<PAGE>
As filed with the Securities and Exchange Commission on February 5, 1999
Registration No. 333-67393
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
To
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------
MRS. FIELDS' HOLDING COMPANY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 6749 87-0563475
<S> <C> <C>
(State or other jurisdiction
of (Primary Standard Industrial (I.R.S. Employer
incorporation or
organization) Classification Code Number) Identification No.)
</TABLE>
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
(801) 736-5600
(Address, including zip code and telephone number, including area code, of
Registrant's principal executive offices)
----------------
MICHAEL WARD, ESQ.
Mrs. Fields' Holding Company, Inc.
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
(801) 736-5600
(Name, address, including zip code, and telephone number, including area code,
of agents for service)
Copies to:
RANDALL H. DOUD, ESQ.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
----------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
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(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. [_]
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date 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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is prohibited. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
MRS. FIELDS' HOLDING COMPANY, INC.
PROSPECTUS (Subject to completion)
February 5, 1999
Exchange Offer for
$55,000,000
14% Senior Secured Discount Notes Due 2005
Terms of the Exchange Offer
. Expires 12:00 midnight, . The notes will accrete at
New York City time, a rate of 14%, compounded
, 1999, unless semi-annually, to an
extended. aggregate principal
amount of $55.0 million
. Not subject to any at December 1, 2002.
condition other than that
the Exchange Offer not . The notes will mature on
violate applicable law or December 1, 2005, and pay
any interpretation of the interest on June 1 and
staff of the Securities December 1 of each year,
and Exchange Commission. beginning on June 1,
2003.
. We can amend or terminate
the Exchange Offer. . We will not receive any
proceeds from the
. We will exchange all Exchange Offer.
outstanding notes that
are validly tendered and . The exchange of notes
not validly withdrawn. will not be a taxable
exchange for U.S. income
. You may withdraw tendered tax purposes.
outstanding notes any
time prior to the . The terms of the notes to
expiration of the be issued are identical
Exchange Offer. to those of the
outstanding notes, except
. The notes are senior for certain transfer
secured discount debt, restrictions and
secured by a pledge of registration rights.
all the outstanding
capital stock of Mrs.
Fields' Original Cookies,
Inc., and consequently,
will be effectively
subordinated to any
indebtedness of Mrs.
Fields' Original Cookies,
Inc.
For a discussion of certain factors that you should consider prior to tendering
your outstanding notes in the Exchange Offer, see "Risk Factors" beginning on
page 16.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Summary Historical and Pro Forma Financial and Store Data................ 13
Risk Factors............................................................. 16
Forward-Looking Information.............................................. 26
The Transactions......................................................... 27
Recent Developments...................................................... 29
Use of Proceeds.......................................................... 29
Capitalization........................................................... 30
The Exchange Offer....................................................... 31
Selected Historical Financial Data....................................... 39
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 42
Where You Can Find More Information...................................... 66
Business................................................................. 67
Management............................................................... 80
Beneficial Ownership of Capital Stock.................................... 85
Certain Relationships and Related Transactions........................... 86
Description of Notes..................................................... 89
Description of Certain Indebtedness...................................... 120
Plan of Distribution..................................................... 120
Certain United States Federal Tax Considerations......................... 121
Legal Matters............................................................ 121
Experts.................................................................. 122
Unaudited Pro Forma Condensed Combined Financial Statements.............. P-1
Index to Historical Financial Statements................................. F-1
</TABLE>
----------------
The registrant's principal executive offices are located at 2855 East
Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, and its telephone
number is (801) 736-5600.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus or incorporated by reference in this prospectus.
We are not making offers to exchange notes in the Exchange Offer or soliciting
offers to exchange outstanding notes in any jurisdiction in which such an offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus contains specific terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage
you to read this prospectus in its entirety.
The Exchange Offer
Mrs. Fields' Holding Company, Inc. completed on August 24, 1998, the private
offering of 55,000 units, each unit consisting of one 14% Series A Senior
Secured Discount Note due 2005 and one warrant to purchase 3.14411 shares of
common stock of Mrs. Fields' Holding. The principal amount at maturity of the
notes sold was $55,000,000. The notes were issued at a discount, and no
interest is payable on the notes until June 1, 2003. The notes are secured by a
pledge of the capital stock of Mrs. Fields' Original Cookies, Inc., a wholly
owned subsidiary of Mrs. Fields' Holding, and by any intercompany notes issued
to Mrs. Fields' Holding by its subsidiaries.
Mrs. Fields' Holding entered into a registration rights agreement with the
placement agents in the private offering in which it agreed, among other
things, to deliver to you this prospectus and to complete the Exchange Offer on
or before March 5, 1999. You are entitled to exchange in the Exchange Offer
your outstanding notes for registered notes with substantially identical terms.
If the Exchange Offer is not completed on or prior to March 5, 1999, the
interest rate on the outstanding notes will be increased. The amount of the
increase will be $.05 per $1,000 of principal amount of notes per week for each
90-day period until we have completed the Exchange Offer, up to a maximum
amount of $.20 per week per $1,000 of principal amount. You should read the
discussion under the heading "Summary of Description of Notes" and "Description
of Notes" for further information regarding the registered notes.
We believe that the notes issued in the Exchange Offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933, subject to certain conditions. You should read the
discussion under the heading "Summary of the Exchange Offer" and "The Exchange
Offer" for further information regarding the Exchange Offer and resale of
notes.
The Company
Overview
Mrs. Fields' Holding Company, Inc., is the parent company of Mrs. Fields'
Original Cookies, Inc. Mrs. Fields' Holding is a holding company and does not
have any material operations other than ownership of all of the capital stock
of Mrs. Fields.
Mrs. Fields is one of the largest retailers in the premium snack-food
industry, with cookies and pretzels as its major product lines. Based on
numbers of units, Mrs. Fields is the largest retailer of baked on-premises
cookies and the second largest retailer of baked on-premises pretzels in the
United States. Mrs. Fields is one of the most widely recognized and respected
brand names in the premium cookie industry. Mrs. Fields has recently developed
a significant presence in the rapidly growing, health-oriented pretzel market.
Mrs. Fields operates and franchises stores located predominantly in shopping
malls, and also licenses kiosks and carts at airports, universities, stadiums,
hospitals and office building lobbies.
How We Have Done
For the fiscal year ended January 3, 1998 and the 39 weeks ended October 3,
1998, Mrs. Fields' Holding generated pro forma net revenue and EBITDA (as
defined in this prospectus) of $200.6 million and $31.9 million and $132.5
million and $15.7 million, respectively. Our pro forma condensed combined
statements of operations data in this prospectus give effect to our offering of
notes in August 1998, our capital contribution on the same date to Mrs. Fields,
offerings by Mrs. Fields in November 1997 and August 1998 and the application
of net proceeds from those offerings, the
4
<PAGE>
acquisitions of Great American Cookie Company, Inc., the capital stock and
stores of some Great American franchisees, Pretzelmaker, 70% of the capital
stock of Pretzel Time, Inc. and the assets of H&M Concepts Ltd. Co., as if all
of these transactions had occurred on December 29, 1996.
Pro Forma Information
Pro forma information is not indicative of actual results and may not be
indicative of future results. We have presented pro forma information
throughout this prospectus, however, because we believe that the changes to our
business since 1996 make the pro forma information more meaningful to you.
History of Our Operations
Mrs. Fields' Inc., one of the predecessors of Mrs. Fields, was founded in
1977 by Debbi Fields and, following its initial success, embarked on an
aggressive national expansion program in the early 1980s. By the late 1980s,
however, Mrs. Fields Inc. experienced financial difficulty as a result of
excessive debt levels, certain poor real estate locations, and a recessionary
retailing environment. In connection with a financial restructuring by its
lenders, a new management team was put into place in mid-1994 under the
leadership of Larry A. Hodges, who has extensive experience in the food and
retailing industries. Mr. Hodges introduced a new strategic plan for Mrs.
Fields, which involved the following key elements:
(1) identifying stores to close or franchise,
(2) introducing company-wide operating procedures to improve store
operating margins,
(3) developing a marketing strategy and promotional calendar to turn
around sales from stores that have been open at least two years, and
(4) improving employee morale through selective new senior hires,
increased training and various incentive plans.
The savings from the improved store operations were reinvested in marketing
and other measures designed to improve sales from stores that have been open at
least two years.
Mrs. Fields was formed in September 1996 in connection with the acquisitions
of Mrs. Fields Inc., The Original Cookie Company, Incorporated, and Hot Sam
Company, Inc. by Mrs. Fields' Holding, a subsidiary of Capricorn Investors II,
L.P. As of January 2, 1999, Capricorn had invested more than $28 million in
Mrs. Fields through Mrs. Fields' Holding.
Cookies
Mrs. Fields operates and franchises 1,021 retail cookie stores under the Mrs.
Fields, Original Cookie, and Great American brands. Mrs. Fields has cookie
stores in 48 states, with Great American stores concentrated in the
southeastern and south central states and Mrs. Fields and Original Cookie
stores strongly represented in the western, midwestern and eastern states. We
believe that Mrs. Fields cookies are positioned in the premium quality, baked
on-premises market of what we believe to be the approximately $12 billion U.S.
cookie industry.
Pretzels
Mrs. Fields operates and franchises 312 retail pretzel stores under the
Pretzel Time and Hot Sam names. Mrs. Fields acquired Hot Sam in connection with
the acquisition of Original Cookie. In order to expand our presence in the
retail pretzel industry, we acquired the business of H&M and the common stock
of Pretzel Time. Our pretzel stores are located in shopping malls as well as in
airports, sports arenas, amusement parks and resort areas throughout the United
States and Canada.
Our Strategy
Our objective is to increase sales and profitability by focusing on
continuing company-owned stores in prime locations.
An additional objective is to increase sales and profitability at both our
continuing company-owned and franchised stores by implementing the key elements
of our long-term business strategy. The key elements of our business strategy
are as follows:
. Enhance Quality of Company-Owned Store Base. We have targeted stores that
sell our various products to be either closed or
5
<PAGE>
franchised by the end of fiscal year 2000. We expect these measures to
result in enhanced operating margins, as unprofitable stores are closed
and certain other stores are converted into franchises, thereby increasing
royalty payments and eliminating overhead costs at the operating company
level associated with such stores.
. Improve Productivity of Continuing Company-Owned Stores. We have embarked
on a program to improve the performance of our continuing company-owned
stores by:
(1) expanding product offerings,
(2) raising the average sale by tying sales of products together,
(3) promoting catering services by individual stores to corporate
customers,
(4) decreasing store expenses,
(5) improving merchandising by enhancing product presentation and
refining product mix, and
(6) increasing training and various incentive programs for management
and sales staff.
. Capitalize on the Strong "Mrs. Fields" Brand Name. Management believes
that the Mrs. Fields brand is the most widely recognized and respected
brand name in the retail premium cookie industry. We intend to continue
converting our continuing company-owned and to-be-franchised Original
Cookie stores to Mrs. Fields brand stores. We will also test the success
of converting selected Great American company-owned stores to Mrs. Fields
brand stores. We intend to further capitalize on the Mrs. Fields brand
name by:
(1) further developing and expanding new channels of distribution for
our products,
(2) increasing the emphasis on our mail order business, and
(3) developing and capitalizing on licensing opportunities.
. Develop Great American Brand. Management believes that the Great American
brand has high consumer awareness in the southeast United States.
Management intends to build on the Great American brand by continuing to
franchise additional Great American stores and by testing the success of
converting selected company-owned Original Cookie stores into Great
American stores.
. Capitalize on the Strong "Pretzel Time" Brand Name. We believe that there
are significant opportunities to improve our existing Hot Sam store
operations by continuing to convert our continuing company-owned and to-
be-franchised Hot Sam stores to Pretzel Time stores. In addition, we
believe there are significant new Pretzel Time franchising opportunities.
. Develop New Company-Owned and Franchised Stores, Including
Internationally. We plan to build and franchise new stores, as well as
carts and kiosks, in existing and new markets, including mall and non-
traditional locations, such as amusement parks and other entertainment
centers. In addition, we plan to grow internationally by expanding our
international franchise operations.
. Realize Purchasing and Overhead Cost Savings As a Result of Recent
Acquisitions. As a result of the acquisitions described in this
prospectus, we expect to realize significant cost savings from the
elimination of duplicative administrative functions, the consolidation of
management information systems and the reduction of the cost of food and
other supplies as a result of our enhanced purchasing power with vendors.
. Pursue Further Strategic Acquisitions of Related Businesses. We intend to
selectively pursue strategic acquisitions, in addition to those described
in this prospectus, in order to expand our geographic presence and
achieve operating efficiencies.
6
<PAGE>
The Offering and the Transactions
The Offering. On August 24, 1998, Mrs. Fields' Holding consummated the
offering of 55,000 units, consisting of $55,000,000 in principal amount at
maturity of our 14% Series A Senior Secured Discount Notes due 2005 and
warrants to purchase a total of 172,926 shares of our common stock. Our notes
are secured by the pledge of all of the capital stock of Mrs. Fields. We
discuss potential risks of this pledge in "Risk Factors." Concurrently, we made
a capital contribution to Mrs. Fields consisting of the entire net proceeds of
approximately $29.1 million from the offering.
The Mrs. Fields Transactions. On August 24, 1998, Mrs. Fields consummated a
separate offering of notes. The Mrs. Fields notes are senior obligations of
Mrs. Fields.
The Great American Transactions. Mrs. Fields used the proceeds of its
offering in August 1998, together with cash from other sources, including our
capital contribution to Mrs. Fields and available cash of Great American and
Mrs. Fields,
(1) to finance the acquisition of Cookies USA, Inc., the parent of Great
American, and to pay certain liabilities of Great American,
(2) to finance the acquisition of the stock of two Great American
franchisees,
(3) to finance a tender offer and consent solicitation for all of the
outstanding $40.0 million aggregate principal amount of Great
American's 10 7/8% Senior Secured Notes due 2001, and
(4) to finance other acquisitions that had not yet been completed as of the
date of the offering.
Cookies USA was merged with and into Mrs. Fields and the franchisees
acquired were merged with and into Great American.
Prior Transactions. Mrs. Fields made an offering of notes in November 1997.
Proceeds of these notes were used to pay various debt of Mrs. Fields, Mrs.
Fields' Holding and Mrs. Fields Brand, to repay an advance to Mrs. Fields'
Holding, and to pay a dividend to Mrs. Fields' Holding.
Other Recent Transactions. Mrs. Fields has also recently acquired a number of
other pretzel and cookie stores, including Pretzel Time and Great American
franchises and stores, as part of its acquisition program.
Recent Developments
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for an
aggregate purchase price of $2.8 million under an asset purchase agreement
dated as of October 5, 1998, by and among The Cookie Conglomerate, Inc., The
Cookie Conglomerate, LLP and two individuals who were the partners of Cookie
Conglomerate, LLP and the shareholders of Cookie Conglomerate, Inc. The sellers
were franchisees of Great American. The sellers' rights under franchise
agreements and subleases with Great American were terminated upon closing of
the transaction. The acquisition was funded with financing provided by T&W
Financial Services Company, L.L.C.
On November 19, 1998, Mrs. Fields purchased all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. under an agreement among Mrs. Fields,
Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding
company for a pretzel retail company. The purchase price was approximately $5.4
million and Mrs. Fields assumed indebtedness, including severance payments,
totaled approximately $1.6 million.
On December 9, 1998, Mrs. Fields purchased three shares of Pretzel Time, Inc.
common stock for $500,000 in cash. On December 30, 1998, Mrs. Fields completed
the acquisition of the remaining outstanding common stock of Pretzel Time, Inc.
under a stock purchase price of approximately $4.7 million, $2.5 million of
which was paid in cash on January 5, 1999 and $2.0 million of which is payable
on or before December 30, 1999.
7
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
Registration Rights
Agreement......... Holders of outstanding notes are entitled to exchange
their notes for registered notes with substantially
identical terms. The Exchange Offer is intended to
satisfy these rights. After the Exchange Offer is
complete, you will no longer be entitled to any
exchange or registration rights with respect to your
notes.
The Exchange Offer...... We are offering to exchange $1,000 principal amount
of 14% Series B Senior Secured Discount Notes due
2005 of Mrs. Fields' Holding Company, Inc., which
have been registered under the Securities Act, for
each $1,000 principal amount of outstanding 14%
Series A Senior Secured Discount Notes due 2005 which
were issued in August 1998 in a private offering. The
registered notes will be secured by the same
collateral that currently secures the outstanding
notes. All outstanding notes that are validly
tendered and not validly withdrawn will be exchanged.
As of this date there is $55,000,000 in principal
amount at maturity of notes outstanding.
We will issue registered notes on or promptly after
the expiration of the Exchange Offer. Each of your
notes was originally issued as part of a unit
consisting of one note and a warrant to purchase
3.14411 shares of our common stock. The warrants
become separately transferable upon the effectiveness
of this Registration Statement, and we are not
offering to exchange them.
Resales............ We believe that you can offer for resale, resell and
otherwise transfer the notes issued in the Exchange
Offer without complying with the registration and
prospectus delivery requirements of the Securities
Act if:
. you acquire the notes issued in the Exchange Offer
in the ordinary course of your business;
. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate, in
the distribution of the notes issued to you in the
Exchange Offer; and
. you are not an "affiliate" of ours, as defined in
Rule 405 of the Securities Act.
If any of these conditions is not satisfied and you
transfer any note issued to you in the Exchange Offer
without delivering a proper prospectus or without
qualifying for a registration exemption, you may
incur liability under the Securities Act. We do not
assume or indemnify you against such liability.
Each broker-dealer acquiring notes in the Exchange
Offer for its own account in exchange for outstanding
notes, which it acquired through market-making or
other trading activities, must acknowledge that it
will deliver a proper prospectus in connection with
any resale of notes issued in the Exchange Offer. A
broker-dealer may use this prospectus for an
8
<PAGE>
offer to resell, a resale or other retransfer of the
notes issued to it in the Exchange Offer.
Expiration Date.... The Exchange Offer will expire at 12:00 midnight, New
York City time, on , 1999, unless we decide to
extend the expiration date.
Conditions to the
Exchange Offer.... The Exchange Offer is subject to customary
conditions, some of which we may waive.
Procedures for
Tendering Outstanding
Notes Held in the Form
of Book-Entry
Interests......... Most of the outstanding notes were issued as global
securities and were deposited upon issuance with The
Bank of New York. The Bank of New York issued a
certificateless depositary interest in those notes,
which represents a 100% interest in such notes, to
The Depository Trust Company. Beneficial interests in
the outstanding notes, which are held by direct or
indirect participants in The Depository Trust Company
through the certificateless depositary interests are
shown on, and transfers of such outstanding notes can
be made only through, records maintained in book-
entry form by The Depository Trust Company.
You may tender your outstanding notes:
. through a computer-generated message transmitted
by means of The Depository Trust Company's
Automated Tender Offer Program system and received
by the Exchange Agent and forming a part of a
confirmation of book-entry transfer in which you
acknowledge and agree to be bound by the terms of
the letter of transmittal; or
. by sending a properly completed and duly executed
letter of transmittal, which accompanies this
prospectus, and other documents required by the
letter of transmittal, or a facsimile of the
letter of transmittal and other required
documents, to the Exchange Agent at the address
set forth on the cover page of the letter of
transmittal;
and either:
. a timely confirmation of book-entry transfer of
your outstanding notes into the Exchange Agent's
account at The Depository Trust Company, pursuant
to the procedure for book-entry transfers
described in this prospectus under the heading
"The Exchange Offer--Book Entry Transfers" must be
received by the Exchange Agent on or prior to the
expiration date; or
. the documents necessary for compliance with the
guaranteed delivery procedures described in "The
Exchange Offer--Guaranteed Delivery Procedures"
must be received by the Exchange Agent.
Procedures for
Tendering Outstanding
Notes Held in the Form
of Registered Notes.... If you hold registered notes, you must tender your
registered outstanding notes by sending a properly
completed and duly executed letter of
9
<PAGE>
<TABLE>
<S> <C>
transmittal, together with other documents required
by it, and your certificates, to the Exchange Agent,
in accordance with the procedures described in this
prospectus under the heading "The Exchange Offer--
Procedures for Tendering Notes."
Withdrawal Rights....... You may withdraw your tender of outstanding notes at
any time prior to 12:00 midnight, , 1999.
United States Federal
Income Tax
Considerations.... The Exchange Offer should not result in any income,
gain or loss to the holders or Mrs. Fields' Holding
for United States federal income tax purposes. See
"Certain United States Federal Income Tax
Considerations."
Use of Proceeds.... We will not receive any proceeds from the issuance of
notes pursuant to the Exchange Offer.
Exchange Agent..... The Bank of New York is serving as the Exchange Agent
for the Exchange Offer.
Shelf Registration
Statement......... Under certain circumstances, certain holders of notes
may require us to register their notes under a shelf
registration statement.
</TABLE>
10
<PAGE>
SUMMARY DESCRIPTION OF THE NOTES
The form and terms of the notes to be issued in the Exchange Offer are the
same as the form and terms of the outstanding notes except that the notes to be
issued in the Exchange Offer have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer and will not
contain the registration rights and liquidated damages provisions contained in
the outstanding notes. The notes issued in the Exchange Offer will evidence the
same debt as the outstanding notes and both the outstanding notes and the notes
to be issued are governed by the same indenture.
<TABLE>
<S> <C>
Aggregate Amount........ $55,000,000 in principal amount at maturity of 14%
Series B Senior Secured Discount Notes due 2005 of
Mrs. Fields' Holding Company, Inc.
Maturity Date........... December 1, 2005.
Accretion............... The principal amount of the notes issued in the
Exchange Offer will accrete at a rate of 14%,
compounded semi-annually to a total principal amount
of $55,000,000 at December 1, 2005.
Interest Rate and
Interest Payment
Dates.................. Interest on the notes will be payable in cash at a
rate of 14% per year, on June 1 and December 1 of
each year, beginning June 1, 2003.
Security................ The notes issued in the Exchange Offer will be
secured by a pledge of all of the outstanding capital
stock of our wholly owned subsidiary, Mrs. Fields,
and by intercompany notes, if any, issued by our
subsidiaries to us. For more information, you should
read "Description of Notes--Security."
Ranking................. The notes being issued in the Exchange Offer:
. are general obligations of Mrs. Fields' Holding
. rank senior in right of payment to all existing
and future subordinated indebtedness of Mrs.
Fields' Holding
. rank equal in right of payment with all existing
and future senior indebtedness of Mrs. Fields'
Holding
Optional Redemption..... At our option, we may redeem the notes issued in the
Exchange Offer at any time on or after December 1,
2002. In addition, at any time before December 1,
2002, we may redeem all, but not less than all, of
the notes at a redemption price equal to 114% of the
accreted value of the notes, as determined at the
date of redemption.
"Accreted value" means, for each $1,000 face amount
of notes, as of any date of determination before
December 1, 2002, the sum of:
(1) $561.17; and
(2) that portion of the excess of the principal
amount of each note over $561.17 that will have
been accreted on such note through the date of
determination, such amount to be so accreted on
a daily basis and compounded semi-annually on
each June 1 and December 1 at the annual rate of
14% from August 24, 1998.
</TABLE>
11
<PAGE>
Change of Control....... Upon the occurrence of a change of control of
ownership of the stock or assets of Mrs. Fields'
Holding, you have the right to require us to
repurchase your notes at a purchase price equal to
101% of their accreted value on the date of purchase,
if the date of repurchase is before December 1, 2002,
or 101% of the aggregate principal amount of the
notes, plus accrued interest to the date of
repurchase, if the date of repurchase is after
December 1, 2002. For more information, see
"Description of Notes--Repurchase at the Option of
Holders--Change of Control."
Certain Covenants....... The indenture under which the outstanding notes have
been issued and will be issued in the Exchange Offer,
contains certain covenants that, among other things
and subject to certain exceptions, restrict our
ability to:
. pay dividends
. redeem capital stock
. make certain restricted payments or investments
. incur additional indebtedness
. issue preferred equity interests
. merge, consolidate or sell all or substantially
all of our assets
. create liens on assets
. sell assets
. enter into transactions with affiliates or related
persons
All of these limitations and prohibitions are subject
to a number of important qualifications and
exceptions. For more information, see "Description of
Notes--Certain Covenants."
Form of Notes Issued in
the Exchange Offer..... The notes issued in the Exchange Offer with respect
to notes currently represented by global securities
will be represented by one or more permanent global
securities in bearer form deposited with The Bank of
New York, as book-entry depositary, for the benefit
of The Depository Trust Company. Notes that are
issued in the Exchange Offer that have been exchanged
for notes in the form of registered definitive
certificates will be issued in the form of registered
definitive certificates until holders direct
otherwise. For more information, see "Description of
the Notes--Book-Entry, Delivery and Form."
Use of Proceeds.... We will not receive any proceeds from the Exchange
Offer.
12
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND STORE DATA
The following table presents: (i) summary combined historical financial and
store data for Mrs. Fields' Holding and its predecessors; namely, Mrs. Fields
Inc. and subsidiaries, The Original Cookie Company, Incorporated and the
Carved-out Portion (pretzel business) of Hot Sam Company, Inc., as of December
30, 1995 and December 28, 1996 and for each of the two 52-week periods then
ended, (ii) summary consolidated historical financial and store data for Mrs.
Fields' Holding as of January 3, 1998, September 27, 1997 and October 3, 1998
and for the 53 weeks ended January 3, 1998, the 39 weeks ended September 27,
1997 and the 39 weeks ended October 3, 1998; and (iii) summary combined pro
forma financial and store data for Mrs. Fields' Holding, Great American,
Deblan, Chocolate Chip, the eight Great American stores purchased from a Great
American franchisee, Cookie Conglomerate and Pretzelmaker for the 53 weeks
ended January 3, 1998 and the 39 weeks ended October 3, 1998 as if each of the
Mrs. Fields' Holding offering, the Mrs. Fields' offerings in November 1997 and
August 1998, the acquisition of Great American, the acquisition of the stock of
two Great American franchisees, the acquisitions of eight Great American
stores, the tender offer for outstanding Great American notes, and the
acquisitions of H&M, Pretzel Time, Cookie Conglomerate and Pretzelmaker had
occurred as of December 29, 1996. Except for data presented with respect to the
acquisition of eight Great American stores, the summary combined pro forma data
do not give effect to the purchase by Mrs. Fields of a number of other pretzel
and cookie stores, or the purchase of the remaining 30.0% of common stock of
Pretzel Time, because those transactions were immaterial to the pro forma
combined financial position and results of operations. The historical results
of operations for the 39 weeks ended October 3, 1998 are not indicative of the
results to be expected for the full fiscal year of Mrs. Fields' Holding. The
summary combined pro forma data do not purport to represent what Mrs. Fields'
Holding's results actually would have been had the acquisition of Great
American, the acquisition of the stock of two Great American franchisees, the
acquisition of eight Great American stores, the tender offer for outstanding
Great American notes, the offering of units consisting of notes and warrants of
Mrs. Fields' Holding, the Mrs. Fields' offerings in November 1997 and August
1998 and the acquisitions of H&M, Pretzel Time, Cookie Conglomerate and
Pretzelmaker occurred as of December 29, 1996 nor do such data purport to
project the results of Mrs. Fields' Holding for any future period. The summary
historical and pro forma financial and store data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," the "Unaudited Pro Forma Condensed Combined Financial
Statements," "Selected Historical Financial Data," and the historical financial
statements and the related notes thereto, contained elsewhere in this
Registration Statement. The following information will also assist you in
understanding the Mrs. Fields' Holding and predecessors historical combined
financial and store data:
. On September 17, 1996, Mrs. Fields' Holding completed the acquisitions
of substantially all of the assets and assumed certain liabilities of
the predecessors.
. The historical combined data for the 52 weeks ended December 30, 1995
reflects the combined results of the predecessors. The historical
combined data for the 52 weeks ended December 28, 1996 reflects the
combined results of the predecessors (for the period December 31, 1995
through September 17, 1996) and Mrs. Fields' Holding (for the period
September 18, 1996 through December 28, 1996). Information for these
periods for the predecessors and Mrs. Fields' Holding are set out
separately in the "Selected Historical Financial Data" but are combined
here. This presentation is not in conformity with generally accepted
accounting principles.
. In order for the data to be comparable for the periods presented,
certain statements of operations data for the predecessors has been
reclassified to be consistent with the Mrs. Fields' Holding historical
financial statement presentation.
13
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields'
Holding And Mrs. Fields' Mrs. Fields' Mrs. Fields' Mrs. Fields'
Predecessors Holding Holding Holding Holding
------------------ ------------ ------------ ----------------- ------------
Historical Historical ProForma Historical ProForma
Combined Consolidated Combined Consolidated Combined
------------------ ------------ ------------ ----------------- ------------
53 Weeks 53 Weeks
52 Weeks Ended Ended Ended 39 Weeks Ended
------------------ ------------ ------------ -------------------------------
December December January January 3, September October October 3,
30, 1995 28, 1996 3, 1998 1998 27, 1997 3, 1998 1998
-------- -------- ------------ ------------ --------- ------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement Of Operations
Data:
Net store and batter
sales................... $145,537 $123,930 $123,987 $183,852 $83,759 $89,938 $121,217
Net store contribution
(1)..................... 19,654 19,133 25,087 36,683 13,214 11,804 19,671
Franchising, licensing
and other revenue, net.. 5,993 5,278 6,520 16,722 3,767 6,021 11,268
General and
administrative
expenses................ 24,828 20,611 16,794 28,579 10,874 12,743 19,884
Income (loss) from
operations.............. (1,091) 1,069 8,124 12,447 2,272 (471) 361
Net loss................. (4,464) (5,825) (624) (8,406) (2,767) (10,276) (17,019)
Basic and diluted net
loss per common share
(2)..................... N/A N/A (0.88) (2.65) (1.46) (3.13) (5.15)
Other Data:
Cash flows from operating
activities.............. (27) 6,786 923 4,662 358 608 146
Cash flows from investing
activities.............. 1,958 (22,716) (17,070) (17,779) (15,730) (34,315) (34,681)
Cash flows from financing
activities.............. (4,784) 18,793 25,929 25,320 12,852 23,015 21,939
Interest expense......... 4,407 4,712 7,527 (20,912) 4,783 9,421 17,019
Total depreciation and
amortization............ 10,427 9,204 10,450 19,452 6,631 9,742 15,360
Capital expenditures..... 4,714 3,892 4,678 N/A 3,216 5,616 N/A
EBITDA (3)............... 9,336 10,273 18,574 31,899 8,903 9,271 15,721
Store contribution for
stores in the process of
being closed or
franchised(1)............$.(2,344).$ (1,933) $ (1,798) $ (2,839) $(1,999) $(2,125) $ (2,786)
Ratio of earnings to
fixed charges (4)....... -- -- 1.00x -- -- -- --
Store Data:
Percentage change in
comparable store sales
(5)..................... (1.6)% (1.2)% 0.6% N/A 1.3% (0.9)% N/A
Total company-owned
stores open at end of
period.................. 540 482 481 619 496 568 589
Total franchised or
licensed stores open at
end of period........... 415 418 553 962 540 765 960
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields'
Holding
Consolidated
October 3, 1998
BALANCE SHEET DATA: ---------------
(dollars in
thousands)
<S> <C>
Cash and cash equivalents..................................... $ 5,801
Total assets.................................................. 225,228
Mandatorily redeemable cumulative preferred stock of subsidi-
ary.......................................................... 1,171
Total debt and capital lease obligations, including current
portion...................................................... 168,544
Total stockholders' equity.................................... 24,314
</TABLE>
- --------
(1) Store contribution is determined by subtracting all store operating
expenses including depreciation from net store sales. Management uses store
contribution information to measure operating performance at the store
level. Store contribution for stores in the process of being closed or
franchised as a separate caption is not in accordance with generally
accepted accounting principles. Store contribution may not be comparable to
other similarly titled measures.
(2) Basic and diluted net loss per common share consists of net loss applicable
to common shares divided by the weighted average number of common shares
outstanding during the applicable period. The historical net loss
applicable to common shares for the 53 weeks ended January 3, 1998 and for
the 39 weeks ended September 27, 1997 includes cumulative redeemable Series
A preferred stock dividends of $2,173,000 and $1,824,000, respectively. The
pro forma net loss applicable to common shares for the 53 weeks ended
January 3, 1998 excludes cumulative redeemable Series A preferred stock
dividends as Capricorn converted its preferred stock in Mrs. Fields'
Holding to common equity in November 1997 in connection with Mrs. Fields'
offering of notes and the acquisitions of H&M and Pretzel Time.
(3) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income (expense). EBITDA is not intended to
represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income (loss) as an indicator of operating performance or to cash flows as
a measure of liquidity. EBITDA has been included herein because it is one
of the indicators by which Mrs. Fields' Holding assesses its financial
performance and its capacity to service its debt.
<TABLE>
<CAPTION>
Mrs. Fields'
Holding Mrs. Fields' Mrs. Fields' Mrs. Fields' Mrs. Fields'
And Predecessors Holding Holding Holding Holding
------------------ ------------ ------------ ----------------- ------------
Historical Historical Pro Forma Historical Pro Forma
Combined Consolidated Combined Consolidated Combined
------------------ ------------ ------------ ----------------- ------------
53 Weeks 53 Weeks
52 Weeks Ended Ended Ended 39 Weeks Ended
------------------ ------------ ------------ -------------------------------
December December January January September October October
30, 1995 28, 1996 3, 1998 3, 1998 27, 1997 3, 1998 3, 1998
-------- -------- ------------ ------------ --------- ------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
operations............. $(1,091) $ 1,069 $ 8,124 $12,447 $2,272 $ (471) $ 361
ADD:
Depreciation and
amortization.......... 10,427 9,204 10,450 19,452 6,631 9,742 15,360
------- ------- ------- ------- ------ ------ -------
EBITDA................. $ 9,336 $10,273 $18,574 $31,899 $8,903 $9,271 $15,721
======= ======= ======= ======= ====== ====== =======
</TABLE>
(4) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued
and net of debt premium amortization), including the amortization of debt
issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations, letter
of credit commissions, fees or discounts and the product of all dividends
and accretion on mandatorily redeemable cumulative preferred stock
multiplied by a fraction, the numerator of which is one and the denominator
of which is one minus the current combined federal, state and local
statutory tax rate. For fiscal years 1995 and 1996, earnings were
insufficient to cover fixed charges by $3,960,000 and $3,822,000,
respectively. For the 53 weeks ended January 3, 1998, earnings were
sufficient to cover fixed charges by $31,000. For the 39 weeks ended
September 27, 1997 and the 39 weeks ended October 3, 1998, earnings were
insufficient to cover fixed charges by $5,353,000 and $10,208,000,
respectively. For the year ended January 3, 1998 and for the 39 weeks ended
October 3, 1998, pro forma earnings were insufficient to cover pro forma
fixed charges by $8,390,000 and $17,266,000, respectively.
(5) Mrs. Fields' Holding includes in comparable store sales only those stores
that have been in operation for a minimum of 24 consecutive months. The
percentage change in comparable store sales is calculated from the previous
period.
15
<PAGE>
RISK FACTORS
You should consider carefully all of the information in this prospectus,
including the following risk factors and warnings, before deciding whether to
exchange your outstanding notes for the notes to be issued in the Exchange
Offer. Except for the first two risk factors described below, the risk factors
generally apply to the outstanding notes as well as to the notes to be issued.
The risks described below are not the only ones that could affect us or our
securities.
You may have difficulty selling the notes which you do not exchange
If a large number of outstanding notes are exchanged for the notes to be
issued, it may be difficult for holders of outstanding notes that are not
exchanged in the Exchange Offer to sell such notes, since those notes may not
be offered or sold unless they are registered or there are exemptions from
registration requirements under the Securities Act or state laws that apply to
them. See: "The Exchange Offer--Consequence of Failure to Exchange Outstanding
Notes."
In addition, if you do not tender your outstanding notes or if we do not
accept some outstanding notes, those notes will continue to be subject to the
transfer and exchange provisions of the indenture, the existing transfer
restrictions of the outstanding notes that are set forth in the legend on such
notes and in the offering circular relating to the outstanding notes.
If you do not exchange your outstanding notes in the exchange offer, you will
not be entitled to an increased interest rate
Once the Exchange Offer has been completed, holders of outstanding notes will
not be entitled to any increase in the interest rate on their notes or have any
further rights to have their outstanding notes registered, except under limited
circumstances.
If you exchange your outstanding notes, you may not be able to resell the notes
you receive in the exchange offer without registering them and delivering a
prospectus
Certain holders may not be able to resell notes they receive in the Exchange
Offer without registering those notes or delivering a prospectus. Based on
interpretations by the Commission in no-action letters, we believe, with
respect to notes issued in the Exchange Offer, that
(1) holders who are not "affiliates" of Mrs. Fields' Holding within the
meaning of Rule 405 of the Securities Act,
(2) holders who acquire their notes in the ordinary course of business,
and
(3) holders who do not engage in, intend to engage in, or have
arrangements to participate in a distribution (within the meaning of the
Securities Act) of the notes do not have to comply with the registration
and prospectus delivery requirements of the Securities Act.
Holders described in the preceding sentence must tell us in writing at our
request that they meet these criteria. Holders that do not meet these criteria
could not rely on certain interpretations of the Commission in no-action
letters, and would have to register the notes they receive in the Exchange
Offer and deliver a prospectus for them. In addition, holders that are broker-
dealers may be deemed "underwriters" within the meaning of the Securities Act
in connection with any resale of notes acquired in the Exchange Offer. Holders
that are broker-dealers must acknowledge that they acquired their outstanding
notes in market-making activities or other trading activities and must deliver
a prospectus when they resell the notes they acquire in the Exchange Offer in
order not to be deemed an underwriter.
16
<PAGE>
All holders should review the more detailed discussion in "The Exchange
Offer--Procedures for Tendering Notes" and "--Consequences of Exchanging
Outstanding Notes."
We have substantial debt, which could adversely affect our financial results
and prevent us from fulfilling our debt obligations, including those under the
notes.
We incurred a substantial amount of debt in connection with Mrs. Fields'
purchase of Great American and the other companies and assets it acquired. We
continue to have a substantial amount of debt.
The following chart shows certain important credit statistics:
<TABLE>
<CAPTION>
At January 2, 1999
------------------
<S> <C>
Total indebtedness of Mrs. Fields' Holding and
subsidiaries.......................................... $ 178.4
By rank, this debt was:
Equal in right of payment to the notes............... $ --
Subordinated to the notes............................ $ --
Senior to the notes.................................. $ 149.2
The number is net of unamortized discount, and includes capital lease
obligations of $1.5 million and mandatorily redeemable preferred stock having a
book value of approximately $1.3 million outstanding, together representing
1.4% of our total book capitalization. All of our subsidiaries' debt is
effectively senior to the notes.
Stockholders' equity................................... $55.7 million
Debt to equity ratio................................... 27:1
</TABLE>
Moreover, in recent periods our earnings have not been sufficient to cover
our fixed charges.
<TABLE>
<CAPTION>
39 Weeks Ended 53 Weeks Ended
October 3, 1998 January 3, 1998
--------------- ---------------
<S> <C> <C>
Approximate deficiency in earnings to fixed
charges presented on a combined pro forma
basis..................................... $17.3 million $8.4 million
</TABLE>
Additional borrowings available--despite current indebtedness levels, we and
our subsidiaries may still be able to incur substantially more debt. This could
further exacerbate the risks described above.
Although the indenture and Mrs. Fields' indenture and credit agreement with
LaSalle National Bank limits our ability and that of our subsidiaries to incur
additional debt and issue preferred stock, we are permitted to incur additional
debt and issue preferred stock, including secured debt, under certain
circumstances which effectively ranks senior to the notes with respect to the
assets securing debt. See "Unaudited Pro Forma Condensed Combined Financial
Statements," and "Description of Notes--Certain Covenants." Our subsidiary,
Mrs. Fields, plans to incur additional debt for working capital purposes, which
will be effectively senior to the notes.
Our substantial indebtedness could have important consequences to you. For
example:
. We may not be able to satisfy our obligations with respect to the notes;
. A substantial portion of our cash flows from operations will be required
to be dedicated to debt service and will not be available for other
purposes;
. Our ability to obtain additional financing in the future could be
limited;
. the indenture contains financial and restrictive covenants that limit
our ability to, among other things, borrow additional funds, dispose of
assets or pay cash dividends. If we do not comply with such covenants,
there could be an event of default, which, if not cured or waived, could
have a material adverse effect on us; and
17
<PAGE>
. the amount of debt that we have could prevent us from repurchasing all
the notes tendered to us upon the occurrence of a Change of Control. See
"Description of Notes--Repurchase at the Option of Holders--Change of
Control."
Ability to service debt--to service our debt, we will require a significant
amount of cash. Our ability to generate cash depends on many factors beyond our
control.
Our ability to make scheduled payments of principal, or to pay interest on,
or to refinance our debt (including the notes) depends on our future
performance. In turn, our future performance depends partly on general
economic, financial, competitive, legislative, regulatory and other factors
beyond our control. We cannot be sure that our business will generate enough
cash flows from operations or that future borrowings will be available in an
amount that will allow us to pay principal and interest on our debt, including
the notes, or to make necessary capital expenditures, or to allow us to obtain
refinancing on commercially reasonable terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
Upon any liquidation of our subsidiaries, prior claims by creditors of our
subsidiaries could reduce assets available to us.
Any right we may have to participate in any distribution of assets of our
subsidiaries upon their liquidation, reorganization or insolvency (and the
consequent right of holders of the notes to participate in the distribution of
those assets) will be subject to the prior claims of the respective
subsidiary's creditors. Mrs. Fields has pledged substantially all of its
assets, including the capital stock of Pretzel Time, Mrs. Fields' Brand and
Great American, to secure its obligations under its credit agreement with
LaSalle National Bank, dated as of February 28, 1998, and Mrs. Fields' Brand
and Great American, are guarantors of Mrs. Fields' obligations under its notes
and its credit agreement.
We may not be able to obtain funds from our subsidiaries to pay our obligations
under the notes.
Our cash flow, and consequently our ability to pay dividends and service
debt, including our obligations under the notes, depends upon the cash flow of
our subsidiaries and the payment of funds by those subsidiaries to us in the
form of loans, dividends or otherwise. Our subsidiaries have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the notes or to
make any funds available for such payments. In addition, Mrs. Fields' credit
agreement and its indenture restrict, and agreements entered into in the future
may restrict, Mrs. Fields and its subsidiaries from paying dividends or making
loans us. Accordingly, repayment of the notes may depend upon our ability to
offer our capital stock or to refinance the notes.
If Mrs. Fields cannot renew its credit agreement, we could experience an
adverse effect on cash flows.
Additionally, Mrs. Fields' credit agreement with LaSalle National Bank, which
is designed to provide seasonal working capital to Mrs. Fields, will expire on
March 31, 2001. We cannot be sure that the credit agreement will be extended or
renewed or that Mrs. Fields can obtain alternative financing to meet its
seasonal working capital needs when the credit agreement expires. If Mrs.
Fields does not have a revolving credit facility in place, it may not be able
to satisfy its seasonal working capital needs, which would have a material
adverse effect on Mrs. Fields and its ability to contribute to our cash flows.
The notes are secured by the outstanding capital stock of Mrs. Fields; the
stock may fluctuate in value
The notes are secured by a pledge of all of the outstanding common stock of
our wholly owned subsidiary, Mrs. Fields. There can be no assurance as to the
value of the collateral at any time or that the proceeds from the sale or sales
of all of such collateral would be sufficient to satisfy the amounts due on the
notes, whether at maturity or otherwise. In addition, the ability of the
Trustee or you to realize the collateral may be subject to certain limitations.
18
<PAGE>
Foreclosure on the pledged Mrs. Fields stock could result in a change of
control of Mrs. Fields and a default under the Mrs. Fields' indenture. We may
not have the ability to raise the funds necessary to finance the change of
control offer required by the indenture.
If we default on our obligations under the notes, there could be a
foreclosure on the Mrs. Fields' stock that we have pledged, and such
foreclosure would constitute a change of control of Mrs. Fields. A change of
control is an event of default permitting acceleration under Mrs. Fields'
credit agreement and indenture. Such a change of control would also permit the
holders of the Mrs. Fields' notes to require Mrs. Fields to repurchase any or
all of the notes held by them. If Mrs. Fields does not have enough resources in
such event to repay in full borrowings under its credit agreement and its notes
and to repurchase all of such notes required to be repurchased, no assets of
Mrs. Fields would be available to the holders of the notes. In this event, the
value of the shares of Mrs. Fields' stock that we have pledged to secure the
notes would be substantially diminished or eliminated.
We have incurred net losses during the past several years
We and our predecessors have incurred net losses during the past several
years. Although we have put into place new business strategies aimed at
enhancing revenues and operating results and Mrs. Fields' Holding has recorded
positive EBITDA since its formation in September 1996, our operations generally
are subject to economic, financial, competitive, legal and other factors, many
of which are beyond our control, and which have resulted in net losses. We
cannot be sure that we will be able to put into place our planned strategies
without delay or that these strategies will result in future profitability. See
"Selected Historical Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Our growth strategy is based on acquisitions, which may not provide the desired
economic benefits.
We have achieved growth through acquisitions such as the acquisition of Great
American and certain of its franchisees and their stores, the acquisitions of
Pretzel Time and Pretzelmaker, and the business of H&M and intend to continue
doing so. While we believe there are significant opportunities for cost savings
and volume efficiencies as a result of acquisitions, we cannot be sure that
such acquisitions will provide significant opportunities and economic benefits.
Many factors beyond our control, such as general economic conditions, increased
operating costs, our response to customers or competitors, and regulatory
developments, can affect our ability to realize the economic benefits from
prior acquisitions and/or any future acquisitions as well as our ability to
integrate successfully our businesses with any acquired businesses.
Consequently, we cannot be sure that our acquisitions will result in the
economic benefits that management expects on a timely basis or at all. See
"Business--Business Strategy."
We may not be able to obtain leases in the future
Our success depends in part on our ability to secure leases in high quality
shopping malls at rents we believe to be reasonable. Approximately half of the
leases for such stores expire during the next 5 years and generally do not
provide for renewal options in our favor. In addition, we currently plan to
open approximately 375 new company-owned and franchised stores over the next 5
years. We believe that the market for the type of locations historically leased
by us is highly competitive and, as a result, we cannot be sure that we will
succeed in obtaining leases in the future at rents that we believe to be
reasonable or at all.
We have continuing obligations under real estate leases
We lease locations for all the stores we own and for most of our franchised
stores and sublease these locations to our franchisees. Accordingly, we are the
primary obligor for payments under the leases. If certain locations should
prove to be unprofitable, we would remain obligated for lease payments if we
determined to withdraw from those locations. See "Business--Properties."
19
<PAGE>
A decline in mall traffic could adversely affect our business
We believe that the amount and proximity of pedestrian traffic near our
stores strongly influence sales of our products, which we believe are
frequently "impulse" purchases. In recent years, visits to major shopping
malls, where a large percentage of our stores are located, have declined from
3.7 visits per month in 1989 to 3.0 visits per month in 1996, which trend has
had a negative impact on our revenues. We cannot be sure that this trend will
not continue or that this trend can be offset by increased sales per customer.
A continued decline in mall traffic could adversely affect our financial
condition and results of operations.
Volatility in cost of ingredients utilized by us may affect our results
The cost of butter, eggs, sugar, flour, chocolate and other ingredients can
fluctuate due to changes in economic conditions, weather, demand and other
factors, many of which are beyond our control. We recently experienced a
substantial increase in the cost of butter. Although we believe that there are
alternative suppliers of these ingredients, we have no control over
fluctuations in the price of commodities and cannot be sure that we will be
able to pass on any price increases in our product ingredients to our
customers.
Failure to integrate our information systems, which is currently underway,
could adversely affect us
We have made a substantial investment in developing a customized,
sophisticated point-of-sale management information system. We are upgrading our
back-office system to a Windows 95 environment and are currently upgrading all
Mrs. Fields stores to Pentium 333 machines, and we plan to install our upgraded
back-office system, along with the point-of-sale registers and Pentium 333
machines, in our continuing company-owned Original Cookie stores, Hot Sam
stores, Pretzel Time stores and certain Great American stores by August 1999.
We cannot be sure that we will successfully integrate this system or that we
will achieve a fully integrated system within budget. Therefore, we cannot be
sure that our attempts to integrate the system will not adversely affect our
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Failures in Year 2000 compliance could disrupt our operations
We are in the process of assessing Year 2000 issues with respect to our
significant vendors and financial institutions as to their compliance plans and
whether any Year 2000 issues will impede the ability of such vendors to
continue providing goods and services to us. Failure of our key suppliers to
remedy their own Year 2000 issues could delay shipments of essential products,
thereby disrupting our operations. Furthermore, we rely on various service
providers, such as utility and telecommunication service companies, which are
beyond our control. This assessment is approximately 20% complete with final
completion anticipated by the end of the first quarter of 1999. Based on the
results of the assessment to date, management is not aware of any Year 2000
issues relating to our significant vendors, financial institutions or our non-
information technology systems.
We do not have a contingency plan in place to address untimely or incomplete
remediation of Year 2000 issues, but we intend to develop such a plan during
the first half of 1999. This contingency plan is expected to address issues
related to significant vendors and financial institutions.
The minimum wage increase may adversely impact our financial condition and
results of operations
As of January 2, 1999, 1,636 of our 6,614 employees that work at stores owned
by us earned the federal hourly minimum wage. As a result of an increase in the
minimum wage from $4.75 to $5.15 on September 1, 1997, we have experienced an
increase of wages of approximately $291,000 annually. These increased labor
costs could adversely affect our financial condition and results of operations.
We cannot be sure that we can fully absorb the increased labor costs through
our efforts to increase efficiencies in other areas of our operations.
20
<PAGE>
We depend upon key franchisees and licensees for revenue; there is no assurance
that franchise and license agreements will not be terminated
We depended upon 11 franchisees for 19.7% of our franchise revenues for the
39 weeks ended October 3, 1998. For the same period, franchise revenues made up
4.1% of our total net revenues. We cannot be sure that these franchise
agreements will not be terminated or that our relations with franchisees will
not change, or that our franchisees will continue to perform as they have in
the past. The termination of these key franchise agreements or poor performance
by our franchisees may have an adverse affect on our financial condition and
results of operations. In addition, we depend on 3 licensees for 68% of our
licensing revenue. We cannot be sure that our licenses will not be terminated
or that our relations with licensees will not change, or that our licensees
will continue to perform as they have in the past. The termination of key
license agreements or poor performance by our licensees may have an adverse
affect on our financial condition and results of operations.
There may be a negative effect on our financial condition if our trademarks are
challenged
We believe that our trademarks have significant value and are important to
the marketing of our retail outlets and products. Although our trademarks are
registered in all 50 states and registered or pending in many foreign
countries, we cannot be sure that our trademarks cannot be circumvented, or
that our trademarks do not or will not violate the proprietary rights of
others, or would be upheld if challenged or that we would not be prevented from
using our trademarks. Any challenge against us for our use of our trademarks
could have an adverse effect on our financial condition and results of
operations, through either a negative ruling with regards to our use, validity
or enforceability of our trademarks, or through the time consumed and the legal
costs of defending against a claim. In addition, we cannot be sure that we will
have the financial resources necessary to enforce or defend our trademarks.
The loss of key management personnel could adversely affect our operations
Our success depends on the continued services of our senior management,
particularly Larry A. Hodges, our President and Chief Executive Officer. In
addition, our continued growth depends, in part, on attracting and retaining
skilled managers and employees as well as management's ability to effectively
utilize our key personnel in light of recent and future acquisitions. If Mr.
Hodges or other senior management left us, there could be an adverse effect on
our operations. We cannot be sure that management's efforts to integrate,
utilize, attract and retain personnel will be successful. See "Management." We
have entered into employment agreements with all of our senior managers.
We may suffer adverse effects from competition with other specialty food
retailers, changes in demographic trends and consumer preferences
We compete with other cookie and pretzel retailers, as well as other
confectionery, sweet snack and specialty food retailers, many of which have
greater resources than us. The specialty retail food and snack industry is
highly competitive with respect to price, service, location and food quality.
Consequently, we cannot be sure that we will compete successfully with these
other specialty food retailers. In addition to the risks from current
competitors, we cannot be sure that we can successfully compete with any new
entrants into the specialty foods or snack foods industry who may have new and
successful products or marketing. Inability to compete adequately would result
in price reductions, reduced margins and losses of market share for us.
Changes in consumer preferences, tastes and eating habits, local, regional
and national economic conditions, demographic trends and mall traffic patterns
also affect the specialty or snack foods industry. Factors such as increased
food, labor and benefits costs, the availability of experienced management and
hourly employees and difficulties or delays in developing and introducing new
products to suit consumer preferences may adversely affect the specialty retail
industry in general and our outlets in particular. Consequently, our success
will depend on our ability to recognize and react to such trends adequately.
Any changes in these factors could adversely affect our profitability. In
addition, the failure of customers to respond favorably to our marketing or new
products, could have an adverse effect on our profitability. See "Business--
Competition."
21
<PAGE>
Our financial condition and results may be affected by adverse publicity
Our ability to compete depends in part on maintaining our reputation with the
consumer. Publicity resulting from food quality, illness, injury, or other
health concerns, including food-borne illness claims, or operating issues
stemming from one store, a limited number of stores, or even a competitor's
store can adversely affect multi-unit specialty retail food and snack chains
such as us. Consequently, we cannot be sure that such adverse publicity will
not adversely affect our financial condition and results of operations.
Our financial condition and results of operations may be adversely affected by
government regulation of our business
Numerous governmental authorities have issued regulations that apply to us
and our stores, including, without limitation, federal, state and local laws
and regulations governing health, sanitation, environmental protection, safety
and hiring and employment practices, including laws, such as the Fair Labor
Standards Act, governing such matters as minimum wages, overtime and other
working conditions. The Food and Drug Administration administers regulations
that apply to our products. If we fail to obtain or retain the required food
licenses or to comply with applicable governmental regulations, or if there is
any increase in the minimum wage rate, employee benefit costs or other costs
associated with employees, there could be an adverse effect on our business,
financial condition or results of operations. Even if we obtain regulatory
approval, a marketed product, its manufacturer and its manufacturing facilities
are subject to periodic inspection, and discovery of problems may adversely
affect our business.
In addition, the sale of franchises is regulated by various state laws as
well as by the Federal Trade Commission. The Federal Trade Commission requires
that franchisors make extensive disclosure in a Uniform Franchise Offering
Circular to prospective franchisees but does not require registration. However,
a number of states require registration of the Uniform Franchise Offering
Circular with state authorities or other disclosure in connection with
franchise offers and sales. In addition, several states have "franchise
relationship laws" or "business opportunity laws" that limit the ability of the
franchisors to terminate agreements or to withhold consent to renewal or
transfer of these agreements. While we believe that we are in compliance with
existing regulations, we cannot predict the effect of any future legislation or
regulation on our business operations or financial condition. Additionally,
bills have occasionally been introduced in Congress which would provide for
federal regulation of certain aspects of franchisor-franchisee relationships.
All full-time store managers and assistant managers are able to enroll in a
group health insurance plan. However, there have been a number of proposals
before Congress which would require employers to provide health insurance for
all of their full-time and part-time employees. The approval of these proposals
could have a material adverse impact on our results of operations and financial
condition in particular and the specialty retail industry as a whole.
Litigation against us could have an adverse effect on our business
We are involved in routine litigation in the ordinary course of business,
including franchise disputes. Although we have not been adversely affected in
the past by litigation, there can be no assurance as to the effect of any
future disputes.
Although we are not currently subject to any product liability litigation,
there can be no assurance that product liability litigation will not occur in
the future involving our products. Our quality control program is designed to
maintain high standards for the food and materials and food preparation
procedures used by stores owned or franchised by us. Products are periodically
inspected by our personnel at both the point-of-sale locations and the
manufacturing facilities to ensure that they conform to our standards. In
addition to insurance held by our suppliers, we maintain insurance relating to
personal injury and product liability in amounts that we consider adequate for
the retail food industry. While we have been able to obtain this insurance in
the past, there can be no assurance that we will be able to maintain these
insurance policies in the future. Consequently, any successful claim against
us, in an amount materially exceeding our coverage, could have a material
adverse effect on our business, financial condition and results of operations.
22
<PAGE>
Our controlling stockholder may take certain actions that may be contrary to
your interests
Capricorn Investors II, L.P. holds a controlling interest in our capital
stock. As a result, Capricorn is in a position to elect all of our directors
who, in turn, elect all of our executive officers. In addition, Capricorn is in
a position to amend our certificate of incorporation and by-laws, effect
corporate transactions such as mergers and asset sales and otherwise control
our management and policies without the approval of any other security holder,
subject to the provisions of the indenture. Accordingly, Capricorn will be able
to, directly or indirectly, control all of our affairs in a manner that may be
contrary to your interests. See "Beneficial Ownership of Capital Stock."
We may not continue to have increased sales in the fourth quarter
Our operating results are subject to seasonal fluctuations. Historically, we
have realized our highest level of sales in the fourth quarter due to increased
mall traffic during the Christmas holiday season. However, we cannot be sure
that this seasonal trend will continue or that we can continue to rely on
increased sales during the fourth quarter. If this seasonal trend changes,
there may be an adverse effect on our financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Seasonality."
We may be unable to repurchase the notes from you upon a change of control due
to insufficiency of funds
Upon the occurrence of a change of control, you may require us to repurchase
all or a portion of your notes. The repurchase price would be equal to 101% of
the accreted value of the notes, plus liquidated damages, if any, to the date
of repurchase, if the repurchase is before December 1, 2002, and would be equal
to 101% of the aggregate principal amount of the notes, together with accrued
and unpaid interest, if any, and liquidated damages, if any, to the date of
repurchase, if the repurchase is on or after December 1, 2002. If a change of
control were to occur, we may not have the financial resources to repay all of
our obligations under the notes and the other indebtedness that would become
payable upon such event. See "Description of Notes--Repurchase at the Option of
Holders--Change of Control."
Fraudulent conveyance risk; federal and state statutes allow courts, under
specific circumstances, to void payments under the notes and guarantees and
require noteholders to return payments received
Fraudulent transfer laws of both the federal bankruptcy law and state laws,
permit creditors or a trustee in bankruptcy to set aside or recover a
"fraudulent transfer." A payment or obligation that a borrower made with actual
intent to hinder, delay, or defraud any of its creditors is also a fraudulent
transfer. Because we have incurred a substantial amount of debt in connection
with the acquisition of Great American and the other assets and capital stock
of companies we have recently acquired and because we cannot be sure that our
business will generate enough cash flows from operations or that future
borrowings will be available in an amount that will allow us to pay principal
and interest on our debt, including the notes, we cannot be sure that a court
would not set aside payments to holders of the notes as a fraudulent transfer.
23
<PAGE>
A fraudulent transfer is a payment or obligation that a borrower makes in
exchange for less than reasonably equivalent value, if the borrower, when it
makes the payment or incurs the obligation:
.is insolvent or is rendered insolvent by the payment or the incurring
of the obligation, or
. is engaged or is about to engage in a business or transaction for
which its assets constitute unreasonably small capital, or
.intends to incur, or believes that it will incur, debts beyond its
ability to repay as they mature.
For these purposes, a borrower is generally considered insolvent:
. if the sum of its debts, including contingent liabilities, were
greater than all of its assets at a fair valuation,
. if it had unreasonably small capital to conduct its business, or
. if the present fair saleable value of its assets were less than the
amount that would be required to pay the probable liability on its
existing debts, including contingent liabilities, as they become
absolute and matured.
A payment or obligation that the borrower made with actual intent to hinder,
delay, or defraud any of its creditors is also a fraudulent transfer.
A court may hold any such obligation incurred by the borrower void or
unenforceable, may subordinate the obligation to the claims of other creditors,
or may require the holders of the obligations or the recipients of any such
payments to return any payments received. If we met any of the fraudulent
transfer law's financial condition tests described above when we issued the
notes or when we were called upon to make a payment on the notes, and did not
receive reasonably equivalent value in exchange, a court could conclude that
the issuance of the notes or the payment or both should be set aside or
returned. We believe:
(1) that we were not insolvent when, or as a result of, the issuance of
the notes,
(2) that we will not engage in a business or transaction for which our
remaining assets would constitute unreasonably small capital, and
(3) that we did not and do not intend to incur or believe that we will
incur debts beyond our ability to pay these debts as they mature.
We have incurred, however, a substantial amount of debt in connection with
the purchase of Great American and the other assets and capital stock of
companies we acquired. Our total debt (net of unamortized discount) on a
consolidated basis, including capital lease obligations and mandatorily
redeemable preferred stock, represents 87.5% of our total book capitalization.
Our cash flows, and consequently our ability to pay dividends and service debt,
including our obligations under the notes, depends upon the cash flows of our
subsidiaries. We cannot be sure that our subsidiaries' businesses will generate
enough cash flows from operations or that future borrowings will be available
in an amount that will allow us to pay principal and interest on our debt
including the notes. In addition, Mrs. Fields, our wholly owned subsidiary, and
the direct sole owner of Mrs. Fields' Brand and Great American, and its
predecessors have incurred net losses during the past several years. As a
result, there can be no assurance that a court ruling on these questions would
agree with our analysis of our financial condition.
If we caused a subsidiary to pay a dividend when the subsidiary met any of
the fraudulent transfer law's financial condition tests described above, in
order to enable us to make a payment in respect of the notes, a court could
conclude that the dividend as well as the payment is a fraudulent transfer and
that the holders should be required to return the payment, because in the
absence of other facts, courts generally conclude that a subsidiary that pays a
dividend does not receive reasonably equivalent value in exchange.
In addition, subject to certain defenses, the holders may have to return
payments made by us on the notes within 90 days before the commencement of a
bankruptcy case by or against it, if, among other things, we were insolvent at
the time the payments were made. We would be presumed insolvent on and during
the 90 days immediately preceding the date of the filing of our bankruptcy
petition.
24
<PAGE>
In any of the preceding cases, there could be no assurance that the holders
would ultimately recover the amounts owing under the notes.
There is no public market for the notes to be issued; transfers of the
outstanding notes are restricted
The notes to be issued are being offered only to the holders of the
outstanding notes. There is no public market for the notes to be issued. If
such a market were to develop, the notes could trade at prices that may be
higher or lower than the initial offering price of the outstanding notes. The
placement agents for the outstanding notes currently make a market in the
outstanding notes. The placement agents have informed us that they currently
intend to make a market in the notes to be issued. The liquidity of the trading
market in these notes, and the market price quoted for these notes, may be
adversely affected by changes in the overall market for similar securities,
existing interest rates, and by our operating results. As a result, you cannot
be sure that an active market will develop for these notes.
The outstanding notes were issued on August 24, 1998, to institutional
investors and certain accredited investors, and are eligible for trading in the
Private Offering, Resale and Trading Through Automated Linkages Market of the
National Association of Securities Dealers, Inc., a screen-based automated
market for trading of securities eligible for resale under Rule 144A. To the
extent that the outstanding notes are tendered and accepted in the Exchange
Offer, the trading market for the remaining untendered outstanding notes could
be adversely affected.
25
<PAGE>
FORWARD-LOOKING INFORMATION
This prospectus contains forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events, based on the information currently available to us. Such
forward-looking statements relate to future events or our future performance,
including financial performance, growth in net sales and earnings, cash flows
from operations, capital expenditures, the ability to refinance indebtedness,
and the sale of assets. The forward-looking statements also include, among
other things, our expectations and estimates about our business operations
following the acquisitions of Great American and certain of its franchisees and
their stores, our offering and our capital contribution to Mrs. Fields, Mrs.
Fields' offering of notes, and other recent transactions, including the
integration of the businesses of Great American with Mrs. Fields and our
ability to achieve certain cost savings and other synergies related to such
transactions. The forward-looking statements are principally contained in the
sections "Summary," "The Transactions," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business." In some
cases, you can identify forward-looking statements by terms such as "may,"
"will," "should," "expects," "plans," "contemplates," "anticipates,"
"believes," "estimates," "projected," "predicts," "potential," or "continue" or
the negative of these terms or similar terms. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
in the "Risk Factors" section above. These factors may cause our actual results
to differ materially from any forward-looking statement. Other factors, such as
the general state of the economy, could also cause actual results to differ
materially from the future results covered in the forward-looking statements.
These statements are only predictions, the forward-looking events discussed
in this prospectus may not occur and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about us. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
26
<PAGE>
THE TRANSACTIONS
On August 24, 1998, we completed the offering of units consisting of notes
and warrants to purchase our common stock. We also made a capital contribution
to Mrs. Fields of the net proceeds of $29.0 million from the offering of units.
Mrs. Fields made a simultaneous offering of notes and completed the acquisition
of Great American and acquisition of the stock of two of its franchisees. In
addition, Mrs. Fields purchased the approximately $38.9 million of
Great American notes that had been tendered in its tender offer for them at
that time. Mrs. Fields used the net proceeds of its offering, the capital
contribution from us, and available cash of Mrs. Fields and Great American, to
complete these transactions, to pay for the remaining Great American notes that
were tendered after this date, and to pay related expenses. Mrs. Fields used
the remaining proceeds to finance other acquisitions that had not yet been
completed as of the date of the offering, including the purchase of eight
stores from a Great American franchisee.
The Great American Transactions
The Great American Acquisition and the Great American Tender Offer
Pursuant to a Securities Purchase Agreement, dated as of August 23, 1998, by
and among Cookies USA, the sellers of Cookies USA securities and Mrs. Fields,
Mrs. Fields acquired all of the outstanding capital stock and subordinated debt
of Cookies USA for a total purchase price of approximately $18.4 million.
Concurrently, Mrs. Fields completed the merger of Cookies USA into Mrs. Fields
and the mergers of Deblan and Chocolate Chip, two of Great American's
franchisees, into Great American. Great American became a wholly owned
subsidiary of Mrs. Fields.
As of the expiration of the tender offer for Great American notes at midnight
on September 14, 1998, all of the notes had been tendered. Mrs. Fields has
accepted and paid the entire $40.0 million in principal amount of those notes,
and none remain outstanding.
The Acquisition of Great American Franchisees
When Mrs. Fields agreed to purchase Cookies USA, it also entered into
agreements with the stockholders of Deblan and Chocolate Chip, two of Great
American's franchisees, to purchase a total of 29 Great American franchises for
total consideration of approximately $15.0 million. The price included the
repayment of approximately $0.6 million of debt. Mrs. Fields acquired the
franchises by acquiring 100% of the capital stock of the two corporations
through which the 29 franchises were held. In connection with these
transactions, certain debt on the balance sheet of one such corporation was
retired with cash on hand, and certain debt on the balance sheet of the second
corporation was retired with funds from the franchisee that controlled the
corporation.
Agreements with Franchisees of Great American
Mrs. Fields entered into settlement agreements and waivers with the two
franchisees that sold its 29 Great American franchises and with certain other
Great American franchisees. In addition to these franchisees, at least 80% in
total of the Great American franchisees have executed settlement agreements and
waivers. These agreements provided that the Great American franchisees that are
parties to the agreements released, subject to certain exceptions, all of their
claims against Mrs. Fields, Great American, Capricorn and certain other
parties, including claims that Great American franchisees brought in 1997 to
prevent a sale of Great American to Mrs. Fields. On August 24, 1998, a motion
was filed dismissing with prejudice the claims brought in the 1997 litigation.
The settlement agreements and waivers give "tag-along" rights to the Great
American franchisees that hold at least five Great American franchises. The
tag-along rights provide that, in the event that
(1) either Mrs. Fields or Mrs. Fields' Holding proposes to sell to an
unaffiliated party substantially all of its rights as owner of the
Great American brand or as the franchisor of Great American,
27
<PAGE>
(2) either Mrs. Fields or Mrs. Fields' Holding proposes to make an
initial public offering of its common stock, or
(3) either Mrs. Fields or Mrs. Fields' Holding sells a controlling
interest to an unaffiliated party,
we will purchase all of the franchises of such Great American franchisees,
provided that their franchises have had positive cash flow in the most recent
12-month fiscal period and sales not more than 20 percent below the fiscal
period immediately preceding such period (or the number of months it has been
operating, if fewer than 12).
The purchase price for the franchises will be 5 times their most recent 12-
month EBITDA or, if the franchises have operated for fewer than 12 months, the
greater of 5 times their most recent EBITDA and documented development costs
for the stores. Great American franchisees that hold fewer than 5
Great American franchises do not have tag-along rights but will have the right,
upon completion of Mrs. Fields' sale of its rights as owner of the Great
American brand or as the franchisor of Great American, the initial public
offering or the change of control, and provided they are in compliance with
their franchise agreements, to receive in cash the greater of $3,500 or $2,000
per store owned by such franchisee. In the case of an initial public offering,
the franchisees could receive shares of common stock with an equivalent value.
The form of payment will be at our election.
Under the settlement agreements and waivers, we have also undertaken, among
other things,
(1) to maintain the margin on batter sold to Great American
franchisees,
(2) to extend franchise agreements, and
(3) to permit the Great American franchisees to convert their stores to
Mrs. Fields brand stores at their sole expense in areas where there
is no overlap with existing Mrs. Fields brand franchise stores.
The Mrs. Fields Offering
Simultaneously with our offering of units, Mrs. Fields completed its offering
of $40.0 million in total principal amount of its Series C 10 1/8% Senior Notes
due 2004.
The Mrs. Fields' Holding Units
We completed our offering of units consisting of the notes and warrants to
purchase shares of our common stock on August 24, 1998. The notes which are
part of the units are senior obligations of Mrs. Fields' Holding and are
secured by all of the issued and outstanding capital stock of Mrs. Fields.
The Prior Transactions
We acquired substantially all of the assets of H&M on July 25, 1997 for a
total purchase price of $13.8 million, excluding the assumption of certain
liabilities. We acquired 56.0% of the shares of common stock of Pretzel Time on
September 2, 1997 for an aggregate purchase price of $4.2 million and extended
a $500,000 loan to the founder and minority stockholder of Pretzel Time. At the
time of Mrs. Fields' previous offering of notes on November 26, 1997:
(1) Mrs. Fields received the business of H&M and 56.0% of the shares of
common stock of Pretzel Time from us,
(2) Mrs. Fields received all of the common stock of Mrs. Fields' Brand
from us,
(3) various debt of Mrs. Fields, Mrs. Fields' Brand and Mrs. Fields'
Holding was refinanced, and
(4) Mrs. Fields paid a dividend of $1,065,000 and repaid an advance of
$1,500,000 to us.
On January 2, 1998, Mrs. Fields purchased an additional 4.0% of the shares of
the common stock of Pretzel Time.
28
<PAGE>
Increase in Pretzel Time Ownership
On June 12, 1998, Mrs. Fields purchased an additional 10.0% of the common
stock of Pretzel Time for a purchase price of $875,000, increasing its equity
interest in Pretzel Time to 70.0% at that time.
Other Recent Transactions
In June 1998, Mrs. Fields acquired 5 additional Pretzel Time stores from a
franchisee for a purchase price of $657,000. Mrs. Fields acquired 1 additional
Pretzel Time store from a franchisee and 3 cookie stores operating under other
brand names, which it intends to convert or develop into Mrs. Fields brand
stores at purchase prices aggregating $750,000. Mrs. Fields intends to remodel
the 3 cookie stores, at a total estimated cost of $150,000. Mrs. Fields
purchased 8 Great American stores from a Great American franchisee for a total
purchase price of $1.75 million on September 9, 1998. The franchisee was a
holder of certain securities of Cookies USA that were sold pursuant to the
agreement to purchase Great American and was a party to that agreement.
RECENT DEVELOPMENTS
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of 11 Great American stores for an aggregate
purchase price of $2,800,000 under an asset purchase agreement dated as of
October 5, 1998, by and among The Cookie Conglomerate, Inc., The Cookie
Conglomerate, LLP and 2 individuals who were the partners of Cookie
Conglomerate, LLP and the shareholders of Cookie Conglomerate, Inc. The sellers
were franchisees of Great American. The sellers' rights under franchise
agreements and subleases with Great American were terminated upon closing of
the transaction. The acquisition was funded with financing provided by T&W
Financial Services Company, L.L.C.
On November 19, 1998, Mrs. Fields purchased all of the outstanding capital
stock of Pretzelmaker Holdings under an agreement among Mrs. Fields,
Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding
company for a pretzel retail company. The purchase price was approximately $5.4
million and Mrs. Fields assumed debt, including severance payments, totaling
approximately $1.6 million.
On December 9, 1998, Mrs. Fields purchased three shares of Pretzel Time, Inc.
common stock for $500,000 in cash. On December 30, 1998, Mrs. Fields completed
the acquisition of the remaining outstanding common stock of Pretzel Time, Inc.
under a stock purchase agreement dated December 30, 1998, for a purchase price
of approximately $4.7 million, $2.5 million of which was paid in cash on
January 5, 1999 and $2.0 million of which is payable on or before December 30,
1999.
USE OF PROCEEDS
We will not receive any cash proceeds pursuant to the Exchange Offer. In
consideration for issuing the notes as contemplated in this prospectus, we will
receive the outstanding notes in an equal principal amount.
The net proceeds received by us from the sale of the units, after deducting
the underwriting discounts and commissions and estimated expenses, along with
cash from other sources, including the notes of Mrs. Fields issued on the same
date, were approximately $86.9 million. Of this amount, we used approximately
$18.4 million for the acquisition of Great American, $41.6 million to pay for
the Great American notes tendered (including the tender offer premium of $1.6
million), $15.0 million to pay for the acquisition of Deblan and Chocolate Chip
(including the repayment of approximately $0.6 million of debt), $0.9 million
to pay accrued interest on debt being retired, $1.4 million for severance and
related expenses, approximately $2.8 million to pay for certain other recent
acquisitions and approximately $6.8 million of fees and expenses related to the
offering of units and certain transactions described in this prospectus.
29
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of Mrs. Fields' Holding Company, Inc. and subsidiaries at
October 3, 1998. This table should be read in conjunction with the historical
financial statements and related notes included elsewhere in this Registration
Statement. See "Selected Historical Financial Data" and "Unaudited Pro Forma
Condensed Combined Statement of Operations."
<TABLE>
<CAPTION>
Mrs. Fields'
Holding As Of
October 3, 1998
----------------------
(dollars in thousands)
<S> <C>
Cash and Cash Equivalents............................... $ 5,801
========
Credit Facility(1)...................................... $ --
========
Debt and Capital Lease Obligations, including current
portions:
Mrs. Fields' Holding Senior Secured Discount Notes due
2005(2).............................................. $ 55,000
Mrs. Fields 10 1/8% Series A, B and C Senior Notes due
2004(3).............................................. 140,000
Original issue discount on Senior Secured Discount
Notes................................................ (26,612)
Discount on Series C Senior Notes..................... (591)
Pretzel Time Debt..................................... 440
Mrs. Fields Capital Lease Obligations................. 276
Great American Capital Lease Obligations.............. 31
--------
Total Debt and Capital Lease Obligations, including
current portion.................................... 168,544
--------
Mandatorily Redeemable Preferred Stock of Pretzel
Time(4)................................................ 1,171
--------
Stockholders' Equity:
Common Stock(5)....................................... 33
Warrants to Purchase Common Stock..................... 2,895
Additional Paid-in Capital............................ 33,081
Deferred Compensation Expense......................... (73)
Accumulated Deficit................................... (11,622)
--------
Total Stockholders' Equity.......................... 24,314
--------
Total Capitalization................................ $194,029
========
</TABLE>
- --------
(1) Under the indenture, Mrs. Fields is permitted to have one or more credit
facilities to borrow up to a maximum aggregate principal amount of $15.0
million on a secured basis. Mrs. Fields' credit agreement provides for a
maximum commitment of up to $15.0 million secured by essentially all of the
assets of Mrs. Fields. As of October 3, 1998, Mrs. Fields had $12.7 million
of available borrowings under its credit facility. See "Description of
Certain Indebtedness--Credit Agreement."
(2) Consists of $55.0 million of Mrs. Fields' Holding notes prior to
considering an estimated discount of approximately $26.6 million, and
additional discount due to allocating, for accounting purposes, $2.9
million of the net proceeds to the warrants.
(3) Includes $100.0 million of Series A and Series B 10 1/8% Senior Notes of
Mrs. Fields and $40.0 million of Series C 10 1/8% Senior Notes issued on
August 24, 1998, prior to considering unamortized discount of $0.6 million.
(4) Liquidation preference as of October 3, 1998 was approximately $1.5
million.
(5) Less than $1,000.
30
<PAGE>
THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Notes
Upon the terms and subject to the conditions set forth in this prospectus and
in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), we will accept for exchange outstanding notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used in this prospectus, the "Expiration Date" means 12:00
midnight, New York City time, on , 1999, or such later date and time to
which we, in our sole discretion, extend the Exchange Offer.
The form and terms of the notes being issued in the Exchange Offer are the
same as the form and terms of the outstanding notes except that:
(1) the notes being issued in the Exchange Offer will have been registered
under the Securities Act and thus will not bear restrictive legends
restricting their transfer pursuant to the Securities Act, and
(2) the notes being issued in the Exchange Offer will not contain the
registration rights and liquidated damages provisions contained in the
outstanding notes.
The notes issued in the Exchange Offer will evidence the same debt as the
outstanding notes and both the outstanding notes and the notes to be issued are
governed by the same indenture.
As of the date of this prospectus, there is $55,000,000 in total principal
amount at maturity of notes outstanding. The outstanding notes were issued in
units together with warrants to purchase shares of the common stock of Mrs.
Fields' Holdings. When this Registration Statement becomes effective, the
warrants will be separately transferable. The warrants are not part of the
Exchange Offer. Our obligation to accept outstanding notes for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
under "--Certain Conditions to the Exchange Offer" below.
Notes tendered in the Exchange Offer must be in denominations of principal
amount of $1,000 and any integral multiple thereof.
We expressly reserve the right, in our sole discretion:
(1) to extend the Expiration Date,
(2) to delay accepting any outstanding notes,
(3) if any of the conditions set forth below under "--Certain Conditions to
the Exchange Offer" have not been satisfied, to terminate the Exchange
Offer and not accept any notes for exchange, or
(4) to amend the Exchange Offer in any manner.
We will give oral or written notice of any extension, delay, non-acceptance,
termination or amendment as promptly as practicable by a public announcement,
and in the case of an extension, no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. We
will also file a post-effective amendment with the Commission upon the
occurrence of any amendment to the terms of the Exchange Offer.
During an extension, all outstanding notes previously tendered will remain
subject to the Exchange Offer and may be accepted for exchange by us. Any
outstanding notes not accepted for exchange for any reason will be returned
without expense to the holder that tendered them as promptly as practicable
after the expiration or termination of the Exchange Offer.
Procedures for Tendering Notes
The tendering by a holder of outstanding notes, and our mutual acceptance of
the outstanding notes, will constitute a binding agreement between us and the
holder on the terms and subject to the conditions set forth in
31
<PAGE>
this prospectus and in the accompanying letter of transmittal. Except as set
forth below, to tender in the Exchange Offer, a holder must:
(1) transmit a properly completed and duly executed letter of transmittal,
including all other documents required by such letter of transmittal,
or
(2) if notes are tendered pursuant to the book-entry transfer procedures
set forth below, the holder must transmit an agent's message to the
Exchange Agent on or prior to the Expiration Date.
In addition, either:
(1) the Exchange Agent must receive certificates for outstanding notes and
the letter of transmittal, or
(2) the Exchange Agent must receive, prior to the Expiration Date, a timely
confirmation of a book-entry transfer of the notes being tendered into
the Exchange Agent's account at The Depository Trust Company ("DTC"),
along with the letter of transmittal or a computer-generated message
transmitted by means of an agent's message, or
(3) the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a computer-generated message, transmitted by
DTC by means of DTC's Automated Tender Offer Program ("ATOP") and received by
the Exchange Agent and forming a part of a book-entry transfer (a "book-entry
confirmation"), which states that the DTC has received an express
acknowledgment that the holder has received and agrees to be bound by the
letter of transmittal and that we may enforce such letter of transmittal
against such holder.
The method of delivery of outstanding notes, letters of transmittal and all
other required documents is at the election and risk of the holders. If such
delivery is by mail, we recommend that registered mail, properly insured, with
return receipt requested, be used. In all cases, sufficient time should be
allowed to assure timely delivery. Do not send letters of transmittal or notes
to Mrs. Fields' Holding.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the notes surrendered for exchange are
tendered:
(1) by a holder of outstanding notes who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on
the letter of transmittal, or
(2) for the account of an eligible institution.
An eligible institution is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in the
United States.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, such guarantees must be by an eligible institution.
If notes are registered in the name of a person other than a signer of the
letter of transmittal, the notes surrendered for exchange must be endorsed by,
or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by us in our sole discretion, duly
executed by the registered holder with the holder's signature guaranteed by an
eligible institution.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of notes tendered for exchange in
our sole discretion. Our determination will be final and binding. We reserve
the absolute right to:
(1) reject any and all tenders of any particular note not properly
tendered,
(2) refuse acceptance of any particular note if, in our judgment or the
judgment of our counsel, acceptance of the note may be deemed unlawful,
and
32
<PAGE>
(3) waive any defects or irregularities or conditions of the Exchange Offer
as to any particular note either before or after the Expiration Date.
This includes the right to waive the ineligibility of any holder who
seeks to tender notes in the Exchange Offer.
Our interpretation of the terms and conditions of the Exchange Offer as to any
particular notes either before or after the Expiration Date, including the
letter of transmittal and the instructions to it, will be final and binding on
all parties. Holders must cure any defects or irregularities in connection with
tenders of notes for exchange within such reasonable period of time as we will
determine, unless we waive such defects or irregularities. Neither we, the
Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of notes
for exchange, nor shall any of them incur any liability for failure to give
such notification.
If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of outstanding notes, such outstanding notes must
be endorsed or accompanied by powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the
outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, sign the letter of transmittal or any notes or any power of attorney,
such persons should so indicate when signing, and you must submit proper
evidence satisfactory to us of such person's authority to so act unless we
waive this requirement.
By tendering, each holder will represent to us that, among other things, the
person receiving the notes in the Exchange Offer is obtaining them in the
ordinary course of its business, whether or not such person is the holder, and
that neither the holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of the notes
issued in the Exchange Offer. If any holder or any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of Mrs. Fields'
Holding, is engaged in or intends to engage in or has an arrangement or
understanding with any person to participate in a distribution of such notes to
be acquired pursuant to the Exchange Offer, such holder or any such other
person:
(1) may not rely on the applicable interpretations of the staff of the
Commission, and
(2) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer who acquired its outstanding notes as a result of market-
making activities or other trading activities and thereafter receives notes
issued for its own account in the Exchange Offer, must acknowledge that it will
deliver a prospectus in connection with any resale of such notes issued in the
Exchange Offer. See "Plan of Distribution." The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
Acceptance of Outstanding Notes for Exchange; Delivery of Notes Issued in the
Exchange Offer
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
we will accept, promptly after the Expiration Date, all outstanding notes
properly tendered and will issue notes registered under the Securities Act
promptly after acceptance of the outstanding notes. See "--Certain Conditions
to the Exchange Offer" below. For purposes of the Exchange Offer, we will be
deemed to have accepted properly tendered outstanding notes for exchange when,
as and if we have given oral or written notice thereof to the Exchange Agent,
with written confirmation of any oral notice given promptly thereafter.
For each outstanding note accepted for exchange, the holder of such
outstanding note will receive a note registered under the Securities Act having
a principal amount equal to that of the surrendered outstanding note.
Accordingly, registered holders of notes issued in the Exchange Offer on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from
33
<PAGE>
the most recent date to which interest has been paid or from August 24, 1998,
the date of issuance of the notes. Outstanding notes that we accept for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer. Under the registration rights agreement, we are required
to make certain additional payments to holders of outstanding notes under
certain circumstances relating to the timing of the Exchange Offer.
In all cases, we will issue notes in the Exchange Offer for outstanding notes
that are accepted for exchange only after timely receipt by the Exchange Agent
of:
(1) certificates for such outstanding notes or a timely book-entry
confirmation of such outstanding notes into the Exchange Agent's
account at DTC,
(2) a properly completed and duly executed letter of transmittal or an
Agent's Message, and
(3) all other required documents.
If tendered outstanding notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if a holder submits
outstanding notes for a greater principal amount than the holder desires to
exchange, we will return such unaccepted or non-exchanged notes without expense
to the tendering holder. In the case of notes tendered by book-entry transfer
into the Exchange Agent's account at DTC, such non-exchanged notes will be
credited to an account maintained with DTC. We will return the notes or have
them credited to the DTC account as promptly as practicable after the
expiration or termination of the Exchange Offer.
Book-Entry Transfers
The Exchange Agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the Exchange Offer within two
business days after the date of this prospectus. Any financial institution that
is a participant in DTC systems must make book-entry delivery of outstanding
notes by causing DTC to transfer such outstanding notes in the Exchange Agent's
account at DTC in accordance with DTC's ATOP procedures. Such participant
should transmit its acceptance to DTC on or prior to the Expiration Date or
comply with the guaranteed delivery procedures described below. DTC will verify
such acceptance, execute a book-entry transfer of the tendered outstanding
notes into the Exchange Agent's account at DTC and then send to the Exchange
Agent confirmation of such book-entry transfer. The confirmation of such book-
entry transfer will include an agent's message confirming that DTC has received
an express acknowledgment from such participant that such participant has
received and agrees to be bound by the letter of transmittal and that we may
enforce the letter of transmittal against such participant. Delivery of notes
issued in the Exchange Offer may be effected through book-entry transfer at
DTC. However, the letter of transmittal or facsimile thereof or an agent's
message, with any required signature guarantees and any other required
documents, must:
(1) be transmitted to and received by the Exchange Agent at the address set
forth below under "Exchange Agent" on or prior to the Expiration Date,
or
(2) the guaranteed delivery procedures described below must be complied
with.
Guaranteed Delivery Procedures
If a holder of outstanding notes desires to tender such notes and the
holder's notes are not immediately available, or time will not permit such
holder's notes or other required documents to reach the Exchange Agent before
the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if:
(1)the holder tenders the notes through an eligible institution,
(2) prior to the Expiration Date, the Exchange Agent received from such
eligible institution a Notice of Guaranteed Delivery, substantially in
the form we have provided (by telegram, telex, facsimile transmission,
mail or hand delivery), setting forth the name and address of the
holder of the notes being tendered and the amount of notes being
tendered. The notice of guaranteed delivery shall state
34
<PAGE>
that the tender is being made and guarantee that within five New York
Stock Exchange trading days after the date of execution of the notice of
guaranteed delivery, the certificates for all physically tendered notes,
in proper form for transfer, or a book-entry confirmation, as the case
may be, together with a properly completed and duly executed appropriate
letter of transmittal (or facsimile thereof or agent's message) with any
required signature guarantees and any other documents required by the
letter of transmittal will be deposited by the eligible institution with
the Exchange Agent, and
(3) the certificates for all physically tendered outstanding notes, in
proper form for transfer, or a book-entry confirmation, as the case may
be, together with a properly completed and duly executed appropriate
letter of transmittal (or facsimile thereof or agent's message) with
any required signature guarantees and all other documents required by
the letter of transmittal, are received by the Exchange Agent within
five New York Stock Exchange trading days after the date of execution
of the notice of guaranteed delivery.
Withdrawal Rights
Tenders of outstanding notes may be withdrawn at any time prior to 12:00
midnight, New York City time, on the Expiration Date. For a withdrawal to be
effective, a written notice of withdrawal must be received by the Exchange
Agent at one of the addresses set forth below under "--Exchange Agent." Any
such notice of withdrawal must:
(1) specify the name of the person that tendered the notes to be withdrawn,
(2) identify the notes to be withdrawn, (including the principal amount of
such notes) and
(3) if you have transmitted certificates for outstanding notes, specify the
name in which such notes are registered, if different from that of the
withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the Exchange Agent, then prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an eligible institution unless such holder is an
eligible institution. If notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawn
notes and otherwise comply with the procedures of such facility. We will
determine all questions as to the validity, form and eligibility (including
time of receipt) of such notices and our determination will be final and
binding on all parties. Any tendered notes so withdrawn will be deemed not to
have been validly tendered for exchange for purposes of the Exchange Offer.
Any outstanding notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost
to such holder. In the case of notes tendered by book-entry transfer into the
Exchange Agent's account at DTC, the notes withdrawn will be credited to an
account maintained with DTC for the outstanding notes. The notes will be
returned or credited to the DTC account as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn notes may be retendered by following one of the procedures described
under "--Procedures for Tendering Notes" above at any time on or prior to
12:00 midnight, New York City time, on the Expiration Date.
Certain Conditions to the Exchange Offer
We are not required to accept for exchange, or to issue notes in exchange
for, any outstanding notes. We may terminate or amend the Exchange Offer, if
at any time before the acceptance of such outstanding notes:
(1) any federal law, statute, rule or regulation shall have been adopted or
enacted which, in our judgment, would reasonably be expected to impair
our ability to proceed with the Exchange Offer;
(2) if any stop order shall be threatened or in effect with respect to the
Registration Statement of which this prospectus constitutes a part or
the qualification of the indenture under the Trust Indenture Act of
1939, as amended; or
35
<PAGE>
(3) there shall occur a change in the current interpretation by the staff
of the Commission which permits the notes issued pursuant to the
Exchange Offer in exchange for outstanding notes to be offered for
resale, resold and otherwise transferred by such holders (other than
broker-dealers and any such holder which is an "affiliate" of Mrs.
Fields' Holding within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such notes acquired in
the Exchange Offer are acquired in the ordinary course of such holder's
business and such holder has no arrangement or understanding with any
person to participate in the distribution of such notes issued in the
Exchange Offer.
The preceding conditions are for our sole benefit and we may assert them
regardless of the circumstances giving rise to any such condition. We may waive
the preceding conditions in whole or in part at any time and from time to time
in our sole discretion. If we do so, the Exchange Offer will remain open for at
least five business days following any waiver of the preceding conditions. Our
failure to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
Exchange Agent
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. You should direct all executed letters of transmittal to the
Exchange Agent at the address set forth below. You should direct questions and
requests for assistance, requests for additional copies of this prospectus or
of the letter of transmittal and requests for notices of guaranteed delivery to
the Exchange Agent addressed as follows:
Main Delivery to: The Bank of New York,
As Exchange Agent
By Mail, By Hand and Overnight Courier: By Facsimile:
The Bank of New York (For Eligible Institutions Only)
101 Barclay Street 7 East (212) 815-6339
New York, New York 10286
Attention: Odell Romeo Confirm by telephone:
(212) 815-6337
Delivery of the letter of transmittal an address other than as set forth
above or transmission of such letter of transmittal via facsimile other than as
set forth above does not constitute a valid delivery of such letter of
transmittal.
Fees and Expenses
We will not make any payment to brokers, dealers, or others soliciting
acceptances of the Exchange Offer except for reimbursement of mailing expenses.
We will pay the estimated cash expenses to be incurred in connection with the
Exchange Offer. The expenses are estimated in the aggregate to be approximately
$250,000.
Transfer Taxes
Holders who tender their outstanding notes for exchange will not be obligated
to pay transfer taxes in connection therewith. If, however, notes issued in the
Exchange Offer are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the outstanding notes tendered, or
if a transfer tax is imposed for any reason other than the exchange of
outstanding notes in connection with the Exchange Offer, then the holder must
pay the amount of any such transfer taxes, whether they are imposed on the
registered holder or any other persons. If satisfactory evidence of payment of
such taxes or exemption therefrom is not
36
<PAGE>
submitted with the letter of transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
Consequences of Failure to Exchange Outstanding Notes
Holders who desire to tender their outstanding notes in exchange for notes
registered under the Securities Act should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor Mrs. Fields' Holding is under
any duty to give notification of defects or irregularities with respect to the
tenders of outstanding notes for exchange. Outstanding notes that are not
tendered or are tendered but not accepted will, following the consummation of
the Exchange Offer, continue to be subject to the provisions of the indenture
regarding transfer and exchange of the outstanding notes and the existing
restrictions upon transfer of the notes set forth in the legend on the
outstanding notes and in the offering circular, dated August 13, 1998, relating
to the outstanding notes. Except in certain limited circumstances with respect
to certain types of holders of outstanding notes, we will have no further
obligation to provide for the registration under the Securities Act of such
outstanding notes. See "Description of Notes--Exchange Offer; Registration
Rights." In general, outstanding notes, unless registered under the Securities
Act, may not be offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. We do not currently expect to take any action to register the outstanding
notes under the Securities Act or blue sky laws.
If outstanding notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered outstanding notes could be adversely
affected.
Upon completion of the Exchange Offer, holders of the outstanding notes will
not be entitled to any increase in the interest rate on the notes or any
further registration rights under the registration rights agreement, except
under limited circumstances. See "Description of the Notes--Exchange Offer;
Registration Rights."
Holders of the notes issued in the Exchange Offer and any outstanding notes
which remain outstanding after consummation of the Exchange Offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage of the class have taken certain actions or exercised
certain rights under the indenture.
Consequences of Exchanging Outstanding Notes
Based on interpretations by the staff of the Commission, as set forth in no-
action letters issued to third parties, we believe that notes issued in the
Exchange Offer in exchange for outstanding notes may be offered for resale,
resold or otherwise transferred by the holders of such notes, other than by any
holder which is an "affiliate" of Mrs. Fields' Holding within the meaning of
Rule 405 under the Securities Act. Such notes may be offered for resale,
resold, or otherwise transferred without compliance with the registration and
prospectus delivery requirements of the Securities Act, if:
(1) such notes issued in the Exchange Offer are acquired in the ordinary
course of such holder's business, and
(2) such holder, other than broker-dealers, has no arrangement with any
person to participate in the distribution of such notes issued in the
Exchange Offer.
However, the Commission has not considered the Exchange Offer in the context
of a no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Each holder, other than a broker-dealer,
must furnish a written representation, at our request, that:
(1) it is not an affiliate of Mrs. Fields' Holding,
37
<PAGE>
(2) it is not engaged in, and does not intend to engage in, a
distribution of such notes issued in the Exchange Offer and has no
arrangement or understanding to participate in a distribution of notes
issued in the Exchange Offer, and
(3) it is acquiring the notes issued in the Exchange Offer in its
ordinary course of business.
Each broker-dealer that receives notes issued in the Exchange Offer for its
own account in exchange for outstanding notes must acknowledge that such
outstanding notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities and that it will deliver a
prospectus in connection with any resale of such notes issued in the Exchange
Offer. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register thereunder the notes issued in
the Exchange Offer prior to offering or selling such notes. We have agreed,
pursuant to the registration rights agreement, subject to certain limitations
in such agreement, prior to any public offering of transfer restricted
securities, to register or qualify the transfer restricted securities for offer
or sale under the securities laws of such jurisdictions as any holder requests.
Unless a holder so requests, we do not intend to register or qualify the sale
of the notes issued in the Exchange Offer in any such jurisdiction. "Transfer
restricted securities" means each note until:
(1) the date on which such note has been exchanged by a person other than
a broker-dealer for a note in the Exchange Offer,
(2) following the exchange by a broker-dealer in the Exchange Offer of a
note for a note issued in the Exchange Offer, the date on which the note
issued in the Exchange Offer is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the prospectus
contained in the Registration Statement,
(3) the date on which such note has been effectively registered under the
Securities Act and disposed of in accordance with a shelf registration
statement that we file in accordance with the registration rights
agreement, or
(4) the date on which such note is distributed to the public pursuant to
Rule 144 under the Securities Act.
Unless a holder so requests, we do not intend to register or qualify the sale
of the notes issued in the Exchange Offer in any such jurisdiction.
38
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents historical financial data for Mrs. Fields'
Holding Company, Inc. and subsidiaries (Mrs. Fields' Holding) and its
predecessors; namely, Mrs. Fields Inc. and subsidiaries ("Mrs. Fields Inc."),
The Original Cookie Company, Incorporated ("Original Cookie") and the Carved-
out Portion (pretzel business) of Hot Sam Company, Inc. ("Hot Sam"), as of the
dates and for the periods indicated. The results of operations for the periods
December 31, 1995 through September 17, 1996 and September 18, 1996 through
December 28, 1996 and the 39 weeks ended September 27, 1997 and October 3, 1998
are not indicative of the results for the full fiscal year. The selected
historical financial data has been derived from the audited financial
statements of Mrs. Fields' Holding and its predecessors. Due to the
acquisitions of the net assets of Mrs. Fields Inc., Original Cookie and Hot Sam
on September 17, 1996, the financial data is not comparable for all periods.
However, in order for the presentations to be meaningful for the periods
presented, certain statement of operations information for the predecessors has
been reclassified to be consistent with the Mrs. Fields' Holding historical
financial statement presentation. The selected historical financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements
and the related notes thereto, contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
Predecessors
---------------------------------------------------------------------------------------------
The Original Cookie Company, Incorporated
and the Carved-Out Portion of Hot
Mrs. Fields Inc. and Subsidiaries(1) Sam Company, Inc. (Combined)(1)
----------------------------------------- ---------------------------------------------------
December December
52 Weeks Ended(2) 31, 1995 52 Weeks Ended(2) 31, 1995
---------------------------- Through ------------------------------------ Through
December December December September December December December September
31, 1993 31, 1994 30, 1995 17, 1996(2) 31, 1993 31, 1994 30, 1995 17, 1996(2)
-------- -------- -------- ----------- ---------- ---------- ---------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net store sales........ $98,601 $87,863 $59,956 $29,674 $ 87,956 $ 89,648 $ 85,581 $ 54,366
Net store
contribution(3)....... 17,005 8,083 6,591 3,797 16,081 13,912 13,063 5,854
Franchising, licensing
and other revenue,
net................... 3,993 7,241 5,993 3,786 -- -- -- --
General and
administrative
expenses.............. 21,521 16,379 15,612 8,984 8,536 12,546 9,216 7,538
Income (loss) from
operations............ (1,251) (1,691) (3,526) (1,742) 4,004 (750) 2,435 (2,772)
Net loss............... (2,243) (5,320) (2,368) (2,304) (333) (5,355) (2,096) (5,645)
Other Data:
Cash flows from
operating activities.. 5,839 1,728 (4,478) (447) (1,041) 3,699 4,451 (378)
Cash flows from
investing activities.. (2,962) (2,030) 2,526 (385) (9,019) (3,779) (568) (1,200)
Cash flows from
financing activities.. (2,496) (732) (185) (58) 7,052 3,134 (4,599) (1,380)
Interest expense....... 1,088 2,155 51 80 4,172 4,381 4,356 2,895
Total depreciation and
amortization.......... 4,728 4,415 3,525 1,911 6,668 7,423 6,902 4,937
Capital expenditures... 3,856 4,895 4,146 1,054 8,791 3,779 568 1,200
EBITDA(4)............... 3,477 2,724 (1) 169 10,672 6,673 9,337 2,165
Store contribution for
stores in the process
of being closed or
franchised(3)......... $ 6,424 $ 319 $ (802) $ (695) $ 933 $ (542) $ (1,542) $ (1,751)
Ratio of earnings to
fixed charges(5)...... -- -- -- -- -- -- -- --
Balance Sheet Data:
Working capital
(deficit)............. $(2,673) $(1,067) $(3,114) $(21,704) $ (2,023) $ (46) $ 128 $ (3,640)
Total assets........... 36,838 30,128 23,033 19,144 75,777 74,490 66,282 59,024
Debt and capital lease
obligations including
current portion....... 87,549 22,850 21,226 21,224 33,822 36,956 32,357 30,977
Total stockholders'
equity (deficit)...... (66,645) (25,419) (28,017) (30,318) 30,038 24,684 22,588 16,943
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields' Holding(1)
-------------------------------------------------
September 18, 53 Weeks 39 Weeks 39 Weeks
1996 Through Ended Ended Ended
December 28, January 3, September 27, October 3,
1996(2) 1998(2) 1997(2) 1998(2)
------------- ---------- ------------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net store and batter
sales..................... $ 39,890 $123,987 $ 83,759 $ 89,938
Net store contribution(3).. 9,482 25,087 13,214 11,804
Franchising, licensing and
other revenue, net........ 1,492 6,520 3,767 6,021
General and administrative
expenses.................. 4,089 16,974 10,874 12,743
Income (loss) from
operations................ 5,583 8,124 2,272 (471)
Net income (loss).......... 2,124 (624) (2,767) (10,276)
Basic and diluted net
income (loss) per common
share(6).................. 0.48 (0.88) (1.46) (3.13)
Other Data:
Cash flows from operating
activities................ 7,611 923 358 608
Cash flows from investing
activities................ (21,131) (17,070) (15,730) (34,315)
Cash flows from financing
activities................ 20,231 25,929 12,852 23,015
Interest expense........... 1,737 7,527 4,783 9,421
Total depreciation and
amortization.............. 2,356 10,450 6,631 9,742
Capital expenditures....... 1,638 4,678 3,216 5,616
EBITDA(4).................. 7,939 18,574 8,903 9,271
Store contribution for
stores in the process of
being closed or
franchised(3)............. $ 513 $ (1,798) $ (1,999) $ (2,125)
Ratio of earnings to fixed
charges(5)................ 3.26x 1.00x -- --
Balance Sheet Data:
Working capital (deficit).. $ (2,827) $ 12,790 $(16,117) $ (2,099)
Total assets............... 110,705 150,635 131,664 225,228
Cumulative redeemable
Series A preferred stock.. 23,785 -- 25,609 --
Mandatorily redeemable
cumulative preferred stock
of
subsidiaries............. -- 902 -- 1,171
Debt and capital lease
obligations, including
current portion........... 62,920 101,081 82,084 168,544
Total stockholders'
equity.................... 1,482 31,062 29,808 24,314
</TABLE>
- --------
(1) On September 17, 1996, Mrs. Fields' Holding completed the acquisitions of
substantially all of the assets and assumed certain liabilities of the
Predecessors. As a result of purchase accounting adjustments related to the
acquisitions, Mrs. Fields' Holding's financial statements are not directly
comparable to the predecessors' financial statements.
(2) Mrs. Fields' Holding and its predecessors operate using a 52/53-week year
ending near December 31.
(3) Store contribution is determined by subtracting all store operating
expenses including depreciation from net store sales. Management uses store
contribution information to measure operating performance at the store
level. Store contribution for stores in the process of being closed or
franchised as a separate caption is not in accordance with generally
accepted accounting principles. Store contribution may not be comparable to
other similarly titled measures.
(4) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income (expense). EBITDA is not intended to
represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income (loss) as an indicator of operating performance or to cash flows as
a measure of liquidity. EBITDA has been included herein because it is one
of the indicators upon which Mrs. Fields' Holding assesses its financial
performance and its capacity to service its debt (see footnote 5). EBITDA
may not be comparable to similarly titled measures reported by other
companies.
40
<PAGE>
<TABLE>
<CAPTION>
Predecessors
-----------------------------------------------------------------------------------------
The Original Cookie Company, Incorporated
and the Carved-Out Portion of Hot
Mrs. Fields Inc. and Subsidiaries(1) Sam Company, Inc. (Combined)(1)
----------------------------------------- -----------------------------------------------
December December
52 Weeks Ended(2) 31, 1995 52 Weeks Ended(2) 31, 1995
---------------------------- Through --------------------------------- Through
December December December September December December December September
31, 1993 31, 1994 30, 1995 17, 1996(2) 31, 1993 31, 1994 30, 1995 17, 1996(2)
-------- -------- -------- ----------- ---------- --------- --------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from
operations............. $(1,251) $(1,691) $(3,526) $(1,742) $ 4,004 $ (750) $ 2,435 $ (2,772)
ADD:
Depreciation and
amortization.......... 4,728 4,415 3,525 1,911 6,668 7,423 6,902 4,937
------- ------- ------- ------- ---------- --------- --------- ----------
EBITDA.................. $ 3,477 $ 2,724 $ (1) $ 169 $ 10,672 $ 6,673 $ 9,337 $ 2,165
======= ======= ======= ======= ========== ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields' Holding (1)
-------------------------------------------------
September 18, 53 Weeks 39 Weeks 39 Weeks
1996 Through Ended Ended Ended
December 28, January 3, September 27, October 3,
1996 (2) 1998 (2) 1997(2) 1998(2)
------------- ---------- ------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Income (loss) from
operations.............. $5,583 $ 8,124 $2,272 $ (471)
ADD:
Depreciation and
amortization.......... 2,356 10,450 6,631 9,742
------ ------- ------ ------
EBITDA................... $7,939 $18,574 $8,903 $9,271
====== ======= ====== ======
</TABLE>
- --------
(5) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued
and net of debt premium amortization), including the amortization of debt
issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations, letter
of credit commissions, fees or discounts and the product of all dividends
and accretion on mandatorily redeemable cumulative preferred stock
multiplied by a fraction, the numerator of which is one and the denominator
of which is one minus the current combined federal, state and local
statutory tax rate. For fiscal years 1993, 1994 and 1995 and the period
December 31, 1995 through September 17, 1996, Mrs. Fields Inc. and
subsidiaries' earnings were insufficient to cover fixed charges by
$2,028,000, $5,129,000, $2,127,000 and $2,099,000, respectively. For fiscal
years 1993, 1994 and 1995 and the period December 31, 1995 through
September 17, 1996. Original Cookie and Hot Sam (combined) earnings were
insufficient to cover fixed charges by $120,000, $5,131,000, $1,833,000 and
$5,645,000, respectively. For the 39 weeks ended September 27, 1997 and the
39 weeks ended October 3, 1998, Mrs. Fields' Holding's earnings were
insufficient to cover fixed charges by $5,353,000 and $10,208,000,
respectively.
