your reputation, the
Franchised Restaurant, or the goodwill associated with the Marks or System;
4. Makes any unauthorized use, disclosure or duplication of any
portion of the Manuals or duplicates or discloses or makes any unauthorized use
of any trade secret or confidential information provided to you by us;
5. Abandons or fails or refuses to actively operate the
Franchised Restaurant for more than five (5) days in any twelve (12) month
period or for more than two (2) consecutive business days in any twelve (12)
month period, unless the Franchised Restaurant has been closed for a purpose
approved by us or due to force majeure, or fails to relocate to approved
premises within an approved period of time following expiration or termination
of the lease for the premises of the Franchised Restaurant;
6. Surrenders or transfers control of the operation of the
Franchised Restaurant, makes an unauthorized direct or indirect assignment of
the franchise or an ownership interest in you or fails or refuses to assign the
franchise or the interest in you of a deceased or disabled controlling owner
thereof as herein required;
7. Submits to us on five (5) or more separate occasions at any
time during the term of this Agreement or on two (2) or more separate occasions
during any twelve (12) month period any reports or other data, information or
supporting records which understate by more than two percent (2%) the Continuing
Fees for any period of, or periods aggregating, three (3) or more months, and
you are unable to demonstrate that such understatements resulted from
inadvertent error;
8. Commits any affirmative act of insolvency, or files any
petition or action of insolvency, or for appointment of a receiver or trustee,
or makes any assignment for the benefit of creditors, or fails to vacate or
dismiss within sixty (60) days after filing any such proceedings commenced
against you by a third party;
9. Materially misuses or makes an unauthorized use of any Marks
or commits any act which can reasonably be expected to materially impair the
goodwill associated with any Marks;
10. Materially misuses or makes an unauthorized use of our
Proprietary Software Program;
11. Fails on three (3) or more separate occasions within any
period of twelve (12) consecutive months or eight (8) or more separate occasions
at any time during the term of this Agreement to submit when due reports or
other information or supporting records, to pay when due the Continuing Fees,
advertising contributions, amounts due for purchases from us and our affiliates
or other payments due to us and our affiliates, or otherwise fails to comply
with this Agreement, whether or not such failures to comply are corrected;
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12. Continues after written notice from us and/or any governmental
authority to violate any health, safety or sanitation law, ordinance or
regulation or operates the Franchised Restaurant in a manner that presents a
health or safety hazard to your customers or the public;
13. Fails to commence operations within nine (9) months after
execution of this Agreement, or as otherwise required or approved in writing by
us; or
14. Defaults under the lease, if any, for the Franchised
Restaurant.
C. This Agreement shall terminate at our sole option without further
action by us or notice to you if you or your owner:
1. Fails or refuses to make payments of any amounts due to us or
our affiliates for Continuing Fees, advertising contributions, purchases from us
or our affiliates or any other amounts due to us or our affiliates, and does not
correct such failure or refusal within ten (10) days after written notice of
such failure is delivered to you;
2. Fails or refuses to comply with any other provision of this
Agreement, or any mandatory specification, standard or operating procedure
prescribed in the Manuals or otherwise in writing, and does not correct such
failure within thirty (30) days (or provide proof acceptable to us that you have
made all reasonable efforts to correct such failure and will continue to make
all reasonable efforts to cure until a cure is effected if such failure cannot
reasonably be corrected within thirty (30) days) after written notice of such
failure to comply is delivered to you.
3. Fails to devote your best efforts to adequately represent the
Franchised Restaurant in your Designated Area through your sales and service
efforts and does not correct such failure within thirty (30) days (or provide
proof acceptable to us that you have made all reasonable efforts to correct such
failure and will continue to make all reasonable efforts to cure until a cure is
effected if such failure cannot reasonably be corrected within thirty (30) days)
after written notice of such failure to comply is delivered to you.
D. To the extent that the provisions of this Agreement provide for
periods of notice less than those required by applicable law, or provide for
termination, cancellation, non-renewal or the like other than in accordance with
applicable law, such provisions shall, to the extent such are not in accordance
with applicable law, not be effective, and we will comply with applicable law in
connection with each of these matters.
E. In addition to our right to terminate this Agreement, and not in
lieu of such right or any other rights against you, we, in the event that you
have not cured a default under this Agreement within the twenty (20) days after
receipt of a written notice to cure from us, may, at our option, enter upon the
premises of the Franchised Restaurant and exercise complete authority with
respect to the operation of the Franchised Restaurant until such time as we
determine that your default has been cured and that there is compliance with the
requirements of this Agreement. You specifically acknowledge that our
designated representative may take over, control, and operate the Franchised
Restaurant, and that you will pay us a service fee of not less than TWO HUNDRED
Dollars ($200) per day plus all travel expenses, room and board and other
expenses reasonably incurred by such representative so long as it shall be
required by the representative to enforce compliance herewith. You further
acknowledge that if, as herein provided, we temporarily operate for you the
Franchised Restaurant, you will indemnify, defend and hold us harmless and any
representative of ours who may act hereunder, from any and all claims arising
from the operation of the Franchised Restaurant, including without limitation,
acts and omissions of us or our representatives.
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XVII. RIGHTS AND DUTIES OF PARTIES UPON EXPIRATION OR TERMINATION
Upon termination or expiration, this Agreement and all rights granted hereunder
to you will forthwith terminate, and:
A. You will immediately cease to operate the Franchised Restaurant
under this Agreement, and shall not thereafter, directly or indirectly,
represent to the public or hold yourself out as a present or former franchisee
of ours.
B. Upon our demand, you will assign to us your interest in any lease
then in effect for the Franchised Restaurant premises.
C. You will immediately and permanently cease to use, by advertising or
in any manner whatsoever, any confidential methods, procedures, and techniques
associated with the System; the Marks and distinctive forms, slogans, signs,
symbols, logos, or devices associated with the System. In particular, you will
cease to use, without limitation, all signs, advertising materials, stationery,
forms, and any other articles which display the Marks associated with the
System.
D. You will take such action as may be necessary to cancel or assign to
us or our designee, at our option, any assumed name rights or equivalent
registration filed with state, city, or county authorities which contains the
name "Buffalo Wild Wings," "bw-3" or any Mark, and you will furnish us with
evidence satisfactory to us of compliance with this obligation within thirty
(30) days after termination or expiration of this Agreement.
E. You will, in the event you continue to operate or subsequently begin
to operate any other business, not use any reproduction, counterfeit, copy or
colorable imitation of the Marks either in connection with such other business
or the promotion thereof, which is likely to cause confusion, mistake or
deception, or which is likely to dilute our exclusive rights in and to the Marks
and will not utilize any designation of origin or description or representation
which falsely suggests or represents an association or connection with us so as
to constitute unfair competition. You will make such modifications or
alterations to the premises of the Franchised Restaurant (including, without
limitation, the changing of the telephone number) immediately upon termination
or expiration of this Agreement as may be necessary to prevent any association
between us or the System and any business thereon subsequently operated by you
or others, and will make such specific additional changes thereto as we may
reasonably request for that purpose, including, without limitation, removal of
all distinctive physical and structural features identifying the System. In the
event you fail or refuse to comply with the requirements of this Paragraph XVII,
we have the right to enter upon the premises where your Franchised Restaurant
was conducted, without being guilty of trespass or any other tort, for the
purpose of making or causing to be made such changes as may be required at your
expense, which expense you will pay upon demand.
F. You will promptly pay all sums owing to us and our affiliates. In
the event of termination for any default, such sums will include all damages,
costs, and expenses, including reasonable attorneys' fees, incurred by us as a
result of the default.
G. You will pay to us all damages, costs and expenses, including
reasonable attorneys' fees, incurred by us in obtaining injunctive or other
relief for the enforcement of any provisions of this Agreement.
H. You will immediately return to us at your cost all Manuals, our
Proprietary Software Program, customer lists, records, files, instructions,
brochures, agreements, disclosure statements, and any and all other materials
provided by us to you relating to the operation of the Franchised Restaurant
(all of which are acknowledged to be our property).
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I. We will have the right, title and interest to any sign or sign faces
bearing the Marks. You hereby acknowledge our right to access the premises of
the Franchised Restaurant if we elect to take possession of any sign or sign
faces bearing the Marks.
J. You hereby acknowledge that all telephone numbers used in the
operation of the Franchised Restaurant constitute assets of the Franchised
Restaurant; and upon termination or expiration of this Agreement you will
assign to us or our designee, all right, title, and interest in and to your
telephone numbers and will notify the telephone company and all listing agencies
of the termination or expiration of your right to use any telephone number and
any regular, classified or other telephone directory listing associated with the
Marks and to authorize a transfer of same to or at our direction.
K. We will have the right (but not the duty), to be exercised by notice
of intent to do so within sixty (60) days after termination or expiration, to
purchase for cash any or all assets of the Franchised Restaurant, including
leasehold improvements, equipment, supplies, and other inventory, advertising
materials, and all items bearing the Marks, at your cost or fair market value,
whichever is less. You acknowledge that, pursuant to Paragraph XVII.I. of this
Agreement, all signs and sign faces bearing the Marks are specifically excluded
from this provision as such signs and sign faces are deemed to be our property.
If the parties cannot agree on fair market value within a reasonable time, the
determination of fair market value shall be determined by an appraiser selected
by us and you. If you and we cannot agree on a single appraiser, each party
shall select one appraiser, who together will select a third appraiser and the
fair market value will be the average of the three (3) independent appraisers.
Each party will pay their own appraiser and the cost of the third appraiser will
be shared equally by the parties. If we elect to exercise any option to
purchase as herein provided, we have the right to set off all amounts due from
you under this Agreement, if any, against any payment therefor.
L. You will comply with the covenants contained in Paragraph XV of this
Agreement.
XVIII. TRANSFERABILITY OF INTEREST
A. This Agreement and all rights hereunder can be assigned and
transferred by us and, if so, shall be binding upon and inure to the benefit of
our successors and assigns.
B. This Agreement, and your rights and obligations under it, are and
shall remain personal to you. The term "Transfer" shall mean any sale,
assignment, gift, pledge, mortgage or any other encumbrance, transfer by
bankruptcy, transfer by judicial order, merger, consolidation, share exchange,
transfer by operation of law or otherwise, whether direct or indirect, voluntary
or involuntary, of this Agreement or any interest in it, or any rights or
obligations arising under it, or of any material portion of your assets, or of
any interest in you. You (and your shareholders, partners and members) will not
directly or indirectly make a Transfer without our prior written consent. We
will not withhold our consent to a Transfer, subject to all of the following
conditions being satisfied:
1. You are in full compliance with this Agreement, you have no
uncured defaults, all your fees, debts and financial obligations to us, our
affiliates and the Fund are current, and you are current in your required local
advertising expenditures;
2. You execute a written agreement in a form satisfactory to us
in which you and your owners covenant to observe all applicable post-term
obligations and covenants contained in this Agreement;
3. The proposed transferee enters into a written agreement in a
form satisfactory to us assuming and agreeing to discharge all of your
obligations and covenants under this Agreement for the remainder of its term or,
at our option, execute our then-current standard form of franchise agreement
(which
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may provide for different fees, advertising requirements, duration, and other
rights and obligations from those provided in this Agreement);
4. The proposed transferee agrees in writing to perform such
maintenance, remodeling and re-equipping of the Restaurant that we determine
necessary to bring the Restaurant in compliance with our then-current standards;
5. Prior to the date of the proposed Transfer, the proposed
transferee's management team successfully completes such training and
instruction as we deem necessary;
6. We are satisfied that the proposed transferee (and if the
proposed transferee is an entity, all holders of any interest in such entity)
meets all of the requirements for our new franchisees applicable on the date we
receive notice of the proposed transfer and including, but not limited to, good
reputation and character, business experience, restaurant management experience,
and financial strength and liquidity;
7. You and all holders of an interest in you execute a general
release, in the form prescribed by us, releasing, to the fullest extent
permitted by law, all claims that you or any of your investors may have against
us and our affiliates, including our and their respective shareholders,
officers, directors and employees, in both their individual and corporate
capacities;
8. You pay us a transfer fee equal to one-half (1/2) of the
then-current Initial Franchise Fee; and
9. We waive our right of first refusal under Paragraph XX.
C. Application for our consent to a transfer and tender of the right of
first refusal provided for in Paragraph XX, will be accompanied by the documents
(including a copy of the proposed purchase or other transfer agreement) or other
information required by us. Any agreement used in connection with a transfer
including a lease or management agreement, shall be subject to our prior written
approval.
D. In the event you are a corporation, partnership, limited liability
company or other entity, any transfer of stock (or other form of ownership
interest) constituting a controlling interest in you will be subject to the
consent, right of first refusal, transfer fee and all other applicable
provisions of this Agreement. For purposes of this Paragraph XVIII, any change
in the percentage you owned, directly or indirectly, by any person or entity who
directly or indirectly owns an interest in you (including any addition or
deletion of any such person or entity) which results in a change in forty-nine
percent (49%) or more of your ownership or any series of changes in the
percentage you owned, directly or indirectly, by any such person or entity
(including any addition or deletion of any such person or entity) which results
within a period of three (3) years in any change in forty-nine percent (49%) or
more of your ownership shall be deemed a transfer of a controlling interest in
you. Any individual transfer of an interest less than a controlling interest in
you or the Franchised Restaurant must have our prior written consent, which will
not be unreasonably withheld, but will not be subject to our right of first
refusal or the payment of the transfer fee. You will however, reimburse us for
its out-of-pocket expenses incurred in approving the transfers including our
attorneys' fees. Any person who acquires any interest in you, this Agreement or
the Franchised Restaurant must execute the Owner Agreement attached as EXHIBIT A
to this Agreement.
E. You will not, without our prior written consent, place in, on or
upon the location of the Franchised Restaurant, or in any communication media,
any form of advertising, or list with any business, real estate broker, agent,
or attorney any information relating to the sale of the Franchised Restaurant or
the rights granted hereunder.
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XIX. YOUR DEATH OR INCAPACITY
A. In the event of your death or incapacity, or the death or incapacity
of any partner, any shareholder owning fifty percent (50%) or more of your
capital stock, or any Member who owns a majority interest in a limited liability
company, the heirs, beneficiaries, devisees, or legal representatives of said
individual, partner or shareholders shall, within one hundred eighty (180) days
of such event:
1. Apply to us for the right to continue to operate the franchise
for the duration of the term of this Agreement and any renewals hereof, which
right shall be granted upon the fulfillment of all of the conditions set forth
in Paragraph XVIII. of this Agreement (except that no transfer fee shall be
required); or
2. Sell, assign, transfer, or convey your interest in compliance
with the provisions of Paragraphs XVIII and XX of this Agreement; provided,
however, in the event a proper and timely application for the right to continue
to operate has been made and rejected, the one hundred eighty (180) days to
sell, assign, transfer or convey shall be computed from the date of said
rejection. For purposes of this Paragraph, our silence on an application made
pursuant to Paragraph XIX.A.1. through the one hundred and eighty (180) days
following the event of death or incapacity shall be deemed a rejection made on
the last day of such period.
B. In the event of the death or incapacity of an individual franchisee,
or any partner or shareholder of you which is a partnership or corporation,
where the aforesaid provisions of Paragraph XVIII have not been fulfilled within
the time provided, all rights licensed to you under this Agreement shall, at our
option, terminate forthwith and we will have the option to purchase the assets
of the Franchised Restaurant in accordance with Paragraph XVII.K. herein.
XX. RIGHT OF FIRST REFUSAL
If you or your owners propose to sell the Franchised Restaurant (or its
assets) or a controlling interest in the ownership of you as defined in
Paragraph XVIII, you or your owners will obtain and deliver a bona fide,
executed written offer to purchase same to us, which shall, for a period of
thirty (30) days from the date of delivery of such offer to us, have the right,
exercisable by written notice to you or your owners, to purchase the Franchised
Restaurant, (its assets) or an ownership interest in you for the price and on
the terms and conditions contained in such offer, provided that we may
substitute cash for any form of payment proposed in such offer. If we do not
exercise this right of first refusal, you may accept the offer, subject to our
prior written approval, as provided in Paragraph XVIII hereof, provided that if
such offer is not so accepted within six (6) months of the date thereof, we will
again have the right of first refusal herein described.