(6) Basic and diluted net income (loss) per common share consists of net income
(loss) less cumulative redeemable Series A preferred stock dividends
divided by the weighted average number of common shares outstanding during
the applicable period.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
In 1996, an investor group led by Capricorn Investors II, L.P. formed Mrs.
Fields' Holding Company, Inc. and Mrs. Fields' Original Cookies, Inc. and The
Mrs. Fields' Brand, Inc. as subsidiaries of Mrs. Fields' Holding.
On September 17, 1996, Mrs. Fields initiated operations when it purchased
substantially all of the assets and assumed certain liabilities of Mrs. Fields
Inc. and subsidiaries, The Original Cookie Company, Incorporated and the
pretzel business of Hot Sam Company, Inc.
Mrs. Fields set out to increase sales and profitability of its cookie and
pretzel operations by implementing key elements of its business plan coupled
with strategic acquisitions. A key element of the business plan is closing or
franchising certain company-owned stores that do not meet specific financial
and geographical criteria established by management. Implementation of this
element of the business plan is expected to result in enhanced operating
margins as these stores are franchised or closed. In some of our tables we
refer to stores not planned for franchise or closure as "core" stores, meaning
continuing company-owned stores. Continuing company-owned stores will continue
to be operated by Mrs. Fields into the foreseeable future. As a result of
converting certain stores to franchises, royalty revenues are expected to
increase and overhead expenses associated with operating those stores are
expected to be reduced.
As Mrs. Fields exits stores it has identified for closure, results from
operations are expected to improve on both a short-term and a long-term basis.
With respect to these specific stores both ongoing operating losses and
negative cash flows are expected to cease.
Cash payments to landlords for early lease termination costs negatively
impact our immediate liquidity position. However, our overall financial
position is expected to be strengthened over time as cash flows from operating
activities increase. As cash is used to fund the store closure plans,
corresponding store closure reserves are reduced which has a neutral impact on
working capital and financial position. Should Mrs. Fields' cost estimates for
exiting the remaining stores not prove sufficient, it would have a negative
impact on both liquidity and results of operations.
Mrs. Fields believes that it has sufficient liquidity to complete its store
closure plans.
Mrs. Fields is pursuing growth in both its cookie and pretzel businesses
through strategic acquisitions. Management expects that significant operating
synergies, expense leveraging and geographic market share can be achieved
through targeted acquisitions. On July 25, 1997, a subsidiary of Mrs. Fields'
Holding, Mrs. Fields' Pretzel Concepts, Inc. acquired substantially all of the
assets and assumed certain liabilities of H&M Concepts Ltd. Co., the largest
franchisee of Pretzel Time, Inc. On September 2, 1997, Mrs. Fields' Holding
acquired 56% of the common stock of Pretzel Time, the franchisor of the Pretzel
Time concept.
On November 26, 1997, Mrs. Fields' Holding contributed to Mrs. Fields the
business of Mrs. Fields' Pretzel Concepts and 56% of the shares of common stock
of Pretzel Time. On that same date, Mrs. Fields' Holding contributed to Mrs.
Fields all of the common stock of Mrs. Fields' Brand. On January 2, 1998 and
June 12, 1998, Mrs. Fields acquired an additional 4% and 10%, respectively, of
Pretzel Time common stock, bringing its total ownership to 70%.
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
and subordinated indebtedness of Cookies USA, the parent company of Great
American Cookie Company, Inc. for $18.4 million. Additionally, Mrs. Fields
repaid all of Great American outstanding $40.0 million in senior notes.
Concurrently, Cookies USA was merged with and into Mrs. Fields, at which time
Great American became a wholly owned subsidiary of Mrs. Fields. At the same
time, Mrs. Fields purchased the stock of two Great American franchisees, Deblan
Corporation and Chocolate Chip Cookies of Texas, Inc., together owning and
operating 29
42
<PAGE>
Great American franchised stores, for total consideration of $14.4 million.
Deblan and Chocolate Chip were merged with and into Great American at that
time. On September 9, 1998, Mrs. Fields acquired eight Great American franchise
stores from a Great American franchisee, for a purchase price of $1.9 million.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American franchise stores from
a Great American franchisee for a total purchase price of $2.8 million. The
acquisition was funded with increased borrowings of $2.8 million.
On November 19, 1998, Mrs. Fields, under a Stock Purchase Agreement among
Pretzelmaker Holdings, Inc., the holders of all outstanding capital stock of
Pretzelmaker and Mrs. Fields, acquired all of the outstanding capital stock of
Pretzelmaker for $5,739,000, including $5,419,000 related to outstanding
capital stock and $320,000 related to severance payments in lieu of outstanding
stock options, and assumed liabilities totaling $1,299,000.
There have not been any changes, modifications or amendments made to the
outstanding notes.
Year 2000
Management has assessed the Year 2000 issue and has determined that all
internal information technology systems including financial software, corporate
networks, the AS400 system and all other systems are Year 2000 compliant with
the exception of:
(1) systems used for collecting and communicating sales data from retail
locations, and
(2) internally developed plant production and distribution software.
This assessment was based primarily on independent, third party verification
from our information technology vendors and suppliers.
Mrs. Fields is currently replacing the sales collection systems with software
and hardware that is Year 2000 compliant. Programming and development of the
software is complete and Mrs. Fields has installed the systems in approximately
10% of its stores. Mrs. Fields projects installation to be complete by August
1999. The estimated cost of this project is $1.1 million and includes software
development and new store computers. The costs to complete this project are
included in Mrs. Fields' 1998 and 1999 budgets. Funding for this project is
being provided by internal cash flow and by a lease finance company.
Replacement of the plant production and distribution software is expected to
take place in the first quarter of 1999 at an estimated cost of $50,000. To
date, there has not been any work done on the software, however due to the
limited changes that are required, Mrs. Fields is confident that this timetable
will be met. No information technology projects have been deferred as a result
of Mrs. Fields' Year 2000 efforts.
We are neither dependent on the proper operation of the sales collection
systems nor the plant production and distribution software to run the day-to-
day operations of the business. Therefore, failure or malfunction of these
systems due to untimely or incomplete remediation would not have a material
adverse effect on our results of operations.
Management is in the process of assessing Year 2000 issues with respect to
its significant vendors and financial institutions as to their compliance plans
and whether any Year 2000 issues will impede the ability of
such vendors to continue providing goods and services to Mrs. Fields. Failure
of Mrs. Fields' key suppliers to remedy their own Year 2000 issues could delay
shipments of essential products, thereby disrupting Mrs. Fields' operations.
Furthermore, Mrs. Fields relies on various service providers, such as utility
and telecommunication service companies, which are beyond Mrs. Fields' control.
This assessment is approximately 20% complete with final completion anticipated
by the end of the second quarter 1999. Based upon the results of the assessment
to date, management is not aware of any Year 2000 issues relating to its
significant vendors, financial institutions or its non-information technology
systems.
Mrs. Fields does not have a contingency plan in place to address untimely or
incomplete remediation of Year 2000 issues, but intends to develop such plan
during the first half of 1999. These contingency plans are expected to address
issues related to significant vendors and financial institutions.
43
<PAGE>
Results of Operations of Mrs. Fields' Holding and its Predecessors
The following table sets forth, for the periods indicated, certain
information relating to the operations of Mrs. Fields' Holding and its
predecessors expressed in thousands of dollars and percentage changes from
period to period. Annual data in the table reflects the combined results of
the predecessors for fiscal year 1995, the combined results of the
predecessors (for the period December 31, 1995 through September 17, 1996) and
Mrs. Fields' Holding (for the period September 18, 1996 through December 28,
1996), the consolidated results of Mrs. Fields' Holding for the 53 weeks ended
January 3, 1998 ("fiscal year 1997"), the 39 weeks ended September 27, 1997
and the 39 weeks ended October 3, 1998. In order for the presentations to be
comparable, certain historical financial statement information for the
predecessors has been reclassified to be consistent with the Mrs. Fields'
Holding historical financial statement presentation. The "core stores"
information is for our continuing company-owned stores.
<TABLE>
<CAPTION>
% of
For the 52 Change For the 53 % of For the 39 % of
Weeks Ended From Weeks Change Weeks Ended Change
------------------ 1995 Ended From ------------------ From
December December to January 3, 1996 to September October 1997 to
30, 1995 28, 1996 1996 1998 1997 27, 1997 3, 1998 1998
-------- -------- ------ ---------- ------- --------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Net store and batter
sales................. $145,537 $123,930 (14.8)% $123,987 -- % $83,759 $ 89,938 6.2%
Franchising revenues... 1,870 2,414 29.1 3,574 48.1 2,201 3,884 76.5
Licensing revenues..... 2,031 1,656 (18.5) 2,028 22.5 1,215 1,081 (11.0)
Other revenue, net..... 2,092 1,208 (42.3) 918 (24.0) 351 1,056 200.9
-------- -------- -------- ------- --------
Total revenues......... 151,530 129,208 (14.7) 130,507 1.0 87,526 95,959 9.6
-------- -------- -------- ------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 83,997 69,209 (17.6) 66,832 (3.4) 48,200 52,357 8.6
Food cost of sales..... 33,369 29,115 (12.7) 28,127 (3.4) 19,549 21,588 10.4
General and
administrative
expenses.............. 24,828 20,611 (17.0) 16,974 (17.6) 10,874 12,743 17.2
Depreciation and
amortization.......... 10,427 9,204 (11.7) 10,450 13.5 6,631 9,742 46.9
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 152,621 128,139 (16.0) 122,383 (4.5) 85,254 96,430 13.1
Interest expense........ (4,407) (4,712) 6.9 (7,527) 59.7 (4,783) (9,421) 97.0
Interest income......... 88 143 62.5 246 72.0 153 541 253.6
Other income (expense).. 946 (2,325) (345.8) (1,467) (36.9) (2,233) (925) 58.5
-------- -------- -------- ------- --------
Net loss................ $ (4,464) $ (5,825) 30.5% $ (624) (89.3)% $(4,591) $(10,276) 123.8%
======== ======== ======== ======= ========
Supplemental
Information:
Core Stores:
Net store and batter
sales.................. $ 93,775 $ 93,235 (0.6)% $104,316 11.9% $69,713 $ 79,074 13.4%
-------- -------- -------- ------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 44,495 44,963 1.1 50,858 13.1 36,222 42,826 18.2
Food cost of sales..... 21,703 22,274 2.6 22,677 1.8 15,536 18,500 19.1
Depreciation and
amortization.......... 5,579 4,932 (11.6) 3,896 (21.0) 2,742 3,839 40.0
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 71,777 72,169 0.5 77,431 7.3 54,500 65,165 19.6
-------- -------- -------- ------- --------
Core store
contribution........... $ 21,998 $ 21,066 (4.2)% $ 26,885 27.6% $15,213 $ 13,929 (8.6)%
======== ======== ======== ======= ========
Stores in the Process of
Being Closed or
Franchised:
Net store and batter
sales.................. $ 51,762 $ 30,695 (40.7)% $ 19,671 (35.9)% $14,046 $ 10,844 (22.8)%
-------- -------- -------- ------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 39,502 24,246 (38.6) 15,974 (34.1) 11,978 9,531 (20.4)
Food cost of sales..... 11,666 6,841 (41.4) 5,450 (20.3) 4,013 3,088 (23.1)
Depreciation and
amortization.......... 2,938 1,541 (47.5) 45 (97.1) 54 350 548.1
-------- -------- -------- ------- --------
Total operating costs
and expenses.......... 54,106 32,628 (39.7) 21,469 (34.2) 16,045 12,969 (19.2)
-------- -------- -------- ------- --------
Stores in the process of
being closed or
franchised
contribution........... $ (2,344) $ (1,933) (17.5)% $ (1,798) (7.0)% $(1,999) $ (2,125) 6.3%
======== ======== ======== ======= ========
EBITDA(1)............... $ 9,336 $ 10,273 10.0% $ 18,574 80.8% $ 8,903 $ 9,271 4.1%
======== ======== ======== ======= ========
</TABLE>
(1) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends
of subsidiaries and other income (expenses). EBITDA is not intended to
represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to
net income (loss) as an indicator of operating performance or to cash
flows as a measure of liquidity. EBITDA has been included herein because
it is one of the indicators upon which Mrs. Fields' Holding assesses its
financial performance and its capacity to service its debt.
44
<PAGE>
39 Weeks Ended October 3, 1998 Compared to the 39 Weeks Ended September 27,
1997
Company-Owned and Franchised or Licensed Store Activity
As of October 3, 1998, there were 568 company-owned stores and 765 franchised
or licensed stores in operation. The store activity for the 39 weeks ended
October 3, 1998 and the 39 weeks ended September 27, 1997 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1998
-------------------- --------------------
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the fiscal year..................... 482 418 481 553
Stores opened (including
relocations and acquisitions)..... 84 205 116 278
Stores closed (including
relocations)...................... (4) (86) (9) (65)
Non-continuing company-owned (exit
plan) stores closed (September 18,
1996 forward)..................... (63) -- (21) --
Stores sold to franchisees......... (3) 3 (4) 4
Non-continuing company-owned (exit
plan) stores franchised (September
18, 1996 forward)................. (4) 4 (13) 13
Stores acquired from franchisees... 4 (4) 18 (18)
--- --- --- ---
Stores open as of the end of the
period.............................. 496 540 568 765
=== === === ===
</TABLE>
Revenues
Net Store and Batter Sales. Total net store and batter sales increased
$6,179,000, or 7.4%, from $83,759,000 to $89,938,000 for the 39 weeks ended
October 3, 1998 compared to the 39 weeks ended September 27, 1997.
Net store sales from continuing company-owned in prime locations and batter
sales increased $9,381,000, or 13.5%, from $69,713,000 to $79,094,000 for the
39 weeks ended October 3, 1998 compared to the 39 weeks ended September 27,
1997. The increase in net store sales from continuing company-owned stores and
batter sales was primarily attributable to:
(1) the operation of 69 Pretzel Time continuing company-owned stores
acquired in connection with the acquisition of H&M and Pretzel Time in
July 1997,
(2) the operation of 52 Great American stores acquired in connection with
the acquisitions of Great American, Deblan, and Chocolate Chip and
eight additional Great American franchised stores in August and
September 1998 and
(3) batter sales to GACC franchisees.
This increase in net store sales from continuing company-owned stores was
offset in part by the negative effect of a calendar shift. Mrs. Fields year end
was December 28 in 1996 and January 3, 1998 in 1997. As a result, the New
Year's holiday week fell in the first quarter of 1997 and again in the fourth
quarter of 1997. The first quarter of 1998 did not benefit from the New Year's
holiday sales. Had this holiday been in the first quarter of 1998, net store
sales from continuing company-owned stores would have been approximately
$800,000 greater or $79,894,000.
Based on stores that have been open at least two years (adjusted for the
calendar shift), system-wide higher profitability store sales declined 1.0%
during the 39 weeks ended October 3, 1998 compared to the same period in 1997.
Net store sales from stores in the process of being closed or franchised
decreased $3,202,000, or 22.8%, from $14,046,000 to $10,844,000 for the 39
weeks ended October 3, 1998 compared to the 39 weeks ended September 27, 1997.
This decrease results from closing 21 stores and franchising 13 stores during
the 39 weeks ended October 3, 1998 and the effect of closing or franchising 79
stores subsequent to December 28, 1996 and prior to the 39 week period ended
October 3, 1998.
45
<PAGE>
Franchising Revenues. Franchising revenues increased $1,683,000, or 76.5%,
from $2,201,000 to $3,884,000 for the 39 weeks ended October 3, 1998 compared
to the 39 weeks ended September 27, 1997. The increase in franchising revenues
was primarily attributable to royalties earned from 141 Pretzel Time franchised
stores obtained in connection with the acquisition of H&M and Pretzel Time in
1997 and the 211 Great American franchised stores obtained in connection with
the acquisitions of Great American, Deblan, and Chocolate Chip and eight
additional Great American franchised stores in August and September 1998.
Licensing Revenues. Licensing revenues decreased $134,000, or 11.0%, from
$1,215,000 to $1,081,000 for the 39 weeks ended October 3, 1998 compared to the
39 weeks ended September 27, 1997. The decrease in licensing revenues was
primarily attributable to a dry mix license fee earned during the 39 weeks
ended September 27, 1997 that did not recur in the 39 weeks ended October 3,
1998.
Other Revenue, net. Other revenue, net, increased $705,000, or 200.9%, from
$351,000 to $1,056,000 for the 39 weeks ended October 3, 1998 compared to the
39 weeks ended September 27, 1997. The increase in other revenue, net, was
primarily attributable to area development fees earned from certain franchised
stores obtained in 1997, an increase in contribution from Mrs. Fields' mail
order division and miscellaneous other income.
Total Revenues. Total revenues increased by $8,433,000, or 9.6%, from
$87,526,000 to $95,959,000 for the 39 weeks ended October 3, 1998 compared to
the 39 weeks ended September 27, 1997 due to the reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $4,157,000, or 8.6%, from $48,200,000 to $52,357,000 for the 39 weeks
ended October 3, 1998 compared to the 39 weeks ended September 27, 1997.
Selling and store occupancy costs for continuing company-owned stores
increased by $6,604,000, or 18.2%, from $36,222,000 to $42,826,000 for the 39
weeks ended October 3, 1998 compared to the 39 weeks ended September 27, 1997.
Within this overall increase, selling expenses for continuing company-owned
stores increased by $4,158,000, or 20.0%, from $20,804,000 to $24,962,000 for
the 39 weeks ended October 3, 1998 compared to the 39 weeks ended September 27,
1997. The increase in selling expenses was primarily attributable to 69 Pretzel
Time higher profitability stores acquired in connection with the acquisitions
of H&M and Pretzel Time in 1997, 52 Great American continuing company-owned
stores acquired in connection with the acquisitions of Great American, Deblan,
and Chocolate Chip and eight additional Great American franchised stores in
August and September 1998, and the effect of the minimum wage increasing to
$5.15 from $4.75 on September 1, 1997. Store occupancy costs for higher
profitability stores increased $2,446,000, or 15.9%, from $15,418,000 to
$17,864,000 for the 39 weeks ended October 3, 1998 compared to the 39 weeks
ended September 27, 1997. The increase in store occupancy costs was primarily
attributable to the increase in the number of stores discussed above and lease
renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $2,447,000, or 20.4%, from $11,978,000 to $9,531,000
for the 39 weeks ended October 3, 1998 compared to the 39 weeks ended September
27, 1997. This decrease was primarily the result of closing 21 stores and
franchising 13 stores during the 39 weeks ended October 3, 1998 and the effect
of closing or franchising 79 stores subsequent to December 28, 1996 and prior
to the 39 weeks ended October 3, 1998.
Food Cost of Sales. Total food cost of sales increased $2,039,000, or 10.4%,
from $19,549,000 to $21,588,000 for the 39 weeks ended October 3, 1998 compared
to the 39 weeks ended September 27, 1997.
Food cost of sales for continuing company-owned stores increased $2,964,000,
or 19.1%, from $15,536,000 to $18,500,000 for the 39 weeks ended October 3,
1998. This increase was primarily the result of the addition of
46
<PAGE>
69 Pretzel Time higher profitability stores in July 1997 and the addition of 52
Great American continuing company-owned stores in August and September 1998.
Food cost of sales also increased due to the addition of the Great American
batter facility in August 1998 which produces batter for the Great American
stores. The increasing cost of butter was also a significant factor to
increased food cost of sales. Butter is one of the main ingredients in a
variety of Mrs. Fields' products and is a condiment for other products. The
price of butter increased from $0.78/lb. at the beginning of 1997 to a peak of
$2.92/lb. in September 1998. Management believes that the increased butter
costs will continue to negatively impact food cost of sales for the remainder
of 1998. Additionally, distribution costs increased beginning in August 1998 as
Mrs. Fields changed distributors to improve product availability and the
reliability of service to the stores.
Food cost of sales for stores in the process of being closed or franchised
decreased $925,000, or 23.1%, from $4,013,000 to $3,088,000 for the 39 weeks
ended October 3, 1998 compared to the 39 weeks ended September 27, 1997. This
decrease was primarily the result of closing 21 stores and franchising 13
stores during the 39 weeks ended October 3, 1998 and the effect of closing or
franchising 79 stores subsequent to December 28, 1996 and prior to the 39 weeks
ended October 3, 1998.
General and Administrative Expenses. Expenses related to general and
administrative at the operating company level increased $1,869,000, or 17.2%,
from $10,874,000 to $12,743,000 for the 39 weeks ended October 3, 1998 compared
to the 39 weeks ended September 27, 1997. The increase in expenses related to
overhead at the operating company level was primarily attributable to the
acquisition of H&M and Pretzel Time in 1997 and the acquisition of Great
American, Deblan, and Chocolate Chip in 1998.
Depreciation and Amortization. Total depreciation and amortization expense
increased by $3,111,000, or 46.9%, from $6,631,000 to $9,742,000 for the 39
weeks ended October 3, 1998 compared to the 39 weeks ended September 27, 1997.
This increase was primarily attributable to increased goodwill from the
acquisition of H&M and Pretzel Time in 1997 and the acquisition of Great
American, Deblan, and Chocolate Chip in 1998.
Depreciation and amortization expense for higher profitability stores
increased $1,097,000, or 40.0%, from $2,742,000 to $3,839,000 for the 39 weeks
ended October 3, 1998 compared to the 39 weeks ended September 27, 1997. This
increase in depreciation and amortization expense was primarily attributable to
the addition of 69 Pretzel Time higher profitability stores in July 1997 and 52
Great American higher profitability stores in August and September 1998.
Total Operating Costs and Expenses. Total operating costs and expenses
increased by $11,176,000, or 13.1%, from $85,254,000 to $96,430,000 for the 39
weeks ended October 3, 1998 compared to the 39 weeks ended September 27, 1997,
for the reasons discussed above.
Interest Expense. Interest expense increased $4,638,000, or 97.0%, from
$4,783,000 to $9,421,000 for the 39 weeks ended October 3, 1998 compared to the
39 weeks ended September 27, 1997. This increase was primarily attributable to
interest expense on $100,000,000 of high yield notes that were placed in
November 1997, and $40,000,000 of high yield notes and $30,864,000 of senior
secured discount notes placed in August 1998.
Interest Income. Interest income increased $388,000, or 253.6%, from $153,000
to $541,000 for the 39 weeks ended October 3, 1998 compared to the 39 weeks
ended September 27, 1997. This increase was primarily the result of interest
earned on excess cash provided by $100,000,000 of high yield notes that were
placed in November 1997, and $40,000,000 of high yield notes and $30,864,000 of
senior secured discount notes placed in August 1998.
Other Expenses. Other expenses decreased $1,308,000, or 58.5%, from
$2,233,000 of to $925,000 for the 39 weeks ended October 3, 1998 compared to
the 39 weeks ended September 27, 1997. This decrease was primarily attributable
to cumulative dividends on Mrs. Fields' Series A preferred stock which was
converted to
47
<PAGE>
common stock on November 26, 1997 and to minority interest from the acquisition
of H&M and Pretzel Time made in 1997.
Net Loss. The net loss increased by $5,685,000, or 123.8%, from $4,591,000 to
$10,276,000 for the 39 weeks ended October 3, 1998 compared to the 39 weeks
ended September 27, 1997 due to the combination of factors described above.
Income from Continuing Company-Owned Stores. Income from continuing company-
owned stores decreased by $1,284,000, or 8.4%, from $15,213,000 to $13,929,000
for the 39 weeks ended October 3, 1998 compared to the 39 weeks ended September
27, 1997. Income from continuing company-owned stores was negatively impacted
by a 1.0% decline in sales from stores that have been open at least two years
and by the increases in selling and store occupancy costs, food cost of sales
and depreciation and amortization described above. Income from continuing
company-owned stores was also negatively impacted by a calendar shift whereby
the Mrs. Fields' year end was December 28 for 1996 and January 3, 1998 for
1997. As a result, the New Year's holiday week fell in the first quarter of
1997 and again in the fourth quarter 1997. The first quarter of 1998 did not
benefit from the New Year's holiday sales. Had this holiday been in the first
quarter of 1998, income from continuing company-owned stores would have been
approximately $600,000 greater or $14,529,000.
Negative Income from Stores in the Process of Being Closed or
Franchised. Negative income from stores in the process of being closed or
franchised increased by $126,000, or 6.3%, from $1,999,000 to $2,125,000 for
the 39 weeks ended October 3, 1998 compared to the 39 weeks ended September 27,
1997. The increase in negative income was primarily attributable to the
addition of 52 stores from the acquisition of Great American, Deblan, and
Chocolate Chip and eight additional Great American franchised stores in August
and September 1998, offset in part by closing 21 stores and franchising 13
stores during the 39 weeks ended October 3, 1998. In addition, 79 stores were
closed or franchised subsequent to December 28, 1996 and prior to the 39 week
period ended October 3, 1998.
EBITDA. Earnings before interest, taxes, depreciation and amortization,
preferred stock accretion and dividends of subsidiaries, minority interest and
other income (expense) ("EBITDA") is presented as management believes that
certain investors find it to be a useful tool for measuring the ability to
service debt. EBITDA does not represent net income or cash flows from
operations as these terms are defined by generally accepted accounting
principles and does not necessarily indicate whether cash flows have been or
will be sufficient to fund cash needs. EBITDA increased by $368,000, or 4.1%,
from $8,903,000 to $9,271,000 for the 39 weeks ended October 3, 1998 compared
to the 39 weeks ended September 27, 1997 for the reasons discussed above. Had
the New Year's holiday week been in the first quarter of 1998, EBITDA would
have been approximately $600,000 greater, or $9,871,000.
Mrs. Fields' Holding generated $608,000 of cash from operating activities
during the 39 weeks ended October 3, 1998, primarily from store sales and
franchising and licensing revenues less costs and expenses incurred to generate
the store sales and franchising and licensing revenues, and less interest paid
on $100,000,000 of high yield notes. Mrs. Fields' Holding utilized $34,315,000
of cash from investing activities during the 39 weeks ended October 3, 1998,
primarily for the acquisition of Great American, Deblan, and Chocolate Chip,
capital expenditures relating to store remodels and for renovations. Mrs.
Fields' Holding generated $23,015,000 of cash from financing activities during
the 39 weeks ended October 3, 1998, primarily from the issuance of $40,000,000
of new high yield notes, less unamortized discount, and $30,864,000 of senior
secured discount notes offset by the payment of debt financing costs and
principal payments on long-term debt totaling $47,653,000.
48
<PAGE>
53 Weeks Ended January 3, 1998 ("Fiscal Year 1997") Compared to the 52 Weeks
Ended December 28, 1996 ("Fiscal Year 1996") (Comprised of the Mrs. Fields
Inc., Original Cookie and Hot Sam Pre-Acquisition Period of December 31, 1995
Through September 17, 1996 and the Mrs. Fields' Holding Post-Acquisition Period
of September 18, 1996 Through December 28, 1996)
Company-Owned and Franchised or Licensed Store Activity
As of January 3, 1998, there were 481 company-owned stores and 553 franchised
or licensed stores in operation. The store activity for the 52 weeks ended
December 28, 1996 and the 53 weeks ended January 3, 1998 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1997
-------------------- --------------------
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the fiscal year..................... 540 415 482 418
Stores opened (including
relocations)...................... 5 118 3 76
Stores acquired through business
acquisitions...................... -- -- 83 141
Stores closed (including
relocations)...................... (39) (122) (7) (89)
Non-continuing Company owned (exit
plan) stores closed (September 18,
1996 forward)..................... (17) -- (73) --
Stores sold to franchisees......... (9) 9 (3) 3
Non-continuing Company-owned (exit
plan) stores franchised (September
18, 1996 forward)................. (3) 3 (9) 9
Stores acquired from franchisees... 5 (5) 5 (5)
--- ---- --- ---
Stores open as of the end of the
fiscal year......................... 482 418 481 553
=== ==== === ===
</TABLE>
The activity reflected above resulted in 26,572 and 25,520 company-owned
equivalent store weeks and 21,658 and 25,732 franchisee/licensee equivalent
store weeks during the 52 weeks ended December 28, 1996 and the 53 weeks ended
January 3, 1998, respectively.
Revenues
Net Store Sales. Total net store sales increased $57,000, or less than 1.0%,
from $123,930,000 to $123,987,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996.
Net store sales from continuing company-owned stores increased $11,081,000,
or 11.9%, from $93,235,000 to $104,316,000 for the 53 weeks ended January 3,
1998 compared to the 52 weeks ended December 28, 1996. The increase in net
store sales from continuing company-owned stores was primarily attributable to
the operation of Pretzel Time continuing company-owned stores obtained in
connection with the acquisition of H&M and Pretzel Time in July 1997 and an
increase in average transaction amounts resulting from the introduction of
product line extensions and aggressive marketing initiatives, offset in part by
declining transaction counts in certain concepts. Also, three new continuing
company-owned stores were opened and five stores were acquired from franchisees
during the 53 weeks ended January 3, 1998.
Based on stores that have been open at least two years (adjusted for the
calendar shift), system-wide continuing company-owned store sales were up 0.8%
during the 53 weeks ended January 3, 1998 compared to the 52 weeks ended
December 28, 1996.
Net store sales from stores in the process of being closed or franchised
decreased $11,024,000, or 35.9%, from $30,695,000 to $19,671,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
This decrease results from the partial year effect of closing 73 stores and
franchising seven (net) stores during fiscal 1997 and the full year effect of
closing 56 stores and franchising seven (net) stores during fiscal year 1996.
Franchising Revenues. Franchising revenues increased $1,160,000, or 48.1%,
from $2,414,000 to $3,574,000 for the 53 weeks ended January 3, 1998 compared
to the 52 weeks ended December 28, 1996. The increase in franchising revenues
was primarily attributable to royalties earned from Pretzel Time franchised
stores obtained in connection with the acquisition of H&M and Pretzel Time
coupled with new franchise openings in fiscal year 1997 and the full year
effect of new franchise openings in fiscal year 1996.
49
<PAGE>
Licensing Revenues. Licensing revenues increased $372,000, or 22.5%, from
$1,656,000 to $2,028,000 for the 53 weeks ended January 3, 1998 compared to
the 52 weeks ended December 28, 1996. The increase in licensing revenues is
primarily attributable to licensing fees earned on new license agreements
entered into during the 53 weeks ended January 3, 1998, and increased
royalties received from existing licensees.
Other Revenue, Net. Other revenue, net, decreased $290,000, or 24.0%, from
$1,208,000 to $918,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. The decrease in other revenue, net, is
primarily attributable to a favorable adjustment resulting from Mrs. Fields
re-negotiating a contract with one of its vendors during the 52 weeks ended
December 28, 1996 that did not recur during the 53 weeks ended January 3,
1998.
Total Revenues. Total revenues increased by $1,299,000, or 1.0%, from
$129,208,000 to $130,507,000 for the 53 weeks ended January 3, 1998 compared
to the 52 weeks ended December 28, 1996, for the reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
decreased $2,377,000, or 3.4%, from $69,209,000 to $66,832,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
Selling and store occupancy costs for continuing company-owned stores
increased by $5,895,000, or 13.1%, from $44,963,000 to $50,858,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996.
Within this overall increase, selling expenses increased by $4,029,000, or
15.7%, from $25,650,000 to $29,679,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The increase in selling
expenses was primarily attributable to an increase in the minimum wage during
the third quarter of 1996 from $4.15 to $4.75 an hour and an increase in labor
hours to support the increase in sales. Store occupancy costs increased
$1,866,000, or 9.7%, from $19,313,000 to $21,179,000 for the 53 weeks ended
January 3, 1998 compared to the 52 weeks ended December 28, 1996. The increase
in store occupancy costs was primarily attributable to the addition of Pretzel
Time continuing company-owned stores in July 1997, and the opening of three
continuing company-owned stores and the acquisition of five stores from
franchisees during the 53 weeks ended January 3, 1998 coupled with lease
renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $8,272,000, or 34.1%, from $24,246,000 to $15,974,000
for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December
28, 1996. This decrease is primarily the result of closing 73 stores and
franchising seven (net) stores during fiscal year 1997 and the full year
effect of closing 56 stores and franchising seven (net) stores during fiscal
year 1996.
Food Cost of Sales. Total food cost of sales decreased $988,000, or 3.4%,
from $29,115,000 to $28,127,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996.
Food cost of sales for continuing company-owned stores increased $403,000,
or 1.8%, from $22,274,000 to $22,677,000 for the 53 weeks ended January 3,
1998. This increase is primarily the result of the addition in July 1998 of
Pretzel Time continuing company-owned stores in July 1997, which stores have a
lower food cost of sales than cookie stores, offset by an aggressive product
waste control program which was uniformly applied to all concepts early in the
year. Additionally, Mrs. Fields renegotiated certain vendor contracts to
capitalize on Mrs. Fields' economies of scale.
Food cost of sales for stores in the process of being closed or franchised
decreased $1,391,000, or 20.3%, from $6,841,000 to $5,450,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. This
decrease is primarily the result of closing 73 stores and franchising seven
(net) stores during fiscal year 1997 and the full year effect of closing 56
stores and franchising seven (net) stores during fiscal year 1996.
50
<PAGE>
General and Administrative Expenses. Expenses related to general and
administrative expenses at the operating company level decreased $3,637,000, or
17.6%, from $20,611,000 to $16,974,000 for the 53 weeks ended January 3, 1998
compared to the 52 weeks ended December 28, 1996. The decrease in expenses
related to overhead at the operating company level was primarily attributable
to the cost savings achieved by combining the operations of Mrs. Fields Inc.
and subsidiaries, Original Cookie and Hot Sam and Pretzel Time which resulted
in:
(1) reduced headcount with corresponding decreases in administrative
salaries and benefits;
(2) decreased professional service fees, including legal and accounting
services; and
(3) decreased corporate office expenditures, including general insurance,
repairs and maintenance and utilities as a direct result of closing the
Original Cookie and Hot Sam headquarters in Cleveland, Ohio, the
Pretzel Time headquarters in Harrisburg, Pennsylvania and the H&M
headquarters in Boise, Idaho.
Depreciation and Amortization Expense. Total depreciation and amortization
expense increased by $1,246,000, or 13.5%, from $9,204,000 to $10,450,000 for
the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28,
1996.
Depreciation and amortization expense for continuing company-owned stores
decreased $1,036,000, or 21.0%, from $4,932,000 to $3,896,000 for the 53 weeks
ended January 3, 1998 compared to the 52 weeks ended December 28, 1996. The
decrease in depreciation and amortization expense was primarily attributable to
Mrs. Fields recording the acquired assets of Mrs. Fields Inc. and subsidiaries,
Original Cookie and Hot Sam at their fair values at the time of purchase on
September 17, 1996, resulting in an overall reduction to the store asset base
and the corresponding depreciation. This decrease is partially offset by
additional depreciation expense resulting from the addition of Pretzel Time
continuing company-owned stores in July 1997, three newly opened continuing
company-owned stores and five stores acquired from franchisees in fiscal year
1997.
Total Operating Costs and Expenses. Total operating costs and expenses
decreased by $5,756,000, or 4.5%, from $128,139,000 to $122,383,000 for the 53
weeks ended January 3, 1998 compared to the 52 weeks ended December 28, 1996,
for the reasons discussed above.
Interest Expense. Interest expense increased $2,815,000, or 59.7%, from
$4,712,000 to $7,527,000 for the 53 weeks ended January 3, 1998 compared to the
52 weeks ended December 28, 1996. This increase is primarily attributable to an
increase in interest expense as a result of the debt incurred to fund the
purchase of the assets of Mrs. Fields, Inc. and subsidiaries, Original Cookie
and Hot Sam on September 17, 1996.
Other Expenses. Other expenses decreased $858,000, or 36.9%, from $2,325,000
to $1,467,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996. This decrease was primarily attributable to a decrease
in income tax provision, offset in part by an increase in accretion and
dividends on preferred stock of subsidiaries.
Net Loss. The net loss decreased by $5,201,000, or 89.3%, from $5,825,000 to
$624,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks ended
December 28, 1996. The net loss equaled 0.5% of total revenues during the 53
weeks ended January 3, 1998 compared to 4.5% of total revenues during the 52
weeks ended December 28, 1996. The decrease in net loss is primarily due to
cost savings achieved by combining the operations of Mrs. Fields Inc. and
subsidiaries, Original Cookie and Hot Sam, cost savings associated with the
acquisition of H&M and Pretzel Time and improved store operations.
Income from Continuing Company-Owned Stores. The income from continuing
company-owned stores increased by $5,819,000, or 27.6%, from $21,066,000 to
$26,885,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996 due to the combination of the factors described above.
Negative Income from Stores in the Process of Being Closed or Franchised. The
negative income from stores in the process of being closed or franchised
decreased by $135,000, or 7.0%, from $1,933,000 to
51
<PAGE>
$1,798,000 for the 53 weeks ended January 3, 1998 compared to the 52 weeks
ended December 28, 1996. The decrease in negative income was primarily
attributable to closing 73 stores and franchising seven (net) stores during
fiscal year 1997 and the full year effect of closing 56 stores and franchising
seven (net) stores during fiscal year 1996.
EBITDA. EBITDA is presented as management believes that certain investors
find it to be a useful tool for measuring the ability to service debt. EBITDA
does not represent net income or cash flows from operations as these terms are
defined by generally accepted accounting principles and does not necessarily
indicate whether cash flows have been or will be sufficient to fund cash needs.
EBITDA increased by $8,301,000, or 80.8%, from $10,273,000 to $18,574,000 for
the 53 weeks ended January 3, 1998 compared to the 52 weeks ended December 28,
1996, for the reasons described above.
Mrs. Fields' Holding cash flow from operating activities of $923,000 for the
year ended January 3, 1998, resulted primarily from store sales and franchising
and licensing revenues less costs and expenses incurred to generate the store
sales and franchising and licensing revenues. Mrs. Fields' Holding utilized
$17,070,000 of cash from investing activities during the year ended January 3,
1998, primarily for the contribution by Mrs. Fields' Holding to Mrs. Fields of
the business of Mrs. Fields' Pretzel Concepts and 56% of the shares of common
stock of Pretzel Time and for capital expenditures relating to store remodels
and renovations. Cash flow from financing activities of $25,929,000 was
generated during the year ended January 3, 1998, primarily from the issuance of
$108,250,000 in new long term debt, the proceeds of which were used in part to
repay long-term debt, accrued interest and debt financing costs.
Fiscal Year Ended December 28, 1996 (comprised of the Mrs. Fields Inc.,
Original Cookie and Hot Sam Pre-Acquisition Period of December 31, 1995 through
September 17, 1996 and the Mrs. Fields' Holding Post-Acquisition Period of
September 18, 1996 through December 28, 1996) compared to the 52 Weeks Ended
December 30, 1995 ("Fiscal Year 1995")
Company-Owned and Franchised or Licensed Store Activity
As of December 28, 1996, there were 482 company-owned stores and 418
franchised or licensed stores in operation. The store activity for the 52 weeks
ended December 30, 1995 and the 52 weeks ended December 28, 1996 is summarized
as follows:
<TABLE>
<CAPTION>
1995 1996
-------------------- --------------------
Company- Franchised Company- Franchised
Owned or Licensed Owned or Licensed
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Stores open as of the beginning of
the fiscal year..................... 669 324 540 415
Stores opened (including
relocations)........................ 4 69 5 118
Stores closed (including
relocations)........................ (51) (60) (39) (122)
Non-continuing company-owned (exit
plan) stores closed (September 18,
1996 forward)....................... -- -- (17) --
Stores sold to franchisees........... (83) 83 (9) 9
Non-continuing company-owned (exit
plan) stores franchised
(September 18, 1996 forward)........ -- -- (3) 3
Stores acquired from franchisees..... 1 (1) 5 (5)
--- --- --- ----
Stores open as of the end of the
fiscal year......................... 540 415 482 418
=== === === ====
</TABLE>
The activity reflected above resulted in 31,434 and 26,572 company-owned
equivalent store weeks and 19,214 and 21,658 franchisee/licensee equivalent
store weeks during the fiscal years 1995 and 1996, respectively.
Revenues
Net Store Sales. Total net store sales decreased $21,607,000, or 14.8%, from
$145,537,000 to $123,930,000 for fiscal year 1996 compared to fiscal year 1995.
52
<PAGE>
Net store sales from continuing company-owned stores decreased $540,000, or
0.6%, from $93,775,000 to $93,235,000 for fiscal year 1996 compared to fiscal
year 1995. The decrease in net store sales from continuing company-owned stores
was primarily attributable to a decline in customer counts from fiscal year
1995 to fiscal year 1996, partially offset by an increase in the average sale
price resulting from retail pricing increases and aggressive marketing
initiatives.
Based on stores that have been open at least two years, system-wide
continuing company-owned store sales were down 0.7% for fiscal year 1996
compared to fiscal year 1995.
Net store sales from stores in the process of being closed or franchised
decreased $21,067,000, or 40.7%, from $51,762,000 to $30,695,000 for fiscal
year 1996 compared to fiscal year 1995. This decrease is primarily the result
of closing 56 stores and franchising seven (net) stores during the year.
Franchising Revenues. Franchising revenues increased $544,000, or 29.1%, from
$1,870,000 to $2,414,000 for fiscal year 1996 compared to fiscal year 1995. The
increase in franchising revenues was primarily attributable to a full year of
royalty revenues from the 83 stores franchised in 1995, royalties earned from
new franchised stores in 1996 and development fees for new franchised
locations.
Licensing Revenues. Licensing revenues decreased $375,000, or 18.5%, from
$2,031,000 to $1,656,000 for fiscal year 1996 compared to fiscal year 1995. The
decrease in licensing revenue is primarily attributable to licensing fees
earned in fiscal year 1995 that did not recur in fiscal year 1996.
Other Revenue, net. Other revenue, net decreased $884,000, or 42.3%, from
$2,092,000 to $1,208,000 for fiscal year 1996 compared to fiscal year 1995. The
decrease in other revenue, net is primarily attributable to favorable insurance
adjustments in fiscal year 1995 that did not recur in fiscal year 1996.
Total Revenues. Total revenues decreased $22,322,000, or 14.7%, from
$151,530,000 to $129,208,000 for fiscal year 1996 compared to fiscal year 1995,
for the reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
decreased $14,788,000, or 17.6%, from $83,997,000 during fiscal year 1995 to
$69,209,000 during fiscal year 1996.
Selling and store occupancy costs for continuing company-owned stores
increased by $468,000, or 1.1%, from $44,495,000 during fiscal year 1995 to
$44,963,000 during fiscal year 1996. Within this overall increase, selling
expenses decreased by $330,000, or 1.3%, from $25,980,000 to $25,650,000 for
fiscal year 1996 compared to fiscal year 1995. Store occupancy costs increased
$792,000, or 4.3%, from $18,521,000 to $19,313,000 for fiscal year 1996
compared to fiscal year 1995. The increase in store occupancy costs was
primarily attributable to the opening of five continuing company-owned stores
and acquiring five stores from franchisees during fiscal year 1996 and renewed
lease rent increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $15,256,000, or 38.6%, from $39,502,000 to $24,246,000
for fiscal year 1996 compared to fiscal year 1995. This decrease is primarily
the result of closing 56 stores and franchising seven (net) stores during the
period.
Food Cost of Sales. Total food cost of sales decreased $4,254,000, or 12.7%,
from $33,369,000 during fiscal year 1995 to $29,115,000 during fiscal year
1996.
Food cost of sales for continuing company-owned stores increased $571,000, or
2.6%, from $21,703,000 during fiscal year 1995 to $22,274,000 during fiscal
year 1996. The increase was primarily attributable to an increase in the costs
of butter of 40.8% over 1995, and an increase in distribution costs as a result
of Mrs. Fields changing its distribution channels for its Mrs. Fields brand
stores. Additionally, management introduced several product line extensions,
some with higher food costs, in an effort to offset the decline in customer
counts.
53
<PAGE>
Food cost of sales for stores in the process of being closed or franchised
decreased $4,825,000, or 41.4%, from $11,666,000 to $6,841,000 for fiscal year
1996 compared to fiscal year 1995. This decrease is primarily the result of
closing 56 stores and franchising seven (net) stores during the period.
General and Administrative Expenses. Expenses related to overhead at the
operating company level decreased $4,217,000, or 17.0%, from $24,828,000 to
$20,611,000 for fiscal year 1996 compared to fiscal year 1995. The decrease in
expenses related to overhead at the operating company level was primarily
attributable to the cost savings achieved by combining the operations of Mrs.
Fields Inc. and subsidiaries, Original Cookie and Hot Sam which resulted in:
.reduced headcount with corresponding decreases in administrative salaries
and benefits;
.decreased professional service fees, including legal and accounting
services; and
.decreased corporate office expenditures, including general insurance,
repairs and maintenance and utilities as a direct result of closing the
Original Cookie and Hot Sam headquarters building in Cleveland, Ohio.
Depreciation and Amortization Expense. Total depreciation and amortization
expense decreased $1,223,000, or 11.7%, from $10,427,000 during fiscal year
1995 to $9,204,000 during fiscal year 1996.
Depreciation and amortization expense for continuing company-owned stores
decreased $647,000, or 11.6%, from $5,579,000 to $4,932,000 for fiscal year
1996 compared to fiscal year 1995. The decrease in depreciation and
amortization expense was primarily attributable to Mrs. Fields' Holding
recording the acquired assets of Mrs. Fields Inc. and subsidiaries, Original
Cookie and Hot Sam at their fair values, in accordance with purchase
accounting, resulting in an overall reduction to the store asset base.
Total Operating Costs and Expenses. Total operating costs and expenses
decreased $24,482,000, or 16.0%, from $152,621,000 during fiscal year 1995 to
$128,139,000 during fiscal year 1996, for the reasons described above.
Interest Expense. Interest expense increased $305,000, or 6.9%, from
$4,407,000 to $4,712,000 for fiscal year 1996 compared to fiscal year 1995.
This increase was primarily attributable to an increase in interest expense due
to increased borrowings as a result of the purchase of the assets of Mrs.
Fields Inc. and subsidiaries, Original Cookie and Hot Sam on September 17,
1996.
Other Income (Expenses). Other income (expenses) decreased $3,271,000, or
345.8%, from $946,000 to $(2,325,000) for fiscal year 1996 compared to fiscal
year 1995. This decrease is primarily attributable to Mrs. Fields' Holding
recognizing a loss on the sale of existing company-owned stores to franchisees
during the 52 weeks ended December 28, 1996 compared to gain recognized on the
sale of existing company-owned stores to franchisees during the 52 weeks ended
December 30, 1995. Additionally, the income tax provision increased during the
52 weeks ended the December 28, 1996 as a result of gains realized on the sale
of assets in connection with the asset purchase of Mrs. Fields Inc. and
affiliates and Original Cookie and affiliates on September 17, 1996.
Net Loss. The net loss increased by $1,361,000, or 30.5%, from $4,464,000 to
$5,825,000 for fiscal year 1996 compared to fiscal year 1995. The net loss
equaled 4.5% of total revenues during 1996 compared to 2.9% of total revenues
during fiscal year 1995. The increase in net loss is in part due to an increase
in interest expense as a result of the increased borrowings to facilitate the
purchase of Mrs. Fields Inc. and subsidiaries, Original Cookie and Hot Sam, net
of a reduction in the income tax provision.
Income from Continuing Company-Owned Stores. The income from continuing
company-owned stores decreased by $932,000, or 4.2%, from $21,998,000 to
$21,066,000 for fiscal year 1996 compared to fiscal year 1995 due to the
combination of the factors described above.
54
<PAGE>
Negative Income from Stores in the Process of Being Closed or Franchised. The
negative income from stores in the process of being closed or franchised
decreased by $411,000, or 17.5%, from $2,344,000 to $1,933,000 for fiscal year
1996 compared to fiscal year 1995. The decrease in negative income was
primarily attributable to closing 56 stores and franchising seven (net) stores
during the year.
EBITDA. EBITDA is presented as management believes that certain investors
find it to be a useful tool for measuring the ability to service debt. EBITDA
does not represent net income or cash flows from operations as these terms are
defined by generally accepted accounting principles and does not indicate
whether cash flows have been or will be sufficient to fund cash needs. EBITDA
increased by $937,000, or 10.0%, from $9,336,000 to $10,273,000 for fiscal year
1996 compared to fiscal year 1995, for the reasons described above.
Mrs. Fields' Holding's cash flow from operating activities of $7,611,000 for
the year ended December 28, 1996, resulted primarily from store sales and
franchising and licensing revenues less costs and expenses incurred to generate
the store sales and franchising and licensing revenues. Mrs. Fields' Holding
utilized $21,131,000 of cash from investing activities during the year ended
December 28, 1996, primarily for the acquisition of its predecessors and for
capital expenditures relating to store remodels and renovations. Cash flow from
financing activities of $20,231,000 was generated during the year ended
December 28, 1996, primarily from the issuance of common and preferred stock
related to the formation of Mrs. Fields' Holding on September 17, 1996.
Liquidity and Capital Resources
General
Mrs. Fields' Holding's principal sources of liquidity are cash flows from
operations, cash on hand and available borrowings under Mrs. Fields' existing
revolving credit facilities. At October 3, 1998, Mrs. Fields' Holding had $5.8
million of cash and $12.7 million of available borrowings under Mrs. Fields'
credit facility. It is expected that Mrs. Fields' Holding's principal uses of
cash will be to provide working capital, finance capital expenditures
(including acquisitions and store closure costs), meet debt service
requirements and other general corporate purposes. Mrs. Fields' Holding is
highly leveraged. Based on current operations and anticipated cost savings,
Mrs. Fields' Holding believes that its sources of liquidity will be adequate to
meet its anticipated requirements for working capital, capital expenditures
(including acquisitions and store closure costs), scheduled debt service
requirements and other general corporate purposes. There can be no assurance,
however, that Mrs. Fields' Holding's business will continue to generate cash
flows at or above current levels or that cost savings can be achieved.
October 3, 1998 Compared to January 3, 1998
As of October 3, 1998, Mrs. Fields' Holding had liquid assets (cash and cash
equivalents and accounts receivable) of $13,313,000, a decrease of 34.1%, or
$6,891,000, from January 3, 1998 when liquid assets were $20,204,000. Cash
decreased $10,692,000, or 64.8%, to $5,801,000 at October 3, 1998 from
$16,493,000 at January 3, 1998. This decrease was primarily the result of cash
used for the acquisitions of Great American, Deblan and Chocolate Chip and
eight additional Great American franchised stores in August and September 1998,
capital expenditures of $5,616,000 relating to store remodels and renovations
and interest payments of $6,291,000 primarily relating to $100,000,000 of high
yield notes which were put into place in November 1997, offset in part, by
$541,000 in interest income earned during the period on invested cash.
Current assets decreased by $4,432,000, or 15.2%, to $24,702,000 at October
3, 1998 from $29,134,000 at January 3, 1998. This decrease was primarily the
result of a decrease in cash of $10,692,000, offset by an increase in accounts
receivable of $3,801,000 and in inventories of $1,690,000.
Long-term assets increased $79,025,000, or 65.0%, to $200,526,000 at October
3, 1998 from $121,501,000 at January 3, 1998. This increase was primarily the
result of an increase in property and equipment and goodwill related to the
acquisitions of Great American, Deblan and Chocolate Chip.
55
<PAGE>
Current liabilities increased by $10,457,000, or 64.0%, to $26,801,000 at
October 3, 1998 from $16,344,000 at January 3, 1998. This increase is due to an
increase in accounts payable, accrued interest payable, accrued salaries, wages
and benefits, and accrued liabilities offset by a decrease in store closure
reserves, deferred income and sales taxes payable.
Mrs. Fields' Holdings's working capital decreased by $14,889,000, or 116.4%,
to ($2,099,000) at October 3, 1998 from $12,790,000 at January 3, 1998, for the
reasons described above.
Mrs. Fields' Holding generated $608,000 of cash from operating activities
during the 39 weeks ended October 3, 1998, primarily from store sales and
franchising and licensing revenues less costs and expenses incurred to generate
the store sales and franchising and licensing revenues, and less interest paid
on $100,000,000 of high yield notes.
Mrs. Fields' Holding utilized $34,315,000 of cash from investing activities
during the 39 weeks ended October 3, 1998, primarily for the acquisitions of
Great American, Deblan and Chocolate Chip and capital expenditures relating to
store remodels and for renovations.
Mrs. Fields' Holding generated $23,015,000 of cash from financing activities
during the 39 weeks ended October 3, 1998, primarily from the issuance of
$40,000,000 of new high yield notes, less unamortized discount, and $30,864,000
of senior secured discount notes offset by the payment of debt financing costs
and principal payments on long-term debt totaling $47,653,000.
The specialty cookie and pretzel businesses do not require the maintenance of
significant receivables or inventories; however, Mrs. Fields' Holding
continually invests in its business by upgrading and remodeling stores and
adding new stores, carts, and kiosks as opportunities arise. Investments in
these long-term assets, which are key to generating current sales, reduce Mrs.
Fields' Holding working capital. During the 39 weeks ended October 3, 1998 and
September 27, 1997, Mrs. Fields' Holding expended $5,616,000 and $3,216,000,
respectively, for capital assets and expects to expend approximately $7,800,000
for all of 1998. Management anticipates that these expenditures will be funded
with cash generated from operations and short-term borrowings under its credit
facility as needed.
Inflation
The impact of inflation on the earnings of the business has not been
significant in recent years. Most of Mrs. Fields' leases contain escalation
clauses (however, such leases are accounted for on a straight-line basis as
required by generally accepted accounting principles which minimizes
fluctuations in operating income) and many of Mrs. Fields' employees are paid
hourly wages at the Federal minimum wage level. Minimum wage increases will
negatively impact Mrs. Fields' payroll costs in the short term, but management
believes such impact can be offset in the long term through operational
efficiency gains and, if necessary, through product price increases.
Seasonality
Mrs. Fields' sales and income from store operations are highly seasonal given
the significant impact of its mall-based locations. Mrs. Fields' sales tend to
mirror customer traffic flow trends in malls which increase significantly
during the fourth quarter (primarily between Thanksgiving and the end of the
calendar year). Holiday gift purchases are also a significant factor in
increased sales in the fourth quarter.
The seasonality effect on income from store operations is even more
significant than on sales. The impact on income from store operations is more
significant due to the fixed nature of certain store level costs (occupancy
costs, store manager salaries, etc.). Once these fixed costs are covered by
store sales, the flow through of sales to income from store operations becomes
greater. Accordingly, the fourth quarter is a key determinant to overall
profitability for the year.
56
<PAGE>
The following table presents certain unaudited historical quarterly financial
data for Mrs. Fields for fiscal years 1995, 1996 and 1997.
<TABLE>
<CAPTION>
First Second Third
Quarter Quarter Quarter Fourth
(13 Weeks) (13 Weeks) (13 Weeks) Quarter(1) Total Year
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total store sales
1997.................. $27,642 $26,198 $29,920(2) $40,227(2) $123,987
1996.................. $29,361 $28,640 $29,598 $36,331 $123,930
1995.................. $36,819 $34,723 $34,053 $39,942 $145,537
% of total store sales
1997.................. 22.3% 21.1% 24.1%(2) 32.5%(2) 100.0%
1996.................. 23.7% 23.1% 23.9% 29.3% 100.0%
1995.................. 25.3% 23.9% 23.4% 27.4% 100.0%
Total store cash
contribution(3)
1997.................. $ 4,854 $ 4,694 $ 6,699(2) $12,781(2) $ 29,028
1996.................. $ 4,355 $ 4,484 $ 6,830 $ 9,937 $ 25,606
1995.................. $ 5,349 $ 5,692 $ 5,839 $11,291 $ 28,171
% of total store cash
contribution
1997.................. 16.7% 16.2% 23.1%(2) 44.0%(2) 100.0%
1996.................. 17.0% 17.5% 26.7% 38.8% 100.0%
1995.................. 19.0% 20.2% 20.7% 40.1% 100.0%
</TABLE>
- --------
(1) Fourth quarter 1995, 1996 and 1997 consists of 13 weeks, 13 weeks and 14
weeks, respectively.
(2) Includes the acquisitions of H&M and Pretzel Time.
(3) Total income from store operations before store depreciation and
amortization.
Consolidated Results of Operations of Cookies USA and its Wholly Owned
Operating Subsidiary, Great American, Prior to the Great American Acquisition
As Great American is a significant subsidiary of Mrs. Fields, management's
discussion and analysis of financial condition and results of operations is
also included for the consolidated operations of Cookies USA and Great American
for the 52 weeks ended June 28, 1998 compared to the 52 weeks ended June 29,
1997, for the 52 weeks ended June 29, 1997 compared to the 52 weeks ended June
30, 1996, and the 52 weeks ended June 30, 1996 compared to the 52 weeks ended
June 29, 1995. See the historical financial statements and the related notes to
the financial statements of Cookies USA, Inc. and subsidiary contained
elsewhere in this prospectus.
References to the beliefs of the management of Great American or Cookies USA
in this discussion are to management prior to the acquisition of Great American
by Mrs. Fields. The factors cited in the following discussion as contributing
to changes in operating results are listed in order of importance; however,
unless otherwise indicated in such discussion, the quantitative importance of
any such factors cannot be determined by Great American management and have not
been stated.
The "forward-looking statements" contained in this section represent Great
American's expectations or beliefs concerning future events, including
statements regarding unit growth and cash requirements. Management cautions
that a number of important factors could, individually or in the aggregate,
cause actual results to differ materially from those stated in the forward-
looking statements including, without limitation, the following:
. consumer spending trends and habits,
. mall traffic trends,
. increased competition among snack retailers,
57
<PAGE>
. economic conditions in the regions where Great American and its
franchisees operate stores,
. the ability to identify and secure suitable locations for new stores,
. the availability of experienced management and hourly employees, and the
laws and regulations affecting labor and employee benefit costs.
Accounting Period
During the 52 weeks ended June 30, 1996, Great American changed its year end
from the last Thursday in the month of June to the last Sunday in the month of
June. As a result, three days were added to the fifty-two week period ended
Thursday, June 27, 1996 to effectively change Great American's fiscal year end
to Sunday, June 30, 1996. This change does not materially impact the
comparability of the years presented in the accompanying consolidated financial
statements.
52 Weeks Ended June 28, 1998 ("Fiscal Year 1998") Compared to 52 Weeks Ended
June 29, 1997 ("Fiscal Year 1997")
Company and Franchise Store Activity
As of June 28, 1998, there were 77 company-operated stores and 247 franchised
stores in operation. The store activity for fiscal year 1997 and for fiscal
year 1998 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
------------------- -------------------
Company- Company-
Operated Franchised Operated Franchised
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Stores open as of beginning of the
fiscal year........................... 104 225 91 233
Stores opened (including
relocations)........................ 1 12 3 7
Stores closed (including
relocations)........................ (10) (8) (2) (8)
Stores sold to franchisees........... (12) 12 (15) 15
Stores acquired from franchisees..... 8 (8) 0 0
--- --- --- ---
Stores open as of the end of the year.. 91 233 77 247
Satellite locations as of the end of
the year............................ 9 30 4 32
--- --- --- ---
Total outlets as of the end of the
year................................ 100 263 81 279
=== === === ===
</TABLE>
The above activity results in 5,161 company-operated equivalent store weeks
and 11,858 franchisee-operated equivalent store weeks during the fiscal year
ended June 29, 1997 compared to 4,288 company-operated equivalent store weeks
and 12,581 franchisee-operated equivalent store weeks during the fiscal year
ended June 28, 1998.
Total Revenue
Total revenue decreased approximately $2,696,000, or 6.7%, during the fiscal
year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. Each
of Mrs. Fields' revenue sources is discussed below:
. Cookie and beverage sales at company-operated retail stores decreased
approximately $3,521,000, or 15.7%, during the fiscal year ended June
28, 1998 compared to the fiscal year ended June 29, 1997. The decrease
in revenue from company-operated retail stores was attributable to (a) a
16.9% decrease in company-operated equivalent store weeks offset by (b)
a 1.2% increase in the average retail sales volume for company-operated
stores. Based on those stores which were company-operated during the
entire 1998 and 1997 fiscal years, sales volumes did not change.
. Batter sales to franchisees increased approximately $944,000, or 8.4%,
during the fiscal year ended June 28, 1998 compared to the fiscal year
ended June 29, 1997. The increase in batter sales to franchisees was
primarily attributable to (a) a 6.1% increase in franchisee-operated
equivalent store weeks and (b) a 2.3% increase in the volume of batter
sold per franchisee-operated equivalent store week.
58
<PAGE>
. Franchise royalties increased approximately $538,000, or 11.4%, during
the fiscal year ended June 28, 1998 compared to the fiscal year ended
June 29, 1997. The increase in franchise royalties was attributable to
(a) a 6.1% increase in franchisee-operated equivalent store weeks and
(b) an increase in the average retail sales volume per franchisee-
operated store of 5.3%. Based on those stores which were franchisee-
operated during the entire 1998 and 1997 fiscal years, management
estimates franchisees' sales volumes increased 3.5%.
. Revenue from franchise license fees decreased approximately $172,000, or
25.5%, during the fiscal year ended June 28, 1998 compared to the fiscal
year ended June 29, 1997. Revenue from selling existing and new stores
to franchisees is summarized as follows (rounded):
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997
----------- -----------
<S> <C> <C>
Number of licenses sold to franchisees
--existing stores................................ 15 12
--new stores..................................... 5 12
Cash and notes from sale of existing stores........ $1,980,000 $2,045,000
Less: net book value of existing stores sold....... 1,235,000 818,000
---------- ----------
Revenue from sale of existing stores............... 745,000 1,227,000
---------- ----------
Revenue from license fees for new stores........... 125,000 300,000
Revenue from other fees............................ 3,000 75,000
---------- ----------
Revenue from license fees for new stores and other
fees.............................................. 128,000 375,000
---------- ----------
Total revenue from sale of existing and new stores
to franchisees.................................... 873,000 1,602,000
Less: Gain on sale of existing stores.............. 370,000 927,000
---------- ----------
Revenue from franchise license fees................ $ 503,000 $ 675,000
========== ==========
</TABLE>
. Other revenue increased approximately $73,000, or 111.6%, during the
fiscal year ended June 28, 1998 compared to the fiscal year ended June
29, 1997. The increase in other revenue was primarily attributable to:
(a) an increase in construction assistance revenue derived from
construction assistance performed by Great American for the benefit
of franchisees and
(b) an increase in sales of miscellaneous supplies to franchise stores,
offset by
(c) an increase in batter discounts given to franchisees as a result of
increased batter sales to franchisees in fiscal 1998.
Cost of Sales
Cost of sales decreased approximately $1,559,000, or 8.4%, during the fiscal
year ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The
decrease in cost of sales was primarily attributable to:
(a)a decline in cookie and beverage sales due to less company-operated
equivalent store weeks and
(b)an improvement in batter facility margins, offset by
(c)an increase in batter sales to franchisees.
Retail Store Occupancy
Retail store occupancy costs decreased approximately $1,318,000, or 18.7%,
during the fiscal year ended June 28, 1998 compared to the fiscal year ended
June 29, 1997. The decrease was primarily attributable to a 16.9% decrease in
company-operated equivalent store weeks.
59
<PAGE>
Other Retail Store Expenses
Other retail store expenses decreased approximately $149,000, or 14.6%,
during the fiscal year ended June 28, 1998 compared to the fiscal year ended
June 29, 1997. The decrease in other retail store expenses was primarily
attributable to a 16.9% decrease in company-operated equivalent store weeks.
Selling, General and Administrative
Selling, general and administrative expenses decreased approximately
$399,000, or 5.2%, during the fiscal year ended June 28, 1998 compared to the
fiscal year ended June 29, 1997. This decrease was primarily attributable to:
(a)a decrease in development and testing expense,
(b)a decrease in salaries and benefits at the support center, and
(c) a decrease in expenses associated with the franchise convention
because a franchise convention was not held in fiscal 1998, offset
by
(d)an increase in marketing expenses and
(e) an increase in the cost of training materials related to the
rollout of a new training program. In addition, in 1998 Great
American revised its estimate of the useful life of certain
computer equipment from five to three years decreasing pre-tax
income by $111,000. Management believes that this revision better
reflects the equipments' useful life.
Other Expenses, Net
Other expenses, net, increased approximately $557,000, or 60%, during the
fiscal year ended June 28, 1998 compared to the fiscal year ended June 29,
1997. The increase was primarily attributable to a decrease in gains on the
sale of existing stores.
Net Loss
Net loss decreased approximately $544,000, or 72.9%, for the fiscal year
ended June 28, 1998 compared to the fiscal year ended June 29, 1997. The
decrease in net loss was primarily attributable to:
(a)a 12.7% increase in operating income,
(b) a 1.7% decrease in other expenses, net, offset by
(c) a 111.0% increase in state and federal income tax expense.
52 Weeks Ended June 29, 1997 ("Fiscal Year 1997") Compared to 52 Weeks Ended
June 30, 1996 ("Fiscal Year 1996")
Great American-Owned and Franchise Store Activity
As of June 29, 1997, there were 91 Great American-owned stores and 233
franchised stores in operation. The store activity for fiscal year 1996 and for
fiscal year 1997 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year 1996 Fiscal Year 1997
-------------------------- --------------------------
Great American- Great American-
Owned Franchised Owned Franchised
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Stores open as of
beginning of the fiscal
year................... 108 215 104 225
Stores opened (including
relocations)........... 12 14 1 12
Stores closed (including
relocations)........... (10) (10) (10) (8)
Stores sold to
franchisees............ (9) 9 (12) 12
Stores acquired from
franchisees............ 3 (3) 8 (8)
--- --- --- ---
Stores open as of the
end of the year........ 104 225 91 233
Satellite locations as
of the end of the
year................... 11 28 9 30
--- --- --- ---
Total outlets as of the
end of the year........ 115 253 100 263
=== === === ===
</TABLE>
60
<PAGE>
The above activity resulted in 5,661 Great American-owned equivalent store
weeks and 11,544 franchised equivalent store weeks during fiscal year 1996
compared to 5,161 Great American-owned equivalent store weeks and 11,858
franchised equivalent store weeks during fiscal year 1997.
Total Revenue
Total revenue decreased approximately $342,000, or 0.9%, during fiscal year
1997 compared to fiscal year 1996. Each of Great American's revenue sources is
discussed below:
. Cookie and beverage sales at Great American-owned retail stores
decreased approximately $2,344,000, or 9.5%, during fiscal year 1997
compared to fiscal year 1996. The decrease in revenue from Great
American-owned retail stores was attributable to
(a) an 8.8% decrease in Great American-owned equivalent store weeks and
(b) a 0.7% decrease in the average retail sales volume for Great
American-owned stores.
Based on those stores which were Great American-owned during the entire
1996 and 1997 fiscal years, sales volumes increased 1.3%. The change in
average store volume does not equal the change in sales volume from
stores that have been open at least two years due to differences in the
stores being compared as a result of opening, closing, selling, and
acquiring stores throughout the year.
. Batter sales to franchisees increased approximately $1,166,000, or
11.5%, during fiscal year 1997 compared to fiscal year 1996. The
increase in batter sales to franchisees was primarily attributable to
(a) an 8.8% increase in the volume of batter sold per franchised
equivalent store week and
(b) a 2.7% increase in franchised equivalent store weeks.
. Franchise royalties increased approximately $440,000, or 10.3%, during
fiscal year 1997 compared to fiscal year 1996. The increase in franchise
royalties was attributable to
(a) an increase in the average retail sales volume per franchised
store of 7.6% and
(b) a 2.7% increase in franchised equivalent store weeks.
Based on those stores which were franchised during the entire 1996 and
1997 fiscal years, management estimates franchisees' sales volumes
increased 5.5%.
. Revenue from franchise license fees increased approximately $154,000, or
29.6%, during fiscal year 1997 compared to fiscal year 1996. Revenue
from selling existing and new stores to franchisees is summarized as
follows (rounded):
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1996 1997
----------- -----------
<S> <C> <C>
Number of licenses sold to franchisees:
Existing stores............................... 9 12
New stores.................................... 11 12
Cash and notes from sale of existing stores..... $1,602,000 $2,045,000
Less: net book value of existing stores sold.... (741,000) (818,000)
---------- ----------
Revenue from sales of existing stores........... 861,000 1,227,000
---------- ----------
Revenue from license fees for new stores........ 275,000 300,000
Revenue from other fees......................... 21,000 75,000
---------- ----------
Revenue from license fees for new stores and
other fees..................................... 296,000 375,000
---------- ----------
Total........................................... 1,157,000 1,602,000
Less: Gain on sale of existing stores........... 636,000 927,000
---------- ----------
Revenue from franchise licensing fees........... $ 521,000 $ 675,000
========== ==========
</TABLE>
61
<PAGE>
. Other revenue, net decreased approximately $49,000, or 42.6%, during
fiscal year 1997 compared to fiscal year 1996. The decrease in other
revenue, net was primarily attributable to
(a) a decrease in construction assistance revenue derived from
construction assistance performed by Great American for the
franchisees and
(b) an increase in batter discounts given to franchisees as a result
of increased batter sales to franchisees in fiscal year 1997.
Cost of Sales
Cost of sales decreased approximately $908,000, or 4.7%, during fiscal year
1997 compared to fiscal year 1996. The decrease in cost of sales was primarily
attributable to
(a) a decline in cookie and beverage sales due to less Great American-
owned equivalent store weeks, and
(b) a decrease in the cost of packaging and freight for Great
American-owned retail stores, offset by
(c) an increase in batter sales to franchisees.
Retail Store Occupancy
Retail store occupancy costs decreased approximately $324,000, or 4.4%,
during fiscal year 1997 compared to fiscal year 1996. The decrease was
primarily attributable to an 8.8% decrease in Great American-owned equivalent
store weeks.
Other Retail Store Expenses
Other retail store expenses decreased approximately $297,000, or 22.6%,
during fiscal year 1997 compared to fiscal year 1996. The decrease in other
retail store expenses was primarily attributable to (a) a decrease in operating
supplies expense within Great American-owned stores in fiscal year 1997 due to
(1) the opening of 11 less Great American-owned stores in fiscal year 1997
versus fiscal year 1996 and (2) additional costs incurred in fiscal year 1996
related to the rollout of a new cookie merchandising program and (b) an 8.8%
decrease in Great American-owned equivalent store weeks, offset by (c) an
increase in point-of-sale marketing expenses in Great American-owned stores.
Selling General and Administrative Expenses
Selling, general and administrative expenses increased approximately
$310,000, or 4.2%, during fiscal year 1997 compared to fiscal year 1996. This
increase was primarily attributable to:
(a) an increase in professional service fees,
(b) an increase in point-of-sale marketing expenses on behalf of
franchisee-owned stores, and
(c) an increase in salaries, offset by
(d) a decrease in travel expense, and
(e) a decrease in insurance costs.
Other Expenses, Net
Other expenses, net decreased approximately $484,000, or 8.7%, during fiscal
year 1997 compared to fiscal year 1996. The decrease was primarily attributable
to an increase in gains on the sale of existing stores.
Net Loss
Net loss decreased approximately $615,000, or 45.2%, for fiscal year 1997
compared to fiscal year 1996. The decrease in net loss was primarily
attributable to:
62
<PAGE>
(a) an $877,000 increase in operating income, and
(b) a $193,000 decrease in other expenses, net, offset by
(c) a $455,000 increase in state and federal income tax expense.
52 Weeks Ended June 30, 1996 ("Fiscal Year 1996") Compared to 52 Weeks Ended
June 29, 1995 ("Fiscal Year 1995")
Great American-Owned and Franchise Store Activity
As of June 30, 1996 there were 104 Great American-owned stores and 225
franchised stores in operation. The store activity for fiscal year 1995 and for
fiscal year 1996 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal Year 1995 Fiscal Year 1996
-------------------------- --------------------------
Great American- Great American-
Owned Franchised Owned Franchised
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Stores open as of
beginning of the fiscal
year................... 111 204 108 215
Stores opened (including
relocations)........... 16 11 12 14
Stores closed (including
relocations)........... (8) (11) (10) (10)
Stores sold to
franchisees............ (12) 12 (9) 9
Stores acquired from
franchisees............ 1 (1) 3 (3)
--- --- --- ---
Stores open as of the
end of the fiscal
year................... 108 215 104 225
Satellite locations as
of the end of the
fiscal year............ 12 36 11 28
--- --- --- ---
Total outlets as of the
end of the fiscal
year................... 120 251 115 253
=== === === ===
</TABLE>
The activity reflected above resulted in 5,879 and 5,661 Great American owned
equivalent store weeks and 10,716 and 11,544 franchised equivalent store weeks
during fiscal year 1995 and fiscal year 1996, respectively.
Total Revenue
Total revenue decreased approximately $1,024,000, or 2.5%, during fiscal year
1996 compared to fiscal year 1995, primarily attributable to the following:
Cookie and beverage sales at Great American-owned retail stores decreased
approximately $1,629,000, or 6.2%, during fiscal year 1996 compared to fiscal
year 1995. The decrease in revenue from Great American-owned retail stores was
primarily attributable to:
(a) an approximately 3.7% decrease in Great American-owned equivalent
store weeks and
(b) a decrease in the average retail sales volume for Great American-owned
stores. Specifically, the average retail sales volume for Great
American-owned stores decreased approximately 2.6% per equivalent
store week. Based on those stores which were Great American-owned
during the entire 1995 and 1996 fiscal years, sales volumes decreased
0.3%.
Batter sales to franchisees increased approximately $729,000, or 7.8%, during
fiscal year 1996 compared to fiscal year 1995. The increase in batter sales to
franchisees was primarily attributable to:
(a) an increase of approximately 7.7% in franchised equivalent store weeks
and
(b) a 0.1% increase in the volume of batter sold per franchised equivalent
store week.
Franchise royalties increased approximately $313,000, or 7.9%, during fiscal
year 1996 compared to fiscal year 1995. The increase in franchise royalties was
primarily attributable to:
(a) an increase of approximately 7.7% in equivalent franchised retail
store weeks and
63
<PAGE>
(b) an increase in the average franchised equivalent store sales volume of
0.2%.
Based on those stores which were franchised during the entire 1995 and 1996
fiscal years, management estimates that franchisees' sales volumes did not
change materially.
Revenue from franchise license fees decreased approximately $391,000, or
25.3%, during fiscal year 1996 compared to fiscal year 1995. Revenue from
selling existing and new stores to franchisees is summarized below (rounded):
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
1995 1996
----------- -----------
<S> <C> <C>
Number of licenses sold to franchisees:
Existing stores.................................... 12 9
New stores......................................... 11 11
Cash proceeds from sale of existing stores........... $ 2,558,000 $1,602,000
Less: net book value of existing stores sold......... (1,346,000) (741,000)
----------- ----------
Revenue from sales of existing stores.............. 1,212,000 861,000
----------- ----------
Revenue from license fees for new stores............. 280,000 275,000
Revenue from other fees.............................. 56,000 21,000
----------- ----------
Revenue from license fees for new stores and other
fees................................................ 336,000 296,000
----------- ----------
Total............................................ 1,548,000 1,157,000
Less: Gain on sale of existing stores................ 912,000 636,000
----------- ----------
Revenue from franchise licensing fees................ $ 636,000 $ 521,000
=========== ==========
</TABLE>
Other revenue, net, decreased approximately $46,000, or 28.6%, during fiscal
year 1996 compared to fiscal year 1995. The decrease in other revenue, net, is
primarily attributable to:
(a) an increase in batter discounts taken by franchisees consistent with
the increase in batter sales to franchisees, partially offset by
(b) an increase in sales of, miscellaneous supplies to franchise stores.
Cost of Sales
Cost of sales decreased approximately $452,000, or 2.3%, during fiscal year
1996 compared to fiscal year 1995. The decrease was primarily attributable to:
(a) a decline in retail cookie and beverages sales volume in Great
American-owned stores and
(b) an improvement in wholesale batter margins, partially offset by
(c) an increase in the volume of batter sold to franchisees.
Retail Store Occupancy
Retail store occupancy costs decreased approximately $209,000, or 2.8%,
during fiscal year 1996 compared to fiscal year 1995. The decrease in retail
store occupancy costs was primarily attributable to:
(a) a decrease of approximately 3.7% in Great American-owned store weeks,
partially offset by
(b) an increase in depreciation due to Great American revising its
estimate of the useful life of certain leasehold improvements. Great
American began amortizing leasehold improvements using accelerated
methods over an average of eight years instead of using the straight
line method over an average of ten years. The effect of this change in
estimate was to increase fiscal year 1996 pre-tax loss by $214,000.
Management believes that this revision better reflects the leasehold
improvements economic useful life.
64
<PAGE>
Other Retail Store Expenses
Other retail store expenses decreased approximately $223,000, or 14.5%,
during fiscal year 1996 compared to fiscal year 1995. The decrease in other
retail store expenses was primarily attributable to:
(a) a decrease in marketing expenses and
(b) a decrease in bank charges and supplies expense as a result of cost
containment efforts.
Selling, General and Administrative Expense
Selling, general and administrative expenses decreased approximately
$376,000, or 4.9%, during fiscal year 1996 compared to fiscal year 1995. The
decrease in selling, general and administrative expenses was primarily
attributable to:
(a) a reduction in administrative salaries and benefits,
(b) a decrease in professional service fees, including legal and
accounting services, and
(c) a decrease in various home office expenditures, including postage,
supplies, and training materials, partially offset by
(d) an increase in travel costs due to additional review of stores by
field supervisors.
Other Expenses, Net
Other expenses, net, increased approximately $231,000, or 4.4%, during fiscal
year 1996 compared to fiscal year 1995. The increase was primarily attributable
to:
(a) decreased gains on the sale of existing stores,
(b) a decrease in interest income due to lower average cash balances, and
(c) an increase in interest expense due to an increase in capital lease
obligations.
Non-Recurring Litigation Charge
During the third quarter of fiscal year 1995, a non-recurring litigation
charge of $439,000 was recorded to cover a potential forthcoming judgment
against Great American in the Haagen-Burbank lawsuit. In June 1993, Great
American won a judgment for breach of written contract to a lease entered into
with a developer, Haagen-Burbank. On appeal, the Court of Appeals of the State
of California Second Appellate District overturned the jury's verdict and
directed the trial court to determine the amount of attorney fees and costs due
to Haagen-Burbank as the prevailing party in the litigation. Haagen-Burbank had
submitted to the court a request for legal fees totaling $439,000; however, on
April 27, 1995, the trial court entered a judgment of $417,985. On September
15, 1995, Great American paid $395,966 to Haagen-Burbank as settlement of the
judgment against Great American.
Net Loss
Net loss decreased approximately $469,000, or 25.6%, for fiscal year 1996
compared to fiscal year 1995. The decrease in net loss was primarily
attributable to:
(a) a $236,000 increase in operating income, and
(b) the occurrence of the non-recurring litigation charge in fiscal 1995,
offset by
(c) a $118,000 decrease in state and federal income tax benefit, and
(d) a $45,000 increase in other expenses, net.
65
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have not been, prior to the effectiveness of this Registration Statement,
required to file reports and other information with the Commission under the
Exchange Act. We have agreed that, whether or not we are required to do so by
the rules and regulations of the Commission, we will deliver to The Bank of New
York, as trustee under the indenture, to each holder of notes and to each
prospective purchaser of notes identified to us by a placement agent for the
offering in August 1998, annual and quarterly financial statements
substantially equivalent to financial statements that would be included in
reports filed with the Commission, if we were subject to the reporting and
other informational requirements of the Exchange Act.
We have filed with the Commission a registration statement on Form S-4 (in
this prospectus, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act, with respect to the notes
offered in this prospectus. This prospectus, which forms a part of the
Registration Statement, does not contain all of the information in the
Registration Statement and the exhibits to it, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to Mrs. Fields' Holding and the notes offered
in this prospectus, we refer you to the Registration Statement. With respect to
any statements made in this prospectus concerning the provisions of certain
documents, we refer you to the copy of such document filed as an exhibit to the
Registration Statement otherwise filed with the Commission.
Upon the effectiveness of the Registration Statement, we will become subject
to the informational requirements of the Exchange Act, and will file reports
and other information with the Commission. You may read and copy the
Registration Statement, the exhibits forming a part of it and the reports and
other information filed by Mrs. Fields' Holding with the Commission in
accordance with the Exchange Act, at the Public Reference Section of the
Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
and at the following regional offices of the Commission: 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10004; and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. You may obtain copies
of all or any portion of the material by mail from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such information is available electronically on the
Commission's home page on the Internet (http://www.sec.gov).
If we are not required to be subject to the reporting requirements of the
Exchange Act in the future, we will be required under the indenture, to furnish
the holders of the notes with
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms
10-Q and 10-K, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report thereon by our
independent public accountants and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K, in each case, within the time periods
specified in the Commission's rules and regulations.
This prospectus incorporates documents by reference that are not presented in
or delivered with this prospectus. These documents are available upon request
from Michael Ward, Esq., Mrs. Fields' Holding Company, Inc., 2855 East
Cottonwood Parkway, Suite 400, Salt Lake City, Utah 84121, (801) 736-5600. In
order to ensure timely delivery, any request should be made by ,1999.
66
<PAGE>
BUSINESS
General
Mrs. Fields is one of the largest retailers in the premium snack-food
industry, with cookies and pretzels as its major product lines. Mrs. Fields is
the largest retailer of baked on-premises cookies and the second largest
retailer of baked on-premises pretzels in the United States. Mrs. Fields is one
of the most widely recognized and respected brand names in the premium cookie
industry. Based on a 1994 study that we commissioned by Corey, Canapary &
Galanis, 94% of consumers in the study were aware of the Mrs. Fields brand.
Twenty percent named our brand without prompting, and 74% knew of our brand
when prompted. Mrs. Fields has recently developed a significant presence in the
rapidly growing, health-oriented pretzel segment as a result of the
acquisitions of the pretzel businesses of Hot Sam, Pretzel Time and H&M, which
was formerly the largest Pretzel Time franchisee. As of October 3, 1998, our
retail network consisted of 1,333 locations, of which 1,021 were cookie stores
and 312 were pretzel stores. Of the total 1,333 stores, 568 were company-owned
and 765 were franchised or licensed. Mrs. Fields stores average approximately
600 to 700 square feet in size and are located predominantly in shopping malls.
Mrs. Fields, through licensed locations, also operates kiosks and carts at
airports, universities, stadiums, hospitals and office building lobbies. Mrs.
Fields' objective is to increase sales and profitability by focusing on its
continuing company-owned stores. As a result, by the end of fiscal year 2000,
Mrs. Fields plans to close or franchise approximately 100 company-owned cookie
stores and 33 company-owned pretzel stores that do not meet certain financial
and geographical criteria established by management after giving effect to the
acquisitions of Great American and the capital stock or stores of certain of
its franchisees. For the year ended January 3, 1998 and the 39 weeks ended
October 3, 1998, we generated pro forma net revenue and EBITDA of $200.6
million and $31.9 million and $132.9 million and $15.7 million, respectively.
Cookies
We operate and franchise 1,021 retail cookie stores: 573 under the Mrs.
Fields brand, 128 under the Original Cookie brand and 320 under the Great
American brand. As a result of the acquisition of Great American, Mrs. Fields
has cookie stores in 46 states, with Great American stores concentrated in the
southeastern and south central states and Mrs. Fields and Original Cookie
stores strongly represented in the western, midwestern and eastern states.
There is little overlap between Mrs. Fields and Great American stores, with a
dual presence in 31 malls. Management believes that Mrs. Fields is positioned
in the premium quality, baked on-premises segment of what management believes
to be the approximately $12 billion U.S. cookie industry. Mrs. Fields offers
over 50 different types of cookies, brownies and muffins, which are baked
continuously and served fresh throughout the day. Baked products are made using
only high quality ingredients, and all dough is centrally manufactured and
frozen or refrigerated to maintain product quality and consistency. All
products pass strict quality assurance and control steps at both the
manufacturing plants and the stores. In addition, Mrs. Fields continually
creates and tests new products to attract new customers and satisfy current
customers. Product development is currently focused on sugar-free dough and
reduced-fat cookies and brownies.
Mrs. Fields Inc. one of the predecessors of Mrs. Fields, was founded in 1977
by Debbi Fields and, following its initial success, embarked on an aggressive
national expansion program in the early 1980s. By the late 1980s, however, Mrs.
Fields Inc. experienced financial difficulty as a result of excessive debt
levels, certain poor real estate locations, and a recessionary retailing
environment. In connection with a financial restructuring by its lenders, Mrs.
Fields' Holding put a new management team into place in mid-1994 under the
leadership of Larry A. Hodges, who has extensive experience in the food and
retailing industries. Mr. Hodges introduced a new strategic plan for Mrs.
Fields, which involved the following key elements:
(1) identifying stores to close or franchise,
(2) introducing company-wide operating procedures to improve store
operating margins,
67
<PAGE>
(3) developing a marketing strategy and promotional calendar to turn
around sales of stores that have been open at least two years, and
(4) improving employee morale through selective new senior hires,
increased training and various incentive plans.
Mrs. Fields reinvested the savings from the improved store operations in
marketing and other measures designed to improve sales of stores that have been
open at least two years.
Mrs. Fields' Original Cookies, Inc. was formed in September 1996 in
connection with the acquisitions of Mrs. Fields Inc., Original Cookie and Hot
Sam by Mrs. Fields' Holding, a subsidiary of Capricorn. As of January 2, 1999,
Capricorn had invested more than $28 million in Mrs. Fields through Mrs.
Fields' Holding. Capricorn retained Mr. Hodges as Chief Executive Officer of
Mrs. Fields. Management believes that Mrs. Fields has a more well-recognized
brand name than Original Cookie and that Mrs. Fields stores have, during fiscal
year 1997, achieved higher average revenue per continuing company-owned store
than Original Cookie stores ($351,000 versus $301,000). As a result, Mrs.
Fields intends to continue selectively converting our continuing company-owned
and to-be-franchised Original Cookie stores to Mrs. Fields brand stores. We
believe this will result in an increase in net sales, sales from stores that
have been open at least two years, and income from store operations. Mrs.
Fields will also test the success of converting selected Great American
company-owned stores to Mrs. Fields brand stores. In addition, any Great
American franchisee will have the option to convert to Mrs. Fields brand
stores, at its sole expense, in areas where there is no overlap with existing
Mrs. Fields brand franchise stores.
Great American, incorporated in 1977, is a leading operator and franchisor of
mall-based specialty retail cookie outlets, including full-size stores and
satellite sites, consisting of carts, wagons and kiosks. As of October 3, 1998,
Great American had 320 in-line stores including 109 Great American-operated and
211 franchised retail units, operating primarily in the southeastern and south
central United States. Great American derives its revenue principally from:
(1)the sale of cookies and beverages at Great American-operated stores,
(2)the sale of proprietary batter to franchised stores, and
(3) the receipt of royalty payments based on gross sales of franchisees.
In addition, Great American generates revenues from initial franchise fees
and the sale of existing Great American-operated stores to franchisees.
Great American outlets sell a variety of cookies and brownies, including
"cookie cakes," as well as assorted soft drinks, frozen drinks, coffee and tea.
Cookie cakes are extra-large cookies, decorated with customer-selected
personalized messages, for special occasions. Although cookie sales are
generally the result of impulse buying, we believe that cookie cakes, which are
often purchased as gifts for special occasions, differentiate Great American
from other specialty cookie retailers by making Great American stores
destination outlets.
Pretzels
Mrs. Fields operates and franchises 312 retail pretzel stores: 226 under the
Pretzel Time brand and 86 under the Hot Sam brand, which offer "sweet dough"
soft pretzels and "Bavarian" style pretzels with a variety of toppings. Pretzel
Time's primary product is an all-natural, hand-rolled soft pretzel, freshly
baked from scratch at each store location. Pretzel Time stores prepare pretzels
with a variety of flavors and specialty toppings, including cheddar cheese,
cream cheese and pizza sauce. The stores also offer soft drinks and freshly
squeezed lemonade. The Hot Sam pretzel stores specialize in the Bavarian style
pretzel. This product has declined in popularity in recent years as sweet dough
pretzel sales have grown dramatically. In addition, Pretzel Time stores have,
during fiscal year 1997, achieved higher average revenue for our continuing
company-owned stores than Hot Sam stores ($275,000 versus $240,000). As a
result, Mrs. Fields intends to continue converting
68
<PAGE>
its continuing company-owned and to-be-franchised Hot Sam stores to Pretzel
Time stores, which it believes will result in an increase in net sales, sales
from stores that have been open at least two years, and income from store
operations.
Management believes that retail pretzel stores have similar operating
characteristics to retail cookie stores that will permit us to offer our
products with those of other well-known brand names. In addition, the retail
pretzel business has grown more quickly than the retail cookie business in
recent years. Hot Sam was acquired by Mrs. Fields in connection with the
acquisition of Original Cookie. In order to expand its presence in the retail
pretzel industry, Mrs. Fields recently acquired the business of H&M and common
stock of Pretzel Time. Pretzel Time is a franchisor of 226 hand-rolled soft
pretzel retail outlets, which are located in shopping malls as well as in
airports, sports arenas, amusement parks and resort areas throughout the United
States and Canada. We operate 95 of Pretzel Time's stores as franchisee and
have rights as developing agent to develop Pretzel Time stores in 18 states,
Mexico, and four provinces in Canada.
Business Strategy
Mrs. Fields' Holding's objective is to increase sales and profitability at
its continuing company-owned and franchised stores by implementing the key
elements of its long-term business strategy. Percentage change in sales from
stores that have been open at least two years was (0.9)% for the 39 weeks ended
October 3, 1998 compared to 0.6% for the fiscal year ended January 3, 1998 and
(1.2)% for the fiscal year ended December 28, 1996. Franchising, licensing and
other revenues increased by 23.5% for the fiscal year ended January 3, 1998
over the fiscal year ended December 28, 1996 and by 59.8% for the 39 weeks
ended October 3, 1998 compared to the 39 weeks ended September 27, 1997. The
key elements of Mrs. Fields' Holding's business strategy are as follows:
. Enhance Quality of Company-Owned Store Base. Since current management
assumed responsibility in 1994, we have focused on closing and
franchising company-owned stores that do not meet certain financial and
geographical criteria. From June 1994 through October 3, 1998, Mrs.
Fields closed 171 Mrs. Fields brand stores and franchised an additional
135 Mrs. Fields brand stores. We have targeted 135 additional stores
that sell our various products to be either closed or franchised by the
end of 2000. Such measures are expected to result in enhanced operating
margins, as unprofitable stores are closed and certain other stores are
converted into franchises, thereby increasing royalty payments and
eliminating overhead costs of the operating company associated with such
stores.
. Improve Productivity of Continuing Company Stores. We have embarked on a
program to improve the performance of our continuing company-owned
stores by:
(1) expanding product offerings to include breakfast items, such as
muffins, croissants and bagels, and low-fat cookies, brownies
and muffins,
(2) raising the average sales by tying sales of products together,
(3) promoting catering services by individual stores to corporate
customers,
(4) decreasing store expenses by reducing waste in the cookie baking
process and controlling the cost of ingredients and supplies,
(5) improving merchandising by enhancing product presentation and
refining selection of products and
(6) increasing training and various incentive programs for
management and sales staff.
. Capitalize on the Strong "Mrs. Fields" Brand Name. Management believes
that the Mrs. Fields brand is the most widely recognized and respected
brand name in the retail premium cookie industry, and that during fiscal
year 1997 and the 39 weeks ended October 3, 1998, Mrs. Fields brand
stores achieved higher average revenue for the continuing company-owned
stores than Original Cookie stores. As a result, we intend to continue
selectively converting our continuing company-owned and to-be-franchised
Original Cookie stores to Mrs. Fields brand stores, which we believe
will result in an
69
<PAGE>
increase in net sales, sales from stores that have been open at least
two years, and income from store operations. We will also test the
success of converting selected Great American company-owned stores to
Mrs. Fields brand stores. In addition, any Great American franchisee
will have the option to convert to Mrs. Fields brand stores, at its sole
expense, in areas where there is no overlap with existing Mrs. Fields
brand franchise stores. Original Cookie stores represent 33% and Great
American stores represent 28% of all company-owned cookie stores. In
addition, we intend to further capitalize on the Mrs. Fields brand name
by:
(1) further developing and expanding new channels of distribution
for our products, including kiosks and carts in malls, airports,
convention centers, office buildings, street fronts and sports
complexes,
(2) increasing the emphasis on the mail order business, and
(3) developing and capitalizing on licensing opportunities, such as
linking sales of the Mrs. Fields products with prominent names
in the retailing and food service industry, expanding licensing
agreements with our existing licensees, entering into new
licensing agreements with food service operators and developing
product line extensions, such as frozen cookie dough and in-
store bakery products to be sold in supermarkets and other
convenient locations.
. Develop Great American Brand. Management believes that the Great
American brand has high consumer awareness in the southeast United
States. We intend to build on the Great American brand by continuing to
franchise additional Great American stores and by testing the success of
converting selected Company-owned Original Cookie stores into Great
American stores.
. Capitalize on the Strong "Pretzel Time" Brand Name. Through the
acquisition of Pretzel Time, we have obtained the use of the "Pretzel
Time" brand name, one of the leading brand names in pretzel retailing.
Management believes that there are significant opportunities to improve
its existing Hot Sam store operations by continuing to convert our
continuing company-owned and to-be-franchised Hot Sam stores to Pretzel
Time stores. During fiscal year 1997 and the 39 weeks ended October 3,
1998, Pretzel Time stores achieved higher average revenue per continuing
company-owned store and store contribution than Hot Sam stores. Hot Sam
stores represent 48% of all company-owned pretzel stores. Management
believes that the conversion to the Pretzel Time name will result in an
increase in net sales, sales from stores that have been open at least
two years, and income from store operations for Mrs. Fields pretzel
business. In addition, we believe there are significant new Pretzel Time
franchising opportunities.
. Develop New Company-Owned and Franchised Stores. We plan to build and
franchise new stores, as well as carts and kiosks, in existing and new
markets. We have identified over 100 mall and non-traditional locations,
such as amusement parks and other entertainment centers, that we believe
would be ideal for cookie and pretzel stores. By the end of fiscal year
2000, we intend to franchise approximately 37 existing cookie and 14
existing pretzel stores. Beginning in fiscal year 1999, we intend to add
approximately 15 new company-owned cookie and 10 new company-owned
pretzel stores per year and to franchise approximately 25 new cookie and
25 new pretzel stores per year. In addition to pursuing new store
development opportunities within the United States, we plan to grow
internationally by expanding our franchise operations. As of October 3,
1998, there were 82 franchised Mrs. Fields brand stores open
internationally.
. Realize Purchasing and Overhead Cost Savings. As a result of the
acquisition of Great American and the capital stock or stores of certain
of its franchisees, we expect to realize significant cost savings from
the elimination of duplicative administrative functions, the
consolidation of management information systems and the reduction of the
costs of food and other supplies as a result of our enhanced purchasing
power with vendors. Management believes that incremental pre-tax cost
savings would have totaled approximately $4.1 million for the year ended
January 3, 1998. The savings include $2.2 million of savings on overhead
at the operating company level and $1.9 million of cost savings related
to one-time expenses of eliminating multiple headquarter facilities.
70
<PAGE>
. Pursue Further Strategic Acquisitions of Related Businesses. We intend
to selectively pursue strategic acquisitions, in addition to the
acquisition of Great American, the businesses and stores of certain of
its franchisees and other recent acquisitions, in order to expand
geographic presence and achieve operating efficiencies. Our management
has demonstrated its ability to identify and integrate new businesses
through acquisitions of the cookie and pretzel businesses of Original
Cookie, Hot Sam, Pretzel Time and H&M in 1997.
Product Offerings
Our product offerings consist primarily of:
(1)fresh baked cookies, brownies, muffins, and other baked goods and
(2) fresh baked sweet dough and "Bavarian" style pretzels.
During fiscal year 1997, pro forma for the acquisition of Great American
stock and stores of certain of its franchisees, our percentage of revenues by
product category consisted of the following:
<TABLE>
<S> <C>
Cookies and Brownies..................................................... 60%
Pretzels................................................................. 20%
Beverages................................................................ 18%
Other.................................................................... 2%
</TABLE>
Cookies. The primary products of our cookie stores are a variety of cookies,
which are baked in view of customers throughout the day. Secondary product
lines include several varieties of brownies, muffins, other baked goods,
gourmet coffees, frozen drinks and other beverages. Mrs. Fields stores,
Original Cookie stores and Great American stores also sell decorated cookies
("cookie cakes") which are extra-large cookies decorated with customer-selected
slogans purchased as gifts for special occasions, such as birthdays,
Valentine's Day, Father's Day and Easter. Based on pounds of batter shipped,
cookie cakes constitute the second largest volume product of Great American
stores. We plan to utilize Great American's superior expertise in baking and
marketing cookie cakes to enhance sales of the existing cookie cakes products
in Mrs. Fields and Original Cookie stores.
Baked products are made using only pure, high quality, vanilla, chocolate,
raisins, nuts and other ingredients. To maintain product quality and
consistency at both company-owned and franchised stores, Mrs. Fields and
Original Cookie stores use centrally manufactured frozen dough, which is
manufactured by outside suppliers according to proprietary formulas of Mrs.
Fields. Great American stores use refrigerated batter that is shipped daily
from the Atlanta production facility. All products must pass strict quality
assurance and control steps at both the manufacturing plants and the stores.
Pretzels. Through its Hot Sam and Pretzel Time stores, Mrs. Fields offers a
wide variety of fresh-baked pretzels. Pretzels have become a popular snack due
to consumers' attraction to salted snacks and the increased demand for snacks
that are low in fat and cholesterol.
Hot Sam is the largest U.S. retailer of fresh-baked "Bavarian" style
pretzels. Pretzel Time stores offer all natural, hand-rolled sweet dough
pretzels prepared with a variety of flavors and special toppings, including
cheddar cheese, cream cheese and pizza sauce. In addition, Pretzel Time stores
offer specialty pretzels and related products, such as cinnamon pretzels and
cinnamon twists, as well as several recently introduced pretzel products, such
as pretzel dogs, chocolate chip pretzels and caramel crunch pretzels.
Product Development. We maintain a product development department which
continually creates and tests new products to attract new customers and
revitalize the interest of current customers. Once a new product is identified,
we develop prototypes to determine the initial formula. For Mrs. Fields
products, the formula is then scaled up for test production runs at one or more
approved facilities. Once the product has been
71
<PAGE>
successfully produced, ingredient specifications, formulas, manufacturing
processes, finished product specifications, shelf life, storage and
distribution procedures are established. The new product is either immediately
launched throughout the system, as in the case of seasonal items or simple line
extensions, or test marketed in a limited number of stores. After a trial
period to evaluate both consumer response and store operations' ability to
handle the new product, it is fully commercialized, modified or discontinued.
We continually review our selection of products in an effort to maximize
daytime offerings and profitability. For example, new muffin flavors, bagels,
croissants and a revitalized coffee program were recently introduced to enhance
morning offerings, as cookies begin selling primarily after mid-day.
In the cookie business, product development efforts are currently focused on
a fresh-baked, sugar-free cookie dough and other products, such as low-fat
brownies, reduced-fat cookies and seasonal items that are designed to
capitalize on consumer trends and draw interest to our store locations. In the
pretzel business, Mrs. Fields has been testing "made-from-scratch" hand rolled
pretzels, which serve as a platform for a variety of other products, such as
jalapeno, cinnamon raisin and garlic pretzels with a sweet dough base, meat and
cheese filled pretzel pockets and pretzelwiches (pretzel bun sandwiches).
Store Operations
Store Base. As of October 3, 1998, Mrs. Fields' store portfolio consisted of
568 company-owned stores, 523 domestic franchised locations, 82 international
franchised locations and 160 licensed locations. By concept, the stores are
distributed as follows:
<TABLE>
<CAPTION>
Company-Owned
----------------------------
To Be To Be Domestic International
Continuing Closed Franchised Franchised Franchised Licensed Total
---------- ------ ---------- ---------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Mrs. Fields............. 137 6 7 181 82 160 573
Original Cookie......... 98 12 18 -- -- -- 128
Great American.......... 52 46 11 211 -- -- 320
--- --- --- --- --- --- -----
Cookie Subtotal......... 287 64 36 392 82 160 1,021
--- --- --- --- --- --- -----
Pretzel Time............ 85 10 -- 131 -- -- 226
Hot Sam................. 63 9 14 -- -- -- 86
--- --- --- --- --- --- -----
Pretzel Subtotal........ 148 19 14 131 -- -- 312
--- --- --- --- --- --- -----
Totals.................. 435 83 50 523 82 160 1,333
=== === === === === === =====
</TABLE>
72
<PAGE>
As of October 3, 1998, Mrs. Fields' domestic stores were located in 48
states. The following table represents states with ten or more outlets:
Store Geography List
<TABLE>
<CAPTION>
% of Domestic
Company- Retail
State Owned Franchised Licensed Total Outlets
- ----- -------- ---------- -------- ----- -------------
<S> <C> <C> <C> <C> <C>
California..................... 83 54 16 153 12.25%
Texas.......................... 48 44 5 97 7.77%
Florida........................ 30 40 14 84 6.75%
New York....................... 39 21 16 76 6.08%
Ohio........................... 53 8 10 71 5.68%
Illinois....................... 33 18 9 60 4.80%
Michigan....................... 35 11 3 49 3.92%
Georgia........................ 17 22 3 42 3.36%
Missouri....................... 8 33 1 42 3.37%
Pennsylvania................... 18 11 12 41 3.28%
Virginia....................... 20 14 3 37 2.96%
New Jersey..................... 12 13 8 33 2.64%
North Carolina................. 3 25 3 31 2.48%
Indiana........................ 14 9 4 27 2.16%
Tennessee...................... 4 20 3 27 2.16%
Arizona........................ 14 9 3 26 2.08%
Colorado....................... 4 12 8 24 1.92%
Connecticut.................... 6 12 5 23 1.84%
Maryland....................... 10 9 4 23 1.84%
Massachusetts.................. 12 6 5 23 1.84%
Wisconsin...................... 20 3 -- 23 1.84%
Louisiana...................... 9 9 2 20 1.60%
Washington..................... 11 9 -- 20 1.60%
Alabama........................ -- 15 3 18 1.44%
South Carolina................. 4 12 2 18 1.44%
Utah........................... 7 9 1 17 1.36%
Minnesota...................... 4 10 -- 14 1.12%
Nevada......................... 3 4 7 14 1.12%
Iowa........................... 4 9 -- 13 1.04%
Oklahoma....................... 5 5 2 12 0.96%
Kansas......................... 5 4 1 10 0.80%
Kentucky....................... 3 6 1 10 0.80%
West Virginia.................. 4 5 1 10 0.80%
--- --- --- -----
Total domestic stores........ 566 523 160 1,249
International locations........ 2 82 -- 84
--- --- --- -----
Total Company-owned stores... 568 605 160 1,333
=== === === =====
</TABLE>
Configurations. We have developed a number of retail configurations which
have wide application and adaptability to a variety of retail environments. In
addition to the stores that have been designed for prime mall locations, we
have developed other formats intended to extend our presence within and beyond
mall locations. The introduction of frozen dough technology has led to a number
of new store configurations, expanded product offerings in smaller outlets and
non-traditional formats.
73
<PAGE>
Cookie Stores. All stores are uniformly designed in accordance with the Mrs.
Fields, Original Cookie or Great American prototype, making extensive use of
glass, painted wood, brass, mirrors, lighting and point-of-sale displays
intended to create an upscale, open and inviting look. Stores also attractively
and efficiently display their fresh-baked products using custom-made showcases.
Store size ranges from 350 to 800 square feet, and the typical company-owned
store is about 600 to 700 square feet with a minimum of about 15 linear feet of
counter space. Locational possibilities for new stores include high traffic
regional malls, central downtown shopping districts and recreational shopping
environments.
Mrs. Fields and its franchisees and licensees also operate cookie kiosks and
carts in certain malls on a year-round basis. Kiosks have 100 to 250 square
feet of retail space, supported by off-site storage and preparation space.
Carts range in size from 30 to 92 square feet. Currently only the Great
American kiosks have self-contained baking ovens. Because of their small size,
carts and other kiosks do not have baking equipment, and are supplied cookie
products by a fully-equipped store usually located in the same mall. We plan to
add baking equipment to carts and kiosks in malls, airports, convention
centers, office buildings, street fronts and sports complexes, giving these
outlets greater flexibility in the products they can offer. All designs contain
retail display, small freezers and cash registers. We see expansion
opportunities from the use of carts, which create incremental revenue at a
relatively low cost in certain locations.