XXI. OPERATION IN THE EVENT OF ABSENCE, DISABILITY OR DEATH
In order to prevent any interruption of the Franchised Restaurant which
would cause harm to the Franchised Restaurant and thereby depreciate the value
thereof, you authorize us, in the event that you are absent or incapacitated by
reason of illness or death and are not, therefore, in our sole judgment, able to
operate the Franchised Restaurant, to operate the Franchised Restaurant for so
long as we deem necessary and practical, and without waiver of any other rights
or remedies we may have under this Agreement. Provided, however, that we shall
not be obligated to so operate the Franchised Restaurant. All monies from the
operation of the business during such period of operation by us shall be kept in
a separate account and the expenses of the Franchised Restaurant, including
reasonable compensation and expenses for our representative, shall be charged to
said account. If, as herein provided, we temporarily operate for you the
Franchised Restaurant, you will indemnify and hold us harmless and any
representative of ours who may act hereunder, from any and all claims arising
from
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the operation of the Franchised Restaurant, including, without limitation, our
acts and omissions and acts and omissions of our representatives.
XXII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. This Agreement does not make, appoint or constitute you as our
agent, legal representative, joint venturer, partner, employee, or servant for
any purpose whatsoever. You cannot represent to third parties that you are our
agent and it is understood between the parties that you will be an independent
contractor who is in no way authorized to make any contract, agreement, warranty
or representation on our behalf, or to create any obligation, express or
implied, on our behalf. As an independent entrepreneur, you are solely
responsible for the control, management and day-to-day operation of the
Franchised Restaurant, including but not limited to, such matters as determining
the prices at which you will offer and sell approved products and services,
hiring and discharging your employees and setting and paying wages and benefits
of your employees and that we will have no power, responsibility or liability
with respect to such pricing, hiring, discharging, setting and paying of wages
or related matters. All standards of quality and performance, including those
listed in Paragraph XII, are established to promote and protect the value of the
Marks and the System and to insure optimum quality control as to products and
services. You alone are responsible for the food production and preparation at
the Franchised Restaurant.
B. You will prominently display, by posting of a sign within public
view, on or in the premises of the Franchised Restaurant, a statement that
clearly indicates that the Franchised Restaurant is independently owned and
operated by you as a franchisee and not as an agent.
C. You agree to indemnify, defend and hold us and our affiliates
harmless from and against any and all claims, losses, damages and liabilities,
however caused, arising directly or indirectly from, as a result of, or in
connection with, the use and operation of the Franchised Restaurant, as well as
the costs, including attorneys' fees, of defending against them (hereinafter are
"Franchise Claims"). Franchise Claims include, but are not limited to, those
arising from any death, personal injury or property damage (whether caused
wholly or in part through our active or passive negligence), latent, or other
defects in the Franchised Restaurant, or your employment practices. In the
event a Franchise Claim is made against us, we reserve the right in our sole
discretion to select our own legal counsel to represent our interests and you
will reimburse us for our attorneys' fees immediately upon our request as they
are incurred.
XXIII. MISCELLANEOUS
A. Our failure to exercise any power reserved to us hereunder, or to
insist upon strict compliance by you with any obligation or condition hereunder,
and any custom or practice of the parties in variance with the terms hereof,
shall not constitute a waiver of our right to demand exact compliance with the
terms hereof. Our waiver of any default by you shall not be binding unless in
writing and executed by us and shall not affect or impair our right with respect
to any subsequent default of the same or of a different nature.
B. Any and all notices required or permitted under this Agreement shall
be in writing and shall be personally delivered, mailed by certified mail,
return receipt requested, or sent overnight courier to the respective parties at
the following addresses unless and until a different address has been designated
by written notice to the other party:
Notices to Us: bw-3 FRANCHISE SYSTEMS, INC.
1919 Interchange Tower
600 South Highway 169
Minneapolis, Minnesota 55426
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Copy to Mary Beth Brody, Esq.
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402
Notices to You: At the address specified on Page 1 of this Agreement.
Copy to:
-------------------------------
-------------------------------
-------------------------------
Any notice by certified mail shall be deemed to have been given at the date and
time of mailing. If you fail to provide us with written notice of alleged
breach of this Agreement or any other legal claims within one (1) year from the
date that you have knowledge of or becomes aware of such breach or grounds for
claim, then the alleged breach or claim shall be deemed waived.
C. In the event either party brings an action to enforce the terms of
this Agreement or to enjoin the violation of any of its terms and prevails, such
party shall be entitled to recover all litigation costs including attorneys'
fees.
D. This Agreement and the Exhibits attached shall be construed together
and constitute the entire, full and complete agreement between the parties
concerning the subject matter hereof, and supersede all prior agreements. No
other representation has induced you to execute this Agreement, and there are no
representations, inducements, promises, or agreements, oral or otherwise,
between the parties not embodied herein, which are of any force or effect with
reference to this Agreement or otherwise. No amendment, change or variance from
this Agreement shall be binding on either party unless executed in writing,
signed by both parties.
E. Each Paragraph, part, term and/or provision of this Agreement shall
be considered severable, and if, for any reason, any Paragraph, part, term
and/or provision herein is determined to be invalid and contrary to, or in
conflict with any existing or future law or regulation, such shall not impair
the operation of or affect the remaining portions, sections, parts, terms and/or
provisions of this Agreement, and the latter will continue to be given full
force and effect and bind the parties hereto; and said invalid sections, parts,
terms and/or provisions shall be reformed to most nearly implement the
intentions of the parties hereto or, if reformation is not possible, be deemed
not part of this Agreement; provided, however, that if we determine that said
finding of illegality adversely affects the basic consideration of this
Agreement, we may, at our option, terminate this Agreement. Anything to the
contrary herein notwithstanding, nothing in this Agreement is intended, nor
shall be deemed, to confer upon any person or legal entity other than you and us
and such of their respective successors and assigns as may be contemplated by
this Agreement, any rights or remedies under or by reason of this Agreement.
XXIV. APPLICABLE LAW
A. THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE AND EXECUTION BY US,
AND SHALL BE INTERPRETED AND CONSTRUED UNDER THE LAWS OF THE STATE IN WHICH THE
FRANCHISED RESTAURANT IS LOCATED, EXCEPT TO THE EXTENT GOVERNED BY THE UNITED
STATES TRADEMARK ACT OF 1946 (LANHAM ACT, 15, U.S.C. SECTIONS 1051 ET SEQ). YOU
AGREE THAT ANY DISPUTES BETWEEN YOU AND US, bw-3, INC. OR OUR OTHER AFFILIATES
SHALL ALSO BE CONSTRUED UNDER THE LAWS OF THE STATE IN WHICH THE FRANCHISED
RESTAURANT IS LOCATED.
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B. ANY ACTION SOUGHT TO BE BROUGHT BY EITHER PARTY OR ANY ACTION
BROUGHT BY YOU AGAINST OUR PARENT OR OTHER AFFILIATE, SHALL BE BROUGHT IN THE
UNITED STATES DISTRICT COURT OR THE STATE DISTRICT COURT IN THE STATE IN WHICH
OUR COMPANY HEADQUARTERS ARE LOCATED. AS OF THE DATE OF THIS AGREEMENT, THE
LOCATION IS HENNEPIN COUNTY, MINNESOTA. THE PARTIES DO HEREBY WAIVE ALL
QUESTIONS OF PERSONAL JURISDICTION OR VENUE FOR THE PURPOSES OF CARRYING OUT
THIS PROVISION.
C. NO RIGHT OR REMEDY CONFERRED UPON OR RESERVED TO US OR YOU BY THIS
AGREEMENT IS INTENDED TO BE, NOR SHALL BE DEEMED, EXCLUSIVE OF ANY OTHER RIGHT
OR REMEDY HEREIN OR BY LAW OR EQUITY PROVIDED OR PERMITTED, BUT EACH SHALL BE
CUMULATIVE OF EVERY OTHER RIGHT OR REMEDY.
D. NOTHING HEREIN CONTAINED SHALL BAR OUR RIGHT TO OBTAIN INJUNCTIVE
RELIEF AGAINST THREATENED CONDUCT THAT WILL CAUSE US LOSS OR DAMAGES, UNDER THE
USUAL EQUITY RULES, INCLUDING THE APPLICABLE RULES FOR OBTAINING RESTRAINING
ORDERS AND PRELIMINARY INJUNCTIONS.
XXV. DISPUTE RESOLUTION
A. The parties have entered into this Agreement in good faith and in
the belief that it is mutually advantageous to them. It is with that same
spirit of cooperation that they pledge to attempt to resolve any dispute
amicably without the necessity of litigation. Accordingly, they agree that
except as set forth below, if any dispute arises between them relating to this
Agreement that prior to the commencement of any legal action to interpret or
enforce this Agreement, they will first use the procedures specified in this
Section.
B. The party seeking to initiate the procedure shall give written
notice to the other party, describing in general terms the nature of the
dispute, the claim for relief and identifying one or more individuals with
authority to settle the dispute on such party's behalf. The party receiving
such notice shall have ten (10) business days within which to designate by
written notice one or more individuals with authority to settle the dispute on
such party's behalf.
C. The authorized individuals shall be entitled to make such
investigation of the dispute as they deem appropriate, but agree to meet
promptly, and in no event later than thirty (30) days from the date of the
initial written notice, to discuss resolution of the dispute. The authorized
individuals shall meet at such times and places and with such frequency as they
may agree. If the dispute has not been resolved within thirty (30) days from
the date of their initial meeting, the parties shall cease direct negotiations
and shall submit the dispute to mediation in accordance with the following
procedure.
D. The authorized individuals shall have five (5) business days from
the date they cease direct negotiations to submit to each other a written list
of acceptable qualified mediators not affiliated with any of the parties.
Within five (5) days from the date of receipt of such list, the authorized
individuals shall rank the mediators in numerical order of preference and
exchange such rankings. If one or more names are on both lists, the highest
ranking person shall be designated as the mediator. If no mediator has been
selected under this procedure, the parties agree jointly to request the local
administrative judge of the County in which our corporate headquarters are
situated to supply within ten (10) business days a list of potential qualified
mediators. Within five (5) business days of receipt of the list, the parties
shall again rank the proposed mediators in numerical order of preference and
shall simultaneously exchange such lists and shall select as the mediator the
individual
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receiving the highest combined ranking. If such mediator is not available to
serve, they shall proceed to contact the mediator who was next highest in
ranking until they are able to select a mediator.
E. In consultation with the mediator selected, the parties shall
promptly designate a mutually convenient time and place for the mediation, and
unless circumstances require otherwise, such time is to be not later than
forty-five (45) days after selection of the mediator. In the event any party to
this Agreement has substantial need for information in the possession of another
party to this Agreement in order to prepare for the mediation, all parties shall
attempt in good faith to agree on procedures for the expeditious exchange of
such information, with the help of the mediator if required. At least seven (7)
days prior to the first scheduled session of the mediation, each party shall
deliver to the mediator and to the other party a concise written summary of its
views on the matter in dispute, and such other matters required by the mediator.
The mediator may also request that a confidential issue paper be submitted to
him by each party.
F. In the mediation, each party shall be represented by an authorized
individual and may be represented by counsel. In addition, each party may, with
permission of the mediator, bring such additional persons as are needed to
respond to questions, contribute information and participate in the
negotiations.
G. The mediator shall determine the format for the meetings, designed
to assure that both the mediator and the authorized individuals have an
opportunity to hear an oral presentation of each party's views on the matter in
dispute, and that the authorized parties attempt to negotiate a resolution of
the matter in dispute, with or without the assistance of counsel or others, but
with the assistance of the mediator. To this end, the mediator is authorized to
conduct both joint meetings and separate private caucuses with the parties. The
mediation session shall be private. The mediator will keep confidential all
information learned in private caucus with any party unless specifically
authorized by such party to make disclosure of the information to the other
party. The parties agree to sign a document agreeing that the mediator shall be
governed by the provisions of the local Rules of Civil Procedure and such other
rules as the mediator shall prescribe. The parties commit to participate in the
proceedings in good faith with the intention of resolving the dispute, if at all
possible.
H. The parties agree to participate in the mediation procedure to its
conclusion. The mediation shall be terminated (i) by the execution of a
settlement agreement by the parties, (ii) by a declaration of the mediator that
the mediation is terminated, or (iii) by a written declaration of a party to the
effect that the mediation process is terminated at the conclusion of one full
day's mediation session. Even if the mediation is terminated without a
resolution of the dispute, the parties agree not to terminate negotiations and
not to commence any legal action or seek other remedies prior to the expiration
of five (5) days following the mediation. The fees and expenses of the mediator
shall be shared equally by the parties. The mediator shall be disqualified as a
witness, consultant, expert or counsel for any party with respect to the dispute
and any related matters.
I. Mediation is a compromise negotiation for purposes of the Federal
and State Rules of Evidence and constitutes privileged communication. The
entire mediation process is confidential, and no stenographic, visual or audio
record shall be made. All conduct, statements, promises, offers, views and
opinions, whether oral or written, made in the course of the mediation by any
party, by their agents, employees, representatives or other invitees and by the
mediator are confidential and shall, in addition and where appropriate, be
deemed to be privileged. Such conduct, statements, promises, offers, views and
opinions shall not be discoverable or admissible for any purposes, including
impeachment, in any litigation or other proceeding involving the parties, and
shall not be disclosed to anyone not an agent, employee, expert, witness, or
representative of any of the parties; provided however, that evidence otherwise
discoverable or admissible is not excluded from discovery or admission as a
result of its use in the mediation.
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J. Nothing herein contained shall bar our right to seek and obtain
temporary injunctive relief from a court of competent jurisdiction in accordance
with applicable law against any conduct or threatened conduct by you which could
impair the goodwill associated with the Marks.
K. The parties (and their respective owners) agree to waive, to the
fullest extent permitted by law, the right to or claim for any punitive or
exemplary damages against the other and agree that in the event of a dispute
between them, each will be limited to the recovery of actual damages sustained.
XXVI. OWNER AGREEMENT
The franchisee ("you") includes all persons who succeed to the interest
of the original franchisee by permitted transfer or operation of law and shall
be deemed to include not only the individual or entity described in the
introductory paragraph of this Agreement but shall also include all partners if
you are a partnership, all shareholders if you are a corporation and all members
if you are a limited liability company. By their signatures hereto, all of your
officers, partners, members and managers acknowledge and accept the duties and
obligations imposed upon each of them, individually, by the terms of this
Agreement. All partners, all shareholders, or all members, as the case may be,
and your restaurant manager must execute the Owner Agreement attached as EXHIBIT
A and made a part hereof.
XXVII. ACKNOWLEDGEMENTS
A. You acknowledge that the success of the business venture
contemplated to be undertaken by you by virtue of this Agreement is speculative
and depends, to a large extent, upon your ability as an independent
businessperson, and your participation in the daily affairs of the business as
well as other factors. We do not make any representation or warranty, express
or implied, as to the potential success of the business venture contemplated
hereby.
B. You acknowledge that other of our franchisees have been or will be
granted franchises at different times and in different situations, and further
acknowledges that the provisions of such franchises may vary substantially from
those contained in this Agreement.
C. You represent and acknowledge that you have received, read and
understood this Agreement and our Uniform Franchise Offering Circular, and that
we have fully and adequately explained the provisions of each to your
satisfaction, and that we have accorded you ample time and opportunity to
consult with advisors of your own choosing about the potential benefits and
risks of entering into this Agreement.
D. You and each agent signing on your behalf acknowledge that the
officers, partners, members and/or managers who are signing this Agreement on
your behalf are authorized to execute the Agreement and bind you to its terms.