All of the retail store configurations are executed to include the same high-
quality marketing, merchandising and design features which customers have come
to expect from Mrs. Fields. The store designs are bright with high-profile
trademark identity. All products are baked throughout the day on the premises
with ovens located in full view of the customer to support the "fresh-baked"
image.
Pretzel Stores. Hot Sam stores are uniformly designed in accordance with the
Hot Sam brand, making extensive use of tile, stained wood, lighting and point-
of-sale displays intended to create an upscale, open and inviting look. Stores
also attractively and efficiently display their products using custom-made
showcases. The typical company-owned pretzel store is about 500 square feet.
Pretzel Time outlets have an average size of 700 square feet in both kiosks
and store locations. Pretzel Time stores are designed to enable customers to
enjoy watching the pretzels being rolled, twisted and baked, which underscores
freshness and lends to the concept's growing appeal.
Location and Leasing. Locational possibilities include any high pedestrian
traffic areas, including second locations within malls, airport concourses,
office building lobbies, hospitals, universities, stadiums, and supermarket
foyers. Taking the impulse nature of its business into consideration, Mrs.
Fields tries to locate its outlets in areas of high pedestrian traffic, with
easy proximity to pedestrian traffic flow and at a distance from other food
providers of any kind.
The majority of Mrs. Fields stores are located in shopping malls, with the
vast majority of Mrs. Fields brand stores in malls falling into the "A" and "B"
classifications, or the better-quality malls in the country. As of October 3,
1998, Mrs. Fields, including franchise locations, has a presence in 90% of the
top 150 (as measured in sales per foot) "A" and "B" malls in the country. Malls
in "A" and "B" classifications generally have the following characteristics:
. Size greater than 700,000 square feet
. Sales per square foot greater than $300
. Population density greater than 150,000 people within a five-mile radius
. Population having a median family income greater than $50,000
. Generally supported by national fashion anchor tenants
. Located to minimize competition from other malls
Great American stores are located primarily in high-traffic "B" malls.
74
<PAGE>
Marketing and Advertising. Mrs. Fields' in-house marketing department and an
outside promotional agency market products emphasizing product sampling, local
store marketing and brand name identification. We advertise at the store
level, using the aroma of fresh-baked cookies and the attractive arrangement
of finished products to create a store ambiance that is conducive to sales.
Recently we experimented with an advertising campaign with nationally
televised commercials during peak holiday periods. We cultivate local customer
loyalty by offering regular 20% discounts to employees in malls where stores
are located and occasional other discounts. Historically we have spent
relatively little on paid advertising, relying mainly on in-store signage,
promotions and the public relations of Debbi Fields, who makes store visits
and local media appearances throughout the country and internationally for
Mrs. Fields. In addition to posters and display of products, we promote
products by offering special packaging and selling other promotional items. A
recent promotion for Mrs. Fields' 20th anniversary featured a tie-in with the
popular Peanuts characters from the syndicated comic strip, a sweepstakes, and
gifts with purchases. Mrs. Fields is currently working on developing catered
corporate accounts for both company-owned and franchised stores and will be
building awareness of products geared toward corporate accounts at the store
level for the local market area and through catalogue sales. We also promote
our products as gifts, particularly at holiday time.
Great American's marketing strategy has emphasized strong merchandising of
its products and the use of proactive sales techniques, including the free
sampling of products and other methods intended to increase the size of
customer orders.
Mail Order Business. Our mail order division markets a variety of fresh-
baked and other gift items through its mail order gift catalogue using toll
free telephone numbers, including "1-800-COOKIES." The mail order division had
$3.8 million in revenues during fiscal year 1997. We believe that there is
significant potential in the mail order business and is developing this
division by targeting both corporate customers and individuals with a history
of purchases at Mrs. Fields stores. Sales from the mail order division for the
fiscal year 1997 have increased approximately 61% over sales for the prior
fiscal year.
Customer Profile. We believe that our products are best targeted to a
demographic profile which is relatively young, with upper-middle income
levels. At the time of a May 1994 study, 66% of Mrs. Fields' customers were
female and 34% were male, the mean age of a customer was 35.1 years of age,
and 57% of customers had a household income of $50,000 or more. We believe
that this demographic profile remains valid.
Seasonality. Our sales and profitability in both the cookie business and the
pretzel business are subject to seasonal fluctuation and are traditionally
higher during the Thanksgiving and Christmas holiday season and other gift-
giving holidays due to increased mall traffic and holiday gift purchases.
Supplies and Distribution
Ingredients and Supplies. We rely primarily on outside suppliers and
distributors for the ingredients used in our products and other items used in
our stores. Mrs. Fields stores receive frozen products, made according to
proprietary recipes of Mrs. Fields, from our primary supplier, Pennant Food
Corp. Pennant uses stringent quality controls in testing ingredients and
manufacturing. Products are not released for distribution unless they pass all
quality control steps, including an evaluation of the finished baked product.
Pennant's contract for making frozen products for Mrs. Fields is renewable
every three years. Pennant supplies the majority of Mrs. Fields and Original
Cookie frozen bakery product. J&J Foods, Inc. supplies the majority of the
frozen pretzel dough to Hot Sam Stores. We have identified alternative
suppliers for frozen dough at Mrs. Fields and Hot Sam. Pretzel Time stores buy
a proprietary dry mix from selected distributors and mix and bake pretzels at
individual stores. Pretzel Time franchisees buy from various distributors.
Most supplies other than dough are ordered from distributors by either Mrs.
Fields or the franchisee and are directly shipped to the store. We sell
exclusively Coca Cola soft drinks in Mrs. Fields, Original Cookie, Pretzel
Time, Hot Sam and Great American stores under agreements with Coca-Cola USA
Fountain.
75
<PAGE>
Great American stores receive "ready to bake" refrigerated batter from a
batter facility in Atlanta, which Mrs. Fields acquired in the Great American
acquisition. The batter, which has a shelf life of about 90 days, is stored at
the batter facility for an average of one to three weeks, depending on demand,
before being shipped. Most other supplies are ordered from third-party vendors
by Great American or the franchisee and are shipped directly to the store.
Distribution. Regional distributors handle distribution of perishable and
non-perishable items to Mrs. Fields and Original Cookie stores weekly. Regional
distributors own and maintain all of the inventory, but are authorized to
purchase inventory items only from authorized vendors at prices that have been
negotiated by Mrs. Fields. Hot Sam distributes perishable and non-perishable
items weekly to stores using seven different regional distribution companies.
Pretzel Time franchisees use a variety of distributors. Mrs. Fields ships
equipment related items, including smallwares, equipment and oven parts,
directly from public warehouses. Great American stores receive batter from the
Atlanta batter facility by refrigerated common carrier.
Management Information Systems
We have made a substantial investment in developing our point-of-sale system,
which gathers information transmitted daily to corporate headquarters from most
of our Mrs. Fields brand continuing company-owned stores. We plan to install
our upgraded back-office system, along with the point-of-sale registers and
Pentium 333 machines, in our continuing company-owned Original Cookie stores,
Hot Sam stores, Pretzel Time stores and certain Great American stores by August
1999.
We are currently replacing our sales collection systems with software and
hardware that is Year 2000 compliant. Replacement of the plant production and
distribution software is expected to take place in the first quarter of 1999 at
an estimated cost of $50,000. For more information on our information
technology, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000."
Management is in the process of assessing Year 2000 issues with respect to
its significant vendors and financial institutions as to their compliance plans
and whether any Year 2000 issues will impede the ability of our vendors to
continue providing goods and services to us. See "Risk Factors--Failure in Year
2000 Compliance Could Disrupt our Operations."
Store Management
Management Structure. We monitor all company-owned stores with a regionally-
based staff of district sales managers. District sales managers are responsible
for monitoring all cookie and pretzel stores in their territory. Until
recently, franchisees had been monitored by a separate staff of regionally-
based franchise operations consultants. We plan to consolidate the franchise
operations consultants with the district sales managers. As a result, each
district sales manager is responsible for overseeing approximately 30 company-
owned or franchised cookie and pretzel stores within his or her region. Each
district sales manager reports to one of the four regional vice-presidents of
store operations. The field staff is also responsible for introducing new
products and processes to the stores, ensuring proper implementation and
quality control.
Management Incentives. Each store has an on-site management team consisting
of a manager and an assistant manager. The store manager is responsible for
hiring, training and motivating store personnel. Each manager of a company-
owned store is eligible for salary increases and bonuses based upon the
performance of his or her store, including sales, profits and store appearance.
We believe that our incentive and other programs for management have achieved a
strong retention rate for managers. Without giving effect to the acquisition of
Great American, 72% of Mrs. Fields' district sales managers have been with Mrs.
Fields for at least 4 years (67% for over 5 years), and 51% of store managers
have been with Mrs. Fields for at least 4 years (40% for over 5 years).
76
<PAGE>
Training. We believe store managers are a critical component in creating an
effective retail environment, and accordingly have developed ongoing programs
to improve the quality and effectiveness of our store managers and to increase
retention rates. New store managers are required to attend a two-week training
program at our Salt Lake City training facility and ongoing training courses in
new products, standards, and procedures are available throughout the year to
all of our personnel. New franchisees and store managers of Great American are
required to attend a one-week training program at Great American's Atlanta
training facility, known as "Cookie University." In addition, training courses
are available throughout the year to all Great American and franchisee
personnel.
Franchise Operations
In accordance with our business strategy, we have been selling, and expect to
continue to sell, selected company-owned stores to franchisees to reduce costs,
increase profitability and provide for liquidity and development of additional
stores in the future. We are also actively seeking to franchise new stores.
Cookie Business. Each franchisee pays Mrs. Fields an initial licensing fee of
$25,000 per Mrs. Fields store location and is responsible for funding the
building-out of the new store and purchasing initial dough inventory and
supplies, at a total cost of approximately $200,000 (including the initial
franchise fee). However, the cost of opening a new store can vary based on
individual operating and location costs. We also charge franchisees a fee to
handle equipment purchases and to provide other assistance in helping the
franchisee to set up operations. After a store is set up, a franchisee pays
royalty fees to us of 6% of the franchised store's annual gross sales and an
advertising fee of 1% of annual gross sales. We do not currently anticipate
franchising Original Cookie stores.
Franchisees come from a wide variety of business backgrounds and bring with
them different operating styles and business objectives. Among our franchisees
are full-time store operators, passive investors, retired professionals and
people seeking a second source of income. The majority of Mrs. Fields
franchisees own 1 store. As of October 3, 1998, the 5 largest Mrs. Fields
franchisees operated 61 stores, and the largest Mrs. Fields franchisee operated
14 stores.
Each Great American franchisee pays an initial licensing fee of $25,000 per
store and is responsible for funding the building-out of the new store and
purchasing initial batter inventory and supplies, at a total cost of
approximately $164,000 (including the initial licensing fee). However, the cost
of opening a new store can be significantly higher for franchisees who purchase
existing company-owned stores and otherwise varies based on individual
operating and location costs. We also charge franchisees a fee to purchase
equipment and to provide other assistance in helping the franchisee to set up
operations.
Pretzel Business. We do not franchise Hot Sam stores. We are a franchisee of
94 Pretzel Time stores, with rights to sub-franchise, if desired. Each
franchisee pays Pretzel Time an initial licensing fee of $25,000 for a new
Pretzel Time store location and is responsible for funding the building-out of
the new store and supplies, at a total cost of approximately $190,000 to
$240,000 (including the initial franchise fee). However, the cost of opening a
new store can vary based on individual operating and location costs. Pretzel
Time also charges franchisees a fee to handle equipment purchases and to
provide other assistance in helping the franchisee to set up operations. After
a store is set up, a franchisee pays royalty fees to Pretzel Time of 7% of the
franchised store's annual gross sales, and a marketing fee of 1% of annual
gross sales.
Franchisee Recruiting and Training. We have been successful in recruiting
franchisees and completing franchise transactions and believe we will continue
to realize significant cash flows from franchising by:
(1) emphasizing the use of proprietary dough that minimizes product
quality issues and ensures a consistent product across all outlets,
(2) frequent quality, service and cleanliness evaluations of franchised
stores by operations support staff, and
(3) initial and continuing training of franchisees to improve their
financial and retail sales skills.
77
<PAGE>
We believe our franchisees are a critical component in creating an effective
retail environment, and accordingly we make our ongoing programs available to
franchisees to improve their quality and effectiveness. Franchisees are
required to attend a two-week training program at our Salt Lake City training
facility and ongoing training courses in new products, standards, and
procedures are available throughout the year to all franchisee personnel.
Licensing
In the past few years, we utilized a "branding" strategy which has
capitalized on the highly-recognized Mrs. Fields brand to build traffic, expand
sales, improve market share, and to increase profits through cultivating
alternative channels of distribution. The following is a comprehensive list of
branding strategies, with examples of current licensees within Mrs. Fields'
system:
Concept Licensing. We have developed a licensing program for non-mall retail
outlets that enables us to enter difficult-to-reach markets and facilitate
brand exposure through "presence" and "prestige" marketing. Our licensees
duplicate the Mrs. Fields store concept and purchase dough from our various
distributors. Several of these licensees are contract management companies that
manage and operate food service in host locations. Mrs. Fields' licensees and
their respective distribution channels include Host Marriott in airports and
travel plazas, ARAMark in stadiums and convention centers and Holiday Inn
Worldwide in hotels.
Retail Licensing. We plan to capitalize on our brand awareness and the
perception of quality among consumers to expand the product line to include
products sold in other retail environments, including refrigerated dough, dry-
mix and non-food products, and other applications outside the original scope of
our retail cookie store concept. A current example is Legacy Brands, which has
the exclusive North American rights to retail frozen dough and offers Mrs.
Fields Cookies frozen dough throughout the supermarket industry. Another
licensee is Wham-O, Inc., which has a license to market the Mrs. Fields Baking
Oven for children sold in most toy stores and through mass merchandisers.
Supply Licensing. We currently have arrangements with United Airlines and TWA
under which our mail order division sells cookies to the airlines and allows
the airlines to promote the Mrs. Fields brand and products to their first-class
customers. We are pursuing similar relationships to compete with other
manufacturers' brands selling in this channel of business.
Competition
We compete for both leasing opportunities and customers with other cookie and
pretzel retailers, as well as other confectionery, sweet snack and specialty
food retailers, including cinnamon rolls, yogurt, ice cream, baked goods and
candy shops. The specialty retail food and snack industry is highly competitive
with respect to price, service, location and food quality, and there are many
well-established competitors with greater resources than those of Mrs. Fields.
We compete with these retailers on the basis of price, quality, location and
service. We face competition from a wide variety of sources, including such
companies as Cinnabon, Inc., TCBY Yogurt Inc., Auntie Anne's Soft Pretzels, and
Baskin-Robbins 31 Flavors.
Properties
As of October 3, 1998, we leased 1,029 retail stores, of which 445 were
subleased to franchisees under terms which cover all obligations of Mrs. Fields
thereunder. Under our franchise agreements, we have certain rights to gain
control of a retail site in the event of default under the lease or the
franchise agreement. Most of our operating leases provide for the payment of
lease rents plus real estate taxes, utilities, insurance, common area charges
and certain other expenses, as well as contingent rents which generally range
from 8% to 10% of net retail store sales in excess of stipulated amounts. See
"Risk Factors--We May Not Be Able to Obtain Leases in the Future" and "--We
Have Continuing Obligations Under Real Estate Leases."
78
<PAGE>
We recently signed a new lease for 31,000 square feet of office space in Salt
Lake City, Utah, which we use as our corporate headquarters. We also lease
approximately 20,000 square feet of office space in Salt Lake City, Utah for
our product development, training and mail order operations. We own
substantially all of the equipment used in both of these facilities and in
company-owned retail outlets. Great American owned its headquarters and batter
production facility, located in a building of approximately 28,000 square feet
in Atlanta, Georgia. We acquired this facility in the acquisition of Great
American. Great American's headquarters have been transferred to Salt Lake City
since the acquisition of Great American.
Employees
As of January 2, 1999, we had approximately 6,614 employees in company-owned
stores, of whom approximately 943 were store managers and assistant store
managers, 58 were full-time sales assistants and 5,613 were part-time sales
assistants. The typical Mrs. Fields store employs 5 to 13 employees. During the
period from November through February, we may hire as many as 750 additional
part-time employees to handle additional mall traffic. Most employees are paid
on an hourly basis, except store managers. Our employees are not unionized. We
have never experienced any significant work stoppages and believe that our
employee relations are good.
Many of our employees are paid hourly rates based upon the federal minimum
wage. The federal minimum wage increased from $4.75 to $5.15 on September 1,
1997. As of January 2, 1999, 1,636 of our 6,614 employees in company-owned
stores earned the federal minimum wage. The September 1, 1997 minimum wage
increase is expected to negatively impact our labor costs, increasing wages by
approximately $219,000 annually, but management believes this impact can be
negated in the long-term through increased efficiencies in our operations and,
as necessary, through retail price increases.
Trademarks
Mrs. Fields is the holder of numerous trademarks that have been federally
registered in the United States and in other countries located throughout the
world. Mrs. Fields is a party to disputes with respect to trademarks none of
which, in the opinion of management of Mrs. Fields' Holding, is material to
Mrs. Fields' Holding's business, financial condition and results of operations.
Legal Proceedings; Government Regulation
In the ordinary course of business, we are involved in routine litigation,
including franchise disputes and trademark disputes. Except as described below,
we are not a party to any legal proceedings which, in the opinion of management
of Mrs. Fields' Holding, after consultation with legal counsel, is material to
our business, financial condition and results of operations.
In connection with the initial discussions relating to the acquisition of
Great American, on or about September 12, 1997, 9 franchisees of Great American
filed an action challenging a possible acquisition of Great American by Mrs.
Fields. Under settlement agreements and waivers with certain Great American
franchisees, such Great American franchisees released all claims with respect
to this litigation, and it was a condition of the acquisition of Great American
that this litigation be dismissed with prejudice. A motion dismissing the
litigation with prejudice was filed on August 24, 1998. See "The Transactions--
The Great American Transactions."
Our stores and products are subject to regulation by numerous governmental
authorities, including, without limitation, federal, state and local laws and
regulations governing health, sanitation, environmental protection, safety and
hiring and employment practices.
79
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding the executive
officers and directors of Mrs. Fields as of January 2, 1999. The directors are
also directors of Mrs. Fields' Holding.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Larry A. Hodges......... 49 Director, President and Chief Executive Officer
L. Tim Pierce........... 47 Senior Vice President, Chief Financial Officer and Secretary
Pat W. Knotts........... 43 Senior Vice President of Operations
Garry Remington......... 47 Senior Vice President of Real Estate
Michael R. Ward......... 40 Vice President of Administration and Legal Department
Herbert S. Winokur,
Jr..................... 54 Chairman of the Board of Directors
Richard Ferry........... 61 Director
Debbi Fields............ 42 Director
Nat Gregory............. 50 Director
Walker Lewis............ 54 Director
Peter Mullin............ 57 Director
Gilbert Osnos........... 69 Director
</TABLE>
Mr. Hodges has been President and Chief Executive Officer of Mrs. Fields
Inc. and Mrs. Fields since March 1994, and a Director of Mrs. Fields' Holding
and Mrs. Fields since April 1993. From 1992 to 1994, Mr. Hodges was the Chief
Executive Officer of Food Barn Stores, Inc. (Kansas City, Missouri). Earlier
Mr. Hodges was a consultant to various manufacturers and retailers. For 25
years, Mr. Hodges was with American Stores Company where he served as
President of two of its subsidiaries ranging in annual sales from $600 million
to $2.3 billion. Mr. Hodges has over 32 years of experience in the retail
field serving as president of four supermarket chains and consultant and
director to large food companies. Mr. Hodges is a director of Ameristar
Casinos, Inc. and Coinstar, Inc.
Mr. Pierce has been Senior Vice President of Mrs. Fields Inc. and Mrs.
Fields since December 1991, and Chief Financial Officer since August 1993. He
was appointed Corporate Secretary in April 1995. Since joining Mrs. Fields
Inc. in 1988 and prior to becoming Senior Vice President, Mr. Pierce had
served as Vice President of Finance. He was also an audit manager and a senior
audit manager with Price Waterhouse in Salt Lake City, Utah, and New York, New
York. Mr. Pierce is a certified public accountant and has also served on the
Board of Directors of Mountain America Credit Union and currently serves as a
Director of Pretzel Time, Inc.
Mr. Knotts has been Senior Vice President of Mrs. Fields since October 1996.
Mr. Knotts' responsibilities include all aspects of store operations and
related support functions. Between January 1992 and October 1996, Mr. Knotts
served as Executive Vice President of Operations for Original Cookie and Hot
Sam, where he was responsible for store operations, marketing, purchasing,
construction and store design. Mr. Knotts also held the position of Regional
Vice President of Stores for Silo Inc., a $1 billion consumer electronics and
major appliance chain.
Mr. Remington has been Senior Vice President of Real Estate of Mrs. Fields
since July 1997. Mr. Remington's responsibilities include all aspects of real
estate, store construction, remodels and lease negotiations. Between October
1996 and July 1997, Mr. Remington served as Vice President of Real Estate for
Sbarro, Inc. From 1994 to 1996, Mr. Remington held the position of Senior Vice
President of Leasing for the Woolworth Corporation, with responsibilities for
Footlocker, Champ Sports, Northern Reflections, Afterthoughts, and seven other
divisions, and from 1992 to 1994, Mr. Remington was Vice President and
Director of Leasing for the Woolworth Corporation, which he joined in 1972.
Mr. Ward has been Vice President of Administration for Mrs. Fields since
September 1996. Mr. Ward's responsibilities include management of the Human
Resources Department, Benefits and the Legal Department. Between 1991 and
1996, Mr. Ward's responsibilities were overseeing the Legal Department and the
Human Resources Department for Mrs. Fields Inc. He is admitted to practice law
in the State of Utah.
80
<PAGE>
Mr. Winokur has been Chairman of the Board of Directors of Mrs. Fields and
Mrs. Fields' Holding since their inception in September 1996. Mr. Winokur is
managing member of Capricorn Holdings, L.L.C., the General Partner of
Capricorn. Mrs. Fields is owned by Mrs. Fields' Holding, a portfolio company of
Capricorn which owns the majority of Mrs. Fields' Holding stock. Mr. Winokur is
President of Winokur Holdings, Inc. (an investment company) and Managing
General Partner of Capricorn Investors, L.P. and Capricorn, private investment
partnerships concentrating on investments in restructure situations, organized
by Mr. Winokur in 1987 and 1994, respectively. Prior to his current
appointment, Mr. Winokur was Senior Executive Vice President and a director of
Penn Central Corporation. Mr. Winokur is also a director of NAC Re Corporation,
The WMF Group, Ltd., DynCorp., and Enron Corp.
Mr. Ferry has been a director of Mrs. Fields since its inception in September
1996. Mr. Ferry is co-founder and Chairman of Korn/Ferry International, the
world's leading executive search firm. Mr. Ferry is on the Board of Directors
of Avery Dennison, Dole Food Company and Pacific Life Insurance Company.
Debbi Fields has been a director of Mrs. Fields since its inception in
September 1996. Debbi Fields founded a predecessor to Mrs. Fields in 1977 and
served as President and Chief Executive Officer until 1993. She currently
serves on the Board of several non-profit organizations and lectures throughout
the United States to Fortune 500 companies. Debbi Fields is a director of
Outback Steakhouse, Inc.
Mr. Gregory has been a director of Mrs. Fields since its inception in
September 1996. Since 1993, Mr. Gregory has served as Chairman and Chief
Executive Officer of NATCO, an international supplier of oilfield production
equipment, which is a portfolio company of Capricorn. Prior to that he served
as Managing Director of Smith Barney from 1991 to 1993. Mr. Gregory is a member
and managing director of Capricorn Holdings, L.L.C., the General Partner of
Capricorn, and a director of Marine Drilling Companies, Inc.
Mr. Lewis has been a director of Mrs. Fields since its inception in September
1996. Mr. Lewis is the Chairman of Devon Value Advisers. Mr. Lewis served as
Chairman of Strategic Planning Associates, specializing in shareholder value
strategies. Mr. Lewis was a Senior Advisor at Dillon Read & Co., Inc. and his
company, Devon Value Advisors, continues to act as a consultant to Dillon Read.
He was a Managing Director of Kidder, Peabody & Co., Inc., President of Avon
North America and Executive Vice President of Avon Products, Inc. Mr. Lewis has
served on the Board of Directors of Owens Corning, American Management Systems,
Incorporated, Jostens, Inc., Marakon Associates and London Fog.
Mr. Mullin has been a director of Mrs. Fields since its inception in
September 1996. Mr. Mullin founded Mullin Consulting, Inc. in Los Angeles in
1969, and serves as its Chairman and Chief Executive Officer. He also co-
founded Strategic Compensation Associates and serves as Chairman of the firm's
Executive Committee. Mr. Mullin is a member of the Board of Directors of Avery
Dennison Corporation, 1st Business Bank, Process Technology Holdings, Inc.,
Golden State Vintners, M Life Insurance Company and the Board of Advisors of
CMS Companies.
Mr. Osnos has been a director of Mrs. Fields since its inception in September
1996. Mr. Osnos has served since 1992 as Chairman of Osnos & Company, which
provides interim management to companies. He has served as Interim
President/CEO/COO to a large array of companies in manufacturing, distribution,
retailing and service industries. In 1979 he joined the predecessor firm and
became a partner in 1981. He has been Chairman of the Turnaround Management
Association and a member of its Board since prior to 1993. He is also on the
Board of Directors of Furr's/Bishop's, Inc. and Dunham's Athleisure Corp.
81
<PAGE>
Executive Compensation
The following table sets forth information with regard to compensation for
services rendered in all capacities to Mrs. Fields by its Chief Executive
Officer, the four other most highly compensated executive officers of Mrs.
Fields other than the CEO who were serving as executive officers at the end of
the last completed fiscal year and one additional individual for whom
disclosure would have been provided, but for the fact that the individual was
not serving as an executive officer at the end of the last completed fiscal
year. Information set forth in the table reflects compensation earned by such
individuals for services with Mrs. Fields or its subsidiaries. The officers do
not separately receive compensation for services to Mrs. Fields' Holding.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
--------------------------------- ----------------------------
Other Restricted Securities
Annual Stock Underlying All Other
Name and Salary Bonus Compensation Award(s) Options/Sars(7) Compensation
Principal Position Year ($) ($) ($) ($) (#) ($)
------------------ ---- -------- -------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry Hodges............ 1998 $339,583 $150,000 $4,833 -- -- $471,000(8)
President and CEO 1997 300,000 185,412 2,177 $50,000(6) -- --
1996 262,834 -- 1,656 -- 229,992 --
L. Tim Pierce........... 1998 193,430 70,000 2,634 -- -- --
Senior Vice President 1997 175,000 103,607 1,287 -- -- 71,867(8)
and CFO 1996 167,723 -- 1,107 -- 32,856 33,000(1)
Pat Knotts.............. 1998 191,699 70,000 -- -- -- --
Senior Vice President 1997 162,500 27,321 -- -- -- 23,920(3)
Operations 1996 172,490 267,212(2) -- -- 32,856 2,912(4)
Michael Ward............ 1998 135,385 50,000 1,370 -- -- --
Vice President Legal 1997 109,904 56,393 619 -- -- 39,488(8)
and Administration 1996 83,020 -- 526 -- 24,642 --
Garry Remington......... 1998 180,000 33,945 -- -- -- --
Senior Vice President 1997 82,859 -- -- -- 24,642 46,707(5)
Real Estate 1996 -- -- -- -- -- --
</TABLE>
- --------
(1) Represents forgiveness of a loan made by Mrs. Fields Inc. in 1993.
(2) Represents payments under retention and employment agreements from Original
Cookie/Hot Sam.
(3) Represents payment of relocation expenses of $20,920 and a grant of $3,000
under the Original Cookie 401(k) plan.
(4) Represents a grant under the Original Cookie 401(k) plan.
(5) Represents payment of relocation expenses.
(6) 50% of the restricted shares vest on January 1, 1999 and the other 50% vest
on January 1, 2000.
(7) The stock options for common stock of Mrs. Fields' Holding have 10-year
terms and were granted as of September 1996, with the exception of Garry
Remington's, which were granted as of July 1997. All options have an
exercise price of $10.00 per share, with the exception of Garry
Remington's, which have an exercise price of $13.00 per share.
(8) Represents payment under Mrs. Fields' Inc. Management Value Creation Plan.
82
<PAGE>
Option Grants and Exercises
The Board of Directors of Mrs. Fields' Holding recently approved the
provisions of a director stock option plan (the "Director Stock Option Plan"),
providing for the issuance of Common Stock of Mrs. Fields' Holding to directors
of Mrs. Fields' Holding and Mrs. Fields, and an employee stock option plan (the
"Employee Stock Option Plan" and, together with the Director Stock Option Plan,
the "Plans"), providing for the issuance of options to purchase common stock of
Mrs. Fields' Holding to officers and other employees of Mrs. Fields' Holding
and its subsidiaries, including Mrs. Fields. The Plans provide for the issuance
of options to purchase an aggregate of 542,840 shares of common stock of Mrs.
Fields' Holding to directors of Mrs. Fields' Holding and officers and employees
of Mrs. Fields' Holding's subsidiaries, including Mrs. Fields, of which options
to purchase 375,840 shares, representing approximately 10% of the total common
stock of Mrs. Fields' Holding on a fully diluted basis, after giving effect to
the issuance of stock pursuant to the warrants and to issuances of stock
pursuant to options currently issued to directors and employees under the
Plans, have been issued. See "Certain Relationships and Related Transactions"
and "Beneficial Ownership of Capital Stock."
Board Compensation
The Board of Directors of Mrs. Fields meets regularly on a quarterly basis
and more often as required. Board members, other than officers of Mrs. Fields
and Mr. Winokur, Mr. Gregory and Ms. Fields, are compensated for services
rendered annually as follows:
(1) $12,000 cash; and
(2) grants of options to purchase common stock of Mrs. Fields' Holding,
pursuant to the Director Stock Option Plan. The Board of Directors of
Mrs. Fields' Holding does not separately compensate its directors,
which are the same as the Mrs. Fields directors, for services as
directors. The Board of Directors of Mrs. Fields' Holding recently
approved the award of options under the Director Stock Option Plan to
purchase 3,350 shares of common stock of Mrs. Fields' Holding to each
of Messrs. Ferry, Gregory, Lewis, Osnos and Winokur as of January 1,
1997, at an exercise price of $10.00 per share, and the award of
options to purchase 1,792 shares of common stock of Mrs. Fields'
Holding as of January 1, 1998, at an exercise price of $16.74 to each
of the same directors, with the options of Messrs. Gregory and Winokur
being issued to Capricorn.
The Board members were also offered an opportunity to acquire shares of
common stock of Mrs. Fields' Holding pursuant to a director stock purchase plan
(the "Director Stock Purchase Plan"). Such compensation in shares that would be
payable or issuable to Messrs. Winokur and Gregory will be paid to Capricorn. A
total of 51,667 vested shares of common stock of Mrs. Fields' Holding and
28,333 restricted shares of common stock of Mrs. Fields' Holding have been
issued to directors and officers of Mrs. Fields' Holding and Mrs. Fields under
the Director Stock Purchase Plan. Board members of Mrs. Fields' Holding are the
same as the Board members for Mrs. Fields and are not separately compensated.
Board Committees
Three functioning committees of the Board have been organized including: an
Executive Committee, a Compensation Committee and an Audit Committee. Following
is a brief description of each of these committees.
Executive Committee. The Executive Committee is composed of Messrs. Winokur
(Chairman), Gregory and Hodges. The purpose of this committee is to act on the
behalf of the entire Board of Directors between Board meetings.
Compensation Committee. The Compensation Committee is composed of Messrs.
Gregory (Chairman), Mullin and Lewis. The purpose of this committee is to
ensure that Mrs. Fields' Holding has a broad plan of executive compensation
that is competitive and motivating to the degree that it will attract, hold and
inspire performance of managerial and other key personnel of a quality and
nature that will enhance the growth and profitability of Mrs. Fields' Holding.
83
<PAGE>
Audit Committee. The Audit Committee is comprised of Messrs. Ferry (Chairman)
and Osnos. The purpose of the Audit Committee is to provide oversight and
review of Mrs. Fields' Holding's accounting and financial reporting process in
consultation with Mrs. Fields' Holding's independent and internal auditors.
Indemnification And Compensation
Mrs. Fields' Holding's authorize Mrs. Fields' Holding to indemnify its
present and former directors and officers and to pay or reimburse expenses for
such individuals in advance of the final disposition of a proceeding upon
receipt of an undertaking by or on behalf of such individuals to repay such
amounts if so required.
Employment Agreements
All of the executive officers are parties to employment agreements with Mrs.
Fields. Each employment agreement provides for a period of employment of two
years (or three years, in the case of Larry Hodges) from the date of the
agreement, subject to termination provisions and to automatic extension of the
agreement. Each employment agreement permits the employee to participate in any
incentive compensation plan adopted by Mrs. Fields to replace the Fiscal 1994
Incentive Compensation Plan of Mrs. Fields Inc. benefit plans and an equity-
based plan or arrangement. If Mrs. Fields terminates employment for cause or if
the employee terminates employment without good reason, Mrs. Fields has no
further obligation to pay the employee. If Mrs. Fields terminates employment
without cause, or the employee terminates employment with good reason, the
employee can receive in severance pay the amount equal to the product of his or
her then current semi-monthly base salary by the greater of the number of semi-
monthly periods from the notice of termination or 36 semi-monthly periods, plus
a portion of any discretionary bonus that would otherwise have been payable.
The employment agreement prohibits the employee, for a year from the date of
termination of employment under the agreement, from becoming an employee,
owner, officer, agent or director of a firm or person that directly competes
with Mrs. Fields in a line or lines of business of Mrs. Fields that accounts
for 10% or more of Mrs. Fields' gross sales, revenues or earnings before taxes.
An exception is made for investments of not more than 3% of the equity of a
company listed or traded on a national securities exchange or over-the-counter
securities market. The employment agreements have customary provisions for
vacation, fringe benefits, payment of expenses and automobile allowances. The
employees who have such employment agreements, and their base salaries, are:
Larry Hodges, President and Chief Executive Officer, $350,000, L. Tim Pierce,
Senior Vice President, Chief Financial Officer and Secretary, $200,000, Pat
Knotts, Senior Vice President of Operations, $210,000, Michael Ward, Vice
President of Administration and Assistant Secretary, $140,000 and Garry
Remington, Senior Vice President of Real Estate, $190,000.
84
<PAGE>
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information, as of January 2, 1999,
believed by us to be accurate based on information provided to it concerning
the beneficial ownership of common stock by each stockholder who is known by us
to own beneficially in excess of 5% of the outstanding common stock, and by
each director, Mrs. Fields' Holding's Chief Executive Officer, each of Mrs.
Fields' Holding's other four most highly compensated executive officers and all
officers and directors as a group, as of January 2, 1999. The stockholders
listed below are also deemed beneficial owners of common stock of Mrs. Fields
as a result of their ownership of common stock of Mrs. Fields' Holding, the
owner of 100% of the capital stock of Mrs. Fields. Except as otherwise
indicated, all persons listed below have (1) sole voting power and investment
power with respect to their shares, except to the extent that authority is
shared by spouses under applicable law, and (2) record and beneficial ownership
with respect to their shares. The shares and percentages set forth below
include shares of common stock which were outstanding or issuable within 60
days upon the exercise of options outstanding as of January 2, 1999 and give
effect to the exercise of the Mrs. Fields' Holding. See "Management--Option
Grants and Exercises." As of January 2, 1999, there were eight record holders
of Common Stock of Mrs. Fields' Holding.
<TABLE>
<CAPTION>
Common Stock
--------------------
Number Of Percentage
Title Of Class Name Of Beneficial Owner Shares Of Class
-------------- ------------------------ --------- ----------
<C> <S> <C> <C>
Common stock, par value $0.001
per share, of Mrs. Fields' Capricorn Investors II,
Holding L.P.(1)(2)(3)........... 3,080,094 86.6%
Larry Hodges(2)(3)...... 75,998 2.1%
Peter Mullin(2)(3)...... 17,323 0.5%
Richard Ferry(2)(3)..... 12,323 0.3%
Walker Lewis(2)(3)...... 9,823 0.3%
Gilbert Osnos(2)(3)..... 9,823 0.3%
L. Tim Pierce(3)........ 11,500 0.3%
Pat Knotts(3)........... 11,500 0.3%
Michael Ward(3)......... 9,857 0.3%
Garry Remington(3)...... 4,792 0.1%
All executive officers
and directors
as a group (11
persons)(2)(3)(4)....... 3,243,033 91.2%
</TABLE>
- --------
(1) The address of Capricorn is 30 East Elm Street, Greenwich, CT 06830.
(2) Larry Hodges, Peter Mullin, Richard Ferry, Walker Lewis and Gilbert Osnos
are directors of Mrs. Fields' Holding. Herbert Winokur and Nat Gregory are
managing member and member, respectively, of Capricorn Holdings, L.L.C.,
the General Partner of Capricorn, and are directors of the Mrs. Fields'
Holding. See "Management."
(3) The shares and percentages include shares subject to options granted to
directors and officers of Mrs. Fields that are currently vested as of
January 2, 1999, as follows: Capricorn, 4,246 shares; Mr. Hodges, 45,998
shares; Mr. Mullin, 2,323 shares; Mr. Ferry, 2,323 shares; Mr. Lewis, 2,323
shares; Mr. Osnos, 2,323 shares; Mr. Pierce, 11,500 shares; Mr. Knotts,
11,500 shares; Mr. Ward, 9,857 shares; and Mr. Remington, 4,792 shares; all
executive officers and directors as a group, 97,185 shares.
(4) Includes shares beneficially owned by Capricorn.
85
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with Debbi Fields and Affiliates. In November 1996, Mrs. Fields
entered into a consulting agreement with Debbi Fields, a director of Mrs.
Fields and Mrs. Fields' Holding, under which Debbi Fields travels and performs
public relations and advertising activities on behalf of Mrs. Fields for at
least 50 days a year for a fee of $250,000 per year, with an option to perform
20 additional days a year for additional pay of $5,000 per day. The
compensation increases by 10% a year beginning on January 1, 1999. The
consulting agreement expires on December 31, 1999. Mrs. Fields may terminate
the consulting agreement for cause and Debbi Fields may terminate the
consulting agreement at any time. Under the consulting agreement, Debbi Fields
may not disclose any confidential information of Mrs. Fields, such as recipes
and trade secrets, and may not, without the prior written consent of Mrs.
Fields, compete with Mrs. Fields.
In addition, Mrs. Fields has a license agreement with FSG Holdings, Inc., a
Delaware corporation, under which Debbi Fields has a nonexclusive license to
use certain trademarks, names, service marks and logos of Mrs. Fields in
connection with book and television series projects. Debbi Fields is required
to pay 50 percent of any gross revenues in excess of $200,000 that she receives
from the book and television series projects to Mrs. Fields as a license fee.
Mrs. Fields, until recently, leased certain office space to an entity which
is owned in part by Debbi Fields. Billings to the entity for the period from
inception (September 18, 1996) to December 28, 1996, the fiscal year ended
January 3, 1998 and the 39 weeks ended September 27, 1997 and October 3, 1998
totaled approximately $60,000, $274,000, $204,000 and $0, respectively, of
which approximately $29,000, $23,000 and $0 is included in accounts receivable
as of December 28, 1996, January 3, 1998 and October 3, 1998, respectively. The
lease was terminated in the first quarter of fiscal year 1998. Mrs. Fields
believes that the arrangements were on terms that could have been obtained from
an unaffiliated third party.
Arrangements with Walker Lewis. Mr. Lewis, a director of Mrs. Fields' Holding
and Mrs. Fields, acts as a consultant and an advisor to Dillon Read. In early
1997, Mrs. Fields paid to Dillon Read a fee of approximately $707,000 in
connection with the restructuring of Mrs. Fields in September 1996. In
addition, Mr. Lewis' company, Devon Value Advisers, received a fee of $250,000,
plus expenses, from Mrs. Fields in the first quarter of 1998 pursuant to an
agreement to provide advisory acquisition and consulting services to Mrs.
Fields. Mrs. Fields believes that the arrangements were on terms that could
have been obtained from an unaffiliated third party.
Korn/Ferry Agreement. Mrs. Fields has paid fees of approximately $47,000,
$157,000, $147,000 and $47,000 during the period ended December 28, 1996, the
year ended January 3, 1998 and the 39 weeks ended September 27, 1997 and
October 3, 1998, respectively, to Korn/Ferry International, an executive search
firm of which Richard Ferry, a director of Mrs. Fields and Mrs. Fields'
Holding, is the Chairman, in connection with the hiring of employees for Mrs.
Fields. Mrs. Fields believes that the arrangements are on terms that could have
been obtained from an unaffiliated third party.
Arrangements with Mrs. Fields. Mrs. Fields and Mrs. Fields' Holding expect to
enter into a Tax Sharing Agreement as defined in and permitted by the
Indenture. See "Description of Senior Notes--Certain Covenants."
Arrangements with MIDIAL. At the time of Mrs. Fields' offering in November
1997, a subsidiary of MIDIAL was the holder of $27,000,000 in total principal
amount of notes of Mrs. Fields and $8.4 million in total principal amount of
subordinated notes of Mrs. Fields as to which Mrs. Fields had accrued or paid
interest of $683,000 in 1996 and of $3,177,000 through November 26, 1997. In
connection with the refinancing of certain debt Mrs. Fields and Mrs. Fields
Brand repaid all such notes and related interest. Mr. de Carbonnel, a former
director of Mrs. Fields, serves as Chairman and Chief Executive Officer of
MIDIAL. See "The Transactions."
86
<PAGE>
Incentive Arrangements. Under a senior management value creation plan that
was adopted by Mrs. Fields Inc. and assumed by Mrs. Fields at the time of its
formation in September 1996, the following payments were made in 1998: $471,484
to Mr. Hodges; $71,867 to Mr. Pierce; $39,488 to Mr. Ward; and $71,078 to a
vice president of MFI. Mr. Hodges used $250,000, representing substantially all
of this payment after his payment of related taxes, to purchase 25,000 shares
of common stock of Mrs. Fields' Holding at $10.00 per share.
Director Stock Purchase Plan. Each of the directors of Mrs. Fields' Holding
was offered an opportunity to purchase common stock of Mrs. Fields' Holding
under the Director Stock Purchase Plan. Under the Director Stock Purchase Plan,
shares of common stock of Mrs. Fields' Holding, either restricted or vested,
can be issued to outside directors of Mrs. Fields' Holding and its
subsidiaries. Restricted shares vest 50% on January 1, 1999 and 50% on January
1, 2000, or earlier, upon a change of control of Mrs. Fields' Holding or Mrs.
Fields. See "Management--Board Compensation." A total of 51,667 vested shares
of common stock of Mrs. Fields' Holding and 28,333 restricted shares of common
stock of Mrs. Fields' Holding have been issued to directors and officers of
Mrs. Fields' Holding and Mrs. Fields under the Director Stock Purchase Plan.
The Plans. Under the Employee Stock Option Plan, a committee of the Board is
authorized to administer the Employee Stock Option Plan and has the power,
among other things, to grant awards of options for common stock of Mrs. Fields'
Holding to officers and other employees of Mrs. Fields' Holding and its
subsidiaries. The Employee Stock Option Plan provides for the issuance of three
types of options. Performance vested options are deemed to be vested 20% for
fiscal year 1997 and vest an additional 20% per year for each subsequent fiscal
year in which there is a 10% increase in the implied valuation of Mrs. Fields
which is equal to the excess of 5.5 times Adjusted EBITDA for such fiscal year
over net debt at the end of such fiscal year. Time vested options vest 25% per
year on the anniversaries of the dates on which they are granted, and vest in
full upon a change of control of Mrs. Fields' Holding or Mrs. Fields. Upside
options vest upon the earlier to occur of the expiration of such option and a
change of control, in accordance with certain internal rate of return targets:
(1) if the IRR through the vesting date is less than 20%, the option will
not vest;
(2) if the IRR is from 20% to 24.99%, the option will vest one-third;
(3) if the IRR is from 25% to 29.99%, the option will vest two-thirds; and
(4) if the IRR is at least 30%, the option will vest in full.
(5) IRR means, as of any date, the internal rate of return, determined in
accordance with generally accepted practice, on one share of common
stock of Mrs. Fields' Holding calculated from September 18, 1996,
through the date as of which the determination is being made, using
(1) a value of $10.00 per share at September 18, 1996 (subject to
certain adjustments),
(2) if the relevant date is the date of a change of control, the value
paid pursuant to or implicit in the change of control transaction
(as determined in good faith by a committee of the Board of
Directors), and
(3) if the relevant date of determination is the expiration of such
option, the value determined in good faith based on the implied
valuation for the 4 most recent fiscal quarters for which financial
statements are available.
A total of 492,840 shares of common stock of Mrs. Fields' Holding have been
reserved for issuance under the Employee Stock Option Plan. Stock issued under
the Employee Stock Option Plan is subject to customary restrictions on
transfer.
Under the Director Stock Option Plan, a committee of the Board is authorized
to administer the Director Stock Option Plan and has the power, among other
things, to grant awards of options for common stock of Mrs. Fields' Holding to
outside directors of Mrs. Fields' Holding and its subsidiaries. The Director
Stock Option Plan provides for the issuance of time vested options, which vest
25% per year on the anniversaries of the dates
87
<PAGE>
on which they are granted, and vest in full upon a change of control of Mrs.
Fields' Holding or Mrs. Fields. A total of 50,000 shares of common stock of
Mrs. Fields' Holding are reserved for issuance under the Director Stock Option
Plan. Common stock of Mrs. Fields' Holding issued under the Director Stock
Option Plan is subject to customary restrictions on transfer. Options have been
awarded under the Director Stock Option Plan to each of Messrs. Ferry, Gregory,
Lewis, Osnos and Winokur to purchase 3,350 shares of common stock of Mrs.
Fields' Holding as of January 1, 1997, at an exercise price of $10.00 per
share, and to purchase 1,792 shares of common stock of Mrs. Fields' Holding as
of January 1, 1998, at an exercise price of $16.74 per share, with the options
of Messrs. Gregory and Winokur being issued to Capricorn.
The Stockholders' Agreement. Mrs. Fields' Holding has entered into a
stockholders' agreement with its stockholders. The stockholders' agreement
gives rights of first refusal to Mrs. Fields' Holding if any Mrs. Fields'
Holding stockholder receives an offer to purchase common stock of Mrs. Fields'
Holding and, if Mrs. Fields' Holding does not exercise its rights, gives the
rights of first refusal to other Mrs. Fields' Holding stockholders. In the
event of a sale to a third party approved by Capricorn, Capricorn has the right
to require the other Mrs. Fields' Holding stockholders to sell their common
stock of Mrs. Fields' Holding. If Capricorn sells any common stock of Mrs.
Fields' Holding, the other Mrs. Fields' Holding stockholders will have the
opportunity to sell their common stock of Mrs. Fields' Holding in proportion to
their holdings. The stockholders' agreement also provides for piggyback
registration rights for all Mrs. Fields' Holding stockholders, and gives one
Mrs. Fields' Holding stockholder demand registration rights. The stockholders'
agreement gives Mrs. Fields' Holding the option to purchase all of the common
stock of Mrs. Fields' Holding held by an officer or director that holds common
stock of Mrs. Fields' Holding if such officer or director is terminated. If an
officer or director is terminated other than for cause, the officer or director
has the right to sell shares to Mrs. Fields' Holding. The stockholders'
agreement provides for customary restrictions on transfer of common stock of
Mrs. Fields' Holding.
88
<PAGE>
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Mrs.
Fields' Holding" refers only to Mrs. Fields' Holding Company, Inc. and not to
any of its subsidiaries. The term "Mrs. Fields" refers to Mrs. Fields'
Holding's wholly owned subsidiary, Mrs. Fields' Original Cookies, Inc.
Mrs. Fields' Holding will issue the 14% Series B Senior Secured Discount
Notes due 2005 (the "new notes") under an indenture between itself and The Bank
of New York, as Trustee. The terms of the new notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The term "old notes" refers
to the 14% Series A Senior Secured Discount Notes due 2005. The term "notes"
refers to the old notes and the new notes.
The following description is a summary of the material provisions of the
indenture, the pledge agreement and the registration rights agreement. It does
not restate those agreements in their entirety. We urge you to read the
indenture, the pledge agreement and the registration rights agreement because
they, and not this description, define your rights as holders of these notes.
We have filed copies of the indenture, the pledge agreement and the
registration rights agreement as exhibits to the registration statement which
includes this prospectus.
Brief Description of the Notes
The Notes
These notes:
. are general obligations of Mrs. Fields' Holding;
. are secured by a pledge of all of the Capital Stock of Mrs. Fields and
all Subsidiary Intercompany Notes, if any, held by Mrs. Fields' Holding;
. are senior in right of payment to all existing and future unsecured and
subordinated indebtedness of Mrs. Fields' Holding;
. are equal in right of payment to all existing and future senior secured
indebtedness of Mrs. Fields' Holding; and
. were issued with original issue discount.
As of January 2, 1999, Mrs. Fields' Holding had approximately $8.5 million in
indebtedness other than the notes.
Principal, Maturity and Interest
Mrs. Fields' Holding can issue up to $55.0 million in principal amount at
maturity of notes under the indenture.
. We will not pay any interest on the new notes prior to December 1, 2002.
. Interest on the new notes will accrue at the rate of 14% per annum.
. We will pay interest on the new notes semi-annually in arrears on June 1
and December 1 of each year, commencing on June 1, 2003. We will make
each interest payment to holders of record of the notes on the
immediately preceding May 15 and November 15.
. Interest on the new notes will accrue from the date it was most recently
paid. We will compute interest on the basis of a 360-day year comprised
of twelve 30-day months.
. Old notes that are accepted for exchange will cease to accrue interest
from and after the date the Exchange Offer is consummated.
. The notes mature on December 1, 2005.
89
<PAGE>
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to Mrs. Fields' Holding,
Mrs. Fields' Holding will make all principal, premium and interest payments
and, if any, liquidated damages on those notes in accordance with those
instructions. All payments on the notes will be made at the office or agency
that Mrs. Fields' Holding maintains within the City and State of New York
unless Mrs. Fields' Holding elects to make interest payments by check mailed to
the holders at their addresses set forth in the register of holders. Until Mrs.
Fields' Holding designates otherwise, its office or agency in New York will be
the office of the Trustee.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture. The
Registrar and the Trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and Mrs. Fields' Holding may
require a holder to pay any taxes and fees required by law or permitted by the
indenture. Mrs. Fields' Holding is not required to transfer or exchange any
note selected for redemption. Also, Mrs. Fields' Holding is not required to
transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
Security
The notes will be secured by:
(1) a pledge of the Capital Stock of Mrs. Fields; and
(2) a pledge of all Subsidiary Intercompany Notes, if any, payable to
Mrs. Fields' Holding.
"Subsidiary Intercompany Notes" means the intercompany notes, if any, issued
by Subsidiaries of Mrs. Fields' Holding in favor of Mrs. Fields' Holding, in
each case, in the form attached as Exhibit F to the indenture.
Mrs. Fields' Holding and The Bank of New York, as Collateral Agent, have
entered into a pledge agreement defining the terms of the pledges that secure
these notes. These pledges will secure the payment and performance when due of
all of the Obligations of Mrs. Fields' Holding under the indenture and these
notes as provided in the pledge agreement.
So long as no Default or Event of Default shall have occurred and be
continuing, and subject to certain terms and conditions, Mrs. Fields' Holding
will be entitled to receive all cash dividends, interest and other payments
made upon or with respect to the collateral pledged by them and to exercise any
voting and other consensual rights pertaining to the collateral pledged by
them.
Upon the occurrence and during the continuance of a Default or Event of
Default,
(1) all rights of Mrs. Fields' Holding to exercise such voting or other
consensual rights shall cease, and all such rights shall become vested in
the Collateral Agent, which, to the extent permitted by law, shall have the
sole right to exercise such voting and other consensual rights;
(2) all rights of Mrs. Fields' Holding and its subsidiaries to receive
all cash dividends, interest and other payments made upon or with respect
to the pledged collateral will cease and such cash dividends, interest and
other payments will be paid to the Collateral Agent; and
(3) the Collateral Agent may sell the pledged collateral or any part
thereof in accordance with the terms of the pledge agreement. All funds
distributed under the pledge agreement and received by the Collateral Agent
for the benefit of the holders of the notes will be distributed by the
Collateral Agent in accordance with the provisions of the indenture.
A "Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
The Collateral Agent will determine the circumstances and manner in which the
collateral shall be disposed of, including, but not limited to, the
determination of whether to release all or any portion of the
90
<PAGE>
collateral from the Liens created by the pledge agreement and whether to
foreclose on the pledged collateral following a Default or Event of Default.
The pledge will be released:
(1) upon the full and final payment and performance of all Obligations
of Mrs. Fields' Holding under the indenture and the notes; or
(2) on the day after the first anniversary of the Legal Defeasance of
all of the Obligations pursuant to the indenture (other than those
surviving Obligation specified in the indenture).
Optional Redemption
Until December 1, 2002, Mrs. Fields' Holding may on any one or more occasions
redeem all, but not less than all, of the notes, in cash at a redemption price
equal to 114% of the Accreted Value (determined at the date of redemption) with
the net cash proceeds of one or more Public Equity Offerings; provided that the
redemption must occur within 60 days of the date of the closing of such Public
Equity Offering.
"Accreted Value" means, for each $1,000 face amount of notes, as of any date
of determination prior to December 1, 2002, the sum of:
(1) $561.17; and
(2) the portion of the excess of the principal amount of each note over
$561.17 that will have been accreted on such note through such
date, such amount to be so accreted on a daily basis and compounded
semi-annually on each June 1 and December 1 at the rate of 14% per
annum from the Issue Date.
Except pursuant to the preceding paragraph, the notes will not be redeemable
at Mrs. Fields' Holding's option prior to December 1, 2002.
After December 1, 2002, Mrs. Fields' Holding may redeem all or a part of
these notes upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and liquidated damages, if any, thereon,
to the applicable redemption date, if redeemed during the 12-month period
beginning on December 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002........................................................... 107.000%
2003........................................................... 103.500%
2004 and thereafter............................................ 100.000%
</TABLE>
Mandatory Redemption
Except as set forth below under the caption "--Repurchase at the Option of
Holders," Mrs. Fields' Holding is not required to make mandatory redemption or
sinking fund payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require Mrs. Fields' Holding to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of that holder's notes pursuant to the Change of
Control Offer. In the Change of Control Offer, Mrs. Fields' Holding will offer
a Change of Control Payment in cash equal to 101% of the Accreted Value of
notes on the date of purchase (if such purchase is prior to December 1, 2002),
or 101% of the aggregate principal amount of notes, plus accrued and unpaid
interest and liquidated damages, thereon, if any, to the date of purchase (if
such date of purchase is on or after December 1,
91
<PAGE>
2002). Within 60 days following any Change of Control, Mrs. Fields' Holding
will mail a notice to each holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase notes on the
Change of Control Payment Date specified in such notice, pursuant to the
procedures required by the indenture and described in such notice. Mrs. Fields'
Holding will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of the
notes as a result of a Change of Control.
On the Change of Control Payment Date, Mrs. Fields' Holding will, to the
extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so
tendered; and
(3) deliver or cause to be delivered to the Trustee the notes so
accepted together with an Officers' Certificate stating the
aggregate principal amount of notes or portions thereof being
purchased by Mrs. Fields' Holding.
The Paying Agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof. Mrs. Fields' Holding will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require Mrs. Fields' Holding to make a
Change of Control Offer following a Change of Control will be applicable
regardless of whether or not any other provisions of the indenture are
applicable. Except as described above with respect to a Change of Control, the
indenture does not contain provisions that permit the holders of the notes to
require that Mrs. Fields' Holding repurchase or redeem the notes in the event
of a takeover, recapitalization or similar transaction.
Indebtedness of Mrs. Fields' Holding currently prohibits, and it is expected
that future indebtedness of Mrs. Fields' Holding will prohibit, certain events
that would constitute a Change of Control. In addition, the exercise by the
holders of notes of their right to require Mrs. Fields' Holding to repurchase
the notes, could cause a default under such Indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchases on
Mrs. Fields' Holding. Finally, Mrs. Fields' Holding's ability to pay cash to
the holders of notes upon a repurchase may be limited by Mrs. Fields' Holding's
then existing financial resources.
Mrs. Fields' Holding will not be required to make a Change of Control Offer
upon a Change of Control if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by Mrs.
Fields' Holding and purchases all notes validly tendered and not withdrawn
under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Mrs. Fields' Holding and its subsidiaries taken as a whole.
Although there is a limited body of case law interpreting, the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
Mrs. Fields' Holding to repurchase such notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of
Mrs. Fields' Holding and its subsidiaries taken as a whole to another Person or
group may be uncertain.
92
<PAGE>
Asset Sales
Mrs. Fields' Holding will not, and will not permit any of its subsidiaries
to, consummate an Asset Sale unless:
(1) Mrs. Fields' Holding (or the subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or Equity Interests
issued or sold or otherwise disposed of;
(2) such fair market value is
(a) evidenced by an Officers' Certificate delivered to the
Trustee, in the case of an Asset Sale or Asset Sales
aggregating $10,000 or more; or
(b) determined by Mrs. Fields' Holding's Board of Directors and
evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee,
in the case of any Asset Sale having a fair market value or
resulting in net proceeds in excess of $5.0 million; and
(3) at least 75% of the consideration therefor received by Mrs. Fields'
Holding or such subsidiary is in the form of cash. For purposes of
this provision, each of the following shall be deemed to be cash:
(a) any liabilities (as shown on Mrs. Fields' Holding's or such
subsidiary's most recent balance sheet), of Mrs. Fields'
Holding or any Subsidiary (other than contingent liabilities
and liabilities that are by their terms subordinated to the
notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary
novation agreement that releases Mrs. Fields' Holding or
such subsidiary from further liability; and
(b) any securities, notes or other obligations received by Mrs.
Fields' Holding or any such subsidiary from such transferee
that are immediately converted by Mrs. Fields' Holding or
such subsidiary into cash (to the extent of the cash
received in that conversion).
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
Mrs. Fields' Holding may apply such Net Proceeds at its option:
(1) to make a Permitted Investment;
(2) to make a capital expenditure in a Permitted Business; or
(3) to acquire long-term assets in a Permitted Business.
Pending the final application of any such Net Proceeds, Mrs. Fields' Holding
may temporarily or permanently reduce Indebtedness under a Credit Facility, or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $5.0 million, Mrs. Fields' Holding
will make an Asset Sale Offer to all holders of notes to purchase the maximum
principal amount of notes that may be purchased out of the Excess Proceeds. The
offer price in any Asset Sale Offer will be equal to 100% of the Accreted Value
thereof on the date of purchase (if such date of purchase is prior to December
1, 2002) or 100% of principal amount plus accrued and unpaid interest and
liquidated damages, if any, to the date of purchase (if such date of purchase
is on or after December 1, 2002), and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, Mrs. Fields' Holding
may use such Excess Proceeds for general corporate purposes. If the aggregate
principal amount of notes tendered into such Asset Sale Offer exceeds the
amount of Excess Proceeds, the Trustee shall select the notes to be purchased
on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
93
<PAGE>
Selection and Notice
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are
listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each holder of notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder thereof upon
cancellation of the original note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
Mrs. Fields' Holding will not, and will not permit any of its Subsidiaries
to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Mrs. Fields' Holding's or any of its
Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving
Mrs. Fields' Holding) or to the direct or indirect holders of Mrs.
Fields' Holding's or any of its Subsidiaries' Equity Interests in
their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of Mrs.
Fields' Holding);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving Mrs. Fields' Holding) any Equity Interests
of Mrs. Fields' Holding or any direct or indirect parent of Mrs.
Fields' Holding or other Affiliate of Mrs. Fields' Holding (other
than such Equity Interests owned by Mrs. Fields' Holding or any
Wholly Owned Subsidiary of Mrs. Fields' Holding);
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the notes, except a payment of interest or
principal at the Stated Maturity thereof; or
(4) make any Restricted Investment
(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and
(2) Mrs. Fields' Holding would, at the time of such Restricted Payment
and after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-
quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock"; and
94
<PAGE>
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Mrs. Fields' Holding and its
Subsidiaries after the Issue Date (excluding Restricted Payments
permitted by clauses (2), (3) or (4) of the next succeeding
paragraph), is less than the sum of
(a) 50% of the Consolidated Net Income of Mrs. Fields' Holding
for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the
Issue Date to the end of Mrs. Fields' Holding's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds (other than proceeds
referred to in the proviso to the first sentence of the
definition of "Investments") received by Mrs. Fields'
Holding since the Issue Date of Equity Interests of Mrs.
Fields' Holding (other than Disqualified Stock) or
Disqualified Stock or debt securities that have been
converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of Mrs. Fields' Holding and
other than Disqualified Stock or convertible debt securities
that have been converted into Disqualified Stock), plus
(c) to the extent that any Restricted Investment that was made
after the Issue Date is sold for cash or otherwise
liquidated or repaid for cash, the lesser of:
(i) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition,
if any), and
(ii) the initial amount of such Restricted Investment.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person,
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of
Mrs. Fields' Holding in exchange for, or out of the net cash
proceeds of, the substantially concurrent sale (other than to a
Subsidiary of Mrs. Fields' Holding) of, other Equity Interests of
Mrs. Fields' Holding (other than Disqualified Stock); provided that
the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (3)(b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Subsidiary of Mrs. Fields' Holding
to the holders of any Equity Interests on a pro rata basis; and
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Mrs. Fields' Holding or any
Subsidiary of Mrs. Fields' Holding held by any member of Mrs.
Fields' Holding's (or any of its Subsidiaries') management pursuant
to any management equity subscription agreement or stock option
agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall
not exceed, in any 12-month period, $250,000, plus the amount of
cash proceeds received by Mrs. Fields' Holding from any reissuance
of Equity Interests by Mrs. Fields' Holding to members of
management of Mrs. Fields' Holding or its Subsidiaries during such
period, which aggregate amount shall in no event exceed $500,000 in
any such period, and no Default or Event of Default shall have
occurred and be continuing immediately after such transaction;
95
<PAGE>
(6) payments to Mrs. Fields' Holding pursuant to the Tax Sharing
Agreement;
(7) payments pursuance to the Pretzel Time Employment Agreement and the
Pretzel Time Management Agreement; and
(8) the redemption or repurchase of preferred stock of Pretzel Time
outstanding on the Issue Date.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Mrs. Fields' Holding or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $2.0 million. Not later than the date of making any
Restricted Payment, Mrs. Fields' Holding shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this
"Restricted Payments" covenant were computed, together with a copy of any
fairness opinion or appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
Mrs. Fields' Holding will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable, contingently or otherwise, with
respect to (collectively, "incur") any Indebtedness (including Acquired
Indebtedness), and Mrs. Fields' Holding will not issue any Disqualified Stock
and will not permit any of its Subsidiaries to issue any shares of preferred
stock; provided that Mrs. Fields' Holding may incur Indebtedness (including
Acquired Indebtedness) or issue Disqualified Stock, if:
(1) the Fixed Charge Coverage Ratio for Mrs. Fields' Holding's most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date
on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least 1.5 to 1,
determined on a pro forma basis (including a pro forma application
of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period; and
(2) the Weighted Average Life to Maturity of such Indebtedness is equal
to or greater than the remaining Weighted Average Life to Maturity
of the notes, provided that this clause (2) shall not apply in the
case of Acquired Indebtedness.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following, items of Indebtedness (collectively, "Permitted
Indebtedness"):
(1) the incurrence by Mrs. Fields' Holding and its Subsidiaries of the
Existing Indebtedness other than the notes and the Series C Notes.
(2) the incurrence by Mrs. Fields' Holding on the Issue Date of
Indebtedness represented by the notes;
(3) the issuance by Mrs. Fields' Holding of the new notes;
(4) the incurrence by Mrs. Fields of Indebtedness represented by the
Series C Notes and the guarantee thereof by Mrs. Fields'
Subsidiaries, and any other Indebtedness of Mrs. Fields or its
Subsidiaries permitted under the Mrs. Fields Indenture and the
guarantee thereof by Mrs. Fields' Subsidiaries permitted under the
Mrs. Fields Indenture;
(5) the incurrence by Mrs. Fields' Holding or any of its Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred
for the purpose of improvement of property, plant or equipment used
in the business of
96
<PAGE>
Mrs. Fields' Holding or such Subsidiary, in an aggregate principal
amount not to exceed $5.0 million at anytime outstanding;
(6) the incurrence by Mrs. Fields' Holding or any of its Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace
Indebtedness that was permitted by the indenture to be incurred;
(7) the incurrence by Mrs. Fields' Holding or any of its Subsidiaries
of intercompany Indebtedness between or among Mrs. Fields' Holding
and any of its Wholly Owned Restricted Subsidiaries; provided,
that:
(a) if Mrs. Fields' Holding is the obligor on such Indebtedness,
such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with
respect to the notes; and
(b)
(i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being
held by a Person other than Mrs. Fields' Holding or a
Wholly Owned Subsidiary thereof and
(ii) any sale or other transfer of any such Indebtedness
to a Person that is not either Mrs. Fields' Holding
or a Wholly Owned Subsidiary thereof, shall be
deemed, in each case, to constitute an incurrence
of such Indebtedness by Mrs. Fields' Holding or
such Subsidiary, as the case may be;
(8) the incurrence of Indebtedness in connection with one or more
standby letters of credit, guarantees, performance or surety bonds
or other reimbursement obligations, in each case, issued in the
ordinary course of business and not in connection with the
borrowing of money or the obtaining of advances or credit (other
than
(a) advances or credit on open account, includible in current
liabilities, for goods and services in the ordinary course
of business and on terms and conditions customary in a
Permitted Business and
(b) the extension of credit represented by such letter of
credit, guarantee, bond or other obligation itself),
provided that any draw under or call upon any of the foregoing is
repaid in full within 45 days, and provided further that the aggregate
amount of all Indebtedness incurred pursuant to this clause (8) shall
not exceed $5.0 million at any time outstanding;
(9) the incurrence of Indebtedness arising from agreements of Mrs.
Fields' Holding or a Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each case,
incurred or assumed in connection with the disposition of any
business, assets or Subsidiary (other than guarantees of
Indebtedness incurred by any Person acquiring all or a portion of
such business, assets or Subsidiary for the purpose of financing
such acquisition), provided that the maximum aggregate liability of
all such Indebtedness shall at no time exceed 50% of the gross
proceeds actually received by Mrs. Fields' Holding or such
Subsidiary in connection with such disposition; and
(10) the guarantee by Mrs. Fields' Holding or any Subsidiary of
Indebtedness of Mrs. Fields' Holding or any Subsidiary that was
permitted to be incurred by another provision of this covenant;
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Indebtedness described in clauses (1) through (10) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, Mrs.
Fields' Holding will be permitted to classify such item of Indebtedness on the
date of its incurrence in any manner that complies with this covenant. Accrual
of interest and the accretion of accreted value will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
97
<PAGE>
Liens
Mrs. Fields' Holding will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
on any asset now owned or hereafter acquired, or any income or profits
therefrom or assign or convey any right to receive income therefrom, except
Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
Mrs. Fields' Holding will not, and will not permit any of its Subsidiaries,
directly or indirectly, to create or otherwise cause or permit to exist or
become effective any encumbrance or restriction on the ability of any
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to Mrs. Fields' Holding or any of Mrs. Fields' Holding's
Subsidiaries, or with respect to any other interest or
participation in, or measured by, its profits, or pay any
indebtedness owed to Mrs. Fields' Holding or any of Mrs. Fields'
Holding's Subsidiaries;
(2) make loans or advances to Mrs. Fields' Holding or any of Mrs.
Fields' Holding's Subsidiaries; or
(3) transfer any of its properties or assets to Mrs. Fields' Holding or
any of Mrs. Fields' Holding's Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the Issue Date
(2) this indenture and the notes and the Mrs. Fields Indenture and the
notes issued under it;
(3) the Credit Facility;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Mrs. Fields' Holding or any of its Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness,
such Indebtedness was permitted by the terms of the Indenture to be
incurred;
(6) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so
acquired of the nature described in clause (5) above;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(9) customary restrictions imposed on the transfer of copyrighted or
patented materials and customary provisions in agreements that
restrict the assignees of such agreements or any rights thereunder;
or
(10) restrictions with respect to a Subsidiary of Mrs. Fields' Holding
imposed pursuant to a binding agreement relating to the sale or
disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary.
98
<PAGE>
Merger, Consolidation, or Sale of Assets
Mrs. Fields' Holding may not:
(1) consolidate or merge with or into another Person (whether or not Mrs.
Fields' Holding is the surviving corporation); or
(2) sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either:
(a) Mrs. Fields' Holding is the surviving corporation; or
(b) the Person formed by or surviving any such consolidation or
merger (if other than Mrs. Fields' Holding) or to which such
sale, assignment, transfer, conveyance or other disposition
shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or
the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than Mrs. Fields' Holding) or the Person to which such
sale, assignment, transfer, conveyance or other disposition shall
have been made assumes all the obligations of Mrs. Fields' Holding
under the notes and the indenture pursuant to a supplemental
indenture reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) except in the case of a merger of Mrs. Fields' Holding with or into
a Wholly Owned Subsidiary of Mrs. Fields' Holding, Mrs. Fields'
Holding or the entity or Person formed by or surviving any such
consolidation or merger (if other than Mrs. Fields' Holding), or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made:
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net
Worth of Mrs. Fields' Holding immediately preceding the
transaction; and
(b) will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if
the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
Mrs. Fields' Holding will not, and will not permit any of its Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to Mrs. Fields' Holding or such Subsidiary than those that would
have been obtained in a comparable transaction by Mrs. Fields'
Holding or such Subsidiary with an unrelated Person; and
(2) Mrs. Fields' Holding delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with
this covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the
Board of Directors; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $5.0 million, an opinion as to
the
99
<PAGE>
fairness to the holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) payments to Mrs. Fields' Holding pursuant to the Tax Sharing
Agreement;
(2) any employment agreement entered into by Mrs. Fields' Holding or
any of its Subsidiaries in the ordinary course of business and
consistent with the past practice of Mrs. Fields' Holding or such
Subsidiary;
(3) transactions between or among Mrs. Fields' Holding and/or its
Subsidiaries;
(4) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "--Restricted
Payments";
(5) the payment of reasonable fees, expense reimbursements and
customary indemnification, advances and other similar arrangements
to directors and officers of Mrs. Fields' Holding and its
Subsidiaries; and
(6) reasonable loans or advances to employees of Mrs. Fields' Holding
and its Subsidiaries in the ordinary course of business of Mrs.
Fields' Holding or such Subsidiary.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries
Mrs. Fields' Holding will not, and will not permit any of its Wholly Owned
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Capital Stock of any Wholly Owned Subsidiary of Mrs. Fields' Holding to any
Person (other than Mrs. Fields' Holding or a Wholly Owned Subsidiary of Mrs.
Fields' Holding), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Capital Stock of such Wholly Owned Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales."
In addition, Mrs. Fields' Holding will not permit any Wholly Owned Subsidiary
of Mrs. Fields' Holding to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to Mrs. Fields' Holding or a Wholly Owned
Subsidiary of Mrs. Fields' Holding.
Business Activities
Mrs. Fields' Holding will not, and will not permit any Subsidiary to, engage
in any business other than Permitted Businesses, except to such extent as would
not be material to Mrs. Fields' Holding and its Subsidiaries taken as a whole.
In addition,
(1)Neither Mrs. Fields' Holding nor Mrs. Fields will engage in any Asset
Sale involving Mrs. Fields' Brand,
(2)none of Mrs. Fields' Holding, Mrs. Fields or Mrs. Fields' Brand will
engage in any Asset Sale involving the "Mrs. Fields" or "Pretzel Time"
brand name, and
(3)for so long as Mrs. Fields' Brand is a subsidiary of Mrs. Fields or Mrs.
Fields' Holding, Mrs. Fields' Brand will not incur any indebtedness (other
than its guarantee of notes under the Mrs. Fields Indenture and any
guarantee of Indebtedness under a Credit Facility).
100
<PAGE>
Advances to Subsidiaries
All advances to Subsidiaries made by Mrs. Fields' Holding from time to time
after the date of the indenture, other than the Mrs. Fields' Holding Capital
Contributions, will be evidenced by unsecured Subsidiary Intercompany Notes in
favor of Mrs. Fields' Holding that will be pledged to the Collateral Agent
pursuant to the pledge agreement as collateral to secure the notes. All
advances by Mrs. Fields' Holding to any Subsidiary outstanding on the date of
the indenture will be evidenced by an unsecured Subsidiary Intercompany Note
that will be pledged to the Collateral Agent pursuant to the pledge agreement
as collateral for the notes. Each Subsidiary Intercompany Note will be payable
upon demand, will bear interest at the same rate as the notes, and will be
subordinated in right of payment to all existing Senior Debt of the Subsidiary
to which such loan is made.
"Senior Debt" of Subsidiaries for the purposes of the Subsidiary Intercompany
Notes will be defined as all Indebtedness of such Subsidiaries that is not
specifically by its terms made pari passu with or junior to such Subsidiary
Intercompany Notes. A form of Subsidiary Intercompany Note is attached as an
exhibit to the indenture. Repayments of principal with respect to any
Subsidiary Intercompany Note will be required to be pledged to the Collateral
Agent pursuant to the Pledge Agreement as collateral to secure the notes until
such amounts are advanced to a Subsidiary in accordance with the indenture.
Mrs. Fields' Holding will not permit any Subsidiary in respect of which Mrs.
Fields' Holding is a creditor by virtue of a Subsidiary Intercompany Note to
incur any Indebtedness that is subordinate or junior in right of payment to any
Debt of such Subsidiary and senior in any respect in right of payment to any
Subsidiary Intercompany Note.
Payments for Consent
Mrs. Fields' Holding will not, and will not permit any of its Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration to or for
the benefit of any holder of notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the indenture or the
notes unless such consideration is offered to be paid and is paid to all
holders of the notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, Mrs. Fields' Holding will furnish to the holders of notes, within
the time periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms
10-Q and 10-K if Mrs. Fields' Holding were required to file such
Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to
the annual information only, a report on the annual financial
statements by Mrs. Fields' Holding's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Mrs. Fields' Holding were required to
file such reports.
In addition, Mrs. Fields' Holding has agreed that, for so long as any notes
remain outstanding, it will furnish to the holders of notes and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
liquidated damages, if any, with respect to the notes;
101
<PAGE>
(2) default in payment when due of the principal of or premium, if any,
on the notes;
(3) failure by Mrs. Fields' Holding for 30 days after notice to comply
with any of its other agreements in the indenture or the notes;
(4) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by Mrs. Fields' Holding or any
of its Subsidiaries (or the payment of which is guaranteed by Mrs.
Fields' Holding or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the Issue
Date, if that default
(a) is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such
default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has
been so accelerated, aggregates $2.5 million or more;
(5) failure by Mrs. Fields' Holding or any of its Subsidiaries to pay
final judgments aggregating in excess of $2.5 million, which
judgments are not paid, discharged or stayed for a period of 60
days;
(6) breach by Mrs. Fields' Holding or any Subsidiary that has pledged a
Subsidiary Intercompany Note of any representation or warranty set
forth in the pledge agreement, or repudiation by Mrs. Fields'
Holding or any such Subsidiary of its obligations under the pledge
agreement or the unenforceability of the pledge agreement against
Mrs. Fields' Holding or any such Subsidiary for any reason; and
(7) certain events of bankruptcy or insolvency with respect to Mrs.
Fields' Holding or any of its Subsidiaries;
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to Mrs. Fields' Holding, any Significant Subsidiary
or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding notes will become due and payable
without further action or notice. If any other Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the then outstanding notes may declare all the notes to be due and payable
immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful action
or inaction taken or not taken by or on behalf of Mrs. Fields' Holding with the
intention of avoiding payment of the premium that Mrs. Fields' Holding would
have had to pay if Mrs. Fields' Holding then had elected to redeem the notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the notes. If an Event of Default
occurs prior to December 1, 2002 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of Mrs. Fields' Holding with the intention
of avoiding the prohibition on redemption of the notes prior to
102
<PAGE>
December 1, 2002, then the premium specified in the indenture shall also become
immediately due and payable to the extent permitted by law upon the
acceleration of the notes.
Mrs. Fields' Holding is required to deliver to the Trustee annually a
statement regarding compliance with the indenture. Upon becoming aware of any
Default or Event of Default, Mrs. Fields' Holding is required to deliver to the
Trustee a statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Mrs. Fields'
Holding, as such, shall have any liability for any obligations of Mrs. Fields'
Holding under the notes, the indenture, or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of notes
by accepting a note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the notes. The waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
Mrs. Fields' Holding may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest and
liquidated damages, if any, on such notes when such payments are
due from the trust referred to below;
(2) Mrs. Fields' Holding's obligations with respect to the notes
concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance of
an office or agency for payment and money for security payments
held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and Mrs. Fields' Holding's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Mrs. Fields' Holding may, at its option and at any time, elect
to have the obligations of Mrs. Fields' Holding released with respect to
certain covenants that are described in the indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants shall not constitute
a Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default and Remedies" will no longer constitute an Event of Default with
respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Mrs. Fields' Holding must irrevocably deposit with the Trustee, in
trust, for the benefit of the holders of the notes, cash in U.S.
dollars, non-callable Government Securities, or a combination
thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest and liquidation
damages, if any, on the outstanding notes on the stated maturity or
on the applicable redemption date, as the case may be, and Mrs.
Fields' Holding must specify whether the notes are being defeased
to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, Mrs. Fields' Holding shall have
delivered to the Trustee an opinion of counsel reasonably
acceptable to the Trustee confirming that
(a) Mrs. Fields' Holding has received from, or there has been published
by, the Internal Revenue Service a ruling or
(b) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the
103
<PAGE>
holders of the outstanding notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Mrs. Fields' Holding shall have
delivered to the Trustee an opinion of counsel reasonably
acceptable to the Trustee confirming that the holders of the
outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either:
(a) on the date of such deposit (other than a Default or Event
of Default resulting from the borrowing of funds to be
applied to such deposit); or
(b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which Mrs.
Fields' Holding or any of its Subsidiaries is a party or by which
Mrs. Fields' Holding or any of its Subsidiaries is bound;
(6) Mrs. Fields' Holding must have delivered to the Trustee an opinion
of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(7) Mrs. Fields' Holding must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by Mrs. Fields'
Holding with the intent of preferring the holders of notes over the
other creditors of Mrs. Fields' Holding with the intent of
defeating, hindering, delaying or defrauding creditors of Mrs.
Fields' Holding or others; and
(8) Mrs. Fields' Holding must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all
conditions precedent relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding notes (including consents obtained in connection with a tender
offer or exchange offer for notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes
(other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
104
<PAGE>
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes (except a rescission
of acceleration of the notes by the holders of at least a majority
in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to
receive payments of principal of or premium, if any, or interest on
the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
Mrs. Fields' Holding and the Trustee may amend or supplement the indenture or
the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Mrs. Fields' Holding's obligations
to holders of notes in the case of a merger or consolidation or
sale of all or substantially all of Mrs. Fields' Holding's assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect
the legal rights under the indenture of any holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act.
Concerning the Trustee
If the Trustee becomes a creditor of Mrs. Fields' Holding, the Indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Commission for permission to continue or
resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
Book-Entry, Delivery and Form
The new notes exchanged for outstanding notes through the Book-Entry Transfer
Facility will be represented by a Global Note (the "New Global Note"). One New
Global Note shall be issued with respect to each $100 million or less in
aggregate principal amount at maturity of the New Global Note. The New Global
Note will be issued on the date of the closing of the Exchange Offer with the
Trustee, as custodian of The Depository Trust Company (the "Depository"),
pursuant to a FAST Balance Certificate Agreement between the Trustee and DTC
and registered in the name of Cede & Co., as nominee of the Depository (such
nominee being referred to as the "Global Holder").
New notes exchanged for outstanding notes which are in the form of registered
definitive certificates (the "Certificated Notes") will be issued in the form
of Certificated Notes. Such Certificated Notes may, unless the
105
<PAGE>
New Global Note has previously been exchanged for Certificated Notes, be
exchanged for an interest in the New Global Note representing the principal
amount of new notes being transferred.
The Depository has advised us that it is a limited-purchase trust company
that was created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depository's Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the placement agents for the old notes), banks and trust
companies, clearing corporations and certain other organizations. Access to the
Depository's system is also available to the other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect Participants"
or the "Depository's Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Persons who are not Participants may beneficially own securities held by or on
behalf of the Depository only through the Depository's Participants or the
Depository's Indirect Participants.
We expect that pursuant to procedures established by the Depository
(1) upon deposit of the New Global Note, the Depository will credit the
accounts of Participants with portions of the New Global Note; and
(2) ownership of the notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained
by the Depository, the Depository's Participants and the
Depository's Indirect Participants.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer notes may be limited.
For so long as the Global Holder is the registered owner of any New Global
Notes, the Global Holder will be considered the sole owner of such new notes
represented by such New Global Notes outstanding under the indenture. Except as
provided below, owners of beneficial interests in a New Global Note will not be
entitled to have new notes represented by such New Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
Certificated Notes, and will not be considered the owners or holders thereof
under the Indenture for any purpose. As a result, the ability of a person
having a beneficial interest in new notes represented by a New Global Note to
pledge such interest to persons or entities that do not participate in the
Depository's system or to otherwise take actions in respect of such interest,
may be affected by the lack of physical certificate evidencing such interest.
Accordingly, each person owning a beneficial interest in a New Global Note must
rely on the procedures of the Depository and, if such person is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such person owns its interest, to exercise any rights of a holder
under such New Global Note of the Indenture.
Neither Mrs. Fields' Holding nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of new notes by the Depository, or for maintaining, supervising or reviewing
any records of the Depository relating to such new notes.
The Trustee will make payments in respect of the principal of, premium, if
any, interest and liquidated damages, if any, on any new notes registered in
the name of a Global Holder on the applicable record date to or at the
direction of such Global Holder in its capacity as the registered holder under
the indenture. Under the terms of the indenture, Mrs. Fields' Holding and the
Trustees may treat the persons in whose name the notes, including the New
Global Notes, are registered as the owners of such Notes for the purpose of
receiving such payments and all other purposes.
We expect that the Depository or its nominee, upon receipt of payments of
principal, premium, if any, interest and liquidated damages, if any, on the New
Global Notes, will credit their Participants' or Indirect Participants'
accounts with payments in amounts proportionate to their respective interests
in the principal amount of the New Global Notes as shown on the records of the
Depository. Neither Mrs. Fields' Holding nor
106
<PAGE>
the Trustee has any responsibility or liability for such payments. Payments by
the Depository's Participants and the Depository's Indirect Participants to the
beneficial owners of new notes will be governed by standing instructions and
customary practice. Such payments will be the responsibility of the
Depository's Participants or the Depository's Indirect Participants.
Certificated Securities
If:
(1) Mrs. Fields' Holding notifies the Trustee in writing that the
Depository is no longer willing or able to act as a depository and
Mrs. Fields' Holding is unable to locate a qualified successor
within 90 days or
(2) Mrs. Fields' Holding, at its option, notifies the Trustee in
writing that it elects to cause the issuance of the new notes in
definitive form under the Indenture, then, upon surrender by the
relevant Global Holder of its New Global Note, new notes in such
form will be issued to each person that such Global Holder and the
Depository identifies as the beneficial owner of the related new
notes.
In addition, subject to certain conditions, any person having a beneficial
interest in the New Global Note may, upon request to the Trustee, exchange such
beneficial interest for Certificated Notes. Upon any such issuance, the Trustee
is required to register such new notes in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof). Such new
notes would be issued in fully registered forms.
Exchange Offer; Registration Rights
Mrs. Fields' Holding and the placement agents for the outstanding notes
entered into the registration rights agreement on August 24, 1998. The
registration rights agreement requires Mrs. Fields' Holding to file with the
Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to an offer to exchange the outstanding
notes for the new notes, which will have terms substantially similar in all
material respects to the outstanding notes. Upon the effectiveness of the
Registration Statement, Mrs. Fields' Holding will offer to the holders of
Transfer Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for new notes.
If:
(1) Mrs. Fields' Holding had not been required to file the Offer
Registration Statement or is not permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy; or
(2) any holder of Transfer Restricted Securities notifies Mrs. Fields'
Holding prior to the 20th day following consummation of the
Exchange Offer that
(a) it is prohibited by law or Commission policy from
participating in the Exchange Offer or
(b) that it may not resell the new notes acquired by it in the
Exchange Offer to the public without delivering a prospectus
and the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for
such resales or
(c) that it is a broker-dealer and owns outstanding notes
acquired directly from Mrs. Fields' Holding or an affiliate
of Mrs. Fields' Holding,
107
<PAGE>
then Mrs. Fields' Holding will file with the Commission a Shelf Registration
Statement to cover resales of the old notes by the holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. Mrs. Fields' Holding will use its best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission. For purposes of the preceding,
"Transfer Restricted Securities" means each note until:
(1) the date on which such note has been exchanged by a person other
than a broker-dealer for a new note in the Exchange Offer,
(2) following the exchange by a broker-dealer in the Exchange Offer of
an old note for a new note, the date on which such new note is sold
to a purchaser who receives from such broker-dealer on or prior to
the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement,
(3) the date on which such note has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf
Registration Statement or
(4) the date on which such note is distributed to the public pursuant
to Rule 144 under the Securities Act.
The registration rights agreements requires that:
(1) Mrs. Fields' Holding must file a Registration Statement with the
Commission on or prior to 90 days after the Closing Date of the
offering of old notes,
(2) Mrs. Fields' Holding must use its best efforts to have the
Registration Statement declared effective by the Commission on or
prior to 150 days after the Closing Date,
(3) unless the Exchange Offer would not be permitted by applicable law
or Commission policy, Mrs. Fields' Holding will commence the
Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Registration Statement
was declared effective by the Commission, new notes in exchange for
all old notes tendered prior thereto in the Exchange Offer and
(4) if obligated to file the Shelf Registration Statement, Mrs. Fields'
Holding will use its best efforts to file the Shelf Registration
Statement with the Commission on or prior to 90 days after such
filing obligation arises and to cause the Shelf Registration to be
declared effective by the Commission on or prior to 150 days after
such obligation arises.
If
(1) Mrs. Fields' Holding fails to file any of the Registration
Statements required by the registration rights agreement on or
before the date specified for such filing,
(2) any of such Registration Statements is not declared effective by
the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or
(3) Mrs. Fields' Holding fails to consummate the Exchange Offer within
30 business days of the Effectiveness Target Date with respect to
the Registration Statement, or
(4) the Shelf Registration Statement or the Registration Statement is
declared effective but thereafter ceases to be effective or usable
in connection with resales of Transfer Restricted Securities during
the periods specified in the registration rights Agreement (each
such event referred to in clauses (a) through (d) above a
"Registration Default"),
then Mrs. Fields' Holding will pay liquidated damages to each holder of old
notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default in an amount equal to $.05 per
week per $1,000 principal amount of old notes held by such holder. The amount
of the liquidated damages will increase by an additional $.05 per week per
$1,000 principal amount of old notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of liquidated damages of $.20 per week per $1,000 principal amount of old
notes. Mrs. Fields' Holding will pay
108
<PAGE>
all accrued liquidated damages on each Damages Payment Date to the Global Note
Holder by wire transfer of immediately available funds or by federal funds
check and to holders of Certificated old notes by wire transfer to the accounts
specified by them or by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all Registration Defaults,
the accrual of liquidated damages will cease.
Since the Exchange Registration Statement was note effective by January 21,
1999, Mrs. Fields' Holding currently owes liquidated damages of $8,250 to the
holders of old notes.
Holders of old notes will be required to make certain representations to Mrs.
Fields' Holding in order to participate in the Exchange Offer and will be
required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the registration rights
agreement in order to have their notes included in the Shelf Registration
Statement and benefit from the provisions regarding liquidated damages
described above.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such
specified Person, excluding, however, Indebtedness incurred in
connection with, or in contemplation of, such other Person merging
with or into or becoming a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights (including, without limitation, by way of a sale and
leaseback), other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale,
conveyance or other disposition of all or substantially all of the
assets of Mrs. Fields' Holding and its Subsidiaries taken as a
whole will be governed by the provisions of the indenture described
above under the caption "--Change of Control" and/or the provisions
described above under the caption "--Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant;
and
(2) the issuance of Equity Interests of any of Mrs. Fields' Holding's
Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that:
(a) involves assets having a fair market value of equal to or
less than $1.0 million; or
(b) results in net proceeds of equal to or less than $1.0
million;
(2) a transfer of assets between or among Mrs. Fields' Holding and its
Wholly Owned Subsidiaries,
109
<PAGE>
(3) an issuance of Equity Interests by a Wholly Owned Subsidiary to
Mrs. Fields' Holding or to another Wholly Owned Subsidiary;
(4) a Restricted Payment that is permitted by the covenant described
above under the caption "--Restricted Payments";
(5) arrangements providing for the receipt by Mrs. Fields' Holding of
franchise and royalty fees but not otherwise involving the sale of
assets of Mrs. Fields' Holding or any of its Subsidiaries (other
than inventory in the ordinary course of business); and
(6) a disposition of any Non-Core Stores.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire,
whether such right is currently exercisable or is exercisable only upon, the
occurrence of a subsequent condition.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance
with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited);
and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality
thereof having maturities of not more than six months from the date
of acquisition;
(3) marketable direct obligations issued by any State of the United
States or any local government or other political subdivision
thereof rated (at the time of the acquisition of such security) at
least "AA" by Standard & Poor's Rating Service or the equivalent
thereof by Moody's Investors Service, Inc. and having maturities of
not more than one year from the acquisition of such security;
(4) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities of six months or less and
overnight bank deposits, in each case, with any domestic commercial
bank having capital and surplus in excess of $500 million and a
Keefe Bank Watch Rating of "B" or better or with any registered
broker-dealer whose commercial paper is rated at least "A-1" by
Standard & Poor's Rating Service or an equivalent rating by Moody's
Investors Service, Inc.;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (4)
above entered into with any financial institution meeting the
qualifications specified in clause (4) above;
110
<PAGE>
(6) commercial paper rated at least "A-1" by Standard & Poor's Rating
Service or an equivalent rating by Moody's Investors Service, Inc.
and, in each case, maturing within six months after the date of
acquisition; and
(7) investments in money market funds all of whose assets consist of
securities described in clauses (2) through (6) above.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of Mrs.
Fields' Holding and its Subsidiaries taken as a whole to any
"person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties;
(2) the adoption of a plan relating to the liquidation or dissolution
of Mrs. Fields' Holding;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their
Related Parties, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of Mrs. Fields'
Holding, measured by voting power rather than number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of Mrs. Fields' Holding are not Continuing Directors;
For purposes of this definition, any transfer of an equity interest of an
entity that was formed for the purpose of acquiring Voting Stock of Mrs.
Fields' Holding will be deemed to be a transfer of such portion of such Voting
Stock as corresponds to the portion of such equity of such entity that has been
so transferred.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale, to the extent such
losses were deducted in computing such Consolidated Net Income;
plus
(2) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, to the extent that such provision
for taxes was deducted in computing such Consolidated Net Income;
plus
(3) consolidated interest expense of such Person and its Subsidiaries
for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments, if any, pursuant to
Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Subsidiaries for such period
to the extent that such depreciation, amortization and other non-
cash expenses were deducted in computing such Consolidated Net
Income; minus
(5) non-cash items increasing such Consolidated Net Income for such
period, in each case, on a consolidated basis and determined in
accordance with GAAP.
111
<PAGE>
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges
of, a Subsidiary of the specified Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent and in the same
proportion that the net income of such Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted
at the date of determination to be dividended to Mrs. Fields' Holding by such
Subsidiary without prior governmental approval (that has not been obtained),
and without direct or indirect restriction pursuant to the terms of its charter
and all agreements, instruments, judgments, decrees, orders, statutes, rules
and governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the specified Person or
a Wholly Owned Subsidiary thereof
(2) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar
distributions by that Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition
shall be excluded; and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus
(2) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other
than Disqualified Stock) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid
only out of net earnings in respect of the year of such declaration
and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less
(a) all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a
going concern business made within 12 months after the
acquisition of such business) subsequent to the Issue Date
in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person,
(b) all investments as of such date in unconsolidated
Subsidiaries and in Persons that are not Subsidiaries
(except, in each case, Permitted Investments), and
(c) all unamortized debt discount and expense and unamortized
deferred charges as of such date,
all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of Mrs. Fields' Holding who:
(1) was a member of such Board of Directors on the date of the
indenture; or
112
<PAGE>
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who
were members of such Board at the time of such nomination or
election.
"Credit Facility" means, with respect to Mrs. Fields, one or more debt
facilities or commercial paper facilities with banks or other institutional
lenders (including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith) providing for
revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed
to borrow from such lenders against such receivables) or letters of credit up
to a maximum aggregate amount of not more than $15.0 million, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the notes mature, provided that a
class of Capital Stock shall not be Disqualified Stock solely as a result of
any maturity or redemption that is conditioned upon, and subject to, compliance
with the covenant described under the caption "--Certain Covenants--Restricted
Payments."
"Existing Indebtedness" means Indebtedness of Mrs. Fields' Holding and its
Subsidiaries (including preferred stock of Pretzel Time outstanding on the
Issue Date but excluding any Indebtedness of Mrs. Fields' Holding or any of its
Subsidiaries under any Credit Facility existing on the Issue Date) in existence
on the Issue Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of
(1) the consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging
Obligations);
(2) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period,
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Subsidiaries or secured by
a Lien on assets of such Person or one of its Subsidiaries (whether
or not such guarantee or Lien is called upon); and
(4) the product of (a) all dividend payments, whether or not in cash,
on any series of preferred stock of such Person or any of its
Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of Mrs. Fields' Holding, times
(b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that Mrs.
Fields' Holding or any of its Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated but prior to the
113
<PAGE>
date on which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period.
In addition, for purposes of making the computation referred to above:
(1) acquisitions that have been made by Mrs. Fields' Holding or any of
its Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-
quarter reference period or subsequent to such reference period and
on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (3) of the proviso set
forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded,
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the specified Person or any of
its Subsidiaries following the Calculation Date; and
(4) the financial information of Mrs. Fields' Holding with respect to
any portion of the four fiscal quarters prior to November 26, 1997
may be adjusted to eliminate certain historical expenses that are
not expected to recur after the consummation of the Pretzel
Contributions so long as such adjustments are not deemed to be
contrary to the requirements of Regulation S-X under the Securities
Act.
In calculating the Fixed Charge Coverage Ratio for any period, to the extent
that the proceeds from the incurrence of any Indebtedness are to be used to
fund the acquisition of Equity Interests or assets in a Permitted Business,
Mrs. Fields' Holding may include any pro forma adjustments permitted by
Regulation S-X under the Securities Act in its calculation of the amount of
Consolidated Cash Flow that relate solely to such acquisition,
so long as such pro forma adjustments are not deemed to be contrary to the
requirements of Rule 11-02 of Regulation S-X under the Securities Act.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, letters of credit or
reimbursement agreements in respect thereof, of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest or foreign currency exchange
rates.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
(1) borrowed money;
114
<PAGE>
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the guarantee
by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness that
does not require current payments of interest; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP,
provided that an acquisition of assets, Equity Interests or other securities by
Mrs. Fields' Holding for consideration consisting of common stock of Mrs.
Fields' Holding shall not be deemed to be an Investment. If Mrs. Fields'
Holding or any Subsidiary of Mrs. Fields' Holding sells or otherwise disposes
of any Equity Interests of any direct or indirect Subsidiary of Mrs. Fields'
Holding such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of Mrs. Fields' Holding, Mrs. Fields' Holding
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Issue Date" means August 24, 1998.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction), provided that the definition of "Lien" shall not include any
option, call or similar right relating to treasury shares of Mrs. Fields'
Holding to the extent that such option, call or right is granted
(a) under any employee stock option plan, employee stock ownership plan
or similar plan or arrangement of Mrs. Fields' Holding or its
Subsidiaries or
(b) in connection with the issuance of Indebtedness permitted to be
incurred pursuant to the covenant described under the caption "--
Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock."
115
<PAGE>
"Mrs. Fields" means Mrs. Fields' Original Cookies, Inc., a Delaware
corporation and a wholly owned subsidiary of Mrs. Fields holding.
"Mrs. Fields' Holding Capital Contributions" means the capital contribution
of Mrs. Fields' Holding to Mrs. Fields on August 24, 1998 and all future
capital contributions or purchases made by Mrs. Fields' Holding to or from Mrs.
Fields in exchange for capital stock of Mrs. Fields.
"Mrs. Fields Indenture" means the indenture, dated as of November 26, 1997,
governing the Mrs. Fields Notes.
"Mrs. Fields Notes" means the 10 1/8% Series A, Series B and Series C Senior
Notes due 2004 issued by Mrs. Fields.
"Net Income" means, with respect to any Person, the net income (loss) of such
Person, determined in accordance with GAAP and before any reduction in respect
of preferred stock dividends, excluding, however:
(1) any gain (but not loss), together with any related provision for
taxes on such gain (but not loss), realized in connection with
(a) any Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any of
its Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Subsidiaries; and
(2) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by Mrs. Fields'
Holding or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale but only as and when
received), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements), amounts required
to be applied to the permanent repayment of, or permanent reduction in
availability or commitment under, Indebtedness secured by a Lien on the asset
or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Core Stores" means the stores listed in Exhibit G to the Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the same or a similar line of business as Mrs.
Fields' Holding and its Subsidiaries were engaged in on the Issue Date,
including, without limitation, the specialty retail snack-food business.
"Permitted Investments" means:
(1) any Investment in Mrs. Fields' Holding or in a Wholly Owned
Subsidiary of Mrs. Fields' Holding that is engaged in a
Permitted Business;
(2) any Investment in Cash Equivalents;
(3) any Investment by Mrs. Fields' Holding or any Subsidiary of Mrs.
Fields' Holding in a Person, if as a result of such Investment:
(a) such Person becomes a Wholly Owned Subsidiary of Mrs. Fields'
Holding that is engaged in a Permitted Business or
116
<PAGE>
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, Mrs. Fields' Holding or a Wholly
Owned Subsidiary of Mrs. Fields' Holding and that is engaged in
a Permitted Business;
(4) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the
caption""--Repurchase at the Option of Holders--Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Mrs. Fields'
Holding;
(6) any Investments in accounts and notes receivable acquired in the
ordinary course of business;
(7) any Investments in notes of employees, officers, directors and
their transferees and Affiliates issued to Mrs. Fields' Holding
or Mrs. Fields representing payment of the exercise price of
options to purchase common stock of Mrs. Fields' Holding;
(8) any Investments by Mrs. Fields' Holding or Mrs. Fields in
Hedging Obligations otherwise permitted to be incurred under the
indenture;
(9) any Investments existing on the Issue Date; and
(10) any purchase of any and all remaining common stock of Pretzel
Time.
"Permitted Liens" means:
(1) Liens securing Indebtedness under a Credit Facility that was
permitted by the terms of the indenture to be incurred;
(2) Liens in favor of Mrs. Fields' Holding or Mrs. Fields;
(3) Liens on property of a Person existing at the time such Person
is merged into or consolidated with Mrs. Fields' Holding or any
Subsidiary of Mrs. Fields' Holding, provided that such Liens
were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with Mrs. Fields'
Holding;
(4) Liens on property existing at the time of acquisition thereof by
Mrs. Fields' Holding or any Subsidiary of Mrs. Fields' Holding,
provided that such Liens were in existence prior to the
contemplation of such acquisition and do not extend to any
assets of Mrs. Fields' Holding other than the property so
acquired;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clauses (4) and (11) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock," provided that, in the case of
Indebtedness permitted by such clause (3), covering only the
assets acquired with such Indebtedness;
(7) Liens existing on the Issue Date;
(8) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; and
117
<PAGE>
(9) Liens incurred in the ordinary course of business of Mrs.
Fields' Holding or any Subsidiary of Mrs. Fields' Holding that
(a) are not incurred in connection with the borrowing of money
or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and
(b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the
operation of business by Mrs. Fields' Holding or such
Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of Mrs. Fields'
Holding or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Mrs. Fields' Holding or any of its Subsidiaries, provided that
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount of (or accreted value, if applicable), plus accrued
interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of
payment to the notes, such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the notes on terms
at least as favorable to the holders of notes as those contained
in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Mrs. Fields' Holding or
by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Pretzel Contributions" means the contribution from Mrs. Fields' Holding to
Mrs. Fields of the pretzel business formerly owned by H&M Concepts Ltd. Co., an
Idaho limited liability company, and its subsidiaries, and the common stock of
Pretzel Time.
"Pretzel Time Employment Agreement" means that certain Employment Agreement,
dated as of September 2, 1997, between Pretzel Time and Martin E. Lisiewski.
"Pretzel Time Management Agreement" means that certain Management Agreement,
dated as of September 2, 1997, between Mrs. Fields' Holding and Pretzel Time.
"Principals" means Herbert S. Winokur, Jr. and Capricorn Investors II, L.P.
"Public Equity Offering" means a public offering registered under the
Securities Act (except for any registration pursuant to Form S-8) of common
stock of Mrs. Fields' Holding.
"Related Party" with respect to any Principal means:
(1) any greater than 50% owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal
or
(2) trust, corporation, general partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons
beneficially holding a greater than 50% controlling interest of
which consist, or a limited partnership, the general partner of
which consists, of the Principals and/or such other Persons
referred to in the immediately preceding clause (1).
118
<PAGE>
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Series C Notes" means the 10 1/8% Series C Senior Notes due 2004 issued by
Mrs. Fields under an indenture between Mrs. Fields and the Bank of New York, as
Trustee.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the Issue
Date.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person,
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital
Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof) and
(2) any partnership
(a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means any tax allocation agreement between Mrs.
Fields' Holding or any of its Subsidiaries with Mrs. Fields' Holding or any
direct or indirect shareholder of Mrs. Fields' Holding with respect to
consolidated or combined tax returns including Mrs. Fields' Holding or any of
its Subsidiaries, but, in each case, only to the extent that amounts payable
from time to time by Mrs. Fields' Holding or any such Subsidiary under any such
agreement do not exceed the corresponding tax payments that Mrs. Fields'
Holding or such Subsidiary would have been required to make to any relevant
taxing authority had Mrs. Fields' Holding or such Subsidiary not joined in such
consolidated or combined returns, but instead had filed returns including only
Mrs. Fields' Holding and its Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all
of the outstanding Capital Stock or other ownership interests of which (other
than directors' qualifying shares) shall at the time be owned by such Person or
by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly
Owned Subsidiaries of such Person.
119
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
Credit Agreement
Mrs. Fields entered into an Amended and Restated Loan Agreement, as amended,
dated as of February 28, 1998, with LaSalle National Bank. Under the credit
agreement, La Salle National Bank will provide Mrs. Fields with a revolving
loan commitment of up to $15.0 million until the maturity date of March 31,
2001 or until the credit agreement is otherwise terminated or accelerated by La
Salle National Bank. Principal amounts due on revolving loans made under the
credit agreement bear interest at Mrs. Fields' option at either the Prime rate
or LIBOR plus two percent per annum. Any amount of principal or interest that
is not paid when due bears interest payable on demand at the default rate of
interest, which is the regular interest rate plus two percent. The credit
agreement also provides that La Salle National Bank may issue letters of credit
on behalf of Mrs. Fields in an aggregate amount not to exceed $500,000. The
aggregate amount of letters of credit issued plus the aggregate amount of
revolving loans outstanding cannot exceed $15.0 million. Substantially all of
the assets of Mrs. Fields have been pledged to La Salle National Bank under the
credit agreement. The credit agreement contains certain restrictions on, among
other things, payments, the incurrence of indebtedness and liens, which are
substantially similar to the restrictions in the indenture. As of January 2,
1999, there were no amounts outstanding under the credit agreement. Mrs. Fields
is limited to borrowing $12.7 million in accordance with restrictions of its
indenture.
WARRANTS
The outstanding notes were issued concurrently with the warrants, with $1,000
in principal amount at maturity of notes and one warrant constituting a unit.
Each warrant is exercisable for 3.14411 shares of common stock of Mrs. Fields'
Holding. The notes and the warrants are not separately transferable until the
earliest to occur of
(1) 180 days after the closing of the offering of outstanding notes,
(2) the date of redemption of the notes,
(3) the date on which the Registration Statement is declared effective
under the Securities Act,
(4) the date a Shelf Registration Statement with respect to the notes is
declared effective under the Securities Act, such date as Jefferies &
Company, Inc., in its sole discretion, shall determine,
(5) the occurrence of a Change of Control, and
(6) upon the first underwritten offering of more than $20.0 million in
gross proceeds of the common stock of Mrs. Fields' Holding that is
registered under the Securities Act or admitted to listing on a
recognized stock exchange or automated quotation system.