31
<PAGE>
E. It is contemplated that the parties may execute this Agreement on
different dates. The date of execution and the commencement of the term of this
Agreement shall take place on the date this Agreement is executed by us.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed and delivered this Agreement in duplicate the day and
year first above written.
FRANCHISOR:
ATTEST: BW-3 FRANCHISE SYSTEMS, INC.
By
- ------------------------------ ------------------------------------------
Witness
Its
----------------------------------------
FRANCHISEE:
ATTEST:
--------------------------------------------
By
- ------------------------------ ------------------------------------------
Witness
Its
----------------------------------------
ATTEST:
By
- ------------------------------ ------------------------------------------
Witness
Its
----------------------------------------
32
<PAGE>
EXHIBIT A
BUFFALO WILD WINGS
OWNER AGREEMENT
As a condition to the granting by bw-3 Franchise Systems, Inc. ("we" or
"us") of an Area Development Agreement and/or one or more Franchise Agreements
executed (collectively the "Agreements") providing certain rights relating to
Buffalo Wild Wings Restaurants (the "Restaurants") to ________________________
________________ ("Franchisee"), each of the undersigned individuals ("you"),
who constitute each beneficial holder of an interest in the Franchisee,
covenants and agrees to be bound by the terms and restrictions of this Agreement
("Agreement"):
1. ACKNOWLEDGMENTS. Each of you, jointly and severally, represents and
warrants to us:
A. That you are the holders of all equity, voting and other
interests in Franchisee and/or all options, warrants and rights to acquire an
interest in Franchisee and that the address and telephone number set forth next
to your name below are accurate and complete and you will immediately advise us
of any change in the information and we may use or distribute the same as
required by law, including in our Uniform Franchise Offering Circular;
B. That Franchisee is a corporation, limited liability company or
partnership, duly organized, validly existing and in good standing under the
laws of the State of ____________________, and that Franchisee is qualified to
do business in the state where the Restaurant(s) are to be located;
C. It is a condition to the granting of the franchise to
Franchisee that you enter into this Agreement and we have entered into the
Agreements in reliance upon your agreement to do so, and will continue to do so;
D. That, as Franchisee's owners, you have received adequate
consideration to support your execution of this Agreement.
2. CONFIDENTIALITY AND NON-COMPETITION AGREEMENTS.
A. IN TERM COVENANT NOT-TO-COMPETE. Each of you agrees that
during the period Franchisee operates any Buffalo Wild Wings and/or bw-3
Restaurants, or has any beneficial interest therein, or holds any rights to
develop one or more such Restaurants (including all renewal periods) you shall
not directly or indirectly on your own account or as an employee, consultant,
partner, officer, director, shareholder or member of any person, firm, entity,
partnership, corporation or company, own, operate, lease franchise, engage in,
be connected with, have any interest in, or assist any person or entity engaged
in: 1) any restaurant business, 2) any prepared food business, or 3) any other
business which sells prepared food products the same or similar as the type sold
in our System.
B. POST TERM COVENANT NOT-TO-COMPETE. Each of you agrees that
for a two-year period after Franchisee ceases to have any interest in any
Restaurants or any rights to develop Restaurants, regardless of the reasons such
interest ceases or terminates, you will not directly or indirectly on your own
account or as an employee, consultant, partner, officer, director, shareholder
or member of any person, firm, entity, partnership, corporation or company, own
operate, lease franchise, engage in, be connected with, have any interest in, or
assist any person or entity engaged in: 1) any restaurant business, 2) any
prepared food business, or 3) any other business which sells prepared food
products the same or similar as the type sold in our System; which is located at
or within a ten (10) mile radius of your former Franchised Restaurant or any
Buffalo Wild Wings or bw-3 Restaurant.
33
<PAGE>
C. APPROPRIATION AND DISCLOSURE OF INFORMATION. Except as
permitted under the Agreements, you will not at any time use, copy or duplicate
the System or any aspect thereof, or any of our trade secrets, recipes, methods
of operation, processes, formulas, advertising, marketing, designs, plans,
software, programs, know-how or other proprietary ideas or information, nor will
you convey, divulge, make available or communicate such information to any third
party or assist others in using, copying or duplicating any of the foregoing.
D. INFRINGEMENT; VALIDITY OF MARKS AND COPYRIGHTS; REGISTRATIONS.
You will not at any time commit any act that would infringe upon or impair the
value of the System or the Marks, nor will you engage in any business or market
any product or service under a name, mark, or design that is confusingly or
deceptively similar to any of the Marks. You agree that you will not, at any
time directly or indirectly challenge or contest the validity of, or take any
action to jeopardize our rights in or ownership of, any of the Marks or any
registration of a Mark or any copyrighted work. If you violate this provision,
we shall be entitled to all equitable, monetary, punitive and any other relief
that may be available under applicable law, as well as the recovery of all
costs, expenses and attorneys' fees incurred by us as a result of such
violation.
E. SOLICITATION OF EMPLOYEES. You agree that from and after the
date hereof, you will not solicit, entice, induce to leave employment or hire
directly or indirectly, any person who has been employed by us or by our
affiliates or franchisees within the previous twelve (12) month period.
F. TRADE SECRETS AND CONFIDENTIAL INFORMATION. You understand
and agree that we have disclosed or may disclose to you certain confidential or
proprietary information and trade secrets. Except as necessary in connection
with the operation of the Restaurant and as approved by us, you shall not, at
any time (during or after term), regardless of the cause of termination,
directly or indirectly, use for your own benefit or communicate or divulge to,
or use for the benefit of any other person or entity, any trade secrets,
confidential information, knowledge or know-how concerning the recipes, food
products, advertising, marketing, designs, plans, software, programs or methods
of operation of the Restaurant or the System. You shall disclose to your
employees only such confidential, proprietary or trade secret information as is
necessary to operate your business hereunder and then only while this Agreement
is in effect. Any and all information, knowledge, or know-how, including
without limitation, drawings, materials, equipment, marketing, recipes and other
data, that we designate under the Agreements as secret or confidential shall be
deemed secret and confidential for purposes of this Agreement.
G. REASONABLENESS OF SCOPE AND DURATION. You agree that the
covenants and agreements contained in Section 2 are, taken as a whole,
reasonable with respect to the activities covered and their geographic scope and
duration, and no party shall raise any issue of the reasonableness of the areas,
activities or duration of any such covenants in any proceeding to enforce any
such covenants. Each of you acknowledge and agree that you have other skills
and resources and that the restrictions contained in this Section will not
hinder your activities or ability to make a living either under the Agreement or
in general.
H. ENFORCEABILITY. Each of you agree that we may not be
adequately compensated by damages for a breach of any of the covenants and
agreements contained herein, and that we shall, in addition to all other
remedies, be entitled to injunctive relief and specific performance. The
covenants and agreements contained in this Section 2 shall be construed as
separate covenants and agreements, and if any court shall finally determine that
the restraints provided for in any such covenants and agreements are too broad
as to the area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable, and such covenants
and agreements shall be enforced as to such reduced area, activity or time. To
the extent required by the laws of the state in which the Restaurant is located,
the duration or the geographic areas included within the foregoing covenants, or
both, shall be deemed amended in accordance with Section 2.
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<PAGE>
3. GUARANTY.
A. GUARANTY. Each of you personally and unconditionally guaranty
to us and to our parent and other affiliates, as well as any of their successors
or assigns, the punctual payment when due of all sums, indebtedness and
liabilities of every kind and nature that Franchisee may now or in the future
owe to any of us (including interest, and all attorneys' fees, costs and
expenses incurred by any of us in collection).
B. COVENANTS AND ACKNOWLEDGMENTS. Each of you covenant and agree
that: (1) liability under this guaranty shall be joint and several; (2) that
this is a guaranty of payment and not of collection and you shall render any
payment required under the Agreements or this guaranty upon demand; (3) this
guaranty shall extend to all amounts you may now or in the future owe to any of
us, whether pursuant to the Agreements, another agreement with us or otherwise;
(4) your liability under this guaranty shall not be contingent or conditioned
upon pursuit by us of any remedies against Franchisee or any of you; (5) your
liability hereunder shall not be diminished, relieved, or otherwise affected by
any extension of time, credit, or other indulgence or waiver that we may from
time to time grant to Franchisee or to any of you, including, without
limitation, the acceptance of partial payment or performance, the compromise or
release of any claims, the release of any other guarantor, or our consent to any
transfer or assignment of the franchise or any interest therein and expressly
reserve all rights that we may have against you.
C. TERM OF GUARANTY. This guaranty and your obligations under it
shall continue in effect so long as you operate any Buffalo Wild Wing Restaurant
or hold any beneficial interest therein and for a one (1) year period
thereafter. Further, this guaranty shall be extended during any period in which
(1) any of us is involved in any judicial or administrative process with
Franchisee or any of you (i) to collect any amounts owed us by you, or (ii) to
enforce the terms of this guaranty, or (2) any bankruptcy or similar proceeding
involving Franchisee or any of you. Your obligations under this guaranty shall
remain in full force and effect without regard to, and shall not be released,
discharged or in any way modified or affected by, any circumstance or condition
of Franchisee (whether or not you shall have any knowledge or notice thereof),
including, without limitation, bankruptcy, insolvency, reorganization,
composition, liquidation or similar proceeding or any action taken by any
trustee or receiver or by any court in any such proceeding.
D. WAIVERS. Each of you waives notice of demand, notice of
protest, nonpayment or default, and all other notices to which Franchisee or you
may be entitled, and all suretyship and guarantor's defenses generally and any
and all other notices and legal or equitable defenses to which you may be
entitled. You waive all exemptions to which you may now or hereafter be
entitled under the laws of this or any other state or of the United States. You
waive any right that you may have to require that an action be brought against
Franchisee or any other payments and claims for reimbursement or subrogation
that you may have against Franchisee arising as a result of your execution and
performance of this guaranty.
E. ASSIGNMENT. This guaranty is personal to you and the
obligations and duties imposed in it may not be delegated or assigned; provided,
this guaranty shall be binding upon your successors, assigns, estates and
personal representatives. This guaranty shall inure to our benefit, and the
benefit of our affiliates, successors and assigns.
F. ENFORCEMENT. If any one or more provisions in this guaranty
shall for any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision hereof and this guaranty shall be construed to bind you to the
maximum extent permitted by law that is subsumed within the terms of such
provision as though it were separately articulated herein.
35
<PAGE>
4. COVENANT NOT TO TRANSFER INTERESTS. The Agreements, and your rights
and obligations under them, are and shall remain personal to you. Any proposed
transfer by you (regardless of the form of transfer) shall be subject to the
same terms and conditions contained in the Franchise Agreement. As used herein,
the term "Transfer" shall mean any sale, assignment, gift, pledge, mortgage or
any other encumbrance, transfer by bankruptcy, transfer by judicial order,
merger, consolidation, share exchange, transfer by operation of law or
otherwise, whether direct or indirect, voluntary or involuntary, of the
Agreements or any interest in any of them or any rights or obligations arising
under them, or of any material portion of the business assets, or of any
interest in the Franchisee. Each of you agree and covenant that you will not at
any time during which Franchisee is a Buffalo Wild Wings/bw-3 franchisee and/or
developer, directly or indirectly, voluntarily or involuntarily, make any
Transfer, unless you first obtain our written approval in compliance with the
same provisions applicable to a transfer by you as set forth in the Agreements.
You shall cause all stock certificates (or other documents evidencing an
interest or right to acquire an interest) issued by Franchisee to bear a legend
indicating that such stock (or other documents) is subject to the restrictions
provided for in the applicable Agreement.
5. MISCELLANEOUS.
A. CAPITALIZED TERMS. For purposes of this Agreement, all
capitalized terms shall have the same meaning as those terms are defined in the
Franchise Agreement.
B. DISPUTES. Disputes under this Agreement shall be resolved in
the same manner as provided under the Franchise Agreement. You expressly
acknowledge that the provisions of the Franchise Agreement pertaining to
mediation, venue, applicable law, time periods and limitations govern any
disputes between us and you.
IN WITNESS WHEREOF, each of you have signed this Agreement on the date
set forth opposite your signature.
Signature: Date:
-------------------------- -------------------
Name:
-------------------------------
Address:
----------------------------
- ------------------------------------
- ------------------------------------
Percentage Interest:
----------
Signature: Date:
-------------------------- -------------------
Name:
-------------------------------
Address:
----------------------------
- ------------------------------------
- ------------------------------------
Percentage Interest:
----------
Signature: Date:
-------------------------- -------------------
Name:
-------------------------------
Address:
----------------------------
- ------------------------------------
- ------------------------------------
Percentage Interest:
----------
Signature: Date:
-------------------------- -------------------
36
<PAGE>
Name:
-------------------------------
Address:
----------------------------
- ------------------------------------
- ------------------------------------
Percentage Interest:
----------
Signature: Date:
-------------------------- -------------------
Name:
-------------------------------
Address:
----------------------------
- ------------------------------------
- ------------------------------------
Percentage Interest:
----------
TO BE COMPLETED IF MANAGER IS NOT AN OWNER.
I represent and acknowledge that I am the Manager of a Restaurant and that I
agree to be bound by the provisions of Section 2 of this Agreement.
MANAGER
Signature: Date:
-------------------------- -------------------
Name:
-------------------------------
Address:
----------------------------
- ------------------------------------
- ------------------------------------
37
<PAGE>
EXHIBIT B
DESCRIPTION OF DESIGNATED AREA
FRANCHISOR: FRANCHISEE:
BW-3 FRANCHISE SYSTEMS, INC.
------------------------------------
By By
---------------------------------- ----------------------------------
Its Its
----------------------------- ------------------------------
By
----------------------------------
Its
------------------------------
38
<PAGE>
EXHIBIT C
ADDENDUM TO LEASE
THIS ADDENDUM TO LEASE, dated ______________, 199__, is entered into by
and between _______________________("Lessor"), and __________________________
("Lessee").
RECITALS:
A. The parties hereto have entered into a certain Lease Agreement,
dated _____________, 199__, and pertaining to the premises located at _________
__________________________________ (the "Lease").
B. Lessor acknowledges that Lessee intends to operate a Restaurant from
the leased premises (the "Premises") pursuant to a Franchise Agreement (the
"Franchise Agreement") with bw-3 Franchise Systems, Inc. ("bw-3") under the name
"Buffalo Wild Wings" or other name designated by bw-3 ("Franchised Restaurant").
C. The parties now desire to amend the Lease in accordance with the
terms and conditions contained herein.
AGREEMENT:
NOW, THEREFORE, it is hereby mutually covenanted and agreed between
Lessor and Lessee as follows:
1. REMODELING AND DECOR. Lessor agrees that Lessee shall have the
right to remodel, equip, paint and decorate the interior of the Premises and to
display such proprietary marks and signs on the interior and exterior of the
Premises as Lessee is reasonably required to do pursuant to the Franchise
Agreement and any successor Franchise Agreement under which Lessee may operate a
Franchised Restaurant on the Premises.
2. ASSIGNMENT. Lessee shall have the right to assign all of its right,
title and interest in the Lease to bw-3 or any affiliate of bw-3 at any time
during the term of the Lease, including any extensions or renewals thereof,
without first obtaining Lessor's consent. However, no assignment shall be
effective until such time as bw-3 or its designated affiliate gives Lessor
written notice of its acceptance of such assignment, and nothing contained
herein or in any other document shall constitute bw-3 or its designated
affiliate a party to the Lease, or guarantor thereof, and shall not create any
liability or obligation of bw-3 or any affiliate of bw-3 unless and until the
Lease is assigned to, and accepted in writing by, bw-3 or its designated
affiliate. In the event of an assignment, Lessee shall remain liable under the
terms of the Lease.
3. DEFAULT AND NOTICE.
(a) In the event there is a default or violation by Lessee under
the terms of the Lease, Lessor shall give Lessee and bw-3 written notice
of such default or violation within a reasonable time after Lessor
receives knowledge of its occurrence. bw-3 will notify Lessor whether it
intends to cure the default and take an automatic assignment of Lessee's
interest as provided in Paragraph 4(a). bw-3 will have an additional
fifteen (15) days in which to cure the default or violation.
(b) All notices to bw-3 shall be sent by registered or certified
mail, postage prepaid, to the following address:
bw-3 Franchise Systems, Inc.
1919 Interchange Tower
600 South Highway 169
Minneapolis, MN 55426
39
<PAGE>
Attention: Chief Financial Officer
bw-3 may change its address for receiving notices by giving Lessor written
notice of such new address. Lessor agrees that it will notify both Lessee and
bw-3 of any change in Lessor's mailing address to which notices should be sent.
4. TERMINATION OR EXPIRATION.
(a) Upon the expiration or termination of either the Lease or the
Franchise Agreement, bw-3 will, at its option, have the right (but not
the requirement) to take an automatic assignment of Lessee's interest.
(b) Upon the expiration or termination of either the Lease or the
Franchise Agreement, Landlord will cooperate with and assist us in
gaining possession of premises and if bw-3 does not elect to take an
assignment of the Lessee's interest, Lessor will allow bw-3 to enter the
Premises, without being guilty of trespass and without incurring any
liability to Lessor, to remove all signs, awnings, and all other items
identifying the Premises as a Franchised Restaurant and to make such
other modifications (such as repainting) as are reasonably necessary to
protect the bw-3 marks and system, and to distinguish the Premises from
Franchised Restaurants. In the event bw-3 exercises its option to
purchase assets of Lessee, Lessor shall permit bw-3 to remove all such
assets being purchased by bw-3.
5. CONSIDERATION; NO LIABILITY.
(a) Lessor hereby acknowledges that the provisions of this
Addendum to Lease are required pursuant to the Franchise Agreement under
which Lessee plans to operate its business and the Lessee would not lease
the Premises without this Addendum.
(b) Lessor further acknowledges that Lessee is not an agent or
employee of bw-3 and the Lessee has no authority or power to act for, or
to create any liability on behalf of, or to in any way bind bw-3 or any
affiliate of bw-3, and that Lessor has entered into this Addendum to
Lease with full understanding that it creates no duties, obligations or
liabilities of or against bw-3 or any affiliate of bw-3.
6. SALES REPORTS. If requested by bw-3, Lessor will provide bw-3 with
whatever information Lessor has regarding Lessee's sales from the Restaurant.
7. AMENDMENTS. No amendment or variation of the terms of this Addendum
to the Lease shall be valid unless made in writing and signed by the parties
hereto.
8. REAFFIRMATION OF LEASE. Except as amended or modified herein, all
of the terms, conditions and covenants of the Lease shall remain in full force
and effect and are incorporated herein by reference and made a part hereof as
though copied herein in full.
9. BENEFICIARY. Lessor and Lessee expressly agree that bw-3 is a third
party beneficiary of this Addendum.
40
<PAGE>
IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of
the day, month and year first written above.
------------------------------------------
By:
-----------------------------------
Title:
-----------------------------------
("Lessor")
------------------------------------------
By:
-----------------------------------
Title:
-----------------------------------
("Lessee")
41
<PAGE>
BW-3 FRANCHISE SYSTEMS, INC
AREA DEVELOPMENT AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
I. GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
II. DEVELOPMENT FEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
III. DEVELOPMENT SCHEDULE AND MANNER OF EXERCISING OPTIONS . . . . . . . . . . . .3
IV. TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
V. YOUR DUTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
VI. PROPRIETARY MARKS/CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . .4
VII. DEFAULT AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . .5
VIII. RIGHTS AND DUTIES OF PARTIES UPON TERMINATION OR EXPIRATION . . . . . . . . .5
IX. YOUR ORGANIZATION, OPERATION AND OWNERSHIP. . . . . . . . . . . . . . . . . .6
X. TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
XI. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
XII. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
XIII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION. . . . . . . . . . . . . . . . . .9
XIV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
XV. APPLICABLE LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XVI. ACKNOWLEDGEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
EXHIBITS
A. DESIGNATED TERRITORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
B. DEVELOPMENT SCHEDULE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE>
bw-3 FRANCHISE SYSTEMS, INC.
AREA DEVELOPMENT AGREEMENT
This Area Development Agreement (this "Agreement") is entered into this
______ day of ____________________, 19___ by and between bw-3 FRANCHISE SYSTEMS,
INC., an Ohio corporation which has its principal place of business at 1919
Interchange Tower, 600 South Highway 169, Minneapolis, Minnesota 55426 ("we" or
"us"), and _____________________________________________________________________
_________ which has its principal place of business at _________________________
________________________________________________________________________________
("you"). If you are a corporation, partnership or limited liability company,
certain provisions of the Agreement also apply to your owners and will be noted.
BACKGROUND:
A. Our parent company has developed a unique system ("System") for
establishing and operating restaurants which use the mark "BUFFALO WILD WINGS"
and which feature chicken wings, sandwiches, and other products and beverages,
which are all prepared according to specified recipes and procedures ("Menu
Items"), some of which use proprietary mixes ("Trade Secret Food Products"), and
has granted to us the right to sublicense the System to others.
B. The distinguishing characteristics of the System include, without
limitation, distinctive exterior and interior layout, design and color scheme,
signage, decorations, furnishings and materials, special recipes, formulae,
menus and food and beverage designations, Confidential Manuals, food and
beverage storage, preparation, service and delivery procedures and techniques,
operating procedures for sanitation and maintenance, and methods and techniques
for inventory and cost controls, record keeping and reporting, purchasing, sales
promotion and advertising, Trade Secret Food Products, if any, all of which may
be changed, improved and further developed from time to time.
C. Our parent company is the owner of the trade names, service marks
and trademarks "BUFFALO WILD WINGS", "bw-3" and such other trade names, service
marks, and trademarks as are now designated (and may later be designated by us
in writing) as part of the System ("Marks").
D. We grant to qualified persons options to obtain franchises to
develop and operate several Buffalo Wild Wings Restaurants offering food
products and services authorized and approved by us and utilizing the System and
Marks.
E. You have applied to obtain the right to develop Buffalo Wild Wings
Restaurants and your application has been approved by us in reliance upon all of
your representations.
F. You understand and acknowledge the importance of our high and
uniform standards of quality, operations, and service and the necessity of
operating your business in strict conformity with our standards and
specifications.
AGREEMENTS:
We and you agree as follows:
I. GRANT
A. We grant to you, under the terms and conditions of this Development
Agreement, options to obtain franchises to establish and operate _______________
___________________ (specify number) Buffalo Wild Wings Restaurants, (the
1
<PAGE>
"Franchised Restaurants") within the territory described on EXHIBIT A attached
hereto and incorporated herein by this reference ("Designated Territory").
B. You shall be bound by the development schedule ("Development
Schedule") set forth in Paragraph III.A. Time is of the essence. Each
Franchised Restaurant shall be established and operated pursuant to a separate
Franchise Agreement to be entered into by you and us pursuant to Paragraph
III.B. The Franchise Agreement (the "Franchise Agreement") shall be our
then-current form of Franchise Agreement which you acknowledge may be
substantially different from the form of Franchise Agreement currently used by
us.
C. If you are in compliance with the Development Schedule set forth on
EXHIBIT B ("Development Schedule"), we will not operate or grant anyone else a
franchise to operate a Buffalo Wild Wings or bw-3 Restaurant business in the
Designated Territory prior to the expiration of the Development Schedule, except
as otherwise provided in this Agreement.
D. You acknowledge and agree that we have the right, in our sole
discretion, to grant other franchises outside of the Designated Territory as we
deem appropriate. Although we will not operate a Buffalo Wild Wings or bw-3
business within the Designated Territory, we reserve the right, both within and
outside of the Designated Territory, to offer and sell at special events (at our
option, if you elect not to participate in such events) or at wholesale, through
channels of distribution distinct from those of a Franchised Restaurant,
products and services which comprise, or may in the future comprise a part of
the System, which products may be resold at retail to the general public by such
entities. Further, you acknowledge that certain locations within the Designated
Territory are by their nature unique and separate in character from sites
generally developed as Franchised Restaurants. As a result, you agree that the
following locations ("Special Sites") are excluded from the Designated Territory
and we shall have the right to develop (by direct ownership or franchising )
such locations: 1) public transportation facilities, including airports, train
stations and bus stations; 2) military bases; 3) sports facilities including
race tracks; and 4) amusement parks/theme parks. We also reserve the right to
market and sell Menu Items and Trade Secret Food Products on the Internet/World
Wide Web.
E. This Agreement is not a Franchise Agreement and you shall have no
right to use in any manner the Marks by virtue of this Agreement. You shall
have no right under this Agreement to subfranchise others to operate a business
or use the System or the Marks.
II. DEVELOPMENT FEE
A. As consideration for the rights and options granted herein, you pay
us a "Development Fee" of $___________, representing $12,500.00 times the number
of Franchised Restaurant for which you are granted options under this Agreement.
The Development Fee is consideration for this Agreement and not consideration
for any franchise agreement, is fully earned by us upon execution of this
Agreement and is non-refundable. In addition, you shall pay us an "Initial
Franchise Fee" of $12,500.00 for each of the Franchised Restaurants for which
you hold an option under this Agreement. The Initial Franchise Fee for the
first Franchised Restaurant shall be paid at the time of execution of this
Agreement, together with the execution by you of the Franchise Agreement for the
first Franchised Restaurant for which you hold an option. The total amount to
be paid by you at the time of execution of this Agreement pursuant to this
Paragraph, including both the Development Fee and the Initial Franchise Fee for
your first Franchised Restaurant is $_____________. The initial Franchise Fee
for each subsequent Franchised Restaurant for which you hold an option hereunder
shall be due as specified in Section II.B.
B. You shall submit a separate application for each Franchised
Restaurant to be established by you within the Designated Territory. Upon our
approval of the site of your Franchised Restaurant, a separate Franchise
Agreement shall be executed for each such Restaurant, at which time payment in
an amount equal to Twelve Thousand Five Hundred Dollars ($12,500) per Franchised
Restaurant is due and owing. Such payment represents the balance of the
appropriate individual franchise fee, as described above in Paragraph II.A.
Upon the execution of each Franchise Agreement, the terms and conditions of such
Franchise Agreement shall control the establishment and operation of such
Restaurant.
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III. DEVELOPMENT SCHEDULE AND MANNER OF EXERCISING OPTIONS
A. You will be bound by and strictly follow the Development Schedule.
Time is of the essence. By the dates set forth under the Development Schedule
("Option Period(s)"), you shall exercise options and enter into Franchise
Agreements with us pursuant to this Agreement for the number of Franchised
Restaurants described under the Development Schedule. You shall at all times
after the expiration of each of the Option Periods continuously maintain in
operation pursuant to each Franchise Agreement at least the number of Franchised
Restaurants set forth on the Development Schedule, provided however that such
obligation does not apply to facilities that are transferred in accordance with
the provisions of the Franchise Agreement, or are closed due to force majeure.
B. You will exercise each option for development of a Franchised
Restaurant granted under this Agreement by giving us written notice of your
intention to exercise such option at least thirty (30) days prior to the date
set forth in the Development Schedule by which you must execute a Franchise
Agreement for the particular Franchised Restaurant. After receipt of your
notice of intention to exercise, we have the right to review and approve you as
meeting our then-current standards for franchisees. You agree to cooperate with
us and furnish us with such information as we may request to make this
determination. Subject to our approval, you must execute the then-current form
of Franchise Agreement for the particular Franchised Restaurant and pay the
Initial Franchise Fee set forth in Paragraph II.B. by the deadline set forth in
the Development Schedule.
We will execute a Franchise Agreement with you only if (i) we approve you as
meeting our then-current standards for franchisees, (ii) you are in compliance
with all requirements and obligations of this Agreement and all other agreements
between us and you, and (iii) you are in compliance with all of your respective
obligations under individual franchise agreements.
IV. TERM
Unless sooner terminated in accordance with the terms of this Agreement,
the term of this Agreement and all rights granted hereunder shall expire on the
termination date of our acceptance and execution of a Franchise Agreement for
the last of the Buffalo Wild Wings Restaurants to be established pursuant to the
Development Schedule.
V. YOUR DUTIES
You shall perform the following obligations:
1. You shall comply with all terms and conditions set forth in
this Agreement.
2. You shall comply with all of the terms and conditions of each
Franchise Agreement. including without limitation the operating requirements
specified in each Franchise Agreement.
3. In accordance with the terms of Paragraph VI of this Agreement,
you shall at all times preserve in confidence any and all materials and
information furnished or disclosed to you by us and designated by us as
confidential, and you shall disclose such information or materials only to such
of your employees or agents who must have access to it in connection with their
employment. In accordance with the terms of Paragraph VI of this Agreement, you
shall not at any time, without our prior written consent, copy, duplicate,
record or otherwise reproduce such materials or information, in whole or in
part, nor otherwise make the same available to any unauthorized person.
4. You shall comply with all requirements of federal, state and
local laws, rules and regulations.
5. If you at some time in the future desire to make either a
public or a private offering of your securities, prior to such offering and
sale, and prior to the public release of any statements, data, or other
information of any kind relating to the proposed offering of your securities,
you shall secure our written approval, which approval shall not be unreasonably
withheld. You shall secure our prior written approval of any and all press
releases, news releases and any and all other publicity, the primary purpose of
which is in the public interest in its offering. Only after we have given our
written approval may you proceed to file, publish, issue, and release and make
public any said data, material
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and information regarding the securities offering. It is specifically
understood that any review by us is solely for our own information, and our
approval shall not constitute any kind of authorization, acceptance, agreement,
endorsement, approval, or ratification of the same, either expressly or implied.
You shall make no oral or written notice of any kind whatsoever indicating or
implying that we and/or our affiliates have any interest in the relationship
whatsoever to the proposed offering other than acting as Franchisor. You agree
to indemnify, defend, and hold us harmless, and our owners, directors, officers,
successors and assigns harmless from all claims, demands, costs, fees, charges,
liability or expense (including attorneys' fees) of any kind whatsoever arising
from your offering of information published or communicated in actions taken
with regard thereto.
VI. PROPRIETARY MARKS/CONFIDENTIALITY
A. Notwithstanding any provision to the contrary under this Agreement,
it is understood and agreed that this Agreement does not grant you any right to
use the Marks or to use any of our trade secret and/or Confidential Information,
as defined below. Further, it is understood and agreed that this Agreement does
not grant you any right to any copyright or patent which we now own or may later
own. Your license to use the Marks, trade secrets (and/or Confidential
Information), or copyrights is granted only under the individual Franchise
Agreements.
B. You and your owners, officers, directors, partners, members and
managers if any, acknowledge that your entire knowledge of the operation of a
Buffalo Wild Wings business including the knowledge or know-how regarding the
specifications, standards and operating procedures of the services and
activities, is derived from information disclosed to you by us and that certain
of such information is proprietary, confidential and constitute our trade
secrets. The term "trade secrets" refers to the whole or any portion of
know-how, knowledge, methods, specifications, processes, procedures and/or
improvements regarding the business that is valuable and secret in the sense
that it is not generally known to our competitors. You and your officers,
directors, shareholders, partners and members, if any, jointly and severally,
agree that at all times during and after the term of the franchise, you will
maintain the absolute confidentiality of all such proprietary information and
will not disclose, sell or use any such information in any other business or in
any manner not specifically authorized or approved in advance in writing by us.