PLAN OF DISTRIBUTION
Each broker-dealer that receives notes for its own account issued in the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of notes issued in the Exchange Offer received in exchange for
outstanding notes where such outstanding notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for
a period of 120 days after the consummation of the Exchange Offer, we will make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until , 1999, all
dealers effecting transactions in the notes may be required to deliver a
prospectus.
We will not receive any proceeds from any sale of notes issued in the
Exchange Offer by broker-dealers. notes issued in the Exchange Offer received
by broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated
120
<PAGE>
transactions, through the writing of options on the notes issued in the
Exchange Offer or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to purchasers
or to or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such notes issued in the Exchange Offer. Any broker-dealer that resells notes
issued in the Exchange Offer that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such notes issued in the Exchange Offer may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of notes issued in the Exchange Offer and any commission or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 120 days after the consummation of the Exchange Offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal or agent's message. We have agreed to pay all
expenses incident to the Exchange Offer (including the expenses of one counsel
for the holders of the notes in an amount up to $50,000) other than commissions
or concessions of any brokers or dealers and will indemnify the holders of the
notes (including any broker-dealer) against certain liabilities, including
liabilities under the Securities Act.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain U.S. Federal income tax
consequences associated with the exchange of the outstanding notes for the
notes issued in the Exchange Offer. The summary is based upon current laws,
regulations, rulings and judicial decisions all of which are subject to change,
possibly with retroactive effect. The discussion below does not address all
aspects of U.S. Federal income taxation that may be relevant to particular
holders of outstanding notes or notes issued in the Exchange Offer. In
addition, the discussion does not address any aspect of state, local or foreign
taxation.
The exchange of the outstanding notes for the notes issued in the Exchange
Offer should not be treated as an "exchange" for U.S. Federal income tax
purposes because the notes issued in the Exchange Offer should not be
considered to differ materially in kind or extent from the outstanding notes.
Rather, the notes issued in the Exchange Offer received by a holder should be
treated as a continuation of the outstanding notes in the hands of such holder.
As a result there should be no U.S. Federal income tax consequences to holders
exchanging the outstanding notes for the notes issued in the Exchange Offer,
and any exchanging holder of outstanding notes should have the same tax basis
and holding period in, and original issue discount income in respect of, the
notes issued in the Exchange Offer as such holder had in the outstanding notes
immediately prior to the Exchange.
Prospective holders of the notes issued in the Exchange Offer are urged to
consult their tax advisors concerning the particular tax consequences of
exchanging such holders' outstanding notes for the notes issued in the Exchange
Offer, including the applicability and effect of any state, local or foreign
income and other tax laws.
LEGAL MATTERS
The validity of the notes issued in the Exchange Offer offered hereby will be
passed upon by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York,
counsel for Mrs. Fields' Holding. A partner in Skadden, Arps, Slate, Meagher &
Flom LLP is an investor in Capricorn.
121
<PAGE>
EXPERTS
The historical consolidated financial statements of Mrs. Fields' Holding
Company, Inc. and subsidiaries as of December 28, 1996 and January 3, 1998 and
for the period from inception (September 18, 1996) to December 28, 1996 and for
the year ended January 3, 1998; the historical consolidated financial
statements of Mrs. Fields' Original Cookies, Inc. and subsidiaries as of
December 28, 1996 and January 3, 1998 and for the period from inception
(September 18, 1996) to December 28, 1996 and for the year ended January 3,
1998; the historical financial statements of Mrs. Fields Inc. and subsidiaries
as of September 17, 1996 and for the period from December 31, 1995 to September
17, 1996; the historical combined financial statements of The Original Cookie
Company, Incorporated and the Carved-Out Portion of Hot Sam Company, Inc. as of
September 17, 1996 and for the year ended December 30, 1995 and for the period
ended September 17, 1996; and the historical financial statements of Chocolate
Chip Cookies of Texas, Inc. as of September 30, 1996 and 1997 and for the years
ended September 30, 1995, 1996 and 1997; the historical combined financial
statements of the Combined Karp Entities as of December 31, 1996 and 1997 and
for the years ended December 31, 1995, 1996 and 1997, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The financial statements of Mrs. Fields Inc. and subsidiaries for the year
ended December 30, 1995 included in this prospectus, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein and is included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The financial statements of Deblan Corporation as of December 31, 1996 and
1997, and for the years ended December 31, 1995, 1996 and 1997 included in this
prospectus, have been audited by Weinstein Spira & Company, P.C., independent
auditors, as stated in their report appearing herein.
The financial statements of Cookies USA, Inc. and subsidiary as of June 29,
1997 and June 28, 1998 and for each of the three years in the period ended June
28, 1998 included in this prospectus, have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report
appearing herein.
The financial statements of Cookie Conglomerate, Inc. as of December 31, 1997
and 1996, and for the years ended December 31, 1997 and 1996 included in this
prospectus, have been audited by Habif, Arogeti & Wynne, P.C., independent
auditors, as stated in their report appearing herein.
The financial statements of Pretzelmaker Holdings, Inc. and subsidiaries as
of December 31, 1997, and for the years ended December 31, 1997 included in
this prospectus, has been audited by AJ., Robbins, PC, independent public
accountants as stated in their report appearing herein. The financial
statements of Pretzelmaker Holdings, Inc. as of December 31, 1996 and for the
years ended December 31, 1995 and 1996 included in this prospectus, have been
audited by BDO Siedman, LLP, independent public accountants, as stated in their
report appearing herein.
122
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On August 24, 1998, Mrs. Fields' Holding Company, Inc. sold 55,000 Units,
consisting of $55,000,000 in aggregate principal amount of Senior Secured
Discount Notes due 2005 and warrants to purchase 172,926 shares of common stock
of Mrs. Fields' Holding. The net proceeds of the Mrs. Fields' Holding offering
and the net proceeds of the $40,000,000 Mrs. Fields' Original Cookies, Inc.
offering on the same date, together with existing Mrs. Fields' cash, were used
to: (1) finance the acquisition of all of the outstanding capital stock of
Great American; (2) finance the tender offer to repurchase all of Great
American's $40,000,000 aggregate principal amount of 10 7/8% Senior Secured
Notes due 2001, including accrued but unpaid interest and a premium of
$1,600,000; (3) finance the repayment of all of Great American's $10,000,000
aggregate principal amount of 12.5% Subordinated Notes, including accrued but
unpaid interest; (4) finance the retirement of Great American's Senior
Redeemable Preferred Stock and Junior Redeemable Preferred Stock at an
aggregate discounted purchase price of $8,400,000; (5) finance the acquisition
of all of the outstanding capital stock of Deblan Corporation and Chocolate
Chip Cookies of Texas, Inc., two franchisees of Great American, including the
repayment of assumed debt; and (6) finance the asset purchase of eight stores
controlled by another Great American franchisee, defined as the Combined Karp
Entities.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores, defined as
Cookie Conglomerate for an aggregate purchase price of $2,800,000. The Cookie
Conglomerate acquisition was funded with financing provided by T&W Financial
Services Company, L.L.C. and such funding is secured by the assets of the
acquired stores.
On November 19, 1998, Mrs. Fields acquired all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. for $5,739,000, including $5,419,000
related to outstanding capital stock and $1,619,000 related to assumed
liabilities, including severance payments. The transaction was financed with
notes issued to the sellers that were paid by Mrs. Fields in installments
through January 4, 1999. Of the assumed indebtedness, $722,000 was paid by Mrs.
Fields in installments through January 4, 1999. The notes are secured by all of
the outstanding capital stock of Pretzelmaker.
The unaudited pro forma condensed combined statements of operations for the
53 weeks ended January 3, 1998 and the 39 weeks ended October 3, 1998 are based
upon the historical financial statements of Mrs. Fields' Holding, H&M, Pretzel
Time, Great American, Deblan, Chocolate Chip, the Combined Karp Entities,
Cookie Conglomerate and Pretzelmaker, and should be read in conjunction with
the audited and unaudited financial statements, including the notes thereto, of
these entities. The unaudited pro forma condensed combined financial statements
have been prepared using the purchase method of accounting for the acquisitions
of Great American, Deblan, Chocolate Chip, the Combined Karp Entities, Cookie
Conglomerate and Pretzelmaker, as well as the previous acquisitions of H&M and
Pretzel Time. Mrs. Fields' Holding, H&M and Pretzel Time operate using a 52/53-
week year ending near December 31. Great American operates using a 52/53-week
year ending near June 30. Deblan, Cookie Conglomerate and Pretzelmaker operate
using a year ending December 31 and Chocolate Chip operates using a year ending
September 30. The Combined Karp Entities operate using various year ends, which
have been recast to December 31. We have recast the historical financial
statements for those entities that did not operate using a year ending near
December 31 to be comparative for the 53 weeks ended January 3, 1998 and the 39
weeks ended October 3, 1998. None of the revenues and income (loss) of any
entity has been excluded or included more than once in the unaudited pro forma
condensed combined financial statements.
The unaudited pro forma condensed combined statements of operations for the
53 weeks ended January 3, 1998 and the 39 weeks ended October 3, 1998 assume
that the above transactions occurred as of December 29, 1996 (the first day of
the most recently completed fiscal year) and combine the historical results of
operations of the entities for those periods with pro forma adjustments to give
effect to Mrs. Fields' Holding's offering, Mrs. Fields' offerings in November
1997 and August 1998, and the acquisitions. Except for data presented with
respect to the Combined Karp Entities, the unaudited pro forma condensed
combined financial statements do
P-1
<PAGE>
not give effect to the purchase by Mrs. Fields of a number of other pretzel and
cookie stores, or the purchase of the remaining 30.0% of common stock of
Pretzel Time because those transactions were immaterial to the pro forma
presentation.
The pro forma condensed combined statement of operations for the 53 weeks
ended January 3, 1998 includes data labeled "Mrs. Fields' Holding Pre-
Acquisition" and "Mrs. Fields' Holding Post-Acquisition". The data included in
the section labeled Mrs. Fields' Holding Pre-Acquisition includes the operating
results of Mrs. Fields' Holding, H&M and Pretzel Time, including pro forma
adjustments that give effect to the acquisitions of H&M and Pretzel Time that
occurred during fiscal year 1997. This data is subtotaled under the column
heading "Pre-Acquisition Pro Forma Combined" in order to differentiate the
effects of the acquisitions that occurred during fiscal years 1997 and 1998.
The data included in the section labeled Mrs. Fields' Holding Post-Acquisitions
includes the operating results of Great American, Deblan, Chocolate Chip,
Cookie Conglomerate, the Combined Karp Entities and Pretzelmaker, including pro
forma adjustments that give effect to the acquisition of those entities during
fiscal year 1998. All data for the pro forma condensed combined statement of
operations for the 53 weeks ended January 3, 1998 is totaled under the column
heading "Post-Acquisition Pro Forma Combined".
The unaudited pro forma condensed combined financial statements included in
this Registration Statement are for illustrative purposes only. Such
information does not purport to be indicative of the results which would
actually have been effected on the date and for the periods indicated, nor is
it indicative of actual or future operating results or financial position that
may occur. See also "Risk Factors" included elsewhere in this Registration
Statement.
P-2
<PAGE>
MRS. FIELDS' HOLDING
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 53 WEEKS ENDED JANUARY 3, 1998
(Unaudited)
<TABLE>
<CAPTION>
Mrs. Fields' Holding
Mrs. Fields' Holding Pre-Acquisition Post-Acquisition
-------------------------------------------------------------- -------------------------
Pre-
Mrs. Pretzel Pro Forma Acquisition Great
Fields' H&M Time Adjustments Pro Forma American Deblan
Holding (See Note 2) (See Note 3) (See Note 1) Combined (See Note 4) (See Note 5)
-------- ------------ ------------ ------------ ----------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Net store and batter
sales................. $123,987 $9,328 $ 302 $ -- $133,617 $32,307 $9,503
Franchising, net....... 3,574 -- 2,142 (653)(a) 5,063 5,391 --
Licensing, net......... 2,028 -- -- -- 2,028 -- --
Other, net............. 918 36 181 -- 1,135 167 21
-------- ------ ------ ------- -------- ------- ------
Total revenues......... 130,507 9,364 2,625 (653) 141,843 37,865 9,524
-------- ------ ------ ------- -------- ------- ------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs....... 66,832 6,120 284 (653)(a) 72,583 13,548 5,891
Food cost of sales..... 28,127 1,366 63 -- 29,556 10,578 1,675
General and
administrative........ 16,974 1,326 1,617 (750)(b) 19,167 6,664 1,169
Depreciation and
amortization.......... 10,450 690 118 525 (c) 11,783 2,725 255
-------- ------ ------ ------- -------- ------- ------
Total operating costs
and expenses.......... 122,383 9,502 2,082 (878) 133,089 33,515 8,990
-------- ------ ------ ------- -------- ------- ------
Income (loss) from
operations............ 8,124 (138) 543 225 8,754 4,350 534
INTEREST EXPENSE........ (7,527) (370) (120) (2,857)(d) (10,874) (6,219) (73)
INTEREST INCOME......... 246 -- -- -- 246 307 26
OTHER INCOME (EXPENSE),
net.................... (368) -- -- -- (368) 1,264 --
-------- ------ ------ ------- -------- ------- ------
Income (loss) before
provision for income
taxes................. 475 (508) 423 (2,632) (2,242) (298) 487
PROVISION FOR INCOME
TAXES.................. 655 -- -- -- 655 223 195
-------- ------ ------ ------- -------- ------- ------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
minority interest..... (180) (508) 423 (2,632) (2,897) (521) 292
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ (306) -- -- -- (306) -- --
MINORITY INTEREST....... (138) -- -- (169)(e) (307) -- --
-------- ------ ------ ------- -------- ------- ------
Net income (loss)...... $ (624) $ (508) $ 423 $(2,801) $ (3,510) $ (521) $ 292
======== ====== ====== ======= ======== ======= ======
Basic and diluted net
loss per common
share................. $ (0.88) $(0.16) $ 0.13 $ (0.20)(f) $ (1.11) $ (0.16) $ 0.09
</TABLE>
P-3
<PAGE>
MRS. FIELDS' HOLDING
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 53 WEEKS ENDED JANUARY 3, 1998
(Unaudited)
<TABLE>
<CAPTION>
Mrs. Fields' Holding Post-Acquisition
----------------------------------------------------------------------------------
Combined Pretzel- Post
Chocolate Karp Cookie maker Pro Forma Acquisition
Chip Entities Conglomerate (See Adjustments Pro Forma
(See Note 6) (See Note 7) (See Note 8) Note 9) (See Note 1) Combined
------------ ------------ ------------ -------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Net store and batter
sales................. $2,789 $2,500 $4,203 $1,819 $(2,886)(h) $183,852
Franchising, net....... -- -- -- 2,804 (1,329)(g) 11,929
Licensing, net......... -- -- -- -- -- 2,028
Other, net............. -- -- -- 1,442 -- 2,765
------ ------ ------ ------ ------- --------
Total revenues......... 2,789 2,500 4,203 6,065 (4,215) 200,574
------ ------ ------ ------ ------- --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs....... 1,396 1,635 2,278 1,816 (1,329)(g) 97,818
Food cost of sales..... 654 683 1,097 921 (2,886)(h) 42,278
General and
administrative........ 510 238 326 3,175 (2,670)(i) 28,579
Depreciation and
amortization.......... 51 121 183 403 3,931 (j) 19,452
------ ------ ------ ------ ------- --------
Total operating costs
and expenses.......... 2,611 2,677 3,884 6,315 (2,954) 188,127
------ ------ ------ ------ ------- --------
Income (loss) from
operations............ 178 (177) 319 (250) (1,261) 12,447
INTEREST EXPENSE........ (5) (18) (40) (224) (3,459)(k) (20,912)
INTEREST INCOME......... 5 -- -- -- -- 584
OTHER INCOME (EXPENSE),
net.................... -- -- -- -- -- 896
------ ------ ------ ------ ------- --------
Income (loss) before
provision for income
taxes................. 178 (195) 279 (474) (4,720) (6,985)
PROVISION FOR INCOME
TAXES.................. 43 15 -- -- (323)(l) 808
------ ------ ------ ------ ------- --------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
minority interest..... 135 (210) 279 (474) (4,397) (7,793)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- -- -- -- -- (306)
MINORITY INTEREST....... -- -- -- -- -- (307)
------ ------ ------ ------ ------- --------
Net income (loss)...... $ 135 $ (210) $ 279 $ (474) $(4,397) $ (8,406)
====== ====== ====== ====== ======= ========
Basic and diluted net
loss per common
share................. $ 0.04 $(0.06) $ 0.09 $(0.15) $ (1.39) $ (2.65)
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
P-4
<PAGE>
MRS. FIELDS' HOLDING
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED OCTOBER 3, 1998
(Unaudited)
<TABLE>
<CAPTION>
Combined Pretzel-
Great Chocolate Karp Cookie maker Pro Forma
Mrs. Fields' American Deblan Chip Entities Conglomerate (See Adjustments
Holding (See Note 4) (See Note 5) (See Note 6) (See Note 7) (See Note 8) Note 9) (See Note 1)
------------ ------------ ------------ ------------ ------------ ------------ -------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Net store and
batter sales... $ 89,938 $18,932 $6,370 $1,873 $1,489 $2,906 $1,039 $(1,330)(g)
Franchising,
net............ 3,884 3,449 -- -- -- -- 1,724 (606)(f)
Licensing, net.. 1,081 -- -- -- -- -- -- --
Other, net...... 1,056 82 -- -- -- -- 598 --
-------- ------- ------ ------ ------ ------ ------ -------
Total revenues.. 95,959 22,463 6,370 1,873 1,489 2,906 3,361 (1,936)
-------- ------- ------ ------ ------ ------ ------ -------
OPERATING COSTS
AND EXPENSES:
Selling and
store occupancy
costs.......... 52,357 7,645 3,523 1,000 914 1,580 992 (606)(f)
Food cost of
sales.......... 21,588 6,428 1,108 454 373 733 121 (1,330)(g)
General and
administrative.. 12,743 5,288 1,067 421 141 303 1,656 (1,735)(h)
Depreciation and
amortization... 9,742 1,510 182 22 82 118 627 3,077(i)
-------- ------- ------ ------ ------ ------ ------ -------
Total operating
costs and
expenses....... 96,430 20,871 5,880 1,897 1,510 2,734 3,396 (594)
-------- ------- ------ ------ ------ ------ ------ -------
Income (loss)
from
operations...... (471) 1,592 490 (24) (21) 172 (35) (1,342)
INTEREST
EXPENSE......... (9,421) (4,077) (43) (2) (8) (17) (152) (3,299)(j)
INTEREST INCOME.. 541 258 24 4 -- -- -- --
OTHER INCOME
(EXPENSE), net.. (256) (149) 40 11 -- 32 -- --
-------- ------- ------ ------ ------ ------ ------ -------
Income (loss)
before
provision
(benefit) for
income taxes... (9,607) (2,376) 511 (11) (29) 187 (187) (4,641)
PROVISION
(BENEFIT) FOR
INCOME TAXES.... 68 (38) 115 27 6 -- -- --
-------- ------- ------ ------ ------ ------ ------ -------
Income (loss)
before
preferred stock
accretion and
dividends of
subsidiaries
and minority
interest....... (9,675) (2,338) 396 (38) (35) 187 (187) (4,641)
PREFERRED STOCK
ACCRETION AND
DIVIDENDS OF
SUBSIDIARIES.... (333) -- -- -- -- -- -- --
MINORITY
INTEREST........ (268) -- -- -- -- -- -- --
-------- ------- ------ ------ ------ ------ ------ -------
Net income
(loss)......... $(10,276) $(2,338) $ 396 $ (38) $ (35) $ 187 $ (187) $(4,641)
======== ======= ====== ====== ====== ====== ====== =======
Basic and
diluted net
loss per common
share.......... $ (3.13) $ (0.71) $ 0.12 $(0.01) $(0.01) $ 0.06 $(0.06) $ (1.41)
<CAPTION>
Pro Forma
Combined
----------
<S> <C>
REVENUES:
Net store and
batter sales... $121,217
Franchising,
net............ 8,451
Licensing, net.. 1,081
Other, net...... 1,736
----------
Total revenues.. 132,485
----------
OPERATING COSTS
AND EXPENSES:
Selling and
store occupancy
costs.......... 67,405
Food cost of
sales.......... 29,475
General and
administrative.. 19,884
Depreciation and
amortization... 15,360
----------
Total operating
costs and
expenses....... 132,124
----------
Income (loss)
from
operations...... 361
INTEREST
EXPENSE......... (17,019)
INTEREST INCOME.. 827
OTHER INCOME
(EXPENSE), net.. (322)
----------
Income (loss)
before
provision
(benefit) for
income taxes... (16,153)
PROVISION
(BENEFIT) FOR
INCOME TAXES.... 178
----------
Income (loss)
before
preferred stock
accretion and
dividends of
subsidiaries
and minority
interest....... (16,331)
PREFERRED STOCK
ACCRETION AND
DIVIDENDS OF
SUBSIDIARIES.... (333)
MINORITY
INTEREST........ (268)
----------
Net income
(loss)......... $(16,932)
==========
Basic and
diluted net
loss per common
share.......... $ (5.15)
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
P-5
<PAGE>
MRS. FIELDS' HOLDING
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. Unaudited Pro Forma Condensed Combined Statements Of Operations Adjustments
Pre-Acquisition
(a) Adjustment to reflect the elimination of franchise fees and related costs
as a result of consolidating H&M and Pretzel Time.
(b) Adjustment to reflect the impact of the reduction in salaries and payroll
expenses related to employees of H&M and Pretzel Time terminated at the date of
the acquisitions assuming that the acquisitions were consummated as of December
29, 1996. The terminations occurred concurrent with and were a direct result of
the acquisitions. These terminations will have a continuing impact, as the
positions occupied by the terminated employees have been eliminated. The
terminated employees will not be replaced as the Company has sufficient
resources with existing staff to fulfill the applicable responsibilities. Other
costs will not be incurred that will offset these reductions. The impact is
factually supportable as the employees were terminated at the time of the
acquisitions.
(c) Adjustment to reflect amortization of goodwill, which goodwill totaling
$15,500,000, was recorded in connection with the purchase of the net assets of
H&M and the majority ownership of Pretzel Time. Goodwill is being amortized
over a 15-year period. Also includes adjustment to reflect a reduction in
depreciation expense as a result of reducing H&M's property and equipment to
estimated fair market value in connection with the acquisition. The average
estimated depreciable lives for these assets is seven years.
(d) Adjustment to reflect additional interest expense that would have been
incurred on the $100,000,000 Series A/B Senior Notes. Adjustment also reflects
a reduction in interest expense related to: (i) the retirement of $64,098,000
of Mrs. Fields debt with interest rates ranging from 8.78% to 10.0%; (ii) the
retirement of $8,250,000 of H&M debt with interest rates ranging from 8.0% to
16.0%; (iii) the assumed conversion of $4,643,000 of a Mrs. Fields note payable
with an interest rate of 9.78%; (iv) the additional amortization related to
approximately $5,976,000 of deferred loan costs assumed to be amortized over a
seven-year period; and (v) net of interest income on a $500,000 loan to a
minority stockholder of Pretzel Time with an interest rate of 10.0%.
(e) Adjustment to reflect the recording of the minority interest in Pretzel
Time's income from continuing operations.
(f) Adjustment to reflect the decrease in net loss applicable to common
shares by $2,173,000 related to Mrs. Fields' Holding's cumulative redeemable
Series A preferred stock dividends. Capricorn converted its preferred stock in
Mrs. Fields' Holding to common equity in November 1997 in connection with Mrs.
Fields' offering of notes and the acquisitions of H&M and Pretzel Time.
Post-Acquisition
(g) Adjustment to reflect the elimination of batter sales and batter cost of
sales as a result of combining Great American, Deblan, Chocolate Chip, the
Combined Karp Entities and Cookie Conglomerate.
(h) Adjustment to reflect the elimination of franchise fees and related costs
as a result of combining Great American, Deblan, Chocolate Chip, the Combined
Karp Entities and Cookie Conglomerate.
(i) Adjustment to reflect the impact of the reduction in salaries and payroll
expenses related to employees of Great American, Deblan, Chocolate Chip, the
Combined Karp Entities, Cookie Conglomerate and Pretzelmaker terminated at the
date of the acquisitions assuming that the acquisitions were consummated at
December 29, 1996. The terminations were a contractual component of the
acquisition agreements and occurred concurrent with and were a direct result of
the acquisitions. These terminations will have a continuing impact,
P-6
<PAGE>
MRS. FIELDS' HOLDING
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
as the positions occupied by the terminated employees have been eliminated. The
terminated employees will not be replaced as Mrs. Fields has sufficient
resources with existing staff to fulfill the applicable
responsibilities. Other costs will not be incurred that will offset these
reductions. The impact is factually supportable as the employees were
terminated at the time of the acquisitions.
(j) Adjustment to reflect amortization of goodwill, which goodwill totaling
$77,717,000, was recorded in connection with the purchase of the net assets of
Great American, Deblan, Chocolate Chip, the Combined Karp Entities, Cookie
Conglomerate and Pretzelmaker. Goodwill is being amortized over a 15-year
period. Also includes adjustment to reflect a reduction in depreciation expense
as a result of reducing Great American, Deblan, Chocolate Chip and the Combined
Karp Entities property and equipment and increasing Cookie Conglomerate's
property and equipment to estimated fair market value in connection with each
respective acquisition. The average estimated depreciable lives for these
assets is seven years.
(k) Adjustment to interest expense related to: (i) the retirement of
$40,000,000 of Great American 10.875% Senior Secured Notes; (ii) the retirement
of $10,000,000 of Great American 12.5% Subordinated Notes; (iii) the
elimination of Great American's original issue discount; (iv) the elimination
of Great American's deferred loan costs; (v) net of the additional interest
expense related to approximately $6,815,000 of new deferred loan costs
amortized over a seven-year period; (vi) net of the additional interest expense
on the $40,000,000 of Series C Senior Notes and amortization of $600,000 of
assumed discount; (vii) net interest expense on the $55,000,000 of Mrs. Fields'
Holding's 14% Senior Secured Discount Notes and amortization of $26,612,000
original issue discount; (viii) net interest expense on $2,800,000 of financing
related to the acquisition of Cookie Conglomerate, and (ix) net interest
expense on $4,682,000 of financing related to the acquisition of Pretzelmaker.
(l) Adjustment to reflect the change in provision for income taxes due to the
consolidated results of operations of the entities before provision for income
taxes.
2. H&M Acquisition
Mrs. Fields' Holding acquired the net assets and certain debt of H&M on July
25, 1997, and concurrent with the completion of the Prior Offering contributed
the net assets of H&M and related debt to Mrs. Fields. Accordingly, in the
accompanying unaudited pro forma condensed combined statement of operations for
the 53 weeks ended January 3, 1998, H&M's results of operations from December
29, 1996 to July 24, 1997 are included under the "H&M" column heading. Also, in
the accompanying unaudited pro forma condensed combined statement of operations
for the 39 weeks ended October 3, 1998, H&M's results of operations are
included under the "Mrs. Fields" column heading. The purchase price of
$13,750,000 paid by Mrs. Fields' Holding was allocated based on the estimated
fair values of the net assets acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired......................................... $ 496,000
Fixed assets acquired........................................... 4,151,000
Other assets acquired........................................... 1,212,000
Current liabilities acquired.................................... (727,000)
Other liabilities acquired...................................... (1,000,000)
Goodwill acquired............................................... 9,618,000
-----------
Total purchase price.......................................... $13,750,000
===========
</TABLE>
3. Pretzel Time Acquisition
Mrs. Fields' Holding acquired 56.0% of the common stock of Pretzel Time, a
$500,000 note receivable from Pretzel Time's founder and contract rights on
September 2, 1997. Concurrent with the completion of Mrs. Fields' offering in
November 1997, Mrs. Fields' Holding contributed its 56.0% interest to Mrs.
Fields.
P-7
<PAGE>
MRS. FIELDS' HOLDING
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Accordingly, in the accompanying unaudited pro forma condensed combined
statements of operations for the 53 weeks ended January 3, 1998, Pretzel Time's
results of operations from December 29, 1996 to September 1, 1997 are included
under the "Pretzel Time" column heading. Also, in the accompanying unaudited
pro forma condensed combined statement of operations for the 39 weeks ended
October 3, 1998, Pretzel Time's results of operations are included under the
"Mrs. Fields" column heading.
Mrs. Fields' Holding paid $4,200,000 in cash to acquire 56.0% of the common
stock of Pretzel Time and made a $500,000, five-year maturity loan, with an
interest rate of 10.0%, to a minority stockholder and founder of Pretzel Time.
Of the $4,200,000 paid by Mrs. Fields' Holding, $750,000 was paid to Pretzel
Time to be used for working capital purposes. Pretzel Time's stockholders'
deficit of $425,000 at the date of acquisition was eliminated and goodwill of
$5,882,000 was recorded.
4. Great American Acquisition
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
and subordinated indebtedness of Great American for an aggregate purchase price
of $18,400,000. The purchase price was allocated based on the estimated fair
values of the net assets acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired......................................... $11,798,652
Fixed assets acquired........................................... 3,021,124
Other assets acquired........................................... 5,244,371
Current liabilities acquired.................................... (8,352,982)
Other liabilities acquired...................................... (48,944,165)
Goodwill acquired............................................... 55,633,000
-----------
Total purchase price.......................................... $18,400,000
===========
</TABLE>
Because Great American operates using a 52/53-week year ending near June 30,
its results of operations for the 53 weeks ended January 3, 1998, in the
accompanying pro forma condensed combined statements of operations, do not
agree with Great American's historical results of operations for either the 52
weeks ended June 29, 1997 or June 28, 1998. Additionally, in the accompanying
pro forma condensed combined statement of operations for the 39 weeks ended
October 3, 1998, Great American's results of operations from December 29, 1997
to August 23, 1998 are included under the "Great American" column heading.
Great American's results of operations from August 24, 1998 to October 3, 1998
are included under the "Mrs. Fields" column heading.
The following data reconciles the key components of Great American's results
of operations in the pro forma condensed combined statement of operations for
the 53 weeks ended January 3, 1998 with the key components of Great American's
results of operations in its historical financial statements for the 52 weeks
ended June 28, 1998:
<TABLE>
<CAPTION>
Less Add
52 Weeks Ended 26 Weeks Ended 26 Weeks Ended 52 Weeks Ended
June 28, 1998 June 28, 1998 June 29, 1997 December 28, 1997
-------------- -------------- -------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net store sales......... $18,854 $8,472 $10,181 $20,563
Batter sales to
franchisees............ 12,214 6,074 5,804 11,744
Franchising, net........ 5,770 2,886 2,507 5,391
Other, net.............. 139 67 95 167
Operating costs and
expenses............... 31,133 15,089 17,471 33,515
Income (loss) from
operations............. 5,844 2,106 612 4,350
Net income (loss)....... (202) (1,384) (1,703) (521)
</TABLE>
P-8
<PAGE>
MRS. FIELDS' HOLDING
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The following data reconciles the key components of Great American's results
of operations in the pro forma condensed combined statement of operations for
the 39 weeks ended October 3, 1998 with the key components of Great American's
results of operations in its historical financial statements for the 52 weeks
ended June 28, 1998:
<TABLE>
<CAPTION>
Add
Less June 29, 1998 December 29, 1997
52 Weeks Ended 26 Weeks Ended to to
June 28, 1998 December 28, 1997 August 23, 1998 August 23, 1998
-------------- ----------------- --------------- -----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net store sales......... $18,854 $10,382 $2,753 $11,225
Batter sales to
franchisees............ 12,214 6,140 1,633 7,707
Franchising, net........ 5,770 2,884 563 3,449
Other, net.............. 139 72 15 82
Operating costs and
expenses............... 31,133 16,044 5,782 20,871
Income (loss) from
operations............. 5,844 3,738 (514) 1,592
Net income (loss)....... (202) 1,182 (954) (2,338)
</TABLE>
5. Deblan Acquisition
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
of Deblan for an aggregate purchase price of $10,465,000. Accordingly, in the
accompanying pro forma condensed combined statement of operations for the 39
weeks ended October 3, 1998, Deblan's results of operations from January 1,
1998 to August 23, 1998 are included under the "Deblan" column heading.
Deblan's results of operations from August 24, 1998 to October 3, 1998 are
included under the "Mrs. Fields" column heading. The purchase price was
allocated based on the estimated fair values of the net assets acquired, as
presented below:
<TABLE>
<S> <C>
Current assets acquired......................................... $ 1,241,000
Fixed assets acquired, net...................................... 1,649,000
Other assets acquired........................................... 247,000
Current liabilities acquired.................................... (333,000)
Other liabilities acquired...................................... (565,000)
Goodwill acquired............................................... 8,226,000
-----------
Total purchase price.......................................... $10,465,000
===========
</TABLE>
The following data reconciles the key components of Deblan's results of
operations in the pro forma condensed combined statement of operations for the
39 weeks ended October 3, 1998 with the key components of Deblan's results of
operations in its unaudited historical financial statements for the six months
ended June 30, 1998:
<TABLE>
<CAPTION>
July 1, 1998 January 1, 1998
Six Months Ended to to
June 30, 1998 August 23, 1998 August 23, 1998
---------------- --------------- ---------------
(dollars in thousands)
<S> <C> <C> <C>
Net store sales......... $4,768 $1,602 $6,370
Operating costs and ex-
penses................. 4,418 1,462 5,880
Income from operations.. 350 140 490
Net income.............. 232 164 396
</TABLE>
P-9
<PAGE>
MRS. FIELDS' HOLDING
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Chocolate Chip Acquisition
On August 24, 1998, Mrs. Fields acquired all of the outstanding capital stock
of Chocolate Chip for an aggregate purchase price of $3,965,000. The purchase
price was allocated based on the estimated fair values of the net assets
acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired.......................................... $ 174,000
Fixed assets acquired, net....................................... 108,000
Other assets acquired............................................ 46,000
Current liabilities acquired..................................... (111,000)
Goodwill acquired................................................ 3,748,000
----------
Total purchase price........................................... $3,965,000
==========
</TABLE>
Because Chocolate Chip operates using a year ending September 30, its results
of operations for the 53 weeks ended January 3, 1998, in the accompanying pro
forma condensed combined statement of operations, do not agree with Chocolate
Chip's historical results of operations for the year ended September 30, 1997.
Additionally, in the accompanying pro forma condensed combined statement of
operations for the 39 weeks ended October 3, 1998, Chocolate Chip's results of
operations from January 1, 1998 to August 23, 1998 are included under the
"Chocolate Chip" column heading. Chocolate Chip's results of operations from
August 24, 1998 to October 3, 1998 are included under the "Mrs. Fields" column
heading.
The following data reconciles the key components of Chocolate Chip's results
of operations in the pro forma condensed combined statement of operations for
the 39 weeks ended October 3, 1998 with the key components of Chocolate Chip's
results of operations in its historical financial statements for the nine
months ended June 30, 1998:
<TABLE>
<CAPTION>
Less Add
Nine Months Three Months July 1, 1998 January 1, 1998
Ended Ended to to
June 30, 1998 December 31, 1997 August 23, 1998 August 23, 1998
------------- ----------------- --------------- ----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net store sales......... $2,266 $803 $410 $1,873
Operating costs and ex-
penses................. 2,100 646 443 1,897
Income (loss) from oper-
ations................. 166 157 (33) (24)
Net income (loss)....... 116 155 1 (38)
</TABLE>
7. Combined Karp Entities Acquisition
On September 9, 1998, Mrs. Fields acquired the Combined Karp Entities for an
aggregate purchase price of $1,750,000. Accordingly, in the accompanying pro
forma condensed combined statement of operations for the 39 weeks ended October
3, 1998, the Combined Karp Entities' results of operations from January 1, 1998
to September 9, 1998 are included under the "Combined Karp Entities" column
heading. The Combined Karp Entities' results of operations from September 10,
1998 to October 3, 1998 are included under the "Mrs. Fields" column heading.
The purchase price was allocated based on the estimated fair values of the net
assets acquired, as presented below:
<TABLE>
<S> <C>
Current assets acquired.......................................... $ 64,000
Fixed assets acquired, net....................................... 1,054,000
Goodwill acquired................................................ 780,000
----------
Total purchase price........................................... $1,898,000
==========
</TABLE>
P-10
<PAGE>
MRS. FIELDS' HOLDING
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The following data reconciles the key components of the Combined Karp
Entities results of operations in the pro forma condensed combined statement of
operations for the 39 weeks ended October 3, 1998 with the key components of
the Combined Karp Entities results of operations in its historical financial
statements for the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Six Months Ended July 1, 1998 To January 1, 1998 To
June 30, 1998 September 9, 1998 September 9, 1998
---------------- ----------------- ------------------
(dollars in thousands)
<S> <C> <C> <C>
Net store sales......... $1,181 $308 $1,489
Operating costs and ex-
penses................. 1,259 251 1,510
Income (loss) from oper-
ations................. (78) 57 (21)
Net income (loss)....... (91) 56 (35)
</TABLE>
8. Cookie Conglomerate Acquisition
On October 5, 1998, Mrs. Fields acquired Cookie Conglomerate for an aggregate
purchase price of $2,800,000. Accordingly, in the accompanying pro forma
condensed combined statement of operations for the 39 weeks ended October 3,
1998, Cookie Conglomerate's results of operations from January 1, 1998 to
September 30, 1998 are included under the "Cookie Conglomerate" column heading.
The purchase price was allocated based on the estimated fair values of the net
assets acquired, as presented below:
<TABLE>
<S> <C>
Fixed assets acquired............................................. $ 801,000
Goodwill acquired................................................. 1,999,000
----------
Total purchase price............................................ $2,800,000
==========
</TABLE>
9. Pretzelmaker Acquisition
On November 19, 1998, Mrs. Fields acquired all of the outstanding capital
stock of Pretzelmaker Holdings, Inc., consisting of 229 stores in the United
States and Canada, for $5,739,000, including $5,419,000 related to outstanding
capital stock and $320,000 related to severance payments in lieu of outstanding
stock options. Mrs. Fields paid $1,100,000 in cash upon closing of the
acquisition and signed a promissory note for the remaining $4,639,000, which
was paid in three installments through January 4, 1999. Accordingly, in the
accompanying pro forma condensed combined financial statements of operations
for the 39 weeks ended October 3, 1998, Pretzelmaker's results of operations
from January 1, 1998 to September 30, 1998 are included under the
"Pretzelmaker" column heading. The purchase price was allocated based on the
estimated fair values of the net assets (liabilities) acquired, as presented
below:
<TABLE>
<S> <C>
Current assets acquired......................................... $ 822,000
Fixed assets acquired........................................... 566,000
Other assets acquired........................................... 184,000
Current liabilities acquired.................................... (1,430,000)
Other liabilities acquired...................................... (901,000)
Goodwill acquired............................................... 6,498,000
-----------
Total purchase price.......................................... $ 5,739,000
===========
</TABLE>
P-11
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Mrs. Fields' Holding Company, Inc. and subsidiaries
Report of Independent Public Accountants................................. F-4
Consolidated Balance Sheets as of December 28, 1996, January 3, 1998 and
October 3, 1998 (unaudited)............................................. F-5
Consolidated Statements of Operations for the period from inception
(September 18, 1996) to December 28, 1996, for the year ended January 3,
1998 and for the 39 weeks ended September 27, 1997 (unaudited) and
October 3, 1998 (unaudited)............................................. F-7
Consolidated Statements of Stockholders' Equity for the period from
inception (September 18, 1996) to December 28, 1996, for the year ended
January 3, 1998 and for the 39 weeks ended October 3, 1998 (unaudited).. F-8
Consolidated Statements of Cash Flows for the period from inception
(September 18, 1996) to December 28, 1996, for the year ended January 3,
1998 and for the 39 weeks ended September 27, 1997 (unaudited) and
October 3, 1998 (unaudited)............................................. F-9
Notes to Consolidated Financial Statements............................... F-13
Mrs. Fields' Original Cookies, Inc. and subsidiaries
Report of Independent Public Accountants................................. F-43
Consolidated Balance Sheets as of December 28, 1996, January 3, 1998 and
October 3, 1998 (unaudited)............................................. F-44
Consolidated Statements of Operations for the period from inception
(September 18, 1996) to December 28, 1996, for the year ended January 3,
1998 and for the 39 weeks ended September 27, 1997 (unaudited) and
October 3, 1998 (unaudited)............................................. F-46
Consolidated Statements of Stockholder's Equity for the period from
inception (September 18, 1996) to December 28, 1996, for the year ended
January 3, 1998 and for the 39 weeks ended October 3, 1998 (unaudited).. F-47
Consolidated Statements of Cash Flows for the period from inception
(September 18, 1996) to December 28, 1996, for the year ended January 3,
1998 and for the 39 weeks ended September 27, 1997 (unaudited) and
October 3, 1998 (unaudited)............................................. F-48
Notes to Consolidated Financial Statements............................... F-52
Mrs. Fields Inc. and subsidiaries
Report of Independent Public Accountants (Arthur Andersen LLP)........... F-88
Independent Auditors' Report (Deloitte & Touche LLP)..................... F-89
Consolidated Balance Sheet as of September 17, 1996...................... F-90
Consolidated Statements of Operations for the year ended December 30,
1995 and for the period ended September 17, 1996........................ F-92
Consolidated Statements of Stockholders' Deficit for the year ended
December 30, 1995 and for the period ended September 17, 1996........... F-93
Consolidated Statements of Cash Flows for the year ended December 30,
1995 and for the period ended September 17, 1996........................ F-94
Notes to Consolidated Financial Statements............................... F-96
The Original Cookie Company, Incorporated and the Carved-out Portion of
Hot Sam Company, Inc. (Combined)
Report of Independent Public Accountants................................. F-104
Combined Balance Sheet as of September 17, 1996.......................... F-105
Combined Statements of Operations for the year ended December 30, 1995
and for the period ended September 17, 1996............................. F-107
Combined Statements of Stockholders' Equity for the year ended December
30, 1995 and for the period ended September 17, 1996.................... F-108
Combined Statements of Cash Flows for the year ended December 30, 1995
and for the period ended September 17, 1996............................. F-109
Notes to Combined Financial Statements................................... F-110
</TABLE>
F-1
<PAGE>
INDEX TO HISTORICAL FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Cookies USA, Inc. and subsidiary
Report of Independent Accountants....................................... F-114
Consolidated Balance Sheets as of June 29, 1997 and June 28, 1998....... F-115
Consolidated Statements of Operations for the fifty-two week periods
ended June 30, 1996, June 29, 1997 and June 28, 1998................... F-117
Consolidated Statements of Changes in Stockholders' Deficit for the
fifty-two week periods ended June 30, 1996, June 29, 1997 and June 28,
1998................................................................... F-118
Consolidated Statements of Cash Flows for the fifty-two week periods
ended June 30, 1996, June 29, 1997 and June 28, 1998................... F-119
Notes to Consolidated Financial Statements.............................. F-121
Deblan Corporation
Independent Auditors' Report............................................ F-133
Balance Sheets as of December 31, 1996 and 1997 and June 30, 1998
(unaudited)............................................................ F-134
Statements of Earnings for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1997 (unaudited) and 1998
(unaudited)............................................................ F-136
Statements of Shareholders' Equity for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30, 1998
(unaudited)............................................................ F-137
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1997 (unaudited) and 1998
(unaudited)............................................................ F-138
Notes to Financial Statements........................................... F-140
Chocolate Chip Cookies of Texas, Inc.
Report of Independent Public Accountants................................ F-146
Balance Sheets as of September 30, 1996 and 1997 and June 30, 1998
(unaudited)............................................................ F-147
Statements of Operations for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 (unaudited) and
1998 (unaudited)....................................................... F-149
Statements of Stockholders' Equity for the years ended September 30,
1995, 1996, and 1997 and for the nine months ended June 30, 1998
(unaudited)............................................................ F-150
Statements of Cash Flows for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 (unaudited) and
1998 (unaudited)....................................................... F-151
Notes to Financial Statements........................................... F-153
The Combined Karp Entities
Report of Independent Public Accountants................................ F-158
Combined Balance Sheets as of December 31, 1996 and 1997 and June 30,
1998 (unaudited)....................................................... F-159
Combined Statements of Operations for the years ended December 31, 1995,
1996 and 1997 and for the six months ended June 30, 1997 (unaudited)
and 1998 (unaudited)................................................... F-161
Combined Statements of Stockholders' Equity for the years ended December
31, 1995, 1996 and 1997 and for the six months ended June 30, 1998
(unaudited)............................................................ F-162
Combined Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997 and for the six months ended June 30, 1997 (unaudited)
and 1998 (unaudited)................................................... F-163
Notes to Combined Financial Statements.................................. F-165
The Cookie Conglomerate, Inc.
Independent Auditors' Report............................................ F-172
Combined Balance Sheets as of December 31, 1997 and 1996................ F-173
Combined Statements of Operations for the years ended December 31, 1997
and 1996............................................................... F-175
Combined Statements of Changes in Stockholders' Deficit and Partners'
Capital (Deficit)...................................................... F-176
Combined Statements of Cash Flows for the years ended December 31, 1997
and 1996............................................................... F-177
Notes to the Combined Financial Statements.............................. F-178
Combined Balance Sheet as of September 30, 1998 (unaudited)............. F-182
Combined Statements of Operations for the nine months ended September
30, 1998 and 1997 (unaudited).......................................... F-183
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C>
Combined Statements of Cash Flows for the nine months ended September
30, 1998 and 1997 (unaudited).......................................... F-184
Notes to the Combined Financial Statements.............................. F-185
Pretzelmaker Holdings, Inc.
Report of Independent Certified Public Accountants (AJ. Robbins, PC).... F-186
Report of Independent Certified Public Accountants (BDO Seidman, LLP)... F-187
Consolidated Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)......................................... F-188
Consolidated Statements of Operations for the Period from February 24
(Inception) to December 31, 1995 and the Years Ended December 31, 1996
and 1997 and the Nine Months Ended September 30, 1997 (unaudited) and
1998 (unaudited)....................................................... F-190
Consolidated Statements of Stockholders' Equity for the Period from
February 24 (Inception) to December 31, 1995 and the Years Ended
December 31, 1996 and 1997 and the Nine Months Ended September 30, 1998
(unaudited)............................................................ F-191
Consolidated Statements of Cash Flows for the Period from February 24
(Inception) to December 31, 1995 and the Years Ended December 31, 1996
and 1997 and the Nine Months Ended September 30, 1997 (unaudited) and
1998 (unaudited)....................................................... F-192
Notes to Consolidated Financial Statements.............................. F-193
</TABLE>
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields' Holding Company, Inc.:
We have audited the accompanying consolidated balance sheets of Mrs. Fields'
Holding Company, Inc. (a Delaware corporation) and subsidiaries as of December
28, 1996 and January 3, 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from inception
(September 18, 1996) to December 28, 1996 and for the year ended January 3,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mrs.
Fields' Holding Company, Inc. and subsidiaries as of December 28, 1996 and
January 3, 1998, and the results of their operations and their cash flows for
the period from inception (September 18, 1996) to December 28, 1996 and for the
year ended January 3, 1998 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Salt Lake City, Utah
June 10, 1998
F-4
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
December 28, January 3, October 3,
1996 1998 1998
------------ ---------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............... $ 6,711 $ 16,493 $ 5,801
Accounts receivable, net of allowance
for doubtful accounts of $55, $32 and
$40, respectively...................... 1,686 1,535 1,896
Amounts due from franchisees and
licensees, net of allowance for
doubtful accounts of $320, $582 and
$979, respectively..................... 999 2,176 5,616
Inventories............................. 3,043 3,100 4,790
Prepaid rent and other.................. 1,324 3,065 3,834
Deferred income tax assets.............. 2,092 2,765 2,765
-------- -------- --------
Total current assets.................. 15,855 29,134 24,702
-------- -------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................. 16,704 21,099 32,856
Equipment and fixtures.................. 10,427 14,100 18,143
Land.................................... 128 128 368
-------- -------- --------
27,259 35,327 51,367
Less accumulated depreciation and
amortization........................... (1,054) (6,125) (16,364)
-------- -------- --------
Net property and equipment............ 26,205 29,202 35,003
-------- -------- --------
DEFERRED INCOME TAX ASSETS................ 917 734 734
-------- -------- --------
GOODWILL, net of accumulated amortization
of $979, $5,040 and $9,327,
respectively............................. 50,692 69,141 135,137
-------- -------- --------
TRADEMARKS AND OTHER INTANGIBLES, net of
accumulated amortization of $324, $1,409
and $2,027, respectively................. 16,327 15,193 14,625
-------- -------- --------
DEFERRED LOAN COSTS, net of accumulated
amortization of $0, $70 and $742,
respectively............................. -- 5,906 12,051
-------- -------- --------
OTHER ASSETS.............................. 709 1,325 2,976
-------- -------- --------
$110,705 $150,635 $225,228
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-5
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
(Dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 28, January 3, October 3,
1996 1998 1998
------------ ---------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt........ $ 2,450 $ 472 $ 384
Current portion of capital lease
obligations............................. -- 142 174
Accounts payable......................... 6,201 3,805 8,669
Current portion of accrued liabilities... 3,233 3,480 6,365
Current portion of store closure
reserve................................. 2,450 3,664 2,475
Accrued salaries, wages and benefits..... 1,811 1,891 3,045
Accrued interest payable................. 1,538 1,082 4,859
Sales taxes payable...................... 676 937 512
Current portion of deferred credits...... 323 871 318
-------- -------- --------
Total current liabilities.............. 18,682 16,344 26,801
LONG-TERM DEBT, net of current portion and
discounts................................. 60,470 100,284 167,853
STORE CLOSURE RESERVE, net of current
portion................................... 2,305 1,802 4,648
CAPITAL LEASE OBLIGATIONS, net of current
portion................................... -- 183 133
ACCRUED LIABILITIES, net of current
portion................................... 2,890 -- --
DEFERRED CREDITS, net of current portion... 1,091 -- --
-------- -------- --------
Total liabilities...................... 85,438 118,613 199,435
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3, 9,
10 and 13)
CUMULATIVE REDEEMABLE SERIES A PREFERRED
STOCK, $.01 par value; 10 percent annual
dividend rate, 100 shares authorized, 97,
0 and 0 shares outstanding, respectively,
with an aggregate liquidation preference
of approximately $23,785, $0 and $0,
respectively.............................. 23,785 -- --
-------- -------- --------
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED
STOCK OF PTI (an indirect majority owned
subsidiary), aggregate liquidation
preference of $0, $1,437 and $1,481,
respectively.............................. -- 902 1,171
-------- -------- --------
MINORITY INTEREST.......................... -- 58 308
-------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 100
shares authorized for all series,
excluding Series A, none issued......... -- -- --
Common stock, $.01 par value; 5,000,000
shares authorized, 3,065,848, 3,285,599
and 3,285,599 shares outstanding,
respectively............................ 31 33 33
Common stock subscriptions receivable.... -- (517) --
Warrants to purchase common stock........ -- -- 2,895
Additional paid-in capital............... -- 33,081 33,081
Deferred compensation expense............ -- (189) (73)
Retained earnings (accumulated deficit).. 1,451 (1,346) (11,622)
-------- -------- --------
Total stockholders' equity............. 1,482 31,062 24,314
-------- -------- --------
$110,705 $150,635 $225,228
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-6
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Inception
(September 18, 39 Weeks 39 Weeks
1996) to Year Ended Ended Ended
December 28, January 3, September 27, October 3,
1996 1998 1997 1998
-------------- ---------- ------------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net store and batter
sales.................... $39,890 $123,987 $83,759 $ 89,938
Franchising, net.......... 621 3,574 2,201 3,884
Licensing, net............ 764 2,028 1,215 1,081
Other, net................ 107 918 351 1,056
------- -------- ------- --------
Total revenues........... 41,382 130,507 87,526 95,959
------- -------- ------- --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs.......... 19,492 66,832 48,200 52,357
Food cost of sales........ 9,862 28,127 19,549 21,588
General and
administrative........... 4,089 16,974 10,874 12,743
Depreciation and
amortization............. 2,356 10,450 6,631 9,742
------- -------- ------- --------
Total operating costs and
expenses................ 35,799 122,383 85,254 96,430
------- -------- ------- --------
Income (loss) from
operations............. 5,583 8,124 2,272 (471)
------- -------- ------- --------
OTHER INCOME (EXPENSE),
net:
Interest expense.......... (1,737) (7,527) (4,783) (9,421)
Interest income........... 76 246 153 541
Other expense............. -- (368) (228) (256)
Total other expense,
net..................... (1,661) (7,649) (4,858) (9,136)
------- -------- ------- --------
Income (loss) before
provision for income
taxes, preferred stock
accretion and dividends
and minority interest.. 3,922 475 (2,586) (9,607)
PROVISION FOR INCOME
TAXES..................... (1,798) (655) (179) (68)
------- -------- ------- --------
Income (loss) before
preferred stock
accretion and dividends
and minority interest.. 2,124 (180) (2,765) (9,675)
PREFERRED STOCK ACCRETION
AND DIVIDENDS OF PTI...... -- (306) -- (333)
MINORITY INTEREST.......... -- (138) (2) (268)
------- -------- ------- --------
Net income (loss)....... 2,124 (624) (2,767) (10,276)
CUMULATIVE REDEEMABLE
SERIES A PREFERRED STOCK
DIVIDENDS................. (642) (2,173) (1,824) --
------- -------- ------- --------
Net income (loss)
applicable to
common shares.......... $ 1,482 $ (2,797) $(4,591) $(10,276)
======= ======== ======= ========
Basic and diluted net
income (loss) per
common share........... $ .48 $ (.88) $ (1.46) $ (3.13)
======= ======== ======= ========
Weighted average number
of common
shares outstanding..... 3,066 3,167 3,152 3,286
======= ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Retained
---------------- Common Stock Warrants to Additional Deferred Earnings
Subscriptions Purchase Paid-in Compensation (Accumulated
Shares Amount Receivable Common Stock Capital Expense Deficit) Total
--------- ------ ------------- ------------ ---------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September 18,
1996................... -- $-- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock for cash........ 3,065,848 31 -- -- -- -- (31) --
Cumulative redeemable
Series A preferred
stock dividends....... -- -- -- -- -- -- (642) (642)
Net income............. -- -- -- -- -- -- 2,124 2,124
--------- ---- ----- ------ ------- ----- -------- --------
BALANCE, December 28,
1996................... 3,065,848 31 -- -- -- -- 1,451 1,482
Issuance of vested
common stock to
directors and officers
for subscriptions
receivable............ 51,667 1 (517) -- 516 -- -- --
Issuance of restricted
common stock to
directors and officers
for services
rendered.............. 28,333 -- -- -- 283 (283) -- --
Issuance of common
stock to a consultant
in settlement for
services rendered and
other obligations..... 12,402 -- -- -- 124 -- -- 124
Contribution of cash
from Capricorn........ -- -- -- -- 4,700 -- -- 4,700
Cumulative redeemable
Series A preferred
stock dividends....... -- -- -- -- -- -- (2,173) (2,173)
Conversion of
cumulative redeemable
Series A preferred
stock (including
accrued but unpaid
dividends) to
common equity......... -- -- -- -- 25,959 -- -- 25,959
Issuance of common
stock to Harvard as
partial consideration
for purchase of
Harvard's interest in
MFB................... 127,349 1 -- -- 1,499 -- -- 1,500
Amortization of
deferred compensation
expense............... -- -- -- -- -- 94 -- 94
Net loss............... -- -- -- -- -- -- (624) (624)
--------- ---- ----- ------ ------- ----- -------- --------
BALANCE, January 3,
1998................... 3,285,599 33 (517) -- 33,081 (189) (1,346) 31,062
Collection of common
stock subscriptions
receivable
(unaudited)........... -- -- 517 -- -- -- -- 517
Amortization of
deferred compensation
expense (unaudited)... -- -- -- -- -- 116 -- 116
Issuance of warrants to
purchase common stock
(unaudited)........... -- -- -- 2,895 -- -- -- 2,895
Net loss (unaudited)... -- -- -- -- -- -- (10,276) (10,276)
--------- ---- ----- ------ ------- ----- -------- --------
BALANCE, October 3, 1998
(unaudited)............ 3,285,599 $ 33 $ -- $2,895 $33,081 $ (73) $(11,622) $ 24,314
========= ==== ===== ====== ======= ===== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-8
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Inception
(September 18, 39 Weeks 39 Weeks
1996) to Year Ended Ended Ended
December 28, January 3, September 27, October 3,
1996 1998 1997 1998
-------------- ---------- ------------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)......... $ 2,124 $ (624) $ (4,591) $(10,276)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities, net
of effects from
acquisitions:
Depreciation and
amortization............. 2,356 10,450 6,631 9,742
Amortization of deferred
loan costs............... -- 70 -- 672
Amortization of discount
on notes................. -- -- -- 419
Deferred compensation
expense.................. -- 94 71 116
Loss on sale of assets.... -- 368 228 256
Deferred income taxes..... 1,511 210 -- --
In-kind expense on note
payable.................. 97 338 276 --
Preferred stock accretion
and dividends of PTI..... -- 306 1,824 333
Minority interest......... -- 234 2 268
Changes in assets and
liabilities, net of
effects from
acquisitions:
Accounts receivable...... (294) (353) -- (361)
Amounts due from
franchisees and
licensees............... (339) (514) 371 (1,624)
Inventories.............. (159) 136 (23) (127)
Prepaid rent and other... (31) (895) 512 1,414
Other assets............. 39 427 -- (207)
Accounts payable and
accrued liabilities..... 163 (6,938) (1,493) 182
Store closure reserve.... (305) (1,666) (1,927) (1,892)
Accrued salaries, wages
and benefits............ 212 148 (841) (110)
Accrued interest
payable................. 1,668 (586) (67) 2,886
Sales taxes payable...... 542 261 (297) (530)
Deferred credits......... 27 (543) (318) (553)
-------- -------- -------- --------
Net cash provided by
operating activities... 7,611 923 358 608
-------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash paid for
acquisitions and related
expenses................. (19,508) (12,014) (12,014) (28,699)
Purchase of property and
equipment, net of effects
from acquisitions........ (1,638) (4,678) (3,216) (5,616)
Issuance of note
receivable to PTI
founder.................. -- (500) (500) --
Proceeds from the sale of
assets................... 15 122 -- --
-------- -------- -------- --------
Net cash used in
investing activities... (21,131) (17,070) (15,730) (34,315)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
long-term debt........... 3,500 108,250 8,250 70,264
Principal payments on
long-term debt........... (6,412) (81,009) (98) (40,838)
Proceeds from the issuance
of cumulative redeemable
Series A preferred
stock.................... 23,143 -- 4,700 --
Payment of debt financing
costs.................... -- (5,976) -- (6,815)
Cash contribution from
Capricorn................ -- 4,700 -- --
Cash advance from
Capricorn................ -- 1,500 --
Repayment of cash advance
to Capricorn............. -- (1,500) -- --
Principal payments on
capital lease
obligations.............. -- (36) -- (49)
Collection of common stock
subscriptions
receivable............... -- -- -- 517
Retirement of preferred
stock of PTI............. -- -- -- (64)
-------- -------- -------- --------
Net cash provided by
financing activities... 20,231 25,929 12,852 23,015
-------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............... 6,711 9,782 (2,520) (10,692)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE
PERIOD.................... -- 6,711 6,711 16,493
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF THE PERIOD...... $ 6,711 $ 16,493 $ 4,191 $ 5,801
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-9
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest for the period ended December 28, 1996, the year ended
January 3, 1998 and the 39 weeks ended September 27, 1997 and October 3, 1998
was approximately $28, $8,416, $3,890 (unaudited) and $6,291 (unaudited),
respectively.
Cash paid for income taxes for the period ended December 28, 1996, the year
ended January 3, 1998 and the 39 weeks ended September 27, 1997 and October 3,
1998 was approximately $0, $217, $80 (unaudited) and $42 (unaudited),
respectively.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
On September 18, 1996, the Company acquired certain assets and assumed
certain liabilities of Mrs. Fields Inc., Mrs. Fields Development Corporation,
Mrs. Fields Cookies, The Original Cookie Company, Incorporated and Hot Sam
Company, Inc. In conjunction with the acquisitions, net liabilities were
assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired...................................... $ 93,494
Net cash paid...................................................... (19,508)
Notes payable issued............................................... (65,735)
--------
Net liabilities assumed.......................................... $ 8,251
========
</TABLE>
In connection with the purchase accounting, the Company recorded certain
other accruals totaling $11,300 and provided reserves totaling $10,900 for
impaired property and equipment at Company-owned stores the Company intends to
exit through closing or franchising. The accruals consisted of $5,060 for
obligations incident to store closures, $2,450 for contingent legal and lease
obligations that were firmed up before year end, $3,135 for transaction and
finders' fees and $655 for severance and related costs. In connection with
these accruals and impairment reserves, the Company recorded an additional
$17,680 of goodwill and established deferred income tax assets (net of
valuation allowances) totaling $4,520.
In October 1996, the Company received property in payment of $128 in accounts
receivable due from a customer.
On March 18, 1997, a certain convertible subordinated note issued in
connection with the previously described business combination was not repaid as
scheduled. The noteholder exercised its option to receive an additional note of
$1,000 due to the delayed payment. At the time of the consummation of the
business combination, management assessed the likelihood of this contingency of
delayed payment being reasonably possible, therefore the Company recorded the
note and additional goodwill as a subsequent component of the business
combination accounting.
On July 25, 1997, certain assets were acquired and certain liabilities were
assumed of H & M Concepts Ltd. Co. by Mrs. Fields' Pretzel Concepts, Inc.
("MFPC") as follows (see Note 1):
<TABLE>
<S> <C>
Fair value of assets acquired....................................... $15,780
Net cash paid....................................................... (5,750)
Notes payable issued................................................ (8,000)
-------
Net liabilities assumed........................................... $ 2,030
=======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-10
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
In connection with the purchase accounting for this acquisition, MFPC accrued
$1,000 for estimated obligations incident to certain store closures. The
Company also recorded a reserve totaling approximately $2,500 for impaired
property and equipment at stores the Company intends to close. In connection
with these accruals and reserves, the Company recorded $2,800 of goodwill and
established deferred income tax assets (net of valuation allowances) totaling
$700.
On September 2, 1997, 56 percent of the shares of common stock of Pretzel
Time, Inc. ("PTI") were acquired by MFH as follows (see Note 1):
<TABLE>
<S> <C>
Fair value of assets acquired....................................... $ 8,311
Net cash paid....................................................... (4,200)
-------
Net liabilities assumed........................................... $ 4,111
=======
</TABLE>
In connection with the purchase accounting for this acquisition, MFH accrued
$500 for estimated obligations incident to certain store closures. In
connection with these accruals, MFH recorded $400 of goodwill and established
deferred income tax assets (net of valuation allowances) totaling $100.
During the year ended January 3, 1998, the Company issued 51,667 shares of
vested common stock to directors and officers for common stock subscriptions
receivable totaling $517. During the same period, the Company issued 12,402
shares of common stock to a consultant as settlement for services rendered and
certain other obligations which had previously been accrued.
During the period ended December 28, 1996 and during the year ended January
3, 1998, MFH increased its cumulative redeemable Series A preferred stock
liquidation preference by $642 and $2,173, respectively, in lieu of paying cash
dividends. On November 26, 1997, the cumulative redeemable Series A preferred
stock, totaling $25,959 (including accrued but unpaid dividends of $2,815), was
converted to common equity.
During the period from the acquisition of the majority ownership of PTI
(September 2, 1997) to January 3, 1998 and for the 39 weeks ended October 3,
1998, PTI increased its mandatorily redeemable cumulative preferred stock
liquidation preference by approximately $68 and $108 (unaudited), respectively,
in lieu of paying cash dividends. In addition, for the same periods, PTI's
mandatorily redeemable cumulative preferred stock was increased by
approximately $238 and $225 (unaudited), respectively, for the accretion
required over time to amortize the original issue discount.
On November 26, 1997, MFH acquired the remaining 49.9 percent of the shares
of the common stock of The Mrs. Fields' Brand, Inc. from Harvard Private
Capital Holdings, Inc. for approximately $2,565. The consideration consisted of
$1,065 in cash and approximately $1,500 in rights to common equity of MFH.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-11
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
In August 1998, MFOC acquired all of the outstanding capital stock and
subordinated indebtedness of Cookies USA, Inc. ("Cookies USA") for an aggregate
purchase price of approximately $18,400 (unaudited). During August and
September 1998, MFOC also entered into agreements with three franchisees of
Cookies USA (the "Great American Franchisees") pursuant to which MFOC purchased
a total of 37 Great American Cookie franchises for an aggregate purchase price
of $16,328 (unaudited). The aggregate purchase price for all of these
acquisitions of $34,728 was allocated, on a preliminary basis, as follows (see
Note 1):
<TABLE>
<S> <C>
Fair value of assets acquired (unaudited).......................... $ 79,865
Net cash paid (unaudited).......................................... (27,771)
--------
Liabilities assumed (unaudited).................................. $ 52,094
========
</TABLE>
MFOC has formulated a plan to exit certain acquired stores that do not meet
management's established financial and geographical criteria. In connection
with the purchase accounting for these acquisitions, MFOC accrued $3,548
(unaudited) for estimated obligations incident to certain store closures. MFOC
also recorded a reserve totaling approximately $2,150 (unaudited) for impaired
property and equipment at stores MFOC intends to close. In connection with
these accruals and reserves, MFOC recorded $5,698 (unaudited) of goodwill.
Valuation allowances were recorded for all deferred tax assets established
during purchase accounting.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-12
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Mrs. Fields' Holding Company, Inc. ("MFH"), a Delaware corporation, was
incorporated on July 31, 1996. Through November 25, 1997, MFH was the holding
company for its wholly owned subsidiaries, Mrs. Fields' Original Cookies, Inc.
and subsidiaries ("MFOC") and Mrs. Fields' Pretzel Concepts, Inc. ("MFPC"), and
its majority owned subsidiaries, The Mrs. Fields' Brand, Inc. ("MFB") and
Pretzel Time, Inc. ("PTI"). On November 26, 1997, MFH contributed its interests
in MFPC, MFB and PTI to MFOC. MFB became a wholly owned subsidiary of MFOC, PTI
became a majority owned subsidiary of MFOC and MFPC was merged into MFOC. The
contributions were accounted for in a manner similar to that of pooling-of-
interests accounting. There was no step-up in the book basis of the contributed
entities' assets or liabilities. Collectively, these entities will be referred
to herein as the "Company."
Through November 25, 1997, MFH and Harvard Private Capital Holdings, Inc.
("Harvard") owned 50.1 percent and 49.9 percent, respectively, of the
outstanding common stock of MFB and Capricorn Investors II, L.P. ("Capricorn")
was the sole stockholder of MFH. Effective November 26, 1997, Harvard exchanged
its 49.9 percent interest in MFB in part for the rights to approximately four
percent, or 127,349 shares, of MFH's common stock. As of January 3, 1998, MFOC
owned 60 percent of the outstanding common stock of PTI. In June 1998, MFOC
purchased an additional ten percent of the common stock of PTI, increasing
MFOC's ownership interest to 70 percent.
The Company primarily operates retail stores which sell freshly baked
cookies, brownies, pretzels and other food products through four specialty
retail chains. As of October 3, 1998, the Company owned and operated 150 "Mrs.
Fields Cookies" stores, 128 "Original Cookie Company" stores, 86 "Hot Sam
Pretzels" stores, 93 "Pretzel Time" stores, 109 "Great American Cookies" stores
in the United States and two "Pretzel Time" stores in Canada. Additionally, the
Company has franchised or licensed 683 stores in the United States and 82
stores in several other countries. As of October 3, 1998, the Company owned and
operated 435 core stores and 133 stores which are in the process of being sold
or franchised. All of the stores in the process of being closed or franchised
are expected to be closed or franchised by the end of fiscal year 2000.
The Company also holds legal title to certain trademarks for the "Mrs.
Fields" name and logo and licenses the uses of these trademarks to third
parties for the establishment and operation of Mrs. Fields' cookie and bakery
operations and other merchandising activities. In connection with these
licensing activities, the Company authorizes third-party licensees to use
certain business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries. Additionally, the Company markets and distributes its products
through catalogs, other print media and mail order.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the fourth quarter. Because the Company's stores are heavily concentrated in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls.
Business Combinations
MFI and Affiliates and OCC and Affiliates
The Company began operations on September 18, 1996, following the completion
of two simultaneous but separate asset purchase transactions wherein the
Company (i) acquired certain assets and assumed certain liabilities of Mrs.
Fields Inc., Mrs. Fields Development Corporation and Mrs. Fields Cookies in
accordance
F-13
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
with two Asset Purchase Agreements dated August 7, 1996, among these parties
and Capricorn, and (ii) acquired certain assets and assumed certain liabilities
of The Original Cookie Company, Incorporated and Hot Sam Company, Inc. in
accordance with an Asset Purchase Agreement dated August 7, 1996, as amended by
the First Amendment dated as of September 17, 1996, among these parties and
Capricorn.
The combined purchase price for the acquired net assets was approximately
$85,243,000. The Company paid net cash of $19,508,000 and issued approximately
$65,735,000 in senior and subordinated notes to the selling shareholders. The
acquisitions were accounted for as purchases. The total purchase price was
allocated to the net assets acquired, based on their estimated fair values. The
organization of the Company and the acquisitions resulted in the recording of
intangible assets of approximately $49,942,000 principally made up of goodwill,
trademarks and organization costs. An additional $17,680,000 of goodwill and
$4,520,000 of deferred income tax assets (net of valuation allowances) were
recorded in connection with the Company recording certain other accruals
totaling $11,300,000 and providing reserves totaling $10,921,000 for impaired
property and equipment (see Note 5) at Company-owned stores the Company intends
to exit through closing or franchising. Goodwill and trademarks are amortized
using the straight-line method over 15 years.
The $11,300,000 of accruals established at the date of the acquisitions
consisted of $5,060,000 for obligations incident to store closures (see Note
5), $2,450,000 for contingent legal and lease obligations that were firmed up
before December 28, 1996, $3,135,000 for transaction and finders' fees and
$655,000 for severance and related costs. As of January 3, 1998 and October 3,
1998, approximately $1,643,000 and $2,053,000, respectively, of the $2,450,000
accrual for legal and lease obligations has been utilized. The remaining amount
as of October 3, 1998 of approximately $397,000 is expected to be utilized by
the end of 1999. As of January 3, 1998, all of the $3,135,000 accrual
established for transaction and finders' fees and the $655,000 accrual for
severance and related costs associated with the acquisitions were fully
utilized for the purposes intended.
H & M Concepts Ltd. Co.
On July 25, 1997, MFPC, a wholly owned subsidiary of MFH, acquired
substantially all of the assets and assumed certain liabilities of H & M
Concepts Ltd. Co. and subsidiaries ("H & M"). H & M owned and operated stores
which engage in retail sales of pretzels, toppings and beverages under a
franchise agreement with PTI. The aggregate consideration of $13,750,000
consisted of (i) $5,750,000 of cash, financed through an advance from MFH of
$1,500,000 and a $4,250,000 bank loan to MFPC, (ii) a $4,000,000 principal
amount bridge note of MFPC and (iii) a $4,000,000 principal amount subordinated
note of MFH retained by the sellers (all such debt collectively referred to as
the "H & M Debt"). The acquisition was accounted for using the purchase method
of accounting (based on the estimated fair values of the net assets acquired)
and resulted in recording approximately $9,618,000 of goodwill that is being
amortized using the straight-line method over 15 years.
Effective November 26, 1997, MFH contributed all of the assets and
liabilities of MFPC to MFOC and, in consideration thereof, MFOC assumed the H &
M Debt, including all accrued but unpaid interest. MFPC and MFOC merged on the
same date with MFOC being the surviving entity. The contribution was accounted
for in a manner similar to that of pooling-of-interests accounting. There was
no step-up in the historical basis of MFPC's assets or liabilities. MFPC's
results of operations have been included in the consolidated results of the
Company beginning July 25, 1997.
F-14
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
Pretzel Time, Inc.
On September 2, 1997, MFH acquired 56 percent of the shares of common stock
of PTI for an aggregate cash purchase price of $4,200,000, $750,000 of which
was paid to PTI for working capital purposes, and the balance of which was paid
to the selling shareholders. In connection with the acquisition, MFH extended a
$500,000 loan to the founder of PTI who continued to own 44 percent of the
shares of common stock of PTI. The note bears interest at an annual rate of ten
percent (see Note 10). PTI is a franchisor of hand rolled soft pretzel outlets
located in North America. The outlets are primarily located in shopping malls.
The acquisition was accounted for using the purchase method of accounting
(based on the estimated fair values of the net assets acquired) and resulted in
recording approximately $5,882,000 of goodwill that is being amortized using
the straight-line method over 15 years. The goodwill recorded was $1,682,000
more than the purchase price as the Company assumed more liabilities than it
acquired in assets at their fair values. Additionally, severance and legal
accruals were established in accordance with EITF 95-3.
Effective November 26, 1997, MFH contributed its 56 percent of the shares of
common stock of PTI to MFOC. MFH also contributed to MFOC the $500,000 note due
from PTI's founder and minority stockholder. The contribution was accounted for
in a manner similar to that of pooling-of-interests accounting. There was no
step-up in the book basis of PTI's assets or liabilities. The Company has
included 56 percent of PTI's results of operations with the Company's
consolidated results of operations from September 2, 1997 to January 2, 1998.
On January 2, 1998, MFOC purchased an additional four percent of the shares
of common stock of PTI from the founder for $300,000 in cash. The purchase was
accounted for using the purchase method of accounting (based on the estimated
fair values of the net assets acquired) and resulted in recording approximately
$311,000 of goodwill. Beginning with January 2, 1998, the Company included 60
percent of PTI's results of operations in the Company's consolidated results of
operations. In June 1998, MFOC acquired an additional ten percent of the shares
of common stock of PTI from the founder for $875,000 in cash.
The Mrs. Fields' Brand, Inc.
Prior to November 26, 1997, MFH owned 50.1 percent of the shares of the
common stock of MFB. MFB holds legal title to certain trademarks for the "Mrs.
Fields" name and logo and licenses the use of these trademarks to third parties
for the establishment and operation of Mrs. Fields' cookie and bakery
operations and other merchandising activities. In connection with these
licensing activities, MFB authorizes third-party licensees to use certain
business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries.
On November 26, 1997, MFH acquired the remaining 49.9 percent of the shares
of the common stock of MFB from Harvard for approximately $2,565,000. The
consideration consisted of $1,065,000 in cash and approximately $1,500,000 in
rights to common equity of MFH. MFH's Board of Directors determined the value
of Harvard's rights to the common equity based on a fair value analysis. This
analysis appropriately considered a discount for lack of controlling interest
and marketability as MFH's common equity is not publicly traded. The
acquisition was accounted for using the purchase method of accounting (based on
the estimated fair values of the net assets acquired) and resulted in recording
approximately $2,565,000 of intangible assets (primarily goodwill) that are
being amortized using the straight-line method over 15 years.
Effective November 26, 1997, MFH contributed all of the common stock of MFB
to MFOC. As a result of such capital contribution, MFB became a wholly owned
subsidiary of MFOC. The contribution was accounted for in a manner similar to
that of pooling-of-interests accounting. There was no step-up in the book basis
of MFB's assets or liabilities. Although MFH owned 50.1 percent of MFB until
November 25, 1997, the
F-15
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
Company has included 100 percent of MFB's results of operations with the
Company's consolidated results of operations for all periods presented as a
result of MFB incurring net losses for these periods.
1-800-Cookies
On October 10, 1997, the Company acquired substantially all of the net assets
of R&R Bourbon Street, Inc. dba 1-800-Cookies for $653,000 in cash. The
acquisition was accounted for using the purchase method of accounting (based on
the estimated fair values of the net assets acquired) and resulted in recording
$600,000 of goodwill and $53,000 of other assets. The goodwill is being
amortized using the straight-line method over 15 years.
Subsequent Acquisitions (Unaudited)
On August 24, 1998, MFOC acquired all of the outstanding capital stock and
subordinated indebtedness of Cookies USA, Inc. ("Cookies USA"), the sole
stockholder of Great American Cookie Company, Inc. ("GACC"), for an aggregate
purchase price of $18,400,000. GACC is an operator and franchisor of mall-based
specialty retail cookie outlets and manufacturer of cookie batter which is
distributed to GACC-operated retail stores and sold to franchised retail
stores. Concurrently with the acquisition of Cookies USA, MFOC entered into
agreements with two GACC franchisees pursuant to which MFOC purchased a total
of 29 GACC franchises for an aggregate purchase price of $14,430,000. MFOC
acquired the franchises through the acquisition of 100 percent of the capital
stock of the two corporations through which the franchisees operated. On
September 9, 1998, MFOC acquired eight additional GACC franchised retail stores
from a GACC franchisee, pursuant to an asset purchase agreement, for an
aggregate purchase price of $1,898,000. These acquisitions will be collectively
referred to as the "Great American Acquisitions."
The Great American acquisitions have been accounted for using the purchase
method of accounting (based on preliminary estimates of fair values of the net
assets acquired) and resulted in recording approximately $69,390,000 of
goodwill that is being amortized using the straight-line method over 15 years.
Additionally, MFOC caused Cookies USA to be merged with and into MFOC and
caused the acquired franchisees corporations and/or net assets to be merged
with and into GACC. GACC became a wholly owned subsidiary of MFOC. The acquired
entities' results of operations have been included with those of MFOC since the
applicable dates of acquisition.
The Great American Acquisitions were financed by (i) the net proceeds from
MFOC issuing $40,000,000 Series C Senior Notes; (ii) the contribution of the
net proceeds totaling $29,056,000 of an MFH offering to MFOC (the "MFH Equity
Infusion"); and (iii) existing cash of MFOC.
Pro Forma Acquisition Information (Unaudited)
The following unaudited pro forma acquisition information for the period from
inception (September 18, 1996) to December 28, 1996, the year ended January 3,
1998 and the 39 weeks ended September 27, 1997 and October 3, 1998, presents
the results of operations of the Company assuming the H & M, PTI and MFB
acquisitions and the Refinancing, as defined in Note 3, had occurred at the
date of inception (September 18, 1996) and that the Great American Acquisitions
and related financing had occurred at December 29, 1996. The
F-16
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
results of operations give effect to certain adjustments, including
amortization of intangible assets and increased interest expense on acquisition
debt. The pro forma results have been prepared for comparative purposes only
and do not purport to be indicative of the results of operations which actually
would have resulted or of the results which may occur in the future.
<TABLE>
<CAPTION>
Inception 39 39
(September 18, 1996) to Year Ended Weeks Ended Weeks Ended
December 28, 1996 January 3, 1998 September 27, 1997 October 3, 1998
----------------------- --------------- ------------------ ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Total revenues.......... $48,090,000 $191,264,000 $134,018,000 $126,937,000
Income from operations.. 6,652,000 12,431,000 3,294,000 306,000
Net income (loss)....... 1,192,000 (7,888,000) (12,516,000) (16,623,000)
Basic and diluted net
income (loss) per
common share........... 0.39 (3.21) (3.97) (5.06)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Periods
The Company operates using a 52/53-week year ending near December 31.
Unaudited Information
The accompanying consolidated financial statements as of October 3, 1998 and
for the 39 weeks ended September 27, 1997 and October 3, 1998 are unaudited and
have been prepared on a substantially equivalent basis with that of the annual
consolidated financial statements. In the opinion of management, the unaudited
information contains all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position and results of operations as of October 3, 1998 for the interim
periods presented herein.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
MFH and its wholly owned subsidiary MFOC. All significant intercompany balances
and transactions have been eliminated in consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
four suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and 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.
F-17
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of October
3, 1998, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation.
Inventories
Inventories consist of food, beverages and supplies and are stated at the
lower of cost (first-in, first-out method) or market value.
Pre-Opening and Organization Costs
Pre-opening costs associated with new Company-owned stores are charged to
expense as incurred. These amounts were not significant for the periods
presented in the accompanying consolidated financial statements. Pre-opening
costs associated with new franchised stores are the responsibility of the
franchisee.
The Company expensed all previously capitalized organization costs (which
were not material to the fair presentation of the accompanying consolidated
financial statements taken as a whole) in accordance with Statement of Position
No.98-5, "Reporting on the Costs of Start-up Activities" during the 39 weeks
ended October 3, 1998.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are recorded in current operations.
Intangible Assets
Intangible assets consist primarily of goodwill and trademarks and are
amortized using the straight-line method over 15 years. Other intangible assets
such as covenants not to compete are not significant and are being amortized
using the straight-line method over three to five years.
Deferred Loan Costs
Deferred loan costs totaling $12,793,000 resulted from the sale of
$100,000,000 aggregate principal amount of 10 1/8 percent Series A Senior Notes
(the "Series A Senior Notes") on November 26, 1997, the sale of $40,000,000
aggregate principal amount of 10 1/8 percent Series C Senior Notes (the "Series
C Senior Notes") on August 24, 1998 and the sale of 14 percent Senior Secured
Discount Notes (the "Discount Notes") on August 24, 1998. The deferred loan
costs are being amortized to interest expense over the approximate six and
seven-year lives of the notes (see Note 3).
F-18
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
Original Issue Discount and Discount on Senior Notes
The Discount Notes were issued with an original issue discount which is being
amortized to interest expense until the aggregate principal amount of the
Discount Notes is $55,000,000 at December 1, 2002. In addition, the Company
issued common stock warrants to the holders of the Discount Notes. The value of
the warrants has been accounted for as an original issue discount which is
being amortized to interest expense over the approximate seven-year life of the
Discount Notes.
The Series C Senior Notes were issued at a discount which is being amortized
to interest expense over the approximate six-year life of the related notes.
Long-Lived Assets
The Company assesses and measures for impairment of all long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of"("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether the assets are recoverable. The Company assesses impairment
of long-lived assets at the store level which the Company believes is the
lowest level for which there are identifiable cash flows that are independent
of other groups of assets. The Company has reserved for those long-lived assets
that are considered to be impaired.
Store Closure Reserve
The Company accrues an estimate for the costs associated with closing a
nonperforming store in the period the determination is made to close the store.
The majority of the costs accrued relate to estimated lease termination costs.
Revenue Recognition
Revenues generated from Company-owned stores are recognized at the point of
sale. Initial franchising and licensing fee revenues are recognized when all
material services or conditions relating to the sale have been substantially
performed or satisfied. Franchise and license royalties, which are based on a
percentage of gross store sales, are recognized as earned.
Leases
The Company has various operating lease commitments on both Company-owned and
franchised store locations and equipment. Expenses of operating leases with
escalating payment terms, including leases underlying subleases with
franchisees, are recognized on a straight-line basis over the lives of the
related leases. The Company accrues contingent rental expense on a monthly
basis for those retail stores where contingent rental expense is probable.
F-19
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Foreign Currency Translation
The balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars using the applicable balance sheet date exchange
rates, while revenues and expenses are translated using the average exchange
rates for the periods presented. Translation gains or losses are insignificant
for the periods presented.
Fair Value of Financial Instruments
The Company estimates that the aggregate fair market value of MFOC's Series
A/B Senior Notes and Series C Senior Notes (see Note 3) was approximately
$101,250,000 and $122,500,000, as of January 3, 1998 and October 3, 1998,
respectively. As of October 3, 1998, the Company estimates that the aggregate
fair market value of its Discount Notes was approximately $28,510,000. These
estimates were based on quoted market prices. The book values of the Company's
other financial instruments, including cash, accounts receivable, accounts
payable, accrued liabilities and other long-term debt obligations, approximate
fair values at the respective balance sheet dates.
Basic and Diluted Net Income (Loss) Per Common Share
Basic net income (loss) per common share is calculated based upon the
weighted average number of common shares outstanding during the periods
presented. Diluted net income (loss) per common share is calculated based upon
the weighted average number of common shares outstanding plus the assumed
exercise of all dilutive securities using the treasury stock method. For the
period from inception (September 18, 1996) to December 28, 1996, the diluted
weighted average number of common shares outstanding did not include any
incremental shares from the assumed exercise of dilutive stock options using
the treasury stock method. For all other periods presented, stock options prior
to exercise are not included in the calculation of diluted net loss per common
share because their inclusion would be antidilutive, thereby decreasing the net
loss per common share. The net income (loss) applicable to common shares for
all periods presented was adjusted for cumulative redeemable Series A preferred
stock dividends.
Recent Accounting Pronouncement
During the 39 weeks ended October 3, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires an "all-inclusive" approach which specifies that
all revenues, expenses, gains and losses recognized during the period be
reported in income, regardless of whether they are considered to be results of
operations of the period. The adoption of SFAS No. 130 had no material impact
on the Company's financial statement presentation.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 requires that public business enterprises report certain
information about operating segments in complete sets of financial statements.
The statement specifies disclosure requirements about the products and services
of a company, the geographic areas in which it operates, and their major
customers. Although the Company has not yet completed its assessment of the
impacts of adopting SFAS No. 131, it will adopt the statement for the year
ending January 2, 1999.
F-20
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. This statement is effective for fiscal years beginning after June 15, 1999
and is not expected to have a material impact on the Company's financial
statements.
Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform with the current period presentation.
F-21
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 28, January 3, October 3,
1996 1998 1998
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
MFOC Series A, B and C senior
unsecured notes, interest at 10 1/8
percent payable semi-annually in
arrears on June 1 and December 1,
due December 1, 2004............... $ -- $100,000,000 $140,000,000
Discount related to MFOC's issuance
of $40,000,000 Series C senior
unsecured notes, net of accumulated
amortization of $0, $0 and $9,000,
respectively....................... -- -- (591,000)
MFH senior secured discount notes,
interest at 14 percent payable
semi-annually in arrears on June 1
and December 1, commencing June 1,
2003, due December 1, 2005, secured
by a pledge of all capital stock of
MFOC............................... -- -- 55,000,000
Original issue discount related to
MFH's issuance of $55,000,000
senior secured discount notes, net
of accumulated amortization of $0,
$0 and $418,000, respectively...... -- -- (26,612,000)
PTI notes payable to individuals or
corporations with interest terms
ranging from non-interest bearing
to 15 percent, due at various dates
from 1998 through 2001, requiring
monthly payments................... -- 756,000 440,000
MFOC senior notes, interest at six-
month LIBOR rate (5 3/4 percent at
December 28, 1996) plus an interest
margin (3 percent at December 28,
1996) payable semi-annually,
secured by essentially all assets
of MFOC, repaid in November 1997... 41,966,000 -- --
MFB senior notes, interest at 10
percent payable semi-annually,
secured by essentially all assets
of MFB, principal due quarterly in
varying installments, repaid in
November 1997...................... 10,000,000 -- --
MFOC convertible subordinated notes,
interest at an escalating rate (9
3/4 percent at December 28, 1996)
payable semi-annually, secured by
essentially all assets of MFOC,
repaid in November 1997............ 7,357,000 -- --
MFB senior subordinated note to MFB
minority stockholder, interest at
10 percent compounded quarterly
beginning December 15, 1996,
secured by essentially all assets
of MFB, repaid in November 1997.... 3,597,000 -- --
----------- ------------ ------------
62,920,000 100,756,000 168,237,000
Less current portion................ (2,450,000) (472,000) (384,000)
----------- ------------ ------------
$60,470,000 $100,284,000 $167,853,000
=========== ============ ============
</TABLE>
F-22
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
On August 24, 1998, in connection with the Great American Acquisitions, MFH
issued 55,000 units (the "Units") consisting of 14 percent Senior Secured
Discount Notes due December 1, 2005 (the "Discount Notes") and warrants to
purchase 172,926 shares of MFH common stock (the "Warrants"). Each Unit
consists of $1,000 principal amount at maturity of Discount Notes and one
Warrant to purchase 3.14411 shares of MFH common stock at a price of $0.001 per
share. The issuance price was $561.17 per Unit or an aggregate price of
$30,864,350. The principal amount of the Discount Notes will accrete at a rate
of 14 percent compounded semi-annually to an aggregate principal amount of
$55,000,000 at December 1, 2002. Thereafter, the Discount Notes will accrue
interest at the rate of 14 percent per annum, payable semi-annually on June 1
and December 1 of each year, commencing June 1, 2003. In connection with the
issuance of the Discount Notes, MFH recorded aggregate original issue discount
of $24,135,650. Additionally, the value allocated to the Warrants of $2,895,000
has been accounted for as an original issue discount (see Note 1). In
accordance with APB Opinion No. 14, the value allocated to the warrants was
based on an estimate of the relative fair values of the warrants and Senior
Secured Discount Notes at the date of issuance.
The Discount Notes are secured by a pledge of all the outstanding capital
stock of MFOC and are general obligations of MFH, and rank senior in right of
payment to all existing and future senior indebtedness of MFH. The Discount
Notes are redeemable at the option of MFH, in whole or in part, at any time on
or after December 1, 2002 in cash at the defined redemption price plus accrued
and unpaid interest. In addition, at any time prior to December 1, 2002, the
Discount Notes are redeemable at the option of MFH, in whole but not in part,
in cash at a redemption price equal to 114 percent of the accreted value
(determined at the date of redemption) with the net cash proceeds of one or
more public equity offerings; provided that such redemption occurs within 60
days of the date of the closing of any such public equity offering.
The Discount Notes contain certain covenants that limit, among other things,
the ability of MFH and its subsidiaries to: (i) pay dividends, redeem capital
stock or make certain other restricted payments or investments; (ii) incur
additional indebtedness or issue preferred equity interests; (iii) merge,
consolidate or sell all or substantially all of their assets; (iv) create liens
on assets; (v) engage in certain asset sales; and (vi) enter into certain
transactions with affiliates or related persons.
On November 26, 1997, MFOC refinanced its existing debt (the "Refinancing")
by issuing $100,000,000 aggregate principal amount of Series A Senior Notes due
December 1, 2004 pursuant to an Indenture, dated as of November 26, 1997 (the
"Indenture"), between MFOC and The Bank of New York. The Series A Senior Notes
were issued pursuant to a private transaction that was not subject to the
registration requirements of the Securities Act of 1933 (the "Securities Act").
On June 12, 1998, a majority of the Series A Senior Notes were exchanged for 10
1/8% Series B Senior Notes (the "Series B Senior Notes") due December 1, 2004,
which were registered under the Securities Act (the "Exchange Offer"). The
terms of the Series A Senior Notes and the Series B Senior Notes (collectively,
the "Series A/B Senior Notes") are identical in all material respects except
(i) that the Series B Senior Notes have been registered under the Securities
Act, (ii) for certain transfer restrictions and registration rights relating to
the Series A Senior Notes and (iii) that the Series B Senior Notes do not
contain certain provisions relating to additional payments to the prior holders
of the Series A Senior Notes under certain circumstances relating to the timing
of the Exchange Offer.
On August 24, 1998, MFOC issued $40,000,000 aggregate principal amount of
Series C Senior Notes due December 1, 2004 in connection with the Great
American Acquisitions. The Series C Senior Notes were issued pursuant to the
Indenture which also governs the terms of the Series A/B Senior Notes in a
private transaction that was not subject to the registration requirements of
the Securities Act. The Series A/B Senior Notes and the Series C Senior Notes
will be collectively referred to as the "Senior Notes."
F-23
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
In connection with the issuance of the Series C Senior Notes, the Company
recorded a discount of approximately $600,000. The discount is being amortized
to interest expense over the approximate six-year life of the Series C Senior
Notes.
The Senior Notes are general unsecured obligations of MFOC, rank senior in
right of payment to all subordinated indebtedness of MFOC and rank pari passu
in right of payment with all existing and future senior indebtedness of MFOC.
The Senior Notes are redeemable at the option of MFOC, in whole or in part,
at any time on or after December 1, 2001 in cash at redemption prices defined
in the Indenture, plus accrued and unpaid interest. In addition, at any time
prior to December 1, 2001, MFOC may redeem up to an aggregate of 35 percent of
the principal amount at a redemption price equal to 110.125 percent of the
principal amount thereof, plus accrued and unpaid interest.
The Senior Notes contain certain covenants that limit, among other things,
the ability of MFOC and its subsidiaries to: (i) declare or pay dividends or
make any other payment or distribution on account of MFOC's or any of its
subsidiaries' equity interest (including without limitation, any payment in
connection with any merger or consolidation involving MFOC); (ii) purchase,
redeem or otherwise acquire or retire for value (including, without limitation,
in connection with any merger or consolidation involving MFOC) any equity
interest of MFOC or any direct or indirect parent of MFOC or other affiliate of
MFOC; (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any indebtedness that is
subordinated to the Senior Notes, except as payment of interest or principal at
stated maturity; or (iv) make any restricted investments except under
conditions provided for in the Indenture.
Pursuant to the Refinancing, MFOC repaid approximately $79,096,000 aggregate
principal amount of indebtedness and accrued but unpaid interest. Such
indebtedness consisted of (i) approximately $66,402,000 principal amount of
indebtedness and accrued but unpaid interest of MFOC incurred in connection
with the MFI and affiliates and OCC and affiliates business combinations, (ii)
approximately $12,374,000 principal amount of indebtedness and accrued but
unpaid interest of the H & M Debt, and (iii) $320,000 of prepayment penalties
associated with retiring the existing debt.
As part of the Refinancing, MFH converted to common equity of MFOC $4,643,000
aggregate principal amount of convertible subordinated notes and contributed to
MFOC all of the common equity of MFB after converting its preferred stock
interests totaling $3,935,000 to common equity. Also as part of the
Refinancing, MFOC paid a dividend to MFH in the amount of approximately
$1,065,000 and returned a $1,500,000 advance to MFH, which was a portion of the
cash provided by MFH in connection with the acquisitions of H & M and PTI.
The aggregate amounts of principal maturities of long-term debt at January 3,
1998 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998............................................................ $ 472,000
1999............................................................ 168,000
2000............................................................ 105,000
2001............................................................ 11,000
2002............................................................ --
Thereafter...................................................... 100,000,000
------------
$100,756,000
============
</TABLE>
F-24
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
On December 29, 1997, MFOC amended its revolving credit agreement (the
"Agreement") with a commercial bank (the "Bank") which provides for a maximum
commitment of up to $3,000,000 secured by essentially all of the assets of
MFOC. The Agreement, which was extended through February 28, 1998, was
terminated. On February 28, 1998, MFOC entered into a new revolving credit
agreement (the "1998 Agreement") with the Bank which provides for a maximum
commitment of up to $15,000,000 secured by essentially all of the assets of
MFOC. Borrowings under the 1998 Agreement bear interest, at MFOC's option, at
either the Bank's prime rate plus one fourth of one percent or the one-month
LIBOR rate plus three percent, with interest payable monthly in arrears. As of
October 3, 1998, MFOC had no outstanding borrowings under the 1998 Agreement.
Capital Lease Obligations
Future minimum lease payments for equipment held under capital lease
arrangements as of January 3, 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998.............................................................. $ 163,000
1999.............................................................. 123,000
2000.............................................................. 46,000
2001.............................................................. 41,000
---------
Total future minimum lease payments............................... 373,000
Less amount representing interest................................. (48,000)
---------
325,000
Less current portion.............................................. (142,000)
---------
$ 183,000
=========
</TABLE>
As of December 28, 1996, January 3, 1998 and October 3, 1998, total assets
held under capital lease arrangements were approximately $0, $376,000 and
$376,000, respectively, with accumulated amortization of approximately $0,
$59,000 and $99,000, respectively.
4. INCOME TAXES
The components of the provision for income taxes for the period ended
December 28, 1996 and the year ended January 3, 1998 are as follows:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
------------ ----------
<S> <C> <C>
Current:
Federal........................................... $ 207,000 $ 70,000
State............................................. 75,000 228,000
Foreign........................................... 5,000 57,000
Deferred:
Federal........................................... 1,112,000 367,000
State............................................. 277,000 55,000
Change in valuation allowance..................... 122,000 (122,000)
---------- ---------
Total provision for income taxes................ $1,798,000 $ 655,000
========== =========
</TABLE>
F-25
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
The differences between income taxes at the statutory federal income tax rate
and income taxes reported in the consolidated statements of operations are as
follows for the period ended December 28, 1996 and the year ended January 3,
1998:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
------------ ----------
<S> <C> <C>
Federal statutory income tax rate.................... 34.0% 34.0%
Dividends paid by subsidiary....................... -- 34.5
Amortization of non-deductible goodwill............ -- 12.3
Net operating losses utilized...................... -- (3.9)
State income taxes, net of federal benefit......... 5.3 5.3
State franchise minimum taxes...................... -- 44.0
Foreign taxes...................................... -- 12.3
Change in valuation allowance...................... 3.2 (26.3)
Other.............................................. 3.3 25.7
---- -----
Effective income tax rate............................ 45.8% 137.9%
==== =====
</TABLE>
The significant components of the Company's deferred income tax assets and
liabilities at December 28, 1996 and January 3, 1998 are as follows:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
------------ -----------
<S> <C> <C>
Deferred income tax assets:
Property and equipment reserve................ $ 3,501,000 $ 2,014,000
Store closure reserve......................... 1,868,000 2,202,000
Transaction cost accrual...................... 789,000 565,000
Net operating loss carryforward............... 782,000 4,875,000
Legal reserve................................. 470,000 302,000
Lease accrual................................. 403,000 92,000
Other reserves................................ -- 81,000
Accrued expenses.............................. 334,000 230,000
Alternative minimum tax credit carryforward... 207,000 207,000
----------- -----------
Total deferred income tax assets............ 8,354,000 10,568,000
Valuation allowance........................... (4,482,000) (5,160,000)
----------- -----------
Deferred income tax assets net of valuation
allowance.................................. 3,872,000 5,408,000
----------- -----------
Deferred income tax liabilities:
Accumulated depreciation and amortization..... (850,000) (1,548,000)
Other......................................... (13,000) (361,000)
----------- -----------
Total deferred income tax liabilities....... (863,000) (1,909,000)
----------- -----------
Net deferred income tax assets.............. $ 3,009,000 $ 3,499,000
=========== ===========
</TABLE>
Management has provided valuation allowances on portions of the deferred
income tax assets arising from the Company's business combinations. The
valuation allowances established in accordance with purchase accounting are not
recorded through the provision for income taxes, but rather, as an increase to
goodwill. During the period ended December 28, 1996 and the year ended January
3, 1998, valuation allowances of
F-26
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
$4,360,000 and $800,000, respectively, were recorded in connection with
accounting for the business combinations. As of January 3, 1998, the Company
had net operating loss carryforwards for tax reporting purposes totaling
$12,414,000. Of these net operating loss carryforwards, $1,814,000 expire in
2011 and $10,600,000 expire in 2012.
5. STORE CLOSURE AND PROPERTY AND EQUIPMENT IMPAIRMENT RESERVES
The Company's management reviews the historical and projected operating
performance of its stores on a periodic basis to identify underperforming
stores for impairment of property investment or targeted closing. The Company's
policy is to recognize a loss for that portion of the net property investment
determined to be impaired in accordance with SFAS No. 121 criteria.
Additionally, when a store is identified for targeted closing, the Company's
policy is to provide for the costs of closing the store, which are
predominantly estimated lease termination costs. If and when a reserve that was
established as part of purchase accounting is not fully utilized, the Company
reduces the reserve to zero and goodwill is adjusted for the corresponding
amount.
MFI and Affiliates and OCC and Affiliates
In connection with the MFI and OCC acquisitions (see Note 1), the Company
formulated a plan to exit certain stores that did not meet certain financial
and geographical criteria. The plan entailed closing all stores that were not
profitable and franchising stores that were profitable but contributed less
than $50,000 in store cash contribution for cookie stores and less than $35,000
in store cash contribution for pretzel stores. Management identified 138 stores
to be closed (13 of these stores were closed prior to the acquisition but had
continuing lease obligations) and 64 stores to be franchised. As of October 3,
1998, there were 27 stores remaining to be exited, all of which are expected to
be exited by the end of the first quarter of fiscal 1999. The timing to
implement the plan was developed based on discussions and relationships with
major shopping mall developers.
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3, the Company established a store closure reserve of $5,060,000
for the 138 stores the Company intended to close. The reserve was established
to provide for estimated early lease termination costs and penalties. There was
no reserve established related to the 64 stores to be franchised. Management
continued to refine the plan for closing the stores after the date of the
acquisitions which entailed further analysis of lease agreements and meeting
with developers to assess timing and estimated lease termination costs.
Management finalized the store closure plan in early September 1997, within
one year of the date of the acquisitions. At that time, the Company recorded an
additional $1,357,000 to the store closure reserve to reflect the finalized
plan estimates of lease termination costs and adjusted goodwill by a comparable
amount under the provisions of purchase accounting. The increase in the reserve
related solely to the 138 stores originally identified to be closed. The store
closure reserve was also increased by approximately $538,000 for ten core
operating stores that have been closed or targeted for closure due primarily to
leases not being renewed by the lessor. This portion of the store closure
reserve was expensed in the Company's consolidated statement of operations for
the year ended January 3, 1998, as these stores were not identified for closure
in the Company's store closure plan. These seven core operating stores are
included in the 80 MFI and OCC stores closed in the year ended January 3, 1998.
During the 39 weeks ended October 3, 1998, the Company closed 30 stores (nine
of which were core operating stores).
F-27
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
Pursuant to the exit plan, at the date of the acquisitions, the Company
established an impairment reserve of $10,921,000 against the property and
equipment of the stores the Company planned to exit, in order to record those
assets at net realizable value. The property and equipment of 117 of the total
stores to be closed were recorded at net values of zero. The property and
equipment of 54 of the total stores to be franchised were recorded at the
estimated net realizable amount recoverable through a franchise sale. The
property and equipment of the remainder of the stores to be closed or
franchised had already been reduced to net realizable value prior to the
acquisitions. As of October 3, 1998, management has identified 50 existing
stores for sale to franchisees. Management believes that the net proceeds from
the sale of stores to franchisees will exceed the total carrying value of the
store assets as of January 3, 1998 and October 3, 1998.
H&M Concepts Ltd. Co.
In connection with the H&M acquisition (see Note 1), the Company formulated a
plan to exit certain pretzel stores that did not meet certain financial and
geographical criteria. Management identified 11 stores to be closed. All of the
stores identified for closure are planned to be closed by the end of fiscal
1999. The timing to implement the plan was developed based on discussions and
relationships with major shopping mall developers.
At the date of the acquisition, in accordance with Emerging Issues Task Force
Issue 95-3, the Company established a store closure reserve of $1,000,000 for
the 11 stores the Company intended to close. The reserve was established to
provide for estimated early lease termination costs and penalties.
Additionally, the Company established an impairment reserve of $2,500,000
against the property and equipment of the stores the Company planned to exit,
in order to record those assets at net realizable value.
Pretzel Time, Inc.
In connection with the Pretzel Time acquisition (see Note 1), the Company
formulated a plan to exit certain pretzel stores that did not meet certain
financial and geographical criteria. Management identified four stores to be
closed. All of the stores identified for closure are planned to be closed by
the end of fiscal 1999. The timing to implement the plan was developed based on
discussions and relationships with major shopping mall developers.
At the date of the acquisition, in accordance with Emerging Issues Task Force
Issue 95-3, the Company established a store closure reserve of $500,000 for the
four stores the Company intended to close. The reserve was established to
provide for estimated early lease termination costs and penalties.
Great American
In connection with the Great American Acquisitions (see Note 1), the Company
formulated a plan to exit certain cookie stores that did not meet certain
financial and geographical criteria. Management identified 54 stores to be
closed and 11 stores to be franchised. All of the stores identified for closure
are planned to be closed by the end of fiscal 2000. The timing to implement the
plan was developed based on discussions and relationships with major shopping
mall developers.
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3, the Company established a store closure reserve of $3,548,000
for the 54 stores the Company intended to close. The reserve was established to
provide for estimated early lease termination costs and penalties. There was no
reserve established related to the 11 stores to be franchised. The Company
established an impairment reserve of $2,150,000 against the property and
equipment of the stores the Company planned to exit, in order to record those
assets at net realizable value.