C. You and your officers, directors, shareholders, partners, members
and, managers, if any, shall divulge such trade secret and confidential
information only to such of your employees as must have access to it in order to
perform obligations under this Agreement and the individual Franchise
Agreements. Any and all information, knowledge and know-how of ours, including,
without limitation, the Manuals, specifications and standards concerning the
operation of Franchised Restaurants and other materials and information provided
to us which we designate as confidential, shall be deemed confidential for
purposes of this Agreement, except information which you can demonstrate
lawfully came to your attention prior to disclosure by us, or which, at the time
of disclosure by us to you, had lawfully become a part of the public domain,
through publication or communication by others, or which, after disclosure to
you by us, lawfully becomes a part of the public domain, through publication or
communication by others. All references in this Agreement to the Manuals include
the entire series of Manuals we may designate as the Manuals, including, but not
limited to restaurant design criteria, restaurant operations, forms index,
approved vendors, and new products list.
D. Due to the special and unique nature of our trade secrets,
confidential information, proprietary marks and Manuals, you and your officers,
directors, shareholders, partners, members and managers, if any, hereby, jointly
and severally, agree and acknowledge that we shall be entitled to immediate
equitable remedies, including but not limited to, restraining orders and
injunctive relief in order to safeguard our proprietary, confidential, unique,
and special information and you acknowledge that money damages alone would be an
insufficient remedy with which to compensate us for any breach of the terms of
Paragraph VI of this Agreement. Furthermore, you agree that all of your
employees having access to our trade secrets, confidential and proprietary
information and any officers, directors, shareholders, partners, members,
managers and other employees designated by us shall be required to execute
confidentiality agreements acceptable to us.
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VII. DEFAULT AND TERMINATION
A. The options and territorial protection granted to you in this
Agreement have been granted in reliance on your representations and warranties,
and strictly on the conditions set forth in Paragraphs I and III of this
Agreement, including, without limitation, the condition that you comply strictly
with the Development Schedule.
B. You shall be deemed in default under this Agreement, and all rights
granted herein shall automatically terminate without notice if: (i) you become
insolvent, commit any affirmative action of insolvency or file any action or
petition of insolvency, (ii) a receiver (permanent or temporary) of your
property is appointed by a court of competent authority, (iii) you make a
general assignment for the benefit of your creditors, (iv) a final judgment
remains unsatisfied of record for thirty (30) days or longer (unless supersedeas
bond is filed), (v) execution is levied against your business or property, or
(vi) suit to foreclose any lien or mortgage against his premises or equipment is
instituted against you and not dismissed within thirty (30) days, or is not in
the process of being dismissed.
C. You shall further be deemed in default under this Agreement if you:
(i) fail to exercise options and enter into Franchise Agreements with us
pursuant to this Agreement for the Franchised Restaurants within any Option
Period as set forth on the Development Schedule, (ii) fail to comply with any
other terms and conditions of this Agreement, (iii) makes or attempts to make a
transfer or assignment in violation of Paragraph IX.C. hereof, or (iv) fails to
comply with the terms and conditions of any individual Franchise Agreement or of
any other agreement to which you and we are parties. Upon any such default, we,
in our discretion, may do any one or more of the following:
1. Terminate this Agreement and all rights granted hereunder
without affording you any opportunity to cure the default,
effective immediately upon receipt by you of written notice
from us;
2 Reduce the number of Franchised Restaurants, without any
reduction of the Development Fee, which are subject to options
granted to you pursuant to this Agreement;
3. Terminate or reduce in any manner, in our discretion, the
territorial protection granted to you in Paragraph I; and
4. Exercise any other rights and remedies which we may have.
D. Upon termination of the Agreement, all remaining options granted you
to establish Franchised Restaurants under this Agreement shall automatically be
revoked and shall be null and void. You shall not be entitled to any refund.
You shall have no right to establish or operate any business for which a
Franchise Agreement has not been executed by us. We shall be entitled to
establish, or to franchise others to establish, Franchised Restaurants in the
Designated Territory except as may be otherwise provided under any Franchise
Agreement which has been executed between us and you and which has not been
terminated. No default under this Agreement shall constitute a default under
any individual Franchise Agreement, except to the extent that any default under
this Agreement constitutes a default under the terms of any Franchise Agreement.
Notwithstanding the above, you must comply with the terms and conditions of each
Franchise Agreement.
E. No right or remedy herein conferred upon or reserved to us is
exclusive of any other right or remedy provided or permitted by law or equity.
VIII. RIGHTS AND DUTIES OF PARTIES UPON TERMINATION OR EXPIRATION
Upon termination or expiration, this Agreement and all rights granted
hereunder to you shall forthwith terminate, and:
A. You shall immediately cease to operate your business under this
Agreement. and shall not thereafter, directly or indirectly, represent to the
public or hold yourself out as a present or former developer of ours.
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B. Except as permitted under the terms of any individual Franchise
Agreement in effect, you shall immediately and permanently cease to use, by
advertising or in any other manner whatsoever, any confidential methods,
procedures and techniques associated with the System, the Marks or any trade
name, trademark or service mark confusingly similar thereto, and any distinctive
form, slogans, signs, symbols, logos or devices associated with the Marks or
System. In particular, you shall cease to use, without limitation, all signs,
advertising materials, stationery, forms, and any other articles which display
the Marks associated with the System.
C. You shall take such action as may be necessary to cancel or assign
to us or our designee, at our option, any assumed name or equivalent
registration which contains the name or words "BUFFALO WILD WINGS ", "BW-3" or
any other Mark of ours, and you shall furnish us with evidence satisfactory to
us of compliance with this obligation within thirty (30) days after termination
or expiration of this Agreement.
D. You agree, in the event you continue to operate or subsequently
begin to operate any other business, not to use any reproduction, counterfeit,
copy or colorable imitation of the Marks either in connection with such other
business or the promotion thereof, which is likely to cause confusion, mistake
or deception, or which is likely to dilute our rights in and to the Marks and
further agrees not to utilize any designation of origin or description or
representation which falsely suggests or represents an association or connection
with us so as to constitute unfair competition. You shall make such
modifications or alterations to your operations (including, without limitation,
the changing of the telephone number) immediately upon termination or expiration
of this Agreement as may be necessary to prevent any association between us or
the System and any business thereon subsequently operated by you or others, and
shall make such specific additional changes thereto as we may request for that
purpose, including, without limitation, removal of all distinctive physical and
structural features identifying the System. In the event you fail or refuse to
comply with the requirements of this Paragraph, we shall have the right to enter
upon your premises, without being guilty of trespass or any other tort, for the
purpose of making or causing to be made such changes as may be required at your
expense, which expense you agree to pay upon demand.
E. You shall promptly pay all sums owing to us and our affiliates. In
the event of termination for any default by you, such sums shall include all
damages, costs, and expenses, including reasonable attorneys' fees, incurred by
us as a result of the default.
F. You shall pay to us all damages, costs and expenses, including
reasonable attorneys' fees, incurred by us subsequent to the termination or
expiration of the rights herein granted in obtaining injunctive or other relief
for the enforcement of any provisions of this Paragraph, Paragraph VI or
Paragraph X.
G. Upon termination or expiration of this Agreement, you shall assign
to us or our designee, all your right, title, and interest in and to your
telephone numbers and shall notify the telephone company and all listing
agencies of the termination or expiration of your right to use any telephone
number in any regular, classified or other telephone directory listing
associated with the Marks and to authorize transfer of same at our direction.
H. You shall comply with the covenants contained in Paragraphs VI and X
of this Agreement.
I. All of our and your obligations which expressly or by their nature
survive the expiration or termination of this Agreement shall continue in full
force and effect subsequent to and notwithstanding its expiration or termination
and until they are satisfied or by their nature expire.
The foregoing paragraphs in this Paragraph VIII are not intended and
shall not be interpreted to grant or entitle you to use any of the Marks or
other proprietary rights of ours or to obtain any of our trade secrets or
confidential information.
IX. YOUR ORGANIZATION, OPERATION AND OWNERSHIP
If you are a corporation, partnership, limited liability company or other
entity:
A. If we request from time to time, you shall furnish us with your
Articles of Incorporation, Articles of Organization, operating Agreement, By-
Laws and other governing documents (and any amendments or modifications
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thereof), minutes and resolutions and all agreements or other documents, records
and information pertaining to your existence and operation.
B. You shall confine your business activities exclusively to the
establishment, management and operation of Buffalo Wild Wings Restaurants
pursuant to agreements with us.
C. You shall, at the same time you execute this Agreement, and at such
other times as we may request, disclose the name and address of each person or
entity holding a beneficial interest in you, and you shall not issue any
additional securities, nor allow the "Transfer" (as defined in Paragraph X) of
any of your outstanding securities, except as provided in Paragraph X. You
shall cause all persons or entities owning any interest in you to sign the Owner
Agreement in the form we provide.
D. You shall at all times comply with all applicable laws, ordinances,
rules and regulations of governmental bodies.
X. TRANSFERABILITY
A. We have the right to transfer all or any part of our rights or
obligations under this Agreement to any person or legal entity.
B. This Agreement is entered into by us with specific reliance upon
your personal experience, skills and managerial and financial qualifications.
Consequently, this Agreement, and your rights and obligations under it, are and
shall remain personal to you. Any proposed Transfer by you or by any of your
investors (regardless of the form of Transfer) shall be subject to the same
terms and conditions contained in the first individual Franchise Agreement. As
used herein, the term "Transfer" shall mean any sale, assignment, gift, pledge,
mortgage or any other encumbrance, transfer by bankruptcy, transfer by judicial
order, merger, consolidation, share exchange, transfer by operation of law or
otherwise, whether direct or indirect, voluntary or involuntary, of this
Agreement or any interest in it, or any rights or obligations arising under it,
or of any material portion of your assets, or of any interest in you.
XI. COVENANTS
A. Unless otherwise specified, the term "you" as used in this Paragraph
XI shall include, collectively and individually, all subsidiary entities of
yours, all officers, directors, members, limited liability managers and holders
of a beneficial interest of the securities or other ownership interests in you,
and of any corporation or other entity directly or indirectly controlling you,
if you are a corporation, and the general partner and limited partners if you
are a partnership, and any member if you are a limited liability company.
B. You covenant that, during the term of this Agreement except as
otherwise approved in writing by us, you shall not, either directly or
indirectly, for yourself, or through, on behalf of, or in conjunction with any
person, persons, partnership, corporation or company:
1. Divert or attempt to divert any business or customers of the
Franchised Restaurants to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with the Marks or the System.
2. Employ or seek to employ any person who is at that time
employed by us or by any franchisee of ours, or otherwise directly or indirectly
induce or seek to induce such person to leave his or her employment.
3. Own, maintain, engage in, have any interest in, be employed in
any managerial capacity in or provide consulting services to any restaurant or
to any other business (including any business operated by you prior to entry
into this Agreement) which specializes, in whole or in part, in the wholesale or
retail sale or distribution of food and beverage products, catering or
restaurant delivery the same as or similar to the types of products or services
offered or provided in the System.
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C. You specifically acknowledge that you will receive valuable training
and trade secret and confidential information, including, without limitation,
information regarding the promotional, operational, sales, and marketing methods
and techniques of ours and the System. Accordingly, you covenant that, except
with our prior written approval, you shall not, for a period of two (2) years
after the expiration or termination of this Agreement, regardless of the cause
of termination, or within two (2) years of any Transfer own or operate, be
employed in any managerial capacity in or provide consulting services with
respect to the ownership and/or operation of, any restaurant or any other
business (excluding Franchised Restaurants developed pursuant to this Agreement)
which specialize, in whole or in part, in products or services the same as or
similar to the types of products and services offered or provided in the System.
D. 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 Paragraph XI is held unreasonable or unenforceable by a court
or agency having valid jurisdiction in an unappealed final decision to which we
are a party, you shall be bound by any lesser covenant subsumed within the terms
of such covenant that imposes the maximum duty permitted by law, as if the
resulting covenant were separately stated in and made a part of this Paragraph
XI.
E. You understand and acknowledge that we have the right, in our sole
discretion, to reduce the scope of any covenant set forth in Paragraph XI in
this Agreement, or any portion thereof, without your consent, effective
immediately upon receipt by you of written notice thereof, and you agree that
you shall comply forthwith with any covenant as so modified, which shall be
fully enforceable notwithstanding the provisions of Paragraph XVII hereof.
F. We shall have the right to require all of your shareholders,
partners, members, managers and any personnel performing managerial or
supervisory functions and all personnel receiving special training from us to
execute similar covenants in a form satisfactory to us.
G. In addition to the foregoing covenants, you shall be bound by and
comply with the covenants contained in each individual Franchise Agreement
executed by you.
XII. NOTICES
Any and all notices required or permitted under this Agreement shall be
in writing and shall be personally delivered or mailed by certified mail, return
receipt requested, to the respective parties at the following addresses unless
and until a different address has been designated by written notice to the other
party:
Notices to us: bw-3 FRANCHISE SYSTEMS, INC.
1919 Interchange Tower
600 South Highway 169
Minneapolis, Minnesota 55426
Copy to: Mary Beth Brody, Esq.
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, Minnesota 55402
Notices to you: At the address specified on Page 1 of this
Agreement.
Copy to:
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------------------------------------------------
------------------------------------------------
Any notice by certified mail shall be deemed to have been given at the
date and time of mailing.
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XIII. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that nothing in
this Agreement is intended to constitute either party an agent, legal
representative, subsidiary, joint venturer, partner, employee or servant of the
other for any purpose whatsoever. Each party to this Agreement is an independent
contractor, and neither shall be responsible for the debts or liabilities
incurred by the other.
B. You shall hold yourself out to the public as an independent
contractor operating pursuant to this Agreement. You agree to take such actions
as shall be necessary to that end.
C. You understand and agree that nothing in this Agreement authorizes
you to make any contract, agreement, warranty or representation on our behalf,
or to incur any debt or other obligation in our name, and that we assume no
liability for, and shall not be deemed liable by reason of, any act or omission
of yours in your conduct of the business under this Agreement, or any claim or
judgment arising therefrom. You agree to indemnify, defend, and hold us and our
affiliates harmless from and against any and all claims, losses, damages and
liabilities, however caused, arising directly or indirectly from, as a result
of, or in connection with, the development, use and operation of your Franchised
Restaurants, as well as the costs, including attorneys' fees, of defending
against them (hereinafter "Franchise Claims"). Franchise Claims include, but
are not limited to, those arising from any death, personal injury or property
damage (whether caused wholly or in part through our active or passive
negligence), latent or other defects in any Franchised Restaurant, or your
employment practices. In the event a Franchise Claim is made against us, we
reserve the right in our sole discretion to select our own legal counsel to
represent our interests, at your cost.
XIV. MISCELLANEOUS
A. Whenever this Agreement requires our prior approval or consent, you
shall make a timely written request to us, and, except as otherwise provided
herein, any approval or consent granted must be in writing to be binding upon
us.
B. We make no warranties or guarantees upon which you may rely and we
assume no liability or obligation to you or any third party to which we would
not otherwise be subject, by providing any waiver, approval, advice, consent or
services to you in connection with this Agreement, or by reason of any neglect,
delay or denial of any request therefor.
C. No failure of ours to exercise any power reserved to us in this
Agreement or to insist upon compliance by you with any obligation or condition
in this Agreement, and no custom or practice of the parties at variance with the
terms hereof, shall constitute a waiver of our rights to demand exact compliance
with the terms of this Agreement. Our waiver of any particular default shall
not affect or impair our right in respect to any subsequent default of the same
or of a different nature, nor shall any delay, forbearance, or omission of ours
to exercise any power or right arising out of any breach or default by you of
any of the terms, provisions, or covenants of this Agreement, affect or impair
our rights, nor shall such constitute a waiver by us of any rights hereunder or
rights to declare any subsequent breach or default.
D. Each term and provision of this Agreement shall be deemed severable.
Nothing in this Agreement shall confer upon any person or legal entity other
than us or you and such of their respective successors and assigns as may be
contemplated by Paragraph X hereof, any rights or remedies under or by reason of
this Agreement.
E. All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof. All references herein to gender and
number shall be construed to include such other gender and number as the context
may require, and all acknowledgements, promises, covenants, agreements and
obligations herein made or undertaken by or on behalf of you and by any of your
owners, directors, officers or employees shall be deemed jointly and severally
undertaken by all the parties hereto on your behalf.