F-28
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
Consolidated Analysis
The following tables present a summary of changes in the store closure
reserve for the periods indicated in amount and number of stores to be closed
and franchised:
<TABLE>
<CAPTION>
MFI and
Affiliates
and
OCC and Pretzel Great
Affiliates H&M Time American Consolidated
---------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Inception, September 18,
1996................... $5,060,000 $ -- $ -- $ -- $ 5,060,000
Utilization from
inception (September
18, 1996) to December
28, 1996............... (305,000) -- -- -- (305,000)
---------- --------- -------- ---------- -----------
Balance, December 28,
1996................... 4,755,000 -- -- -- 4,755,000
To record obligations
related to stores
identified for closure
upon acquisition, July
25, 1997............... -- 1,000,000 -- -- 1,000,000
To record obligations
related to stores
identified for closure
upon acquisition,
September 2, 1997...... -- -- 500,000 -- 500,000
Finalization of store
closure plan for
obligations related to
stores originally
identified............. 1,357,000 -- -- -- 1,357,000
Provision for ten core
operating stores
targeted for closure... 538,000 -- -- -- 538,000
Utilization from
December 28, 1996 to
January 3, 1998........ (2,683,000) -- (1,000) -- (2,684,000)
---------- --------- -------- ---------- -----------
Balance, January 3,
1998................... 3,967,000 1,000,000 499,000 -- 5,466,000
To record obligations
related to stores
identified for closure
upon acquisition,
August 24, 1998
(unaudited)............ -- -- -- 3,548,000 3,548,000
Utilization for the 39
weeks ended October 3,
1998 (unaudited)....... (1,752,000) (13,000) (2,000) (124,000) (1,891,000)
---------- --------- -------- ---------- -----------
Balance, October 3, 1998
(unaudited)............ $2,215,000 $ 987,000 $497,000 $3,424,000 $ 7,123,000
========== ========= ======== ========== ===========
</TABLE>
F-29
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1998 and October 3, 1998 is Unaudited)
<TABLE>
<CAPTION>
MFI and
Affiliates and
OCC and
Affiliates H&M Pretzel Time Great American Consolidated
----------------- ----------------- ----------------- ----------------- -----------------
To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stores identified for
closure or franchise at
inception, September
18, 1996............... 138 64 -- -- -- -- -- -- 138 64
Stores closed prior to
inception.............. (13) -- -- -- -- -- -- -- (13) --
Stores closed or
franchised from
inception (September
18, 1996) to December
28, 1996............... (17) (3) -- -- -- -- -- -- (17) (3)
--- --- --- --- --- --- --- --- --- ---
Balance, December 28,
1996................... 108 61 -- -- -- -- -- -- 108 61
Stores identified for
closure or franchise
upon acquisition, July
25, 1997............... -- -- 11 -- -- -- -- -- 11 --
Stores identified for
closure or franchise
upon acquisition,
September 2, 1997...... -- -- -- -- 4 -- -- -- 4 --
Stores closed or
franchised from
December 28, 1996 to
January 3, 1998........ (70) (9) (3) -- -- -- -- -- (73) (9)
--- --- --- --- --- --- --- --- --- ---
Balance, January 3,
1998................... 38 52 8 -- 4 -- -- -- 50 52
Stores identified for
closure or franchise
upon acquisition,
August 24, 1998
(unaudited)............ -- -- -- -- -- -- 54 11 54 11
Stores closed or
franchised for the 39
weeks ended October 3,
1998 (unaudited)....... (11) (13) (1) -- (1) -- (8) -- (21) (13)
--- --- --- --- --- --- --- --- --- ---
Balance, October 3, 1998
(unaudited)............ 27 39 7 -- 3 -- 46 11 83 50
=== === === === === === === === === ===
</TABLE>
During the period from inception to December 28, 1996, the year ended January
3, 1998 and the 39 weeks ended September 27, 1997 and October 3, 1998, the net
store sales and store contribution for stores in the process of being closed
totaled $5,777,000 and $121,000, $10,599,000 and $2,038,000, $6,380,000 and
$(2,082,000) and $3,038,000 and $(1,311,000), respectively.
F-30
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1998 and October 3, 1998 is Unaudited)
The following tables present a summary of changes in the property and
equipment impairment reserve in amount and the number of stores to be closed
and franchised:
<TABLE>
<CAPTION>
MFI and
Affiliates
and OCC and Pretzel Great
Affiliates H&M Time American Consolidated
----------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Inception, September 18,
1996................... $10,921,000 $ -- $-- $ -- $10,921,000
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be closed.... (854,000) -- -- -- (854,000)
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be
franchised............. (215,000) -- -- -- (215,000)
----------- ---------- ---- ---------- -----------
Balance, December 28,
1996................... 9,852,000 -- -- -- 9,852,000
To record property and
equipment impairment
upon acquisition, July
25, 1997............... -- 2,500,000 -- -- 2,500,000
To record property and
equipment impairment
upon acquisition,
September 2, 1997...... -- -- -- --
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
closed................. (3,299,000) (208,000) -- -- (3,507,000)
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
franchised............. (492,000) -- -- -- (492,000)
----------- ---------- ---- ---------- -----------
Balance, January 3,
1998................... 6,061,000 2,292,000 -- -- 8,353,000
To record property and
equipment impairment
upon acquisition,
August 24, 1998
(unaudited)............ -- -- -- 2,150,000 2,150,000
Utilization for the 39
weeks ended October 3,
1998 related to stores
to be closed
(unaudited)............ (1,436,000) (93,000) -- (250,000) (1,779,000)
Utilization for the 39
weeks ended October 3,
1998 related to stores
to be franchised
(unaudited)............ (313,000) (363,000) -- -- (676,000)
----------- ---------- ---- ---------- -----------
Balance, October 3, 1998
(unaudited)............ $ 4,312,000 $1,836,000 $-- $1,900,000 $ 8,048,000
=========== ========== ==== ========== ===========
</TABLE>
F-31
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1998 and October 3, 1998 is Unaudited)
<TABLE>
<CAPTION>
MFI and
Affiliates and
OCC and
Affiliates H&M Great American Consolidated
----------------- ----------------- ----------------- -----------------
To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stores identified for
closure or franchise at
inception, September
18, 1996............... 117 54 -- -- -- -- 117 54
Stores closed or
franchised from
inception (September
18, 1996) to December
28, 1996............... (17) (3) -- -- -- -- (17) (3)
--- --- --- --- --- --- --- ---
Balance, December 28,
1996................... 100 51 -- -- -- -- 100 51
Stores identified for
closure or franchise
upon acquisition, July
25, 1997............... -- -- 11 14 -- -- 11 14
Stores closed or
franchised from
December 28, 1996 to
January 3, 1998........ (64) (9) (3) -- -- -- (67) (9)
--- --- --- --- --- --- --- ---
Balance, January 3,
1998................... 36 42 8 14 -- -- 44 56
Stores identified for
closure or franchise
upon acquisition,
August 24, 1998
(unaudited)............ -- -- -- -- 54 11 54 11
Stores closed or
franchised for the 39
weeks ended October 3,
1998 (unaudited)....... (11) (8) (1) (4) (8) -- (20) (12)
--- --- --- --- --- --- --- ---
Balance, October 3, 1998
(unaudited)............ 25 34 7 10 46 11 78 55
=== === === === === === === ===
</TABLE>
F-32
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
6. CUMULATIVE REDEEMABLE SERIES A PREFERRED STOCK
At its inception, the Company issued $23,143,000 of ten percent cumulative
redeemable Series A preferred stock (the "Preferred Stock") to Capricorn which
aggregate amount totaled Capricorn's investment in the Company. The Preferred
Stock consisted of 97 shares, $.01 par value, with a liquidation preference of
approximately $245,000 per share as of December 28, 1996. Capricorn was
entitled to receive, out of funds legally available for the payment of
dividends, cumulative dividends at an annual rate of ten percent accruable on a
daily basis. All accrued but unpaid dividends were compounded on a quarterly
basis at an annual rate of ten percent. During the period ended December 28,
1996 and the year ended January 3, 1998, the Company elected to add dividends
totaling $642,000 and $2,173,000, respectively, to the liquidation preference.
In connection with the Refinancing, the Preferred Stock, including accrued
but unpaid dividends totaling $2,815,000, was converted to common equity of the
Company.
7. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK OF PTI
The mandatorily redeemable cumulative preferred stock of PTI (the "PTI
Preferred Stock") is nonvoting and the preferred stockholders are entitled to
cumulative preferred dividends of ten percent for three years, payable upon
redemption. The PTI Preferred Stock must be redeemed at $10,000 per share, plus
unpaid and accumulated dividends, on September 1, 1999. The excess of the
redemption price over the carrying value is being accreted over the period from
issuance to September 1, 1999, using the effective interest method and is being
charged to the accumulated deficit of PTI. In the event of a liquidation or
sale of PTI, the preferred stockholders are entitled to receive payment of
$10,000 per share, plus accumulated dividends.
During the period from the acquisition of a majority ownership in PTI
(September 2, 1997) to January 3, 1998 and for the 39 weeks ended October 3,
1998, PTI increased the liquidation preference of the PTI Preferred Stock by
$68,000 and $108,000, respectively, in lieu of paying cash dividends. In
addition, the PTI Preferred Stock was increased by $238,000 and $225,000,
respectively, for the accretion required over time to amortize the original
issue discount incurred at the time of issuance. As of January 3, 1998 and
October 3, 1998, accrued dividends of $195,000 and $303,000, respectively, were
unpaid.
During the period from September 2, 1997 to January 3, 1998, PTI repurchased
17.5 shares of the PTI Preferred Stock for an aggregate of $175,000 in cash or
$10,000 per share, plus accrued dividends totaling approximately $20,200. As of
January 3, 1998 and October 3, 1998, there are 127 shares of PTI Preferred
Stock issued and outstanding with an aggregate liquidation preference of
approximately $1,437,000 and $1,481,000, respectively.
8. CAPITAL TRANSACTIONS
On June 3, 1998, the Company amended its Restated Certificate of
Incorporation to provide the Company with the authority to issue up to
5,000,000 shares of common stock. In connection therewith, the Company's Board
of Directors approved an effective stock split on existing shares. All common
share information in the accompanying consolidated financial statements has
been retroactively adjusted to reflect the effective stock split.
In connection with the Refinancing, Capricorn converted its Preferred Stock
in the Company totaling $25,959,000 (including accrued but unpaid dividends of
$2,815,000) to common equity of the Company. No additional shares of common
stock of the Company were issued.
F-33
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
On November 26, 1997, as partial consideration for Harvard's 49.9 percent
interest in MFB, the Company granted Harvard the rights to approximately four
percent, or 127,349 shares, of the Company's common stock. The shares
approximate aggregate value was $1,500,000 after being appropriately discounted
for lack of controlling interest and marketability (see Note 1). Although as of
January 3, 1998, the Company was obligated to issue the common shares to
Harvard, no certificate had been issued. However, because the Company was
obligated to issue the shares as of January 3, 1998, the Company has recorded
them as outstanding in the accompanying consolidated financial statements. On
July 17, 1998, the Company issued a common stock certificate to Harvard for the
127,349 shares.
9. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. Management, after consultation with legal
counsel, believes that the potential liability to the Company under any such
actions is adequately accrued for or will not materially affect the Company's
consolidated financial position or results of operations.
Operating Leases
The Company leases retail store facilities, office space and equipment under
long-term noncancelable operating lease agreements with remaining terms of one
to ten years. Certain of the rental store leases provide for contingent rentals
based on gross revenues. Additionally, as part of the Company's franchising
program certain locations have been subleased to franchisees.
For the period ended December 28, 1996, the year ended January 3, 1998 and
the 39 weeks ended September 27, 1997 and October 3, 1998, rent expense is as
follows:
<TABLE>
<CAPTION>
Inception
(September 18,
1996) to Year Ended 39 Weeks Ended 39 Weeks Ended
December 28, January 3, September 27, October 3,
1996 1998 1997 1998
-------------- ----------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Minimum rentals......... $ 8,216,000 $30,654,000 $18,938,000 $23,076,000
Contingent rentals...... 105,000 432,000 324,000 522,000
Sub-lease rentals....... (2,220,000) (8,756,000) (3,189,000) (5,837,000)
----------- ----------- ----------- -----------
$ 6,101,000 $22,330,000 $16,073,000 $17,761,000
=========== =========== =========== ===========
</TABLE>
As of January 3, 1998, the future minimum lease payments due under operating
leases (including future minimum lease payments for stores in the process of
being closed or franchised), which include required lease payments for those
stores that have been subleased, are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998........................................................... $ 30,605,000
1999........................................................... 26,968,000
2000........................................................... 21,948,000
2001........................................................... 18,283,000
2002........................................................... 15,673,000
Thereafter..................................................... 24,374,000
------------
$137,851,000
============
</TABLE>
F-34
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
As of January 3, 1998, the future minimum sublease payments due to the
Company under these leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998............................................................ $ 9,959,000
1999............................................................ 9,067,000
2000............................................................ 7,506,000
2001............................................................ 6,497,000
2002............................................................ 6,190,000
Thereafter...................................................... 10,481,000
-----------
$49,700,000
===========
</TABLE>
In January 1998, the Company entered into an operating lease agreement for
corporate office facilities totaling 31,000 square feet. The lease commenced on
May 1, 1998 and will expire April 30, 2008. The lease includes escalating
monthly rental payments totaling $6,900,000 over the life of the lease, or
approximately $57,500 per month on a straight-line basis. These commitments are
not included in the preceding commitment presentation.
Contractual Arrangements
The Company has entered into a supply agreement to buy frozen dough products
through 1998. The agreement stipulates minimum annual purchase commitments of
not less than 22,000,000 pounds of the products during fiscal year 1998. The
terms of the agreement include certain volume incentives and penalties. The
Company and the supplier may terminate the supply agreement if the other party
defaults on any of the performance covenants.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at January 3, 1998 and October 3, 1998 were approximately
$550,000 and $328,000, respectively. Under the terms of the agreement, the
Company is required to assume any franchisee obligations which are in default
as defined. As of January 3, 1998 and October 3, 1998, the Company has assumed
obligations totaling approximately $203,000 and $113,000 (unaudited),
respectively, which are included in capital lease obligations.
The Company recorded deferred credits of approximately $1,204,000 as of
September 18, 1996. The deferred credits represent volume rebates associated
with the assumption of a long-term marketing and supply agreement with a
supplier in connection with the MFI and affiliates and OCC and affiliates
business combinations discussed in Note 1. Under terms of the agreement, the
Company is obligated to purchase a minimum amount of product from the supplier.
The supplier periodically prepays rebates to the Company for anticipated
purchases. The Company records the prepayments as deferred credits and
amortizes them ratably as purchases are made from the supplier. This agreement
was amended in January 1997 and an additional $600,000 in deferred credits were
recorded. The amended agreement expires on the later of December 31, 2003 or
when the Company has met its revised purchase commitment. In conjunction with
this amendment, certain minimum commitments from the previous agreement were
carried forward and others were forgiven. Additionally, in November 1997, PTI
entered into a long-term marketing and supply agreement with a supplier. Under
terms of the agreement, PTI is obligated to purchase a minimum amount of
product from the supplier.
F-35
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
An additional $437,000 in deferred credits were recorded pursuant to this
agreement The termination date of this agreement will be the later of December
31, 2003 or when PTI has met its purchase commitment. Under these agreements,
the Company recognized approximately $64,000, $1,393,000, $721,000 (unaudited)
and $672,000 (unaudited) primarily as a reduction to food cost of sales during
the period ended December 28, 1996, the year ended January 3, 1998 and the 39
weeks ended September 27, 1997 and October 3, 1998, respectively.
In November 1996, the Company entered into a consulting agreement (the
"Consulting Agreement") with Debbi Fields, a director of the Company, under
which Debbi Fields travels and performs public relations and advertising
activities on behalf of the Company for at least 50 days a year for a fee of
$250,000 per year, with an option to perform these services for 20 additional
days a year for additional pay of $5,000 per day. The compensation increases by
ten percent a year beginning on January 1, 1999. The Consulting Agreement
expires on December 31, 1999. The Company may terminate the Consulting
Agreement for cause and Debbi Fields may terminate the Consulting Agreement at
any time. Under the Consulting Agreement, Debbi Fields may not disclose any
confidential information of the Company, such as recipes and trade secrets, and
may not, without the prior written consent of the Company, compete with the
Company.
The Company has a license agreement with FSG Holdings, Inc., a Delaware
corporation, under which Debbi Fields has a nonexclusive license to use certain
trademarks, names, service marks and logos of the Company in connection with
book and television series projects. Debbi Fields is required to pay 50 percent
of any gross revenues in excess of $200,000 that she receives from the book and
television series projects to the Company as a license fee.
In connection with the acquisition of H&M, certain franchise agreements and
an area development agreement with PTI were assigned to MFOC. The franchise
agreements provide for the franchise by MFOC of the PTI stores previously
franchised by H&M and the payment by MFOC to PTI of an annual franchise royalty
equal to seven percent of the annual sales by such stores, plus an advertising
fee of one percent of sales. The franchise agreements also provide for the
conversion, within three years, of the Company's Hot Sam and Pretzel Oven
stores to Pretzel Time franchises on a royalty-free basis for the first five
years following the date of conversion. The area development agreement provides
for the grant by PTI to MFOC of area development rights to open additional
Pretzel Time stores in a territory covering 16 states, predominantly in the
western United States, four western Canadian provinces and in Mexico. The
additional stores may be opened by MFOC as the franchisee or by third parties
as franchisees. Under the area development agreement, MFOC is obligated to pay
to PTI a $5,000 franchise fee per new location within the territory. PTI is
obligated under the area development agreement to pay to MFOC an annual royalty
of up to two percent with respect to Pretzel Time franchises opened by parties
other than MFOC within the territory.
The Company has entered into employment agreements with five key officers
with terms of two to three years. The agreements are for an aggregate annual
base salary of $1,095,000. If the Company terminates employment without cause,
or the employee terminates employment with good reason, the employee can
receive in severance pay the amount equal to the product of his or her then
current semi-monthly base salary by the greater of the number of semi-monthly
periods from the notice of termination or 36 to 48 semi-monthly periods, plus a
portion of any discretionary bonus that would otherwise have been payable. The
agreements have customary provisions for other benefits and also include
noncompetition clauses.
10. RELATED-PARTY TRANSACTIONS
As of December 28, 1996, January 3, 1998 and October 3, 1998, the Company had
receivables due from franchisees, primarily related to prepaid rent which the
Company had paid on behalf of franchisees, totaling
F-36
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
approximately $1,524,000, $2,176,000 and $5,616,000 (unaudited), respectively.
Such amounts are included in amounts due from franchisees and licensees and are
net of allowance for doubtful accounts totaling $320,000, $582,000 and $979,000
(unaudited), respectively.
The Company previously leased certain office space to an entity which is
owned in part by a director of the Company. Billings to the entity during the
period ended December 28, 1996, the year ended January 3, 1998 and the 39 weeks
ended September 27, 1997 and October 3, 1998, totaled approximately $60,000,
$274,000, $204,000 (unaudited) and $0 (unaudited), respectively, of which
approximately $29,000, $23,000 and $0 (unaudited) is included in amounts due
from franchisees and affiliates as of December 28, 1996, January 3, 1998 and
October 3, 1998, respectively. The lease was terminated during the 39 weeks
ended October 3, 1998.
The Company paid fees to Korn/Ferry International ("KFI") totaling
approximately $47,000, $157,000, $147,000 (unaudited) and $47,000 (unaudited)
during the period ended December 28, 1996, the year ended January 3, 1998 and
the 39 weeks ended September 27, 1997 and October 3, 1998, respectively. KFI is
an executive search firm of which one of the Company's directors is the
Chairman.
A director of the Company is a consultant and an advisor to Dillon Read &
Co., Inc. ("Dillon Read"). In 1997, the Company paid to Dillon Read a fee of
approximately $707,000 in connection with the restructuring of the Company in
September 1996. In addition, the director's company received a fee of $250,000
(unaudited), plus expenses, from the Company during the 39 weeks ended October
3, 1998 pursuant to an agreement to provide advisory acquisition and consulting
services to the Company. The Company believes that the arrangements were on
terms that could have been obtained from an unaffiliated third party.
As of January 3, 1998 and October 3, 1998, the Company has a loan due from
the founder and minority stockholder of PTI totaling $552,000. The note bears
interest at an annual rate of ten percent and is payable in monthly
installments of principal and interest beginning January 1998 by setoff of, and
to the extent of, the founder's bonus payments and dividends received by the
founder in his PTI stock; provided that in any calendar year no more than
$100,000 may be so offset. In addition, as of October 3, 1998, the Company is
due approximately $462,000 (unaudited) from the founder in connection with
lease payments related to the purchase of PTI for which the Company is
indemnified. These amounts are recorded in other assets in the accompanying
consolidated balance sheets.
At the time of the Refinancing, a subsidiary of MIDIAL (the parent company of
OCC and affiliates) was the holder of $27,000,000 in aggregate principal amount
of senior notes of the Company and $8.4 million in aggregate principal amount
of subordinated notes of the Company as to which the Company had accrued or
paid interest of $3,177,000 from the date of inception (September 18, 1996)
through November 26, 1997. In connection with the Refinancing, the Company
repaid all such notes and related interest. The Chairman and Chief Executive
Officer of MIDIAL was a former director of the Company.
MFOC and MFH expect to enter into a tax-sharing arrangement but as of the
date of these financial statements no such agreement has been finalized.
F-37
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
11. STOCK-BASED COMPENSATION AND INCENTIVE PLANS
Stock Appreciation Rights Plan
During the second quarter of 1997, the Company agreed to issue 12,402 shares
of the Company's common stock to a consultant for consulting services provided
to the Company from the inception of the Company through June 30, 1997 and the
settlement for obligations under a previously existing stock appreciation
rights plan. At the settlement date, the Company's common stock was valued at
$10 per share as determined by the Board of Directors. During the period from
inception through June 1997, the Company recorded approximately $124,000 of
consulting expense related to these obligations which is included in general
and administrative expenses in the accompanying consolidated statements of
operations. Although as of January 3, 1998, the Company was obligated to issue
the common shares to the consultant, no certificate had been issued. However,
because the Company was obligated to issue the shares as of January 3, 1998,
the Company has recorded them as outstanding in the accompanying consolidated
financial statements. On July 17, 1998, the Company issued a common stock
certificate to the consultant for the 12,402 shares.
Director Stock Purchase Plan
Effective September 18, 1996, the Company established the Mrs. Fields'
Holding Company, Inc. Director Stock Purchase Plan (the "Director Stock
Purchase Plan"). Under the Director Stock Purchase Plan, shares of the
Company's common stock, either restricted or vested, may be issued to directors
of the Company. On January 1, 1997, the directors of the Company were offered
an opportunity to purchase vested shares of the Company's common stock under
the Director Stock Purchase Plan for $10 per share, which was the fair market
value of the Company's stock as of that date as determined by the Board of
Directors. Selected directors participated and subscribed to purchase 51,667
vested shares of common stock. As a result, the Company recorded approximately
$517,000 of common stock subscriptions receivable in the accompanying
consolidated financial statements as of January 3, 1998. During the 39 weeks
ended October 3, 1998, the Company collected all $517,000 of common stock
subscriptions receivable. Additionally, on January 1, 1997, the Company granted
to the participating directors an aggregate 28,333 restricted shares of the
Company's common stock for no cash consideration. Restricted shares vest 50
percent on January 1, 1999 and 50 percent on January 1, 2000, or earlier, upon
a change of control of the Company or MFOC. The Company is recognizing
compensation cost totaling approximately $283,000 related to the grant of
restricted shares on a straight-line basis over the vesting period.
Although as of January 3, 1998, the Company was obligated to issue the 51,667
vested shares and 28,333 restricted shares to the directors, no certificates
had been issued. However, because the Company was obligated to issue the shares
as of January 3, 1998, the Company has recorded them as outstanding in the
accompanying consolidated financial statements. On July 17, 1998, the Company
issued common stock certificates to the directors for an aggregate of 51,667
vested shares and 28,333 restricted shares.
Director Stock Option Plan
On September 18, 1996, the Company established the Mrs. Fields' Holding
Company, Inc. Director Stock Option Plan (the "Director Stock Option Plan"). A
committee of the Board of Directors is authorized to administer the Director
Stock Option Plan and has the power, among other things, to grant awards of
options for the Company's common stock to outside directors of the Company and
its direct and indirect subsidiaries. Options granted under the Director Stock
Option Plan are non-qualified under section 422 of the Internal Revenue Code.
The Director Stock Option Plan provides for the issuance of time vested
options, which vest 25 percent per year on the anniversaries of the dates on
which they are granted, and vest in full upon a change of control of the
Company or MFOC. Options expire no later than ten years after the date the
options are granted.
F-38
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
An aggregate of 50,000 shares of the Company's common stock are reserved for
issuance under the Director Stock Option Plan.
On January 1, 1997, the Company issued options to purchase 20,100 shares of
common stock with an exercise price of $10 per share to directors under the
Director Stock Option Plan. On January 1, 1998, the Company issued options to
purchase 10,752 shares of common stock with an exercise price of $16.74 to
directors under the Director Stock Option Plan. All options granted were at
prices equal to or greater than the fair market value of the underlying shares
of common stock of the Company at the grant date as valued by the Board of
Directors.
Employee Stock Option Plan
Effective September 18, 1996, the Company established the Mrs. Fields'
Holding Company, Inc. Employee Stock Option Plan (the "Employee Stock Option
Plan"). A committee of the Board of Directors is authorized to administer the
Employee Stock Option Plan and has the power, among other things, to grant
awards of options for the Company's common stock to officers and other
employees of the Company and its direct and indirect subsidiaries. Options
granted under the Employee Stock Option Plan are non-qualified under section
422 of the Internal Revenue Code. The Employee Stock Option Plan provides for
the issuance of three types of options. Performance-vested options are deemed
to be vested 20 percent for fiscal year 1997 and vest an additional 20 percent
per year for each subsequent fiscal year in which there is at least a 110
percent increase in Adjusted EBITDA, as defined, of the Company. Time-vested
options vest 25 percent per year on the anniversaries of the dates on which
they are granted, and vest in full upon a change in control of the Company or
MFOC. Upside options vest upon the earlier to occur of the expiration of such
option and a change of control, based on certain internal rate of return
("IRR") targets: (i) if IRR through the vesting date is less than 20 percent,
the option will not vest; (ii) if IRR is from 20 percent to 24.99 percent, the
option will vest one-third; (iii) if IRR is from 25 percent to 29.99 percent,
the option will vest two-thirds; and (iv) if IRR is at least 30 percent, the
option will vest in full. All options expire no later than ten years after the
date the options are granted. An aggregate of 492,840 shares of the Company's
common stock are reserved for issuance under the Employee Stock Option Plan.
On September 18, 1996, the Company issued performance-vested options to
purchase 106,782 shares of common stock, time-vested options to purchase
114,996 shares of common stock and upside options to purchase 98,568 shares of
common stock to key employees of the Company at exercise prices of $10 per
share. On July 10, 1997, the Company issued performance-vested options to
purchase 8,214 shares of common stock and time-vested options to purchase
16,428 shares of common stock to a key employee of the Company at an exercise
price of $13 per share. All options were granted at exercise prices equal to or
greater than the fair market value of the underlying shares of common stock of
the Company at the grant date as valued by the Board of Directors.
Performance-vested options and upside options are variable plan options and
are accounted for in accordance with APB Opinion No. 25 ("APB No. 25"). A final
measurement of compensation has not taken place with respect to the grants of
such options because the number of options that will ultimately vest is not
known. As of October 3, 1998, no compensation expense has been recognized with
respect to these options because the Company's assessment is that it is not
probable the applicable vesting criteria will be met.
Management Value Creation Plan
In connection with the MFI and affiliates and OCC and affiliates business
combinations discussed in Note 1, the Company assumed liabilities totaling
$700,000 related to Mrs. Fields Inc.'s Senior Management
F-39
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
Value Creation Plan (the "Value Creation Plan") which had been in effect since
December 1994. During the period ended December 28, 1996, the Company paid out
obligations totaling $17,000 in cash. The remaining obligation of $683,000 was
included in accrued liabilities (long-term) in the accompanying consolidated
balance sheet as of December 28, 1996. During the year ended January 3, 1998,
the Company paid out an additional $97,500 in cash and increased the obligation
due to an officer of the Company by approximately $68,500. The $68,500 increase
was recorded in general and administrative expense in the accompanying 1997
consolidated statement of operations. As of January 3, 1998, the remaining
obligation under the Value Creation Plan was approximately $654,000 and is
included in the current portion of accrued liabilities in the accompanying
consolidated balance sheet. During the 39 weeks ended October 3, 1998, the
Company paid out the remaining $654,000 (unaudited) in cash.
Accounting For Stock-Based Compensation Plans
The Company applies APB 25 and related interpretations in accounting for its
stock-based compensation plans as they relate to employees and directors.
Accordingly, no compensation expense is recognized for its stock-based
compensation and incentive plans related to directors and employees unless the
equity instruments were issued at less than their intrinsic fair market value.
During the period ended December 28, 1996, the year ended January 3, 1998 and
the 39 weeks ended September 27, 1997 and October 3, 1998, the Company recorded
compensation expense totaling $0, $94,000, $71,000 and $116,000, respectively,
related to equity instruments that were issued at less than their intrinsic
fair market value. Had compensation expense for the Company's stock option
plans and other stock-based compensation plans been determined in accordance
with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company's net income (loss) would have changed as indicated below:
<TABLE>
<CAPTION>
Inception
(September 18, 1996) Year Ended 39 Weeks Ended
to December 28, 1996 January 3, 1998 October 3, 1998
-------------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C>
Net income (loss): As
reported............... $2,124,000 $(624,000) $(10,276,000)
Pro forma....... 2,106,000 (747,000) (10,349,000)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation expense
may not be representative of that to be expected in future years.
A summary of the status of the Company's stock option plans as of December
28, 1996, January 3, 1998 and October 3, 1998, and changes during the periods
ended on those dates is presented below:
<TABLE>
<CAPTION>
December 28, 1996 January 3, 1998 October 3, 1998
----------------- ----------------- -----------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Prices Shares Prices Shares Prices
------- --------- ------- --------- ------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 340,446 $10.00 340,446 $10.00
Granted................. 340,446 10.00 35,394 14.14 35,394 14.14
------- ------- -------
Outstanding at end of
period................. 340,446 10.00 375,840 10.39 375,840 10.39
======= ======= =======
Exercisable at end of
period................. -- -- 55,815 10.04 55,815 10.04
======= ======= =======
Weighted average fair
value of options
granted................ $ 2.13 $ 3.01 $ 3.01
======= ======= =======
</TABLE>
F-40
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
The following table summarizes information about the stock options
outstanding at January 3, 1998:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------
Number Wtd. Avg. Options
Range of Outstanding at Remaining Exercisable at
Exercise Prices January 3, 1998 Contractual Life January 3, 1998
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
$10.00 340,446 8.7 years 55,130
$13.00 24,642 9.5 years 685
$16.74 10,752 10.0 years --
------- ------
$10.00 to $16.74 375,840 8.8 years 55,815
======= ======
</TABLE>
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the periods ended December 28, 1996 and the
year ended January 3, 1998: risk-free interest rate of 6.0 percent; expected
dividend yields of zero percent; expected lives of four years; no volatility.
12. EMPLOYEE BENEFIT PLAN
MFOC sponsors the Mrs. Fields' Original Cookies, Inc. 401(k) Retirement
Savings Plan (the "Plan") for all eligible employees. Under the terms of the
Plan, employees may make contributions to the Plan, a portion of which is
matched by contributions from MFOC. The total MFOC contributions to the Plan
for the period ended December 28, 1996, the year ended January 3, 1998 and the
39 weeks ended September 27, 1997 and October 3, 1998 were approximately
$6,800, $97,900, $73,111 (unaudited) and $87,000 (unaudited), respectively.
13. SUBSEQUENT EVENTS (Unaudited)
Legal Matter
On September 12, 1997, nine Great American Cookies franchisees filed a
lawsuit against MFOC and certain other parties alleging certain anticipatory
breaches of contract and violations of certain state, franchise and unfair
trade practice laws. These allegations were made as a result of discussions
held between MFOC and Cookies USA, Inc. ("Cookies USA"), the sole stockholder
of Great American Cookies, Inc., regarding the possibility of MFOC acquiring
all of the outstanding shares of common stock of Cookies USA. The nine Great
American Cookies franchisees have withdrawn their lawsuit pursuant to
Settlement Agreements and Waivers among the parties. The Settlement Agreements
and Waivers provide for a mutual release, tag-along rights to the franchisees
of Great American Cookies if MFOC's ownership is sold in the future and certain
other guarantees by MFOC to the franchisees of Great American Cookies. The
Settlement Agreements and Waivers were offered to all of the franchisees of
Great American Cookies.
Stockholders' Agreement
The Company has entered into a Stockholders' Agreement (the "Stockholders'
Agreement") with its stockholders, including certain officers and directors of
the Company. The Stockholders' Agreement gives rights of first refusal to the
Company if any of the Company's stockholders receives an offer to purchase the
Company's common stock and, if the Company does not exercise its rights, gives
the rights of first refusal to other stockholders of the Company. In the event
of a sale to a third party approved by Capricorn, Capricorn has the right to
require the other stockholders of the Company to sell their common stock. If
Capricorn sells any common stock of the Company, the other stockholders will
have the opportunity to sell their common stock in
F-41
<PAGE>
proportion to their holdings. The Stockholders' Agreement also provides for
piggyback registration rights for all stockholders of the Company, and gives
one stockholder demand registration rights. The Stockholders' Agreement gives
the Company the option to purchase all of the Company's common stock held by an
officer or director that holds Company Common Stock if such officer or director
is terminated. If an officer or director is terminated other than for cause,
the officer or director has the right to sell shares to the Company. The
Stockholders' Agreement provides for customary restrictions on transfer of the
Company's common stock.
F-42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields' Original Cookies, Inc.:
We have audited the accompanying consolidated balance sheets of Mrs. Fields'
Original Cookies, Inc. (a Delaware corporation) and subsidiaries as of December
28, 1996 and January 3, 1998, and the related consolidated statements of
operations, stockholder's equity and cash flows for the period from inception
(September 18, 1996) to December 28, 1996 and for the year ended January 3,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Mrs. Fields' Original Cookies, Inc. and subsidiaries as of December 28, 1996
and January 3, 1998, and the consolidated results of their operations and their
cash flows for the period from inception (September 18, 1996) to December 28,
1996 and for the year ended January 3, 1998 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
June 10, 1998
F-43
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
January
December 28, 3, October 3,
1996 1998 1998
------------ -------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................. $ 6,709 $ 16,287 $ 5,146
Accounts receivable, net of allowance for
doubtful accounts
of $55, $32 and $40, respectively........ 1,200 1,535 1,896
Amounts due from franchisees and
licensees, net of allowance for doubtful
accounts of $320, $582 and $979,
respectively............................. 1,524 2,176 5,616
Inventories............................... 3,043 3,100 4,790
Prepaid rent and other.................... 1,324 2,960 4,312
Deferred income tax assets................ 2,092 2,765 2,765
-------- -------- --------
Total current assets.................... 15,892 28,823 24,525
-------- -------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................... 16,704 21,099 32,856
Equipment and fixtures.................... 10,427 14,100 18,143
Land...................................... 128 128 368
-------- -------- --------
27,259 35,327 51,367
Less accumulated depreciation and
amortization............................. (1,054) (6,125) (16,364)
-------- -------- --------
Net property and equipment.............. 26,205 29,202 35,003
-------- -------- --------
DEFERRED INCOME TAX ASSETS.................. 917 734 734
-------- -------- --------
GOODWILL, net of accumulated amortization of
$966, $4,980 and $9,233, respectively...... 50,005 68,501 134,531
-------- -------- --------
TRADEMARKS AND OTHER INTANGIBLES, net of
accumulated amortization of $324, $1,409
and $2,027, respectively................... 16,327 15,193 14,625
-------- -------- --------
DEFERRED LOAN COSTS, net of accumulated
amortization of
$0, $70 and $720, respectively............. -- 5,906 10,263
-------- -------- --------
OTHER ASSETS................................ 709 1,325 2,976
-------- -------- --------
$110,055 $149,684 $222,657
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-44
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
January
December 28, 3, October 3,
1996 1998 1998
------------ -------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt......... $ 2,450 $ 472 $ 384
Current portion of capital lease
obligations.............................. -- 142 174
Accounts payable.......................... 6,201 3,805 8,669
Current portion of accrued liabilities.... 3,202 2,826 6,365
Current portion of store closure reserve.. 2,450 3,664 2,475
Accrued salaries, wages and benefits...... 1,811 1,891 3,045
Accrued interest payable.................. 1,668 1,082 4,859
Sales taxes payable....................... 676 937 512
Current portion of deferred credits....... 323 871 318
-------- -------- --------
Total current liabilities............... 18,781 15,690 26,801
LONG-TERM DEBT, net of current portion and
discount................................... 65,113 100,284 139,465
STORE CLOSURE RESERVE, net of current
portion.................................... 2,305 1,802 4,648
CAPITAL LEASE OBLIGATIONS, net of current
portion.................................... -- 183 133
ACCRUED LIABILITIES, net of current
portion.................................... 2,207 -- --
DEFERRED CREDITS, net of current portion.... 1,091 -- --
-------- -------- --------
Total liabilities....................... 89,497 117,959 171,047
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3, 7, 8
and 10)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED
STOCK of PTI (a majority owned subsidiary),
aggregate liquidation preference of $0,
$1,437 and $1,481, respectively............ -- 902 1,171
-------- -------- --------
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED
STOCK of MFB (a wholly owned subsidiary),
aggregate liquidation preference of $3,597
in 1996.................................... 3,597 -- --
-------- -------- --------
MINORITY INTEREST........................... -- 58 308
-------- -------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares
authorized and 400 shares outstanding
(pledged as collateral for parent company
debt).................................... -- -- --
Additional paid-in capital................ 15,000 30,843 59,899
Retained earnings (accumulated deficit)... 1,961 (78) (9,768)
-------- -------- --------
Total stockholder's equity.............. 16,961 30,765 50,131
-------- -------- --------
$110,055 $149,684 $222,657
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-45
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Inception 39 39
(September 18, Weeks Weeks
1996) to Year Ended Ended Ended
December 28, January 3, September 27, October 3,
1996 1998 1997 1998
-------------- ---------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net store and batter
sales................... $39,890 $123,987 $83,759 $89,938
Franchising, net......... 621 3,574 2,201 3,884
Licensing, net........... 764 2,028 1,215 1,081
Other, net............... 107 918 351 1,056
------- -------- ------- -------
Total revenues......... 41,382 130,507 87,526 95,959
------- -------- ------- -------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs......... 19,492 66,832 48,200 52,357
Food cost of sales....... 9,862 28,127 19,549 21,588
General and
administrative.......... 4,035 16,730 10,803 12,621
Depreciation and
amortization............ 2,344 10,403 6,596 9,707
------- -------- ------- -------
Total operating costs
and expenses.......... 35,733 122,092 85,148 96,273
------- -------- ------- -------
Income (loss) from
operations.......... 5,649 8,415 2,378 (314)
------- -------- ------- -------
OTHER INCOME (EXPENSE),
net:
Interest expense......... (1,867) (7,830) (5,070) (8,981)
Interest income.......... 74 246 153 530
Other expense............ -- (368) (228) (256)
------- -------- ------- -------
Total other expense,
net................... (1,793) (7,952) (5,145) (8,707)
------- -------- ------- -------
Income (loss) before
provision for income
taxes, preferred stock
accretion and dividends
of subsidiaries and
minority interest....... 3,856 463 (2,767) (9,021)
PROVISION FOR INCOME
TAXES..................... (1,798) (655) (179) (68)
------- -------- ------- -------
Income (loss) before
preferred stock
accretion and dividends
of subsidiaries and
minority interest....... 2,058 (192) (2,946) (9,089)
PREFERRED STOCK ACCRETION
AND DIVIDENDS OF
SUBSIDIARIES.............. (97) (644) (276) (333)
MINORITY INTEREST.......... -- (138) (2) (268)
------- -------- ------- -------
Net income (loss)...... $ 1,961 $ (974) $(3,224) $(9,690)
======= ======== ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-46
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------- Paid-in (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C>
BALANCE, September 18, 1996..... -- $ -- $ -- $ -- $ --
Issuance of common stock for
cash......................... 400 -- 15,000 -- 15,000
Net income.................... -- -- -- 1,961 1,961
--- ----- ------- ------- -------
BALANCE, December 28, 1996...... 400 -- 15,000 1,961 16,961
Parent contribution of
investment in PTI............ -- -- 4,200 -- 4,200
Parent contribution of note
receivable due from PTI's
minority stockholder and
founder...................... -- -- 500 -- 500
Parent contribution of
investment in MFB............ -- -- 6,500 -- 6,500
Conversion to equity of note
payable to parent............ -- -- 4,643 -- 4,643
Dividend paid to parent....... -- -- -- (1,065) (1,065)
Net loss...................... -- -- -- (974) (974)
--- ----- ------- ------- -------
BALANCE, January 3, 1998........ 400 -- 30,843 (78) 30,765
Parent equity infusion
(unaudited).................. -- -- 29,056 -- 29,056
Net loss (unaudited).......... -- -- -- (9,690) (9,690)
--- ----- ------- ------- -------
BALANCE, October 3, 1998
(unaudited).................... 400 $ -- $59,899 $(9,768) $50,131
=== ===== ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements
F-47
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Inception
(September 18, 39 Weeks 39 Weeks
1996) to Year Ended Ended Ended
December 28, January 3, September 27, October 3,
1996 1998 1997 1998
-------------- ---------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)......... $ 1,961 $ (974) $(3,224) $(9,690)
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities, net
of effects from
acquisitions:
Depreciation and
amortization............. 2,344 10,403 6,596 9,707
Amortization of discount
on notes................. -- -- -- 8
Amortization of deferred
loan costs............... -- -- -- 650
Loss on sale of assets.... -- 368 228 256
Deferred income taxes..... 1,511 210 -- --
In-kind interest expense
on note payable to
stockholder.............. 97 338 276 --
Preferred stock accretion
and dividends of
subsidiaries............. 97 644 276 333
Minority interest......... -- 234 2 268
Changes in assets and
liabilities, net of
effects from
acquisitions:
Accounts receivable...... (294) (353) -- (361)
Amounts due from
franchisees and
licensees............... (339) (514) 371 (1,624)
Inventories.............. (159) 136 (23) (127)
Prepaid rent and other... (31) (895) 512 1,306
Other assets............. 39 427 -- (207)
Accounts payable and
accrued liabilities..... 239 (6,651) (773) 356
Store closure reserve.... (305) (1,666) (1,927) (1,892)
Accrued salaries, wages
and benefits............ 212 80 (841) (110)
Accrued interest
payable................. 1,668 (586) (67) 2,886
Sales taxes payable...... 542 261 (297) (530)
Deferred credits......... 27 (543) (318) (553)
------- ------- ------- -------
Net cash provided by
operating activities... 7,609 919 791 676
------- ------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net cash paid for
acquisitions and related
expenses................. (19,508) (10,949) -- (28,699)
Purchase of property and
equipment, net of effects
from acquisitions........ (1,638) (4,678) (3,216) (5,616)
Proceeds from the sale of
assets................... 15 122 -- --
------- ------- ------- -------
Net cash used in
investing activities... (21,131) (15,505) (3,216) (34,315)
------- ------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
long-term debt........... -- 108,250 -- 39,400
Principal payments on
long-term debt........... (1,769) (77,009) (98) (40,838)
Payment of debt financing
costs.................... -- (5,976) -- (5,007)
Cash advance from MFH..... -- 1,500 -- --
Repayment of cash advance
to MFH................... -- (1,500) -- --
Payment of cash dividend
to MFH................... -- (1,065) -- --
Equity infusion from MFH.. -- -- -- 29,056
Principal payments on
capital lease
obligations.............. -- (36) -- (49)
Proceeds from the issuance
of common stock.......... 15,000 -- -- --
Proceeds from the issuance
of mandatorily redeemable
cumulative preferred
stock of subsidiary...... 3,500 -- -- --
Reduction in preferred
stock of PTI............. -- -- -- (64)
Proceeds from the issuance
of note payable to
related party............ 3,500 -- -- --
------- ------- ------- -------
Net cash provided by
(used in) financing
activities............. 20,231 24,164 (98) 22,498
------- ------- ------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............... 6,709 9,578 (2,523) (11,141)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE
PERIOD.................... -- 6,709 6,709 16,287
------- ------- ------- -------
CASH AND CASH EQUIVALENTS
AT END OF THE PERIOD...... $ 6,709 $16,287 $ 4,186 $ 5,146
======= ======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-48
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest was approximately $28, $8,416, $3,890 (unaudited) and
$6,291 (unaudited) for the period ended December 28, 1996, the year ended
January 3, 1998 and the 39 weeks ended September 27, 1997 and October 3, 1998,
respectively.
Cash paid for income taxes was approximately $0, $217, $80 (unaudited) and
$42 (unaudited) for the period ended December 28, 1996, the year ended January
3, 1998 and the 39 weeks ended September 27, 1997 and October 3, 1998,
respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities:
On September 18, 1996, the Company acquired certain assets and assumed
certain liabilities of Mrs. Fields Inc., Mrs. Fields Development Corporation,
Mrs. Fields Cookies, The Original Cookie Company, Incorporated and Hot Sam
Company, Inc. In conjunction with the acquisitions, net liabilities were
assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired...................................... $ 93,494
Net cash paid...................................................... (19,508)
Notes payable issued............................................... (65,735)
--------
Liabilities assumed.............................................. $ 8,251
========
</TABLE>
In connection with the purchase accounting, the Company recorded certain
other accruals totaling $11,300 and provided reserves totaling $10,900 for
impaired property and equipment at Company-owned stores the Company intends to
exit through closing or franchising. The accruals consisted of $5,060 for
obligations incident to store closures, $2,450 for contingent legal and lease
obligations that were firmed up before year end, $3,135 for transaction and
finders' fees and $655 for severance and related costs. In connection with
these accruals and impairment reserves, the Company recorded an additional
$17,680 of goodwill and established deferred income tax assets (net of
valuation allowances) totaling $4,520.
In October 1996, the Company received property in payment of $128 in accounts
receivable due from a customer.
On March 18, 1997, a certain convertible subordinated note issued in
connection with the previously described business combination was not repaid as
scheduled. The noteholder exercised its option to receive an additional note of
$1,000 due to the delayed payment. At the time of the consummation of the
business combination, management assessed the likelihood of this contingency of
delayed payment being reasonably possible, therefore the Company recorded the
note and additional goodwill as a subsequent component of the business
combination accounting.
During the period ended December 28, 1996 and the year ended January 3, 1998,
The Mrs. Fields' Brand, Inc. ("MFB") increased its mandatorily redeemable
cumulative preferred stock liquidation preference by approximately $97 and
$338, respectively, in lieu of paying cash dividends. On November 26, 1997,
Mrs. Fields' Holding Company, Inc. ("MFH") converted to common equity of the
Company $4,643 aggregate principal amount of convertible subordinated notes and
contributed to the Company all of the common equity of MFB after converting its
preferred stock interests totaling $3,935 to common equity (see Note 6).
F-49
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
On July 25, 1997, certain assets were acquired and certain liabilities were
assumed of H & M Concepts Ltd. Co. by Mrs. Fields' Pretzel Concepts, Inc.
("MFPC") as follows (see Note 1):
<TABLE>
<S> <C>
Fair value of assets acquired....................................... $15,780
Net cash paid....................................................... (5,750)
Notes payable issued................................................ (8,000)
-------
Liabilities assumed............................................... $ 2,030
=======
</TABLE>
In connection with the purchase accounting for this acquisition, MFPC accrued
$1,000 for estimated obligations incident to certain store closures. The
Company also recorded a reserve totaling approximately $2,500 for impaired
property and equipment at stores the Company intends to close. In connection
with these accruals and reserves, the Company recorded $2,800 of goodwill and
established deferred income tax assets (net of valuation allowances) totaling
$700.
On September 2, 1997, 56 percent of the shares of common stock of Pretzel
Time, Inc. ("PTI") were acquired by MFH as follows (see Note 1):
<TABLE>
<S> <C>
Fair value of assets acquired....................................... $ 8,311
Net cash paid....................................................... (4,200)
-------
Liabilities assumed............................................... $ 4,111
=======
</TABLE>
In connection with the purchase accounting for this acquisition, MFH accrued
$500 for estimated obligations incident to certain store closures. In
connection with these accruals, MFH recorded $400 of goodwill and established
deferred income tax assets (net of valuation allowances) totaling $100.
On November 26, 1997, MFH contributed all of the assets and liabilities of
MFPC, MFH's 56 percent of the shares of common stock of PTI and the $500 note
receivable from PTI's founder and minority stockholder to the Company.
Additionally, on November 26, 1997, MFH contributed all of the common stock of
MFB to the Company.
During the period from the acquisition of the majority ownership of PTI
(September 2, 1997) to January 3, 1998 and for the 39 weeks ended October 3,
1998, PTI increased its mandatorily redeemable cumulative preferred stock
liquidation preference by approximately $68 and $108 (unaudited), respectively,
in lieu of paying cash dividends. In addition, for the same periods, PTI's
mandatorily redeemable cumulative preferred stock was increased by
approximately $238 and $225 (unaudited), respectively, for the accretion
required over time to amortize the original issue discount.
In August 1998, the Company acquired all of the outstanding capital stock and
subordinated indebtedness of Cookies USA, Inc. ("Cookies USA") for an aggregate
purchase price of approximately $18,400 (unaudited). During August and
September 1998, the Company also entered into agreements with three franchisees
of Cookies USA (the "Great American Franchisees") pursuant to which the Company
purchased a total of 37 Great American Cookies franchises for an aggregate
purchase price of $16,328 (unaudited). The aggregate purchase price for all of
these acquisitions of $34,728 (unaudited) was allocated, on a preliminary
basis, as follows (see Note 1):
<TABLE>
<S> <C>
Fair value of assets acquired (unaudited).......................... $ 79,865
Net cash paid (unaudited).......................................... (27,771)
--------
Liabilities assumed (unaudited).................................. $ 52,094
========
</TABLE>
F-50
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
The Company has formulated a plan to exit certain acquired stores that do not
meet management's established financial and geographical criteria. In
connection with the purchase accounting for these acquisitions, the Company
accrued $3,548 (unaudited) for estimated obligations incident to certain store
closures. The Company also recorded a reserve totaling approximately $2,150
(unaudited) for impaired property and equipment at stores the Company intends
to close. In connection with these accruals and reserves, the Company recorded
$5,698 (unaudited) of goodwill. Valuation allowances were recorded for all
deferred tax assets established during purchase accounting.
F-51
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Mrs. Fields' Original Cookies, Inc. (the "Company"), a Delaware corporation,
is a wholly owned subsidiary of Mrs. Fields' Holding Company, Inc. ("MFH" or
the "Parent"). MFH is a majority owned subsidiary of Capricorn Investors II,
L.P. ("Capricorn'). The Company has five wholly owned operating subsidiaries;
namely, Great American Cookie Company, Inc. ("GACC"), The Mrs. Fields' Brand,
Inc. ("MFB"), Mrs. Fields' Cookies Australia, Mrs. Fields' Cookies (Canada)
Ltd. and H & M Canada; and four partially owned subsidiaries, the largest of
which is Pretzel Time, Inc. ("PTI") of which the Company owned 60 percent of
the common stock as of January 3, 1998. In June 1998, the Company purchased an
additional ten percent of the common stock of PTI, increasing the Company's
ownership interest to 70 percent. GACC was acquired by the Company in August
1998.
The Company primarily operates retail stores which sell freshly baked
cookies, brownies, pretzels and other food products through four specialty
retail chains. As of October 3, 1998, the Company owned and operated 150 "Mrs.
Fields Cookies" stores, 128 "Original Cookie Company" stores, 86 "Hot Sam
Pretzels' stores, 93 "Pretzel Time" stores, 109 "Great American Cookies" stores
in the United States and two "Pretzel Time" stores in Canada. Additionally, the
Company has franchised or licensed 683 stores in the United States and 82
stores in several other countries. As of October 3, 1998, the Company owned and
operated 435 core stores and 133 stores which are in the process of being sold
or franchised. All of the stores in the process of being closed or franchised
are expected to be closed or franchised by the end of fiscal year 2000.
The Company also holds legal title to certain trademarks for the "Mrs.
Fields" name and logo and licenses the uses of these trademarks to third
parties for the establishment and operation of Mrs. Fields' cookie and bakery
operations and other merchandising activities. In connection with these
licensing activities, the Company authorizes third-party licensees to use
certain business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries. Additionally, the Company markets and distributes its products
through catalogs, other print media and mail order.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the fourth quarter. Because the Company's stores are heavily concentrated in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls.
Business Combinations
MFI and Affiliates and OCC and Affiliates
The Company began operations on September 18, 1996, following the completion
of two simultaneous but separate asset purchase transactions wherein the
Company (i) acquired certain assets and assumed certain liabilities of Mrs.
Fields Inc., Mrs. Fields Development Corporation and Mrs. Fields Cookies in
accordance with two Asset Purchase Agreements dated August 7, 1996, among these
parties and Capricorn, and (ii) acquired certain assets and assumed certain
liabilities of The Original Cookie Company, Incorporated and Hot Sam Company,
Inc. in accordance with an Asset Purchase Agreement dated August 7, 1996, as
amended by the First Amendment dated as of September 17, 1996, among these
parties and Capricorn.
The combined purchase price for the acquired net assets was approximately
$85,243,000. The Company paid net cash of $19,508,000 and issued approximately
$65,735,000 in senior and subordinated notes to the
F-52
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
selling shareholders. The acquisitions were accounted for as purchases. The
total purchase price was allocated to the net assets acquired, based on their
estimated fair values. The organization of the Company and the acquisitions
resulted in the recording of intangible assets of approximately $49,942,000
principally made up of goodwill, trademarks and organization costs. An
additional $17,680,000 of goodwill and $4,520,000 of deferred income tax assets
(net of valuation allowances) were recorded in connection with the Company
recording certain other accruals totaling $11,300,000 and providing reserves
totaling $10,921,000 for impaired property and equipment (see Note 5) at
Company-owned stores the Company intends to exit through closing or
franchising. Goodwill and trademarks are amortized using the straight-line
method over 15 years. The $11,300,000 of accruals established at the date of
the acquisitions consisted of $5,060,000 for obligations incident to store
closures (see Note 5), $2,450,000 for contingent legal and lease obligations
that were firmed up before December 28, 1996, $3,135,000 for transaction and
finders' fees and $655,000 for severance and related costs. The Company
terminated all of the OCC and Affiliates corporate employees as planned.
As of January 3, 1998 and October 3, 1998, approximately $1,643,000 and
$2,053,000, respectively, of the $2,450,000 accrual for legal and lease
obligations has been utilized. The remaining amount as of October 3, 1998 of
approximately $397,000 is expected to be utilized by the end of 1999. As of
January 3, 1998, all of the $3,135,000 accrual established for transaction and
finders' fees and the $655,000 accrual for severance and related costs
associated with the acquisitions were fully utilized for the purposes intended.
H & M Concepts Ltd. Co.
On July 25, 1997, Mrs. Fields' Pretzel Concepts, Inc. ("MFPC"), a wholly
owned subsidiary of MFH, acquired substantially all of the assets and assumed
certain liabilities of H & M Concepts Ltd. Co. and subsidiaries ("H & M"). H &
M owned and operated stores which engage in retail sales of pretzels, toppings
and beverages under a franchise agreement with Pretzel Time, Inc. ("PTI"). The
aggregate consideration of $13,750,000 consisted of (i) $5,750,000 of cash,
financed through an advance from MFH of $1,500,000 and a $4,250,000 bank loan
to MFPC, (ii) a $4,000,000 principal amount bridge note of MFPC and (iii) a
$4,000,000 principal amount subordinated note of MFH retained by the sellers
(all such debt collectively referred to as the "H & M Debt"). The acquisition
was accounted for using the purchase method of accounting (based on the
estimated fair values of the net assets acquired) and resulted in recording
approximately $9,618,000 of goodwill that is being amortized using the
straight-line method over 15 years.
Effective November 26, 1997, MFH contributed all of the assets and
liabilities of MFPC to the Company and, in consideration thereof, the Company
assumed the H & M Debt, including all accrued but unpaid interest. MFPC and the
Company merged on the same date with the Company being the surviving entity.
The contribution was accounted for in a manner similar to that of pooling-of-
interests accounting. There was no step-up in the historical basis of MFPC's
assets or liabilities. Beginning with July 25, 1997, the Company is including
MFPC's results of operations in the Company's consolidated results of
operations.
Pretzel Time, Inc.
On September 2, 1997, MFH acquired 56 percent of the shares of common stock
of PTI for an aggregate cash purchase price of $4,200,000, $750,000 of which
was paid to PTI for working capital purposes, and the balance of which was paid
to the selling shareholders. In connection with the acquisition, MFH extended a
$500,000 loan to the founder of PTI who continued to own 44 percent of the
shares of common stock of PTI. The note bears interest at an annual rate of ten
percent (see Note 8). PTI is a franchisor of hand rolled soft pretzel outlets
located in North America. The outlets are primarily located in shopping malls.
The acquisition was accounted for using the purchase method of accounting
(based on the estimated fair values of the net assets
F-53
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
acquired) and resulted in recording approximately $5,882,000 of goodwill that
is being amortized using the straight-line method over 15 years. The goodwill
recorded was $1,682,000 more than the purchase price as the Company assumed
more liabilities than it acquired in assets at their fair values. Additionally,
severance and legal accruals were established in accordance with EITF 95-3.
Effective November 26, 1997, MFH contributed its 56 percent of the shares of
common stock of PTI to the Company. MFH also contributed to the Company the
$500,000 note due from PTI's founder and minority stockholder. The contribution
was accounted for in a manner similar to that of pooling-of-interests
accounting. There was no step-up in the book basis of PTI's assets or
liabilities. The Company has included 56 percent of PTI's results of operations
with the Company's consolidated results of operations from September 2, 1997 to
January 2, 1998.
On January 2, 1998, the Company purchased an additional four percent of the
shares of common stock of PTI from the founder for $300,000 in cash. The
purchase was accounted for using the purchase method of accounting (based on
the estimated fair values of the net assets acquired) and resulted in recording
approximately $311,000 of goodwill. Beginning with January 2, 1998, the Company
included 60 percent of PTI's results of operations in the Company's
consolidated results of operations. In June 1998, the Company acquired an
additional ten percent of the shares of common stock of PTI from the founder
for $875,000 in cash.
The Mrs. Fields' Brand, Inc.
Prior to November 26, 1997, MFH owned 50.1 percent of the shares of the
common stock of MFB. MFB holds legal title to certain trademarks for the "Mrs.
Fields" name and logo and licenses the use of these trademarks to third parties
for the establishment and operation of Mrs. Fields' cookie and bakery
operations and other merchandising activities. In connection with these
licensing activities, MFB authorizes third-party licensees to use certain
business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries.
On November 26, 1997, MFH acquired the remaining 49.9 percent of the shares
of the common stock of MFB from Harvard Private Capital Holdings, Inc. for
approximately $2,565,000. The consideration consisted of $1,065,000 in cash and
$1,500,000 in rights to common equity of MFH. MFH's Board of Directors
determined the value of Harvard's rights to the common equity based on a fair
value analysis. This analysis appropriately considered a discount for lack of
controlling interest and marketability as MFH's common equity is not publicly
traded. The acquisition was accounted for using the purchase method of
accounting (based on the estimated fair values of the net assets acquired) and
resulted in recording approximately $2,565,000 of intangible assets (primarily
goodwill) that are being amortized using the straight-line method over 15
years.
Effective November 26, 1997, MFH contributed all of the common stock of MFB
to the Company. As a result of such capital contribution, MFB became a wholly
owned subsidiary of the Company. The contribution was accounted for in a manner
similar to that of pooling-of-interests accounting. There was no step-up in the
book basis of MFB's assets or liabilities. Although the Company owned 50.1
percent of MFB until November 25, 1997, the Company has included 100 percent of
MFB's results of operations with the Company's consolidated results of
operations for all periods presented as a result of MFB incurring net losses
for these periods.
1-800-Cookies
On October 10, 1997, the Company acquired substantially all of the net assets
of R&R Bourbon Street, Inc. dba 1-800-Cookies for $653,000 in cash. The
acquisition was accounted for using the purchase method of
F-54
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
accounting (based on the estimated fair values of the net assets acquired) and
resulted in recording $600,000 of goodwill and $53,000 of other assets. The
goodwill is being amortized using the straight-line method over 15 years.
Subsequent Acquisitions (Unaudited)
On August 24, 1998, the Company acquired all of the outstanding capital stock
and subordinated indebtedness of Cookies USA, Inc. ("Cookies USA"), the sole
stockholder of Great American Cookie Company, Inc. ("GACC"), for an aggregate
purchase price of $18,400,000. GACC is an operator and franchisor of mall-based
specialty retail cookie outlets and manufacturer of cookie batter which is
distributed to GACC-operated retail stores and sold to franchised retail
stores. Concurrently with the acquisition of Cookies USA, the Company entered
into agreements with two GACC franchisees pursuant to which the Company
purchased a total of 29 GACC franchises for an aggregate purchase price of
$14,430,000. The Company acquired the franchises through the acquisition of 100
percent of the capital stock of the two corporations through which the
franchisees operated. On September 9, 1998, the Company acquired eight
additional GACC franchised retail stores from a GACC franchisee, pursuant to an
asset purchase agreement, for an aggregate purchase price of $1,898,000. These
acquisitions will be collectively referred to as the "Great American
Acquisitions."
The Great American Acquisitions have been accounted for using the purchase
method of accounting (based on preliminary estimates of fair values of the net
assets acquired) and resulted in recording approximately $69,390,000 of
goodwill that is being amortized using the straight-line method over 15 years.
Additionally, the Company caused Cookies USA to be merged with and into the
Company and caused the acquired franchisees corporations and/or net assets to
be merged with and into GACC. GACC became a wholly owned subsidiary of the
Company. The acquired entities' results of operations have been included with
those of the Company since the applicable dates of acquisition.
The Great American Acquisitions were financed by (i) the net proceeds from
the Company issuing $40,000,000 series C Senior Notes; (ii) the contribution of
the net proceeds totaling $29,000,000 of an MFH offering to the Company (the
"MFH Equity Infusion"); and (iii) existing cash of the Company.
Pro Forma Acquisition Information (Unaudited)
The following unaudited pro forma information for the period from inception
(September 18, 1996) to December 28, 1996, the year ended January 3, 1998 and
the 39 weeks ended September 27, 1997 and October 3, 1998, presents the results
of operations of the Company assuming the H & M, PTI and MFB acquisitions and
the Refinancing, as defined in Note 3, had occurred at the date of inception
(September 18, 1996) and that the Great American Acquisitions and related
financing had occurred at December 29, 1996. The results of operations give
effect to certain adjustments, including amortization of intangible assets and
interest expense on acquisition debt. The pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of the
results of operations which actually would have resulted or the results which
may occur in the future.
<TABLE>
<CAPTION>
Inception
(September 18, 39 Weeks 39 Weeks
1996) to Year Ended Ended Ended
December 28, January 3, September 27, October 3,
Unaudited 1996 1998 1997 1998
- --------- -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Total revenues.......... $48,090,000 $191,264,000 $134,018,000 $126,937,000
Income from operations.. 6,718,000 12,722,000 3,285,000 463,000
Net income (loss)....... 1,029,000 (3,120,000) (8,448,000) (12,236,000)
</TABLE>
F-55
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Periods
The Company operates using a 52/53-week year ending near December 31.
Unaudited Information
The accompanying consolidated financial statements as of October 3, 1998 and
for the 39 weeks ended September 27, 1997 and October 3, 1998 are unaudited and
have been prepared on a substantially equivalent basis with that of the annual
consolidated financial statements. In the opinion of management, the unaudited
information contains all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position and results of operations as of October 3, 1998 for the interim
periods presented herein.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
four suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and 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.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of October
3, 1998, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation.
Inventories
Inventories consist of food, beverages and supplies and are stated at the
lower of cost (first-in, first-out method) or market value.
Pre-Opening and Organization Costs
Pre-opening costs associated with new Company-owned stores are charged to
expense as incurred. These amounts were not significant for the periods
presented in the accompanying consolidated financial statements. Pre-opening
costs associated with new franchised stores are the responsibility of the
franchisee.
F-56
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
The Company expensed all previously capitalized organization costs (which
were not material to the fair presentation of the accompanying consolidated
financial statements taken as a whole) in accordance with Statement of Position
No. 98-5, "Reporting on the Costs of Start-up Activities," during the 39 weeks
ended October 3, 1998.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are recorded in current operations.
Intangible Assets
Intangible assets consist primarily of goodwill and trademarks and are
amortized using the straight-line method over 15 years. Other intangible assets
such as covenants not to compete are not significant and are being amortized
using the straight-line method over three to five years.
Deferred Loan Costs
Deferred loan costs totaling $10,983,000 resulted from the sale of
$100,000,000 aggregate principal amount of 10 1/8 percent Series A Senior Notes
(the "Series A Senior Notes") on November 26, 1997 and the sale of $40,000,000
aggregate principal amount of 10 1/8 percent Series C Senior Notes (the "Series
C Senior Notes") on August 24, 1998, and are being amortized to interest
expense over the approximate seven-year life of the Series A Notes and the
approximate six-year life of the Series C Senior Notes (see Note 3).
Discount on Senior Notes
The Series C Senior Notes were issued at a discount which is being amortized
to interest expense over the approximate six-year life of the related notes.
Long-Lived Assets
The Company assesses and measures for impairment of long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether the assets are recoverable. The Company assesses impairment
of long-lived assets at the store level which the Company believes is the
lowest level for which there are identifiable cash flows that are independent
of other groups of assets. The Company has reserved for those long-lived assets
that are considered to be impaired.
F-57
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
Store Closure Reserve
The Company accrues an estimate for the costs associated with closing a
nonperforming store in the period the determination is made to close the store.
The majority of the costs accrued relate to estimated lease termination costs.
Revenue Recognition
Revenues generated from Company-owned stores are recognized at the point of
sale. Initial franchising and licensing fee revenues are recognized when all
material services or conditions relating to the sale have been substantially
performed or satisfied. Franchise and license royalties, which are based on a
percentage of gross store sales, are recognized as earned.
Leases
The Company has various operating lease commitments on both Company-owned and
franchised store locations and equipment. Expenses of operating leases with
escalating payment terms, including leases underlying subleases with
franchisees, are recognized on a straight-line basis over the lives of the
related leases. The Company accrues contingent rental expense on a monthly
basis for those retail stores where contingent rental expense is probable.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Foreign Currency Translation
The balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars using the applicable balance sheet date exchange
rates, while revenues and expenses are translated using the average exchange
rates for the periods presented. Translation gains or losses are insignificant
for the periods presented.
Fair Value of Financial Instruments
The Company estimates that the aggregate fair market value of its Series A/B
Senior Notes and Series C Senior Notes (see Note 3) was approximately
$101,250,000 and $122,500,000 as of January 3, 1998 and October 3, 1998,
respectively. These estimates are based on quoted market prices. The book
values of the Company's other financial instruments, including cash, accounts
receivable, accounts payable, accrued liabilities and other long-term debt
obligations, approximate fair values at the respective balance sheet dates.
Recent Accounting Pronouncement
During the 39 weeks ended October 3, 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires an "all-inclusive" income presentation approach
which specifies that all revenues, expenses, gains and losses
F-58
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
recognized during the period be reported in income, regardless of whether they
are considered to be results of operations of the period. The adoption of SFAS
No. 130 had no material impact on the Company's financial statement
presentation.
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 requires that public business enterprises report certain
information about operating segments in complete sets of financial statements.
The statement specifies disclosure requirements about the products and services
of a company, the geographic areas in which it operates, and their major
customers. Although the Company has not yet completed its assessment of the
impacts of adopting SFAS No. 131, it will adopt the statement for the year
ending January 2, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. This statement is effective for fiscal years beginning after June 15, 1999
and is not expected to have a material impact on the Company's consolidated
financial statements.
Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform with the current period presentation.
F-59
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 28, January 3, October 3,
1996 1998 1998
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Series A/B senior unsecured notes,
interest at 10 1/8 percent payable
semi-annually in arrears on June 1
and December 1, commencing June 1,
1998, due December 1, 2004......... $ -- $100,000,000 $100,000,000
Series C senior unsecured notes,
interest at 10 1/8 percent payable
semi-annually in arrears on June 1
and December 1, commencing December
1, 1998, due December 1, 2004...... -- -- 40,000,000
Discount related to the issuance of
$40,000,000 Series C senior
unsecured notes, net of accumulated
amortization of $0, $0 and $9,000,
respectively....................... -- -- (591,000)
Notes payable to individuals or
corporations with interest terms
ranging from non-interest bearing
to 15 percent, due at various dates
from 1998 through 2001, requiring
monthly payments................... -- 756,000 440,000
Senior notes, interest at six-month
LIBOR rate (5 3/4 percent at
December 28, 1996) plus an interest
margin (three percent at December
28, 1996) payable semi-annually,
secured by essentially all assets
of the Company, repaid in November
1997............................... 41,966,000 -- --
Senior notes, interest at ten
percent payable semi-annually,
secured by essentially all assets
of MFB, principal due quarterly in
varying installments, repaid in
November 1997...................... 10,000,000 -- --
Convertible subordinated notes,
interest at an escalating rate (9
3/4 percent at December 28, 1996)
payable semi-annually, secured by
essentially all assets of the
Company, repaid in November 1997... 7,357,000 -- --
Convertible subordinated note to
stockholder, interest at an
escalating rate (9 3/4 percent at
December 28, 1996) payable semi-
annually, secured by essentially
all assets of the Company,
converted to equity in November
1997............................... 4,643,000 -- --
Senior subordinated note to MFB
minority stockholder, interest at
ten percent compounded quarterly
beginning December 15, 1996,
secured by essentially all assets
of MFB, repaid in November 1997.... 3,597,000 -- --
----------- ------------ ------------
67,563,000 100,756,000 139,849,000
Less current portion................ (2,450,000) (472,000) (384,000)
----------- ------------ ------------
$65,113,000 $100,284,000 $139,465,000
=========== ============ ============
</TABLE>
F-60
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
On November 26, 1997, the Company refinanced its existing debt (the
"Refinancing") by issuing $100,000,000 aggregate principal amount of Series A
Senior Notes due December 1, 2004 pursuant to an Indenture, dated as of
November 26, 1997 (the "Indenture"), between the Company and the Bank of New
York. The Series A Senior Notes were issued pursuant to a private transaction
that was not subject to the registration requirements of the Securities Act of
1933 (the "Securities Act"). On June 12, 1998, a majority of the Series A
Senior Notes were exchanged for 10 1/8% Series B Senior Notes (the "Series B
Senior Notes") due December 1, 2004, which were registered under the Securities
Act (the "Exchange Offer"). The terms of the Series A Senior Notes and the
Series B Senior Notes (collectively, the "Series A/B Senior Notes") are
identical in all material respects except (i) that the Series B Senior Notes
have been registered under the Securities Act, (ii) for certain transfer
restrictions and registration rights relating to the Series A Senior Notes and
(iii) that the Series B Senior Notes do not contain certain provisions relating
to additional payments to the prior holders of the Series A Senior Notes under
certain circumstances relating to the timing of the Exchange Offer.
On August 24, 1998, the Company issued $40,000,000 aggregate principal amount
of Series C Senior Notes due December 1, 2004 in connection with the Great
American Acquisitions. The Series C Senior Notes were issued pursuant to the
Indenture which also governs the terms of the Series A/B Senior Notes in a
private transaction that was not subject to the registration requirements of
the Securities Act. The Series A/B Senior Notes and the Series C Senior Notes
will be collectively referred to as the "Senior Notes."
In connection with the issuance of the Series C Senior Notes, the Company
recorded a discount of approximately $600,000. This discount is being amortized
to interest expense over the approximate six-year life of the Series C Senior
Notes.
The Senior Notes are general unsecured obligations of the Company, rank
senior in right of payment to all subordinated indebtedness of the Company and
rank pari passu in right of payment with all existing and future senior
indebtedness of the Company.
The Senior Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after December 1, 2001 in cash at redemption prices
defined in the Indenture, plus accrued and unpaid interest. In addition, at any
time prior to December 1, 2001, the Company may redeem up to an aggregate of 35
percent of the principal amount at a redemption price equal to 110.125 percent
of the principal amount thereof, plus accrued and unpaid interest.
The Senior Notes contain certain covenants that limit, among other things,
the ability of the Company and its subsidiaries to: (i) declare or pay
dividends or make any other payment or distribution on account of the Company's
or any of its subsidiaries' equity interest (including without limitation, any
payment in connection with any merger or consolidation involving the Company);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
the Company) any equity interest of the Company or any direct or indirect
parent of the Company or other affiliate of the Company; (iii) make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any indebtedness that is subordinated to the Senior Notes,
except as payment of interest or principal at stated maturity; or (iv) make any
restricted investments except under conditions provided for in the Indenture.
Pursuant to the Refinancing, the Company repaid approximately $79,096,000
aggregate principal amount of indebtedness and accrued but unpaid interest.
Such indebtedness consisted of (i) approximately $66,402,000 principal amount
of indebtedness and accrued but unpaid interest of the Company incurred in
connection with
F-61
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
the MFI and affiliates and OCC and affiliates business combinations, (ii)
approximately $12,374,000 principal amount of indebtedness and accrued but
unpaid interest of the H & M Debt, and (iii) $320,000 of prepayment penalties
associated with retiring the existing debt.
As part of the Refinancing, MFH converted to common equity of the Company
$4,643,000 aggregate principal amount of convertible subordinated notes and
contributed to the Company all of the common equity of MFB after converting its
preferred stock interests totaling $3,935,000 to common equity (see Notes 1 and
6). Also as part of the Refinancing, the Company paid a dividend to MFH in the
amount of approximately $1,065,000 and returned a $1,500,000 advance to MFH,
which was a portion of the cash provided by MFH in connection with the
acquisitions of H & M and PTI.
The aggregate amount of principal maturities of debt at January 3, 1998 are
as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998............................................................ $ 472,000
1999............................................................ 168,000
2000............................................................ 105,000
2001............................................................ 11,000
2002............................................................ --
Thereafter...................................................... 100,000,000
------------
$100,756,000
============
</TABLE>
On December 29, 1997, the Company amended its revolving credit agreement (the
"Agreement") with a commercial bank which provided for a maximum commitment of
up to $3,000,000 secured by essentially all of the assets of the Company. The
Agreement, which was extended through February 28, 1998 was terminated. On
February 28, 1998, the Company entered into a new revolving credit agreement
(the "1998 Agreement") with a commercial bank (the "Bank") which provides for a
maximum commitment of up to $15,000,000 secured by essentially all of the
assets of the Company. Borrowings under the 1998 Agreement bear interest, at
the Company's option, at either the Bank's prime rate plus one fourth of one
percent or the one-month LIBOR rate plus three percent, with interest payable
monthly in arrears. As of October 3, 1998, the Company had no outstanding
borrowings under the 1998 Agreement.
Capital Lease Obligations
Future minimum lease payments for equipment held under capital lease
arrangements as of January 3, 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998............................................................ $ 163,000
1999............................................................ 123,000
2000............................................................ 46,000
2001............................................................ 41,000
---------
Total future minimum lease payments............................... 373,000
Less amount representing interest................................. (48,000)
---------
325,000
Less current portion.............................................. (142,000)
---------
$ 183,000
=========
</TABLE>
F-62
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
As of December 28, 1996, January 3, 1998 and October 3, 1998, total assets
held under capital lease arrangements were approximately $0, $376,000 and
$376,000 (unaudited) with accumulated amortization of approximately $0, $59,000
and $99,000 (unaudited), respectively.
4. INCOME TAXES
The components of the provision for income taxes for the period ended
December 28, 1996 and the year ended January 3, 1998 are as follows:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
------------ ----------
<S> <C> <C>
Current:
Federal........................................... $ 207,000 $ 70,000
State............................................. 75,000 228,000
Foreign........................................... 5,000 57,000
Deferred:
Federal........................................... 1,112,000 367,000
State............................................. 277,000 55,000
Change in valuation allowance..................... 122,000 (122,000)
---------- ---------
Total provision for income taxes................ $1,798,000 $ 655,000
========== =========
</TABLE>
The differences between income taxes at the statutory federal income tax rate
and income taxes reported in the consolidated statements of operations are as
follows for the period ended December 28, 1996 and the year ended January 3,
1998:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
------------ ----------
<S> <C> <C>
Federal statutory income tax rate.................... 34.0% 34.0%
Dividends paid by subsidiary....................... -- 34.5
Amortization of non-deductible goodwill............ -- 12.3
Net operating losses utilized...................... -- (3.9)
State income taxes, net of federal benefit......... 5.3 5.3
State franchise minimum taxes...................... -- 44.0
Foreign taxes...................................... -- 12.3
Change in valuation allowance...................... 3.2 (26.3)
Other.............................................. 4.1 29.3
---- -----
Effective income tax rate............................ 46.6% 141.5%
==== =====
</TABLE>
F-63
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
The significant components of the Company's deferred income tax assets and
liabilities at December 28, 1996 and January 3, 1998 are as follows:
<TABLE>
<CAPTION>
December 28, January 3,
1996 1998
------------ -----------
<S> <C> <C>
Deferred income tax assets:
Property and equipment reserve..................... $3,501,000 $ 2,014,000
Store closure reserve.............................. 1,868,000 2,202,000
Transaction cost accrual........................... 789,000 565,000
Net operating loss carryforward.................... 782,000 4,875,000
Legal reserve...................................... 470,000 302,000
Lease accrual...................................... 403,000 92,000
Other reserves..................................... -- 81,000
Accrued expenses................................... 334,000 230,000
Alternative minimum tax credit carryforward........ 207,000 207,000
----------- -----------
Total deferred income tax assets................. 8,354,000 10,568,000
Valuation allowance................................ (4,482,000) (5,160,000)
----------- -----------
Deferred income tax assets net of valuation
allowance....................................... 3,872,000 5,408,000
----------- -----------
Deferred income tax liabilities:
Accumulated depreciation and amortization.......... (850,000) (1,548,000)
Other.............................................. (13,000) (361,000)
----------- -----------
Total deferred income tax liabilities............ (863,000) (1,909,000)
----------- -----------
Net deferred income tax assets................... $3,009,000 $ 3,499,000
=========== ===========
</TABLE>
Management has provided valuation allowances on portions of the deferred
income tax assets arising from the Company's business combinations. The
valuation allowances established in accordance with purchase accounting are not
recorded through the provision for income taxes, but rather, as an increase to
goodwill. During the period ended December 28, 1996 and the year ended January
3, 1998, valuation allowances of $4,360,000 and $800,000, respectively, were
recorded in connection with accounting for the business combinations. As of
January 3, 1998, the Company had net operating loss carryforwards for tax
reporting purposes totaling $12,414,000. Of these net operating loss
carryforwards, $1,814,000 expire in 2011 and $10,600,000 expire in 2012.
5. STORE CLOSURE AND PROPERTY AND EQUIPMENT IMPAIRMENT RESERVES
The Company's management reviews the historical and projected operating
performance of its stores on a periodic basis to identify underperforming
stores for impairment of property investment or targeted closing. The Company's
policy is to recognize a loss for that portion of the net property investment
determined to be impaired in accordance with SFAS No. 121 criteria.
Additionally, when a store is identified for targeted closing, the Company's
policy is to provide for the costs of closing the store, which are
predominantly estimated lease termination costs. If and when a reserve that was
established as part of purchase accounting is not fully utilized, the Company
reduces the reserve to zero and goodwill is adjusted for the corresponding
amount.
MFI and Affiliates and OCC and Affiliates
In connection with the MFI and OCC acquisitions (see Note 1), the Company
formulated a plan to exit certain stores that did not meet certain financial
and geographical criteria. The plan entailed closing all stores
F-64
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
that were not profitable and franchising stores that were profitable but
contributed less than $50,000 in store cash contribution for cookie stores and
less than $35,000 in store cash contribution for pretzel stores. Management
identified 138 stores to be closed (13 of these stores were closed prior to the
acquisition but had continuing lease obligations) and 64 stores to be
franchised. As of October 3, 1998, there were 27 stores remaining to be exited,
all of which are expected to be exited by the end of the first quarter of
fiscal 1999. The timing to implement the plan was developed based on
discussions and relationships with major shopping mall developers.
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3, the Company established a store closure reserve of $5,060,000
for the 138 stores the Company intended to close. The reserve was established
to provide for estimated early lease termination costs and penalties. There was
no reserve established related to the 64 stores to be franchised. Management
continued to refine the plan for closing the stores after the date of the
acquisitions which entailed further analysis of lease agreements and meeting
with developers to assess timing and estimated lease termination costs.
Management finalized the store closure plan in early September 1997, within
one year of the date of the acquisitions. At that time, the Company recorded an
additional $1,357,000 to the store closure reserve to reflect the finalized
plan estimates of lease termination costs and adjusted goodwill by a comparable
amount under the provisions of purchase accounting. The increase in the reserve
related solely to the 138 stores originally identified to be closed. The store
closure reserve was also increased by approximately $538,000 for ten core
operating stores that have been closed or targeted for closure due primarily to
leases not being renewed by the lessor. This portion of the store closure
reserve was expensed in the Company's consolidated statement of operations for
the year ended January 3, 1998, as these stores were not identified for closure
in the Company's store closure plan. These ten core operating stores are
included in the 80 MFI and OCC stores closed in the year ended January 3, 1998.
During the 39 weeks ended October 3, 1998, the Company closed 30 stores (nine
of which were core operating stores).
Pursuant to the exit plan, at the date of the acquisitions, the Company
established an impairment reserve of $10,921,000 against the property and
equipment of the stores the Company planned to exit, in order to record those
assets at net realizable value. The property and equipment of 117 of the total
stores to be closed were recorded at net values of zero. The property and
equipment of 54 of the total stores to be franchised were recorded at the
estimated net realizable amount recoverable through a franchise sale. The
property and equipment of the remainder of the stores to be closed or
franchised had already been reduced to net realizable value prior to the
acquisitions. As of October 3, 1998, management has identified 50 existing
stores for sale to franchisees. Management believes that the net proceeds from
the sale of stores to franchisees will exceed the total carrying value of the
store assets as of January 3, 1998 and October 3, 1998.
H&M Concepts Ltd. Co.
In connection with the H&M acquisition (see Note 1), the Company formulated a
plan to exit certain pretzel stores that did not meet certain financial and
geographical criteria. Management identified 11 stores to be closed. All of the
stores identified for closure are planned to be closed by the end of fiscal
1999. The timing to implement the plan was developed based on discussions and
relationships with major shopping mall developers.
At the date of the acquisition, in accordance with Emerging Issues Task Force
Issue 95-3, the Company established a store closure reserve of $1,000,000 for
the 11 stores the Company intended to close. The reserve
F-65
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1998 and October 3, 1998 is Unaudited)
was established to provide for estimated early lease termination costs and
penalties. Additionally, the Company established an impairment reserve of
$2,500,000 against the property and equipment of the stores the Company planned
to exit, in order to record those assets at net realizable value.
Pretzel Time, Inc.
In connection with the Pretzel Time acquisition (see Note 1), the Company
formulated a plan to exit certain pretzel stores that did not meet certain
financial and geographical criteria. Management identified four stores to be
closed. All of the stores identified for closure are planned to be closed by
the end of fiscal 1999. The timing to implement the plan was developed based on
discussions and relationships with major shopping mall developers.
At the date of the acquisition, in accordance with Emerging Issues Task Force
Issue 95-3, the Company established a store closure reserve of $500,000 for the
four stores the Company intended to close. The reserve was established to
provide for estimated early lease termination costs and penalties.
Great American
In connection with the Great American Acquisitions (see Note 1), the Company
formulated a plan to exit certain cookie stores that did not meet certain
financial and geographical criteria. Management identified 54 stores to be
closed and 11 stores to be franchised. All of the stores identified for closure
are planned to be closed by the end of fiscal 2000. The timing to implement the
plan was developed based on discussions and relationships with major shopping
mall developers.
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3, the Company established a store closure reserve of $3,548,000
for the 54 stores the Company intended to close. The reserve was established to
provide for estimated early lease termination costs and penalties. There was no
reserve established related to the 11 stores to be franchised. The Company
established an impairment reserve of $2,150,000 against the property and
equipment of the stores the Company planned to exit, in order to record those
assets at net realizable value.
F-66
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1998 and October 3, 1998 is Unaudited)
Consolidated Analysis
The following tables present a summary of changes in the store closure
reserve for the periods indicated in amount and number of stores to be closed
and franchised:
<TABLE>
<CAPTION>
MFI and
Affiliates
and
OCC and Pretzel Great
Affiliates H&M Time American Consolidated
---------- --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Inception, September 18,
1996................... $5,060,000 $ -- $ -- $ -- $ 5,060,000
Utilization from
inception (September
18, 1996) to December
28, 1996............... (305,000) -- -- -- (305,000)
---------- --------- -------- ---------- -----------
Balance, December 28,
1996................... 4,755,000 -- -- -- 4,755,000
To record obligations
related to stores
identified for closure
upon acquisition, July
25, 1997............... -- 1,000,000 -- -- 1,000,000
To record obligations
related to stores
identified for closure
upon acquisition,
September 2, 1997...... -- -- 500,000 -- 500,000
Finalization of store
closure plan for
obligations related to
stores originally
identified............. 1,357,000 -- -- -- 1,357,000
Provision for ten core
operating stores
targeted for closure... 538,000 -- -- -- 538,000
Utilization from
December 28, 1996 to
January 3, 1998........ (2,683,000) -- (1,000) -- (2,684,000)
---------- --------- -------- ---------- -----------
Balance, January 3,
1998................... 3,967,000 1,000,000 499,000 -- 5,466,000
To record obligations
related to stores
identified for closure
upon acquisition,
August 24, 1998........ -- -- -- 3,548,000 3,548,000
Utilization for the 39
weeks ended October 3,
1998 (unaudited)....... (1,752,000) (13,000) (2,000) (124,000) (1,891,000)
---------- --------- -------- ---------- -----------
Balance, October 3, 1998
(unaudited)............ $2,215,000 $ 987,000 $497,000 $3,424,000 $ 7,123,000
========== ========= ======== ========== ===========
</TABLE>
F-67
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1998 and October 3, 1998 is Unaudited)
<TABLE>
<CAPTION>
MFI and
Affiliates and
OCC and
Affiliates H&M Pretzel Time Great American Consolidated
----------------- ----------------- ----------------- ----------------- -----------------
To Be To Be To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stores identified for
closure or franchise at
inception, September
18, 1996............... 138 64 -- -- -- -- -- -- 138 64
Stores closed prior to
inception.............. (13) -- -- -- -- -- -- -- (13) --
Stores closed or
franchised from
inception (September
18, 1996) to December
28, 1996............... (17) (3) -- -- -- -- -- -- (17) (3)
--- --- --- --- --- --- --- --- --- ---
Balance, December 28,
1996................... 108 61 -- -- -- -- -- -- 108 61
Stores identified for
closure or franchise
upon acquisition, July
25, 1997............... -- -- 11 -- -- -- -- -- 11 --
Stores identified for
closure or franchise
upon acquisition,
September 2, 1997...... -- -- -- -- 4 -- -- -- 4 --
Stores closed or
franchised from
December 28, 1996 to
January 3, 1998........ (70) (9) (3) -- -- -- -- -- (73) (9)
--- --- --- --- --- --- --- --- --- ---
Balance, January 3,
1998................... 38 52 8 -- 4 -- -- -- 50 52
Stores identified for
closure or franchise
upon acquisition,
August 24, 1998........ -- -- -- -- -- -- 54 11 54 11
Stores closed or
franchised for the 39
weeks ended October 3,
1998 (unaudited)....... (11) (13) (1) -- (1) -- (8) -- (21) (13)
--- --- --- --- --- --- --- --- --- ---
Balance, October 3, 1998
(unaudited)............ 27 39 7 -- 3 -- 46 11 83 50
=== === === === === === === === === ===
</TABLE>
During the period from inception to December 28, 1996, the year ended January
3, 1998 and the 39 weeks ended September 27, 1997 and October 3, 1998, the net
store sales and store contribution for stores in the process of being closed
totaled $5,777,000 and $121,000, $10,599,000 and $2,038,000, $6,380,000 and
$(2,082,000) and $3,038,000 and $(1,311,000), respectively.
F-68
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1998 and October 3, 1998 is Unaudited)
The following tables present a summary of changes in the property and
equipment impairment reserve in amount and the number of stores to be closed
and franchised:
<TABLE>
<CAPTION>
MFI and
Affiliates
and OCC and Pretzel Great
Affiliates H&M Time American Consolidated
----------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Inception, September 18,
1996................... $10,921,000 $ -- $-- $ -- $10,921,000
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be closed.... (854,000) -- -- -- (854,000)
Utilization from
inception (September
18, 1996) to December
28, 1996 related to
stores to be
franchised............. (215,000) -- -- -- (215,000)
----------- ---------- ---- ---------- -----------
Balance, December 28,
1996................... 9,852,000 -- -- -- 9,852,000
To record property and
equipment impairment
upon acquisition, July
25, 1997............... -- 2,500,000 -- -- 2,500,000
To record property and
equipment impairment
upon acquisition,
September 2, 1997...... -- -- -- --
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
closed................. (3,299,000) (208,000) -- -- (3,507,000)
Utilization from
December 28, 1996 to
January 3, 1998 related
to stores to be
franchised............. (492,000) -- -- (492,000)
----------- ---------- ---- ---------- -----------
Balance, January 3,
1998................... 6,061,000 2,292,000 -- -- 8,353,000
To record property and
equipment impairment
upon acquisition,
August 24, 1998........ -- -- -- 2,150,000 2,150,000
Utilization for the 39
weeks ended October 3,
1998 (unaudited)
related to stores to be
closed................. (1,436,000) (93,000) -- (250,000) (1,779,000)
Utilization for the 39
weeks ended October 3,
1998 (unaudited)
related to stores to be
franchised............. (313,000) (363,000) -- -- (676,000)
----------- ---------- ---- ---------- -----------
Balance, October 3, 1998
(unaudited)............ $ 4,312,000 $1,836,000 $-- $1,900,000 $ 8,048,000
=========== ========== ==== ========== ===========
</TABLE>
F-69
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1998 and October 3, 1998 is Unaudited)
<TABLE>
<CAPTION>
MFI and
Affiliates and
OCC and
Affiliates H&M Great American Consolidated
----------------- ----------------- ----------------- -----------------
To Be To Be To Be To Be To Be To Be To Be To Be
Closed Franchised Closed Franchised Closed Franchised Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stores identified for
closure or franchise at
inception, September
18, 1996............... 117 54 -- -- -- -- 117 54
Stores closed or
franchised from
inception (September
18, 1996) to December
28, 1996............... (17) (3) -- -- -- -- (17) (3)
--- --- --- --- --- --- --- ---
Balance, December 28,
1996................... 100 51 -- -- -- -- 100 51
Stores identified for
closure or franchise
upon acquisition, July
25, 1997............... -- -- 11 14 -- -- 11 14
Stores closed or
franchised from
December 28, 1996 to
January 3, 1998........ (64) (9) (3) -- -- -- (67) (9)
--- --- --- --- --- --- --- ---
Balance, January 3,
1998................... 36 42 8 14 -- -- 44 56
Stores identified for
closure or franchise
upon acquisition,
August 24, 1998........ -- -- -- -- 54 11 54 11
Stores closed or
franchised for the 39
weeks ended October 3,
1998 (unaudited)....... (11) (8) (1) (4) (8) -- (20) (12)
--- --- --- --- --- --- --- ---
Balance, October 3, 1998
(unaudited)............ 25 34 7 10 46 11 78 55
=== === === === === === === ===
</TABLE>
F-70
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
6. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCKS OF SUBSIDIARIES
In connection with the MFI and affiliates and OCC and affiliates business
combinations discussed in Note 1, MFB issued 100 shares of mandatorily
redeemable cumulative preferred stock (the "MFB Preferred Stock") which had an
initial liquidation preference of $35,000 per share and a cumulative annual
dividend rate of 10 percent compounded quarterly. During the period ended
December 28, 1996 and the year ended January 3, 1998, MFB elected to add the
dividends to the liquidation preference. As part of the Refinancing, MFH
converted the $3,500,000 face amount of the MFB Preferred Stock together with
accrued but unpaid dividends of approximately $435,000 to common equity and the
related preferred stock was cancelled.
The mandatorily redeemable cumulative preferred stock of PTI (the "PTI
Preferred Stock") is nonvoting and the preferred stockholders are entitled to
cumulative preferred dividends of ten percent for three years, accrued and
payable upon redemption. The PTI Preferred Stock must be redeemed at $10,000
per share, plus unpaid and accumulated dividends, on September 1, 1999. The
excess of the redemption price over the carrying value is being accreted over
the period from issuance to September 1, 1999, using the effective interest
method and is being charged to the accumulated deficit of PTI. In the event of
a liquidation or sale of PTI, the preferred stockholders are entitled to
receive payment of $10,000 per share, plus accumulated dividends.
During the period from the acquisition of a majority ownership in PTI
(September 2, 1997) to January 3, 1998 and for the 39 weeks ended October 3,
1998, PTI increased the liquidation preference of the PTI Preferred Stock by
$68,000 and $108,000, respectively, in lieu of paying cash dividends. In
addition, the PTI Preferred Stock was increased by $238,000 and $225,000,
respectively, for the accretion required over time to amortize the original
issue discount incurred at the time of issuance. As of January 3, 1998 and
October 3, 1998, accrued dividends of $195,000 and $303,000, respectively, were
unpaid.
During the period from September 2, 1997 to January 3, 1998, PTI repurchased
17.5 shares of the PTI Preferred Stock for an aggregate of $175,000 in cash, or
$10,000 per share, plus accrued dividends totaling approximately $20,200. As of
January 3, 1998 and October 3, 1998, there are 127 shares of PTI Preferred
Stock issued and outstanding with an aggregate liquidation preference of
approximately $1,437,000 and $1,481,000, respectively.
7. COMMITMENTS AND CONTINGENCIES
Stock Pledged as Collateral
MFH has pledged all of the Company's capital stock as collateral for MFH's 14
percent Senior Secured Discount Notes due December 1, 2005 (the "MFH Discount
Notes"). MFH issued the MFH Discount Notes on August 24, 1998, in connection
with the Great American Acquisitions and the MFH Equity Infusion (see Note 1).
In connection with the issuance of the $55,000,000 principal amount at maturity
of MFH Discount Notes, MFH recorded an aggregate original issue discount of
approximately $24,136,000. The principal amount of the MFH Discount Notes will
accrete at a rate of 14 percent compounded semi-annually to an aggregate
principal amount of $55,000,000 at December 1, 2002. Thereafter, the MFH
Discount Notes will accrue interest at the annual rate of 14 percent, payable
semi-annually on June 1 and December 1 of each year, commencing June 1, 2003.
MFH is a holding company and does not have separate operations from which it
can generate cash flows. Under the circumstances, MFH would likely be dependent
on its owners' and the Company's cash flows to make principal and interest
payments when due. Interest payments totaling $7,700,000 per year will commence
F-71
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
in 2003. The Company has not guaranteed, nor is it obligated to make principal
or interest payments related to the MFH Discount Notes. However, in accordance
with the Company's Indenture, the Company may pay dividends to MFH, in order
for MFH to service the debt, if no default or event of default occurs under the
Indenture and certain fixed charge coverage ratios and consolidated net income
tests are met. The MFH Discount Notes are effectively subordinated to the
Company's Senior Notes.
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. Management, after consultation with legal
counsel, believes that the potential liability to the Company under any such
actions is adequately accrued for or will not materially affect the Company's
consolidated financial position or results of operations.
Operating Leases
The Company leases retail store facilities, office space and equipment under
long-term noncancelable operating lease agreements with remaining terms of one
to ten years. Certain of the retail store leases provide for contingent rentals
based on gross revenues. Additionally, as part of the Company's franchising
program, certain locations have been subleased to franchisees.
For the period ended December 28, 1996, the year ended January 3, 1998 and
the 39 weeks ended September 27, 1997 and October 3, 1998, rent expense is as
follows:
<TABLE>
<CAPTION>
Inception
(September 18, 39 Weeks 39 Weeks
1996) to Year Ended Ended Ended
December 28, January 3, September 27, October 3,
1996 1998 1997 1998
-------------- ----------- ------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Minimum rentals.......... $ 8,216,000 $30,654,000 $18,938,000 $23,076,000
Contingent rentals....... 105,000 432,000 324,000 522,000
Sub-lease rentals........ (2,220,000) (8,756,000) (3,189,000) (5,837,000)
----------- ----------- ----------- -----------
$ 6,101,000 $22,330,000 $16,073,000 $17,761,000
=========== =========== =========== ===========
</TABLE>
As of January 3, 1998, the future minimum lease payments due under operating
leases (including future minimum lease payments for stores in the process of
being closed or franchised), which include required lease payments for those
stores that have been subleased, are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998............................................................ $ 30,605,000
1999............................................................ 26,968,000
2000............................................................ 21,948,000
2001............................................................ 18,283,000
2002............................................................ 15,673,000
Thereafter...................................................... 24,374,000
------------
$137,851,000
============
</TABLE>
F-72
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
As of January 3, 1998, the future minimum sublease payments due to the
Company under these leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1998............................................................. $ 9,959,000
1999............................................................. 9,067,000
2000............................................................. 7,506,000
2001............................................................. 6,497,000
2002............................................................. 6,190,000
Thereafter....................................................... 10,481,000
-----------
$49,700,000
===========
</TABLE>
In January 1998, the Company entered into an operating lease agreement for
corporate office facilities totaling 31,000 square feet. The lease commenced on
May 1, 1998 and will expire April 30, 2008. The lease includes escalating
monthly rental payments totaling $6,900,000 over the life of the lease, or
approximately $57,500 per month on a straight-line basis. These commitments are
not included in the preceding commitment presentation.
Contractual Arrangements
The Company has entered into a supply agreement to buy frozen dough products
through 1998. The agreement stipulates minimum annual purchase commitments of
not less than 22,000,000 pounds of the products during fiscal year 1998. The
terms of the agreement include certain volume incentives and penalties. The
Company and the supplier may terminate the supply agreement if the other party
defaults on any of the performance covenants.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at January 3, 1998 and October 3, 1998 were approximately
$550,000 and $328,000, respectively. Under the terms of the agreement, the
Company is required to assume any franchisee obligations which are in default
as defined. As of January 3, 1998 and October 3, 1998, the Company has assumed
obligations totaling approximately $203,000 and $113,000 (unaudited),
respectively, which are included in capital lease obligations.
The Company recorded deferred credits of approximately $1,204,000 as of
September 18, 1996. The deferred credits represent volume rebates associated
with the assumption of a long-term marketing and supply agreement with a
supplier in connection with the MFI and affiliates and OCC and affiliates
business combinations discussed in Note 1. Under terms of the agreement, the
Company is obligated to purchase a minimum amount of product from the supplier.
The supplier periodically prepays rebates to the Company for anticipated
purchases. The Company records the prepayments as deferred credits and
amortizes them ratably as purchases are made from the supplier. This agreement
was amended in January 1997 and an additional $600,000 in deferred credits were
recorded. The amended agreement expires on the later of December 31, 2003 or
when the Company has met its revised purchase commitment. In conjunction with
this amendment, certain minimum commitments from the previous agreement were
carried forward and others were forgiven. Additionally, in November 1997, PTI
entered into a long-term marketing and supply agreement with a supplier. Under
terms of the agreement, the Company is
F-73
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
obligated to purchase a minimum amount of product from the supplier. An
additional $437,000 in deferred credits were recorded pursuant to this
agreement. The termination date of this agreement will be the later of December
31, 2003 or when PTI has met its purchase commitment. Under these agreements,
the Company recognized approximately $64,000, $1,393,000, $721,000 (unaudited)
and $672,000 (unaudited) as a reduction primarily to food cost of sales during
the period ended December 28, 1996, the year ended January 3, 1998 and the 39
weeks ended September 27, 1997 and October 3, 1998, respectively.
In November 1996, the Company entered into a consulting agreement (the
"Consulting Agreement") with Debbi Fields, a director of the Company, under
which Debbi Fields travels and performs public relations and advertising
activities on behalf of the Company for at least 50 days a year for a fee of
$250,000 per year, with an option to perform these services for 20 additional
days a year for additional pay of $5,000 per day. The compensation increases by
10 percent a year beginning on January 1, 1999. The Consulting Agreement
expires on December 31, 1999. The Company may terminate the Consulting
Agreement for cause and Debbi Fields may terminate the Consulting Agreement at
any time. Under the Consulting Agreement, Debbi Fields may not disclose any
confidential information of the Company, such as recipes and trade secrets, and
may not, without the prior written consent of the Company, compete with the
Company.
The Company has a license agreement with FSG Holdings, Inc., a Delaware
corporation, under which Debbi Fields has a nonexclusive license to use certain
trademarks, names, service marks and logos of the Company in connection with
book and television series projects. Debbi Fields is required to pay 50 percent
of any gross revenues in excess of $200,000 that she receives from the book and
television series projects to the Company as a license fee.
In connection with the acquisition of H&M, certain franchise agreements and
an area development agreement with PTI were assigned to the Company. The
franchise agreements provide for the franchise by the Company of the PTI stores
previously franchised by H&M and the payment by the Company to PTI of an annual
franchise royalty equal to seven percent of the annual sales by such stores,
plus an advertising fee of one percent of sales. The franchise agreements also
provide for the conversion, within three years, of the Company's Hot Sam and
Pretzel Oven stores to Pretzel Time franchises on a royalty-free basis for the
first five years following the date of conversion. The area development
agreement provides for the grant by PTI to the Company of area development
rights to open additional Pretzel Time stores in a territory covering 16
states, predominantly in the western United States, four western Canadian
provinces and in Mexico. The additional stores may be opened by the Company as
the franchisee or by third parties as franchisees. Under the area development
agreement, the Company is obligated to pay to PTI a $5,000 franchise fee per
new location within the territory. PTI is obligated under the area development
agreement to pay to the Company an annual royalty of up to two percent with
respect to Pretzel Time franchises opened by parties other than the Company
within the territory.
The Company has entered into employment agreements with five key officers
with terms of two to three years. The agreements are for an aggregate annual
base salary of $1,095,000. If the Company terminates employment without cause,
or the employee terminates employment with good reason, the employee can
receive in severance pay the amount equal to the product of his or her then
current semi-monthly base salary by the greater of the number of semi-monthly
periods from the notice of termination or 36 to 48 semi-monthly periods, plus a
portion of any discretionary bonus that would otherwise have been payable. The
agreements have customary provisions for other benefits and also include
noncompetition clauses.
8. RELATED-PARTY TRANSACTIONS
As of December 28, 1996, January 3, 1998 and October 3, 1998, the Company had
receivables due from franchisees and licensees, primarily related to prepaid
rent which the Company had paid on behalf of
F-74
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
franchisees, totaling approximately $1,524,000, $2,176,000 and $5,616,000
(unaudited), respectively. Such amounts are included in amounts due from
franchisees and affiliates and are net of allowance for doubtful accounts
totaling $320,000, $582,000 and $979,000 (unaudited), respectively.
As of December 28, 1996 and January 3, 1998, the Company had net payables of
approximately $98,000, and $105,000, respectively, due to MFH. As of October 3,
1998, the Company had receivables of approximately $478,000 (unaudited) due
from MFH. The amounts due to or from MFH are recorded in prepaid rent and other
in the accompanying consolidated balance sheets.
During the period ended December 28, 1996, the year ended January 3, 1998 and
the 39 weeks ended October 3, 1998, the Company accrued approximately $130,000,
$441,000 and $0, respectively, of interest expense due MFH related to the
convertible subordinated notes MFH purchased. As part of the Refinancing, MFH
converted all of the $4,643,000 convertible subordinated notes to equity and
the notes were cancelled (see Note 3).
The Company previously leased certain office space to an entity which is
owned in part by a director of the Company. Billings to the entity during the
period ended December 28, 1996, the year ended January 3, 1998 and the 39 weeks
ended September 27, 1997 and October 3, 1998, totaled approximately $60,000,
$274,000, $204,000 (unaudited) and $0 (unaudited), respectively, of which
approximately $29,000, $23,000 and $0 (unaudited) is included in amounts due
from franchisees and affiliates as of December 28, 1996, January 3, 1998 and
October 3, 1998, respectively. The lease was terminated during the 39 weeks
ended October 3, 1998.
The Company paid fees to Korn/Ferry International ("KFI") totaling
approximately $47,000, $157,000, $147,000 (unaudited) and $47,000 (unaudited)
during the period ended December 28, 1996, the year ended January 3, 1998 and
the 39 weeks ended September 27, 1997 and October 3, 1998, respectively. KFI is
an executive search firm of which one of the Company's directors is the
Chairman.
A director of the Company is a consultant and an advisor to Dillon Read &
Co., Inc. ("Dillon Read"). In 1997, the Company paid to Dillon Read a fee of
approximately $707,000 in connection with the restructuring of the Company in
September 1996. In addition, the director's company received a fee of $250,000
(unaudited), plus expenses, from the Company during the 39 weeks ended October
3, 1998 pursuant to an agreement to provide advisory acquisition and consulting
services to the Company. The Company believes that the arrangements were on
terms that could have been obtained from an unaffiliated third party.
As of January 3, 1998 and October 3, 1998, the Company has a loan due from
the founder and minority stockholder of PTI totaling $552,000. The note bears
interest at an annual rate of ten percent and is payable in monthly
installments of principal and interest beginning January 1998 by setoff of, and
to the extent of, the founder's bonus payments and dividends received by the
founder in his PTI stock; provided that in any calendar year no more than
$100,000 may be so offset. In addition, as of October 3, 1998, the Company is
due approximately $462,000 (unaudited) from the founder in connection with
certain lease payments related to the purchase of PTI for which the Company is
indemnified. These amounts are recorded in other assets in the accompanying
consolidated balance sheets.
At the time of the Refinancing, a subsidiary of MIDIAL (the parent company of
OCC and affiliates) was the holder of $27,000,000 in aggregate principal amount
of senior notes of the Company and $8.4 million in aggregate principal amount
of subordinated notes of the Company as to which the Company had accrued or
paid interest of $3,177,000 from the date of inception (September 18, 1996)
through November 26, 1997. In connection with the Refinancing, the Company
repaid all such notes and related interest. The Chairman and Chief Executive
Officer of MIDIAL was a former director of the Company.
F-75
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information at October 3, 1998 and for the 39 Weeks ended
September 27, 1997 and October 3, 1998 is Unaudited)
The Company and MFH expect to enter into a tax-sharing arrangement but as of
the date of these financial statements no such agreement has been finalized.
9. EMPLOYEE BENEFIT PLAN
The Company sponsors the Mrs. Fields' Original Cookies, Inc. 401(k)
Retirement Savings Plan (the "Plan") for all eligible employees. Under the
terms of the Plan, employees may make contributions to the Plan, a portion of
which is matched by contributions from the Company. The total Company
contributions to the Plan for the period ended December 28, 1996, the year
ended January 3, 1998 and the 39 weeks ended September 27, 1997 and October 3,
1998 were approximately $6,800, $97,900, $73,111 (unaudited) and $87,000
(unaudited), respectively.
10. SUBSEQUENT EVENT (UNAUDITED)
On September 12, 1997, nine Great American Cookies franchisees filed a
lawsuit against the Company and certain other parties alleging certain
anticipatory breaches of contract and violations of certain state,
franchise and unfair trade practice laws. These allegations were made as a
result of the discussions held between the Company and Cookies USA regarding
the possibility of the Company acquiring all of the outstanding shares of
common stock of Cookies USA. The nine Great American Cookies franchisees have
withdrawn their lawsuit pursuant to Settlement Agreements and Waivers among the
parties. The Settlement Agreements and Waivers provide for a mutual release,
tag-along rights to the franchisees of Great American Cookies if the Company's
ownership is sold in the future and certain other guarantees by the Company to
the franchisees of Great American Cookies. The Settlement Agreements and
Waivers were offered to all of the franchisees of Great American Cookies.
11. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's obligation related to its $140,000,000 aggregate principal
amount of Senior Notes due 2004 (see Note 3) is fully and unconditionally
guaranteed on a joint and several basis and on a senior basis by two of the
Company's wholly owned subsidiaries (the "Guarantors"). These guarantees are
general unsecured obligations of the Guarantors, rank senior in right of
payment to all subordinated indebtedness of the Guarantors and rank pari passu
in right of payment with all existing and future senior indebtedness of the
Guarantors. There are no restrictions on the Company's ability to obtain cash
dividends or other distributions of funds from the Guarantors, except those
imposed by applicable law. The following supplemental financial information
sets forth, on a condensed consolidating basis, balance sheets, statements of
operations and statements of cash flows for Mrs. Fields' Original Cookies, Inc.
(the "Parent Company"), Great American Cookie Company, Inc. and The Mrs.
Fields' Brand, Inc. (the "Guarantor Subsidiaries") and Mrs. Fields' Cookies
Australia, Mrs. Fields' Cookies (Canada) Ltd. and H & M Canada, and four
partially owned subsidiaries, the largest of which is Pretzel Time, Inc., of
which the Company owns a majority interest (collectively, the "Non-guarantor
Subsidiaries"). The Company has not presented separate financial statements and
other disclosures concerning the Guarantor Subsidiaries because management has
determined that such information is not material to investors.
In the supplemental condensed consolidating financial statements, the
principal elimination entries eliminate the Parent Company's investments in
subsidiaries and intercompany balances and transactions.
F-76
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is (Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 28, 1996
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 6,091 $ 588 $ 30 $ -- $ 6,709
Accounts receivable,
net.................. 1,187 -- 13 -- 1,200
Amounts due from (to)
franchisees and
licensees, net....... 1,309 290 (75) -- 1,524
Inventories........... 3,043 -- -- -- 3,043
Other current assets.. 3,416 -- -- -- 3,416
------- ------- ---- ------- --------
Total current as-
sets............... 15,046 878 (32) -- 15,892
PROPERTY AND EQUIPMENT,
net.................... 26,181 1 23 -- 26,205
INTANGIBLES, net........ 50,047 16,285 -- -- 66,332
INVESTMENTS IN SUBSIDI-
ARIES.................. 3,100 -- -- (3,100) --
OTHER ASSETS............ 1,626 -- -- -- 1,626
------- ------- ---- ------- --------
$96,000 $17,164 $ (9) $(3,100) $110,055
======= ======= ==== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 1,950 $ 500 $-- $ -- $ 2,450
Accounts payable...... 6,188 6 7 -- 6,201
Accrued liabilities... 9,782 348 -- -- 10,130
------- ------- ---- ------- --------
Total current
liabilities........ 17,920 854 7 -- 18,781
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 52,016 13,097 -- -- 65,113
OTHER ACCRUED
LIABILITIES............ 5,603 -- -- -- 5,603
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- 3,597 -- -- 3,597
STOCKHOLDERS' EQUITY
(DEFICIT).............. 20,461 (384) (16) (3,100) 16,961
------- ------- ---- ------- --------
$96,000 $17,164 $ (9) $(3,100) $110,055
======= ======= ==== ======= ========
</TABLE>
F-77
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $40,823 $ 559 $-- $-- $41,382
------- ----- ---- ---- -------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 19,492 -- -- -- 19,492
Food cost of sales.... 9,862 -- -- -- 9,862
General and
administrative....... 3,871 146 18 -- 4,035
Depreciation and
amortization......... 2,027 317 -- -- 2,344
------- ----- ---- ---- -------
Total operating
costs and
expenses........... 35,252 463 18 -- 35,733
------- ----- ---- ---- -------
Income (loss) from
operations......... 5,571 96 (18) -- 5,649
INTEREST EXPENSE AND
OTHER, net............. (1,410) (383) -- -- (1,793)
------- ----- ---- ---- -------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 4,161 (287) (18) -- 3,856
PROVISION FOR INCOME
TAXES.................. (1,798) -- -- -- (1,798)
------- ----- ---- ---- -------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 2,363 (287) (18) -- 2,058
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- (97) -- -- (97)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... (402) -- -- 402 --
------- ----- ---- ---- -------
NET INCOME (LOSS)....... $ 1,961 $(384) $(18) $402 $ 1,961
======= ===== ==== ==== =======
</TABLE>
F-78
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 18, 1996) TO DECEMBER 28, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
OPERATING ACTIVITIES.. $ 6,990 $ 589 $ 30 $-- $ 7,609
------- ------ ---- ---- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related expenses.... (12,508) (7,000) -- -- (19,508)
Purchase of property
and equipment, net.. (1,622) (1) -- -- (1,623)
------- ------ ---- ---- -------
Net cash used in
investing
activities........ (14,130) (7,001) -- -- (21,131)
------- ------ ---- ---- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from the
issuance of common
stock............... 15,000 -- -- -- 15,000
Proceeds from the
issuance of
mandatorily
redeemable
cumulative preferred
stock of
subsidiary.......... -- 3,500 -- -- 3,500
Proceeds from the
issuance of note
payable............. -- 3,500 -- -- 3,500
Principal payments on
long-term debt...... (1,769) -- -- -- (1,769)
------- ------ ---- ---- -------
Net cash provided by
financing
activities.......... 13,231 7,000 -- -- 20,231
------- ------ ---- ---- -------
NET INCREASE IN CASH
AND CASH EQUIVALENTS.. 6,091 588 30 -- 6,709
CASH AND CASH
EQUIVALENTS, beginning
of Period............. -- -- -- -- --
------- ------ ---- ---- -------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 6,091 $ 588 $ 30 $-- $ 6,709
======= ====== ==== ==== =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid........ $ 28 $-- $-- $-- $ 28
</TABLE>
F-79
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 (is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1998
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ 14,270 $ 725 $1,292 $ -- $ 16,287
Accounts receivable,
net.................. 1,388 -- 147 -- 1,535
Amounts due from (to)
franchisees and
licensees, net....... 1,517 659 -- -- 2,176
Inventories........... 3,094 -- 6 -- 3,100
Other current assets.. 6,593 (615) (253) -- 5,725
-------- ------- ------ -------- --------
Total current
assets............. 26,862 769 1,192 -- 28,823
PROPERTY AND EQUIPMENT,
net.................... 28,907 1 294 -- 29,202
INTANGIBLES, net........ 59,928 17,725 6,041 -- 83,694
INVESTMENT IN
SUBSIDIARIES........... 23,089 -- -- (23,089) --
OTHER ASSETS............ 7,902 -- 63 -- 7,965
-------- ------- ------ -------- --------
$146,688 $18,495 $7,590 $(23,089) $149,684
-------- ------- ------ -------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ -- $ -- $ 614 $ -- $ 614
Accounts payable...... 3,621 36 148 -- 3,805
Accrued liabilities... 10,499 25 747 -- 11,271
-------- ------- ------ -------- --------
Total current
liabilities........ 14,120 61 1,509 -- 15,690
LONG-TERM DEBT AND
CAPITAL
LEASE OBLIGATIONS, net
of current portion..... 100,000 -- 467 -- 100,467
OTHER ACCRUED
LIABILITIES............ 1,802 -- -- -- 1,802
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- -- 902 -- 902
MINORITY INTEREST....... -- -- -- 58 58
STOCKHOLDER'S EQUITY.... 30,766 18,434 4,712 (23,147) 30,765
-------- ------- ------ -------- --------
$146,688 $18,495 $7,590 $(23,089) $149,684
======== ======= ====== ======== ========
</TABLE>
F-80
<PAGE>
MRS. FIELDS ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $122,090 $ 2,004 $7,077 $ (664) $130,507
-------- ------- ------ ------ --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 63,765 -- 3,731 (664) 66,832
Food cost of sales.... 27,272 -- 855 -- 28,127
General and
administrative....... 14,753 1,066 911 -- 16,730
Depreciation and
amortization......... 8,745 1,125 533 -- 10,403
-------- ------- ------ ------ --------
Total operating
costs and
expenses........... 114,535 2,191 6,030 (664) 122,092
-------- ------- ------ ------ --------
Income (loss) from
operations......... 7,555 (187) 1,047 -- 8,415
INTEREST EXPENSE AND
OTHER, net............. (6,329) (1,230) (393) -- (7,952)
-------- ------- ------ ------ --------
Income (loss) before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 1,226 (1,417) 654 -- 463
PROVISION FOR INCOME
TAXES.................. (535) (25) (95) -- (655)
-------- ------- ------ ------ --------
Income (loss) before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... 691 (1,442) 559 -- (192)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- (338) (306) -- (644)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... (1,665) -- -- 1,527 (138)
-------- ------- ------ ------ --------
NET INCOME (LOSS)....... $ (974) $(1,780) $ 253 $1,527 $ (974)
======== ======= ====== ====== ========
</TABLE>
F-81
<PAGE>
MRS. FIELDS ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 3, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH (USED IN)
PROVIDED BY OPERATING
ACTIVITIES............. $ (766) $ 387 $1,298 $-- $ 919
-------- ----- ------ ---- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related expenses..... (10,949) -- -- -- (10,949)
Purchase of property
and equipment, net... (4,556) -- -- -- (4,556)
-------- ----- ------ ---- --------
Net cash used in
investing
activities......... (15,505) -- -- -- (15,505)
-------- ----- ------ ---- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of long-term debt.... 108,250 -- -- -- 108,250
Principal payments on
long-term debt and
capital lease
obligations.......... (76,759) (250) (36) -- (77,045)
Payment of debt
financing costs...... (5,976) -- -- -- (5,976)
Payment of cash
dividend to MFH...... (1,065) -- -- -- (1,065)
-------- ----- ------ ---- --------
Net cash provided by
(used in) financing
activities......... 24,450 (250) (36) -- 24,164
-------- ----- ------ ---- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS....... 8,179 137 1,262 -- 9,578
CASH AND CASH
EQUIVALENTS, beginning
of year................ 6,091 588 30 -- 6,709
-------- ----- ------ ---- --------
CASH AND CASH
EQUIVALENTS, end of
year................... $ 14,270 $ 725 $1,292 $-- $ 16,287
======== ===== ====== ==== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid....... $ 7,607 $ 789 $ 20 $-- $ 8,416
Taxes paid.......... 181 25 11 -- 217
</TABLE>
F-82
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED SEPTEMBER 27, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES............ $86,225 $ 1,215 $ 86 $ -- $87,526
------- ------- ---- ----- -------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 48,200 -- -- -- 48,200
Food cost of sales.... 19,549 -- -- -- 19,549
General and
administrative....... 10,060 607 136 -- 10,803
Depreciation and
amortization......... 5,766 830 -- -- 6,596
------- ------- ---- ----- -------
Total operating
costs and
expenses........... 83,575 1,437 136 -- 85,148
------- ------- ---- ----- -------
(Loss) income from
operations......... 2,650 (222) (50) -- 2,378
INTEREST EXPENSE AND
OTHER, net............. (4,134) (1,011) -- -- (5,145)
------- ------- ---- ----- -------
(Loss) income before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... (1,484) (1,233) (50) -- (2,767)
PROVISION FOR INCOME
TAXES.................. (179) -- -- -- (179)
------- ------- ---- ----- -------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss of
consolidated
subsidiaries......... (1,663) (1,233) (50) -- (2,946)
PREFERRED STOCK
ACCRETION AND DIVIDENDS
OF SUBSIDIARIES........ -- (276) -- -- (276)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES........... -- -- -- (2) (2)
------- ------- ---- ----- -------
NET LOSS................ $(1,663) $(1,509) $(50) $ (2) $(3,224)
======= ======= ==== ===== =======
</TABLE>
F-83
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE 39 WEEKS ENDED SEPTEMBER 27, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES............ $ 309 $(39) $521 $ -- $ 791
------- ---- ---- ----- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment, net.. (3,216) -- -- -- (3,216)
------- ---- ---- ----- -------
Net cash used in
investing
activities........ (3,216) -- -- -- (3,216)
------- ---- ---- ----- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Principal payments on
long-term debt and
capital lease
obligations......... (98) -- -- -- (98)
------- ---- ---- ----- -------
Net cash used in
financing
activities........ (98) -- -- -- (98)
------- ---- ---- ----- -------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS........... (3,005) (39) 521 -- (2,523)
CASH AND CASH
EQUIVALENTS, beginning
of period............. 6,121 588 -- -- 6,709
------- ---- ---- ----- -------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 3,116 $549 $521 $ -- $ 4,186
======= ==== ==== ===== =======
</TABLE>
F-84
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 3, 1998
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents.......... $ (1,378) $ 5,114 $1,410 $ -- $ 5,146
Accounts receivable,
net.................. 1,745 -- 151 -- 1,896
Amounts due from
franchisees and
licensees, net....... 1,537 3,951 128 -- 5,616
Inventories........... 3,862 922 6 -- 4,790
Other current assets
and amounts due from
(to) affiliates,
net.................. 47,017 (39,355) (585) -- 7,077
-------- -------- ------ -------- --------
Total current
assets............. 52,783 (29,368) 1,110 -- 24,525
PROPERTY AND EQUIPMENT,
net.................... 33,313 1,434 256 -- 35,003
INTANGIBLES, net........ 65,491 77,085 6,580 -- 149,156
INVESTMENT IN
SUBSIDIARIES........... 53,650 -- -- (53,650) --
OTHER ASSETS............ 11,921 1,441 611 -- 13,973
-------- -------- ------ -------- --------
$217,158 $ 50,592 $8,557 $(53,650) $222,657
======== ======== ====== ======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term
debt and capital lease
obligations.................... $ 143 $ 31 $ 384 $ -- $ 558
Accounts payable................ 7,755 865 49 -- 8,669
Accrued liabilities............. 13,622 3,276 676 -- 17,574
-------- -------- ------ -------- --------
Total current liabilities..... 21,520 4,172 1,109 -- 26,801
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, net of current
portion.......................... 139,542 -- 56 -- 139,598
OTHER ACCRUED LIABILITIES......... 4,648 -- -- -- 4,648
MANDATORILY REDEEMABLE CUMULATIVE
PREFERRED STOCK.................. -- -- 1,171 -- 1,171
MINORITY INTEREST................. -- -- 268 40 308
STOCKHOLDERS' EQUITY.............. 51,448 46,420 5,953 (53,690) 50,131
-------- -------- ------ -------- --------
$217,158 $ 50,592 $8,557 $(53,650) $222,657
======== ======== ====== ======== ========
</TABLE>
F-85
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 39 WEEKS ENDED OCTOBER 3, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES........... $ 91,342 $3,194 $2,842 $(1,419) $95,959
-------- ------ ------ ------- -------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs..... 53,096 -- 251 (990) 52,357
Food cost of sales... 21,196 748 73 (429) 21,588
General and
administrative...... 10,692 812 1,117 -- 12,621
Depreciation and
amortization........ 8,073 1,285 349 -- 9,707
-------- ------ ------ ------- -------
Total operating
costs and
expenses.......... 93,057 2,845 1,790 (1,419) 96,273
-------- ------ ------ ------- -------
(Loss) income from
operations.......... (1,715) 349 1,052 -- (314)
INTEREST EXPENSE AND
OTHER, net............ (8,733) 18 8 -- (8,707)
-------- ------ ------ ------- -------
(Loss) income before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (10,448) 367 1,060 -- (9,021)
PROVISION FOR INCOME
TAXES................. (68) -- -- -- (68)
-------- ------ ------ ------- -------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (10,516) 367 1,060 -- (9,089)
PREFERRED STOCK
ACCRETION AND
DIVIDENDS OF
SUBSIDIARIES.......... -- -- (333) -- (333)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES.......... -- -- -- (268) (268)
-------- ------ ------ ------- -------
NET (LOSS) INCOME...... $(10,516) $ 367 $ 727 $ (268) $(9,690)
======== ====== ====== ======= =======
</TABLE>
F-86
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Information at October 3, 1998 and for the 39 Weeks Ended September 27, 1997
and October 3, 1998 is Unaudited)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For The 39 Weeks Ended October 3, 1998
(Dollars In Thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY
(USED IN) OPERATING
ACTIVITIES............. $(37,783) $ 37,954 $ 505 $ -- $ 676
-------- -------- ------ ----- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related expenses..... (35,656) 6,957 -- -- (28,699)
Purchase of property
and equipment, net... (5,609) -- (7) -- (5,616)
-------- -------- ------ ----- --------
Net cash (used in)
provided by
investing
activities......... (41,265) 6,957 (7) -- (34,315)
-------- -------- ------ ----- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-
term debt............ 39,400 -- -- -- 39,400
Payment of debt
financing costs...... (5,007) -- -- -- (5,007)
Equity infusion from
MFH.................. 29,056 -- -- -- 29,056
Principal payments on
long-term debt and
capital lease
obligations.......... (49) (40,522) (316) -- (40,887)
Reduction in preferred
stock of PTI......... -- -- (64) -- (64)
-------- -------- ------ ----- --------
Net cash provided by
(used in) financing
activities......... 63,400 (40,522) (380) -- 22,498
-------- -------- ------ ----- --------
NET (DECREASE) INCREASE
IN CASH AND CASH
EQUIVALENTS............ (15,648) 4,389 118 -- (11,141)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 14,270 725 1,292 -- 16,287
-------- -------- ------ ----- --------
CASH AND CASH
EQUIVALENTS, end of
period................. $ (1,378) $ 5,114 $1,410 $ -- $ 5,146
======== ======== ====== ===== ========
</TABLE>
F-87
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mrs. Fields Inc.:
We have audited the accompanying consolidated balance sheet of Mrs. Fields
Inc. (a Delaware corporation) and subsidiaries as of September 17, 1996, and
the related consolidated statements of operations, stockholders' deficit and
cash flows for the period from December 31, 1995 to September 17, 1996. 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 audit.
We conducted our audit 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 audit provides 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 Mrs. Fields
Inc. and subsidiaries as of September 17, 1996, and the results of their
operations and their cash flows for the period from December 31, 1995 to
September 17, 1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
June 27, 1997
F-88
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Mrs. Fields Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' deficit, and cash flows of Mrs. Fields Inc. and subsidiaries for
the year ended December 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Mrs. Fields Inc.
and subsidiaries for the year ended December 30, 1995 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Salt Lake City, Utah
February 9, 1996
F-89
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 1,883
Accounts receivable, net of allowance for doubtful accounts of
$269.......................................................... 1,611
Inventories.................................................... 1,296
Prepaid rent................................................... 420
Other prepaid expenses......................................... 1,042
--------
Total current assets......................................... 6,252
--------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements......................................... 23,223
Equipment and fixtures......................................... 18,422
--------
41,645
Less accumulated depreciation and amortization................. (29,409)
--------
Net property and equipment................................... 12,236
--------
DEPOSITS......................................................... 656
--------
Total assets..................................................... $ 19,144
========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet.
F-90
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
(Dollars in thousands, except per share data)
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
CURRENT LIABILITIES:
Notes payable.................................................. $ 18,352
Premium on restructured debt................................... 2,872
Accounts payable............................................... 3,708
Accrued liabilities............................................ 1,329
Current portion of store closure reserve....................... 1,270
Current portion of deferred credits............................ 425
---------
Total current liabilities.................................... 27,956
STORE CLOSURE RESERVE, net of current portion.................... 294
DEFERRED CREDITS, net of current portion......................... 1,212
---------
Total liabilities............................................ 29,462
---------
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7 and 8)
MINORITY INTEREST IN MAJORITY OWNED SUBSIDIARY:
20,000,000 cumulative preferred stock; involuntary liquidation
preference of $24,834, including $4,834 of unrecorded
dividends in arrears.......................................... 20,000
---------
STOCKHOLDERS' DEFICIT:
Cumulative preferred stock, $.001 par value; 21,885,000 shares
authorized and issued, involuntary liquidation preference of
$32,085, including $10,200 of unrecorded dividends in
arrears....................................................... 22
Common stock, $.001 par value; 200,000,000 shares authorized
and outstanding............................................... 200
Additional paid-in capital..................................... 83,863
Accumulated deficit............................................ (114,371)
Cumulative translation adjustment.............................. (32)
---------
Total stockholders' deficit.................................. (30,318)
---------
Total liabilities and stockholders' deficit.................. $ 19,144
=========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this balance sheet
F-91
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended Period Ended
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
REVENUES:
Net store sales.................................... $59,956 $29,674
Net franchising.................................... 1,870 1,793
Net licensing...................................... 2,031 892
Net other.......................................... 2,092 1,101
------- -------
Total revenues................................... 65,949 33,460
------- -------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs.................. 36,965 17,782
Food cost of sales................................. 13,373 6,525
General and administrative......................... 12,612 7,984
Depreciation and amortization...................... 3,525 1,911
Provision for store closure costs.................. 3,000 1,000
------- -------
Total operating costs and expenses............... 69,475 35,202
------- -------
Loss from operations............................. (3,526) (1,742)
INTEREST EXPENSE..................................... (51) (80)
(LOSS) GAIN ON SALE OF ASSETS........................ 1,450 (277)
------- -------
Loss before provision for income taxes........... (2,127) (2,099)
PROVISION FOR INCOME TAXES........................... (241) (205)
------- -------
Net loss......................................... $(2,368) $(2,304)
======= =======
</TABLE>
The accompany notes to consolidated financial statements are an integral part
of these statements.
F-92
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Dollars in Thousands)
<TABLE>
<CAPTION>
Cumulative
Preferred Stock Common Stock Additional Cumulative
----------------- ------------------ Paid-in Accumulated Translation
Shares Amount Shares Amount Capital Deficit Adjustment Total
---------- ------ ----------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1995................... 21,885,000 $22 200,000,000 $200 $83,863 $(109,699) $195 $(25,419)
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (230) (230)
Net loss............... -- -- -- -- -- (2,368) -- (2,368)
---------- --- ----------- ---- ------- --------- ---- --------
BALANCE, December 30,
1995................... 21,885,000 22 200,000,000 200 83,863 (112,067) (35) (28,017)
Foreign currency
translation
adjustment............ -- -- -- -- -- -- 3 3
Net loss............... -- -- -- -- -- (2,304) -- (2,304)
---------- --- ----------- ---- ------- --------- ---- --------
BALANCE, September 17,
1996................... 21,885,000 $22 200,000,000 $200 $83,863 $(114,371) $(32) $(30,318)
========== === =========== ==== ======= ========= ==== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-93
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Year Ended Period Ended
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(2,368) $(2,304)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 3,525 1,911
Amortization of premium on restructured debt.... -- (1,541)
In-kind expense on note payable................. (1,610) 1,598
Provision for store closure costs............... 3,000 1,000
Net loss (gain) on asset sales, disposals and
store closures................................. (1,450) 277
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable.... (163) 2,039
Decrease in inventories....................... 853 267
Increase in prepaid rent...................... -- (420)
Increase in other prepaid expenses............ (337) (673)
Increase in deposits.......................... -- (15)
Decrease in accounts payable and accrued
liabilities.................................. (5,821) (194)
Decrease in store closure reserve............. -- (1,696)
Decrease in deferred credits.................. (107) (696)
------- -------
Net cash used in operating activities....... (4,478) (447)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................ (4,146) (1,054)
Proceeds from the sale of assets.................. 6,672 669
------- -------
Net cash provided by (used in) investing
activities................................. 2,526 (385)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable............... (145) (58)
Payments for debt restructuring................... (40) --
------- -------
Net cash used in financing activities....... (185) (58)
------- -------
EFFECT OF FOREIGN EXCHANGE RATES.................... -- 3
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS........... (2,137) (887)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
PERIOD............................................. 4,907 2,770
------- -------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD...... $ 2,770 $ 1,883
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-94
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in Thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest was approximately $1,661 and $24 for the year ended
December 30, 1995 and for the period ended September 17, 1996, respectively.
Cash paid for income taxes was approximately $128 and $39 for the year ended
December 30, 1995 and for the period ended September 17, 1996, respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities:
During the year ended December 30, 1995 and the period ended September 17,
1996, the Company, in accordance with the Amended and Restated Restructuring
Agreement, entered into the following noncash financing activities:
. The Company converted accrued interest payable incurred from January 1,
1995 through March 31, 1995 and from July 1, 1994 through December 31,
1994 into approximately $520 and $1,000 of Series A interest deferral
notes, respectively. In addition, the Company amortized approximately
$2,100 of its premium on restructured debt as a reduction to interest
expense during the year ended December 30, 1995.
. The Company converted accrued interest payable from December 31, 1995
through September 17, 1996 into $1,598 of 15 percent interest bearing
Series A interest deferral notes.
During the year ended December 30, 1995 and for the period ended September
17, 1996, the Company entered into the following noncash investing and
financing activities:
. In accordance with the Company's franchise financing arrangement, the
Company assumed long-term debt of franchisees which was in default
totaling approximately $132 and $0 during the year ended December 30,
1995 and the period ended September 17, 1996, respectively.
. In connection with its sale of several cookie stores, the Company
accepted notes receivable in the approximate amount of $305 during the
year ended December 30, 1995. In addition, during the year ended
December 30, 1995 and the period ended September 17, 1996, the Company
charged off approximately $1,960 and $651 of assets against accrued
expenses.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-95
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Mrs. Fields Inc. ("MFI"), a Delaware corporation, was incorporated on May 2,
1986 and is a holding company for its wholly owned subsidiaries Mrs. Fields
Cookies Australia, Mrs. Fields Cookies, Ltd. (Canada) plus other inactive
subsidiaries (collectively termed "Mrs. Fields International") and its majority
owned subsidiary, Mrs. Fields Development Corporation ("MFD") and MFD's wholly
owned subsidiary, Mrs. Fields Cookies ("MFC"). Collectively, these entities are
referred to herein as the "Company".
Nature of Operations
The most significant part of the Company's operations are its retail stores
which sell freshly baked cookies, brownies and other food products. As of
September 17, 1996, the Company operates 147 "Mrs. Fields Cookies" stores all
of which are located in the United States. Additionally, the Company has
franchised approximately 163 stores in the United States and approximately 55
stores in nine other countries.
Additionally, the Company holds legal title to certain trademarks for the
"Mrs. Fields" name and logo, and licenses the use of these trademarks to third
parties for the establishment and operation of Mrs. Fields cookie and bakery
operations and other merchandising activities. In connection with these
licensing activities, the Company authorizes third-party licensees to use
certain business formats, systems, methods, procedures, designs, layouts,
specifications, trade names and trademarks in the United States and other
countries.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company usually experiences its highest
revenues in the fourth calendar quarter. Because the Company's stores are
heavily concentrated in shopping malls, the Company's sales performance is
somewhat dependent on the performance of those malls. The results for the
period ended September 17, 1996 presented in the accompanying consolidated
financial statements may not be indicative of results that would have been
achieved for an entire calendar year.
Effective September 18, 1996, the Company sold substantially all of its net
assets to Mrs. Fields' Original Cookies, Inc. and The Mrs. Fields' Brand, Inc.
(see Note 11). Subsequently, the Company has been solely involved in
liquidating remaining assets and collecting certain outstanding notes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
The consolidated financial statements include the accounts of MFI, Mrs.
Fields International, MFD and MFC. All significant intercompany balances and
transactions have been eliminated in consolidation.
Sources of Supply
The Company currently buys a significant amount of its food products from
three suppliers. Management believes that other suppliers could provide similar
products with comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and
F-96
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
September 17, 1996 and at various times during the period then ended, the
Company had demand deposits at various banks in excess of the $100,000 limit
for insurance by the Federal Deposit Insurance Corporation.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value. Inventory consisted of the following at September 17, 1996:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Food and beverages............................................. $ 792,000
Smallwares..................................................... 504,000
----------
$1,296,000
==========
</TABLE>
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Equipment, fixtures and leasehold improvements are depreciated or
amortized over three to seven years using the straight-line method.
Expenditures that materially increase values or capacities or extend useful
lives of property and equipment are capitalized. Routine maintenance, repairs
and renewal costs are expensed as incurred. Gains or losses from the sale or
retirement of property and equipment are included in the determination of net
income or loss.
Accounting for the Impairment of Long-Lived Assets
The Company accounts for impairment of long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No.
121"). SFAS No. 121 requires that long-lived assets be reviewed for impairment
when events or changes in circumstances indicate that the book value of an
asset may not be recoverable. The Company evaluates, at each balance sheet
date, whether events and circumstances have occurred that indicate possible
impairment. In accordance with SFAS No. 121, the Company uses an estimate of
future undiscounted net cash flows of the related asset over the remaining life
in measuring whether the assets are recoverable. As of September 17, 1996, the
Company has reserved for any of its long-lived assets that are considered to be
impaired.
Revenue Recognition
The Company recognizes franchising and licensing revenues on an accrual basis
as those revenues are earned. Product sales are recognized as the product is
delivered or shipped to the customer.
F-97
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Leases
The Company has various operating lease commitments on both Company-owned and
franchised store locations and equipment. Operating leases with escalating
payment terms, including leases underlying subleases with franchisees, are
expensed on a straight-line basis over the life of the related lease.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Fair Value of Financial Instruments
The notes payable and cumulative preferred stock (see Note 6) are presented
in the accompanying consolidated balance sheet at a total of $60,237,000 as of
September 17, 1996. All such obligations were subsequently settled in two sales
transactions (see Note 11) for $41,800,000.
Cumulative Foreign Currency Translation Adjustment
The assets and liabilities of foreign operations are translated into United
States dollars using exchange rates in effect at the end of the accounting
period. Revenues and expenses are translated using the average exchange rate
during the period. Differences in exchange rates arising from foreign currency
translation are recorded as a separate component of stockholders' deficit. In
connection with a sale or liquidation of an investment in a foreign subsidiary,
the accumulated translation adjustment attributable to that subsidiary is
transferred from stockholders' deficit and is reported as a gain or loss.
3. NOTES PAYABLE
On June 30, 1994, the Company entered into the Amended and Restated
Restructuring Agreement (the "Restructuring Agreement") with its lenders of
long-term debt (the "Lenders"). In connection with the Restructuring Agreement,
the Lenders exchanged approximately $56,900,000 of existing long-term notes
payable for $15,000,000 of new Series A secured notes, 51,292,000 shares of the
Company's common stock, 21,885,000 shares of cumulative preferred stock of MFI
and 20,000,000 shares of cumulative preferred stock of MFD.
After the issuances of common stock, the Lenders' total ownership interest in
the Company's common stock was approximately 85 percent. Because the total
estimated future cash payments (including interest and principal) required as
of June 30, 1994 under the terms of the new Series A secured notes was less
than the principal amount plus the previous carrying amount of the unamortized
premium on restructured debt by approximately $25,200,000, the Company reduced
the premium on restructured debt by that amount. The remaining unamortized
premium on restructured debt is being amortized over the life of the Series A
secured notes to produce an effective interest rate of zero percent.
F-98
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes payable consist of the following as of September 17, 1996:
<TABLE>
<CAPTION>
1996
------------
<S> <C>
Series A secured notes, interest at 13 percent, payable
quarterly, secured by all common stock and essentially all
assets of the Company, principal due in varying installments
through March 31, 1998...................................... $ 15,000,000
Series A interest deferral notes, interest at 13 percent,
payable quarterly, secured by all common stock and
essentially all assets of the Company, principal due March
31, 1998.................................................... 1,511,000
Series A interest deferral notes, interest at 15 percent,
secured by all common stock and essentially all assets of
the Company, principal and interest originally due August
15, 1996, subsequently extended through September 20, 1996.. 1,598,000
Other........................................................ 243,000
Premium on restructured debt................................. 2,872,000
21,224,000
Less current portion......................................... (21,224,000)
------------
$ --
============
</TABLE>
The Series A secured notes and the Series A interest deferral notes were paid
by the Company on September 20, 1996 in connection with the receipt of proceeds
from two simultaneous but separate asset sale transactions (see Note 11). As a
result, all of the Series A notes referred to above are reflected as current
liabilities in the accompanying September 17, 1996 consolidated balance sheet.
4. INCOME TAXES
The components of the provision (benefit) for income taxes for the year ended
December 30, 1995 and for the period ended September 17, 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------- -----------
<S> <C> <C>
Current:
Federal.............................................. $ -- $ --
State................................................ 241,000 205,000
Deferred:
Federal.............................................. -- (1,125,000)
State................................................ -- (109,000)
Change in valuation allowance........................ -- 1,234,000
-------- -----------
Total provision for income taxes................... $241,000 $ 205,000
======== ===========
</TABLE>
The Company incurred financial reporting losses for the year ended December
30, 1995 and for the period ended September 17, 1996 for which no benefits have
been recorded in the accompanying consolidated statements of operations due to
appropriate valuation allowances being provided. The provisions for income
taxes are solely related to minimum state income tax requirements.
Current deferred income tax assets relate to temporary differences between
financial statement and income tax recognition of bad debts, unearned revenues,
and the store closure reserve. Long-term deferred income tax assets relate to
temporary differences between financial statement and income tax recognition of
depreciation and write-downs of certain property and equipment, net operating
losses and other income tax credit carryforwards.
F-99
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Management has provided a valuation allowance equal to the amount of the
deferred income tax assets arising from the Company's net operating loss
carryforwards. As of September 17, 1996, the Company had net operating loss
carryforwards for tax reporting purposes totaling approximately $90,900,000.
These net operating loss carryforwards expire as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2001......................................................... $ 214,000
2002......................................................... 4,600,000
2003......................................................... 19,993,000
2004......................................................... 7,693,000
2005......................................................... 9,143,000
Thereafter (through 2011).................................... 49,257,000
-----------
$90,900,000
===========
</TABLE>
Subsequent to the sale of substantially all of its assets (see Note 1), the
Company utilized certain of its net operating loss carryforwards to offset the
related gain. The remainder of the net operating loss carryforwards may not be
used.
5. STORE CLOSURE RESERVE
As of December 30, 1995, the Company had a store closure reserve of
approximately $2,510,000 for the anticipated costs to franchise or close 26
stores during 1996. During the period from December 31, 1995 to September 17,
1996, the Company closed 12 stores and provided for additional store closure
expenses totaling $1,000,000. As of September 17, 1996, the remaining store
closure reserve totaled approximately $1,564,000, of which approximately
$1,270,000 is current and approximately $294,000 is long-term. In management's
opinion, the store closure reserve is adequate for stores identified to be
closed.
The Company's management reviews the historic and projected operating
performance of its stores on an annual basis to identify underperforming stores
for impairment of property investment or targeted closing. The Company's policy
is to write-off any net property investment for underperforming stores
identified to have permanent impairment of investment. When a store is
identified for targeted closing, the Company's policy is to provide for the
costs of closing the store, which are predominantly estimated lease settlement
costs.
6. CUMULATIVE PREFERRED STOCK
In connection with the Restructuring Agreement, the Company issued 21,885,000
and 20,000,000 shares of cumulative preferred stock of MFI and MFD,
respectively. The MFD preferred stock is reflected as "minority interest in
majority owned subsidiary" in the accompanying consolidated balance sheet. The
MFI and MFD cumulative preferred stocks have dividend rates of 18 percent and
10 percent, respectively, which accumulate on a semi-annual basis. The
dividends are computed based upon the liquidation preference rates which are
defined in the Restructuring Agreement as $1.00 per share plus any unrecorded
dividends in arrears for each issue and are payable only as declared by the
Board of Directors. As of September 17, 1996, the Board of Directors had not
declared dividends for either series of preferred stock. Accordingly, dividends
in arrears on the MFI and MFD preferred stocks which have not been recorded in
the accompanying consolidated financial statements as of September 17, 1996
totaled $10,200,000 and $4,834,000, respectively.
In the event of liquidation or dissolution of the Company, the holders of the
cumulative preferred stocks of MFI and MFD will be entitled to receive from the
assets of the Company available for distribution prior to any distribution to
common stockholders an amount per share equal to the sum of (i) $1.00 for each
outstanding
F-100
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
preferred share and (ii) an amount equal to all unpaid dividends on such
preferred shares through the distribution date. As of September 17, 1996, the
distribution preference for the MFI and MFD preferred stockholders totaled
$32,085,000 and $24,834,000, respectively. Also, if a change in control of the
Company occurs, preferred stockholders shall have the right to convert all (but
not less than all) of their preferred shares into notes payable in an amount
equal to the liquidation preference value of their preferred shares. The
Company also has the right at any time to redeem shares of the MFI and MFD
preferred stocks at a price of $1.00 per share plus all accrued but unpaid
dividends through the date of redemption.
Subsequent to period end, the Company completed two sales transactions (see
Note 11) wherein all of the cumulative preferred stock was redeemed at a
discount.
7. OPTION AGREEMENT
As part of the Restructuring Agreement, the Lenders granted two directors an
option to acquire common stock from the Lenders which, if the option was
exercised as of September 17, 1996, would constitute approximately 51 percent
of the Company's issued common stock. The option is exercisable through
September 30, 1999 in whole, but not in part, at a price approximating the
amount of debt forgiven by the Lenders plus interest at nine percent from the
date of the grant of the option. In the event the option is exercised, the
directors are also required to offer other minority stockholders the same price
per share for their common stock.
In connection with the two sales transactions described in Note 11, the two
directors waived their options to acquire common stock from the Lenders.
8. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is the subject of certain legal actions, which it considers
routine to its business activities. As of September 17, 1996, management, after
consultation with legal counsel, believes that the potential liability to the
Company under such actions is adequately accrued or insured for, or will not
materially affect the Company's consolidated financial position or results of
operations.
Operating Leases
The Company leases retail store facilities, office space and equipment under
long-term noncancelable operating lease agreements with remaining terms of one
to 10 years. The future minimum lease payments due under these operating
leases, which include required lease payments for those stores that have been
subleased, as of September 17, 1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997.......................................................... $12,395,000
1998.......................................................... 10,684,000
1999.......................................................... 8,376,000
2000.......................................................... 5,737,000
2001.......................................................... 3,757,000
Thereafter.................................................... 4,855,000
-----------
$45,804,000
===========
</TABLE>
Certain of the leases provide for contingent rentals based on gross revenues.
Total rental expense including contingent rentals and net of sublease rentals
received, under the above operating leases for the year ended
F-101
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 30, 1995 and for the period ended September 17, 1996 was approximately
$13,697,000 and $7,405,000, respectively. As part of the Company's franchising
program, certain leases have been subleased to franchisees. The future minimum
sublease payments due to the Company under these leases as of September 17,
1996 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1997.......................................................... $ 3,741,000
1998.......................................................... 3,119,000
1999.......................................................... 2,512,000
2000.......................................................... 1,776,000
2001.......................................................... 1,038,000
Thereafter.................................................... 374,000
-----------
$12,560,000
===========
</TABLE>
Contractual Arrangements
The Company has entered into a supply agreement to buy frozen dough products
through 1998. The agreement stipulates minimum annual purchase commitments for
1997 and 1998. The Company and the supplier may terminate the supply agreement
if the other party defaults on any of the performance covenants.
The Company has assumed an agreement with a third-party lender to provide
financing to franchisees for the purchase of existing Company stores. Under the
terms of the agreement, a maximum of $5,000,000 may be borrowed from the lender
by franchisees of which the Company has agreed to guarantee a maximum of
$2,000,000. Outstanding franchisee borrowings guaranteed by the Company under
this agreement at September 17, 1996 were approximately $707,400. Under the
terms of the agreement, the Company is required to assume any franchisee
borrowings which are in default as defined. As of September 17, 1996, the
Company has assumed loans totaling approximately $240,000, which are included
in notes payable.
As of December 30, 1995, the Company had recorded deferred credits,
representing vendor rebates, of approximately $1,486,000 under a long-term
marketing and supply agreement with a supplier. Under the terms of the
agreement, the Company was obligated to purchase a minimum amount of product
from the supplier. The supplier periodically prepays rebates to the Company for
anticipated purchases. The Company records the prepayments as deferred credits
and amortizes them ratably as purchases are made from the supplier. In April
1996, the Company and the supplier renegotiated the agreement whereby the
supplier would reduce the unearned portion of the deferred credits to $504,000
and advance the Company a rebate of $800,000 in exchange for an extension of
the termination date and a modification of the purchase commitment. The
termination date of the renegotiated agreement will be the later of March 31,
2001 or when the Company has met its purchase commitment. The Company reduced
food costs by approximately $1,082,000 during the period ended September 17,
1996 related to this arrangement and its renegotiation. The remaining balance
of approximately $1,204,000 is included in deferred credits as of September 17,
1996.
9. RELATED-PARTY TRANSACTIONS
Under the terms of a licensing agreement with an entity which is owned in
part by a former director of the Company, the Company is required to pay an
annual software maintenance fee. During the year ended December 30, 1995 and
for the period ended September 17, 1996, the Company paid maintenance fees of
approximately $100,000 and $17,000, respectively, which are included in general
and administrative expenses.
F-102
<PAGE>
MRS. FIELDS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company leases certain office space to an entity which is owned in part
by a former director of the Company. Billings to the entity during the year
ended December 30, 1995 and the period ended September 17, 1996 totaled
approximately $152,000 and $136,000, respectively, of which approximately
$9,000 is included in accounts receivable as of September 17, 1996.
10. EMPLOYEE BENEFIT PLAN
The Company sponsors the Mrs. Fields 401(k) Plan (the "Plan") for all
eligible employees. Under the terms of the Plan, employees can make
contributions to the Plan, a portion of which is matched by contributions from
the Company. The total Company contributions to the Plan for the year ended
December 30, 1995 and for the period ended September 17, 1996 were
approximately $42,000 and $23,000, respectively.
11. SUBSEQUENT EVENT
On September 17, 1996, the Company completed two simultaneous but separate
asset sale transactions wherein the Company (i) sold certain assets and
relinquished certain liabilities of the Company in accordance with an Asset
Purchase Agreement dated August 7, 1996, among the Company, Mrs. Fields'
Original Cookies, Inc. and Capricorn Investors II, L.P., and (ii) sold certain
assets of the Company in accordance with an Asset Purchase Agreement dated
August 7, 1996, as amended by the First Amendment dated as of September 17,
1996, among the Company, The Mrs. Fields' Brand, Inc. and Capricorn Investors
II, L.P.
The combined sales price for the net assets sold was approximately
$41,800,000. The Company received approximately $12,157,000 in cash and
approximately $29,643,000 in senior and subordinated notes.
The proceeds from these net asset sales were used in part to repay the Series
A notes and the Series A interest deferral notes on September 20, 1996 (see
Note 3).
F-103
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Original Cookie Company, Incorporated and Hot Sam Company, Inc.:
We have audited the accompanying combined balance sheet of The Original
Cookie Company, Incorporated and the carved-out portion of Hot Sam Company,
Inc., both Delaware corporations (subsidiaries of Chocamerican, Inc.), as of
September 17, 1996, and the related combined statements of operations,
stockholders' equity and cash flows for the year ended December 30, 1995, and
for the period December 31, 1995 to September 17, 1996. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The
Original Cookie Company, Incorporated and the carved-out portion of Hot Sam
Company, Inc. as of September 17, 1996, and the results of their operations and
their cash flows for the year ended December 30, 1995, and for the period
December 31, 1995 to September 17, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Cleveland, Ohio
July 11, 1997
F-104
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 655
Accounts receivable........................................... 340
Inventories................................................... 1,728
Prepaids and other............................................ 984
--------
Total current assets........................................ 3,707
--------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements........................................ 31,329
Furniture and fixtures........................................ 7,719
Buildings and improvements.................................... 639
Land.......................................................... 69
--------
39,756
Accumulated depreciation and amortization..................... (22,687)
--------
Net property and equipment.................................. 17,069
--------
OTHER ASSETS, net............................................... 256
--------
COST IN EXCESS OF FAIR VALUE OF NET ASSETS OF PURCHASED
BUSINESS, net of accumulated amortization of $9,092............ 37,992
--------
$ 59,024
========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this combined balance sheet.
F-105
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED BALANCE SHEET (CONTINUED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 17,
1996
-------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................ $ 1,696
Accrued payroll and related expenses............................ 2,208
Accrued liabilities............................................. 3,443
-------
Total current liabilities..................................... 7,347
-------
LONG-TERM LIABILITIES:
Deferred lease credit........................................... 1,653
Store closure reserve........................................... 1,002
Related-party notes payable..................................... 30,977
Other........................................................... 1,102
-------
Total long-term liabilities................................... 34,734
-------
COMMITMENTS (NOTE 9)
STOCKHOLDERS' EQUITY:
Common stock.................................................... 10,000
Additional paid-in capital...................................... 15,873
Accumulated deficit............................................. (8,930)
-------
Total stockholders' equity.................................... 16,943
-------
Total liabilities and stockholders' equity.................... $59,024
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this combined balance sheet.
F-106
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
Year Ended 1995 to
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
NET SALES............................................ $85,581 $54,366
------- -------
OPERATING COSTS AND EXPENSES:
Food cost of sales................................. 19,996 12,728
Selling and occupancy expenses..................... 47,032 31,935
General and administrative expenses................ 8,425 5,538
Severance and related expenses..................... -- 2,000
Depreciation and amortization...................... 6,902 4,937
Provision for store closure costs.................. 791 --
------- -------
Total operating costs and expenses............... 83,146 57,138
------- -------
INCOME (LOSS) FROM OPERATIONS........................ 2,435 (2,772)
INTEREST EXPENSE, net................................ (4,268) (2,828)
OTHER EXPENSE........................................ -- (45)
------- -------
LOSS BEFORE INCOME TAXES............................. (1,833) (5,645)
PROVISION FOR INCOME TAXES........................... 263 --
------- -------
NET LOSS............................................. $(2,096) $(5,645)
======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-107
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Retained Total
Common Paid-in Earnings Stockholders'
Stock Capital (Deficit) Equity
------- ---------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............ $10,000 $15,873 $(1,189) $24,684
Net loss.......................... -- -- (2,096) (2,096)
------- ------- ------- -------
BALANCE, DECEMBER 30, 1995.......... 10,000 15,873 (3,285) 22,588
Net loss.......................... -- -- (5,645) (5,645)
------- ------- ------- -------
BALANCE, SEPTEMBER 17, 1996......... $10,000 $15,873 $(8,930) $16,943
======= ======= ======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-108
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
Year Ended 1995 to
December 30, September 17,
1995 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(2,096) $(5,645)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities--
Depreciation and amortization...................... 6,902 4,937
Changes in assets and liabilities--
Increase in accounts receivable.................. (61) (279)
Decrease (increase) in related-party
receivables/payables............................ 18 (169)
Decrease (increase) in inventories............... 461 (65)
Decrease in prepaids and other................... 695 967
Decrease (increase) in other assets.............. 64 (60)
(Decrease) increase in accounts payable.......... (476) 410
Decrease in accrued payroll and related
expenses........................................ (331) (384)
Increase (decrease) in accrued liabilities....... (1,196) 330
Increase in other long-term liabilities.......... 231 73
Increase (decrease) in deferred lease credit..... 38 (111)
Increase (decrease) in store closure reserve..... 202 (382)
------- -------
Net cash provided by (used in) operating
activities.................................... 4,451 (378)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net........... (568) (1,200)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to related party........................ (4,599) (1,380)
------- -------
CASH AND CASH EQUIVALENTS:
Net decrease during the period..................... (716) (2,958)
Balance, beginning of the period................... 4,329 3,613
------- -------
Balance, end of the period......................... $ 3,613 $ 655
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
State and local income taxes paid.................. $ 234 $ 82
======= =======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-109
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
The Original Cookie Company, Incorporated ("OCCI") and Hot Sam Company, Inc.
("HSCI") (collectively, the "Companies") are wholly owned subsidiaries of
Chocamerican, Inc., which is a wholly owned subsidiary of Midial S.A., a French
company (collectively, the "Parent"). The Companies operated specialty
retailing outlets providing prepared goods. OCCI operated approximately 240
stores in over 35 states, offering a variety of fresh baked cookies and
brownies and beverages. HSCI operated approximately 190 stores in over 30
states providing a variety of fresh baked pretzels and pretzel sticks, toppings
and beverages.
On September 17, 1996, all of the operations of the Companies including
certain assets and liabilities were sold to a nonrelated party (the "Buyer")
who assumed responsibility for all retail locations as of that date. Except for
approximately $2,000,000 of payments to employees for severance and related
costs which is included in the operating results for the period December 31,
1995 to September 17, 1996, these combined financial statements do not reflect
any effect of such sale.
The Companies traditionally experienced their highest revenues in the fourth
calendar quarter. Because the Companies' stores were heavily concentrated in
shopping malls, the Companies' sales performance was somewhat dependent on the
performance of those malls. Because of such seasonality and the extra payroll
costs noted above, the results for the period December 31, 1995 to September
17, 1996 are not necessarily indicative of results that would have been
achieved for an entire calendar year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Companies' fiscal year ends on the Saturday closest to December 31, which
results in a 52 or 53-week year.
Basis of Presentation
The combined financial statements include the accounts of OCCI and HSCI
except that these statements do not reflect the results of the operations and
the related assets and liabilities of a group of retail food locations owned
and operated by HSCI primarily under the name of Corn Dog. The Corn Dog
operations were sold to a nonrelated entity in April 1996 and the accompanying
combined financial statements exclude these operations and net assets, as well
as the results of the sale. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and 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.
F-110
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Inventories
The Companies' inventories were stated at the lower of cost (first-in, first-
out method) or market value. Inventories consisted of the following at
September 17, 1996:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Food and beverages................................................ $1,215,000
Small wares....................................................... 513,000
----------
$1,728,000
==========
</TABLE>
Property and Equipment
The Companies' policy is to provide depreciation using the straight-line
method over a period which is sufficient to amortize the cost of the asset
during its useful life.
The estimated useful lives for depreciation purposes are:
<TABLE>
<S> <C>
Leasehold improvements........................................ 5 to 10 years
Furniture and fixtures........................................ 3 to 10 years
Buildings and improvements.................................... 10 to 50 years
</TABLE>
Intangible Assets
Cost in excess of fair value of net assets of purchased business which was
recorded as part of the acquisition of the Companies by the Parent was
amortized on a straight-line basis over 40 years. Management evaluated the
expected cash flows of such assets periodically and determined no adjustments
were appropriate. Subsequent to September 17, 1996, the Companies expensed all
such intangibles in connection with recording the effects of the sales of the
operations.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Companies consider all
temporary cash investments purchased with an original maturity of three months
or less to be cash equivalents.
Leases
The Companies have various operating lease commitments on their retail store
locations. Operating leases with escalating payment terms are expensed on a
straight-line basis over the life of the related lease.
Asset Impairment
The Companies adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" for the period December 31, 1995 to September 17,
1996. SFAS No. 121 requires the Companies to evaluate the recoverability of
long-lived assets based on expected future cash flows. Prior to the adoption of
SFAS No. 121, the Companies accounted for long-lived operating assets as
discussed both above and in Note 6. The adoption of this standard did not have
a material impact on the Companies' financial position or results of
operations.
Revenue Recognition
Revenues from product sales are recognized at the point of sale to the
customer.
F-111
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Income Taxes
The Companies recognize deferred income tax assets or liabilities for
expected future income tax consequences of events that have been recognized in
the financial statements or income tax returns. Under this method, deferred
income tax assets or liabilities are determined based upon the difference
between the financial and income tax bases of assets and liabilities using
enacted tax rates expected to apply when differences are expected to be settled
or realized.
3. STOCKHOLDERS' EQUITY
The Companies' common stock at December 30, 1995 and September 17, 1996 is
comprised of the following:
OCCI has common stock with a par value $1 per share, 10,000,000 shares
authorized, issued and outstanding.
HSCI has common stock with a par value $1 per share, 10 shares authorized,
issued and outstanding.
4. RELATED-PARTY NOTES PAYABLE
In addition to debt incurred as part of the purchase by the Parent, the
Companies' cash requirements were provided for by the Parent. These amounts
were evidenced by notes, bearing interest rates ranging from 8% to 12%, and
consisted of $30,977,000 as of September 17, 1996. The notes were paid in part
by the Companies subsequent to September 17, 1996 in connection with the
receipt of proceeds from the sale of certain assets and liabilities to the
Buyer.
5. INCOME TAXES
The Companies have been included in the consolidated income tax returns of a
subsidiary of the Parent which was in a cumulative loss carryforward position
during all of the periods presented in the accompanying combined financial
statements.
The Companies incurred financial reporting losses for the year ended December
30, 1995 and the period December 31, 1995 to September 17, 1996 for which no
benefits have been recorded in the accompanying combined statements of
operations due to appropriate valuation allowances being provided. The
provisions for income taxes are solely related to minimum state income tax
requirements.
Deferred income tax assets relate to temporary differences between financial
statement and income tax recognition of depreciation, store closure reserve and
other accrued liabilities. Management has provided a valuation allowance equal
to the amount of the deferred income tax assets.
6. STORE CLOSURE RESERVE
The Companies annually reviewed the historic and projected operating
performance of their stores and identified underperforming stores for
impairment of property investment and/or targeted closing. The Companies'
policy was to write-off any net property investment for underperforming stores
identified to have permanent impairment of investment. Additionally, when a
store was identified for targeted closing, the Companies' policy was to provide
for the costs of closing the store, which are predominantly estimated lease
settlement costs and/or estimated lease payments after the date of the store
closing.
F-112
<PAGE>
THE ORIGINAL COOKIE COMPANY, INCORPORATED
AND THE CARVED-OUT PORTION OF HOT SAM COMPANY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
An analysis of the activity in the store closure reserve is as follows for
the year ended December 30, 1995 and for the period December 31, 1995 to
September 17, 1996:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Beginning Balance.................................... $1,182,000 $1,384,000
Provision............................................ 791,000 --
Payments and Other Deductions........................ (589,000) (382,000)
---------- ----------
Ending Balance....................................... $1,384,000 $1,002,000
========== ==========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Companies' employees participate in a defined contribution saving plan
which was funded by voluntary employee contributions and by contributions from
the Companies. The Companies' expense for the year ended December 30, 1995, and
for the period December 31, 1995 to September 17, 1996 was $143,000 and
$106,000, respectively.
The Companies do not provide for any other post-retirement benefits.
8. RELATED-PARTY TRANSACTIONS
The Parent provides certain services to the Companies, such as human
resources, accounting and legal, among others. Charges to the Companies for
such administrative services totaled $520,000 for the year ended December 30,
1995 and $175,000 for the period December 31, 1995 to September 17, 1996. In
management's opinion, these charges approximate the fair market value of such
services.
9. COMMITMENTS
Operating Leases
The Companies leased all of their retail store locations. These leases
typically had initial terms of up to 10 years. Certain leases provided for
contingent rentals based on store sales. Generally, the Companies were required
to pay taxes and normal expenses of operating the premises under retail store
leases. Total rental expense was approximately $15,038,000 for the year ended
December 30, 1995. Total rental expense for the period ended September 17, 1996
was approximately $11,165,000.
The minimum rentals under operating leases subsequent to September 17, 1996
are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
Remaining 1996................................................... $ 5,346,000
1997............................................................. 15,886,000
1998............................................................. 13,763,000
1999............................................................. 11,691,000
2000............................................................. 9,712,000
Thereafter....................................................... 20,190,000
-----------
$76,588,000
===========
</TABLE>
Effective September 17, 1996, the Buyer assumed responsibility for all open
store leases but the Companies remain contingently liable under certain of
these leases. However, management is not aware of any actual or threatened
claims under these leases.
F-113
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Cookies USA, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' deficit, and
of cash flows present fairly, in all material respects, the financial position
of Cookies USA, Inc. and its subsidiary at June 29, 1997 and June 28, 1998, and
the results of their operations and their cash flows for each of the three
fifty-two week periods in the period ended June 28, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PriceWaterhouseCoopers LLP
Atlanta, Georgia
August 24, 1998
F-114
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 4,885 $ 8,382
Accounts receivable--trade................................. 1,702 2,042
Inventory (Notes 1 and 2).................................. 1,292 1,212
Prepaid expenses (Note 3).................................. 1,227 1,245
Current deferred income tax benefit (Notes 1 and 10)....... 392 872
Current portion of notes receivable (Note 4)............... 867 88
Other receivables.......................................... 8 8
------- -------
Total current assets..................................... 10,373 13,849
------- -------
Property and equipment, net of accumulated depreciation (Note
5).......................................................... 6,304 4,916
Construction in progress, net of construction deposits
received from franchisees................................... 92 163
------- -------
6,396 5,079
------- -------
Other assets:
Deferred loan costs, net of accumulated amortization of
$2,050 and $2,626, respectively (Note 1).................. 2,050 1,474
Notes receivable, net of current portion (Note 4).......... 302 352
Deferred income tax benefit (Notes 1 and 10)............... 2,372 1,438
Deposits................................................... 50 49
Accrued straight-line minimum rent receivable for subleases
to franchisees (Note 1)................................... 1,267 1,388
------- -------
6,041 4,701
------- -------
Cost in excess of fair value of net assets acquired
(goodwill), net of accumulated amortization of $3,104 and
$3,975, respectively (Note 1)............................... 31,848 30,977
------- -------
$54,658 $54,606
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-115
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable......................................... $ 376 $ 913
Sales taxes payable...................................... 105 102
Accrued interest payable................................. 2,202 2,202
Accrued expenses (Note 6)................................ 1,568 1,075
Deposits................................................. 673 727
-------- --------
Total current liabilities.............................. 4,924 5,019
-------- --------
Capital lease obligations (Note 9)......................... 62 36
-------- --------
Accrued straight-line minimum rent payable (Note 1)........ 2,113 2,164
-------- --------
Long-term debt (Note 7):
Senior secured notes..................................... 40,000 40,000
Original issue discount, net of accumulated amortization
of $102 and $131, respectively.......................... (98) (69)
Subordinated unsecured notes payable..................... 10,000 10,000
-------- --------
Total long-term debt................................... 49,902 49,931
-------- --------
Commitments and contingencies (Note 9)
Mandatorily redeemable preferred stock (Note 11):
Senior cumulative (6.00%) convertible; $1.00 par value;
10,500 shares authorized, issued and outstanding........ 12,739 13,369
Junior Class A cumulative ($50 per annum); $1.00 par
value; 2,500 shares authorized, issued and outstanding.. 2,944 3,069
Junior Class B cumulative ($50 per annum); $1.00 par
value; 750 shares authorized, issued and outstanding.... 883 921
-------- --------
Total mandatorily redeemable preferred stock........... 16,566 17,359
-------- --------
Common stock and other stockholders' deficit:
Common stock, $.01 par value; 115,000 shares authorized;
82,800 shares issued and outstanding.................... 1 1
Additional paid-in capital............................... 449 449
Excess of purchase price over predecessor basis.......... (10,164) (10,164)
Accumulated deficit...................................... (9,195) (10,189)
-------- --------
Total stockholders' deficit............................ (18,909) (19,903)
-------- --------
$ 54,658 $ 54,606
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-116
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Fifty-Two For the Fifty-Two For the Fifty-Two
Week Period Week Period Week Period
Ended Ended Ended
June 30, 1996 June 29, 1997 June 28, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Cookie and beverage
sales................ $24,719 $22,375 $18,854
Batter sales to
franchisees.......... 10,104 11,270 12,214
Franchise royalties... 4,289 4,729 5,267
Franchise license
fees--existing and
new stores........... 521 675 503
Other, net............ 115 66 139
------- ------- -------
Total revenue....... 39,748 39,115 36,977
------- ------- -------
Operating expenses:
Cost of sales......... 19,523 18,615 17,056
Retail store
occupancy............ 7,379 7,055 5,737
Other retail store
expenses............. 1,316 1,019 870
Selling, general and
administrative
expenses............. 7,309 7,619 7,220
Management fee expense
(Note 14)............ 250 250 250
------- ------- -------
Total operating
expenses........... 35,777 34,558 31,133
------- ------- -------
Income from operations.. 3,971 4,557 5,844
------- ------- -------
Other (income) expenses,
net:
Interest income....... (56) (251) (346)
Interest expense...... 5,646 5,634 5,635
Amortization of
deferred loan costs.. 572 586 576
Gain on sale of
existing stores...... (636) (927) (370)
------- ------- -------
Total other
expenses, net...... 5,526 5,042 5,495
------- ------- -------
Income (loss)
before income
taxes............ (1,555) (485) 349
State and federal income
tax expense (benefit)
(Note 10).............. (194) 261 551
------- ------- -------
Net loss.......... $(1,361) $ (746) $ (202)
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statement are an integral part
to these statements.
F-117
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
(Dollars in Thousands)
<TABLE>
<CAPTION>
Excess of
Purchase
Common Stock Additional Price Over Total
------------- Paid-in Predecessor Accumulated Stockholders'
Shares Amount Capital Basis Deficit Deficit
------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 29,
1995................... 82,800 $ 1 $449 $(10,164) $ (5,503) $(15,217)
Net loss for the
fifty-two week period
ended June 30, 1996.. -- -- -- -- (1,361) (1,361)
Redeemable preferred
stock accretion...... -- -- -- -- (792) (792)
------ ---- ---- -------- -------- --------
Balance at June 30,
1996................... 82,800 1 449 (10,164) (7,656) (17,370)
Net loss for the
fifty-two week period
ended June 29, 1997.. -- -- -- -- (746) (746)
Redeemable preferred
stock accretion...... -- -- -- -- (793) (793)
------ ---- ---- -------- -------- --------
Balance at June 29,
1997................... 82,800 1 449 (10,164) (9,195) (18,909)
Net loss for the
fifty-two week period
ended June 28, 1998.. -- -- -- -- (202) (202)
Redeemable preferred
stock accretion...... -- -- -- -- (792) (792)
------ ---- ---- -------- -------- --------
Balance at June 28,
1998................... 82,800 $ 1 $449 $(10,164) $(10,189) $(19,903)
====== ==== ==== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-118
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Fifty- For the Fifty- For the Fifty-
Two Week Two Week Two Week
Period Ended Period Ended Period Ended
June 30, 1996 June 29, 1997 June 28, 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(1,361) $ (746) $ (202)
Adjustments to reconcile net loss
to net cash provided by (used
for) operating activities:
Depreciation..................... 1,854 1,940 1,604
Amortization of cost in excess of
fair value of net assets
acquired (goodwill)............. 870 871 871
Amortization of deferred loan
costs........................... 572 586 576
Amortization of original issue
discount........................ 29 29 29
Net gain on sales and disposals
of property, equipment and
inventory....................... (402) (550) (247)
Net (decrease) increase in
accrued straight-line minimum
rent receivable and payable..... 86 (29) (70)
Changes in assets and
liabilities:
Decrease (increase) in accounts
receivable.................... (550) (195) (340)
Decrease (increase) in
inventory..................... (140) 95 80
Decrease (increase) in prepaid
expenses...................... (100) (52) (18)
Decrease (increase) in current
deferred tax benefit.......... (50) (195) (480)
Decrease (increase) in other
receivables................... 165 56 --
Decrease (increase) in deferred
tax benefit................... (186) 348 934
Decrease (increase) in other
assets........................ (7) 11 1
Increase (decrease) in accounts
payable....................... (462) (456) 538
Increase (decrease) in sales
taxes payable................. 2 (25) (3)
Increase (decrease) in accrued
interest payable.............. -- (3) --
Increase (decrease) in accrued
expenses...................... (913) 172 (493)
Increase (decrease) in
deposits...................... (22) (66) 54
------- ------- -------
Net cash provided by (used
for) operating activities.... (615) 1,791 2,834
------- ------- -------
Cash flows from investing
activities:
Acquisitions of property and
equipment, including net
increase in construction in
progress, net of construction
deposits received from
franchisees..................... (1,913) (1,084) (1,263)
Proceeds from sales and disposals
of property and equipment....... 1,146 453 1,005
Proceeds from collection of notes
receivable...................... 448 474 947
------- ------- -------
Net cash provided by (used
for) investing activities.... (319) (157) 689
------- ------- -------
Cash flows from financing
activities:
Payments of deferred loan costs.. -- (27) --
Principal repayments under
capital lease obligations....... (15) (25) (26)
------- ------- -------
Net cash used for financing
activities................... (15) (52) (26)
------- ------- -------
Net increase (decrease) in cash
and cash equivalents during
period........................... (949) 1,582 3,497
Cash and cash equivalents,
beginning of period.............. 4,252 3,303 4,885
------- ------- -------
Cash and cash equivalents, end of
period........................... $ 3,303 $ 4,885 $ 8,382
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-119
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
For the Fifty- For the Fifty- For the Fifty-
Two Week Two Week Two Week
Period Ended Period Ended Period Ended
June 30, 1996 June 29, 1997 June 28, 1998
-------------- -------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
Cash paid for:
Interest......................... $5,617 $5,609 $5,606
State and federal income taxes... $ 119 $ 91 $ 286
</TABLE>
Cash paid for state and federal income taxes represents payments made to
government authorities during the periods presented.
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During the fifty-two weeks ended June 30, 1996, June 29,1997 and June 28,
1998, the Company recorded accretion on mandatorily redeemable preferred stock
totaling $792,000, $793,000 and $793,000, respectively.
During the fifty-two weeks ended June 30, 1996, the Company exchanged
accounts receivable from unrelated franchisees totaling $156,000 for fixtures
and equipment and leasehold improvements representing retail cookie stores
previously licensed by franchisees.
During the fifty-two weeks ended June 30, 1996, notes receivable with face
amounts totaling $296,000 were received from unrelated franchisees in
connection with the sale of two Company-operated stores.
During the fifty-two weeks ended June 29, 1997, notes receivable with face
amounts totaling $1,353,000 were received from unrelated franchisees in
connection with the sale of eight Company-operated stores.
During the fifty-two weeks ended June 29, 1997, the Company exchanged
accounts receivable from unrelated franchisees totaling $91,000 for fixtures
and equipment and leasehold improvements representing retail cookie stores
previously licensed by the franchisees.
During the fifty-two weeks ended June 28, 1998, notes receivable with face
amounts totaling $217,000 were received from unrelated franchisees in
connection with the sale of five Company-operated stores.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-120
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Cookies USA, Inc. ("Cookies USA") was incorporated in December 1993 and was
formed by the Jordan Company to acquire 100% of the common stock of The
Original Great American Chocolate Chip Cookie Company, Inc. ("Great American
Cookies"). Great American Cookies is in the business of franchising cookie
stores and manufacturing cookie batter which is sold to Company-operated and
franchised retail stores. The financial statements include the consolidated
accounts of Cookies USA and Great American Cookies (the "Company").
On December 10, 1993, Cookies USA acquired Great American Cookies in several
transactions. Immediately following the acquisition, Great American Cookies
changed its name from The Original Great American Chocolate Chip Cookie
Company, Inc. to Great American Cookie Company, Inc. Due to the 22% interest
retained by the selling stockholders of Great American Cookies via their common
and convertible preferred stock interest in Cookies USA, the excess of purchase
price over predecessor basis as reflected in the stockholders' deficit section
of the accompanying consolidated balance sheets represents the limitation on
the write-up of the assets acquired.
The Company's business follows seasonal trends and experiences its highest
revenues in the fourth calendar quarter. Because the Company's stores are
heavily concentrated in shopping malls, the Company's sales performance is
significantly dependent on the performance of those malls.
Consolidation
The consolidated financial statements include the accounts of Cookies USA and
its subsidiary, Great American Cookies. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Accounting Periods
During the fiscal year ended June 30, 1996, the Company changed its year end
from the last Thursday in the month of June to the last Sunday in the month of
June. As a result, three days were added to the fifty-two week period ended
Thursday, June 27, 1996 to effectively change the Company's fiscal year end to
Sunday, June 30, 1996. This change does not materially impact the comparability
of the years presented in these financial statements.
Use of Estimates in Financial Statements
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 the 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.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and accrued expenses approximate fair value at the
respective balance sheet dates due to the relatively short period to maturity
of these instruments. The long-term notes payable with fixed interest rates are
recorded at face values of $50.0 million at June 29, 1997 and June 28, 1998;
however, the fair values of such long-term notes, based on quoted market
values, are approximately $50.5 million and $51.4 million at June 29, 1997 and
June 28, 1998, respectively.
F-121
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Revenues from the Company-operated stores are recognized in the period the
related cookies and beverages are sold. Revenues from the sale of batter are
recognized at the time of shipment. Franchise royalties, which are based on a
percentage of franchised store sales, are recognized in the same period related
franchise store revenues are generated. Franchise license fee revenues are
recognized at the time that all Company obligations regarding the franchise
sale have been met. Fees received pursuant to development agreements which
grant the right to develop franchised units in future periods in specific
geographic areas are deferred and recognized as income on a pro rata basis as
the Company's obligations regarding the franchised units subject to the
development agreements are met.
Cash Equivalents
The Company considers all highly liquid, short-term investments with original
maturities of three months or less to be cash equivalents. Cash equivalents at
June 29, 1997 and June 28, 1998 consist of short-term commercial paper. These
investments are stated at cost, which approximates market.
Inventories
Inventories of cookie and brownie products, beverage products, paper and
supplies and smallwares are stated at the lower of cost or market with cost
determined based on the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are expensed in the year incurred, while renewals and betterments
that materially extend the life of an asset are capitalized. The cost of assets
sold, retired, or otherwise disposed, and the related accumulated depreciation,
are eliminated from the accounts, and any resulting gain or loss is recognized
in the statement of operations.
Depreciation is provided using straight-line and accelerated methods over the
estimated lives of the assets which are as follows:
<TABLE>
<S> <C>
Building................ 20 years
Furniture, fixtures and
equipment.............. 3-7 years
Building and leasehold
improvements........... Lesser of 8 years or the life of the related lease
</TABLE>
During fiscal year 1996, the Company revised its estimate of the useful life
of certain leasehold improvements. The Company began amortizing leasehold
improvements using accelerated methods over an average of eight years instead
of using the straight-line method over an average of ten years. The effect of
this change in estimate was to increase fiscal year 1996 pre-tax loss by
$214,000.
During fiscal year 1998, the Company revised its estimate of the useful life
of certain computer equipment from five to three years. The effect of this
change in estimate was to decrease fiscal 1998 pre-tax income by $111,000.
Store Opening and Closing Costs
Non-capital expenditures incurred in opening new stores or remodeling
existing stores are expensed in the year incurred. When a store is closed, the
store's unamortized investment in leasehold improvements and fixtures and
equipment is recorded as a loss on store closing.
F-122
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred Loan Costs
Debt issue costs of approximately $4.0 million were incurred in connection
with the issuance of the 10.875% senior secured notes payable due 2001 (see
Note 7). Deferred loan costs are being amortized over the life of the related
notes (85 months), with annual charges to income of approximately $576,000.
Cost in Excess of Fair Value of Net Assets Acquired (Goodwill)
Cost in excess of fair value of net assets acquired (goodwill) is being
amortized over a forty-year period, with annual charges to income of
approximately $870,000.
The carrying value of goodwill is periodically evaluated for indications of
possible impairment. The review is based on comparing the carrying amount to
the undiscounted estimated cash flows from continuing operations over the
remaining amortization period.
Operating Leases
The Company has various operating lease commitments on both Company-operated
and franchised store locations and equipment. Operating leases with escalating
payment terms, including those subleased to franchisees, are recorded on a
straight-line basis over the life of the related lease.
Original Issue Discount
The Company has issued warrants to the holders of the senior secured notes.
The value of the warrants has been accounted for as an original issue discount
and is being amortized over the life of the related notes (85 months), with
annual charges to income of approximately $29,000.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
Concurrent with the acquisition and its termination of the S Corporation
status (see Note 10), the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). In accordance
with the provisions of SFAS 109, deferred income taxes are determined based on
the estimated future tax effects of differences between the financial statement
and tax basis of assets and liabilities given the provisions of the enacted tax
laws.
Earnings Per Share
Earnings per share is not presented, as the Company is a non-public entity
that is closely held.
Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform with the current period presentation.
F-123
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. INVENTORY
The major components of inventory are as follows:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- ----------
<S> <C> <C>
Raw ingredients...................................... $ 237,000 $ 279,000
Batter, including retail stores...................... 368,000 254,000
Beverage syrup....................................... 56,000 43,000
Paper goods and packaging supplies................... 168,000 149,000
Purchased icing and decorative toppings held for
resale.............................................. 52,000 57,000
Equipment held for resale............................ 75,000 43,000
Marketing and miscellaneous supplies held for
resale.............................................. 336,000 387,000
---------- ----------
$1,292,000 $1,212,000
========== ==========
</TABLE>
3. PREPAID EXPENSES
Prepaid expenses consist of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- ----------
<S> <C> <C>
Rent................................................... $1,158,000 $1,178,000
Other.................................................. 69,000 67,000
---------- ----------
$1,227,000 $1,245,000
========== ==========
</TABLE>
4. NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- --------
<S> <C> <C>
Notes receivable....................................... $1,169,000 $440,000
Less current portion................................... (867,000) (88,000)
---------- --------
Notes receivable, net of current portion............... $ 302,000 $352,000
========== ========
</TABLE>
Notes receivable are due from various franchisees and principally result from
the sale of existing Company-operated stores to franchisees. Each note is
guaranteed by the purchaser and collateralized by the assets sold. Short-term
notes generally carry an interest rate of 15% per annum and are intended to
serve as interim financing until the franchisee can secure long-term financing
from a third-party lender. Notes classified as non-current are generally due in
monthly installments of principal and interest, with the interest rates ranging
from between 9% and 12.5% per annum. The aggregate maturities of the notes
receivable are as follows:
<TABLE>
<S> <C>
Fiscal Year Ending June
1999................................................................. $ 88,000
2000................................................................. 140,000
2001................................................................. 94,000
2002................................................................. 41,000
2003................................................................. 8,000
Thereafter........................................................... 69,000
--------
$440,000
========
</TABLE>
F-124
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
----------- -----------
<S> <C> <C>
Land................................................ $ 240,000 $ 240,000
Building............................................ 761,000 761,000
Building and leasehold improvements................. 6,829,000 6,189,000
Furniture, fixtures and equipment................... 3,228,000 3,067,000
----------- -----------
11,058,000 10,257,000
Less accumulated depreciation....................... (4,754,000) (5,341,000)
----------- -----------
Property and equipment, net......................... $ 6,304,000 $ 4,916,000
=========== ===========
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<CAPTION>
June 29, June 28,
1997 1998
----------- -----------
<S> <C> <C>
Employee compensation including payroll taxes....... $ 379,000 $ 388,000
Bonuses payable..................................... 480,000 475,000
Construction expenses............................... 15,000 --
Professional fees................................... 293,000 88,000
Management fees..................................... 188,000 62,000
Other............................................... 213,000 62,000
----------- -----------
$ 1,568,000 $ 1,075,000
=========== ===========
7. LONG-TERM DEBT
Notes payable at June 29, 1997 and June 28, 1998 are described as follows:
<CAPTION>
June 29, June 28,
1997 1998
----------- -----------
<S> <C> <C>
10.875% senior secured notes payable due January
15, 2001, Series B. Interest accrues daily and is
payable semi-annually on January 15 and July 15.
(The notes are secured by certain tangible and
intangible assets, including, but not limited to,
the equipment constituting Great American
Cookies' batter production facility, the capital
stock of all current and future subsidiaries of
Great American Cookies, intellectual property
rights and other intangible assets of Great
American Cookies)................................ $40,000,000 $40,000,000
Original issue discount related to the issuance of
7,200 detachable warrants with the 10.875% senior
secured notes.................................... (98,000) (69,000)
12.5% subordinated unsecured note payable due
October 31, 2003 with initial annual prepayment
thereof due October 31, 2001. Interest accrues
daily and is payable semi-annually on April 30
and October 31................................... 10,000,000 10,000,000
----------- -----------
$49,902,000 $49,931,000
=========== ===========
</TABLE>
F-125
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The $10 million of subordinated notes issued by Cookies USA have principal
payments due as follows: $2.5 million due October 31, 2001; $2.5 million due
October 31, 2002; and $5.0 million due October 31, 2003. As Great American
Cookies is the sole operating unit of the consolidated entity, Great American
Cookies is the sole source of any cash to be paid by Cookies USA as interest
and principal payment on such debt. Such payments will be made primarily via
dividends to Cookies USA. Such dividends are subject to certain covenants
provided for under the senior secured notes (see Note 11).
Great American Cookies is subject to certain covenants provided for under the
indenture including limitations on restricted payments, incurrence of
indebtedness and issuances of preferred stock, asset sales, granting of liens,
restrictions on subsidiary dividends, mergers, consolidations, sale of assets,
and on transactions with affiliates, various reporting requirements to the
holders of the senior secured notes and the Securities and Exchange Commission
and maintenance of a fixed charge coverage ratio. If a violation of a covenant
occurs, the holders of at least 25% in principal amount of the then outstanding
senior secured notes may declare all outstanding senior secured notes to be due
and payable immediately (see Note 11).
Upon the occurrence of a change of control as defined in the note agreements,
the Company will be required to (i) offer to repurchase all of the 10.875%
senior secured notes then outstanding at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of repurchase and (ii) repurchase the 12.5% subordinated notes at par
plus accrued and unpaid interest, if any, to the date of repurchase.
8. 401(K) PROFIT-SHARING PLAN
The Company provides a defined contribution profit-sharing plan (the "Plan")
for all employees meeting certain requirements. On February 14, 1997, the
Company amended the Plan to include a pre-tax savings provision in accordance
with Section 401(k) of the Internal Revenue Code.
Under the Plan, eligible employees may contribute as much as 15% of
compensation up to the federal statutory limit, with the Company matching 25%
of the first 6% of compensation contributed by the employee. The Company's
matching portion of the Plan contributions resulted in expense of $9,000 and
$39,000 in fiscal years 1997 and 1998, respectively. During fiscal year 1996,
no amounts were expensed for profit-sharing plan contributions.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has various operating lease commitments on both Company-operated
and franchised store locations. These leases generally contain escalating
rental payments and various provisions for contingent rental payments based on
sales volume. Future minimum lease payments, including scheduled escalating
rental payments, as of June 28, 1998 are as follows:
<TABLE>
<CAPTION>
Subleases to
Leases Franchises Net
----------- ------------ -----------
<S> <C> <C> <C>
Fiscal Year Ending June
1999.................................. $ 9,796,000 $ 7,071,000 $ 2,725,000
2000.................................. 8,797,000 6,369,000 2,428,000
2001.................................. 7,586,000 5,589,000 1,997,000
2002.................................. 6,540,000 4,747,000 1,793,000
2003.................................. 5,368,000 3,909,000 1,459,000
Thereafter............................ 9,737,000 7,331,000 2,406,000
----------- ----------- -----------
$47,824,000 $35,016,000 $12,808,000
=========== =========== ===========
</TABLE>
F-126
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Operating leases with escalating payment terms, including those subleased to
franchisees, are expensed on a straight-line basis over the life of the related
lease.
For the fifty-two week periods ended June 30, 1996, June 29, 1997 and June
28, 1998, gross rent expense (including mall pass-through charges) was
approximately $13,332,000, $14,135,000 and $13,593,000, respectively, while
sublease income (including mall pass-through charges) was approximately
$9,628,000, $10,533,000 and $10,571,000, respectively.
Capital Leases
The Company leases various office equipment under capital lease agreements
expiring on various dates through 2000. The Company's aggregate future
obligation under these agreements, net of interest expense, is $62,000 as of
June 29, 1997 and $36,000 as of June 28, 1998.
Lease Guarantees
In connection with the sale of existing Company-operated stores to
franchisees, the Company has guaranteed certain lease renewals to the
prospective franchisee. If such leases are not obtained, then predetermined
payments shall be made to the franchisees as follows:
<TABLE>
<CAPTION>
Number
of
Lease Amount of
Renewals Guarantee
-------- ---------
<S> <C> <C>
Fiscal Year of Lease Expiration
1999.................................................... 1 $ 75,000
2000.................................................... 1 24,000
2001.................................................... -- --
2002.................................................... 1 60,000
--- --------
$159,000
========
</TABLE>
As of June 28, 1998, the Company has not recorded any liability with respect
to these guarantees as these amounts represent loss contingencies which
management believes are not probable.
Purchase Commitments
The Company is committed to purchase certain raw materials from various
suppliers over the next year at fixed prices. As of June 28, 1998, such
purchase commitments totaled approximately $1,750,000.
Employment Agreements
On December 10, 1993, the Company entered into annual renewable employment
agreements with the founders of Great American Cookies ("Founders"), who are
also directors of the Company. Under these employment agreements, each Founder
receives a salary of $150,000 and a payment in connection with an agreement not
to compete of $100,000 per year. Additionally, whether employed or not, each
Founder is also entitled to receive an annual $100,000 bonus if Great American
Cookies advances funds to Cookies USA to permit Cookies USA to pay interest on
its subordinated notes. The Company's employment of the two Founders ended on
December 7, 1995 and December 9, 1996. Under the above agreements, the Company
made aggregate payments to the Founders of $564,000, $285,000 and $200,000,
during the fifty-two week periods ended June 30, 1996, June 29, 1997 and June
28, 1998, respectively. As of June 30, 1996, June 29, 1997 and June 28, 1998,
$200,000 was due to the Founders and included in accrued liabilities in the
accompanying consolidated balance sheets.
F-127
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has entered into employment agreements with its Executive Vice
President of Development, Vice President of Operations and Director of
Production with terms of one to two years. The agreements are for an aggregate
annual base salary of $355,000. The agreements have customary provisions for
benefits and noncompetition.
Incentive and Severance Agreements
In connection with the Company's negotiations (see Note 15) with Mrs. Fields'
Original Cookies, Inc. ("Mrs. Fields"), the Company has entered into agreements
with a number of employees incenting them to assist with the sale process and
to stay until the closing of such sale. In addition, the Company has informed
its home office employees of the severance payments to be paid to them in the
event their employment is terminated without cause subsequent to the closing of
the proposed sale. The aggregate amount of these incentives and severance
payments, as well as any severance payments to employees with employment
agreements, is $1,623,000. These amounts are conditional upon the closing of
the sale and no amounts will be due or paid if a sale to Mrs. Fields does not
occur.
Legal
On September 22, 1997, nine Great American Cookies franchisees filed a
lawsuit against Great American Cookies and certain other parties alleging
certain anticipatory breaches of contract and violations of certain state,
franchise and unfair trade practice laws. These allegations resulted from
discussions held be Cookies USA and Mrs. Fields regarding the possibility of
Mrs Fields acquiring all of the outstanding shares of Common Stock of Cookies
USA, Inc. As of August 14, 1998, a settlement has been reached whereby the
franchisees have been granted certain rights upon the sale of the Company to
Mrs. Fields for a period of three years. In exchange, Cookies USA has been
released from further legal action.
10. INCOME TAXES
Cookies USA and Great American Cookies file consolidated federal income tax
returns. The following information has been determined based upon the
provisions of SFAS 109 for the fifty-two week periods ended June 30, 1996, June
29, 1997 and June 28, 1998.
<TABLE>
<CAPTION>
Fifty-two Fifty-two Fifty-two
Week Period Week Period Week Period
Ended Ended Ended
June 30, 1996 June 29, 1997 June 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Income tax (benefit) provision:
Current:
Federal......................... -- -- --
State........................... $ 48,000 $107,000 $ 97,000
--------- -------- --------
48,000 107,000 97,000
Deferred:
Federal......................... (217,000) 131,000 386,000
State........................... (25,000) 23,000 68,000
--------- -------- --------
(242,000) 154,000 454,000
--------- -------- --------
Total (benefit) provision for
income taxes................. $(194,000) $261,000 $551,000
========= ======== ========
</TABLE>
F-128
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The differences between income taxes at the statutory federal and state
income tax rates and the income tax expense reported in the statements of
operations for the fifty-two week periods ended June 30, 1996, June 29, 1997
and June 28, 1998 are as follows:
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two
Week Period Week Period Week Period
Ended Ended Ended
June 30, 1996 June 29, 1997 June 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory tax rate....... (34.0)% 34.0% 34.0%
State income taxes, net of
federal benefit................. (4.0)% 4.0% 4.0%
Goodwill amortization and other.. 25.5 % 15.8% 119.9%
----- ---- -----
(12.5)% 53.8% 157.9%
===== ==== =====
</TABLE>
Deferred income tax assets are comprised of the following:
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
---------- ----------
<S> <C> <C>
Current:
NOL carryforward..................................... $ 350,000 $ 872,000
Other................................................ 42,000 --
---------- ----------
$ 392,000 $ 872,000
========== ==========
Non-current:
NOL carryforward..................................... $1,079,000 $ --
Depreciation......................................... 841,000 1,191,000
Other................................................ 452,000 247,000
---------- ----------
$2,372,000 $1,438,000
========== ==========
</TABLE>
As of June 28, 1998, the Company had net operating loss carryforwards for
income tax reporting purposes of approximately $2.2 million, which are
scheduled to expire in varying amounts in the years 2009 to 2011. The Company's
net operating loss carryforwards are limited under Section 382 of the Internal
Revenue Code regarding changes in ownership.
11. PREFERRED STOCK
In connection with Cookies USA's acquisition of Great American Cookies on
December 10, 1993, Cookies USA issued $2.5 million of Junior Class A Preferred
Stock and $750,000 of Junior Class B Preferred Stock. Additionally, Cookies USA
issued $10.5 million of Senior Preferred Stock to the Founders of Great
American Cookies in exchange for a portion of the stock of Great American
Cookies ($3.5 million) and the assets of other entities owned by the Founders
($7.0 million). As Great American Cookies is a wholly owned subsidiary of
Cookies USA and is the sole operating unit of the consolidated entity, Great
American Cookies is the sole source of any cash to be paid by Cookies USA as
dividends on such securities.
The 10,500 shares of $1.00 par Senior Preferred Stock issued by Cookies USA
on December 10, 1993 are 6% cumulative convertible shares. A share of the
Senior Preferred Stock is convertible at any time at the option of the holder
into 1.1308 shares of Cookies USA Common Stock. The holders of Senior Preferred
Stock are entitled to certain antidilution protections to maintain their
percentage of ownership in Cookies USA. Accumulated dividends on the Senior
Preferred Stock have priority over any dividends of "Junior Securities" (Junior
Class A and Class B Preferred and Common Stock), but are subordinate to any
debt payments of
F-129
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cookies USA or the Company. Such preferred shares may be redeemed at any time
for $1,000 per share plus accrued but unpaid dividends at the option of Cookies
USA; however, all such shares not previously converted or redeemed shall be
redeemed by payment in cash of $1,000 per share plus accrued but unpaid
dividends on November 30, 2003. As of June 28, 1998, Cookies USA has accrued
$2,869,000 for unpaid dividends due to the holders of the Senior Preferred
Stock.
The 2,500 shares of $1.00 par Junior Class A Preferred Stock and the 750
shares of $1.00 par Junior Class B Preferred Stock issued by Cookies USA are
entitled to receive, when legally available and when declared, dividends at the
rate of $50 per share per annum. Such shares may be redeemed by Cookies USA at
any time for $1,000 per share plus all dividends accrued and unpaid; however,
all such shares not previously redeemed shall be redeemed by payment of cash of
$1,000 per share plus all accrued and unpaid dividends on the first business
day of January 2004. The Junior Class A and B Preferred Stock have no
conversion, preemptive, voting or subscription rights. As of June 28, 1998,
Cookies USA has accrued $740,000 for unpaid dividends due to the holders of the
Junior Class A and B Preferred Stock.
Great American Cookies' debt covenants related to the senior secured notes
limit the ability of Great American Cookies to pay dividends. Under the debt
covenants, as outlined in the Indenture pursuant to which the Senior Secured
Notes were issued, Great American Cookies may pay dividends if:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof,
(b) immediately after the dividend and after giving effect thereto on a
pro forma basis, the Company could incur at least $1.00 of additional
indebtedness under the provisions of the debt covenants, and
(c) such dividend, together with the aggregate of all other "Restricted
Payments" (as defined in the Indenture) made by Great American Cookies and
its subsidiaries after the date of the Indenture, is less than the sum of
(x) 50% of the Adjusted Consolidated Net Income of Great American Cookies
for the period (taken as one accounting period) from the beginning of the
first quarter commencing immediately after the date of the Indenture to the
end of Great American Cookies' most recently ended first quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Adjusted Consolidated Net Income for such period is a
deficit, 100% of such deficit), plus (y) 100% of the aggregate net cash
proceeds received by Great American Cookies from the issue or sale of
Equity Interest of Great American Cookies (other than Equity Interests sold
to a subsidiary of Great American Cookies and other than Disqualified
Stock) after the date of the Indenture and on or prior to the time of such
Restricted Payment, plus (z) 100% of the net cash proceeds received by
Great American Cookies from the issuance or sale, other than to a
subsidiary of Great American Cookies, of any convertible or exchangeable
debt security of Great American Cookies that has been converted or
exchanged into equity interests of Great American Cookies pursuant to the
terms thereof (other than Disqualified Stock) after the date of the
Indenture and on or prior to the time of such dividend. The foregoing
limitations on Restricted Payments do not prohibit, among other items,
payments to Cookies USA under the Tax Sharing Agreement, payments to
Cookies USA to permit payments of current interest then due on the
Subordinated Debt or for any other purpose provided that certain fixed
coverage ratio tests have been achieved, or making other Restricted
Payments in the aggregate amount not to exceed $1.5 million.
12. STOCK OPTION AGREEMENTS, WARRANTS AND OTHER STOCKHOLDERS' AGREEMENT
As part of its acquisition of Great American Cookies, Cookies USA entered
into Non-Qualified Stock Option Agreements (the "Stock Option Agreements") with
the Founders. Under the Stock Option Agreements, each of the Founders is
granted an option to purchase 5,600 shares of common stock of Cookies USA at an
F-130
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
exercise price of $2.23 per share, which expires on December 10, 2003. The
options will not be vested initially. The options will become vested at the
rate of 20% per year for each fiscal year in which certain operating cash flow
targets are achieved. Notwithstanding the foregoing, if Cookies USA's operating
cash flow targets are achieved on a cumulative basis in subsequent years, then
the options will be vested. As of June 28, 1998, none of the outstanding stock
options were vested.
If the employment with the Company of either of the Founders is terminated,
each Founder will have the right to require Cookies USA to repurchase all of
his shares of Common Stock, and all other securities of Cookies USA convertible
into, exchangeable for or entitling the holder to acquire its Common Stock, at
the appraised fair market value thereof. The purchase price will be paid with a
subordinated note that will bear interest at 8% per annum until the fifth
anniversary of the Stockholders' Agreement dated December 10, 1993 and at the
prime rate plus 2% thereafter. The note will be secured by the Common Stock
purchased by Cookies USA and will be payable in equal installments on each of
the sixth through the tenth anniversaries of the Stockholders' Agreement. As of
June 28, 1998, the employment of both of the Founders has been terminated and
such Founders have not requested Cookies USA to repurchase their shares. At
June 29, 1997 and June 28, 1998, the fair value of these options was de
minimis.
In connection with the issuance of the 10.875% senior secured notes payable
(see Note 7), the Company issued 7,200 warrants to purchase common stock at a
purchase price of $27.78 per warrant. The warrants expire on January 15, 2001
and have an exercise price of $0.01 per share subject to anti-dilution
protection. Additionally, the warrants have certain rights related to the
purchase of shares of common stock to a third party whereby the warrant holder
may require the purchaser to purchase a determined number of warrants at the
common stock purchase price less the exercise price per warrant. If the holders
of at least 75% of the common stock agree to sell their shares to a third
party, the warrants have certain obligations whereby the warrant holders may be
required to sell their warrants for a price equal to the purchase price of the
common stock less the exercise price per warrant.
13. COMPANY AND FRANCHISED STORES
As of June 30, 1996, June 29, 1997 and June 28, 1998 there were 115, 100 and
81 Company-operated outlets and 253, 263 and 279 franchised outlets in
operation, respectively.
During the fifty-two week period ended June 30, 1996, the Company earned
initial license fees of $275,000 from the sale of 11 new in-line stores to
franchisees. Additionally, the Company earned $21,000 from license transfer,
upgrade and other fees.
During the fifty-two week period ended June 29, 1997, the Company earned
initial license fees of $300,000 from the sale of 12 new in-line stores to
franchisees. Additionally, the Company earned $75,000 from license transfer,
upgrade and other fees.
During the fifty-two week period ended June 28, 1998, the Company earned
initial license fees of $125,000 from the sale of five new in-line stores to
franchisees. Additionally, the Company earned $13,000 from license transfer,
upgrade and other fees.
14. RELATED-PARTY TRANSACTIONS
The majority shareholders of the Common Stock of Cookies, USA, Inc. are
affiliated with the holders of the $10 million of Subordinated Notes issued by
Cookies USA. The holders of the Senior Preferred Stock of Cookies USA are also
holders of some of the Common Stock of Cookies USA. The holders of the Junior
Class A and B Preferred Stock of Cookies USA are also affiliated with the
majority of the holders of the Common Stock of Cookies USA (see Note 11).
F-131
<PAGE>
COOKIES USA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A franchisee who owns eight franchise outlets is related to one of the
Company's directors. During the fifty-two week periods ended June 30, 1996,
June 29, 1997 and June 28, 1998, the Company had sales of batter and supplies
of approximately $497,000, $476,000 and $419,000, respectively, to this related
party. The Company also received royalty revenues of approximately $202,000,
$199,000 and $186,000 for the fifty-two week periods ended June 30, 1996, June
29, 1997 and June 28, 1998, respectively, from this franchisee. As of June 30,
1996, June 29, 1997 and June 28, 1998, this franchisee owed the Company
approximately $91,000, $34,000 and $47,000, respectively.
During the fifty-two week periods ended June 30, 1996, June 29, 1997 and June
28, 1998, the Company expensed $250,000 for management services provided by TJC
Management Corp. ("TJC"), an affiliate of the majority shareholder of Cookies
USA. Under the agreement with TJC, these fees are not to exceed $300,000 per
year. Amounts due to TJC as of June 30, 1996, June 29, 1997 and June 28, 1998
were $375,000, $188,000 and $63,000, respectively, and are included in accrued
liabilities in the accompanying consolidated balance sheets.
15. SUBSEQUENT EVENTS
On August 24, 1998, Mrs. Fields, acquired 100% of the common stock,
redeemable preferred stock and subordinated indebtedness of Cookies USA, Inc.,
for an aggregate purchase price of approximately $18.4 million, pursuant to a
Securities Purchase Agreement (the "Purchase Agreement"), dated as of August
13, 1998 among Mrs. Fields, Cookies USA, and the individuals and entities
identified as sellers therein. In addition, Mrs Fields assumed all principal
and accrued interest on the senior secured notes totaling approximately $42.4
million. Per the terms of the Purchase Agreement, the Stock Option Agreements
and all other options and warrants, as discussed in Note 12, were cancelled.
Mrs Fields also purchased eight stored from a related party franchise, as
disclosed in Note 14, for a total purchase price of $1.75 million on September
9, 1998. The franchise was also a holder of Cookies USA securities and a party
to the Purchase Agreement.
The foregoing summary should be read in conjunction with and is qualified by
reference to the Purchase Agreement, the stock purchase agreements between Mrs.
Fields and the holders of the capital stock of Deblan and Chocolate Chip, the
merger agreements between each of Deblan and Chocolate Chip, the Indenture, the
First Supplemental Indenture, dated as of August 24, 1998, among Mrs. Fields,
The Mrs. Fields Brand, Inc., and The Bank of New York, as trustee, the Second
Supplemental Indenture, dated as of August 24, 1998, among Mrs. Fields, The
Mrs. Fields Brand, Inc., and The Bank of New York, as trustee, and the Credit
Agreement, which are set forth as exhibits hereto.
The foregoing summary should be read in conjunction with and is qualified by
reference to the Purchase Agreement, to the stock purchase agreements between
Mrs. Fields and the holders of the capital stock of Deblan and Chocolate Chip,
and to the merger agreements between each of Deblan and Chocolate Chip and the
Company, which are set forth as exhibits to this report.
In connection with the contemplated acquisition of Cookies USA, the Company
commenced a tender offer on August 17, 1998 for all of the outstanding $40.0
million in aggregate principal amount of Great American's 10 7/8% Senior
Secured Notes due 2001 (the "Notes"). On August 24, 1998, the Company purchased
approximately $33.5 million of the Notes that had been tendered through August
20, 1998 and an additional $5.4 million of the Notes that had been tendered
through August 21, 1998. All remaining Notes outstanding were tendered as of
the expiration of the tender offer at Midnight on September 14, 1998, and Mrs.
Fields accepted and paid for the approximately $1.1 million of remaining Notes
on September 16, 1998.
F-132
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Deblan Corporation
Houston, Texas
We have audited the accompanying Balance Sheets of Deblan Corporation as of
December 31, 1996 and 1997 and the related Statements of Earnings,
Shareholders' Equity and Cash Flows for the years ended December 31, 1995, 1996
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Deblan Corporation as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1995, 1996 and 1997, in conformity with
generally accepted accounting principles.
Weinstein Spira & Company, P.C.
Houston, Texas
August 17, 1998
F-133
<PAGE>
DEBLAN CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1996 1997 1998
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 399 $ 689 $ 702
Temporary investment.............................. 50 50 50
Accounts receivable:
Employees....................................... 12 10 12
Other........................................... 12 18 11
Inventory......................................... 161 145 180
Prepaid expenses.................................. 4 2 17
------ ------ ------
Total Current Assets.......................... 638 914 972
------ ------ ------
Property and Equipment:
Machinery and equipment........................... 1,173 1,269 1,339
Furniture and fixtures............................ 62 75 81
Leasehold improvements............................ 1,531 1,721 1,721
Transportation equipment.......................... 21 80 55
------ ------ ------
2,787 3,145 3,196
Less: Accumulated depreciation and amortization... 1,319 1,417 1,520
------ ------ ------
Net Property and Equipment...................... 1,468 1,728 1,676
------ ------ ------
Deferred Federal Income Tax Asset................... 3 2 14
------ ------ ------
Goodwill, net of accumulated amortization of $7, $8
and $8, respectively............................... 13 12 12
------ ------ ------
Intangibles, net of accumulated amortization of
$317, $325 and $347, respectively.................. 275 285 263
------ ------ ------
Other Assets........................................ 185 181 181
------ ------ ------
$2,582 $3,122 $3,118
====== ====== ======
</TABLE>
See notes to financial statements.
F-134
<PAGE>
DEBLAN CORPORATION
BALANCE SHEETS--(Continued)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1996 1997 1998
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES
Current Liabilities:
Current portion of long-term debt................. $ 278 $ 291 $ 244
Accounts payable.................................. 212 232 335
Accrued expenses.................................. 191 230 108
Accrued payroll................................... 143 190 137
Federal income tax payable........................ 95 44 44
------ ------ ------
Total Current Liabilities..................... 919 987 868
Long-Term Debt, net of current portion.............. 299 479 362
------ ------ ------
1,218 1,466 1,230
------ ------ ------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common Stock--$.10 par, 110,000 shares authorized,
97,800 shares issued and outstanding............... 10 10 10
Additional Paid-In Capital.......................... 104 104 104
Retained Earnings................................... 1,250 1,542 1,774
------ ------ ------
Total Shareholders' Equity.......................... 1,364 1,656 1,888
------ ------ ------
$2,582 $3,122 $3,118
====== ====== ======
</TABLE>
See notes to financial statements
F-135
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF EARNINGS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six
For the Year Ended Months Ended
December 31, June 30,
---------------------- --------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Store Sales.......................... $8,512 $8,572 $9,503 $4,342 $4,768
------ ------ ------ ------ ------
Operating Costs and Expenses
Selling and store occupancy costs.... 5,465 5,400 5,744 2,570 2,666
Food cost of sales................... 1,518 1,519 1,675 773 831
General and administrative........... 971 1,061 1,169 672 779
Depreciation and amortization........ 266 237 255 138 142
------ ------ ------ ------ ------
Total operating costs and
expenses.......................... 8,220 8,217 8,843 4,153 4,418
------ ------ ------ ------ ------
Earnings From Operations............... 292 355 660 189 350
------ ------ ------ ------ ------
Other Income (Expense)
Interest income...................... 14 19 26 10 17
Gain (loss) on disposition of
property and equipment.............. (124) 32 (147) -- (4)
Interest expense..................... (109) (79) (73) (32) (34)
Other................................ 21 13 21 22 18
------ ------ ------ ------ ------
(198) (15) (173) -- (3)
------ ------ ------ ------ ------
Earnings Before Income Tax............. 94 340 487 189 347
------ ------ ------ ------ ------
Federal and State Income Tax (Recovery)
Current.............................. 52 145 194 82 127
Deferred............................. (9) (9) 1 (10) (12)
------ ------ ------ ------ ------
43 136 195 72 115
------ ------ ------ ------ ------
Net Earnings........................... $ 51 $ 204 $ 292 $ 117 $ 232
====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-136
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1996, 1997 and
For the Six Months Ended June 30, 1998 (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------- Paid-In Retained
Shares Amount Capital Earnings Total
------ ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance--December 31, 1994............ 97,800 $10 $104 $ 995 $1,109
Net Earnings........................ -- -- -- 51 51
------ --- ---- ------ ------
Balance--December 31, 1995............ 97,800 10 104 1,046 1,160
Net Earnings........................ -- -- -- 204 204
------ --- ---- ------ ------
Balance--December 31, 1996............ 97,800 10 104 1,250 1,364
Net Earnings........................ -- -- -- 292 292
------ --- ---- ------ ------
Balance--December 31, 1997............ 97,800 10 104 1,542 1,656
Net Earnings (unaudited)............ -- -- -- 232 232
------ --- ---- ------ ------
Balance--June 30, 1998 (unaudited).... 97,800 $10 $104 $1,774 $1,888
====== === ==== ====== ======
</TABLE>
See notes to financial statements.
F-137
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Six
For the Year Ended Months Ended
December 31, June 30,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Cash received from customers and
employees...................... $ 8,506 $ 8,563 $ 9,500 $ 4,348 $ 4,773
Cash paid to vendors and
employees...................... (7,777) (8,146) (8,442) (4,082) (4,389)
Interest paid................... (109) (79) (73) (32) (34)
Income tax paid................. (100) (9) (245) (165) (127)
Interest received............... 14 19 26 10 17
Other income received........... 21 13 21 22 18
------- ------- ------- ------- -------
Net Cash Provided by Operating
Activities................... 555 361 787 101 258
------- ------- ------- ------- -------
Cash Flows From Investing
Activities:
Purchase of property and
equipment...................... (282) (203) (685) (348) (78)
Purchase of license agreement... -- (59) (75) (50) --
Payment of store start-up
costs.......................... (5) (13) (36) (21) --
Purchase of additional cash
value of life insurance........ (18) (13) (19) (9) (9)
Proceeds from sale of property
and equipment.................. -- 226 125 -- 6
------- ------- ------- ------- -------
Net Cash Used in Investing
Activities................... (305) (62) (690) (428) (81)
------- ------- ------- ------- -------
Cash Flows From Financing
Activities:
Proceeds from long-term
financing...................... 228 -- 482 284 --
Payment of debt................. (323) (306) (289) (147) (164)
------- ------- ------- ------- -------
Net Cash Provided by (Used in)
Financing Activities......... (95) (306) 193 137 (164)
------- ------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents............. 155 (7) 290 (190) 13
Cash and Cash Equivalents--
Beginning of Period.............. 251 406 399 399 689
------- ------- ------- ------- -------
Cash and Cash Equivalents--End of
Period........................... $ 406 $ 399 $ 689 $ 209 $ 702
======= ======= ======= ======= =======
</TABLE>
See notes to Financial statements.