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F. This Agreement constitutes the entire, full, and complete Agreement
between us and you concerning the subject matter hereof, and supersedes all
prior agreements. No amendment, change, or variance from this Agreement shall be
binding on either party unless mutually agreed to by the parties and executed by
the parties in writing.
G. For each business established pursuant to this Agreement, a separate
Franchise Agreement shall be executed and an Individual Franchise Fee as
prescribed by us shall be paid to us, subject only to the terms of Paragraph II
of this Agreement. You understand and agree that any and all Franchise
Agreements shall be construed and exist independently of this Agreement. The
continued existence of each such Franchise Agreement shall be determined by the
terms and conditions of such Franchise Agreement. Except as specifically set
forth in this Agreement, the establishment and operation of each business shall
be in accordance with the terms of the applicable Franchise Agreement.
XV. APPLICABLE LAW
A. THIS AGREEMENT TAKES EFFECT UPON ITS ACCEPTANCE AND EXECUTION BY
FRANCHISOR AND SHALL BE INTERPRETED AND CONSTRUED UNDER THE LAWS OF THE STATE IN
WHICH DEVELOPER'S FIRST FRANCHISED RESTAURANT IS TO BE LOCATED.
B. ANY ACTION SOUGHT TO BE BROUGHT BY EITHER PARTY SHALL BE BROUGHT IN
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA, OR THE DISTRICT
COURT FOR HENNEPIN COUNTY, STATE OF MINNESOTA, AND THE PARTIES DO HEREBY WAIVE
ALL QUESTIONS OF PERSONAL JURISDICTION OR VENUE FOR THE PURPOSES OF CARRYING OUT
THIS PROVISION.
C. NO RIGHT OR REMEDY CONFERRED UPON OR RESERVED TO FRANCHISOR OR
DEVELOPER BY THIS AGREEMENT IS INTENDED TO BE, NOR SHALL BE DEEMED, EXCLUSIVE OF
ANY OTHER RIGHT OR REMEDY HEREIN OR BY LAW OR EQUITY PROVIDED OR PERMITTED, BUT
EACH SHALL BE CUMULATIVE OF EVERY OTHER RIGHT OR REMEDY.
D. NOTHING HEREIN CONTAINED 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.
XVI. ACKNOWLEDGEMENTS
A. You acknowledge and agree that the success of the business venture
contemplated to be undertaken by you by virtue of this Agreement is speculative
and depends, to a large extent, upon your ability as an independent business
person, and your active participation in the daily affairs of the business as
well as other factors.
B. You represent and acknowledge that you have received, read and
understood this Agreement and our Uniform Franchise Offering Circular, that we
have fully and adequately explained the provisions of each to your satisfaction,
and that we have accorded you ample time and opportunity to consult with
advisors of your own choosing about the potential benefits and risks of entering
into this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed, sealed, and
delivered this Agreement in triplicate on the day and year first above written.
Your owners, directors and officers executing this Agreement below specifically
agree, jointly and severally, to be bound by their respective representations,
warranties and obligations hereunder.
ATTEST: bw-3 FRANCHISE SYSTEMS, INC.:
By:
- ------------------------- --------------------------------
Witness
Its:
----------------------------
ATTEST: DEVELOPER:
-----------------------------------
By:
- ------------------------- --------------------------------
Witness
Its:
----------------------------
and
ATTEST: By:
--------------------------------
Its:
----------------------------
- -------------------------
Witness
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EXHIBIT A
DESCRIPTION OF DESIGNATED TERRITORY
- ---------------------- -------------------------------------------
FRANCHISOR DEVELOPER
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EXHIBIT B
DEVELOPMENT SCHEDULE
You acknowledge and agree that a material provision of the Area
Development Agreement is that the following number of Buffalo Wild Wings
Restaurants must be opened and continuously operating in the Designated
Territory during the term of the Area Development Agreement in accordance with
the following Development Schedule:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
DATE BY WHICH THE CUMLATIVE NUMBER OF
DATE BY WHICH FRANCHISE RESTAURANT MUST BE FRANCHISED RESTAURANTS REQUIRED TO
AGREEMENT MUST BE SIGNED OPENED AND BE OPEN AND CONTINUOUSLY
RESTAURANT AND SITE APPROVAL REQUEST CONTINUOUSLY OPERATING OPERATING FOR BUSINESS IN THE
NUMBER MUST BE SUBMITTED TO US FOR BUSINESS IN THE DESIGNATED TERRITORY AS OF THE DATE
TERRITORY IN PRECEDING COLUMN
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Date of this Agreement 1
- -------------------------------------------------------------------------------------------------------
2 2
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of determining compliance with the above Development Schedule, only
the Restaurants actually open and continuously operating for business in the
Designated Territory as of a given date will be counted toward the number of
Restaurants required to be open and continuously operating for business.
13
<PAGE>
[LETTERHEAD]
MARCH 11, 1998
Ms. Mary Twinem, CFO
Buffalo Wild Wings Grill & Bar
1919 Interchange Tower
600 S. Highway 169
Minneapolis, MN 55426
Dear Ms. Twinem:
Pursuant to your request for a lease proposal, we are pleased to submit the
following:
The following terms and conditions generally outline the proposed transaction
and are based upon information furnished to us by you.
LESSEE: bw-3, Inc.
LESSOR: Carlton Financial Corporation and/or its nominees
and participants
EQUIPMENT: FF&E for up to 11 locations through 6/30/99
EQUIPMENT COST: Approximately $2,500,000 or $225,000 per location
DELIVERY/
ACCEPTANCE DATE: To be determined
LEASE
COMMENCEMENT DATE: To be determined.
INITIAL LEASE TERM: 60 Months
INTERIM LEASE TERM: An interim lease term will commence from the
Delivery/Acceptance Date and terminate on the
Lease Commencement Date
<PAGE>
INTERIM RENT: Interim Rent will be calculated based on the daily
equivalent of the lease factor rate multiplied by
the Equipment Cost and will be payable on the
Lease Commencement Date
RENTAL PAYMENTS: Base Rents are to be monthly in advance, with
first payment in advance.
<TABLE>
<CAPTION>
PURCHASE OPTION
---------------
A B
-- --
<S> <C> <C>
Lease Rate Factor: = .02200 .02069
</TABLE>
LEASE ADJUSTMENTS: The effective lease rate contained within this
proposal is tied to the five year treasury index.
If there is a change in the treasury index at the
time of lease commencement, the effective rate
within the lease will be adjusted basis point for
basis point for such change.
INVOICING: A single invoice will be furnished on a monthly
basis.
TAXES: Lessee will pay all fees, assessments, sales, use,
property and other taxes imposed upon Lessor.
INSURANCE: Lessee will be required to maintain physical
damage and liability insurance in accordance with
industry standards and acceptable to Lessor naming
Lessor as additional insured.
EQUIPMENT CONDITION/
MAINTENANCE: Lessee shall maintain (or cause to be maintained)
the Equipment in the same condition as when
originally delivered, normal wear and tear
expected. The Equipment must be capable of
performing the task for which it was originally
intended and conform to all regulatory
requirements imposed by any governmental body
during the Lease Term.
TRANSACTION EXPENSES: Lessee shall each pay any and all transaction
expenses incurred. These expenses could include
but are not limited to, UCC Financing
Statement(s), recording, appraisal, registration
and perfection of title for the account of Lessee.
PURCHASE OPTION A: At the end of the base lease term the Lessee shall
purchase the equipment for $1.00.
PURCHASE OPTION B: Lessee, at it's option, may purchase all of
Lessor's right, title and interest in and to all,
but not less than all of the equipment described
in and covered by the Schedule for a purchase
price equal to the greater of the (a) fair market
value of the equipment, or (b) 11% of the original
cost of the equipment or (c) renew for twelve
months at .01008 of the original equipment cost.
UPGRADE OPTION: Beginning after the Commencement Date of the
Lease, Lessee shall have the option to upgrade the
Equipment defined in the
<PAGE>
Lease subject to the following additional
conditions: (1) Lessee is in compliance with all
the terms and conditions of the Lease Agreement;
(2) The new equipment to be leased from Lessor
under a new Lease or additional Schedule is
subject to Lessor's then current lease charges and
documentation which shall be mutually satisfactory
to Lessee and Lessor: (3) Lessee's then current
financial condition must be approved by Lessor for
purposes of the new lease or additional schedule,
such determination to be at Lessor's sole
discretion; (4) The upgrade of new equipment
covered by the Lease, the equipment remaining and
new equipment must meet Lessor's approval.
EARLY BUYOUT OPTIONS: The Lessee will have the opportunity to buyout the
Lease based on the following schedule:
<TABLE>
<CAPTION>
PAYMENT PERIOD PREPAYMENT
-------------- PENALTY
-------
<S> <C>
1-24 2%
25-48 1%
49-60 0%
</TABLE>
Prepayment penalty based on schedule of payments attached.
CREDIT INFORMATION: For our credit committee, we will need complete
financial statements for the last three years,
three trade references with their names and
telephone numbers, bank references with the names
and telephone numbers of the officers to contact,
and a complete equipment list indicating equipment
descriptions, prices and vendors. We may request
additional information as necessary.
CONDITIONS PRECEDENT: The Lessor shall, at it's option, may terminate
the funding commitment in the event of any one of
the following:
1. Any material adverse changes in the financial
condition of the Lessee up to the funding
date of the Master Lease or any subsequent
schedule thereto.
2. Any significant change in the equipment
specifications.
3. Any change in the location of the specified
equipment.
Upon acceptance of this proposal, and prior to submission of this transaction
to the lessor's credit committee, proposal fee in the $25,000 will be due and
payable.
If the transaction is approved, this fee will be applied, pro rata to the first
monthly rental due under the lease, less a documentation fee and any transaction
expenses. If the transaction is not approved, the fee will be returned. If
the transaction is approved but takedown does not occur through no fault of
Carlton Financial Corporation, this fee will be considered earned by Carlton
Financial Corporation.
This Proposal is subject to Lessor's Senior Finance Committee's approval and
documentation must be satisfactory to Lessor.
<PAGE>
I appreciate the opportunity to present to you the preceding proposal as a
service of Carlton Financial Corporation. Should you have questions, please
contact me at (612) 896-0314.
Sincerely,
CARLTON FINANCIAL CORPORATION
/s/ James D. Wanningman
James D. Wanningman
Senior Vice President
This proposal must be accepted by March 25, 1998 or it will expire
automatically.
ACCEPTED:
By: /s/ Mary Twinem
-------------------------------------
Its: Treasurer
------------------------------------
Date: 3/17/98
-----------------------------------
<PAGE>
PROMISSORY NOTE
$418,682.00 Minneapolis, Minnesota
December 27, 1996
FOR VALUE RECEIVED, the undersigned, bw-3, INC., an Ohio corporation
("Maker"), promises to pay to KENNETH H. DAHLBERG ("Payee"), at 19360 Walden
Trail, Deephaven, Minnesota 55391, or such other place as Payee may designate
from time to time in writing, the principal sum of Four Hundred Eighteen
Thousand Six Hundred Eighty-two Dollars ($418,682.00), plus interest from and
after the date hereof on the unpaid principal balance at the rate of ten percent
(10%) per annum. Payments of principal and interest shall be made in 60 equal
consecutive monthly installments of $5,532.91 each plus a final installment of
$262,578.96, as set forth on the amortization schedule attached hereto as
Exhibit A. Such payments shall be due and payable commencing January 27, 1997
and continuing on the 27th day of each month thereafter until paid in full. All
such installments are to be applied by Payee when received, first to the payment
of interest and then to the reduction of unpaid principal.
Maker shall have the right to prepay all or any part of the principal of
this Note at any time and from time to time without restriction or penalty. Any
partial prepayment shall be applied against the unpaid installments in the
inverse order of their maturity.
The following shall be deemed to be Events of Default hereunder:
(i) Maker fails to pay when due any installment of principal or
interest under this Note and such nonpayment continues for a period of 15
days after Maker receives notice thereof.
(ii) Maker shall take any action concerning its liquidation or
dissolution or the cessation of substantially all of its business
activities or shall sell, exchange, or otherwise dispose of substantially
all of its assets.
(iii) Maker shall become insolvent or be unable to pay its debts
as they mature or shall admit in writing its inability to pay its debts as
they mature or shall make a general assignment for the benefit of creditors
or shall become or be adjudicated a bankrupt or shall voluntarily file a
petition in bankruptcy or shall apply for or permit the appointment of a
receiver or a trustee (who is not discharged within a period of thirty days
after such appointment) for any substantial portion of its property or
assets.
Upon the occurrence of an Event of Default, the holder hereof shall have the
right to declare the unpaid principal balance of and all interest accrued on
this Note to be immediately due and payable, and the unpaid principal amount of
and accrued interest on this Note shall thereupon be due and
1
<PAGE>
payable, without further demand, presentation, protest, or further notice of any
kind, all of which are hereby waived.
Maker agrees to pay on demand all costs (including reasonable attorneys'
fees, whether or not suit is brought) incurred by the holder hereof in enforcing
the terms and conditions hereof and in collecting any amounts due hereunder.
No delay or omission on the part of the holder hereof in enforcing any
right, power, or privilege hereunder shall operate as a waiver hereof. The
rights and powers granted or evidenced hereby shall extend to any permitted
assign hereof and shall be binding upon the successors and assigns of Maker;
provided, however, that Maker shall have the right to assert against any such
permitted assign all claims, defenses, and rights of set-off that Maker would
otherwise have against Payee but for such assignment. Maker hereby waives
presentment, demand, notice of dishonor, protest, and notice of protest. This
Note shall be governed by the laws of the State of Minnesota.
BW-3, INC.
By /s/ Sally J. Smith
--------------------------------------
Its President
----------------------------------
2
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED WITHOUT COMPLIANCE WITH
SECTIONS 1 AND 7 HEREOF.
WARRANT
To Purchase 100,000 Shares of
Common Stock of
bw-3, Inc.
THIS CERTIFIES THAT KENNETH H. DAHLBERG (the "Holder"), or registered
assigns, is entitled to subscribe for and purchase from bw-3, Inc., an Ohio
corporation (the "Company"), at any time from and after December 27, 1996
through and including December 26, 2001, One Hundred Thousand (100,000) fully
paid and nonassessable shares of Common Stock of the Company at the price of
$1.50 per share (the "Warrant Exercise Price"), subject to the anti-dilution
provisions of this Warrant. The shares of Common Stock that may be acquired
upon exercise of this Warrant are referred to herein as the "Warrant Shares."
The term "Common Stock" means and includes the Company's presently authorized
common stock and shall also include any capital stock of any class of the
Company hereafter authorized that is not limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends or in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE: TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise (in the form attached hereto) delivered to
the Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant
(properly endorsed if required) along with a check in payment of the Warrant
Exercise Price for such Warrant Shares.