F-138
<PAGE>
DEBLAN CORPORATION
STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Year For the Six
Ended December Months Ended
31, June 30,
----------------- -------------
1995 1996 1997 1997 1998
---- ----- ---- ------ ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings............................... $ 51 $ 204 $292 $ 117 $ 232
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization............ 266 237 255 138 142
(Gain) Loss on disposition of property
and equipment........................... 124 (32) 147 -- 4
Deferred taxes (recovery)................ (9) (9) 1 (10) (12)
(Increase) Decrease in:
Accounts receivable.................... (5) (9) (4) 6 5
Inventory.............................. 25 (16) 16 (16) (35)
Prepaid expenses....................... (2) 5 2 (11) (15)
Prepaid federal income tax............. (41) 41 -- -- --
Deposits............................... 4 9 23 7 9
Accounts payable....................... 66 (109) 20 37 103
Accrued expenses....................... 84 (55) 86 (82) (175)
Federal income tax payable............. (8) 95 (51) (85) --
---- ----- ---- ----- ------
Net Cash Provided by Operating
Activities.......................... $555 $ 361 $787 $ 101 $ 258
==== ===== ==== ===== ======
</TABLE>
See notes to financial statements.
F-139
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
1. ACCOUNTING POLICIES
Doing business as The Great American Chocolate Chip Cookie Company, the
Company operated twenty-three franchise locations at December 31, 1995, 1996
and 1997 and June 30, 1998, in various Texas, Louisiana, Colorado and Florida
shopping malls. The Company maintains its accounts on the accrual method of
accounting in accordance with generally accepted accounting principles.
Accounting principles followed by the Company and the methods of applying those
principles which materially affect the determination of financial position,
results of operations and cash flows are summarized below:
Revenue Recognition
Revenue is recognized at the time sales are made.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents. At all balance sheet dates, the
Company had deposits in excess of federally insured limits.
Inventory
Inventory consists of packaging materials, beverages and baking ingredients
for use in the ordinary course of business. All inventory is valued at the
lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line and accelerated methods over the following estimated useful
lives:
<TABLE>
<S> <C>
Machinery and equipment.......... 5-7 years
Furniture and fixtures........... 5-7 years
Leasehold improvements........... 10-20 years
Transportation equipment......... 5 years
</TABLE>
Temporary Investment
Temporary investment includes certificates of deposit with an original
maturity of greater than three months.
Federal and State Income Tax
Federal and state income tax is provided at current prevailing rates.
The Company records deferred tax liabilities and assets for the anticipated
future tax effects of temporary differences that arise as a result of
differences in the carrying amounts and tax bases of assets and liabilities.
Licenses
Fees paid in connection with obtaining operating licenses are amortized over
the life of the license, ranging from 60 months to 360 months.
F-140
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
Intangibles
Intangibles consist of organization and store start-up costs which are
amortized over a 60-month period, and store license fees which are amortized
over periods ranging from 60 months to 360 months. In April 1998, the American
Institute of Certified Public Accountants issued Statement of Position (SOP)
98-5 which requires store start-up expenses to be expensed as incurred. This
SOP is effective for financial statements for fiscal years beginning after
December 15, 1998.
Goodwill
Goodwill represents the excess of cost over book value of assets acquired.
The Company amortizes goodwill using the straight-line method over twenty
years.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and 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.
Unaudited Interim Financial Statements
In the opinion of management, the unaudited interim financial statements for
the six months ended June 30, 1997 and 1998, presented herein, include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the Company's financial position, results of operations,
shareholders' equity and cash flows for the interim period. The results of
operations and cash flows for the six months ended June 30, 1997 and 1998 are
not necessarily indicative of the results which would be expected for a full
year.
Long-Lived Assets
The Company assesses and measures for impairment of all long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether the assets are recoverable. The Company assesses impairment
of long-lived assets at the store level which the Company believes is the
lowest level for which there are identifiable cash flows that are independent
of other groups of assets. As of December 31, 1996, December 31, 1997 and June
30, 1998, the Company does not consider any of its long-lived assets to be
impaired.
Fair Value of Financial Instruments
The book value of the Company's financial instruments approximates fair
value. The estimated fair values have been determined using appropriate market
information and valuation methodologies.
Recent Accounting Pronouncements
The Company has not yet adopted Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income." The Statement will be effective for
the fiscal year 1998. It establishes standards for reporting and displaying of
comprehensive income and its components (revenues, expenses, gains, and losses)
F-141
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
in a full set of general-purpose financial statements. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required.
The Company has not yet adopted Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information."
The Statement will be effective for the fiscal year 1998. It establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. In the initial year of application,
comparative information for earlier years is to be restated.
The Company believes that adoption of these Statements will not have a
material impact on its financial condition, results of operations or cash
flows.
Reclassifications
Certain reclassifications have been made in the prior years' financial
statements to conform with the presentation as of June 30, 1998.
2. INTANGIBLES
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
--------- June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
License fees (net of accumulated amortization of
$263, $270 and $285, respectively).................. $243 $237 $222
Organization and store start-up costs (net of
accumulated amortization of $54, $55 and $62,
respectively)....................................... 32 48 41
---- ---- ----
$275 $285 $263
==== ==== ====
3. OTHER ASSETS
Other assets consist of the following (in thousands):
<CAPTION>
December
31,
--------- June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Cash value of officer's life insurance............... $ 82 $101 $110
Deposits............................................. 103 80 71
---- ---- ----
$185 $181 $181
==== ==== ====
</TABLE>
F-142
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
4. FEDERAL INCOME TAXES
Differences between the effective tax rate and the statutory federal tax rate
are as follows (in thousands):
<TABLE>
<CAPTION>
For the Six
For the Year Months
Ended Ended June
December 31, 30,
---------------- --------------
1995 1996 1997 1997 1998
---- ---- ---- ----- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Federal income tax expense at the
statutory rate........................... $32 $116 $166 $ 64 $ 118
Increase (Decrease) in:
State income taxes, net of income tax
benefit.................................. 6 4 5 2 1
Officer's life insurance and other
nondeductible expenses................... 17 20 23 7 4
Surtax exemption.......................... (12)
Other..................................... -- (4) 1 (1) (8)
--- ---- ---- ----- ------
$43 $136 $195 $ 72 $ 115
=== ==== ==== ===== ======
</TABLE>
The net deferred federal income tax asset results from differences in
depreciation between tax reporting and financial statement reporting, as
follows (in thousands):
<TABLE>
<CAPTION>
December
31,
--------- June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Accumulated depreciation.............................. $ 3 $ 2 $ 14
==== ==== ====
5. NOTES PAYABLE
Notes payable are as follows (in thousands):
<CAPTION>
December
31,
--------- June 30,
1996 1997 1998
---- ---- -----------
(Unaudited)
<S> <C> <C> <C>
Notes payable--bank, bearing interest at bank prime
plus 1%, secured by certificate of deposit,
equipment, leasehold improvements, assignment of life
insurance, common stock and guaranty of majority
shareholder, due in aggregate monthly installments of
$6.6, including interest, maturing in 1998........... $ 98 $ 27 $--
Notes payable--bank, bearing interest at bank prime
plus .5%, secured by certificate of deposit,
equipment, leasehold improvements, assignment of life
insurance, common stock and guaranty of majority
shareholder, due in aggregate monthly installments of
$26.5, including interest, maturing in various years
through 2002......................................... 465 686 561
Notes payable--bearing interest at 8.5% to 8.6%,
secured by transportation equipment, due in aggregate
monthly installments of $1.8, including interest,
maturing in various years through 2002............... 14 57 45
---- ---- ----
577 770 606
Less: Current maturities.............................. 278 291 244
---- ---- ----
$299 $479 $362
==== ==== ====
</TABLE>
F-143
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
The following is a schedule of future minimum principal payments on debt (in
thousands):
<TABLE>
<CAPTION>
For the Year Ending December 31, Amount
-------------------------------- ------
<S> <C>
1998.................................................................. $291
1999.................................................................. 210
2000.................................................................. 113
2001.................................................................. 124
2002.................................................................. 32
----
$770
====
</TABLE>
In connection with the notes payable-bank, the Company has entered into a
loan agreement which contains certain restrictive covenants, including
maintenance of certain financial ratios, and limitations on borrowings, capital
expenditures, loans, sale of assets, dividend payments and executive
compensation. At December 31, 1996, December 31, 1997 and June 30, 1998, the
Company was in compliance with the covenants or had obtained waivers for those
covenants for the succeeding 12 months for which it was not in compliance.
6. OPERATING LEASES
The Company leases facilities at various locations from unrelated third
parties. The facility leases expire in years ranging from 1998 through 2005.
Rent expense is composed of the following items (in thousands):
<TABLE>
<CAPTION>
For the Six
Months
For the Year Ended Ended June
December 31, 30,
-------------------- -----------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Facilities.................................. $ 997 $ 908 $ 953 $ 478 $ 478
Equipment................................... 20 18 8 5 2
Contingent rents............................ 78 101 162 54 54
------ ------ ------ ----- -----
$1,095 $1,027 $1,123 $ 537 $ 534
====== ====== ====== ===== =====
</TABLE>
The following is a schedule of future minimum rental payments (in thousands):
<TABLE>
<CAPTION>
For the Year Ending December 31, Facilities Equipment Total
-------------------------------- ---------- --------- ------
<S> <C> <C> <C>
1998............................................ $ 805 $ 2 $ 807
1999............................................ 726 -- 726
2000............................................ 624 -- 624
2001............................................ 529 -- 529
2002............................................ 477 -- 477
Thereafter...................................... 1,305 -- 1,305
------ --- ------
$4,466 $ 2 $4,468
====== === ======
</TABLE>
F-144
<PAGE>
DEBLAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information at June 30, 1998 and for the Six Months
Ended June 30, 1997 and June 30, 1998 is Unaudited)
7. PROFIT SHARING PLAN
The Company has a profit sharing plan under Section 401(k) of the Internal
Revenue Code for all eligible employees. All eligible employees are permitted
to defer compensation up to the maximum percentage of annual compensation
allowed by the Internal Revenue Code. The plan provides for a matching 50%
contribution and a discretionary contribution by the Company. The Company
provided contributions of $40,560, $49,974 and $77,877 for the years ended
December 31, 1995, 1996 and 1997, and $14,470 and $25,211 for the six months
ended June 30, 1997 and 1998, respectively.
8. COMMITMENTS
The Company is required to pay its franchisor seven percent of revenues as a
franchise fee.
9. CORPORATE REGISTRATION
In a corporate reorganization in February, 1997, the par value of the common
stock was changed from $1.00 to $.10, followed by a 150-to-1 stock split which
increased the number of issued shares to 97,800. Additionally, the number of
shares authorized was increased to 110,000. The financial statements presented
have been restated to reflect the stock split. Common stock was increased
$3,000, and retained earnings were reduced $3,000.
10. REDEMPTION AGREEMENT
The shareholders of the Company entered into a stock redemption agreement
with the Company in March, 1997. The following is a brief overview of the
general terms:
Upon the death of the majority shareholder, the Company is obligated to
purchase his stock (87,300 shares at December 31, 1997). The price per share
shall be the greater of the proceeds from the redemption of life insurance or
the value of the stock as stipulated by the shareholders, annually. The initial
value stipulated in March, 1997 was $22.75 per share. The Company owns and is
beneficiary of life insurance in the amount of $1,500,000 on the life of the
majority shareholder, the proceeds of which may be used toward this redemption.
Upon the death of the other shareholders, the Company is obligated to
purchase the stock at the above described stipulated value.
11. SUBSEQUENT EVENT
Subsequent to year end, the shareholders of the Company agreed to sell their
shares to Mrs. Fields' Original Cookies, Inc. ("Mrs. Fields") subject to
certain events, including Mrs. Fields obtaining financing through a private
placement of debt securities.
F-145
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Chocolate Chip Cookies of Texas, Inc.:
We have audited the accompanying balance sheets of Chocolate Chip Cookies of
Texas, Inc. (a Texas corporation) as of September 30, 1996 and 1997, and the
related statements of operations, stockholders' equity and cash flows for the
years ended September 30, 1995, 1996 and 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Chocolate Chip Cookies of
Texas, Inc. as of September 30, 1996 and 1997, and the results of its
operations and its cash flows for the years ended September 30, 1995, 1996 and
1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
July 22, 1998
F-146
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................. $ 161 $ 66 $ 173
Accounts receivable.................. -- -- 2
Inventories.......................... 21 22 34
Prepaid assets....................... 4 1 20
----- ----- -----
Total current assets............... 186 89 229
----- ----- -----
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements............... 353 494 496
Equipment and fixtures............... 150 168 168
Vehicles............................. 26 26 26
----- ----- -----
529 688 690
Less accumulated depreciation and
amortization........................ (377) (408) (435)
----- ----- -----
Net property and equipment......... 152 280 255
----- ----- -----
OTHER ASSETS:
Deposits............................. -- -- 13
Intangibles, net of accumulated
amortization of $216, $245 and $257,
respectively........................ 47 43 31
----- ----- -----
Total other assets................. 47 43 44
----- ----- -----
DEFERRED TAX ASSET..................... 2 3 1
----- ----- -----
Total assets....................... $ 387 $ 415 $ 529
===== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-147
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
BALANCE SHEETS--(Continued)
(In Thousands, Except Share and Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt.... $ 31 $ 33 $ --
Accounts payable..................... 73 73 50
Accrued salaries..................... 33 43 94
Accrued liabilities.................. 18 45 50
Deferred rent expense................ 22 31 34
Income taxes payable................. 12 15 57
----- ----- -----
Total current liabilities.......... 189 240 285
LONG-TERM DEBT, net of current
portion............................... 81 47 --
----- ----- -----
Total liabilities.................. 270 287 285
----- ----- -----
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 1,000,000
shares authorized and 250 shares
outstanding......................... -- -- --
Treasury stock, 750 shares at cost... (216) (216) (216)
Retained earnings.................... 333 344 460
----- ----- -----
Total stockholder's equity........... 117 128 244
----- ----- -----
Total liabilities and stockholders'
equity............................ $ 387 $ 415 $ 529
===== ===== =====
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-148
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET STORE SALES......... $2,168 $2,321 $2,650 $1,962 $2,266
------ ------ ------ ------ ------
OPERATING COSTS:
Selling and store
occupancy costs...... 1,197 1,234 1,373 1,005 1,101
Food cost of sales.... 504 603 634 472 531
General and
administrative....... 352 363 565 424 429
Depreciation and
amortization......... 48 49 60 41 39
------ ------ ------ ------ ------
Total operating
costs and
expenses........... 2,101 2,249 2,632 1,942 2,100
------ ------ ------ ------ ------
Income from
operations......... 67 72 18 20 166
------ ------ ------ ------ ------
OTHER INCOME/(EXPENSE):
Interest expense...... (21) (11) (8) (6) (4)
Interest income....... 4 3 6 4 4
------ ------ ------ ------ ------
Income before
provision for
income taxes....... 50 64 16 18 166
PROVISION FOR INCOME
TAXES.................. 12 12 5 6 50
------ ------ ------ ------ ------
NET INCOME.............. $ 38 $ 52 $ 11 $ 12 $ 116
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-149
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Treasury
Common Stock Stock
------------- ------------- Retained
Shares Amount Shares Amount Earnings Total
------ ------ ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1994....... 250 $-- 750 $(216) $243 $ 27
Net income...................... -- -- -- -- 38 38
--- ---- --- ----- ---- ----
BALANCE, SEPTEMBER 30, 1995....... 250 -- 750 (216) 281 65
Net income...................... -- -- -- -- 52 52
--- ---- --- ----- ---- ----
BALANCE, SEPTEMBER 30, 1996....... 250 -- 750 (216) 333 117
Net income...................... -- -- -- -- 11 11
--- ---- --- ----- ---- ----
BALANCE, SEPTEMBER 30, 1997....... 250 -- 750 (216) 344 128
Net income (unaudited).......... -- -- -- -- 116 116
--- ---- --- ----- ---- ----
BALANCE, JUNE 30, 1998 (unau-
dited)........................... 250 $-- 750 $(216) $460 $244
=== ==== === ===== ==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-150
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF CASH FLOWS
(In Thousands)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Year Ended Year Ended Ended Ended
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............. $ 38 $ 52 $ 11 $ 12 $116
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 48 49 60 41 39
Changes in assets and
liabilities:
Accounts receivable.. -- -- -- -- (2)
Inventories.......... (11) 9 (1) (13) (12)
Prepaid assets....... (7) 3 3 4 (19)
Deposits............. -- -- -- -- (13)
Deferred tax asset... (1) 1 (1) (2) 2
Accounts payable..... -- (10) -- 4 (23)
Income taxes
payable............. (20) 7 3 4 42
Accrued liabilities,
salaries and
deferred rent
expense............. 28 4 46 121 59
----- ---- ----- ---- ----
Net cash provided by
operating
Activities......... 75 115 121 171 189
----- ---- ----- ---- ----
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of property
and equipment......... (143) (10) (159) (69) (2)
Amounts paid for non-
compete agreements.... (63) -- -- -- --
Amounts paid for
franchise agreements.. (25) -- (25) (26) --
----- ---- ----- ---- ----
Net cash used in
investing
activities......... (231) (10) (184) (95) (2)
----- ---- ----- ---- ----
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of debt............... 160 -- -- -- --
Principal payments on
debt.................. (21) (27) (32) (24) (80)
----- ---- ----- ---- ----
Net cash provided by
(used in) financing
activities......... 139 (27) (32) (24) (80)
----- ---- ----- ---- ----
NET (DECREASE) INCREASE
IN CASH................ (17) 78 (95) 52 107
CASH, beginning of
period................. 100 83 161 161 66
----- ---- ----- ---- ----
CASH, end of period..... $ 83 $161 $ 66 $213 $173
===== ==== ===== ==== ====
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-151
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
STATEMENTS OF CASH FLOWS--(Continued)
(In Thousands)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest was approximately $21, $11, $8, $6 (unaudited) and $4
(unaudited) for the years ended September 30, 1995, 1996 and 1997 and for the
nine months ended June 30, 1997 and 1998, respectively.
Cash paid for income taxes was approximately $17, $2, $1, $1 (unaudited) and
$1 (unaudited) for the years ended September 30, 1995, 1996 and 1997 and for
the nine months ended June 30, 1997 and 1998, respectively.
The accompanying notes to financial statements are an integral part of these
statements.
F-152
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS
(Including Notes to Unaudited Periods)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Chocolate Chip Cookies of Texas, Inc. (the "Company"), a Texas corporation,
was incorporated in 1981. The Company operates retail stores which sell freshly
baked cookies and other food products. The Company's stores are franchised from
Great American Cookie Company, Inc. ("GACC"). As of June 30, 1998, the Company
owned and operated six stores, of which five are located in Texas and one in
Louisiana.
The Company's business follows seasonal trends and is also affected by
climate and weather conditions. The Company experiences its highest revenues in
the first fiscal quarter. Because the Company's stores are all located in
shopping malls, the Company's sales performance is significantly dependent on
the performance of those malls. As a franchisee of GACC, substantially all of
the Company's sales are derived from products purchased from GACC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
payable and debt instruments. The carrying value of those instruments reported
in the balance sheets are considered to estimate their respective fair values
due to the short-term nature of such instruments and the current interest rate
environment.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the FIFO (first-in, first-out) method (see Note 3).
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the useful life of the improvement or the remaining term of the
applicable lease. The depreciable lives of equipment, fixtures and vehicles
range from five to ten years.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the
useful lives of existing equipment are capitalized and depreciated. On
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain
or loss is recognized in the statement of operations.
Intangibles
Intangibles primarily consist of franchise fees paid to GACC and amounts paid
for non-compete agreements between the Company and various other parties.
Intangibles are being amortized on a straight-line
F-153
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
basis over the lives of the agreements, which are generally ten years for
franchise agreements and three years for non-compete agreements.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax bases of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized.
Revenue Recognition
Revenues generated from the Company's stores are recognized at the point of
sale.
Sources of Supply
The Company currently buys a significant amount of its food products and
supplies from GACC and an unrelated supplier. In accordance with the franchise
agreement, the Company must buy its food products from GACC (see Note 6).
Management believes that the Company could obtain its supplies from numerous
other suppliers at comparable prices and terms.
Long-Lived Assets
The Company assesses and measures for impairment of long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether assets are recoverable. The Company assesses impairment of
long-lived assets at the store level, which the Company believes is the lowest
level for which there are identifiable cash flows that are independent of other
groups of assets. As of June 30, 1998, the Company does not consider any of its
long-lived assets to be impaired.
Recent Accounting Pronouncements
During the nine months ended June 30, 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
130, "Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Company does not expect
that these statements will have a significant impact on its financial
statements.
Interim Financial Statements
The financial statements as of and for the nine months ended June 30, 1998,
and for the nine months ended June 30, 1997, are unaudited. In the opinion of
management, these financial statements have been presented on the same basis as
the audited financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for these periods. These interim
financial statements are not necessarily indicative of the results that may be
achieved for the full fiscal year.
F-154
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
3. INVENTORIES
The Company's inventories consist of the following as of September 30, 1996
and 1997 and June 30, 1998:
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
Food................................. $12,000 $13,000 $23,000
Beverages............................ 3,000 3,000 4,000
Supplies............................. 6,000 6,000 7,000
------- ------- -------
$21,000 $22,000 $34,000
======= ======= =======
</TABLE>
4. LONG-TERM DEBT
As of September 30, 1996 and September 30, 1997, long-term debt consisted of
a promissory note payable to Wells Fargo Bank secured by the property and
equipment of the Company. The note was originally issued by the Company on
October 17, 1994 with a variable interest rate equal to the prime rate. As of
September 30, 1997 the interest rate on the note was 8.50%. During April 1998,
the note was paid in full.
5. INCOME TAXES
The components of the provision for income taxes for the years ended
September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and
1998 are as follows:
<TABLE>
<CAPTION>
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current............... $11,000 $11,000 $ 5,000 $ 8,000 $44,000
Deferred.............. (1,000) -- (1,000) (2,000) 2,000
State:
Current............... 2,000 1,000 1,000 -- 4,000
------- ------- ------- ------- -------
Total................... $12,000 $12,000 $ 5,000 $ 6,000 $50,000
======= ======= ======= ======= =======
</TABLE>
The differences between income taxes at the statutory income tax rate and
income taxes reported in the statements of operations are as follows for the
years ended September 30, 1995, 1996 and 1997 and the nine months ended June
30, 1997 and 1998:
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30, September 30, June 30, June 30,
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal statutory rate.. 15% 15% 15% 15% 30%
State franchise taxes... 4 2 6 -- 2
Other................... 5 2 10 18 (2)
--- --- --- --- ---
24% 19% 31% 33% 30%
=== === === === ===
</TABLE>
F-155
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
The significant components of the Company's deferred income tax assets and
liabilities at September 30, 1996 and 1997 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
September 30, September 30, June 30,
1996 1997 1998
------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
Deferred income tax assets:
Deferred rent expense............ $ 3,000 $ 5,000 $ 10,000
Amortization of non-compete
agreements and franchise
agreements...................... 6,000 9,000 20,000
------- -------- --------
Total deferred income tax
assets........................ 9,000 14,000 30,000
Deferred income tax liabilities:
Accumulated depreciation......... (7,000) (11,000) (29,000)
------- -------- --------
Net deferred income tax assets..... $ 2,000 $ 3,000 $ 1,000
======= ======== ========
</TABLE>
6. RELATED-PARTY TRANSACTIONS
Related-Party Operating Leases
The Company leases retail store facilities under long-term noncancelable
operating lease agreements with remaining terms of one to nine years from GACC.
The future minimum lease payments due under these operating leases as of
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending September 30,
-------------------------
<S> <C>
1998........................................................... $ 185,000
1999........................................................... 185,000
2000........................................................... 192,000
2001........................................................... 193,000
2002........................................................... 166,000
Thereafter..................................................... 326,000
----------
$1,247,000
==========
</TABLE>
Each of these leases provides for contingent rentals based on gross revenues.
Total rental expense, which has been accounted for on a straight-line basis for
escalating leases included above, for the years ended September 30, 1995, 1996
and 1997 and for the nine months ended June 30, 1997 and 1998 was approximately
$280,000, $299,000, $335,000, $239,000 (unaudited) and $219,000 (unaudited),
respectively.
Franchise Royalties
The Company pays GACC franchise royalties in connection with its franchise
agreements with GACC. Franchise royalties are calculated as 7% of gross
revenues (as defined in the individual agreements). During the years ended
September 30, 1995, 1996 and 1997 and the nine months ended June 30, 1997 and
1998, the Company incurred approximately $152,000, $163,000, $185,000, $132,000
(unaudited) and $158,000 (unaudited), respectively, for franchise royalties,
which are included as part of selling and store occupancy costs in the
accompanying statements of operations. As of September 30, 1996 and 1997 and
June 30, 1998, approximately $13,000, $15,000 and $17,000 (unaudited),
respectively, in franchise royalties were payable to GACC.
F-156
<PAGE>
CHOCOLATE CHIP COOKIES OF TEXAS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
6.RELATED PARTY TRANSACTIONS (Continued)
Inventory
The Company, in connection with its franchise agreements with GACC, purchases
the majority of its inventories from GACC. During the years ended September 30,
1995, 1996 and 1997 and the nine months ended June 30, 1997 and 1998, the
Company purchased approximately $311,000, $348,000, $387,000, $298,000
(unaudited) and $327,000 (unaudited), respectively, in inventories from GACC.
As of September 30, 1996 and 1997 and June 30, 1998, approximately $12,000,
$14,000 and $15,000 (unaudited), respectively, were payable to GACC related to
inventory purchases.
7. SUBSEQUENT EVENT
On August 24, 1998, the Company sold 100 percent of its common stock to Mrs.
Fields' Original Cookies, Inc.
F-157
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Combined Karp Entities:
We have audited the accompanying combined balance sheets of the Combined Karp
Entities (the "Company") identified in Note 1 as of December 31, 1996 and 1997,
and the related statements of operations, stockholders' equity and cash flows
for the years ended December 31, 1995, 1996 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Combined Karp
Entities as of December 31, 1996 and 1997, and the results of their operations
and their cash flows for the years ended December 31, 1995, 1996 and 1997 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
October 6, 1998
F-158
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1996 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash................................... $ 179 $ 176 $ 98
Inventories............................ 57 54 62
Prepaid assets......................... 42 34 31
------ ------ ------
Total current assets................. 278 264 191
------ ------ ------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements................. 803 803 803
Equipment and fixtures................. 460 460 462
------ ------ ------
1,263 1,263 1,265
Less accumulated depreciation.......... (617) (718) (768)
------ ------ ------
Net property and equipment........... 646 545 497
------ ------ ------
OTHER ASSETS:
Deposits............................... 42 37 35
Intangibles, net of accumulated
amortization of $159, $179 and $191,
respectively.......................... 136 121 111
------ ------ ------
Total other assets................... 178 158 146
------ ------ ------
NON-CURRENT DEFERRED TAX ASSET........... 8 20 23
------ ------ ------
Total assets......................... $1,110 $ 987 $ 857
====== ====== ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-159
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED BALANCE SHEETS--(Continued)
(In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 30, December 30, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................... $ 39 $ 95 $ 63
Accrued salaries....................... 55 52 42
Accrued liabilities.................... 123 121 107
Income taxes payable................... 128 142 147
------ ------ -------
Total current liabilities............ 345 410 359
------ ------ -------
RELATED-PARTY PAYABLES................... 23 23 23
------ ------ -------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Common stock (Note 5).................. 90 90 90
Additional paid-in capital............. 1,324 1,452 1,536
Accumulated deficit.................... (672) (988) (1,151)
------ ------ -------
Total stockholders' equity........... 742 554 475
------ ------ -------
Total liabilities and stockholders'
equity.............................. $1,110 $ 987 $ 857
====== ====== =======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these balance sheets.
F-160
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, June 30, June 30,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
NET STORE SALES......... $2,342 $2,445 $2,500 $1,144 $1,181
------ ------ ------ ------ ------
OPERATING COSTS:
Food cost of sales.... 614 668 683 336 339
Selling and store
occupancy costs...... 1,421 1,488 1,635 788 744
General and
administrative....... 192 199 238 101 114
Depreciation and
amortization......... 104 127 121 59 62
------ ------ ------ ------ ------
Total operating
costs.............. 2,331 2,482 2,677 1,284 1,259
------ ------ ------ ------ ------
Income (loss) from
operations......... 11 (37) (177) (140) (78)
INTEREST EXPENSE........ (54) (30) (18) (9) (7)
------ ------ ------ ------ ------
Loss before
provision for
income taxes....... (43) (67) (195) (149) (85)
PROVISION FOR INCOME
TAXES.................. (26) (19) (15) (4) (6)
------ ------ ------ ------ ------
NET LOSS................ $ (69) $ (86) $ (210) $ (153) $ (91)
====== ====== ====== ====== ======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-161
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid-In Capital Deficit Total
------------ --------------- ----------- -----
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994..... $90 $ 398 $ (13) $ 475
Distributions................ -- -- (137) (137)
Net loss..................... -- -- (69) (69)
--- ------ ------- -----
BALANCE, DECEMBER 31, 1995..... 90 398 (219) 269
Distributions................ -- -- (367) (367)
Capital contributions........ -- 926 -- 926
Net loss..................... -- -- (86) (86)
--- ------ ------- -----
BALANCE, DECEMBER 31, 1996..... 90 1,324 (672) 742
Distributions................ -- -- (106) (106)
Capital contributions........ -- 128 -- 128
Net loss..................... -- -- (210) (210)
--- ------ ------- -----
BALANCE, DECEMBER 31, 1997..... 90 1,452 (988) 554
Distributions (unaudited).... -- -- (72) (72)
Capital contributions
(unaudited)................. -- 84 -- 84
Net loss (unaudited)......... -- -- (91) (91)
--- ------ ------- -----
BALANCE, JUNE 30, 1998
(unaudited)................... $90 $1,536 $(1,151) $ 475
=== ====== ======= =====
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-162
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF CASH FLOWS
(In Thousands)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Six Months Six Months
Year Ended Year Ended Year Ended Ended Ended
December 31, December 31, December 31, June 30, June 30,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $ (69) $ (86) $(210) $(153) $(91)
Adjustments to
reconcile net loss to
net cash provided by
(used in) operating
activities:
Depreciation and
amortization......... 104 127 121 59 62
Changes in assets and
liabilities:
Related-party
receivables......... (79) 143 -- -- --
Inventories.......... -- -- 3 -- (8)
Prepaid assets....... (5) 5 8 11 3
Deposits............. 1 (11) 5 5 2
Deferred taxes....... (2) (9) (12) (7) (3)
Accounts payable..... 38 (52) 56 25 (32)
Accrued salaries..... -- 17 (3) (15) (10)
Accrued liabilities.. 15 13 (2) (21) (14)
Income taxes
payable............. 13 14 14 3 5
Related-party
payables............ 69 (567) -- -- --
----- ----- ----- ----- ----
Net cash provided by
(used in) operating
activities......... 85 (406) (20) (93) (86)
----- ----- ----- ----- ----
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of property
and equipment......... (13) (111) -- -- (2)
Acquisition of
intangibles........... 4 (20) (5) (5) (2)
Distributions.......... (137) (367) (106) (66) (72)
Additional investment.. -- 926 128 62 84
----- ----- ----- ----- ----
Net cash provided by
(used in) investing
activities......... (146) 428 17 (9) 8
----- ----- ----- ----- ----
NET INCREASE (DECREASE)
IN CASH................ (61) 22 (3) (102) (78)
CASH, beginning of
period................. 218 157 179 179 176
----- ----- ----- ----- ----
CASH, end of period..... $ 157 $ 179 $ 176 $ 77 $ 98
===== ===== ===== ===== ====
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-163
<PAGE>
THE COMBINED KARP ENTITIES
COMBINED STATEMENTS OF CASH FLOWS--(Continued)
SUPPLEMENTAL DISCLOSURE OF COMBINED CASH FLOW INFORMATION:
Cash paid for interest was approximately $40,000, $18,000, $18,000, $9,000
(unaudited) and $7,000 (unaudited) for the years ended December 31, 1995, 1996
and 1997 and for the six months ended June 30, 1997 and 1998, respectively.
Cash paid for income taxes was approximately $18,000, $10,000, $10,000,
$2,000 (unaudited) and $1,000 (unaudited) for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998,
respectively.
During the year ended December 31, 1996, related-party payables of Hot White
Plains Cookies, Inc, Hot Roosevelt Cookies, Inc. and Hot Rockaway Cookies of
approximately $364,000, $264,000 and $198,000, respectively, were forgiven and
accounted for as capital contributions to these entities.
During the year ended December 31, 1996 and December 31,1997, related party
receivables of Hot Barton and Northpark Cookies, Inc. and Northpark Cookies,
Inc. of approximately $71,000 and $0 and $120,000 and $4,000, respectively,
were distributed to stockholders.
The accompanying notes to combined financial statements
are an integral part of these statements.
F-164
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Including Notes to Unaudited Periods)
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
The Combined Karp Entities (the "Company") established operations on the
following dates under the laws of the respective states:
<TABLE>
<CAPTION>
Structure of State of State of
Company Inception date Entity Incorporation Operation
------- ------------------ ------------- ------------- ----------
<S> <C> <C> <C> <C>
Hot Barton and Northpark
Cookies, Inc........... August 6, 1981 C-corporation Georgia New Jersey
Northpark Cookies,
Inc.................... October 5, 1981 C-corporation Iowa Iowa
Crossroads Cookies,
Inc.................... December 9, 1981 C-corporation Georgia Oklahoma
Quail Springs Cookies,
Inc.................... April 20, 1982 C-corporation Georgia Oklahoma
Westgate Cookies, Inc... August 30, 1982 S-corporation Texas Texas
Hot White Plains
Cookies, Inc........... September 23, 1992 S-corporation Georgia New York
Hot Roosevelt Cookies,
Inc.................... April 7, 1993 S-corporation Georgia New York
Hot Rockaway Cookies.... April 11, 1996 -- Florida New Jersey
</TABLE>
Northpark Cookies, Inc.'s status of incorporation became inactive as of
November 25, 1987. The successor in interest is Hot Barton and Northpark
Cookies, Inc.
The ASK & MSK Family Limited Partnership-II(B), Inc. (the "Partnership") was
incorporated in Florida on April 11, 1996. On this date, the Partnership
acquired Hot Roosevelt Cookies, Inc. and Hot White Plains Cookies, Inc. As
these entities share common control, these acquisitions were accounted for in
a manner similar to a pooling of interests. In addition, on April 11, 1996,
the Partnership invested in the Hot Rockaway Cookies store.
The Company operates retail stores that sell freshly baked cookies and other
food products. The retail stores are franchised from Great American Cookie
Company, Inc. ("GACC").
The entities that make up the Company have various fiscal year ends which
have been recast to December 31 for purposes of these combined financial
statements. These fiscal year ends are as follows:
<TABLE>
<CAPTION>
Company Fiscal Year End
------- ---------------
<S> <C>
Hot Barton and Northpark Cookies, Inc....................... July 31
Northpark Cookies, Inc...................................... July 31
Crossroads Cookies, Inc..................................... November 30
Quail Springs Cookies, Inc.................................. November 30
Westgate Cookies, Inc....................................... December 31
Hot White Plains Cookies, Inc............................... December 31
Hot Roosevelt Cookies, Inc.................................. December 31
Hot Rockaway Cookies........................................ December 31
</TABLE>
F-165
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
The Company's business follows seasonal trends and is affected by climate and
weather conditions. The Company experiences its highest revenues in the fourth
quarter. Because the stores are located in shopping malls, sales performance is
significantly dependent on the performance of those malls. As a franchisee of
GACC, substantially all of the Entities' sales are derived from products
purchased from GACC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The individuals entities included within the combined financial statements
operate under similar ownership and common control. All significant
intercompany balances and transactions have been eliminated in the combination.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, accounts
payable and related-party payables. The carrying value of cash and accounts
payable reported in the combined balance sheets are considered to approximate
their respective fair values due to the short-term nature of such instruments
and the current interest rate environment. The fair value of related-party
payables at prevailing market rates is estimated to be $25,000 as of December
31, 1996, 1997 and June 30, 1998.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the FIFO (first-in, first-out) method (see Note 3).
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the lesser of the useful life of the improvement or the remaining term of the
applicable lease. The depreciable lives of equipment and fixtures are ten
years.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments that extend the
useful lives of existing equipment are capitalized and depreciated. On
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is recognized in the statement of operations.
Intangibles
Intangibles consist primarily of franchise fees and store operating lease
costs paid to GACC. Intangibles are being amortized on a straight-line basis
over the lives of the franchise or lease agreements, which are generally ten
years.
F-166
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the combined
financial statements or tax returns. Under this method, deferred income tax
assets or liabilities are determined based upon the difference between the
financial and income tax bases of assets and liabilities using enacted tax
rates expected to apply when differences are expected to be settled or
realized.
Revenue Recognition
Revenues generated from the combined stores are recognized at the point of
sale.
Sources of Supply
The Company currently buys a significant portion of their food products and
supplies from GACC and an unrelated supplier. In accordance with the franchise
agreements, the Company must buy its food products from GACC (see Note 6).
Management believes that the Company could obtain its supplies from numerous
other suppliers at comparable prices and terms.
Long-Lived Assets
The Company assesses and measures for impairment of long-lived assets,
including intangibles, in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long- Lived Assets to be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires
that long-lived assets be reviewed for impairment when events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
The Company evaluates, at each balance sheet date, whether events and
circumstances have occurred that indicate possible impairment. In accordance
with SFAS No. 121, the Company uses an estimate of future undiscounted net cash
flows of the related asset or group of assets over the remaining life in
measuring whether assets are recoverable. The Company assesses impairment of
long-lived assets at the store level, which management believes is the lowest
level for which there are identifiable cash flows that are independent of other
groups of assets. As of June 30, 1998, the Company does not consider any of its
long-lived assets to be impaired.
Recent Accounting Pronouncements
During the six months ended June 30, 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Comprehensive Income", SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The Company does not expect the
implementation of these pronouncements will have a significant impact on its
financial statements.
Interim Combined Financial Statements
The combined financial statements as of and for the six months ended June 30,
1998 and for the six months ended June 30, 1997 are unaudited. In the opinion
of management, these combined financial statements have been presented on the
same basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the combined financial position and results of operations for
these periods. These combined interim financial statements are not necessarily
indicative of the results that may be achieved for the full fiscal year.
F-167
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
3. INVENTORIES
The Company's inventories consist of the following as of December 31, 1996
and 1997 and June 30, 1998:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Food................................... $38,000 $33,000 $40,000
Beverages.............................. 5,000 6,000 7,000
Supplies............................... 14,000 15,000 15,000
------- ------- -------
$57,000 $54,000 $62,000
======= ======= =======
</TABLE>
4. INCOME TAXES
The following four entities are not included in income tax calculations due
to their status as S-corporations or as a business operated within a
partnership; Westgate Cookies, Inc., Hot White Plains Cookies, Inc., Hot
Roosevelt Cookies, Inc. and Hot Rockaway Cookies. Had these entities been
taxable entities, on a pro forma basis, an income tax provision (benefit) of
approximately $22,000, $(27,000), $16,000, $(14,000) and $15,000 would have
been provided for the years ended December 31, 1995, 1996, 1997 and the six
months ended June 30, 1997 and 1998, respectively. Income taxes were provided
for all entities with C-corporation status.
The components of the provision for income taxes for the years ended December
31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
December 31, December 31, December 31, June 30, June 30,
1995 1996 1997 1997 1998
------------ ------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Federal:
Current.... $10,000 $13,000 $ 9,000 $ 4,000 $ 3,000
Deferred... (2,000) (8,000) (12,000) (7,000) (3,000)
State:
Current.... 18,000 14,000 18,000 7,000 6,000
------- ------- -------- ------- -------
Total........ $26,000 $19,000 $ 15,000 $ 4,000 $ 6,000
======= ======= ======== ======= =======
</TABLE>
The differences between income taxes at the statutory income tax rate and
income taxes reported in the statements of operations are the result of
permanent differences.
The significant components of the Entities' deferred income tax assets and
liabilities at December 31, 1996 and 1997 and June 30, 1998 are as follows:
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1996 1997 1998
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Deferred income tax assets:
Accumulated depreciation........... $5,000 $ 9,000 $11,000
Net operating loss carryforwards... 3,000 8,000 9,000
Capital losses in excess of capital
gains............................. -- 3,000 3,000
------ ------- -------
Net deferred income tax assets... $8,000 $20,000 $23,000
====== ======= =======
</TABLE>
F-168
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
5. STOCKHOLDERS' EQUITY
Share Data
The individual entities had the following assigned par value, authorized and
outstanding shares at December 31, 1996 and 1997, and June 30, 1998:
<TABLE>
<CAPTION>
Shares Shares
Entity Par Value Authorized Outstanding
------ --------- ---------- -----------
<S> <C> <C> <C>
Hot Barton and Northpark Cookies, Inc. ... $0.10 1,000 200
Northpark Cookies, Inc. .................. 0.50 1,000,000 180,000
Crossroads Cookies, Inc. ................. 0.10 2,000 1,000
Quail Springs Cookies, Inc. .............. 0.10 1,000 500
Westgate Cookies, Inc. ................... 0.10 1,000 1,000
Hot White Plains Cookies, Inc. ........... 0.01 10,000 500
Hot Roosevelt Cookies, Inc. .............. 0.01 10,000 500
</TABLE>
Capital Contributions
The individual entities received the following capital contributions:
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months
December 31, December 31, Ended
Entity 1996 1997 June 30, 1998
------ ------------ ------------ -------------
<S> <C> <C> <C>
Hot Barton and Northpark Cookies,
Inc. ............................ $ -- $ 7,000 $ --
Northpark Cookies, Inc. .......... -- -- 7,000
Crossroads Cookies, Inc. ......... -- -- --
Quail Springs Cookies, Inc. ...... -- -- --
Westgate Cookies, Inc. ........... -- -- --
Hot White Plains Cookies, Inc. ... 428,000 46,000 15,000
Hot Roosevelt Cookies, Inc. ...... 300,000 27,000 12,000
Hot Rockaway Cookies.............. 198,000 48,000 50,000
-------- -------- -------
$926,000 $128,000 $84,000
======== ======== =======
</TABLE>
Distributions
The individual entities made the following distributions to stockholders:
<TABLE>
<CAPTION>
Year Ended Year Ended Six Months
December 31, December 31, Ended
Entity 1996 1997 June 30, 1998
------ ------------ ------------ -------------
<S> <C> <C> <C>
Hot Barton and Northpark Cookies,
Inc. ............................ $ (71,000) $ -- $ --
Northpark Cookies, Inc. .......... (120,000) (4,000) --
Crossroads Cookies, Inc. ......... (24,000) (3,000) --
Quail Springs Cookies, Inc. ...... (45,000) (45,000) (30,000)
Westgate Cookies, Inc. ........... (107,000) (54,000) (42,000)
Hot White Plains Cookies, Inc. ... -- -- --
Hot Roosevelt Cookies, Inc. ...... -- -- --
Hot Rockaway Cookies.............. -- -- --
--------- --------- --------
$(367,000) $(106,000) $(72,000)
========= ========= ========
</TABLE>
F-169
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
6. RELATED-PARTY TRANSACTIONS
Related-party Operating Leases
The Company leases retail store facilities under long-term noncancelable
operating lease agreements with remaining terms of one to nine years from GACC.
The future minimum lease payments due under these operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998............................................................ $ 370,000
1999............................................................ 347,000
2000............................................................ 240,000
2001............................................................ 222,000
2002............................................................ 110,000
Thereafter...................................................... 152,000
----------
$1,441,000
==========
</TABLE>
Each of these leases provides for contingent rentals based upon gross
revenues. Total rental expense, which has been accounted for on a straight-line
basis for escalating leases included above, for the years ended December 31,
1995, 1996 and 1997 and for the six months ended June 30, 1997 and 1998 was
approximately $457,000, $486,000, $553,000, $276,000 (unaudited) and $225,000
(unaudited), respectively.
Franchise Royalties
The Company pays GACC franchise royalties in connection with its franchise
agreements with GACC. Franchise royalties are calculated as 7% of gross
revenues (as defined in the individual agreements). During the years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and
1998, the Company incurred approximately $164,000, $165,000, $175,000, $80,000
(unaudited) and $83,000 (unaudited), respectively, for franchise royalties,
which are included as part of selling and store occupancy costs in the
accompanying combined statements of operations. As of December 31, 1996 and
1997 and June 30, 1998, approximately $21,000, $21,000 and $14,000 (unaudited),
respectively, in franchise royalties were payable to GACC.
Inventory
The Company, in connection with its franchise agreements with GACC, purchases
the majority of its inventory from GACC. During the years ended December 31,
1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998, the
Company purchased approximately $372,000, $406,000, $425,000, $190,000
(unaudited) and $178,000 (unaudited), respectively, in inventory from GACC. As
of December 31, 1996 and 1997 and June 30, 1998, approximately $14,000, $24,000
and $8,000 (unaudited), respectively, were payable to GACC related to inventory
purchases.
Related-party Payables
The related-party payables of $23,000, $23,000 and $23,000 (unaudited) as of
December 31, 1996, December 31, 1997 and June 30, 1998 represent loans from
stockholders to Hot Barton and Northpark Cookies, Inc. These loans are non-
interest bearing and have no specific payment terms or maturity dates.
F-170
<PAGE>
THE COMBINED KARP ENTITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(Including Notes to Unaudited Periods)
Management Fees
Each entity was responsible for paying management fees to a company owned by
a related party. For the years ended December 31, 1995, 1996 and 1997 and for
the six months ended June 30, 1997 and 1998, the Entities paid approximately
$24,000, $60,000, $80,000, $40,000 (unaudited) and $40,000 (unaudited),
respectively, in management fees. As of December 31, 1996 and 1997 and June 30,
1998 approximately $5,000, $7,000 and $7,000 (unaudited), respectively, were
payable to a related party for management fees.
7. SUBSEQUENT EVENT
On July 29, 1998, the Entities entered into individual Asset Purchase
Agreements with Mrs. Fields' Original Cookies, Inc. In accordance with these
agreements, Mrs. Fields' Original Cookies, Inc. purchased the following assets
of the entities: leasehold rights and interests, tangible personal property,
such as inventories and property and equipment, certain agreements between the
sellers and GACC, customer and vendor lists, recipes and production techniques,
store petty cash, deposits and prepaid expenses. On September 9, 1998, the
agreements were consummated.
F-171
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Partners
The Cookie Conglomerate, Inc., Cookie Conglomerate, L.L.P.,
and The Cookie Conglomerate of Carolina Place, Inc.
We have audited the accompanying combined balance sheets of THE COOKIE
CONGLOMERATE, INC. AND AFFILIATES (The Cookie Conglomerate, L.L.P. and The
Cookie Conglomerate of Carolina Place, Inc.) as of December 31, 1997 and 1996
and the related combined statements of operations, changes in equity [deficit]
and cash flows for the years then ended. These financial statements are the
responsibility of the Companies' and Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of THE COOKIE
CONGLOMERATE, INC. AND AFFILIATES as of December 31, 1997 and 1996 and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia
November 12, 1998
F-172
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31,
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Current assets
- --------------
Cash................................................. $ 227,385 $ 184,963
Advances............................................. 0 0
Inventories.......................................... 52,029 61,909
Prepaid expenses..................................... 26,993 33,064
----------- ----------
Total current assets................................. 306,407 279,936
----------- ----------
Property and equipment, at cost
- -------------------------------
Equipment............................................ 720,050 688,156
Fixtures............................................. 174,103 174,103
Leasehold improvements............................... 679,892 679,892
----------- ----------
1,574,045 1,542,151
Accumulated depreciation............................. (1,099,171) ( 938,942)
----------- ----------
474,874 603,209
----------- ----------
Other assets
- ------------
Deposits............................................. 34,450 34,450
Franchise costs, net of accumulated amortization of
$61,456 for 1997 and $49,122 for 1996............... 73,544 85,936
Organizational costs, net of accumulated amortization
of $4,004 for 1997 and $6,832 for 1996.............. 1,854 3,026
Intangible assets, net of accumulated amortization of
$13,394 for 1997 and $9,474 for 1996................ 45,406 49,326
Loan costs, net of accumulated amortization of $6,999
for 1997 and $1,729 for 1996........................ 4,708 9,978
----------- ----------
159,962 182,716
----------- ----------
$ 941,243 $1,065,861
=========== ==========
</TABLE>
See auditors' report and accompanying notes
F-173
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31,
LIABILITIES AND EQUITY
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Current liabilities
- -------------------
Accounts payable....................................... $ 156,264 $ 191,219
Accrued expenses....................................... 160,482 139,164
Line-of-credit......................................... 40,000 80,000
Current portion of long-term debt...................... 155,107 176,098
--------- ----------
Total current liabilities............................. 511,853 586,481
--------- ----------
Other liabilities
- -----------------
Long-term debt, net of current portion................. 108,671 268,664
Deferred rent payable.................................. 81,998 84,182
--------- ----------
190,669 352,846
--------- ----------
Equity (deficit)
- ----------------
Common stock, $1 par value, 20,000 shares of Class A
(voting) authorized and 10,000 shares of Class B
(nonvoting) authorized; 2,357 shares of Class A issued
and outstanding....................................... 2,357 2,357
Additional paid-in capital............................. 473,643 473,643
Accumulated deficit.................................... (239,117) (330,174)
Partner capital (deficit).............................. 1,838 (19,292)
--------- ----------
238,721 126,534
--------- ----------
$ 941,243 $1,065,861
========= ==========
</TABLE>
See auditors' report and accompanying notes
F-174
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Sales.................................................... $4,202,799 $3,651,231
Food cost of sales....................................... 1,097,277 1,042,314
---------- ----------
Gross profit.......................................... 3,105,522 2,608,917
---------- ----------
Selling, general, and administrative expenses............ 2,787,260 2,519,005
---------- ----------
Interest expense......................................... 40,075 56,762
---------- ----------
Net income............................................ $ 278,187 $ 33,150
========== ==========
</TABLE>
See auditors' report and accompanying notes
F-175
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional Partners'
Common Paid-In Accumulated Capital
Stock Capital Deficit (Deficit) Total
------ ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances,
December 31, 1995.......... $2,357 $473,643 $(255,382) $ (60,217) $ 160,401
Net income (loss)........... (71,792) 104,942 33,150
Dividends paid.............. (3,000) (64,017) (67,017)
------ -------- --------- --------- ---------
Balances,
December 31, 1996.......... 2,357 473,643 (330,174) (19,292) 126,534
Net income.................. 91,057 187,130 278,187
Dividends paid.............. 0 (166,000) (166,000)
------ -------- --------- --------- ---------
Balances,
December 31, 1997.......... $2,357 $473,643 $(239,117) $ 1,838 $ 238,721
====== ======== ========= ========= =========
</TABLE>
See auditors' report and accompanying notes
F-176
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income............................................... $ 278,187 $ 33,150
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation........................................... 160,229 198,535
Amortization........................................... 22,754 25,882
Changes in assets and liabilities
Decrease in advances.................................. 0 1,600
Decrease in inventories............................... 9,880 10,915
Decrease (Increase) in prepaid expenses............... 6,071 (6,793)
Decrease in deposits.................................. 0 8,767
Decrease in accounts payable.......................... (34,955) (56,024)
Increase in accrued expenses.......................... 21,318 34,500
Increase (Decrease) in deferred rent payable.......... (2,184) 16,830
--------- ---------
Total adjustments................................... 183,113 234,212
--------- ---------
Net cash provided by operating activities............... 461,300 267,362
--------- ---------
Cash flows from investing activities
Acquisition of property and equipment.................... (31,894) (87,109)
Franchise costs reimbursed............................... 0 8,000
Loan costs incurred...................................... 0 (9,462)
--------- ---------
Net cash used by investing activities................... (31,894) (88,571)
--------- ---------
Cash flows from financing activities
Net proceeds from (payments on) line-of-credit........... (40,000) 55,000
Payments on long-term debt............................... (180,984) (161,252)
Dividends paid........................................... (166,000) (67,017)
--------- ---------
Net cash used by financing activities................... (386,984) (173,269)
--------- ---------
Net increase in cash.............................. 42,422 5,522
Cash, beginning of year................................... 184,963 179,441
--------- ---------
Cash, end of year................................. $ 227,385 $ 184,963
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for
Interest................................................. $ 36,616 $ 55,347
</TABLE>
See auditors' report and accompanying notes
F-177
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Combination Policy
The accompanying combined financial statements include the accounts of The
Cookie Conglomerate Inc., The Cookie Conglomerate, L.L.P., and The Cookie
Conglomerate of Carolina Place, Inc.
Intercompany transactions and balances have been eliminated in the
combination.
Nature of Operations
The Companies and Partnership operate retail cookie stores in North Carolina,
South Carolina, and Ohio. The stores are franchised from Great American Cookie
Company, Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc.
Inventories
Inventories are valued at the lower of cost or market with cost determined on
the first-in, first-out method.
Property and Equipment
Property and equipment is carried at cost. Expenditures for maintenance and
repairs are expensed currently, while renewals and betterments that materially
extend the life of an asset are capitalized. The cost of assets sold, retired,
or otherwise disposed of, and the related allowance for depreciation, are
eliminated from the accounts, and any resulting gain or loss is recognized.
Depreciation is provided using both the straight-line and accelerated methods
over the estimated useful lives of the assets which are as follows:
<TABLE>
<S> <C>
Equipment.......................................... 5 years
Fixtures........................................... 7 years
Leasehold improvements............................. Life of related lease
</TABLE>
Franchise Costs
Franchise costs represent amounts paid to open the stores and for operating
under the name of Great American Cookie Company, Inc., now a subsidiary of Mrs.
Fields' Original Cookies, Inc. These costs are being amortized over eight to
fifteen years using the straight-line method of amortization.
Organizational Costs
Organizational costs are carried at cost. Amortization is provided using the
straight-line method over a period of sixty months.
Intangible Assets:
Intangible assets include goodwill and restrictive convenant fees. Goodwill
represents the excess of the cost of the Carolina Place franchise over the fair
value of its net assets at the date of acquisition. Restrictive convenant fees
represent the costs of a non-compete agreement with the previous owners of the
Carolina Place franchise. These assets are being amortized on the straight-line
method over fifteen years.
Loan Costs
Loan costs represent bank loan and closing fees incurred in connection with
the procurement of long-term debt. These costs are being amortized over the
terms of the related loan agreements, which are two to five years.
F-178
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENT--(Continued)
DECEMBER 31, 1997 AND 1996
A.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Cookie Conglomerate, Inc. and The Cookie Conglomerate of Carolina Place,
Inc. elected by unanimous consent of its stockholders to be taxed under the
provisions of subchapter S of the Internal Revenue Code. Under those
provisions, the Companies do not pay corporate income taxes on their taxable
income. Instead, the stockholders are liable for individual income taxes on
their respective shares of the Company's taxable income.
The Cookie Conglomerate, L.L.P. is also not subject to income tax. Income is
taxed directly to its partners. On December 30, 1997, the partners elected to
become a limited liability partnership pursuant to the Georgia Uniform
Partnership Act.
Compensated Absences
Employees of the Companies and Partnership are entitled to paid vacation,
paid sick days and personal days off, depending on job classification, length
of service, and other factors. It is impractical to estimate the amount of
compensation for future absences, and accordingly, no liability has been
recorded in the accompanying financial statements. The Companies' and
Partnership's policy is to recognize the costs of compensated absences when
actually paid to employees.
Estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
B.LINES-OF-CREDIT
A summary of the lines-of-credit is as follows:
<TABLE>
<CAPTION>
Collateral 1997 1996
---------- ------- -------
<S> <C> <C> <C>
Riverside Bank -- $100,000 Guarantee of Ronald Eichel,
note payable dated Alan Kuehn, and Cookie
September 30, 1996 with Conglomerate, Inc.
interest payable monthly at
prime plus 1%. Principal
payable at maturity on
September 30, 1997. $ 0 $80,000
Riverside Bank -- $100,000 Inventory, accounts
note payable dated November receivable,
4, 1997 with interest equipment, general
payable monthly at prime intangibles,
plus 1%. Principal payable corporate guarantee of Cookie
at maturity on November 4, Conglomerate Partnership,
1998. personal guarantees of Ronald
Eichel, Nancy Eichel, and
Alan
Kuehn. 40,000 0
------- -------
$40,000 $80,000
======= =======
</TABLE>
F-179
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND 1996
C.LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
Collateral 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Tony Hege - $160,000 note Notes and accounts
payable dated July 18, receivable,
1994. Principal payments inventory, fixtures and
of $1,905 plus interest equipment.
at 9% per annum payable
monthly beginning August
10, 1994 until July 10,
1998 when remaining
principal due. $ 77,778 $104,762
Alan Kuehn (stockholder)-- Notes and accounts
$20,000 note payable at receivable,
9%. Interest only payable inventory, fixtures and
through December of 1995. equipment.
Principal payments of
$417 plus interest due
monthly through July 10,
1998 when remaining
principal due. Interest
expense incurred for each
year totals $3,600. 20,000 20,000
Ron Eichel (stockholder)-- Notes and accounts
$20,000 note payable at receivable,
9%. Interest only payable inventory, fixtures and
through December of 1995. equipment.
Principal payments of
$417 plus interest due
monthly through July 10,
1998 when remaining
principal due. Interest
expense incurred for each
year totals $3,600. 20,000 20,000
Riverside Bank--$106,222 Inventory, equipment,
note payable dated accounts
September 30, 1996 with receivable, general
50 monthly installment intangibles.
payments of principal and Personal guarantees of Ronald
interest of $2,574 Eichel, Nanci Eichel, Alan
beginning on October 30, Kuehn
1996. Interest at 9.25%. and corporate guarantee of
Matures November 30, Cookie
2000. Conglomerate Partnership. 76,000 100,000
Riverside Bank--$196,747 Inventory, equipment,
note payable dated accounts
September 30, 1996 with receivable, general
25 monthly installment intangibles.
payments beginning Personal guarantees of Ronald
October 30, 1996 of Eichel and Alan Kuehn
principal of $7,870 plus and corporate guarantee of
interest at prime plus Cookie
1%. Matures October 30, Conglomerate Partnership.
1998. 70,000 173,000
Riverside Bank--$30,837 Inventory, accounts
note payable dated receiveable,
September 30, 1996 with general intangibles.
25 monthly installment Corporate
payments beginning guarantee of Cookie
October 30, 1996 of Conglomerate
principal of $1,233 plus partnership, personal
interest at 9.25%. guarantees
Matures October 30, 1998. of Ronald Eichel, Nanci
Eichel and
Alan Kuehn. 0 27,000
-------- --------
263,778 444,762
Less: Current maturities 155,107 176,098
-------- --------
$108,671 $268,664
======== ========
</TABLE>
F-180
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1997 AND 1996
C.LONG-TERM DEBT (Continued)
Following are maturities of long-term debt for each of the next five years:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1998............................................................... $155,107
1999............................................................... 49,907
2000............................................................... 49,557
2001............................................................... 9,207
2002............................................................... 0
--------
$263,778
========
</TABLE>
D.COMMITMENTS
The Cookie Conglomerate, Inc. and Affiliates are the lessee of store space in
various malls under sublease arrangements with Great American Cookie Company,
Inc., now a subsidiary of Mrs. Fields' Original Cookies, Inc. Minimum future
lease payments under non-cancelable operating leases having remaining terms in
excess of one year as of December 31, 1997 for each of the next five years and
in aggregate are:
<TABLE>
<CAPTION>
December 31,
------------
<S> <C>
1998............................................................ $ 481,036
1999............................................................ 454,143
2000............................................................ 297,246
2001............................................................ 237,789
2002............................................................ 195,536
Thereafter...................................................... 353,804
----------
$2,019,554
==========
</TABLE>
Additional rental payments are contingent on sales exceeding certain
breakpoint levels specified in each lease. Rent expense totaled $640,870 for
1997 and $620,355 for 1996.
Franchise agreements provide for the Companies and Partnership to pay annual
service fees equal to 7% of gross sales. The service fees due the franchiser in
connection with these agreements are due on a monthly basis. The franchise
agreements end simultaneously with the termination of the lease of the premises
in which the cookie facilities are located.
E.SUBSEQUENT EVENT
The Cookie Conglomerate of Carolina Place, Inc. effectively merged with The
Cookie Conglomerate, Inc. on January 1, 1998.
The Cookie Conglomerate, Inc. and The Cookie Conglomerate, L.L.P. entered
into an asset purchase agreement on October 5, 1998 with Mrs. Fields' Original
Cookies, Inc. to sell substantially all the assets of the Company and
Partnership.
F-181
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30,
1998
-------------
<S> <C>
Current assets
- --------------
Cash............................................................ $135,749
Inventories..................................................... 71,635
Other current assets............................................ 2,011
--------
Total current assets........................................... 209,395
Property and equipment, net...................................... 435,604
Intangibles, net................................................. 111,490
Other assets..................................................... 34,451
--------
$790,940
========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
Current liabilities
- -------------------
<S> <C>
Accounts payable................................................ $101,243
Accrued expenses................................................ 91,213
Current portion of long-term debt............................... 121,621
--------
Total current liabilities...................................... 314,077
<CAPTION>
Other liabilities
- -----------------
<S> <C>
Long-term debt, net of current portion.......................... 29,366
--------
Total liabilities.............................................. 343,443
--------
<CAPTION>
Stockholders' equity
- --------------------
<S> <C>
Common stock, $1 par value, 20,000 shares of Class A [voting]
authorized and 10,000 Shares of Class B [nonvoting] authorized;
2,357 shares of Class A issued and outstanding................. 2,357
Additional paid-in capital...................................... 473,643
Partner capital................................................. 23,629
Accumulated Deficit............................................. (52,132)
--------
447,497
--------
$790,940
========
</TABLE>
See footnote
F-182
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Sales...................................................... $2,906,499 $2,926,659
Cost of sales.............................................. 2,313,079 2,388,393
---------- ----------
Gross profit............................................. 593,420 538,266
<CAPTION>
Selling, general, and administrative expenses.............. 389,462 380,901
<S> <C> <C>
Interest expense........................................... 16,972 27,649
---------- ----------
Net income............................................... $ 186,986 $ 129,716
========== ==========
</TABLE>
See footnote
F-183
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
Increase (Decrease) In Cash
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income.............................................. $ 186,985 $ 129,716
--------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation & amortization............................ 117,584 125,688
Changes in assets and liabilities
Increase (decrease) in inventories.................... (19,606) 7,908
Decrease in prepaid expenses.......................... 24,981 28,124
Decrease in accounts payable & accrued expenses....... (246,288) (212,000)
--------- ---------
Total adjustments.................................... (123,329) (50,280)
--------- ---------
Net cash provided by operating activities........... 63,656 79,436
--------- ---------
Cash flows from investing activities
- ------------------------------------
Acquisition of equipment................................ (64,292) (25,003)
--------- ---------
Net cash used by investing activities.................. (64,292) (25,003)
--------- ---------
Cash flows from financing activities
- ------------------------------------
Dividends paid.......................................... (43,906) (43,365)
Payments on long-term debt and line-of-credit........... (47,095) (76,854)
--------- ---------
Net cash used by financing activities.................. (91,001) (120,219)
--------- ---------
Net decrease in cash.................................. (91,637) (65,786)
Cash, beginning of period............................... 227,385 184,963
--------- ---------
Cash, end of period................................... $ 135,748 $ 119,177
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- -------------------------------------------------
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash paid during the years for interest................. $ 16,972 $ 27,649
</TABLE>
See footnote
F-184
<PAGE>
THE COOKIE CONGLOMERATE, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
(1)BASIS OF PRESENTATION
The accompanying interim unaudited combined financial statements have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission, and accordingly, do not include all of the
information and footnotes required by generally accepted accounting principles.
In the opinion of management, these combined financial statements reflect all
adjustments, which consist only of normal recurring adjustments, which are
necessary to present fairly the Company's financial position as of September
30, 1998 and results of operations and cash flows for the nine months ended
September 30, 1998 and September 30, 1997. These interim unaudited combined
financial statements should be read in conjunction with the audited combined
financial statements and notes thereto included in this filing.
F-185
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pretzelmaker Holdings, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Pretzelmaker
Holdings, Inc. and Subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides 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 Pretzelmaker
Holdings, Inc. and Subsidiaries at December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, during 1997
the Company's subsidiary became non-compliant with the covenants under its bank
debt agreements and the lender has not agreed to provide waivers. Accordingly,
such debt has been reclassified as a current liability since, due to the
covenant default, the lender has the right to accelerate the repayment of the
loans.
AJ. ROBBINS, PC
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
December 11, 1998
F-186
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Pretzelmaker Holdings, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Pretzelmaker
Holdings, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from inception (February 24, 1995) to December 31, 1995 and for the
year ended December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pretzelmaker
Holdings, Inc. and Subsidiaries at December 31, 1996, and the results of its
operations and its cash flows for the period from inception (February 24, 1995)
to December 31, 1995 and for the year ended December 31, 1996 in conformity
with generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
February 7, 1997
F-187
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Substantially all pledged)
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1996 1997 1998
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................... $ 95,914 $ 115,805 $ 216,261
Accounts receivable, net of allowance for
doubtful
accounts of $10,000, $10,000 and
$45,000.................................. 485,002 642,821 510,904
Due from affiliates....................... 77,904 46,129 24,809
Refundable income taxes................... -- 56,524 --
Inventories............................... 31,583 74,226 47,400
Prepaid expenses and supplies............. 14,126 237 22,677
---------- ---------- ----------
Total Current Assets.................... 704,529 935,742 822,051
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Store fixtures and equipment.............. 719,509 872,864 646,598
Leasehold improvements.................... 336,301 416,631 267,233
Computer equipment........................ 54,346 71,761 70,811
Furniture and fixtures.................... 54,264 54,134 34,959
---------- ---------- ----------
1,164,420 1,415,390 1,019,601
Less accumulated depreciation and
amortization............................. 150,336 341,523 453,193
---------- ---------- ----------
Net Property and Equipment................ 1,014,084 1,073,867 566,408
---------- ---------- ----------
OTHER ASSETS:
Intangible assets, net of accumulated
amortization............................. 1,414,628 1,258,470 1,141,351
Deferred tax asset........................ 62,000 62,000 62,000
Other assets.............................. 122,762 46,880 62,533
Restricted cash........................... -- 64,575 59,112
---------- ---------- ----------
Total Other Assets...................... 1,599,390 1,431,925 1,324,996
---------- ---------- ----------
$3,318,003 $3,441,534 $2,713,455
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-188
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1996 1997 1998
---------- ---------- -------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Bank debt............................... $ -- $ 732,916 $ 443,742
9% Notes payable in 1998................ -- 215,587 38,500
Accounts payable........................ 367,904 461,124 330,541
Accruals and other payables............. 47,810 138,065 185,213
Income taxes payable.................... 70,000 23,449 --
Deferred initial franchise fees......... 357,760 151,500 214,950
Current maturities of long-term debt.... 151,797 45,647 49,141
Current portion of non-compete
agreements............................. 130,416 151,418 168,082
---------- ---------- ----------
Total Current Liabilities............. 1,125,687 1,919,706 1,430,169
---------- ---------- ----------
LONG-TERM OBLIGATIONS:
Long-term debt, less current
maturities............................. 288,639 237,130 180,555
Unsecured promissory notes.............. 534,000 540,000 540,000
Non-compete agreements payable.......... 327,221 175,803 --
Deferred revenues....................... -- -- 180,906
---------- ---------- ----------
Total Liabilities..................... 2,275,547 2,872,639 2,331,630
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES
(Note 7)
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; shares
authorized 1,000,000;
shares issued and outstanding 135,155.. 135 135 135
Additional paid-in capital.............. 1,070,814 1,070,814 1,070,814
Accumulated deficit..................... (28,493) (502,054) (689,124)
---------- ---------- ----------
Total Stockholders' Equity............ 1,042,456 568,895 381,825
---------- ---------- ----------
$3,318,003 $3,441,534 $2,713,455
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-189
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
February 24 Years Ended December Nine Months Ended
(Inception) to 31, September 30,
December 31, --------------------- -----------------------
1995 1996 1997 1997 1998
-------------- ---------- ---------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Franchising............ $ 706,410 $1,663,846 $2,026,385 $1,415,632 $1,538,486
Net company-owned store
sales................. 254,124 1,061,889 1,818,919 1,222,149 1,038,775
Initial franchise
fees.................. 435,988 893,099 778,294 593,285 186,202
Product and equipment
revenue 329,523 1,795,262 1,441,815 1,322,613 598,068
---------- ---------- ---------- ---------- ----------
Total Revenues........ 1,726,045 5,414,096 6,065,413 4,553,679 3,361,531
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
General and
administrative
expenses.............. 1,088,763 2,588,832 2,685,646 2,007,944 1,546,513
Company-owned stores
expenses.............. 275,163 1,104,908 1,815,775 1,370,404 992,336
Product and equipment
costs................. 209,910 1,173,866 921,131 895,829 121,254
Losses on store
closings and asset
dispositions.......... -- -- 340,491 153,611 108,858
Litigation settlement.. -- -- 148,702 148,702 --
Depreciation and
amortization.......... 156,382 291,862 402,693 288,566 627,337
Interest expense....... 89,247 157,242 224,536 171,316 152,303
---------- ---------- ---------- ---------- ----------
Total Costs and
Expenses............. 1,819,465 5,316,710 6,538,974 5,036,372 3,548,601
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
TAXES ON INCOME (93,420) 97,386 (473,561) (482,693) (187,070)
TAXES ON INCOME -- 32,459 -- -- --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (93,420) $ 64,927 $ (473,561) $ (482,693) $ (187,070)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-190
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balances at February 24,
1995 (Inception)........... -- $-- $ -- $ -- $ --
Issuance of Capital Stock.. 135,155 135 1,070,814 -- 1,070,949
Net loss for the period.... -- -- -- (93,420) (93,420)
------- ---- ---------- --------- ----------
Balances at December 31,
1995....................... 135,155 135 1,070,814 (93,420) 977,529
Net income for the year.... -- -- -- 64,927 64,927
------- ---- ---------- --------- ----------
Balances at December 31,
1996....................... 135,155 135 1,070,814 (28,493) 1,042,456
Net loss for the year...... -- -- -- (473,561) (473,561)
------- ---- ---------- --------- ----------
Balances at December 31,
1997....................... 135,155 135 1,070,814 (502,054) 568,895
Net loss for the period
(unaudited)............... -- -- -- (187,070) (187,070)
------- ---- ---------- --------- ----------
Balances at September 30,
1998 (unaudited)........... 135,155 $135 $1,070,814 $(689,124) $ 381,825
======= ==== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-191
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 24, Years Ended Nine Months Ended
(Inception) to December 31, September 30,
December 31, -------------------- ----------------------
1995 1996 1997 1997 1998
-------------- --------- --------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...... $ (93,420) $ 64,927 $(473,561) $(482,693) $(187,070)
Adjustments to
reconcile net income
(loss)
to net cash provided
by (used in)
operating activities:
Depreciation and amor-
tization............. 156,382 291,862 402,693 288,566 627,337
Loss on disposal of
equipment............ -- -- 108,890 6,795 (76,601)
Interest accretion.... 73,637 69,974 51,884 38,904 23,161
Deferred revenues..... -- -- -- -- 180,906
Deferred income tax-
es................... (22,000) (40,000) -- -- --
Accounts receivable
allowance............ 5,000 5,000 -- -- 35,000
Changes in operating
assets and
liabilities:
Accounts receivable.. (172,836) (211,469) (81,319) (52,693) 71,917
Refundable income
taxes............... (23,000) 23,000 (56,524) -- 56,524
Inventories.......... (11,254) (18,779) (42,643) (60,727) 26,826
Due from affiliates.. -- (77,904) 31,775 51,565 21,320
Prepaid expenses and
supplies............ (14,126) -- 13,889 (24,722) (22,440)
Accounts payable..... 147,000 184,788 72,520 255,828 (130,583)
Accruals and other
payables............ 62,995 (86,315) 110,955 52,476 23,699
Income taxes pay-
able................ -- 70,000 (46,551) (70,000) --
Deferred initial
franchise fees...... 90,679 16,561 (206,261) (147,910) 63,450
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in) Operating
Activities............ 199,057 291,645 (114,253) (144,611) 713,446
--------- --------- --------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of property
and equipment......... (445,612) (665,948) (278,529) (161,209) (75,296)
Proceeds from sale of
property and
equipment............. -- -- 199,564 191,064 166,361
Purchase of business,
net of cash acquired.. (333,784) -- -- -- --
Other assets........... (63,003) (70,451) 80,335 49,972 (7,876)
Restricted cash........ -- -- (64,575) (69,560) 5,463
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in) Investing
Activities............ (842,399) (736,399) (63,205) 10,267 88,652
--------- --------- --------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from issuance
of capital stock...... 795,000 -- -- -- --
Proceeds from notes
payable............... 399,000 593,878 518,426 406,728 --
Principal payments on
notes payable......... -- (49,727) (128,928) (84,804) (466,261)
Principal payments on
non-compete
agreements............ (360,000) (182,300) (182,300) (182,300) (182,300)
Principal payments on
capital lease
obligations........... (3,165) (8,676) (9,849) (3,830) (53,081)
--------- --------- --------- --------- ---------
Net Cash Provided by
(Used in) Financing
Activities............ 830,835 353,175 197,349 135,794 (701,642)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH................ 187,493 (91,579) 19,891 1,450 100,456
CASH BALANCE, beginning
of period.............. -- 187,493 95,914 95,914 115,805
--------- --------- --------- --------- ---------
CASH BALANCE, end of pe-
riod................... $ 187,493 $ 95,914 $ 115,805 $ 97,364 $ 216,261
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-192
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Pretzelmaker Holdings, Inc. and Subsidiaries (the Company), was incorporated
on February 24, 1995 and acquired all the issued and outstanding common stock
of Pretzelmaker, Inc. (Pretzelmaker) on March 28, 1995. Pretzelmaker holds
legal title to certain trademarks and recipes for specialty bakery products.
Pretzelmaker licenses use of the trademarks and recipes to qualified third
parties for the establishment and operation of Pretzelmaker stores. In
connection with these licensing activities, Pretzelmaker will require third-
party-licensees to use certain business formats, systems, methods, procedures,
designs, layouts, specifications, tradenames and trademarks. There are licensed
locations located throughout the United States and Canada, as well as Korea.
Pretzelmaker also operates company-owned stores and sports venues for the sale
of its bakery products.
On September 26, 1996, Pretzelmaker Canada, Inc. (Canada) was incorporated.
Pretzelmaker owns all the issued and outstanding stock of Canada. Canada has a
master franchise agreement with Pretzelmaker which covers all locations in
Canada.
Basis of Presentation
The Consolidated financial statements include the accounts of the Company,
Pretzelmaker and Canada, its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. The acquisition of
Pretzelmaker has been accounted for as a purchase and accordingly these
consolidated financial statements include the results of Pretzelmaker from the
date of acquisition forward.
Unaudited Information
The accompanying consolidated financial statements as of September 30, 1998
and for the nine months ended September 30, 1997 and 1998 are unaudited and
have been prepared on a substantially equivalent basis with that of the annual
consolidated financial statements. In the opinion of management, the unaudited
information contains all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position and results of operations as of September 30, 1998 and for such
periods.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and 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.
Financial Instruments and Credit Risk Concentration
Financial instruments which potentially subject the Company to concentrations
of credit risk are primarily cash and accounts receivable. The Company places
its cash in what it believes to be highly rated financial institutions. The
balance in each cash account maintained in the United States is insured by the
Federal Deposit Insurance Corporation up to $100,000. From time to time,
balances in these accounts may exceed the insured limits.
F-193
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of credit risk with respect to accounts receivable are limited
due to a broad franchisee base and generally short payment terms.
Cash and Equivalents
For the purposes of the statement of cash flows, the Company considers cash
and all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories consisting of food products, ovens, belts and promotional
materials are stated at the lower of cost or market, cost being determined on a
first-in, first-out basis.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is determined using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Store fixtures and equipment................................. 5-7 years
Leasehold improvements....................................... Term of lease
Computers and equipment...................................... 5 years
Furniture and fixtures....................................... 7 years
</TABLE>
Intangible Assets
Intangible assets consist primarily of goodwill and non-compete agreements,
which arose in connection with the acquisition of Pretzelmaker by the Company
in 1995. The goodwill and non-compete agreements are being amortized over
periods of fifteen and nine years, respectively.
Revenue Recognition
Revenues generated from company-owned stores are recognized at the point of
sale. Initial franchise fees are recognized after the Company has completed
performance of its initial license obligations. A portion of the franchise fee
revenue is deferred until commencement of operations of the licensee's
location. Franchise and license royalties, which are based upon a percentage of
gross store sales, are recognized as earned.
Advance payments received from suppliers are recorded as deferred revenues
and recognized as income over the life of the related supply agreement.
Income Taxes
The Company recognizes deferred income tax assets or liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. Under this method, deferred income tax assets or
liabilities are determined based upon the difference between the financial and
income tax basis of assets and liabilities using enacted tax rates expected to
apply when differences are expected to be settled or realized. Valuation
allowances will be established when necessary, to reduce deferred tax assets to
the amount expected to be realized.
F-194
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency Translation
The functional currency for the Company's foreign operations is the
applicable local currency. The translation of the applicable foreign currency
into U.S. dollars is computed for balance sheet accounts using current exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using a weighted average exchange rate during the period. The gains and losses
resulting from such translation are immaterial.
Recent Accounting Pronouncement
During the nine months ended September 30, 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires an "all-inclusive" income
presentation approach which specifies that all revenues, expenses, gains and
losses recognized during the period be reported in income, regardless of
whether they are considered to be results of operations of the period. The
adoption of SFAS No. 130 had no material impact on the Company's financial
statement presentation.
Reclassifications
Certain reclassifications have been made in the prior period consolidated
financial statements to conform with the current period presentation.
Year 2000 Issues
Management of the Company has assessed the year 2000 issue and has determined
that its financial software and related corporate systems and retail sales data
collecting systems are not year 2000 compliant. As a result of the acquisition
of the Company (Note 12) all of the Company's year 2000 non-compliant systems
will be converted to Mrs. Fields' systems by early 1999.
NOTE 2--BANK DEBT
During April 1997, the Company through Pretzelmaker established a $300,000
line-of-credit with a bank and subsequently finalized a term loan facility to
repay then outstanding term debt as well as to provide financing for expansion
equipment and fixtures. Advances under the line-of-credit were made based upon
75% of eligible accounts receivable and 30% of allowable inventories. Advances
under the term loan facility are repayable in 36 monthly installments, plus
interest. Interest on amounts outstanding on the bank debt is computed at the
bank's prime rate plus 1% and the debt is collateralized by the Company's
accounts receivable, inventories, intangibles and property and equipment.
F-195
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1997 and 1998 is Unaudited.)
NOTE 2--BANK DEBT (Continued)
The following amounts were outstanding under the bank debt agreements:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Line-of-credit.................................. $300,000 $279,692
Term loans, payable $14,114 monthly, plus
interest....................................... 432,916 164,050
-------- --------
Total......................................... $732,916 $443,742
======== ========
</TABLE>
Under the terms of the agreements, the Company is subject to certain debt
covenants, which include, among other items, limitations on capital
expenditures, minimum tangible net worth and debt coverage ratio amounts and
maximum leverage ratio (all as defined under the agreements). As of December
31, 1997 and September 30, 1998 the Company was not in compliance with the
covenant requirements and the lender has not agreed to provide waivers of such
violations. Accordingly, the term debt which by its original terms would have
been classified as a long-term obligation, has been reclassified as a current
liability due to the default, as the lender has the right to accelerate the
repayment of the loans. Subsequent to the acquisition as discussed in Note 12,
Mrs. Fields is in discussions with the lender regarding repayment or
refinancing.
All required payments under the terms of the debt are current and on March 5,
1998, by mutual agreement with the lender, the Company made a $200,000
prepayment on the term loan portion of the debt. Subsequent to December 31,
1997, advances under the line-of-credit were frozen and an agreement was
reached to extend the repayment of the line-of-credit balance to January 31,
1999.
As of December 31, 1996 there was approximately $409,000 outstanding in 10.1%
to 10.25% term loans, payable to a bank in monthly installments through October
1999. Such amounts, which at that time totaled approximately $360,000 were
repaid out of proceeds from the Company's new term loan facility discussed
above.
NOTE 3--STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Articles of Incorporation authorize $0.001 par value, non-
voting preferred stock in series A (300,000 shares authorized) and series B
(800 shares authorized). In connection with the 1995 acquisition of
Pretzelmaker by the Company, there were 275,942 share of series A and 800
shares of series B preferred shares issued. The series A and B shares contained
dividends and liquidation preferences, cumulative dividend rights and were
convertible into common stock of the Company under terms as defined in the
agreements. No dividends were paid on the preferred shares. In connection with
the acquisition of the Company discussed in Note 12, the 275,942 shares of
series A and 800 shares of series B preferred stock were converted into 35,155
shares of common stock. The accompanying financial statements retroactively
reflect the conversion (which has no affect on total stockholders' equity
amounts) for all periods presented.
F-196
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 3--STOCKHOLDERS' EQUITY (Continued)
Stock Options
The Company has 35,000 shares of common stock reserved for issuance under
three stock option plans (Incentive Stock Option Plan, Non-Qualified Stock
Option Plan and Stock Bonus Plan) collectively referred to as the "Plan".
Through December 31, 1997, options to acquire 13,250 shares had been granted at
exercise prices ranging from $13.20 to $25.00 per share. There were no options
granted in 1998. The Company applies APB Opinion No. 25, Accounting for Stock
Issues to Employees, in accounting for its plans. FASB Statement No. 123,
Accounting for Stock-Basis Compensation, requires the Company to provide pro
forma information regarding net income as if compensation cost for the
Company's stock option plans has been determined in accordance with the fair
value based method prescribed in FASB Statement No. 123. Under the accounting
provisions of FASB Statements No. 123 the Company's reported net income (loss)
would not have been materially impacted for the periods presented under FASB
Statement No. 123.
As part of the acquisition of the Company discussed in Note 12, all of the
stock options were cancelled in connection with the consulting, bonus and
service agreements.
NOTE 4--NON-COMPETE AGREEMENTS
In connection with the 1995 acquisition of Pretzelmaker, the Company entered
into non-compete agreements with the two principal former owners of
Pretzelmaker. The non-interest bearing obligations have been recorded as a
liability on a discounted present value basis using an imputed interest rate of
15%. The agreements require annual payments of $182,300 and as of December 31,
1997, future minimum payments under the obligations are summarized as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
------------------------- ---------
<S> <C>
1998.............................................................. $ 182,300
1999.............................................................. 182,300
---------
Total Payments.................................................... 364,600
Less: Amounts Representing Interest............................... (37,379)
---------
Present Value of Payments......................................... 327,221
Less: Current Portion............................................. (151,418)
---------
$ 175,803
=========
</TABLE>
NOTE 5--UNSECURED PROMISSORY NOTES
During 1995, the Company issued 15% unsecured promissory notes due September
30, 2000 to various parties, who at the time, were also shareholders of the
Company. In addition to the stated interest, which is payable quarterly, the
notes also contain a net profits interest, as defined, in all Pretzelmaker
company-owned stores and sports venues. Through September 30, 1998, there has
been no net profit interest due under the agreements.
In connection with the acquisition of the Company during November 1998 (as
discussed in Note 12), the acquirer has agreed to repay the outstanding
unsecured promissory notes in January, 1999.
F-197
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 6--CAPITAL LEASE OBLIGATIONS
At December 31, 1997 included with long-term debt are capitalized lease
obligations incurred for store equipment, fixtures and improvements. The
obligations bear implicit interest rates of 16.9% to 21.6% and require total
monthly payments of approximately $6,800, decreasing as the leases are paid off
through October 2001.
Total future payments required under the lease obligations at December 31,
1997 are approximately $78,600 in 1998, $76,300 in 1999, $66,800 in 2000 and
$67,300 in 2001.
As of December 31, 1997, property and equipment includes $197,469 acquired
through capital leases. Accumulated depreciation related to these assets was
$19,183.
NOTE 7--COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases retail store facilities and corporate office space under
long-term non-cancelable operating lease agreements requiring monthly payments
over their remaining terms which expire through 2007. Certain of the retail
store leases also provide for contingent rentals based upon gross revenue of
the store as well as adjustments for operating costs. Additionally, as a result
of master franchise agreements in Canada and former company-owned stores which
have been franchised, the Company is contingently liable under lease guarantees
or assignment agreements.
Total rent expense, including lease termination costs for closed company-
owned stores is summarized as follows:
<TABLE>
<CAPTION>
February 24 Nine Months Ended
(Inception) to Years Ended December 31, September 30,
December 31, ------------------------ -------------------
1995 1996 1997 1997 1998
--------------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Rent expense............ $77,100 $256,900 $446,100 $308,700 $256,200
Lease termination
expense................ -- -- 109,200 103,600 186,600
------- ------------ ------------ --------- ---------
$77,100 $256,900 $555,300 $412,300 $442,800
======= ============ ============ ========= =========
</TABLE>
As of December 31, 1997, future minimum lease payments due under operating
leases are as follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amount
------------------------- ----------
<S> <C>
1998............................................................. $ 242,000
1999............................................................. 248,000
2000............................................................. 216,000
2001............................................................. 151,000
2002............................................................. 130,000
Thereafter....................................................... 356,000
----------
$1,343,000
==========
</TABLE>
F-198
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1997 and 1998 is Unaudited.)
NOTE 7--COMMITMENTS AND CONTINGENCIES (Continued)
During September 1998, the Company entered into a sub-lease agreement for its
corporate office space providing for sub-rental income to the Company of
approximately $8,000 monthly to July 2000. Such amounts are not reflected in
the table above.
As of December 31, 1997, future minimum amounts due under operating leases
where the Company is contingently liable under lease guarantees or assignment
agreements are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, Amount
------------------------ ----------
<S> <C>
1998............................................................ $ 390,000
1999............................................................ 398,000
2000............................................................ 405,000
2001............................................................ 401,000
2002............................................................ 352,000
Thereafter...................................................... 1,262,000
----------
$3,208,000
==========
</TABLE>
Approximately 51% of the above amounts relate to franchised locations which
are owned in whole or in part by individuals or entities which were
stockholders of the Company prior to the acquisition discussed in Note 12.
Legal Matters
From time to time the Company is the subject of legal actions or threatened
legal actions, which it considers routine to its business activities.
Management of the Company believes that the potential liability to the Company
under such matters would not have a material affect on the Company's
consolidated financial position, results of operations or cash flows.
NOTE 8--RELATED PARTY TRANSACTIONS
Since 1996, the Company has had business relationships with various entities
owned in whole or in part by its Chairman, President, and Chief Executive
Officer (the "Officer") summarized as follows:
<TABLE>
<CAPTION>
December 31, September 30,
---------------- -------------
1996 1997 1998
-------- ------- -------------
<S> <C> <C> <C>
Franchise Fee Income from Related Entities.. $200,000 $ -- $ --
Royalty and Advertising Fees from Related
Entities in Illinois....................... 25,400 55,000 37,765
Account Receivables Outstanding at Period
End from Related Entities.................. 77,904 46,129 24,809
</TABLE>
During 1997, Canada received loans totaling approximately $65,000 (U.S.) from
the two largest franchisees in Canada who are related to the Company through
common ownership. The proceeds are invested in a Canadian certificate of
deposit and the debt evidenced by non-interest bearing promissory notes. The
certificate of deposit is presented as restricted cash and the notes are
included with long-term debt. The advances were made to secure a limited loan
guarantee made by Canada on behalf of the franchisees. Subsequent to September
30, 1998, the loan guarantee obligation was transferred to another corporation
affiliated with the franchisees and the certificate of deposit used to
liquidate the related debt obligations, thereby releasing Canada from any
further obligations under the agreements.
F-199
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the
Nine Months Ended September 30, 1997 and 1998 is Unaudited.)
NOTE 9--INCOME TAXES
Income taxes consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996 1997
-------- -------- ----
<S> <C> <C> <C>
CURRENT:
Federal........................................... $ 19,000 $ 68,507 $--
State............................................. 3,000 3,952 --
-------- -------- ----
<CAPTION>
22,000 72,459 --
<S> <C> <C> <C>
-------- -------- ----
DEFFERED (BENEFIT):
Federal........................................... (20,000) (37,000) --
State............................................. (2,000) (3,000) --
-------- -------- ----
(22,000) (40,000) --
-------- -------- ----
Total........................................... $ -- $ 32,459 $--
======== ======== ====
</TABLE>
The components of the net deferred tax assets (liabilities) are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
------- ---------
<S> <C> <C>
Net operating loss carryforward.......................... $ -- $ 55,000
Intangible assets........................................ 65,000 95,000
Accrued expenses......................................... -- 21,000
Accounts receivable allowance............................ 4,000 4,000
Other.................................................... -- 13,000
Accumulated depreciation................................. (7,000) (17,000)
------- ---------
62,000 171,000
Valuation allowance...................................... -- (109,000)
------- ---------
$62,000 $ 62,000
======= =========
</TABLE>
As of December 31, 1997, the Company has a net operating loss carryforward
for income tax purposes of approximately $149,000, expiring in 2012.
A reconciliation of the effective tax rates to the federal statutory rate is
summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Federal Statutory Income
Tax Rate (Benefit)..... (34.0)% 34.0 % (34.0)%
Amortization Of Non-
Deductible Goodwill.... 18.2 21.6 12.0
Non-Deductible
Expenses............... -- -- 15.1
Other................... 15.8 (22.3) 6.9
----- ----- -----
Effective Income Tax
Rate................... 0.0 % 33.3 % 0.0 %
===== ===== =====
</TABLE>
F-200
<PAGE>
PRETZELMAKER HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and for the Nine Months Ended September
30, 1997 and 1998 is Unaudited.)
NOTE 10--LITIGATION SETTLEMENT
During 1997, the Company settled a lawsuit, which arose in 1996 in a case in
which the plaintiffs claimed that the Company breached the Franchise Agreement
by failing to grant a specific mall location. The plaintiffs sought damages of
approximately $600,000, plus punitive damages and attorney fees. The cost of
the settlement, including the Company's outside legal fees, was approximately
$149,000.
NOTE 11--SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
February 24 Years Ended Nine Months Ended
(Inception) to December September 30,
December 31, ---------------- -----------------
1995 1996 1997 1997 1998
--------------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Supplemental Disclosure of
Cash Flow Information:
Cash Paid for:
Interest.................. $ 69,600 $87,900 $157,400 $106,700 $106,800
Income taxes.............. 45,000 4,000 103,800 89,700 8,600
Supplemental Disclosure of
Non-Cash Investing and
Financing Activities:
Preferred Stock Issued in
Pretzelmaker
Acquisition.............. 279,800 -- -- -- --
Equipment Acquired under
Financing Obligations.... 42,100 -- 417,200 297,200 --
Company-owned Stores Sold
with Deferred Terms...... -- -- 76,500 76,500 25,000
</TABLE>
NOTE 12--SUBSEQUENT EVENT--ACQUISITION OF COMPANY
During November 1998 the stockholders of the Company sold their shares to
Mrs. Field's Original Cookies, Inc. ("Mrs. Fields"). As a condition to closing,
by mutual agreement among the parties, all preferred shares previously
outstanding were converted to common shares, outstanding stock option
agreements were terminated, and the repayment terms under the non-compete
agreements and unsecured promissory notes were modified so that such
obligations would be repaid by Mrs. Fields by January 1999.
In connection with the acquisition of the Company, Pretzelmaker entered into
various consulting, bonus and severance agreements totaling $327,300 to be paid
during December 1998 and January 1999.
F-201
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative, or other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus and, if given or made, such information or representations
must not be relied upon as having been authorized by Mrs. Fields' Holding or
the initial purchasers. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities other than the securities
to which it relates, nor does it constitute an offer to sell or the
solicitation of an offer to buy such securities in any jurisdiction in which
such offer or solicitation is not authorized, or in which the person making
such offer or solicitation is not qualified to do so, or to any person to whom
it is unlawful to make such an offer or solicitation. Neither the delivery of
this prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of Mrs.
Fields' Holding since the date hereof or that information contained herein is
correct as of any time subsequent to its date.
Until , all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$55,000,000
Mrs. Fields'
Holding Company, Inc.
14% Series B Senior Secured Notes
Due 2004
---------------
PROSPECTUS
---------------
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY.
As authorized by Section 145 of the General Corporation Law of the State
of Delaware, each director and officer of Mrs. Fields' Holding may be
indemnified by Mrs. Fields' Holding against expenses (including attorney's fees,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred in connection with the defense or settlement of any threatened, pending
or completed legal proceedings in which he is involved by reason of the fact
that he is or was a director or officer of Mrs. Fields' Holding if he acted in
good faith and in a manner that he reasonably believed to be in or not opposed
to the best interests of Mrs. Fields' Holding and, with respect to any criminal
action or proceeding, if he had no reasonable cause to believe that his conduct
was unlawful. If the legal proceeding, however, is by or in the right of
Mrs. Fields' Holding, the director or officer may not be indemnified in respect
of any claim, issue or matter as to which he shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to Mrs.
Fields' Holding unless a court determines otherwise.
The Mrs. Fields' Holding by-laws authorize Mrs. Fields' Holding to
indemnify its present and former directors and officers and to pay or reimburse
expenses for individuals in advance of the final disposition of a proceeding
upon receipt of an undertaking by or on behalf of such individuals to repay such
amounts if so required.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
1.1+ Purchase Agreement, dated as of August 13, 1998, among Mrs. Fields'
Holding Company, Inc., Jefferies & Company, Inc. and BT Alex. Brown
Incorporated
2.1+ Securities Purchase Agreement by and among Cookies USA, Inc., the
Individuals and Entities Identified Therein as The Sellers and Mrs.
Fields' Original Cookies, Inc., dated as of August 13, 1998
2.2+ Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Jake Tortorice of Chocolate Chip Cookies of Texas, Inc. as
Seller. Filed as Exhibit 2.3 to the 8-K dated September 3, 1998 and
incorporated herein by reference
2.3+ Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Lawrence J. Cohen, Mildred S. Cohen, Jerome E. Mouton, Steven
J. Bryan and Jason A. Piltzmaker, holders of all outstanding capital
stock of Deblan Corporation, as Sellers Filed as Exhibit 2.2 to the 8-K
dated September 3, 1998 and incorporated herein by reference
2.4+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
ASK & MSK Family Limited Partnership-II(B), Ltd. Filed as Exhibit 2.4 to
the Mrs. Fields' Original Cookies, Inc. 8-K dated September 3, 1998 and
incorporated herein by reference
2.5+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Crossroads Cookies, Inc. Filed as Exhibit 2.5 to the Mrs. Fields'
Original Cookies, Inc. 8-K dated September 3, 1998 and incorporated
herein by reference
2.6+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Hot Barton and Northpark Cookies, Inc. Filed as Exhibit 2.6 to the Mrs.
Fields' Original Cookies, Inc. 8-K dated September 3, 1998 and
incorporated herein by reference
2.7+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Northpark Cookies, Inc. Filed as Exhibit 2.7 to the Mrs. Fields' Original
Cookies, Inc. 8-K dated September 3, 1998 and incorporated herein by
reference
2.8+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Quail Springs Cookies, Inc. Filed as Exhibit 2.8 to the Mrs. Fields'
Original Cookies, Inc. 8-K dated September 3, 1998 and incorporated
herein by reference
2.9+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc. and
Westgate Cookies, Inc. Filed as Exhibit 2.9 to the Mrs. Fields' Original
Cookies, Inc. 8-K dated September 3, 1998 and incorporated herein by
reference
<PAGE>
EXHIBIT (CONTINUED)
3.1 Restated Certificate of Incorporation of Mrs. Fields' Holding Company,
Inc.
3.2 By-Laws of Mrs. Fields' Holding Company, Inc.
4.1+ Indenture, dated as of August 24, 1998, between Mrs. Fields' Holding
Company, Inc. and The Bank of New York, as Trustee
4.2+ Form of Certificate of Senior Secured Discount Note (included as Exhibit
A to Exhibit 4.1)
4.3+ Pledge Agreement, dated as of August 24, 1998, by Mrs. Fields' Holding
Company, Inc., in favor of The Bank of New York, as Collateral Agent
4.4+ Registration Rights Agreement, dated as of August 24, 1998, among Mrs.
Fields' Holding Company, Inc., Jefferies & Company, Inc. and BT Alex.
Brown Incorporated
4.5+ Indenture, dated as of November 26, 1997, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields' Brand, Inc. and The Bank of New York, as
Trustee, filed as Exhibit 4.1 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
4.6+ Form of Notation of Guarantee (included as Exhibit E to Exhibit 4.5)
4.7+ Form of certificate of Senior Note (included as Exhibit A to Exhibit 4.5)
4.8+ First Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc. and The Bank
of New York, as Trustee
4.9+ Second Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., Jefferies & Company, Inc. and BT Alex.
Brown Incorporated
4.10 Third Supplemental Indenture, dated as of November 20, 1998, among Mrs.
Fields' Original Cookies, Inc., Great American Cookie Company, Inc., The
Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc., and The Bank of
New York, as a Trustee.
4.11+Registration Rights Agreement, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., Jefferies & Company, Inc. and BT Alex.
Brown Incorporated
5.1* Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP to as to
legality of the New Senior Notes to be issued by Mrs. Fields' Original
Cookies, Inc. and the New Guarantees to be issued by The Mrs. Fields'
Brand, Inc. and Great American Cookie Company, Inc.
10.1+ Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields
Development Corporation, The Mrs. Fields' Brand, Inc. and Capricorn II,
L.P., filed as Exhibit 10.1 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.2+ Asset Purchase Agreement, dated as of August 7, 1996, among Mrs. Fields,
Inc., Mrs. Fields' Original Cookies, Inc., and Capricorn Investors II,
L.P., filed as Exhibit 10.11 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.3+ Warrant Agreement, dated as of August 24, 1998, between Mrs. Fields'
Holding Company, Inc. and The Bank of New York, as Warrant Agent
10.4+ Warrant Registration Rights Agreement, dated as of August 24, 1998, among
Mrs. Fields' Holding Company, Inc., Jefferies & Company, Inc., BT Alex.
Brown Incorporated and Capricorn Investors II, L.P.
10.5+ Amended and Restated Marketing Agreement, dated as of January 9, 1997,
between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA Fountain,
filed as Exhibit 10.27 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 and incorporated by reference herein
10.6+ Amendment, dated December 1, 1997, to existing marketing agreement, dated
as of January 9, 1997, between Mrs. Fields' Original Cookies, Inc. and
Coca-Cola USA Fountain
10.7+ Corollary agreement, dated September 21, 1998, to existing marketing
agreement, dated as of January 9, 1997 and amended on December 1, 1997,
between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA Fountain
10.8+ Employment Agreement, dated as of October 1, 1997, between Michael R.
Ward and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.28 to
the Mrs. Fields' Original Cookies, Inc. Registration Statement on S-4 and
incorporated by reference herein
10.9+ Employment Agreement, dated as of October 1, 1997, between Pat Knotts and
Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.29 to the Mrs.
Fields' Original Cookies, Inc. Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.10+Employment Agreement, dated as of October 1, 1997, between L. Tim
Pierce and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.30 to
the Mrs. Fields' Original Cookies, Inc. Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
10.11+Employment Agreement, dated as of July 1, 1996, between Lawrence Hodges
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.31 to the
Mrs. Fields' Original Cookies, Inc. Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.12+Employment Agreement, dated as of July 10, 1998, between Garry
Remington and Mrs. Fields' Original Cookies, Inc.
10.13+Lease Agreement, dated as of February 23, 1993, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.32 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.14+Lease Agreement, dated as of October 10, 1995, between The Equitable Life
Assurance Society of the United States and Mrs. Fields Cookies, filed as
Exhibit 10.33 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.15+Letter of Agreement, dated as of October 1, 1992, between United
Airlines, Inc. and Mrs. Fields Development Corporation, filed as Exhibit
10.34 to the Mrs. Fields' Original Cookies, Inc. Registration Statement
on S-4 (No. 333-45179) and incorporated by reference herein
10.16+Lease Agreement, dated as of January 18, 1998, between 2855 E. Cottonwood
Parkway, L.C. and Mrs. Fields' Original Cookies, Inc., filed as Exhibit
10.35 to the Mrs. Fields' Original Cookies, Inc. Registration Statement
on S-4 (No. 333-45179) and incorporated by reference herein
10.17+Amendment to Supply Agreement, dated as of June 19, 1995 between Van Den
Bergh Foods Company and Mrs. Fields, Inc., filed as Exhibit 10.37 to the
Mrs. Fields' Original Cookies, Inc. Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.18+Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Pretzel Time, Inc. and Martin E.
Lisiewski, filed as Exhibit 10.39 to the Mrs. Fields' Original Cookies,
Inc. Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.19+License Agreement, dated as of March 1, 1992, between Mrs. Fields
Development Corporation and Marriott Corporation, filed as Exhibit 10.40
to the Mrs. Fields' Original Cookies, Inc. Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.20+License Agreement, dated as of October 28, 1993 between Mrs. Fields
Development Corporation and Marriott Management Services, Corp., filed as
Exhibit 10.41 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on Form S-4 (No. 333-45179) and incorporated by reference
herein
10.21+Stock Acquisition Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Pretzel Time, Inc., and Martin E.
Lisiewski, filed as Exhibit 10.43 to the Mrs. Fields' Original Cookies,
Inc. Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.22+Franchise Agreement Addendum 2 and Area Development Agreement Addendum
2, dated as of September 2, 1997, between Pretzel Time, Inc. and Mrs.
Fields' Original Cookies, Inc., filed as Exhibit 10.44 to the Mrs.
Fields' Original Cookies, Inc. Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.23+Management Agreement, dated as of September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.45 to the Mrs. Fields' Original Cookies, Inc. Registration Statement
on S-4 (No. 333-45179) and incorporated by reference herein
10.24+Stock Purchase Agreement, dated as of September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.46 to the Mrs. Fields' Original Cookies, Inc. Registration Statement
on S-4 (No. 333-45179) and incorporated by reference herein
10.25+Shareholder Agreement, dated as of September 2, 1997, among Mrs. Fields'
Holding Company, Inc., Martin E. Lisiewski and Pretzel Time, Inc., filed
as Exhibit 10.47 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.26+Employment Agreement, dated as of September 2, 1997, between Pretzel
Time, Inc. and Martin E. Lisiewski, filed as Exhibit 10.48 to the Mrs.