(b) This Warrant may not be transferred, assigned, or divided into
two or more Warrants of smaller denominations, nor may any Warrant Shares issued
pursuant to exercise of this Warrant or any shares of Common Stock acquired on
conversion thereof be transferred, except as provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT: Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its principal office for new Warrants of like tenor and date representing in
the aggregate the right to subscribe for and purchase the number of Warrant
Shares purchasable hereunder, each of such new Warrants to represent the right
to purchase such number of Warrant Shares (not to exceed the aggregate total
number purchasable hereunder) as shall be designated by the Holder at the time
of such surrender. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss,
<PAGE>
theft, destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant; provided,
however, that if the Holder shall be such Holder, an agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 2. This
Warrant shall be promptly cancelled by the Company upon the surrender hereof in
connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution and delivery of Warrants pursuant to
this Section 2.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased upon
exercise hereof shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been surrendered
and the payment made for such Warrant Shares as aforesaid. Subject to the
provisions of subsection 3(b), certificates for the Warrant Shares so purchases
shall be delivered to the Holder within a reasonable time, not exceeding 15 days
after the rights represented by this Warrant shall have been so exercised, and,
unless this Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the Holder
within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registration under
federal or state securities laws. If registrations are not in effect and if
exemptions are not available to issue the Warrant Shares when the Holder seeks
to exercise the Warrant, the Warrant exercise period will be extended, if
necessary, to prevent the Warrant from expiring, until such time as either
registrations become effective or exemptions are available, and the Warrant
shall then remain exercisable for a period of at least 30 calendar days from the
date the Company delivers to the Holder written notice of the availability of
such registrations or exemptions. The Holder agrees to execute such documents
and make such representations, warranties and agreements as may be required
solely to comply with the exemptions relied upon by the Company, or the
registrations made, for the insurance of the Warrant Shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares, as well as all shares of the Company's Common Stock into which,
when converted, such Warrant Shares may be converted, will, upon issuance, be
duly authorized and issued, fully paid, nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that, during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise of the
subscription
2
<PAGE>
rights evidenced by this Warrant a sufficient number of shares of Common Stock
to provide for the exercise of the rights represented by this Warrant.
5. ANTI-DILUTION ADJUSTMENTS. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price and Warrant Shares may be acquired
upon exercise of the Warrant shall be adjusted from time to time such that, in
case the Company shall hereafter (i) pay a dividend or make a distribution on
its Common Stock in shares of Common Stock, (ii) subdivide its outstanding
shares of Common Stock into a greater number of shares, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares or (iv) issue
by reclassification of its Common Stock any shares of capital stock of the
Company, the Warrant Exercise Price and the number of Warrant Shares in effect
immediately prior to such action shall be adjusted so that the Holder of any
Warrant thereafter surrendered for exercise shall be entitled to receive for the
same aggregate Warrant Exercise Price the number of shares of Common Stock or
other capital stock of the Company that the Holder would have owned immediately
following such action had such Warrant been exercised immediately prior thereto.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this Subsection shall be made to
the nearest cent or to the nearest 1/100 of a share, as the case may be. In the
event that at any time as a result of an adjustment made pursuant to this
Subsection, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any share of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section.
(b) In case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in cases of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation in to the Company), there shall be no adjustment under
Subsection (a) of this Section, but the Holder of each Warrant then outstanding
shall have the right thereafter to exercise such Warrant for the same aggregate
Warrant Exercise Price into the kind and amount of shares of stock and other
securities and property that the Holder would have owned or have been entitled
to receive immediately after such consolidation, merger, statutory exchange,
sale, or conveyance had such Warrant been exercised immediately prior to the
effective date of such
3
<PAGE>
consolidation, merger, statutory exchange, sale, or conveyance and in any such
case, if necessary, appropriate adjustment shall be made in the application of
the provisions set forth in this Section with respect to the rights and
interests thereafter of any Holders of the Warrant, to the end that the
provisions set forth in this Section shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of stock
and other securities and property thereafter deliverable on the exercise of the
Warrant. The provisions of this Subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.
(c) Upon any adjustment of the Warrant Exercise Price or any increase
or decrease in the number of shares of Common Stock or other securities that may
be obtained upon exercise of this Warrant, then and in each such case, the
Company shall give written notice thereof, by first-class mail, postage prepaid,
addressed to the Holders of this Warrant, which notice shall state the Warrant
Exercise Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares of Common Stock or other securities that may be
obtained upon exercise of this Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES OR
UNDERLYING SECURITIES.
(a) Subject to the sale, assignment, hypothecation or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company, before transferring this Warrant
or transferring any Warrant Shares, of such Holder's intention to do so,
describing briefly the manner of any proposed transfer or the Holder's intention
as to the disposition to be made of the Warrant Shares. Promptly upon receiving
such written notice, the Company shall present copies thereof to the Company's
counsel. If, in the opinion of such counsel, the proposed transfer or
disposition may be effected without registration or qualification (under any
federal or state securities laws) of this Warrant or the Warrant Shares, the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificate for such Warrant Shares, respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers that would be in violation of Section 5 of
the Securities Act of 1933, as amended (the "1933 Act"), and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or the Warrant Shares.
(b) If in the opinion of Company counsel the proposed transfer or
disposition described in the written notice given pursuant to this Section 7 may
not be effected without
4
<PAGE>
registration or qualification of this Warrant or such Warrant Shares, the
Company shall promptly give written notice thereof to the Holder, and the Holder
will limit the Holder's activities in respect to such as, in the opinion of such
counsel, are permitted by law.
8. FRACTIONAL SHARES.
(a) Fractional shares shall not be issued upon the exercise of this
Warrant, but in any case where the Holder would, except for the provisions of
this Section, be entitled under the terms hereof to receive a fractional share,
the Company shall, upon the exercise of this Warrant for the largest number of
whole shares then called for, pay a sum in cash equal to the sum of (a) the
excess, if any, of the Fair Market Value of such fractional share over the
proportional part of the Warrant Exercise Price represented by such fractional
share, plus (b) the proportional part of the Warrant Exercise Price represented
by such fractional share.
(b) Fair Market Value of a share of Common Stock as a particular date
(the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the average closing or
last sales prices, respectively, reported for the 10 business days
immediately preceding the Determination Date,
(ii) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market but is traded on the Nasdaq SmallCap
Market or other over-the-counter market, then the average closing bid
and asked prices reported for the 10 business days immediately
preceding the Determination Date, and
(iii) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market, Nasdaq SmallCap Market or other
over-the-counter market, then the price established in good faith by
the Board of Directors.
9. REGISTRATION RIGHTS. If, at any time prior to the end of the two-year
period following complete exercise of this Warrant, the Company proposes to
register under the 1933 Act (except by a Form S-4 or Form S-8 Registration
Statement or any successor forms thereto) or qualify for a public distribution
under Section 3(b) of the 1933 Act, any of its securities, it will give written
notice to the Holder of this Warrant and of any Warrant Shares of its intention
to do so and, on the written request of any such Holder given within 20 days
after receipt of any such notice (which request shall specify the interest in
this Warrant or the Warrant Shares intended to be sold or disposed of by such
Holder and describe the nature of any proposed sale or other disposition
thereof), the Company will use its best efforts to cause all such Warrant
Shares, the Holders of which shall have requested the registration or
qualification thereof, to be included in such registration statement proposed to
be filed by the Company; provided, however, that if a greater number of Warrant
Shares is offered for participation in the proposed offering than in the
reasonable opinion of the managing underwriter of the proposed offering can be
accommodated
5
<PAGE>
without adversely affecting the proposed offering, then the amount of Warrant
Shares proposed to be offered by such Holders for registration, as well as the
number of securities of any other selling shareholders participating in the
registration, shall be proportionately reduced to a number deemed satisfactory
by the managing underwriter.
10. LOCK-UP LIMITATION. The Holder agrees that in the event the Company
advises the Holder that it plans an underwritten public offering of its capital
stock in compliance with the 1993 Act and that the underwriter(s) seeks to
impose restrictions under which certain shareholders may not sell or contract to
sell or grant any option to buy or otherwise dispose of part or all of their
stock purchase rights or the underlying capital stock, the Holder hereby agrees
that for a period of not to exceed 180 days from the date of the prospectus, the
Holder will not sell or contract to sell or grant an option to buy or otherwise
dispose of this Warrant or any of the underlying shares of Common Stock without
the prior written consent of the underwriter(s) or its representative(s).
IN WITNESS WHEREOF, bw-3, Inc. has caused this Warrant to be signed by its
duly authorized officer and this Warrant to be dated December 27, 1996.
BW-3, INC.
By /s/ Sally J. Smith
------------------------------------------
Its President
-----------------------------------
6
<PAGE>
TO: BW-3, INC.
NOTICE OF EXERCISE OF WARRANT - To be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________________ of the shares of Common Stock
issuable upon the exercise of such Warrant, and requests that certificates for
such shares (together with a new Warrant to purchase the number of shares, if
any, with respect to which this Warrant is not exercised) shall be issued in the
name of
---------------------------------------
(Print Name)
Please insert social security
or other identifying number
of registered holder of
certificate (_____________) ---------------------------------------
(Address)
Date: __________, 19___ ---------------------------------------
Signature
The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any charge whatsoever. When using on behalf of a corporation,
partnership, trust or other entity, PLEASE indicate your position(s) and
title(s) with such entity.
7
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto _________________________ the right to purchase the securities of bw-3,
Inc. to which the within Warrant relates and appoints _________________________
as the undersigned's attorney, to transfer said right on the books of bw-3, Inc.
with full power of substitution in the premises.
Dated:
-------------- ---------------------------------------
(Signature)
---------------------------------------
---------------------------------------
(Address)
8
<PAGE>
THE ISSUANCE OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS
NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE
LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
CORPORATION WHOSE AUTHORIZED OFFICER HAS SIGNED THIS NOTE ABOVE.
SALE OR OTHER TRANSFER OF THIS NOTE IS FURTHER RESTRICTED FOR UP TO 180 DAYS
FOLLOWING AN INITIAL PUBLIC OFFERING OF SECURITIES OF THE COMPANY BY THE TERMS
OF A SUBSCRIPTION AGREEMENT, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE
OFFICES OF THE COMPANY.
PROMISSORY NOTE
- ------------- Minneapolis, Minnesota
April 14, 1998
FOR VALUE RECEIVED, the undersigned bw-3, Inc. (the "COMPANY") promises to
pay to the order of __________________________Name (the "LENDER"), its
successors and assigns, at the Lender's address set forth in the Agreement (as
defined below) or such other place as the holder may designate in writing from
time to time, the principal sum of ______________, in lawful money of the United
States, together with interest from the date hereof on the unpaid principal
balance outstanding from time to time at the rate of ten percent (10%) per year
(calculated on the basis of the actual number of days elapsed and a 360-day
year). All outstanding principal and accrued interest on this Note shall be due
and payable on November 1, 1998, unless such due date is extended by the Company
in accordance with section 3 below; provided, however, that notwithstanding the
foregoing, this Note shall be payable in full 20 days after the effective date
(the "EFFECTIVE DATE") of any registration statement (the "REGISTRATION
STATEMENT") relating to an initial public offering of its securities completed
by the Company ("IPO").
1. SUBSCRIPTION AND LOAN AGREEMENT. This Note has been issued pursuant
to and is subject to the terms and provisions of the Subscription and Loan
Agreement (the "AGREEMENT"), dated as of the date hereof, between the Company
and the Lender, and this Note and the holder hereof are entitled to all the
benefits provided for in the Agreement, or which are referred to therein, to
which Agreement reference is made for a statement of the terms and conditions
under which this indebtedness was incurred and is to be repaid. The provisions
of the Agreement are incorporated herein by reference with the same force and
effect as if fully set forth herein.
2. PREPAYMENT. This Note may be prepaid in whole or in part at any time
and from time to time without premium or penalty. All prepayments on this Note
and all notes issued to other persons ("INVESTORS") investing in Units of the
Company pursuant to the Confidential Private Placement Memorandum dated March
25, 1998 (the "MEMORANDUM") shall be applied to this Note and such other notes
pro rata on the basis of the proportion that the original principal amount of
this Note and each other note bears to the aggregate original principal amount
of all
-1-
<PAGE>
such notes, and in the case of this Note, such prepayments shall be applied
first to the payment of any costs of collection that may be due hereunder, then
to the payment of accrued interest, and the balance shall be applied to
principal.
3. EXTENSION. The final maturity of this Note may be extended to May 1,
1999 by written notice delivered to the Lender at any time on or before November
1, 1998.
4. NOTIFICATION OF PUBLIC OFFERING. The Company shall notify the Lender
of the effectiveness of the Registration Statement relating to IPO within five
days after the Effective Date. Such notice shall be accompanied by notification
that this Note will be paid in full 20 days after such Effective Date and of the
rights to conversion set forth in section 5(a) below.
5. CONVERSION AT THE OPTION OF THE HOLDER.
(a) AFTER COMPLETION OF PUBLIC OFFERING. Fifty percent (50%) of the
original principal amount of this Note (but not accrued interest thereon)
may be converted, at the option of the holder, into the Company's Common
Stock for a period of 20 days after the Effective Date of the Registration
Statement relating to an IPO which is effective on or before the maturity
date of the Note (as such date may be extended per Section 3 above). The
conversion price (the "CONVERSION PRICE") for such purposes shall be equal
to eighty percent (80%) of the price to public in such IPO.
(b) MANNER OF CONVERSION. To convert this Note into shares of the
Company's Common Stock, Lender shall (i) surrender this Note, at the
principal office of the Company, duly endorsed in blank, and (ii) give
written notice to the Company substantially in the form attached hereto as
Schedule I that it elects to convert fifty percent or less of the original
principal balance pursuant to Section 5(a) of this Note, which notice shall
specify the portion hereof to be converted. As promptly as possible
thereafter, the Company shall issue and deliver to Lender certificates
representing the number of its shares of Common Stock into which this Note
has been converted. Thereupon, this Note, or the portion hereof converted,
shall be deemed to have been satisfied and discharged, and the shares of
Common Stock into which this Note shall be so converted shall be fully paid
and nonassessable shares. In the event of a conversion pursuant to Section
5(a), the Company shall deliver to Lender with such certificates payment in
full for the remaining principal and interest due on this Note.
(c) ADJUSTMENT TO CONVERSION Price. The Conversion Price shall be
subject to adjustment at any time after the Effective Date, as hereinafter
provided in this Section 5(c).
(i) If the Company at any time divides the outstanding shares
of its Common Stock into a greater number of shares (whether pursuant
to a stock split, stock dividend or otherwise), and conversely, if the
outstanding shares of its Common Stock are combined into a smaller
number of shares, the Conversion Price in effect immediately prior to
such division or combination shall be
-2-
<PAGE>
proportionately adjusted to reflect the reduction or increase in the
value of each share of Common Stock.
(ii) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the
Company with another corporation, or the sale of all or substantially
all of its assets to another corporation shall be effected in such a
way that holders of the Company's Common Stock shall be entitled to
receive stock securities or assets with respect to or in exchange for
such Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, Lender shall have the
right to purchase and receive upon the basis and upon the terms and
conditions specified in this Note and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such
shares of stock, other securities or assets as would have been issued
or delivered to Lender if Lender had exercised this Note and had
received such shares of Common Stock prior to such reorganization,
reclassification, consolidation, merger or sale. The Company shall
not effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument
executed and mailed to the registered holder of this Note at the last
address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder
may be entitled to purchase.
(iii) If the Company takes any other action, or if any other
event occurs which does not come within the scope of the provisions of
Sections 5(c)(i) or (ii) above, but which should result in an
adjustment in the Conversion Price, in order to fairly protect the
purchase rights of the Lender, an appropriate adjustment in such
purchase rights shall be made by the Company.
(iv) Upon any adjustment of the Conversion Price, the Company
shall give written notice thereof to the Lender, which notice shall
state the Conversion Price resulting from such adjustment and the
increase or decrease, if any, in the number of shares acquirable at
such price upon the exercise of the conversion rights contained in
this Section 5, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
6. SUBORDINATION; NO SECURITY. The payment of the principal of and the
interest on this Note is hereby expressly subordinated and made subject to the
prior payment in full of all indebtedness of the Company outstanding on the date
hereof or hereafter incurred (i) for money borrowed by the Company from banks,
finance companies, trust companies, pension trusts, insurance companies or other
financial institutions; and (ii) in connection with the acquisition or lease of
capital equipment. The Note is an unsecured obligation of the Company and ranks
equally and ratably with all other unsecured indebtedness of the Company.
-3-
<PAGE>
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, OR APPLICABLE STATE SECURITIES LAW. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF, AND NO TRANSFER OF THE
SECURITIES WILL BE MADE BY THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF
SUCH REGISTRATION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
SALE OR OTHER TRANSFER OF THIS WARRANT IS FURTHER RESTRICTED FOR UP TO 180 DAYS
FOLLOWING AN INITIAL PUBLIC OFFERING OF SECURITIES OF THE COMPANY BY THE TERMS
OF A SUBSCRIPTION AGREEMENT, A COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE
OFFICES OF THE COMPANY.
WARRANT NO. ____
WARRANT
TO PURCHASE SHARES OF COMMON STOCK OF
bw-3, INC.
FOR VALUE RECEIVED, ___________________________________ or registered
assigns (the "HOLDER"), is entitled to purchase from bw-3, Inc., a Minnesota
corporation (the "COMPANY"), commencing on the earlier of November 1, 1998
(which date may be extended by six months if the Note (defined below) maturity
date is similarly extended) or an initial public offering of securities of the
Company and on or before the fifth anniversary of the date hereof, __________
(post-split) / __________ (pre-split) fully paid and nonassessable shares of the
Company's Common Stock (such shares of Common Stock as may be acquired upon
exercise hereof being hereinafter referred to as the "WARRANT SHARES"), at an
exercise price equal to (a) eighty percent (80%) of the price to public of IPO
which is effective on or before November 1, 1998 (which date may be extended by
six months if the Note maturity date is similarly extended), or (b) $5.20 per
share (post-split) / $2.60 per share (pre-split) if an IPO is not effective
prior to November 1, 1998 (which date may be extended by six months if the Note
maturity date is similarly extended) (the "WARRANT EXERCISE PRICE").
The Warrant has been issued to the Holder by the Company pursuant to the
Subscription and Loan Agreement dated as of the date hereof, by and between the
Company and the Holder (the "AGREEMENT"), and is subject to the terms and
provisions thereof. The "NOTE" is that promissory note issued to Holder
pursuant to the Agreement.
This Warrant is subject to the following provisions, terms, and conditions:
1. The rights represented by this Warrant may be exercised by the Holder,
in whole or in part (but not as to a fractional share of Common Stock), by
written notice of exercise substantially in the form attached hereto, which
notice shall be delivered to the Company accompanied by the surrender of this
Warrant (properly endorsed if required) at the principal office of the Company
and upon payment to the Company, by cash, certified check or bank draft, of the
Warrant Exercise Price for such shares. The Company agrees that the Warrant
Shares so
-1-
<PAGE>
purchased shall be and is deemed to be issued as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
Warrant Shares as aforesaid. Certificates for the Warrant Shares so purchased
shall be delivered to the Holder within thirty (30) days after the rights
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the number of Warrant Shares, if
any, with respect to which this Warrant has not been exercised shall also be
delivered to the Holder within such time. Notwithstanding the foregoing,
however, the Company shall not be required to deliver any certificates for
Warrant Shares, except in accordance with the provisions and subject to the
limitations of Section 5 below.
2. The Company covenants and agrees that all Warrant Shares that may be
issued upon the exercise of this Warrant will, upon issuance, be duly authorized
and issued, fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issuance thereof. The Company further covenants and
agrees that until expiration of this Warrant, the Company will at all times have
authorized, and reserved for the purpose of issuance upon exercise of this
Warrant, a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant.
3. The provisions in this Warrant relating to the Warrant Exercise Price
and the number of Warrant Shares to be issued upon exercise of this Warrant
shall be subject to adjustment from time to time as hereinafter provided.
(a) Upon each adjustment of the Warrant Exercise Price, the Holder of
this Warrant shall thereafter be entitled to purchase, at the Warrant
Exercise Price resulting from such adjustment, the number of shares of
Common Stock obtained by multiplying the Warrant Exercise Price in effect
immediately prior to such adjustment by the number of shares of Common
Stock purchasable hereto immediately prior to such adjustment and dividing
the product thereof by the Warrant Exercise Price resulting from such
adjustment.
(b) In case the Company shall at any time subdivide its outstanding
Common Stock into a greater number of shares or declare a dividend payable
in Common Stock, the Warrant Exercise Price in effect immediately prior to
such subdivision shall be proportionately reduced and the number of shares
of Common Stock purchasable pursuant to this Warrant shall be
proportionately increased, and conversely, in case the Company's
outstanding Common Stock shall be combined into a smaller number of shares,
the Warrant Exercise Price in effect immediately prior to such combination
shall be proportionately increased and the number of shares of Common Stock
purchasable upon the exercise of this Warrant shall be proportionately
reduced.
(c) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities or assets
("SUBSTITUTED PROPERTY") with respect to or in exchange for such Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, the
-2-
<PAGE>
Holder shall have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Warrant, and in lieu of the
Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby, such
Substituted Property as would have been issued or delivered to the Holder
if it had exercised this Warrant and had received upon exercise of this
Warrant the Common Stock prior to such reorganization, reclassification,
consolidation, merger, or sale. The Company shall not effect any such
consolidation, merger, or sale, unless prior to the consummation thereof
the successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the Holder at the last
address of the Holder appearing on the books of the Company, the obligation
to deliver to the Holder such Substituted Property as, in accordance with
the foregoing provisions, the Holder may be entitled to purchase.
(d) If the Company takes any other action, or if any other event
occurs which does not come within the scope of the provisions of Sections 3
(b) or 3 (c), but which should result in an adjustment in the Warrant
Exercise Price and/or the number of shares subject to the Warrant in order
to fairly protect the purchase rights of the Holder, an appropriate
adjustment in such purchase rights shall be made by the Company.
(e) Upon any adjustment of the Warrant Exercise Price or the number
of shares issuable upon of this Warrant, the Company shall give written
notice thereof, by first-class mail, postage prepaid, addressed to the
Holder at the address of the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number o shares
purchasable at such price upon the exercise of this Warrant, setting forth
in reasonable detail the method of calculation and the facts upon which
such calculation is based.
4. This Warrant shall not entitle the Holder to any voting rights or
other rights as a shareholder of the Company.
5. The Holder, by acceptance hereof, represents and warrants that (a) it
is acquiring this Warrant for its own account for investment purposes only and
not with a view to its resale or distribution and (b) it has no present
intention to resell or otherwise dispose of all or any part of this Warrant.
Other than pursuant to registration under federal and applicable state
securities laws or an exemption from such registration, the availability of
which the Company shall determine in its sole discretion, neither this Warrant
nor any Warrant Shares may be sold, pledged, assigned, or otherwise disposed of
(whether voluntarily or involuntarily). The Company may condition such sale,
pledge, assignment, or other disposition on the receipt from the party to whom
this Warrant is to be so transferred or to whom Warrant Shares is to be issued
or so transferred of any representations and agreements requested by the Company
in order to permit such issuance or transfer to be made pursuant to exemptions
from registration under federal and applicable state securities laws. Each
certificate representing the Warrant (or any part thereof) and any Warrant
Shares shall bear appropriate legends setting forth these restrictions on
transferability. The Holder, by acceptance hereof, agrees to give written
notice to
-3-
<PAGE>
the Company before transferring this Warrant or any Warrant Shares of the
Holder's intention to do so, describing briefly the manner of any proposed
transfer. Within thirty (30) days after receiving such written notice, the
Company shall notify the Holder as to whether such transfer may be effected and
of the conditions to any such transfer.
6. This Warrant shall be transferable only on the books of the Company by
the Holder in person, or by duly authorized attorney, on surrender of the
Warrant, properly assigned.
7. Neither this Warrant nor any terms hereof may be changed, waived,
discharged, or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge, or
termination is sought.
8. S-3 DEMAND REGISTRATION RIGHTS.
(a) On a one-time basis only, upon request by the Holders of a majority in
interest of the Warrants issued pursuant to the Company's Confidential Private
Placement Memorandum dated March 25, 1998 (including any Warrants issued in
substitution thereof) and of any Warrant Shares issued upon exercise of such
Warrants, the Company will promptly take all necessary steps to register or
qualify on Form S-3 (or such successor form) under the Securities Act of 1933,
as amended (the "1933 Act"), and the securities laws of such states as the
Holders may reasonably request, such number of Warrant Shares issued and to be
issued upon conversion of the Warrants requested by such Holders in their
request to the Company. The Company shall keep effective and maintain any
registration, qualification, notification, or approval specified in this
Paragraph (a) for such period as may be reasonably necessary for such Holder or
Holders of such Warrant Shares to dispose thereof and from time to time shall
amend or supplement the prospectus used in connection therewith to the extent
necessary in order to comply with applicable law.
(b) With respect to each inclusion of securities in a registration
statement pursuant to this Section 8, the Company shall bear the following fees,
costs, and expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Fees
and disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale of securities by the selling Holders
not expressly included above shall be borne by the selling Holders.
(c) The Company hereby indemnifies each of the Holders of this Warrant and
of any Warrant Shares, and the officers and directors, if any, who control such
Holders, within the meaning of Section 15 of the 1933 Act, against all losses,
claims, damages, and liabilities caused by (1) any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus (and as amended or supplemented if the Company shall have furnished
any amendments thereof or supplements thereto), any Preliminary Prospectus or
any state securities law
-4-
<PAGE>
filings; (2) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages, or liabilities are
caused by any untrue statement or omission contained in information furnished in
writing to the Company by such Holder expressly for use therein; and each such
Holder by its acceptance hereof severally agrees that it will indemnify and hold
harmless the Company, each of its officers who signs such Registration
Statement, and each person, if any, who controls the Company, within the meaning
of Section 15 of the 1933 Act, with respect to losses, claims, damages, or
liabilities which are caused by any untrue statement or omission contained in
information furnished in writing to the Company by such Holder expressly for use
therein.
9. NET EXERCISE RIGHTS.
(a) In addition to and without limiting the rights of the Holder of this
Warrant with respect to other terms of this Warrant, the Holder of this Warrant
shall have the right (the "Conversion Right") to convert this Warrant or any
portion thereof into Warrant Shares as provided in this Section 9 at any time or
from time to time prior to its expiration, subject to the restrictions set forth
in paragraph (c) below. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to this Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder of this Warrant, without
payment by the Holder of any exercise price or any cash or other consideration,
that number of Converted Warrant Shares equal to the quotient obtained by
dividing the Net Value (as hereinafter defined) of the Converted Warrant Shares
by the fair market value (as defined in paragraph (d) below) of a single Warrant
Share, determined in each case as of the close of business on the Conversion
Date (as hereinafter defined). The "Net Value" of the Converted Warrant Shares
shall be determined by subtracting the aggregate warrant purchase price of the
Converted Warrant Shares from the aggregate fair market value of the Converted
Warrant Shares. Notwithstanding anything in this Section 9 to the contrary, the
Conversion Right cannot be exercised with respect to a number of Converted
Warrant Shares having a Net Value below $100. No fractional shares shall be
issuable upon exercise of the Conversion Right, and if the number of shares to
be issued in accordance with the foregoing formula is other than a whole number,
the Company shall pay to the Holder of this Warrant an amount in cash equal to
the fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the Holder of this Warrant by
the surrender of this Warrant at the principal office of the Company together
with a notice in the form attached hereto, specifying that the Holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in paragraph
(a) above as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), but not later than the expiration
date of this Warrant. Certificates for the Converted Warrant Shares issuable
upon exercise of the Conversion Right, together with a check in payment of any
fractional share and, in the case of a partial exercise, a new warrant
evidencing the shares remaining subject to this Warrant, shall be issued as of
the Conversion Date and shall be delivered to the Holder of this Warrant within
15 days following the Conversion Date.
-5-
<PAGE>
(c) In the event the Conversion Right would, at any time this Warrant
remains outstanding, be deemed by the Company's independent certified public
accountants to give rise to a charge to the Company's earnings for financial
reporting purposes, then the Conversion Right shall automatically terminate upon
the Company's written notice to the Holder of this Warrant of such adverse
accounting treatment.
(d) For purposes of this Section 9, the "fair market value" of a Warrant
Share as of a particular date shall be its "market price", calculated as of the
Conversion Date, as follows:
(i) if the capital stock into which the Warrants are exercisable is
traded on an exchange or is quoted on the Nasdaq National Market, then the
average closing or last sale prices, respectively, reported for the ten
(10) business days immediately preceding the Conversion Date, or
(ii) if the capital stock into which the Warrants are exercisable is
not traded on an exchange or on the Nasdaq National Market but is traded on
Nasdaq SmallCap Market or other over-the-counter market, then the average
closing bid and asked prices reported for the ten (10) business days
immediately preceding the Conversion Date, or
(iii) if the capital stock into which the Warrants are exercisable is
not traded on an exchange or on the Nasdaq National Market, Nasdaq SmallCap
Market or other over-the counter market, then the price per share
established by the Board of Directors of the Company.
10. GOVERNING LAW. This Warrant shall be construed and interpreted in
accordance with the laws of the State of Minnesota without regard to its choice
of law provisions.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
on its behalf by its duly authorized officer on the day and year first above
written.
bw-3, Inc.
By:
----------------------------------
Its:
---------------------------------
-6-
<PAGE>
TO: BW-3, INC.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder
in Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
________________________________________________
(Print Name)
Please insert social security
or other identifying number
of registered holder of
certificate (______________) Address:
________________________________________________
________________________________________________
Date: _______________, 19______
________________________________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
C-7
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto
____________________________________________ the right to purchase the
securities of bw-3, Inc. to which the within Warrant relates and appoints
____________________, attorney, to transfer said right on the books of bw-3,
Inc. with full power of substitution in the premises.
Dated:________________ ______________________________________________
(Signature)
Address:
__________________________________________
__________________________________________
C-8
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant pursuant to Section 9)
The undersigned hereby irrevocably elects a cashless exercise of the right
of purchase represented by the within Warrant for, and to purchase thereunder,
____________________ Converted Warrant Shares, as provided for in Section 9
therein.
Please issue a certificate or certificates for such Converted Warrant
Shares in the name of, and pay any cash for any fractional share to:
Name______________________________________
(Please print Name)
Address___________________________________
__________________________________________
Tax ID or Social Security No._____________
Signature_________________________________
NOTE: The above signature should correspond exactly with the name on the
first page of this Warrant or with the name of the assignee appearing in the
assignment form below.
And if said number of shares shall not be all the shares purchasable under
the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder
rounded up to the next higher number of shares.
C-9
<PAGE>
The Board of Directors
Buffalo Wild Wings, Inc.
We consent to the use of our report included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
June 4, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-27-1998 DEC-28-1997 DEC-29-1996 DEC-28-1997
<PERIOD-START> DEC-29-1997 DEC-30-1996 JAN-01-1996 DEC-30-1996
<PERIOD-END> MAR-29-1998 MAR-30-1997 DEC-29-1996 DEC-28-1997
<CASH> 314 0 814 1182
<SECURITIES> 0 0 0 0
<RECEIVABLES> 1490 0 1058 1251
<ALLOWANCES> 208 0 78 142
<INVENTORY> 401 0 332 366
<CURRENT-ASSETS> 2603 0 2994 3284
<PP&E> 0 0 5427 6052
<DEPRECIATION> 0 0 1712 2536
<TOTAL-ASSETS> 8900 0 7594 7541
<CURRENT-LIABILITIES> 4229 0 3966 3451
<BONDS> 2437 0 2392 2026
0 0 0 0
0 0 0 0
<COMMON> 1810 0 1705 1705
<OTHER-SE> 424 0 (469) 359
<TOTAL-LIABILITY-AND-EQUITY> 8900 0 7594 7541
<SALES> 3280 3173 11253 12216
<TOTAL-REVENUES> 4330 4126 14601 16046
<CGS> 2089 2068 7338 7809
<TOTAL-COSTS> 2074 1631 5889 6523
<OTHER-EXPENSES> (19) (13) (75) (62)
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 75 106 448 405
<INCOME-PRETAX> 111 334 1001 1371
<INCOME-TAX> 46 136 195 543
<INCOME-CONTINUING> 65 198 806 828
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 65 198 806 828
<EPS-PRIMARY> .03 .10 .45 .42
<EPS-DILUTED> .03 .10 .45 .41
</TABLE>