Fields' Original Cookies, Inc. Registration Statement on S-4 (No. 333-
45179) and incorporated by reference herein
10.27+Area Development Agreement, dated as of September 2, 1997, between
Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc., filed as
Exhibit 10.49 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.28+$500,000 Promissory Note, dated as of September 2, 1997, between Martin
E. Lisiewski and Mrs. Fields' Holding Company, Inc., filed as Exhibit
10.50 to the Mrs. Fields' Original Cookies, Inc. Registration Statement
on S-4 (No. 333-45179) and incorporated by reference herein
<PAGE>
EXHIBIT (CONTINUED)
10.29+Exchange Agreement, dated September 2, 1997, between Mrs. Fields'
Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit 10.51 to
the Mrs. Fields' Original Cookies, Inc. Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.30+Registration Rights Agreement, dated September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.52 to the Mrs. Fields' Original Cookies, Inc. Registration Statement
on S-4 (No. 333-45179) and incorporated by reference herein
10.31+Franchise Development Agreement, dated September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as Exhibit
10.53 to the Mrs. Fields' Original Cookies, Inc. Registration Statement
on S-4 (No. 333-45179) and incorporated by reference herein
10.32+Asset Purchase Agreement, dated July 23, 1997, among Mrs. Fields'
Pretzel Concepts, Inc., H&M Concepts, Inc., and The Managing Members of
H&M Concepts Ltd., Co., filed as Exhibit 10.53 to the Mrs. Fields'
Original Cookies, Inc. Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.33+Exhibit A to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc., filed
as Exhibit 10.54 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.34*Uniform Franchise Offering Circular of Pretzel Time, Inc., as amended on
August 24, 1998
10.35*Uniform Franchise Offering Circular of Great American Cookie Company,
Inc., as amended on August 25, 1998
10.36+Exhibit B to the Developing Agent Agreement, dated September 2, 1997,
between Pretzel Time, Inc., and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.57 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.37+Assignment of Assets and Assumption of Liabilities Agreement, dated July
25, 1997, between H&M Concepts Ltd., Co., and Mrs. Fields' Pretzel
Concepts, Inc., filed as Exhibit 10.62 to the Mrs. Fields' Original
Cookies, Inc. Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.38+First Amendment to Operating Agreement for UVEST, LLC, dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST Limited,
filed as Exhibit 10.64 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.39+First Amendment to Operating Agreement for LV-H&M, L.L.C., dated July 25,
1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean Jensen, filed
as Exhibit 10.65 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference herein
10.40+Lease Agreement, dated March 2, 1995, between Price Development Company,
Limited Partnership and Mrs. Fields Cookies, filed as Exhibit 10.69 to
the Mrs. Fields' Original Cookies, Inc. Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.41+Consulting Agreement, dated November 26, 1996, between Debra J. Fields
and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.70 to the
Mrs. Fields' Original Cookies, Inc. Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.42+Mrs. Fields' Holding Company, Inc. Director Stock Option Plan
10.43+Mrs. Fields' Holding Company, Inc. Employee Stock Option Plan
10.44+Mrs. Fields' Holding Company, Inc. Director Stock Purchase Plan
10.45+Amended and Restated Loan Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank,
filed as Exhibit 10.73 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.46+Intellectual Property Security Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank
10.47+Pledge and Security Agreement, dated as of February 28, 1998, between
Mrs. Fields' Original Cookies, Inc. and LaSalle National Bank
10.48+Stockholders' Agreement, dated as of July 17, 1998, between Mrs. Fields'
Holding Company, Inc. and its Stockholders
10.49+Form of Settlement Agreement and Release, by and among Mrs. Fields'
Original Cookies, Inc., Capricorn Investors II, L.P., a Delaware limited
partnership, Great American Cookie Company, Inc., Cookies USA, Inc., The
Jordan Company, and the Franchisees parties thereto
10.50+Supply Agreement, dated as of March 30, 1998 between Mrs. Fields'
Original Cookies, Inc. and LBI Acquisition Corp. d/b/a/ Pennant Foods.
12.1 +Computation of ratio of earnings to fixed charges of Mrs. Fields'
Original Cookies, Inc.
<PAGE>
EXHIBIT (CONTINUED)
21.1+Subsidiaries of Mrs. Fields' Original Cookies, Inc.
23.1+Consent of Arthur Andersen LLP
23.2+Consent of Deloitte & Touche LLP
23.3+Consent of Weinstein Spira & Company, P.C.
23.4+Consent of PricewaterhouseCoopers LLP
23.5*Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit
5.1)
23.6 Consent of Habif, Arogeti & Wynne, P.C.
23.7 Consent of BDO Siedman, LLP
23.8 Consent of AJ, Robbins, P.C.
23.9 Consent of the Prior Management of Great American Cookie Company
24.1+Power of Attorney of certain officers and directors of the Company,
included in Part II of the Registration Statement
25.1+Form T-1 Statement of Eligibility of The Bank of New York to act as
trustee under the Indenture
27.1*Financial Data Schedule (for SEC use only)
99.1*Form of Letter of Transmittal
99.2*Form of Notice of Guaranteed Delivery
99.3+Schedule II - Valuation and Qualifying Accounts
99.4*Guidelines for certification of taxpayer identification number on
substitute Form W-9
99.6*Letter to Brokers
99.7*Letter to clients
- -----
* To be filed by amendment.
+ Filed previously
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
(1) To file any period in which offers to sale are being made, a post-
effective amendment to this registration statement; (i) To include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities 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 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement; (iii) to include any material information with respect to the plan of
distribution previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liabilities under the Securities
Act of 1933, each post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired or involved therein, that was not the subject of and included in
the registration statement when it became effective.
Pursuant to the requirements of the Securities Act of 1933, Mrs. Fields' Holding
Company, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Salt Lake City, State of Utah, on the 16th day of November,
1998.
MRS. FIELDS' HOLDING COMPANY, INC.
By /s/Larry A. Hodges
----------------------
Larry A. Hodges
President/CEO
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Mrs. Fields' Holding Company,
Inc. and each of us, do hereby constitute and appoint Michael R. Ward or L. Tim
Pierce, our true and lawful attorney and agent, with power of substitution, to
do any and all acts and things in our name and behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated above, which said attorney and agent may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission (the "Commission"), in connection with this
Registration Statement on Form S-4, and any and all amendments to said
Registration Statement and all instruments necessary or incidental in connection
therewith, including specifically, but without limitation, power and authority
to sign for us or any of us in our names, in the capacities indicated below, any
and all amendments hereto, and to file the same with the Commission. Said
attorney shall have full power and authority to do and perform in the name and
on behalf of each of the undersigned, in any and all capacities, every act
whatsoever requisite or necessary to be done in the premises as fully and to all
intents and purposes as each of the undersigned might or could do in person,
hereby ratifying and approving the acts of said attorneys and each of them.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on ___________, 1999.
<TABLE>
<CAPTION>
Signature TITLE
--------- -----
<S> <C>
* President, Chief Executive Officer
--------------------------- and Director
(Larry A. Hodges)
* Senior Vice President, Chief Financial
--------------------------- Officer and Secretary
(Tim Pierce)
* Chairman of the Board of Directors
---------------------------
(Herbert S. Winokur)
* Director
---------------------------
(Richard M. Ferry)
* Director
---------------------------
(Debbi Fields)
* Director
---------------------------
(Nathaniel A. Gregory)
* Director
---------------------------
(Walker Lewis)
* Director
---------------------------
(Peter W. Mullin)
* Director
---------------------------
(Gilbert C. Osnos)
* By: /s/ Michael R. Ward
-------------------------------------
Michael R. Ward
Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
1.1+ Purchase Agreement, dated as of August 13, 1998, among Mrs. Fields'
Holding Company, Inc., Jefferies & Company, Inc. and BT Alex. Brown
Incorporated
2.1+ Securities Purchase Agreement by and among Cookies USA, Inc., the
Individuals and Entities Identified Therein as The Sellers and Mrs.
Fields' Original Cookies, Inc., dated as of August 13, 1998
2.2+ Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Jake Tortorice of Chocolate Chip Cookies of Texas, Inc. as
Seller. Filed as Exhibit 2.3 to the 8-K dated September 3, 1998 and
incorporated herein by reference
2.3+ Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc., as
Buyer, and Lawrence J. Cohen, Mildred S. Cohen, Jerome E. Mouton,
Steven J. Bryan and Jason A. Piltzmaker, holders of all outstanding
capital stock of Deblan Corporation, as Sellers Filed as Exhibit 2.2
to the 8-K dated September 3, 1998 and incorporated herein by
reference
2.4+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and ASK & MSK Family Limited Partnership-II(B), Ltd. Filed as Exhibit
2.4 to the Mrs. Fields' Original Cookies, Inc. 8-K dated September 3,
1998 and incorporated herein by reference
2.5+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Crossroads Cookies, Inc. Filed as Exhibit 2.5 to the Mrs. Fields'
Original Cookies, Inc. 8-K dated September 3, 1998 and incorporated
herein by reference
2.6+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Hot Barton and Northpark Cookies, Inc. Filed as Exhibit 2.6 to the
Mrs. Fields' Original Cookies, Inc. 8-K dated September 3, 1998 and
incorporated herein by reference
2.7+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Northpark Cookies, Inc. Filed as Exhibit 2.7 to the Mrs. Fields'
Original Cookies, Inc. 8-K dated September 3, 1998 and incorporated
herein by reference
2.8+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Quail Springs Cookies, Inc. Filed as Exhibit 2.8 to the Mrs.
Fields' Original Cookies, Inc. 8-K dated September 3, 1998 and
incorporated herein by reference
2.9+ Asset Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
and Westgate Cookies, Inc. Filed as Exhibit 2.9 to the Mrs. Fields'
Original Cookies, Inc. 8-K dated September 3, 1998 and incorporated
herein by reference
3.1 Restated Certificate of Incorporation of Mrs. Fields' Holding Company,
Inc.
3.2 By-Laws of Mrs. Fields' Holding Company, Inc.
4.1+ Indenture, dated as of August 24, 1998, between Mrs. Fields' Holding
Company, Inc. and The Bank of New York, as Trustee
4.2+ Form of Certificate of Senior Secured Discount Note (included as
Exhibit A to Exhibit 4.1)
4.3+ Pledge Agreement, dated as of August 24, 1998, by Mrs. Fields' Holding
Company, Inc., in favor of The Bank of New York, as Collateral Agent
4.4+ Registration Rights Agreement, dated as of August 24, 1998, among Mrs.
Fields' Holding Company, Inc., Jefferies & Company, Inc. and BT Alex.
Brown Incorporated
4.5+ Indenture, dated as of November 26, 1997, among Mrs. Fields' Original
Cookies, Inc., The Mrs. Fields' Brand, Inc. and The Bank of New York,
as Trustee, filed as Exhibit 4.1 to the Mrs. Fields' Original Cookies,
Inc. Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
4.6+ Form of Notation of Guarantee (included as Exhibit E to Exhibit 4.5)
4.7+ Form of certificate of Senior Note (included as Exhibit A to Exhibit
4.5)
4.8+ First Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc. and The
Bank of New York, as Trustee
4.9+ Second Supplemental Indenture, dated as of August 24, 1998, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., Jefferies & Company, Inc. and BT Alex.
Brown Incorporated
4.10 Third Supplemental Indenture, dated as of November 20, 1998, among
Mrs. Fields' Original Cookies, Inc., Great American Cookie Company,
Inc., The Mrs. Fields' Brand, Inc., Pretzelmaker Holdings, Inc., and
The Bank of New York, as a Trustee.
<PAGE>
EXHIBIT (CONTINUED)
4.11+ Registration Rights Agreement, dated as of August 24, 1998, among
Mrs. Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc.,
Great American Cookie Company, Inc., Jefferies & Company, Inc. and
BT Alex. Brown Incorporated
5.1* Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP to
as to legality of the New Senior Notes to be issued by Mrs. Fields'
Original Cookies, Inc. and the New Guarantees to be issued by The
Mrs. Fields' Brand, Inc. and Great American Cookie Company, Inc.
10.1+ Asset Purchase Agreement, dated as of August 7, 1996, among Mrs.
Fields Development Corporation, The Mrs. Fields' Brand, Inc. and
Capricorn II, L.P., filed as Exhibit 10.1 to the Mrs. Fields'
Original Cookies, Inc. Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.2+ Asset Purchase Agreement, dated as of August 7, 1996, among Mrs.
Fields, Inc., Mrs. Fields' Original Cookies, Inc., and Capricorn
Investors II, L.P., filed as Exhibit 10.11 to the Mrs. Fields'
Original Cookies, Inc. Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.3+ Warrant Agreement, dated as of August 24, 1998, between Mrs. Fields'
Holding Company, Inc. and The Bank of New York, as Warrant Agent
10.4+ Warrant Registration Rights Agreement, dated as of August 24, 1998,
among Mrs. Fields' Holding Company, Inc., Jefferies & Company, Inc.,
BT Alex. Brown Incorporated and Capricorn Investors II, L.P.
10.5+ Amended and Restated Marketing Agreement, dated as of January 9,
1997, between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA
Fountain, filed as Exhibit 10.27 to the Mrs. Fields' Original
Cookies, Inc. Registration Statement on S-4 and incorporated by
reference herein
10.6+ Amendment, dated December 1, 1997, to existing marketing agreement,
dated as of January 9, 1997, between Mrs. Fields' Original Cookies,
Inc. and Coca-Cola USA Fountain
10.7+ Corollary agreement, dated September 21, 1998, to existing marketing
agreement, dated as of January 9, 1997 and amended on December 1,
1997, between Mrs. Fields' Original Cookies, Inc. and Coca-Cola USA
Fountain
10.8+ Employment Agreement, dated as of October 1, 1997, between Michael
R. Ward and Mrs. Fields' Original Cookies, Inc., filed as Exhibit
10.28 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 and incorporated by reference herein
10.9+ Employment Agreement, dated as of October 1, 1997, between Pat
Knotts and Mrs. Fields' Original Cookies, Inc., filed as Exhibit
10.29 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference
herein
10.10+ Employment Agreement, dated as of October 1, 1997, between L. Tim
Pierce and Mrs. Fields' Original Cookies, Inc., filed as Exhibit
10.30 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference
herein
10.11+ Employment Agreement, dated as of July 1, 1996, between Lawrence
Hodges and Mrs. Fields' Original Cookies, Inc., filed as Exhibit
10.31 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference
herein
10.12+ Employment Agreement, dated as of July 10, 1998, between Garry
Remington and Mrs. Fields' Original Cookies, Inc.
10.13+ Lease Agreement, dated as of February 23, 1993, between The
Equitable Life Assurance Society of the United States and Mrs.
Fields Cookies, filed as Exhibit 10.32 to the Mrs. Fields' Original
Cookies, Inc. Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.14+ Lease Agreement, dated as of October 10, 1995, between The Equitable
Life Assurance Society of the United States and Mrs. Fields Cookies,
filed as Exhibit 10.33 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.15+ Letter of Agreement, dated as of October 1, 1992, between United
Airlines, Inc. and Mrs. Fields Development Corporation, filed as
Exhibit 10.34 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.16+ Lease Agreement, dated as of January 18, 1998, between 2855 E.
Cottonwood Parkway, L.C. and Mrs. Fields' Original Cookies, Inc.,
filed as Exhibit 10.35 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.17+ Amendment to Supply Agreement, dated as of June 19, 1995 between Van
Den Bergh Foods Company and Mrs. Fields, Inc., filed as Exhibit
10.37 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference
herein
<PAGE>
EXHIBIT (CONTINUED)
10.18+ Stock Acquisition Agreement, dated as of September 2, 1997, among
Mrs. Fields' Holding Company, Inc., Pretzel Time, Inc. and Martin E.
Lisiewski, filed as Exhibit 10.39 to the Mrs. Fields' Original
Cookies, Inc. Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.19+ License Agreement, dated as of March 1, 1992, between Mrs. Fields
Development Corporation and Marriott Corporation, filed as Exhibit
10.40 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference
herein
10.20+ License Agreement, dated as of October 28, 1993 between Mrs. Fields
Development Corporation and Marriott Management Services, Corp.,
filed as Exhibit 10.41 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on Form S-4 (No. 333-45179) and incorporated
by reference herein
10.21+ Stock Acquisition Agreement, dated as of September 2, 1997, among
Mrs. Fields' Holding Company, Inc., Pretzel Time, Inc., and Martin
E. Lisiewski, filed as Exhibit 10.43 to the Mrs. Fields' Original
Cookies, Inc. Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.22+ Franchise Agreement Addendum 2 and Area Development Agreement
Addendum 2, dated as of September 2, 1997, between Pretzel Time,
Inc. and Mrs. Fields' Original Cookies, Inc., filed as Exhibit 10.44
to the Mrs. Fields' Original Cookies, Inc. Registration Statement on
S-4 (No. 333-45179) and incorporated by reference herein
10.23+ Management Agreement, dated as of September 2, 1997, between Mrs.
Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as
Exhibit 10.45 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.24+ Stock Purchase Agreement, dated as of September 2, 1997, between
Mrs. Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as
Exhibit 10.46 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.25+ Shareholder Agreement, dated as of September 2, 1997, among Mrs.
Fields' Holding Company, Inc., Martin E. Lisiewski and Pretzel Time,
Inc., filed as Exhibit 10.47 to the Mrs. Fields' Original Cookies,
Inc. Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.26+ Employment Agreement, dated as of September 2, 1997, between Pretzel
Time, Inc. and Martin E. Lisiewski, filed as Exhibit 10.48 to the
Mrs. Fields' Original Cookies, Inc. Registration Statement on S-4
(No. 333-45179) and incorporated by reference herein
10.27+ Area Development Agreement, dated as of September 2, 1997, between
Pretzel Time, Inc. and Mrs. Fields' Original Cookies, Inc., filed as
Exhibit 10.49 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.28+ $500,000 Promissory Note, dated as of September 2, 1997, between
Martin E. Lisiewski and Mrs. Fields' Holding Company, Inc., filed as
Exhibit 10.50 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.29+ Exchange Agreement, dated September 2, 1997, between Mrs. Fields'
Holding Company, Inc. and Martin E. Lisiewski, filed as Exhibit
10.51 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference
herein
10.30+ Registration Rights Agreement, dated September 2, 1997, between Mrs.
Fields' Holding Company, Inc. and Martin E. Lisiewski, filed as
Exhibit 10.52 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.31+ Franchise Development Agreement, dated September 2, 1997, between
Mrs. Fields' Original Cookies, Inc. and Pretzel Time, Inc., filed as
Exhibit 10.53 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.32+ Asset Purchase Agreement, dated July 23, 1997, among Mrs. Fields'
Pretzel Concepts, Inc., H&M Concepts, Inc., and The Managing Members
of H&M Concepts Ltd., Co., filed as Exhibit 10.53 to the Mrs.
Fields' Original Cookies, Inc. Registration Statement on S-4 (No.
333-45179) and incorporated by reference herein
10.33+ Exhibit A to the Developing Agent Agreement, dated September 2,
1997, between Pretzel Time, Inc. and Mrs. Fields' Original Cookies,
Inc., filed as Exhibit 10.54 to the Mrs. Fields' Original Cookies,
Inc. Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.34* Uniform Franchise Offering Circular of Pretzel Time, Inc., as
amended on August 24, 1998
10.35* Uniform Franchise Offering Circular of Great American Cookie
Company, Inc., as amended on August 25, 1998
<PAGE>
EXHIBIT (CONTINUED)
10.36+ Exhibit B to the Developing Agent Agreement, dated September 2,
1997, between Pretzel Time, Inc., and Mrs. Fields' Original Cookies,
Inc., filed as Exhibit 10.57 to the Mrs. Fields' Original Cookies,
Inc. Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.37+ Assignment of Assets and Assumption of Liabilities Agreement, dated
July 25, 1997, between H&M Concepts Ltd., Co., and Mrs. Fields'
Pretzel Concepts, Inc., filed as Exhibit 10.62 to the Mrs. Fields'
Original Cookies, Inc. Registration Statement on S-4 (No. 333-45179)
and incorporated by reference herein
10.38+ First Amendment to Operating Agreement for UVEST, LLC, dated July
25, 1997, between Mrs. Fields' Pretzel Concepts, Inc. and NVEST
Limited, filed as Exhibit 10.64 to the Mrs. Fields' Original
Cookies, Inc. Registration Statement on S-4 (No. 333-45179) and
incorporated by reference herein
10.39+ First Amendment to Operating Agreement for LV-H&M, L.L.C., dated
July 25, 1997, between Mrs. Fields' Pretzel Concepts, Inc. and Jean
Jensen, filed as Exhibit 10.65 to the Mrs. Fields' Original Cookies,
Inc. Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.40+ Lease Agreement, dated March 2, 1995, between Price Development
Company, Limited Partnership and Mrs. Fields Cookies, filed as
Exhibit 10.69 to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on S-4 (No. 333-45179) and incorporated by
reference herein
10.41+ Consulting Agreement, dated November 26, 1996, between Debra J.
Fields and Mrs. Fields' Original Cookies, Inc., filed as Exhibit
10.70 to the Mrs. Fields' Original Cookies, Inc. Registration
Statement on S-4 (No. 333-45179) and incorporated by reference
herein
10.42+ Mrs. Fields' Holding Company, Inc. Director Stock Option Plan
10.43+ Mrs. Fields' Holding Company, Inc. Employee Stock Option Plan
10.44+ Mrs. Fields' Holding Company, Inc. Director Stock Purchase Plan
10.45+ Amended and Restated Loan Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National
Bank, filed as Exhibit 10.73 to the Mrs. Fields' Original Cookies,
Inc. Registration Statement on S-4 (No. 333-45179) and incorporated
by reference herein
10.46+ Intellectual Property Security Agreement, dated as of February 28,
1998, between Mrs. Fields' Original Cookies, Inc. and LaSalle
National Bank
10.47+ Pledge and Security Agreement, dated as of February 28, 1998,
between Mrs. Fields' Original Cookies, Inc. and LaSalle National
Bank
10.48+ Stockholders' Agreement, dated as of July 17, 1998, between Mrs.
Fields' Holding Company, Inc. and its Stockholders
10.49+ Form of Settlement Agreement and Release, by and among Mrs. Fields'
Original Cookies, Inc., Capricorn Investors II, L.P., a Delaware
limited partnership, Great American Cookie Company, Inc., Cookies
USA, Inc., The Jordan Company, and the Franchisees parties thereto
10.50+ Supply Agreement, dated as of March 30, 1998 between Mrs. Fields'
Original Cookies, Inc. and LBI Acquisition Corp. d/b/a Pennant
Foods.
12.1+ Computation of ratio of earnings to fixed charges of Mrs. Fields'
Original Cookies, Inc.
21.1+ Subsidiaries of Mrs. Fields' Original Cookies, Inc.
23.1+ Consent of Arthur Andersen LLP
23.2+ Consent of Deloitte & Touche LLP
23.3+ Consent of Weinstein Spira & Company, P.C.
23.4+ Consent of PricewaterhouseCoopers LLP
23.5* Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.6 Consent of Habif, Arogeti & Wynne, P.C.
23.7 Consent of BDO Siedman, LLP
23.8 Consent of AJ. Robbins, P.C.
23.9 Consent of the Prior Management of Great American Cookie Company
24.1+ Power of Attorney of certain officers and directors of the Company,
included in Part II of the Registration Statement
25.1+ Form T-1 Statement of Eligibility of The Bank of New York to act as
trustee under the Indenture
27.1* Financial Data Schedule (for SEC use only)
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3+ Schedule II - Valuation and Qualifying Accounts
99.4* Guidelines for certification of taxpayer identification number on
substitute Form W-9
99.6* Letter to Brokers
99.7* Letter to clients
- -------
* To be filed by amendment.
+ Filed Previously
<PAGE>
================================================================================
MRS. FIELDS' HOLDING COMPANY, INC.
$55,000,000
55,000 Units Consisting of
14% Senior Secured Discount Notes due 2005 and
55,000 Warrants to purchase 172,926 shares of Common Stock
____________________________________
PURCHASE AGREEMENT
Dated as of August 13, 1998
____________________________________
Jefferies & Company, Inc. BT Alex. Brown Incorporated
- --------------------------------------------------------------------------------
<PAGE>
$55,000,000
MRS. FIELDS' HOLDING COMPANY, INC.
55,000 Units consisting of
14% Senior Secured Discount Notes due 2005
and
55,000 Warrants to purchase 172,926 shares of Common Stock
PURCHASE AGREEMENT
August 13, 1998
JEFFERIES & COMPANY, INC.
BT ALEX. BROWN INCORPORATED
c/o Jefferies & Company, Inc.
11100 Santa Monica Boulevard
Los Angeles, California 90025
Ladies and Gentlemen:
Mrs. Fields' Holding Company, Inc., a Delaware corporation (the .Company.),
proposes to issue and sell to Jefferies & Company, Inc. (.Jefferies.) and BT
Alex. Brown Incorporated (.BT.) (each, an .Initial Purchaser,. and,
collectively, the .Initial Purchasers.) 55,000 units (the .Units.), each
consisting of $1,000 in aggregate principal amount at maturity of 14% Senior
Secured Discount Notes due 2005 of the Company (the .Senior Notes.) and 55,000
warrants (the .Warrants.) to purchase 172,926 shares of common stock of the
Company, par value $0.001 per share (the .Common Stock.) subject to the terms
and conditions set forth herein. The Senior Notes are to be issued pursuant to
the provisions of an indenture (the .Indenture.), to be dated as of the Closing
Date (as defined), among the Company and The Bank of New York, as trustee (the
.Trustee.). The Senior Notes and the Exchange Notes (as defined) issuable in
exchange therefor are collectively referred to herein as the .Notes. The
Warrants will be issued pursuant to a warrant agreement to be dated as of the
Closing Date (the "Warrant Agreement") between the Company and the Bank of New
York, as warrant agent (the "Warrant Agent"). Shares of Common Stock of the
Company issuable upon exercise of the Warrants are collectively referred to
herein as the "Warrant Shares." The Units, the Senior Notes, the Warrants and
the Warrant Shares are collectively referred to herein as the "Securities."
Capitalized terms used but not defined herein shall have the meanings give to
such terms in the Indenture.
Concurrently with the offering of the Units (the .Offering.), Mrs. Fields'
Original Cookies, Inc. ("MFOC") will (i) acquire all of the outstanding capital
stock and subordinated indebtedness of Cookies USA, Inc. a Delaware corporation
(.Cookies USA.) and pay certain liabilities of Great American (.The
1
<PAGE>
Great American Acquisition.), (ii) finance the acquisition of a total of 29
Great American franchise stores from two Great American Franchises (the
.Franchise Acquisition.) and (iii) finance a tender offer and consent
solicitation (the .Great American Tender Offer.) for all the outstanding $40
million aggregate amount of Great American's 10.% Senior Secured Notes due 2001
(the .Great American Senior Notes.). The Great American Acquisition, the
Franchise Acquisition and the Great American Tender Offer are referred to herein
as the .Great American Transactions.
1. OFFERING CIRCULAR. The Units will be offered and sold to the Initial
-----------------
Purchasers pursuant to one or more exemptions from the registration requirements
under the Securities Act of 1933, as amended (the .Securities Act.). The
Company has prepared an offering memorandum, dated August 13, 1998 (the
.Offering Circular.), relating to the Units.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Securities (and all securities
issued in exchange therefor, in substitution thereof or upon conversion thereof)
shall bear the following legend:
.THIS SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
.SECURITIES ACT.), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A .QUALIFIED INSTITUTIONAL BUYER. (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT)(A .QIB.), (B) IT IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT OR (C) IT IS AN INSTITUTIONAL .ACCREDITED INVESTOR. (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT (AN
.ACCREDITED INVESTOR.), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF THE SECURITIES
ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH
CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN
2
<PAGE>
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS .OFFSHORE TRANSACTION. AND .UNITED STATES. HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING..
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the representations,
-------------------------------
warranties and covenants contained in this Agreement, and subject to the terms
and conditions contained herein, the Company agrees to issue and sell to the
Initial Purchasers, and the Initial Purchasers agree, severally and not jointly,
to purchase from the Company, the number of Units set forth opposite the name of
such Initial Purchaser on SCHEDULE A hereto at a purchase price equal to 96% of
the gross proceeds from the Offering to the Company (the .Purchase Price.). In
addition, Jefferies and BT shall receive an advisory fee from the Company in an
aggregate amount of $1,700,000.00 and $123,457.00, respectively (the .Advisory
Fee.).
3. TERMS OF OFFERING. The Initial Purchasers have advised the Company
-----------------
that the Initial Purchasers will make offers (the .Exempt Resales.) of the Units
purchased hereunder on the terms set forth in the Offering Circular, as amended
or supplemented, solely to (i) persons whom the Initial Purchasers reasonably
believe to be .qualified institutional buyers. as defined in Rule 144A under the
Securities Act (.QIBs.) and (ii) not more than ten other institutional
.accredited investors,. as defined in Rule 501(a)(1),(2),(3) or (7) of
Regulation D under the Securities Act, that make certain representations and
agreements to the Company (each, an .Accredited Institution.)(such persons
specified in clauses (i) and (ii) being referred to herein as the .Eligible
Purchasers.). The Initial Purchasers will offer the Units to Eligible Purchasers
initially at a price equal to $561.17 per Unit. Such price may be changed at any
time without notice.
Holders (including subsequent transferees) of the Senior Notes will have
the registration rights set forth in the registration rights agreement (the
.Registration Rights Agreement.), to be dated the Closing Date, in substantially
the form of EXHIBIT A hereto, for so long as such Senior Notes constitute
.Transfer Restricted Securities. (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, the Company will
agree to file with the Securities and Exchange Commission (the .Commission.)
under the circumstances set forth therein, (i) a registration statement under
the Securities Act (the .Exchange Offer Registration Statement.) relating to the
Company's ____% Senior Secured Discount Notes due 2005, having terms identical
to those of the Senior Notes (the .Exchange Notes.) to be offered in exchange
for the Senior Notes (such offer to exchange being referred to as the .Exchange
Offer.) and (ii) if applicable, a shelf registration statement pursuant to Rule
415 under the Securities Act (the .Shelf Registration Statement. and, together
with the Exchange Offer Registration Statement, the .Registration Statements.)
relating to the resale by certain holders of the Senior Notes, and to use their
best efforts to cause such Registration Statements to be declared and remain
effective and usable for the periods specified in the Registration Rights
Agreement and to consummate the Exchange Offer.
Holders (including subsequent transferees) of the Warrants and the Warrant
Shares will have the registration rights set forth in the Warrant Registration
Rights Agreement, dated the Closing Date, between the Company and the Warrant
Agent (the "Warrant Registration Rights Agreement") in substantially the
3
<PAGE>
form of EXHIBIT B hereto. Pursuant to the Warrant Agreement, the Company will
agree to grant to the holders of the Warrant Shares (i) the right to require the
Company to file a shelf registration statement (the "Warrant Registration
Statement") covering resales of the Warrants and Warrant Shares and exercise of
the Warrants and to use its best efforts to make such Warrant Registration
Statement effective. If the Company does not comply with such obligation, it
will be required to pay Liquidated Damages to the holders of Warrants or Warrant
Shares.
This Agreement, the Indenture, the Securities, the Registration Rights
Agreement and the Warrant Agreement are hereinafter sometimes referred to
collectively as the .Operative Documents..
4. DELIVERY AND PAYMENT.
--------------------
(a) Delivery of, and payment of the Purchase Price for, the Units shall be
made at the offices of Skadden, Arps, Slate, Meagher & Flom LLP at 919 Third
Avenue, New York, New York 10022, or such other location as may be mutually
acceptable. Such delivery and payments shall be made at 9:00 a.m. New York City
time, on August 24, 1998 or at such other time as shall be agreed upon by the
Initial Purchasers and the Company. The time and date of such delivery and the
payments are herein called the .Closing Date..
(b) Units sold by the Initial Purchasers to QIBs will be represented by one
or more Units in definitive global form, registered in the name of Cede & Co.,
as nominee of The Depository Trust Company (.DTC.), having an aggregate
principal amount corresponding to the aggregate principal amount of the Units
sold to such QIBs (collectively, the .Global Unit.). Units sold by the Initial
Purchasers to Accredited Institutions will be represented by one or more Units
in definitive form, registered in the name of such Accredited Institutions,
having an aggregate principal amount corresponding to the aggregate principal
amount of the Units sold to such Accredited Institutions (collectively, the
.Accredited Institution Unit.). The Global Unit and the Accredited Institution
Unit shall be delivered by the Company to the Initial Purchasers (or as the
Initial Purchasers direct), in each case with any transfer taxes thereon duly
paid by the Company, against payment by the Initial Purchasers of the Purchase
Price thereof by wire transfer in same-day funds to the order of the Company.
The Global Unit and the Accredited Institution Unit shall be made available to
the Initial Purchasers for inspection not later than 9:30 a.m., New York City
time, on the business day immediately preceding the Closing Date.
5. AGREEMENTS OF THE COMPANY. The Company hereby agrees with the Initial
--------------------------
Purchasers as follows:
(a) To advise the Initial Purchasers promptly and, if requested by the
Initial Purchasers, confirm such advice in writing, (i) of the issuance by any
state securities commission of any stop order suspending the qualification or
exemption from qualification of any of the Securities for offering or sale in
any jurisdiction designated by the Initial Purchasers pursuant to Section 5(e)
hereof, or the initiation of any proceeding by any state securities commission
or any other federal or state regulatory authority for such purpose and (ii) of
the happening of any event during the period referred to in Section 5(c) hereof
that makes any statement of a material fact made in the Offering Circular untrue
or that requires any additions to or changes in the Offering Circular in order
to make the statements therein not misleading. The Company shall use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of any of the Securities under any state securities
or Blue Sky laws and, if at any time any state securities commission or other
federal or state regulatory authority shall issue an order suspending the
qualification or exemption of any of the Securities under any state securities
or Blue Sky laws, the Company shall use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
4
<PAGE>
(b) At any time prior to the completion of Exempt Resales by the Initial
Purchasers, to furnish the Initial Purchasers as many copies of the Offering
Circular, and any amendments or supplements thereto, as the Initial Purchasers
may reasonably request. Subject to the Initial Purchasers' compliance with
their representations and warranties and agreements set forth in Section 7
hereof, the Company consents to the use of the Offering Circular, and any
amendments and supplements thereto required pursuant hereto, by the Initial
Purchasers in connection with Exempt Resales.
(c) At any time prior to the completion of Exempt Resales by the Initial
Purchasers and in connection with market-making activities of the Initial
Purchasers for so long as any Units are outstanding, (i) not to make any
amendment or supplement to the Offering Circular of which the Initial Purchasers
shall not previously have been advised or to which the Initial Purchasers shall
reasonably object (within five business days after receiving a copy thereof)
after being so advised and (ii) to prepare promptly upon the Initial Purchasers'
reasonable request, any amendment or supplement to the Offering Circular which
may be necessary or advisable in connection with such Exempt Resales or such
market-making activities.
(d) If, during the period referred to in Section 5(c) hereof, any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel to the Initial Purchasers, it becomes necessary to amend or supplement
the Offering Circular in order to make the statements therein, in the light of
the circumstances when such Offering Circular is delivered to an Eligible
Purchaser, not misleading, or if, in the opinion of counsel to the Initial
Purchasers, it is necessary to amend or supplement the Offering Circular to
comply with any applicable law, forthwith to prepare an appropriate amendment or
supplement to such Offering Circular so that the statements therein, as so
amended or supplemented, will not, in the light of the circumstances when it is
so delivered, be misleading, or so that such Offering Circular will comply with
applicable law, and to furnish to the Initial Purchasers and such other persons
as the Initial Purchasers may designate such number of copies thereof as the
Initial Purchasers may reasonably request.
(e) Prior to the sale of all Units pursuant to Exempt Resales as
contemplated hereby, to cooperate with the Initial Purchasers and counsel to the
Initial Purchasers in connection with the registration or qualification of the
Units for offer and sale to the Initial Purchasers and pursuant to Exempt
Resales under the securities or Blue Sky laws of such jurisdictions as the
Initial Purchasers may reasonably request and to continue such qualification in
effect so long as required for Exempt Resales and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided that the Company shall not be
required in connection therewith to register or qualify as a foreign corporation
in any jurisdiction in which it is not now so qualified or to take any action
that would subject it to general consent to service of process or taxation in
any jurisdiction in which it is not now so subject.
(f) So long as the Securities are outstanding, to furnish to the Initial
Purchasers as soon as available copies of all reports or other communications
furnished by the Company to the holders of Securities or furnished to or filed
with the Commission or any national securities exchange on which any class of
securities of the Company is listed and such other publicly available
information concerning the Company and/or its subsidiaries as the Initial
Purchasers may reasonably request.
(g) So long as any of the Securities remain outstanding and during any
period in which the Company is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the .Exchange Act.), to make
available to any holder of Securities in connection with any sale thereof and
any prospective purchaser of such Securities from such holder, the information
(.Rule 144A Information.) required by Rule 144A(d)(4) under the Securities Act.
5
<PAGE>
(h) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the obligations of the Company under
this Agreement, including (i) the fees, disbursements and expenses of counsel to
the Company and accountants of the Company in connection with the sale and
delivery of the Units to the Initial Purchasers and pursuant to Exempt Resales,
and all other fees or expenses in connection with the preparation, printing,
filing and distribution of the Offering Circular and all amendments and
supplements to any of the foregoing (including financial statements) specified
in Section 5(b) and 5(c) hereof prior to or during the period specified in
Section 5(c) hereof, including the mailing and delivery of copies thereof to the
Initial Purchasers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Units to the Initial
Purchasers and pursuant to Exempt Resales, including any transfer or other taxes
payable thereon, (iii) all costs of printing or producing this Agreement, the
other Operative Documents and any other agreements or documents in connection
with the offering, purchase, sale or delivery of the Units, (iv) all expenses in
connection with the registration or qualification of the Units for offer and
sale under the securities or Blue Sky laws of the several states and all costs
of printing or producing any Blue Sky memoranda in connection therewith
(including the filing fees and fees and disbursements of counsel for the Initial
Purchasers in connection with such registration or qualification and memoranda
relating thereto), (v) the cost of printing certificates representing the
Securities, (vi) all expenses and listing fees in connection with the
application for quotation of the Securities in the National Association of
Securities Dealers, Inc. (.NASD.) Automated Quotation System - PORTAL
(.PORTAL.), (vii) the fees and expenses of the Trustee and the Trustee's counsel
in connection with the Indenture and the Notes, (viii) the fees and expenses of
the Warrant Agent and the Warrant Agent's counsel in connection with the Warrant
Agreement, (ix) the costs and charges of any transfer agent, registrar and/or
depositary (including DTC), (x) any fees charged by rating agencies for the
rating of the Notes, (xi) all costs and expenses of the Exchange Offer and any
Registration Statement, as set forth in the Registration Rights Agreement, (xii)
all costs and expenses of the Warrant Registration Statement, as set forth in
the Warrant Agreement, (xiii) all out-of-pocket expenses incurred by Jefferies
in connection with its services rendered (including, without limitation, the
fees and disbursements of Jefferies' counsel, travel and lodging expenses, word
processing charges, messenger and duplicating services, facsimile expenses and
other customary expenditures) up to a maximum amount of $450,000 (which maximum
amount applies to all out-of-pocket expenses incurred by Jefferies in connection
with the Offering and the concurrent offering of 10.% Series C Senior Notes due
2004 by Mrs. Fields' Original Cookies, Inc.), and (xiv) all other costs and
expenses incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section.
(i) To use its best efforts to effect the inclusion of the Securities in
PORTAL and to maintain the listing of the Securities on PORTAL for so long as
the Securities are outstanding.
(j) To obtain the approval of DTC for .book-entry. transfer of the
Securities, and to comply with all of its agreements set forth in the
representation letters of the Company to DTC relating to the approval of the
Securities by DTC for .book-entry. transfer.
(k) During the period beginning on the date hereof and continuing to and
including the Closing Date, not to offer, sell, contract to sell or otherwise
transfer or dispose of any debt securities of the Company or any warrants,
rights or options to purchase or otherwise acquire debt securities of the
Company substantially similar to the Senior Notes (other than (i) the Securities
and (ii) commercial paper issued in the ordinary course of business), without
the prior written consent of the Initial Purchasers.
(l) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any
6
<PAGE>
security (as defined in the Securities Act) that would be integrated with the
sale of the Units to the Initial Purchasers or pursuant to Exempt Resales in a
manner that would require the registration of any such sale of the Units under
the Securities Act.
(m) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by it prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Units.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. As of the
----------------------------------------------------------
date hereof, the Company represents and warrants to, and agrees with, the
Initial Purchasers that:
(a) The Offering Circular does not, as of the date thereof, and will not,
as of the Closing Date, and any supplement or amendment to the Offering
Circular, as of the date thereof and as of the Closing Date, will not, contain
any 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,
except that the representations and warranties contained in this paragraph (a)
shall not apply to statements in or omissions from the Offering Circular (or any
supplement or amendment thereto) based upon information relating to the Initial
Purchasers furnished to the Company in writing by the Initial Purchasers
expressly for use therein (the .Initial Purchasers' Information.). The parties
hereto acknowledge and agree that the Initial Purchasers' Information consists
solely of the statements with respect to stabilization set forth in the fifth
full paragraph on page ii and the statements set forth under the caption .Plan
of Distribution. in the Offering Circular. No stop order preventing the use of
the Offering Circular, or any amendment or supplement thereto, or any order
asserting that any of the transactions contemplated by this Agreement are
subject to the registration requirements of the Securities Act, has been issued.
(b) Each of the Company and Material Subsidiaries (i) has been duly
incorporated and validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, (ii) has all requisite corporate
power and authority to carry on its business as described in the Offering
Circular and to own, lease and operate its properties, and (iii) is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not (i) have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole, or (ii) draw into question the validity
of this Agreement or the other Operative Documents (a .Material Adverse
Effect.).
(c) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive or similar rights.
(d) The entities listed on SCHEDULE B hereto are the only subsidiaries,
direct or indirect, of the Company as of the date hereof and after giving effect
to the Great American Transactions. All of the outstanding shares of capital
stock of each of the Company.s Material Subsidiaries have been duly authorized
and validly issued and are, or will be, fully paid and non-assessable, and are,
or will be, owned by the Company, directly or indirectly through one or more
subsidiaries (other than 30% of the shares of common stock of Pretzel Time),
free and clear of any security interest, claim, lien, encumbrance or adverse
interest of any nature (each, a .Lien.) other than Liens existing under the
Amended and Restated Loan Agreement between the Company and LaSalle National
Bank, dated as of February 28, 1998, and the ancillary documents thereto. No
subsidiary listed on SCHEDULE B hereto, other than the Material Subsidiaries, is
a .significant subsidiary. of the Company (as such term is defined in Rule 1-02
of
7
<PAGE>
Regulation S-X under the Securities Act).
(e) The Company and its subsidiaries do not have any ownership interest in
any joint venture.
(f) This Agreement has been or, as of the Closing Date, will have been duly
authorized, executed and delivered by the Company.
(g) The Indenture has been or, as of the Closing Date, will have been duly
authorized by the Company and, when the Indenture has been duly executed and
delivered by the Company, the Indenture will be a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(h) The Company has or, as of the Closing Date, will have been duly and
validly authorized the issuance of the Senior Notes and the Warrants as a Unit.
When the Units are issued and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Units will be
valid and binding obligations of the Company, enforceable in accordance with
their terms, except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors. rights generally and
(ii) rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. The Offering Circular
contains an accurate summary, in all material respects, of the terms of the
Units.
(i) The Senior Notes have been or, as of the Closing Date, will have been
duly authorized and, when the Senior Notes have been issued, executed and
authenticated in accordance with the provisions of the Indenture and delivered
to and paid for by the Initial Purchasers in accordance with the terms of this
Agreement, the Senior Notes will be entitled to the benefits of the Indenture
and will be valid and binding obligations of the Company, enforceable in
accordance with their terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors. rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. On
the Closing Date, the Senior Notes will conform as to legal matters to the
description thereof contained in the Offering Circular.
(j) The Exchange Notes have been or, as of the Closing Date will have been,
duly authorized by the Company. When the Exchange Notes are issued, executed
and authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Exchange Notes will be entitled to the benefits of the Indenture
and will be the valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(k) On the Closing Date, the Warrants will have been duly authorized by the
Company, and will have been validly delivered by the Company. When the Warrants
are issued, the Warrants will be the valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. The Offering Circular contains
an accurate summary, in all material respects, of the terms of the Warrants.
8
<PAGE>
(l) On the Closing Date, the Warrant Shares will have been duly and validly
authorized for issuance by the Company, and when issued will be fully paid and
nonassessable and will not be subject to any preemptive or similar rights. The
Offering Circular contains an accurate summary, in all material respects, of the
terms of the Warrant Shares.
(m) The Registration Rights Agreement has been or, as of the Closing Date,
will have been duly authorized by the Company and, when the Registration Rights
Agreement has been duly executed and delivered by the Company, the Registration
Rights Agreement will be a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Registration Rights Agreement
will conform as to legal matters to the description thereof in the Offering
Circular.
(n) On the Closing Date, the Warrant Agreement will have been duly and
validly authorized by the Company and, when duly executed and delivered by the
Company, will be a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. The Offering Circular contains an accurate summary, in
all material respects, of the terms of the Warrant Agreement.
(o) On the Closing Date, the Warrant Registration Rights Agreement will
have been duly and validly authorized by the Company and, when duly executed and
delivered by the Company, will be a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. The Offering Circular contains an accurate summary, in
all material respects, of the terms of the Warrant Agreement.
(p) Neither the Company nor any of its Material Subsidiaries is in
violation of its respective charter or bylaws or in default in the performance
of any obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its Material Subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its Material Subsidiaries or their respective property is, or will be,
bound.
(q) The execution, delivery and performance of this Agreement and the other
Operative Documents by the Company, compliance by the Company with all
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or default under, the charter or
bylaws of the Company or any of its Material Subsidiaries or any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its Material Subsidiaries is a party or by which the Company or any of its
Material Subsidiaries or their respective property is bound, or (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its Material Subsidiaries or their respective property.
9
<PAGE>
(r) There are no legal or governmental proceedings pending or threatened to
which the Company or any of its subsidiaries is or could be a party or to which
any of their respective property is, or could be, subject, which might result,
singly or in the aggregate, in a Material Adverse Effect.
(s) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants (.Environmental Laws.) or any provisions of
the Employee Retirement Income Security Act of 1974, as amended (.ERISA.), or
the rules and regulations promulgated thereunder, except for such violations
which, singly or in the aggregate, would not have a Material Adverse Effect.
(t) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, on the
date hereof and after giving effect to the Great American Transactions, have a
Material Adverse Effect.
(u) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
.Authorization.) of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
its subsidiaries is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its subsidiaries;
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(v) All leases to which the Company and its subsidiaries are a party are
valid, subsisting and enforceable leases, and no default has, or will have,
occurred or is, or will be, continuing thereunder which could, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect or
materially and adversely affect the offering of the Units, and the Company and
its subsidiaries enjoy peaceful and undisturbed possession to which any of them
is a party as lessee (with such exceptions as do not materially interfere with
the use made by the Company or such subsidiary).
(w) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names (.intellectual property.) currently employed by
them in connection with the business now operated by them, except where the
failure to own or possess or otherwise be able to acquire such intellectual
property would not, singly or in the aggregate, have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with
10
<PAGE>
asserted rights of others with respect to any of such intellectual property
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a Material Adverse Effect.
(x) Except as disclosed in the Offering Circular, no relationship, direct
or indirect, exists between or among the Company or any of its subsidiaries, on
the one hand, and the directors, officers, stockholders, customers or suppliers
of the Company or any of its subsidiaries, on the other hand, which would be
required by the Securities Act to be described in the Offering Circular if the
Offering Circular were a prospectus included in a registration statement on Form
S-1 filed with the Commission.
(y) The Company and each of its subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurance 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 asset accountability, (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
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) All material tax returns required to be filed by the Company and each
of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been, or will be, paid, other than those
being contested in good faith and for which adequate reserves have been
provided.
(aa) All indebtedness of the Company that will be repaid with the proceeds
of the issuance and sale of the Units was incurred, and the indebtedness
represented by the Units is being incurred, for proper purposes and in good
faith, and the Company was at the time of the incurrence of such indebtedness
that will be repaid with the proceeds of the issuance and sale of the Units, and
will be on the Closing Date (after giving effect to the application of the
proceeds from the issuance of the Units), solvent, and had at the time of the
incurrence of such indebtedness that will be repaid with the proceeds of the
issuance and sale of the Units, and will have on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Units),
sufficient capital for carrying on their respective business and were at the
time of the incurrence of such indebtedness that will be repaid with the
proceeds of the issuance and sale of the Units, and will be on the Closing Date
(after giving effect to the application of the proceeds from the issuance of the
Units), able to pay their respective debts as they mature.
(ab) The accountants, Arthur Andersen LLP, Deloitte & Touche LLP, Price
Waterhouse LLP and Weinstein Spira & Company, P.C., that have issued their
reports on the financial statements included in the Offering Circular are
independent public accountants with respect to the Company and Cookies USA, as
required by the Securities Act and the Exchange Act. The historical financial
statements and notes, set forth in the Offering Circular comply as to form in
all material respects with the requirements applicable to registration
statements on Form S-1 under the Securities Act, except for (i) any schedules
that would be required to be included in Part II of a registration statement on
Form S-1 under the Securities Act has not been included and (ii) the historical
financial statements of the eight stores being purchased from entities
controlled by Arthur Karp have not been included.
(ac) The historical financial statements and notes forming part of the
Offering Circular (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and its subsidiaries at the respective dates or for the
respective periods to which they apply; such statements and notes have been
prepared in accordance with
11
<PAGE>
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial
information set forth in the Offering Circular (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company; except that EBITDA and Adjusted EBITDA are not presented in such
historical financial statements.
(ad) The pro forma financial statements included in the Offering Circular
have been prepared on a basis consistent with the historical financial
statements of the Company and its subsidiaries and give effect to assumptions
used in the preparation thereof on a reasonable basis and in good faith and
present fairly the proposed transactions contemplated by the Offering Circular;
and such pro forma financial statements comply as to form in all material
respects with the requirements applicable to pro forma financial statements
included in registration statements on Form S-1 under the Securities Act; except
(i) that no separate columnar presentation was made for the contemplated
acquisition of the eight stores from entities controlled by Arthur Karp, (ii)
that the transactions described as "Other Recent Transactions" were not given
complete pro forma treatment but rather only Adjusted EBITDA was impacted, and
(iii) that the Staff of the Commission does not permit adjusted EBITDA to be
included in registration statements on Form S-1 or S-4 under the Securities Act.
Except as set forth in the proviso in the preceding sentence, the other pro
forma financial information included in the Offering Circular are, in all
material respects, accurately presented and prepared on a basis consistent with
the pro forma financial statements.
(ae) The Company is not and, after giving effect to the offering and sale
of the Units and the application of the net proceeds thereof as described in the
Offering Circular, will not be, an .investment company,. as such term is defined
in the Investment Company Act of 1940, as amended (the .Investment Company
Act.).
(af) Other than the Warrant Agreement and the Registration Rights
Agreement, there are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such securities
with the Securities registered pursuant to any Registration Statement or Warrant
Registration Statement.
(ag) Neither the Company nor any of its subsidiaries nor any agent thereof
acting on the behalf of them has taken, and none of them will take, any action
that might cause this Agreement or the issuance or sale of the Units to violate,
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System.
(ah) Since the date as of which information is given in the Offering
Circular and other than as set forth in the Offering Circular (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(ai) The Offering Circular, as of its date, contains all the information
specified in, and meeting the requirements of, Rule 144A(d)(4) under the
Securities Act.
(aj) When the Securities are issued and delivered pursuant to this
Agreement, the Securities
12
<PAGE>
will not be of the same class (within the meaning of Rule 144A under the
Securities Act) as any security of the Company that is listed on a national
securities exchange registered under Section 6 of the Exchange Act or that is
quoted in a United States automated inter-dealer quotation system.
(ak) No form of general solicitation or general advertising (as defined in
Regulation D under the Securities Act) was used by the Company, or any of its
representatives (other than the Initial Purchasers, as to whom the Company makes
no representation) in connection with the offer and sale of the Units
contemplated hereby, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising. No
securities of the same class as the Units have been issued and sold by the
Company within the six-month period immediately prior to the date hereof.
(al) Prior to the effectiveness of any Registration Statement, the
Indenture is not required to be qualified under the TIA.
(am) No registration under the Securities Act of the Units is required for
the sale of the Units to the Initial Purchasers as contemplated hereby or for
the Exempt Resales assuming the accuracy of the Initial Purchasers'
representations and warranties and agreements set forth in Section 7 hereof.
(an) Each certificate signed by any officer of the Company and delivered to
the Initial Purchasers or counsel for the Initial Purchasers shall be deemed to
be a representation and warranty by the Company to the Initial Purchasers as to
the matters covered thereby.
The Company acknowledges that the Initial Purchasers and, for purposes of
the opinions to be delivered to the Initial Purchasers pursuant to Section 9
hereof, counsel to the Company and counsel to the Initial Purchasers will rely
upon the accuracy and truth of the foregoing representations and hereby consent
to such reliance.
7. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each of the
--------------------------------------------------
Initial Purchasers, severally and not jointly, represents and warrants to the
Company, and agrees that:
(a) Such Initial Purchaser is either a QIB or an Accredited Institution, in
either case, with such knowledge and experience in financial and business
matters as is necessary in order to evaluate the merits and risks of an
investment in the Units.
(b) Such Initial Purchaser (i) is not acquiring the Units with a view to
any distribution thereof or with any present intention of offering or selling
any of the Units in a transaction that would violate the Securities Act or the
securities laws of any state of the United States or any other applicable
jurisdiction and (ii) will be reoffering and reselling the Units only to (A)
QIBs in reliance on the exemption from the registration requirements of the
Securities Act provided by Rule 144A and (B) not more than ten Accredited
Institutions that execute and deliver a letter containing certain
representations and agreements in the form attached as Annex A to the Offering
Circular.
(c) Such Initial Purchaser agrees that no form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Units pursuant
hereto, including, but not limited to, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio, or any seminar or meeting whose
13
<PAGE>
attendees have been invited by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection with Exempt Resales,
such Initial Purchaser will solicit offers to buy the Units only from, and will
offer to sell the Units only to, Eligible Purchasers. Each Initial Purchaser
further agrees that it will offer to sell the Units only to, and will solicit
offers to buy the Units only from (i) Eligible Purchasers that the Initial
Purchaser reasonably believes are QIBs, and (ii) Accredited Institutions who
make the representations contained in, and execute and return to the Initial
Purchasers, a certificate in the form of Annex A attached to the Offering
Circular, in each case, that agree that (A) the Units purchased by them may be
resold, pledged or otherwise transferred within the time period referred to
under Rule 144(k) (taking into account the provisions of Rule 144(d) under the
Securities Act, if applicable) under the Securities Act, as in effect on the
date of the transfer of such Units, only (1) to the Company or any of its
subsidiaries, (2) to a person whom the seller reasonably believes is a QIB
purchasing for its own account or for the account of a QIB in a transaction
meeting the requirements of Rule 144A under the Securities Act, (3) in an
offshore transaction (as defined in Rule 902 under the Securities Act) meeting
the requirements of Rule 904 of the Securities Act, (4) in a transaction meeting
the requirements of Rule 144 under the Securities Act, (5) to an Accredited
Institution that, prior to such transfer, furnishes the Trustee a signed letter
containing certain representations and agreements relating to the registration
of transfer of such Unit (the form of which can be obtained from the Trustee)
and, if such transfer is in respect of an aggregate principal amount of Units
less than $250,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act, (6) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel acceptable to the Company) or (7) pursuant to
an effective registration statement and, in each case, in accordance with the
applicable securities laws of any state of the United States or any other
applicable jurisdiction and (B) they will deliver to each person to whom such
Units or an interest therein is transferred a notice substantially to the effect
of the foregoing.
The Initial Purchasers acknowledge that the Company and, for purposes of
the opinions to be delivered to each Initial Purchaser pursuant to Section 9
hereof, counsel to the Company and counsel to the Initial Purchasers will rely
upon the accuracy and truth of the foregoing representations and the Initial
Purchasers hereby consent to such reliance.
8. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify and hold harmless each Initial
Purchaser, its directors, its officers and each person, if any, who controls
such Initial Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Offering Circular (or any
amendment or supplement thereto) or any Rule 144A Information provided by the
Company to any holder or prospective purchaser of Units pursuant to Section 5(h)
hereof or caused by 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, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon the Initial Purchasers' Information.
(b) Each Initial Purchaser agrees, severally and not jointly, to indemnify
and hold harmless the Company and its directors and officers and each person, if
any, who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) the Company, to the same extent as the
14
<PAGE>
foregoing indemnity from the Company to the Initial Purchasers but only with
reference to Initial Purchasers' Information.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) or 8(b) hereof (the
.indemnified party.), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the .indemnifying party.) in writing,
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that,
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b) hereof, the Initial Purchasers shall not be
required to assume the defense of such action pursuant to this Section 8(c), but
may employ separate counsel and participate in the defense thereof; however, the
fees and expenses of such counsel, except as provided below, shall be at the
expense of the Initial Purchasers). Any indemnified party shall have the right
to employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party within a
reasonable period of time after notice of the institution of such action or
(iii) the named parties to any such action (including any impleaded parties)
include both the indemnified party and the indemnifying party, and the
indemnified party shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the indemnifying party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred (upon
written request and presentation of reasonably satisfactory invoices). Such firm
shall be designated in writing by Jefferies & Company, Inc., in the case of the
parties indemnified pursuant to Section 8(a) hereof, and by the Company, in the
case of parties indemnified pursuant to Section 8(b) hereof. The indemnifying
party shall indemnify and hold harmless the indemnified party from and against
any and all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have received written notice of such settlement and shall have failed to comply
with such reimbursement request. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Initial Purchasers, on the other hand, from
the offering of the Units or
15
<PAGE>
(ii) if the allocation provided by clause 8(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Company, on the one hand, and the Initial Purchasers, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, and the Initial Purchasers, on the other hand, shall be deemed to be
in the same proportion as the total net proceeds from the offering of the Units
(before deducting expenses) received by the Company, and the total discounts and
commissions received by the Initial Purchasers bear to the total price to
investors of the Units, in each case as set forth in the table on the cover page
of the Offering Circular. The relative fault of the Company, on the one hand,
and the Initial Purchasers, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or the Initial
Purchasers, on the other hand.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Initial Purchasers were treated as one entity
for such purposes) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or judgments referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, no Initial Purchaser shall be required to contribute any amount in
excess of the amount by which the total price of the Units purchased by it were
sold to investors in Exempt Resales exceeds the amount of any damages which such
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) hereof of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Initial Purchasers'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective principal amount of Units purchased by each of the
Initial Purchasers hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The obligations of the
---------------------------------------------
Initial Purchasers to purchase the Units under this Agreement are subject to the
satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in this
Agreement shall be true and correct on the Closing Date with the same force and
effect as if made on and as of the Closing Date.
(b) On or after the date hereof, (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall any notice have been given
of any potential or intended downgrading, suspension or withdrawal of, or of any
review (or of any potential or intended review) for a possible change that does
not indicate the direction of the possible change in, any rating of the Company
or any securities of the Company (including, without limitation, the placing of
any of the foregoing ratings on credit watch with negative or developing
implications or under review with an uncertain direction) by Standard & Poor's
16
<PAGE>
Ratings Group, a division of The McGraw-Hill Companies, Inc., or Moody's
Investors Service, Inc., (ii) there shall not have occurred any change, nor
shall notice have been given of any potential or intended change, in the outlook
for any rating of the Company by any such rating organization and (iii) no such
rating organization shall have given notice that it has assigned (or is
considering assigning) a lower rating to the Notes than that on which the Notes
were marketed.
(c) Since the respective dates as of which information is given in the
Offering Circular other than as set forth in the Offering Circular (exclusive of
any amendments or supplements thereto subsequent to the date of this Agreement),
(i) there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(c)(i),
9(c)(ii) or 9(c)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Units on the terms and in the
manner contemplated in the Offering Circular.
(d) The Initial Purchasers shall have received on the Closing Date a
certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of the Company, confirming the matters set forth in Sections
9(a), 9(b) and 9(c) hereof.
(e) The Initial Purchasers shall have received on the Closing Date an
opinion (in form and substance reasonably satisfactory to the Initial Purchasers
and counsel for the Initial Purchasers), dated the Closing Date, of Skadden,
Arps, Slate, Meagher & Flom LLP, counsel for the Company, as to the matters set
forth in Exhibit B hereto and such additional matters or modifications as to
which the parties hereto mutually agree.
(f) The Initial Purchasers shall have received on the Closing Date an
opinion (in form and substance reasonably satisfactory to the Initial Purchasers
and counsel for the Initial Purchasers), dated the Closing Date, of Michael
Ward, Esq., general counsel for the Company, as to the matters set forth in
Exhibit C hereto and such additional matters and modifications as to which the
parties hereto mutually agree.
(g) The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of Latham & Watkins, counsel for the Initial
Purchasers, in form and substance reasonably satisfactory to the Initial
Purchasers.
(h) The Initial Purchasers shall have received, at the time this Agreement
is executed and at the Closing Date, letters dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to the
Initial Purchasers from each of Arthur Andersen L.L.P., Deloitte & Touche LLP,
Price Waterhouse LLP and Weinstein Spira & Company, P.C., independent public
accountants, containing the information and statements of the type ordinarily
included in accountants' .comfort letters. to the Initial Purchasers with
respect to the financial statements and certain financial information contained
in the Offering Circular.
(i) Concurrently with the issue and sale of the Units, the Great American
Transactions and the MFOC Offering (as defined in the Offering Circular) shall
be consummated on terms that conform in all material respects to the description
thereof in the Offering Circular, and the Initial Purchasers shall have received
true and correct copies of all documents pertaining thereto and evidence
satisfactory to the Initial Purchasers of the consummation thereof.
17
<PAGE>
(j) The Securities shall have been approved by the NASD for trading and
duly listed in PORTAL.
(k) The Initial Purchasers shall have received a counterpart, conformed as
executed, of the Indenture which shall have been entered into by the Company and
the Trustee.
(l) The Company shall have executed the Registration Rights Agreement and
the Initial Purchasers shall have received an original copy thereof, duly
executed by the Company.
(m) The Company shall have executed the Warrant Agreement and the Warrant
Registration Rights Agreement and the Initial Purchasers shall have received an
original copy thereof, duly executed by the Company.
(n) Concurrently with the issue and sale of Senior Notes, Cookies USA
shall be merged with and into Great American, and Great American shall continue
as the surviving corporation of the merger.
(o) The Company shall not have failed at or prior to the Closing Date to
perform or comply with any of the agreements herein contained and required to be
performed or complied with by the Company at or prior to the Closing Date.
(p) The Company shall have entered into Settlement Agreements and Waivers
with the stockholders of Deblan Corporation and Chocolate Chip Cookies of Texas,
Inc., plus a number of remaining Great American franchisees so that, in total,
at least 80% of the Great American franchisees shall have executed such
Settlement Agreements and Waivers.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement shall
------------------------------------------
become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time prior to the Closing Date by
the Initial Purchasers by written notice to the Company if any of the following
has occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States that, in the Initial Purchasers'
judgment, is material and adverse and, in the Initial Purchasers' judgment,
makes it impracticable to market the Senior Notes on the terms and in the manner
contemplated in the Offering Circular, (ii) the suspension or material
limitation of trading in securities or other instruments on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market or
limitation on prices for securities or other instruments on any such exchange or
the Nasdaq National Market, (iii) the declaration of a banking moratorium by
either federal or New York State authorities or (iv) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the opinion of the Initial Purchasers has a material
adverse effect on the financial markets in the United States.
If on the Closing Date any one or more of the Initial Purchasers shall fail
or refuse to purchase the Units which it or they have agreed to purchase
hereunder on such date and the number of the Units which such defaulting Initial
Purchaser or Initial Purchasers, as the case may be, agreed but failed or
refused to purchase is not more than one-tenth of the number of the Units to be
purchased on such date by all Initial Purchasers, each non-defaulting Initial
Purchaser shall be obligated severally, in the proportion which the principal
amount of the Units set forth opposite its name in SCHEDULE A bears to the
number of the Units which all the non-defaulting Initial Purchasers, as the case
may be, have agreed to purchase, or in such other
18
<PAGE>
proportion as you may specify, to purchase the Units which such defaulting
Initial Purchaser or Initial Purchasers, as the case may be, agreed but failed
or refused to purchase on such date; provided that in no event shall the number
of the Units which any Initial Purchaser has agreed to purchase pursuant to
Section 2 hereof be increased pursuant to this Section 10 by an amount in excess
of one-ninth of such principal amount of the Units without the written consent
of such Initial Purchaser. If on the Closing Date any Initial Purchaser or
Initial Purchasers shall fail or refuse to purchase the Units and the number of
the Units with respect to which such default occurs is more than one-tenth of
the number of the Units to be purchased by all Initial Purchasers and
arrangements satisfactory to the Initial Purchasers and the Company for purchase
of such Units are not made within 48 hours after such default, this Agreement
will terminate without liability on the part of any non-defaulting Initial
Purchaser and the Company. In any such case which does not result in termination
of this Agreement, either you or the Company shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Offering Circular or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Initial Purchaser from liability in respect of any
default of any such Initial Purchaser under this Agreement.
11. MISCELLANEOUS. Notices given pursuant to any provision of this
-------------
Agreement shall be addressed as follows: (i) if to the Company, to Mrs. Fields'
Holding Company, Inc., 2855 East Cottonwood Parkway, Salt Lake City, Utah 84121,
and (ii) if to the Initial Purchasers, to Jefferies & Company, Inc., 11100 Santa
Monica Boulevard, Los Angeles, California 90025, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the Initial Purchasers set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Units,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Initial Purchaser, the officers or directors of any
Initial Purchaser, any person controlling any Initial Purchaser, the Company,
the officers or directors of the Company, or any person controlling the Company,
(ii) acceptance of the Units and payment for them hereunder and (iii)
termination of this Agreement.
If for any reason the Units are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10 hereof), the Company agrees to reimburse the
Initial Purchasers for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(h) hereof. The Company also agrees to reimburse
each Initial Purchaser and its officers, directors and each person, if any, who
controls such Initial Purchaser within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act for any and all fees and
expenses (including, without limitation, the fees and expenses of counsel)
incurred by it in connection with enforcing its rights under this Agreement
(including, without limitation, its rights under this Section 8).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Initial
Purchasers, the Initial Purchasers' directors and officers, any controlling
persons referred to herein, the directors of the Company and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term .successors and assigns. shall not include a purchaser of
any of the Senior Notes from the Initial Purchasers merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
internal laws of the State
19
<PAGE>
of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement among
the Company and the Initial Purchasers.
Very truly yours,
Mrs. Fields' Holding Company, Inc.
By: __________________________________
Name:
Title:
20
<PAGE>
Agreed and accepted as of the date first above written:
JEFFERIES & COMPANY, INC.
By: ___________________________________
Name:
Title:
BT ALEX. BROWN INCORPORATED
By: ___________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Number of
Initial Purchasers Units
- -------------------------------------------- -----------------------------
Jefferies & Company, Inc.................... 38,500
BT Alex. Brown Incorporated................. 16,500
-----------------------------
TOTAL 55,000
S-1
<PAGE>
SCHEDULE B
SUBSIDIARIES OF THE COMPANY
Airport Cookies, Inc.
Fairfield Foods, Inc.
Mrs. Fields Cookies (Canada) Ltd.
Mrs. Fields Cookies Australia
Mrs. Fields Limited
Pretzel Time, Inc.
Great American Cookie Company, Inc. (simultaneously upon consummation of the
Great American Transactions)
Mrs. Fields' Original Cookies, Inc.
S-2
<PAGE>
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
A-1
<PAGE>
EXHIBIT B
FORM OF OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
B-1
<PAGE>
EXHIBIT C
FORM OF OPINION OF IN-HOUSE COUNSEL TO THE COMPANY
(i) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, free and clear of
any Lien.
(ii) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws and, to the best of such counsel's knowledge
after due inquiry, neither the Company nor any of its subsidiaries is in default
in the performance of any obligation, agreement, covenant or condition contained
in any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or their respective property is bound.
(iii) After due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is or could be a party or to which any of their respective
property is or could be subject, which might result, singly or in the aggregate,
in a Material Adverse Effect.
(iv) To the best of such counsel's knowledge after due inquiry, there are
no contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the Company
or to require the Company to include such securities with the Notes registered
pursuant to any Registration Statement.
C-1
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
COOKIES USA, INC.,
THE INDIVIDUALS AND ENTITIES IDENTIFIED HEREIN AS
THE SELLERS
AND
MRS. FIELDS' ORIGINAL COOKIES, INC.
DATED AS OF
AUGUST 13, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ISALE OF STOCK AND TERMS OF PAYMENT........................................................ 2
1.1 The Sale................................................................................. 2
1.2 Consideration............................................................................ 3
1.3 The Sellers' Releases.................................................................... 5
1.4 Other Matters............................................................................ 6
1.5 Warrants................................................................................. 8
ARTICLE II
THE PRE-CLOSING AND CLOSING........................................................................ 8
2.1 Time and Place of Pre-Closing and Closing................................................ 8
2.2 Deliveries by the Sellers and the Company................................................ 10
2.3 Deliveries by Buyer...................................................................... 12
ARTICLE IIIREPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SELLERS.................................................................................... 12
3.1 Organization; Qualification.............................................................. 13
3.2 The Company's Capitalization............................................................. 14
3.3 Title to Stock........................................................................... 16
3.4 Authority Relative to this Agreement..................................................... 16
3.5 Subsidiaries and Equity Investments; Affiliates.......................................... 17
3.6 Consents and Approvals; No Violation..................................................... 17
3.7 Reports.................................................................................. 19
3.8 Financial Statements..................................................................... 20
3.9 Undisclosed Liabilities.................................................................. 22
3.10 Absence of Certain Changes or Events.................................................... 23
3.11 Personal Property....................................................................... 25
3.12 Real Property........................................................................... 26
3.13 Insurance............................................................................... 28
3.14 Environmental Matters................................................................... 29
3.15 Labor Matters........................................................................... 33
3.16 ERISA; Benefit Plans.................................................................... 34
3.17 Certain Contracts and Arrangements...................................................... 40
3.18 Intellectual Property................................................................... 42
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
3.19 Customers, Suppliers and Competitors...................................................... 44
3.20 Legal Proceedings, etc.................................................................... 44
3.21 Tax Matters............................................................................... 45
3.22 Arrangements with Directors, Officers
and Affiliates........................................................................... 48
3.23 Compliance with Law....................................................................... 49
3.24 Fees and Commissions...................................................................... 50
3.25 Representations of the Sellers............................................................ 50
ARTICLE IVREPRESENTATIONS AND WARRANTIES OF BUYER.................................................... 53
4.1 Organization............................................................................... 53
4.2 Authority Relative to this Agreement....................................................... 53
4.3 Consents and Approvals; No Violation....................................................... 54
4.4 Acquisition of Stock for Investment........................................................ 56
4.5 Financing.................................................................................. 56
4.6 Fees and Commissions....................................................................... 56
4.7 Knowledge of Inaccuracies.................................................................. 56
ARTICLE VCOVENANTS OF THE PARTIES.................................................................... 57
5.1 HSR Act Compliance......................................................................... 57
5.2 Conduct of Business of the Company......................................................... 57
5.3 Access to Information...................................................................... 63
5.4 Insurance.................................................................................. 64
5.5 WARN Act................................................................................... 65
5.6 Expenses................................................................................... 65
5.7 Further Assurances......................................................................... 65
5.8 Public Statements.......................................................................... 66
5.9 Consents and Approvals..................................................................... 67
5.10 Sales and Transfer Taxes.................................................................. 69
5.11 Supplemental Information.................................................................. 70
5.12 Employees................................................................................. 70
ARTICLE VICLOSING CONDITIONS......................................................................... 71
6.1 Conditions to Each Party's Obligations to
Effect the Transactions Contemplated Hereby............................................... 71
6.2 Conditions to Obligations of Buyer......................................................... 72
6.3 Conditions to Obligations of the Sellers................................................... 74
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIITERMINATION AND ABANDONMENT................................................................. 75
7.1 Termination.................................................................................. 75
7.2 Procedure and Effect of Termination.......................................................... 77
ARTICLE VIIIINDEMNIFICATION............................................................................ 78
8.1 Coverage..................................................................................... 78
8.2 Limitation of Liability...................................................................... 78
ARTICLE IXMISCELLANEOUS PROVISIONS..................................................................... 79
9.1 Amendment and Modification................................................................... 79
9.2 Waiver of Compliance; Consents............................................................... 79
9.3 No Survival of Representations and Warranties................................................ 79
9.4 Notices...................................................................................... 80
9.5 Assignment................................................................................... 81
9.6 Governing Law................................................................................ 82
9.7 Counterparts................................................................................. 82
9.8 Interpretation............................................................................... 82
9.9 Entire Agreement............................................................................. 84
</TABLE>
3
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
SECURITIES PURCHASE AGREEMENT, dated as of July 30, 1998, by and
among Cookies USA, Inc., a Delaware corporation (the "Company"), the Sellers (as
hereinafter defined) and Mrs. Fields' Original Cookies, Inc., a Delaware
corporation ("Buyer").
WHEREAS, the individuals and entities identified on Annex A hereto
(the "Sellers") own in the respective amounts indicated thereon (i) all of the
outstanding shares of common stock, par value $0.01 per share, of the Company
(the "Company Common Stock"), (ii) all of the outstanding shares of the Junior
Class A Preferred Stock of the Company and the Junior Class B Preferred Stock of
the Company (together, the "Junior Preferred Stock"), (iii) all of the
outstanding shares of the Senior Convertible Preferred Stock of the Company (the
"Senior Preferred Stock"), and (iv) all of the outstanding $10 million aggregate
principal amount of the Senior Subordinated Notes of the Company (the "Senior
Subordinated Notes" and, together with the Company Common Stock, the Junior
Preferred Stock and the Senior Preferred Stock, the "Company Securities");
WHEREAS, the Company owns all of the outstanding shares of common
stock (the "Subsidiary Common Stock"), no par value, of Great American Cookie
Company, Inc., a Delaware corporation (the "Subsidiary"); and
WHEREAS, Buyer desires to purchase, and the Sellers desire to sell
<PAGE>
to Buyer, all of the Company Securities owned by them upon the terms and
conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements hereinafter set forth, and intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE OF STOCK AND TERMS OF PAYMENT
----------------------------------
I.1 The Sale. Upon the terms and subject to the satisfaction of the
--------
conditions contained in this Agreement, at the Closing (as hereinafter defined),
each Seller will sell, assign, transfer and deliver to Buyer, and Buyer will
purchase and acquire from such Seller, free and clear of all Liens (as
hereinafter defined), all of the shares and/or principal amount of Company
Securities owned by such Seller. Notwithstanding anything in this Agreement to
the contrary, prior to the Closing Date, any Seller may transfer all or part of
the Company Securities owned by such Seller, subject to all of such Sellers'
rights and obligations under this Agreement, to any other Seller. Each Seller
agrees to give prompt written notice (which in no event shall be later than two
business days before the Closing) to Buyer of any such transfer of Company
Securities.
I.2 Consideration.
-------------
2
<PAGE>
(a) Upon the terms and subject to the satisfaction of the
conditions contained in this Agreement and subject to adjustment as set forth in
Sections 1.2(b) and 1.2(c), in consideration of the aforesaid sale, assignment,
transfer and delivery of the Company Securities, at the Closing Buyer will pay
or cause to be paid to the respective Sellers the following amounts, in each
case allocated among the holders of each class of the Company Securities on a
pro rata basis as of the Closing Date (as hereinafter defined):
(i) $10,000,000 in the aggregate for all of the
outstanding Senior Subordinated Notes, plus the aggregate amount of any
accrued but unpaid interest thereon through the Closing;
(ii) $5,150,000 in the aggregate for all shares of the
Senior Preferred Stock outstanding on the Closing Date (including all
accrued but unpaid dividends);
(iii) $3,250,000 in the aggregate for all shares of the
Junior Preferred Stock outstanding on the Closing Date (including all
accrued but unpaid dividends); and
(iv) $0 for all shares of the Company Common Stock
outstanding on the Closing Date.
(b) In the event that the aggregate amount of all Expenses (as
hereinafter defined) shall exceed $200,000, in addition to any other adjustment
3
<PAGE>
required by this Section 1.2, the consideration payable pursuant to Section
1.2(a) shall be reduced by 100% of such excess. For purposes of this Agreement,
"Expenses" shall include all professional fees and expenses paid or payable by
the Company in connection with this Agreement and the transactions contemplated
hereby, including without limitation those expenses of the Sellers contemplated
to be paid by the Company pursuant to Section 5.6, it being agreed that
"Expenses" shall not include the fees and expenses of Price Waterhouse LLP,
legal and accounting expenses incurred in the ordinary course of business,
expenses actually paid on or prior to March 29, 1998 and the Company's share of
the HSR Act fee payable pursuant to Section 5.1.
(c) By a written notice from any Seller to Buyer on or prior to
the Closing Date, such Seller may elect to reallocate the aggregate payments to
be received by such Seller pursuant to Sections 1.2(a)(ii), 1.2(a)(iii) and
1.2(a)(iv), or elect to apply such payments against any adjustments pursuant to
Section 1.2(b), among the different classes of Company Securities to be
purchased pursuant to such Sections. In the absence of any such notice, any
adjustments pursuant to Section 1.2(b) shall be applied to reduce payments under
Section 1.2(a)(iii).
I.3 The Sellers' Releases. (a) Each Seller hereby confirms and
---------------------
agrees that, effective upon such Seller's receipt of the consideration payable
to such Seller pursuant to Section 1.2, any and all claims such Seller or any of
its partners, trustees, beneficiaries, shareholders, affiliates, directors or
officers may have against the
4
<PAGE>
Company, the Subsidiary and their respective shareholders, affiliates, directors
and officers as of the Closing Date will be deemed fully discharged and
released. Without limiting the foregoing, the claims so released include without
limitation any claims under any employment or bonus agreement, any franchise
agreement, any license agreement or any other Affiliated Arrangement (as
hereinafter defined), and any claims in respect of any failure to timely pay
dividends or interest or to perform covenants, or any options or other rights to
acquire securities of the Company or the Subsidiary (the "Options"), but do not
include any of the rights of Sellers pursuant to Section 1.4 or statutory
indemnification rights or contractual indemnification rights under agreements
that are identified on Schedule 1.3.
(b) TJC Management Corp. hereby waives its right to receive any
payment under the Management Agreement, including any fee accrued on the
Company's balance sheet as of June 30, 1998.
I.4 Other Matters. Buyer hereby agrees that, in the event the
-------------
Closing shall occur, Buyer shall (a) as of the Closing Date, cede to Messrs.
Coles and Karp the Subsidiary's rights to purchase Atlanta Braves tickets
provided that Messrs. Coles and Karp pay for any tickets which the Subsidiary
has committed to purchase as of such date as and when any such payments are due,
(b) permit Messrs. Coles and Karp to continue at their respective expense
(including for these purposes insurance
5
<PAGE>
and administrative costs) their participation in the Subsidiary's health
insurance program, subject to Buyer's right to provide such coverage under
Buyer's health insurance program until November 30, 1998, (c) permit Messrs.
Coles and Karp to each receive Great American cookies without charge in
accordance with past practice, provided that as to cookies obtained from any
store other than the GACC stores at Cumberland Mall in Atlanta, Georgia, at Town
Center at Cobb in Kennesaw, Georgia, at Perimeter Mall in Atlanta, Georgia and
at Sarasota Square in Sarasota, Florida, cookies must be purchased by Messrs.
Coles and Karp and store receipts must be promptly provided to Mrs. Fields in
order for reimbursement to be received, (d) grant to Messrs. Coles and Karp a
right of first refusal to purchase for cash the Subsidiary's batter facility
(exclusive of all equipment and furnishings and otherwise "as is, where is")
should the Subsidiary determine to sell such facility within the two year period
following the Closing, such right to be exercisable for 60 days following
Messrs. Coles' and Karp's receipt of notice of a proposed sale of such facility
to a third party but only on the same terms and subject to the same conditions
as offered by such third party and subject to the further covenant by Messrs.
Karp and Coles that they shall not use the batter facility in connection with
any business, individual, partnership, firm, corporation or other entity which
is engaged, directly or indirectly, in a business that is in competition with
Buyer, and (e) pay to David Barr any and all amounts owing to him pursuant to
any and all agreements set forth on
6
<PAGE>
3.16(k) in effect immediately prior to the Closing.
I.5 Warrants. The Company and the Sellers other than Messrs. Coles
--------
and Karp shall take such action as shall be necessary under the relevant
governing agreements to cause all of the Warrants to be cancelled on the Closing
Date. Buyer shall assist and cooperate, and shall cause its financial advisors
to assist and cooperate, with the Company and the Sellers with respect to the
foregoing matters.
ARTICLE II
THE PRE-CLOSING AND CLOSING
---------------------------
II.1 Time and Place of Pre-Closing and Closing.
-----------------------------------------
(a) Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, the pre-closing of the transactions contemplated by
this Agreement (the "Pre-Closing") will take place at the offices of Skadden,
Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, at
10:00 A.M. (local time) on the date on which Buyer executes the purchase
agreements (the "Financing Agreements") pursuant to which Buyer is obtaining
financing (the "Financing"), or at such other place or time as the parties may
agree. At the Pre-Closing, the parties will deliver into an escrow (the "Pre-
Closing Escrow") the various documents to be delivered at the Closing, with
documents to be delivered by Sellers or the Company to be held Mayer, Brown &
Platt and with documents to be delivered by Buyer to be held by counsel to
Buyer. The date and time at which the
7
<PAGE>
Pre-Closing actually occurs is hereinafter referred to as the "Pre-Closing
Date."
(b) Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, the closing of the transactions contemplated by
this Agreement (the "Closing") will take place at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, at 10:00
A.M. (local time) on the date on which the closing occurs under the Financing
Agreements, or at such other place or time as the parties may agree. The date
and time at which the Closing actually occurs is hereinafter referred to as the
"Closing Date." For accounting purposes only, the transactions contemplated by
this Agreement will be deemed to have occurred on June 30, 1998.
II.2 Deliveries by the Sellers and the Company. (a) In the event
-----------------------------------------
that each of the conditions to the Sellers' obligations to close hereunder are
met as of the Pre-Closing Date, each Seller hereby authorizes Mayer, Brown &
Platt to cause to be delivered into the Pre-Closing Escrow the following
documents in respect of such Seller that are being delivered as of the date
hereof to Mayer, Brown & Platt (the "Escrowed Seller Documents"): the
certificate or certificates representing the Company Securities set forth beside
the name of such Seller on Annex A hereto, duly executed in blank or accompanied
by duly executed instruments of transfer, and any other documents (including
without limitation written releases from First National Bank of Boston) that are
necessary to transfer to Buyer good, valid and market-
8
<PAGE>
able title to such Company Securities, free and clear of any lien, charge,
security interest, pledge, mortgage, encumbrance, claim, option, limitation or
restriction of any kind (collectively, "Liens"), with all necessary transfer tax
stamps affixed or accompanied by evidence that all securities transfer taxes
have been paid.
(b) At the Pre-Closing, the Company will deliver or cause to be
delivered into the Pre-Closing Escrow the following (the "Escrowed Company
Documents"):
(i) the stock book, stock ledger, minute book and corporate
seal of each of the Company and the Subsidiary;
(ii) resignations effective as of the Closing Date from all
directors and officers of the Company and the Subsidiary;
(iii) such documents as are reasonably requested by Buyer to
implement the Financing and the Senior Note Tender Offer (as hereinafter
defined);
(iv) executed Settlement Agreement and Releases in the form of
Annex B hereto from franchisees of the Subsidiary and related investors
sufficient to satisfy the Franchisee Condition (as hereinafter defined);
and
(v) such other documents, instruments and writings as are
required to be delivered by the Company at or prior to the Closing Date
pursuant to Section 6.2 or otherwise required in connection herewith.
9
<PAGE>
(c) The Company and each Seller hereby authorizes Mayer, Brown &
Platt to cause to be delivered at the Closing the Escrowed Seller Documents and
the Escrowed Company Documents in return for the Escrowed Buyer Documents (as
hereinafter defined) and the wire transfers contemplated by Section 2.3(b).
II.3 Deliveries by Buyer.
-------------------
(a) At the Pre-Closing, Buyer will deliver into the Pre-Closing
Escrow such documents, instruments and writings as are required to be delivered
by Buyer at or prior to the Closing Date pursuant to Section 6.3 or otherwise
required in connection herewith (the "Escrowed Buyer Documents").
(b) At the Closing, Buyer shall deliver to the Sellers the Escrowed
Buyer Documents and wire transfers of immediately available funds to such
accounts of the Sellers which are designated in writing by each Seller at least
two business days prior to the Closing in an amount representing the aggregate
payments to be made pursuant to Section 1.2 in return for the Escrowed Seller
Documents and the Escrowed Company Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
AND THE SELLERS
---------------
The Company makes to Buyer the representations and warranties set
forth in Sections 3.1 to 3.24 and the Sellers severally but not jointly make to
Buyer
10
<PAGE>
the representations and warranties set forth in Section 3.25.
III.1 Organization; Qualification. The Company and the Subsidiary
---------------------------
are each corporations duly organized, validly existing and in good standing
under the laws of the State of Delaware, and have full corporate power and
authority and possess all governmental franchises, licenses, permits,
authorizations and approvals to enable them to use their corporate names and to
own, lease, or otherwise hold their properties and to operate their properties
and carry on their business as are now being conducted, other than such
franchises, licenses, permits, authorizations and approvals the lack of which,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the business, results of operations, or financial
condition of the Company or the Subsidiary (a "Material Adverse Effect"). The
Company and the Subsidiary are duly qualified or licensed to do business as
foreign corporations and are in good standing in each jurisdiction in which the
property owned, leased or operated by them or the nature of the business
conducted by them makes such qualification or licensing necessary, except in
each case in those jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not reasonably be expected to have a
Material Adverse Effect. Schedule 3.1 sets forth, as of the date of this
Agreement, each jurisdiction in which the Company and the Subsidiary are
qualified to do business as foreign corporations. The Company
11
<PAGE>
has heretofore delivered to Buyer complete and correct copies of the Certificate
of Incorporation and By-Laws of each of the Company and the Subsidiary as
currently in effect and evidence of qualification to do business as a foreign
corporation in each jurisdiction in which the Company or the Subsidiary are so
qualified.
III.2 The Company's Capitalization.
----------------------------
(a) The authorized capital stock of the Company consists of (i)
115,000 shares of Company Common Stock, of which 82,800 shares are issued and
outstanding and no shares are held in treasury, (ii) 10,500 shares of Senior
Preferred Stock, all of which are issued and outstanding, (iii) 2,500 shares of
Junior Class A Preferred Stock, all of which are issued and outstanding, and
(iv) 750 shares of Junior Class B Preferred Stock, all of which are issued and
outstanding. The Sellers own all of the issued and outstanding shares of
Company Common Stock, Junior Preferred Stock and Senior Preferred Stock. All
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable. Other than as set forth in (i) the Company's
Certificate of Incorporation and By-Laws as currently in effect, (ii) the
Subscription and Stockholders Agreement, dated as of December 10, 1993, among
the Company and certain of its stockholders, (iii) the Warrants, pursuant to
which 7,200 shares of Company Common Stock are issuable (collectively, the
"Capitalization Documents"), and (iv) the Options, pursuant to which 11,200
shares of Company Common Stock are issuable, there is no subscription, option,
warrant,
12
<PAGE>
call, right, agreement or commitment relating to the issuance, sale, delivery or
transfer by the Company or, to the Company's knowledge, any Seller (including
any right of conversion or exchange under any outstanding security or other
instrument) of any class of capital stock of the Company or the payment of money
based on the value of any class of capital stock of the Company. There are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock of the Company other
than as set forth in the Capitalization Documents.
(b) The authorized capital stock of the Subsidiary consists of
2,000 shares of the Subsidiary Common Stock, of which 210 are issued and
outstanding and no shares are held in treasury. The Company owns all of the
issued and outstanding shares of the Subsidiary Common Stock. All outstanding
shares of the Subsidiary Common Stock are validly issued, fully paid and
nonassessable. There is no subscription, option, warrant, call, right, agreement
or commitment relating to the issuance, sale, delivery or transfer by the
Subsidiary or the Company (including any right of conversion or exchange under
any outstanding security or other instrument) of any class of capital stock of
the Subsidiary. There are no outstanding contractual obligations of the
Subsidiary to repurchase, redeem or otherwise acquire any outstanding shares of
capital stock of the Subsidiary.
III.3 Title to Stock. The Sellers own the Company Securities, free
--------------
13
<PAGE>
and clear of any Liens. At the Closing, Buyer will acquire good, valid and
marketable title to the respective Company Securities sold by each Seller, free
and clear of any Liens. The Company owns, and at the Closing will own, the
Subsidiary Common Stock, free and clear of any Liens.
III.4 Authority Relative to this Agreement. The Company has full
------------------------------------
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and, assuming that this Agreement
constitutes a valid and binding agreement of Buyer and each Seller, constitutes
a valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms.
III.5 Subsidiaries and Equity Investments; Affiliates. Other than
-----------------------------------------------
the Subsidiary or as set forth on Schedule 3.5, the Company does not own or have
any right to acquire at any time by any means, directly or indirectly, any
interest or investment in any corporation, partnership, joint venture or other
business association or entity.
III.6 Consents and Approvals; No Violation. (a) Except as set
------------------------------------
forth in Schedule 3.6(a), neither the execution and delivery of this Agreement
by the Company nor the sale by the Sellers of the Company Securities pursuant to
this Agreement will (i) conflict with or result in any breach of (with or
14
<PAGE>
without notice or lapse of time, or both) any provision of the Certificate of
Incorporation or By-Laws of the Company or the Certificate of Incorporation or
By-Laws of the Subsidiary, (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not
reasonably be expected to have a Material Adverse Effect, (iii) result in a
violation of or default under (with or without notice or lapse of time, or both)
or give rise to any right of termination, cancellation or acceleration or result
in the creation of any Lien under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, agreement or other instrument or
obligation (other than with respect to any leases of real property or an
interest therein (the "Leases"), to which this representation shall not apply)
to which the Company or the Subsidiary is a party or by which the Company or the
Subsidiary or any of their assets may be bound, except for such defaults or
rights of termination, cancellation or acceleration or Liens as to which
requisite waivers or consents have been obtained or which, in the aggregate,
would not reasonably be expected to have a Material Adverse Effect, or (iv)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, the Subsidiary or any of their assets, which
violation would reasonably be expected to have a Material Adverse Effect.
(b) Except for the filings by the Company and Buyer required by the
15
<PAGE>
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and except as set forth in Schedule 3.6(b), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the consummation
by the Company or the Sellers of the transactions contemplated hereby, other
than such filings, registrations, authorizations consents or approvals which, if
not obtained or made, would not, in the aggregate, reasonably be expected to
have a Material Adverse Effect.
III.7 Reports. The Subsidiary has filed, pursuant to the Securities
-------
Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as the case may be, all material
forms, statements, reports and documents (including all exhibits, amendments and
supplements thereto) (the "SEC Documents") required to be filed by them with
respect to the business and operations of the Subsidiary under each of the
Securities Act and the Exchange Act, and the respective rules and regulations
thereunder, and all of the SEC Documents complied in all material respects with
all applicable requirements of the Securities Act or the Exchange Act, as the
case may be, and the appropriate act and the rules and regulations thereunder in
effect on the date each such report was filed. At the respective dates they
were filed, none of the SEC Documents contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances
16
<PAGE>
under which they were made, not misleading. The consolidated financial
statements of the Subsidiary included in the SEC Documents complied as to form
in all material respects with the applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the period involved (except as may be indicated
therein or in the notes thereto) and fairly present the consolidated financial
position, results of operations and cash flows of the Subsidiary as of the dates
or for the periods indicated therein, subject, in the case of the unaudited
statements, to normal year-end adjustments and the absence of certain footnote
disclosures.
III.8 Financial Statements. The Company has previously furnished to
--------------------
Buyer audited balance sheets of the Company and the Subsidiary as of June 29,
1997, June 30, 1996 and June 29, 1995 and the related audited statements of
operations, changes in stockholders' equity and cash flows of the Company and
the Subsidiary for the fiscal periods then ended, together with the respective
reports thereon of Price Waterhouse LLP, the Company's and the Subsidiary's
independent auditors. The Company has also furnished unaudited balance sheets
of the Company and the Subsidiary for the fiscal quarters ended December 31,
1997 and March 29, 1998, together with the related unaudited operations, changes
in stockholders' equity and cash
17
<PAGE>
flows of the Company and the Subsidiary. The balance sheet of the Company as of
March 29, 1998, together with the balance sheet of the Subsidiary as of March
29, 1998 are hereinafter referred to as the "Company Balance Sheets." Each of
the balance sheets included in the financial statements referred to in this
Section 3.8 (including the related notes thereto) presents fairly the financial
position of the Company or of the Subsidiary as of their respective dates, and
the other related statements included therein (including the related notes
thereto) present fairly the results of operations, changes in financial position
and cash flows for the periods then ended, all in conformity with GAAP applied
on a consistent basis, except as otherwise noted therein or in the notes thereto
and subject, in the case of unaudited statements, to normal year-end adjustments
and the absence of certain footnote disclosures. All such financial statements
are or will be complete in all material respects and have been prepared from,
and are in accordance with, the books of account and records of the Company and
the Subsidiary. Since June 30, 1997, neither the Company nor the Subsidiary has
made any change in its accounting practices or policies applied in the
preparation of its financial statements.
III.9 Undisclosed Liabilities. Except as set forth in Schedule 3.9,
-----------------------
neither the Company nor the Subsidiary has any liability or obligation, secured
or unsecured (whether absolute, accrued, contingent or otherwise, and whether
due or to become due), of a nature required by GAAP to be reflected in a
corporate balance
18
<PAGE>
sheet or disclosed in the notes thereto, except for those that either (i) are
accrued or reserved against in the Company Balance Sheets or disclosed in the
notes thereto in accordance with GAAP or (ii) were incurred in the ordinary
course of business consistent with past practice, whether before or after the
date of the Company Balance Sheet. Neither the Company nor the Subsidiary is
directly or indirectly liable upon or with respect to (by discount, repurchase
agreements or otherwise), or obligated in any other way to provide funds in
respect of, or to guarantee or assume, any material debt, obligation or dividend
of any person, except for those that are accrued or reserved against in the
Company Balance Sheets or disclosed in the notes thereto in accordance with
GAAP. Schedule 3.9 sets forth the amounts of any accrued but unpaid interest
and/or dividends on the Senior Notes or the Company Securities as of March 29,
1998.
III.10 Absence of Certain Changes or Events. Except (a) as set forth
------------------------------------
in Schedule 3.10, or in the SEC Documents, and (b) as otherwise contemplated by
this Agreement, since the date of the Company Balance Sheets there has not been:
(i) any Material Adverse Effect; (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock, property or any
combination thereof) in respect of any class of capital stock of the Company or
of the Subsidiary, or any redemption or other acquisition by the Company or the
Subsidiary of any
19
<PAGE>
shares of capital stock of the Company or the Subsidiary, or any payment by the
Company or the Subsidiary to any Seller in its capacity as a stockholder; (iii)
any damage, destruction or casualty loss, whether covered by insurance or not,
which had a Material Adverse Effect; (iv) any increase in the rate or terms of
compensation or other benefits payable or to become payable by the Company or
the Subsidiary to their directors, officers or key employees, except increases
occurring in the ordinary course of business in accordance with their customary
practices; (v) any entry into any agreement, commitment or transaction
(including without limitation any borrowing, capital expenditure or capital
financing) by the Company or the Subsidiary, which is material to the Company or
the Subsidiary, except (a) Leases and (b) agreements, commitments or
transactions in the ordinary course of business or as contemplated herein; (vi)
any change by the Company or the Subsidiary, in their respective accounting
methods, principles or practices except as required by GAAP; or (vii) any sale,
franchise, relocation or closure of any store of the Subsidiary. Since March 29,
1998, each of the Company and the Subsidiary has conducted its business in the
ordinary course, consistent with past practice, and has made all reasonable
efforts to preserve its relationships with customers, suppliers and others with
whom it deals, the absence of which would be reasonably likely to have a
Material Adverse Effect, and neither the Company nor the Subsidiary has taken
any action that, if taken after the date hereof unless otherwise consistent with
the transactions contemplated here-
20
<PAGE>
by, would constitute or result in a material breach of any of the covenants set
forth herein.
III.11 Personal Property. Schedule 3.11 sets forth as of the date of
-----------------
this Agreement a complete and correct list of each item of machinery, equipment,
furniture, fixtures and other tangible personal property owned, leased or used
by the Company or the Subsidiary having an original purchase cost or aggregate
lease cost to the Company or the Subsidiary exceeding $25,000 (the "Machinery
and Equipment"). Except as set forth on Schedule 3.11, the Company or the
Subsidiary own outright and have good, valid and marketable title, free and
clear of all Liens (other than Permitted Exceptions (as hereinafter defined)),
to the Machinery and Equipment as owned by them and to all the machinery,
equipment, furniture, fixtures, inventory, receivables and other tangible or
intangible personal property reflected on the Company Balance Sheets and all
such property acquired since the date thereof, except for sales and dispositions
in the ordinary course of business consistent with past practice since the date
of the Company Balance Sheets, except to the extent that any such failure to
have good title would not, in the aggregate with any and all such failures,
reasonably be expected to have a Material Adverse Effect. None of the Liens
listed on Schedule 3.11 materially adversely affects the conduct of the business
of the Company or the Subsidiary. Except as set forth in Schedule 3.11, each of
the Company and the Subsidiary holds good and transferable leaseholds in all of
the
21
<PAGE>
Machinery and Equipment as leased by it, in each case under valid and
enforceable leases. The Machinery and Equipment and other personal property now
owned, leased, or used by the Company or the Subsidiary are sufficient and
adequate to carry on their businesses as presently conducted and all items
thereof are in good operating condition and repair (normal wear and tear
excepted). Neither the Company nor the Subsidiary holds any personal property of
any other person, firm or corporation pursuant to any consignment or similar
arrangement.
III.12 Real Property.
-------------
(a) Schedule 3.12(a) sets forth a true and complete list of all real
properties owned by the Company and the Subsidiary. The Company or the
Subsidiary has good, valid and marketable title to all real properties shown in
Schedule 3.12(a). Other than as set forth on Schedule 3.12(a), none of the real
properties owned by the Company or the Subsidiary is subject to any Liens (other
than Permitted Exceptions), and none of such real properties is subject to any
easements, rights of way, licenses, grants, building or use restrictions,
exceptions, reservations, limitations or other impediments which materially
adversely affect the value thereof or which materially interfere with or impair
the present and continued use thereof in the usual and normal conduct of the
business of the Company or the Subsidiary. All buildings, structures,
improvements and fixtures owned by the Company or the Subsidiary are in good
operating condition and repair (normal wear and tear except-
22
<PAGE>
ed).
(b) Schedule 3.12(b) lists, as of the date of this Agreement, all
Leases under which the Company or the Subsidiary is a lessee or lessor. Except
as set forth in Schedule 3.12(b) or as may result from the consummation of the
transactions contemplated hereby, all such Leases are valid, binding and
enforceable obligations of the Company or the Subsidiary in accordance with
their terms, and to the Company's and the Subsidiary's knowledge, are in full
force and effect, there are no existing defaults by the Company or the
Subsidiary thereunder, and no event has occurred which (whether with or without
notice, lapse of time or both) would constitute a default thereunder, except in
each case for defaults which individually or in the aggregate would not have a
Material Adverse Effect.
III.13 Insurance. All policies of fire, liability, workmen's
---------
compensation and other forms of insurance owned or held by and insuring the
Company or the Subsidiary are listed on Schedule 3.13. Except as set forth in
Schedule 3.13, all policies of fire, liability, workmen's compensation and other
forms of insurance owned or held by and insuring the Company and the Subsidiary
are in full force and effect, all premiums with respect thereto covering all
periods up to and including the date as of which this representation is being
made have been paid (other than retroactive premiums which may be payable with
respect to comprehen-
23
<PAGE>
sive general liability and workmen's compensation insurance policies), and no
notice of cancellation or termination has been received with respect to any such
policy which was not replaced on substantially similar terms prior to the date
of such cancellation. Other than as set forth on Schedule 3.13, such policies
are valid, outstanding and enforceable policies and will not in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement. Except as described in Schedule 3.13, as of the date of this
Agreement neither the Company nor the Subsidiary has been refused any insurance
with respect to its assets or operations nor has their coverage been limited in
any material respect by any insurance carrier to which either of them has
applied for any such insurance or with which it has carried insurance during the
last three years. The Company and the Subsidiary have heretofore made available
to Buyer true and complete copies of all such policies.
III.14 Environmental Matters.
---------------------
(a) Each of the Company and the Subsidiary is in compliance with all
applicable Environmental Laws (which compliance includes, but is not limited to,
the possession by the Company and the Subsidiary of all permits and other
governmental authorizations ("Environmental Permits") required under applicable
Environmental Laws, and compliance with the terms and conditions thereof),
except where failure to be in compliance would not reasonably be expected to
have a Material Adverse Effect. Other than as set forth on Schedule 3.14, since
January 1, 1995, neither the
24
<PAGE>
Company nor the Subsidiary has received any communication (written or oral),
whether from a governmental authority, citizens group, employee or otherwise,
alleging that the Company or the Subsidiary is not in such compliance, and there
are no past or present actions, activities, circumstances, conditions, events or
incidents that may prevent or interfere with such compliance in the future in
all material respects. All Environmental Permits and other governmental
authorizations currently held by the Company and the Subsidiary pursuant to
applicable Environmental Laws are identified in Schedule 3.14(a).
(b) There is no Environmental Claim pending or threatened against the
Company or the Subsidiary, or, to the best knowledge of the Company and the
Subsidiary, against any person or entity whose liability for any Environmental
Claim the Company or the Subsidiary has or may have retained or assumed either
contractually or by operation of law, which would reasonably be expected to have
a Material Adverse Effect.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the Release or
presence of any Hazardous Material which could form the basis of any
Environmental Claim against the Company or the Subsidiary, or to the best
knowledge of the Company and the Subsidiary, against any person or entity whose
liability for any Environmental Claim the Company or the Subsidiary has or may
have retained or assumed either
25
<PAGE>
contractually or by operation of law which would reasonably be expected to have
a Material Adverse Effect.
(d) The Company has delivered or otherwise made available for
inspection to Buyer true, complete and correct copies and results of all "Phase
One" reports relating to the Subsidiary's batter facility and any reports,
studies, analyses, tests or monitoring possessed or initiated by the Company or
the Subsidiary pertaining to Hazardous Materials in, on, beneath or adjacent to
any property currently or formerly owned, operated or leased by the Company or
the Subsidiary, or regarding the Company's or the Subsidiary's compliance with
applicable Environmental Laws.
(e) Definitions.
-----------
(i) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or entity
alleging potential liability (including, without limitation, potential
liability for investigatory costs, remediation costs, governmental response
costs, natural resources damages, property damages, personal injuries, or
penalties) arising out of, based on or resulting from (A) the presence, or
Release of any Hazardous Materials at any location, whether or not owned or
operated by the Company or the Subsidiary, or (B) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
(ii) "Environmental Laws" means all federal, state, local and
26
<PAGE>
foreign laws and regulations relating to pollution or protection of human
health or the environment, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, Release, disposal, transport or handling of Hazardous Materials
and all laws and regulations with regard to recordkeeping, notification,
disclosure and reporting requirements respecting Hazardous Materials.
(iii) "Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National Oil
and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ' 300.5, or
defined as such by, or regulated as such under, any Environmental Law.
(iv) "Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, dispersal, leaching or
migration into the indoor or outdoor environment or into or out of any
property, including the movement of Hazardous Materials through or in the
air, soil, surface water, groundwater or property.
III.15 Labor Matters.
-------------
(a) (i) There is no labor strike, dispute, or work stoppage or lockout
actually pending or, to the Company's or the Subsidiary's knowledge, threatened,
against or affecting the Company and the Subsidiary, and since January 1, 1995
there
27
<PAGE>
has not been any such action; (ii) to the Company's and the Subsidiary's
Knowledge, no union organizational campaign is in progress with respect to the
employees of the Subsidiary; (iii) the Company and the Subsidiary are in
compliance in all material respects with all laws applicable to the Company and
the Subsidiary with respect to employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any unfair
labor practice; and (iv) there is no charge, complaint or other proceeding
involving the Company or the Subsidiary or, to the Company's or the Subsidiary's
knowledge, threatened, before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any state or local agency responsible for
the prevention of unlawful employment practices.
(b) Neither the Company nor the Subsidiary is a party to any labor
union or collective bargaining agreement.
(c) Neither the Company nor the Subsidiary has any liability under
the Worker Adjustment and Retraining Act or any similar state law relating to
employment termination in connection with a mass layoff or plant closing
("WARN").
III.16 ERISA; Benefit Plans.
--------------------
(a) Schedule 3.16(a) contains a list of all "employee pension benefit
plans" (as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension
Plans"),
28
<PAGE>
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA), bonus,
stock option, stock purchase and deferred compensation plans or arrangements,
and other employee fringe benefit plans (all the foregoing being herein referred
to as "Benefit Plans") maintained, or contributed to, by the Company, the
Subsidiary or any entity that is treated as under common control with the
Company or the Subsidiary under Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended (the "Code"), for the benefit of, or relating
to, any employees or former employees of the Company or the Subsidiary. The
Company has delivered to Buyer true, complete and correct copies of (i) each
Benefit Plan (or, in the case of any unwritten Benefit Plan, a description
thereof), (ii) the most recent determination letter received from the Internal
Revenue Service, (iii) the latest actuarial evaluations, (iv) the most recent
annual report on Form 5500 filed with the Internal Revenue Service with respect
to each Benefit Plan (if any such report was required), including Schedule A and
Schedule B thereto, (v) the most recent summary plan description for each
Benefit Plan for which such a summary plan description is required and (vi) each
trust agreement and group annuity contract relating to any Benefit Plan.
(b) Each Benefit Plan has been administered in all material respects
in accordance with its terms and the applicable provisions of ERISA and the
Code. Except as disclosed in Schedule 3.16(b)(i), all material reports, returns
and similar documents with respect to the Benefit Plans required to be filed
with any govern-
29
<PAGE>
mental agency or distributed to any Benefit Plan participant have been duly and
timely filed or distributed. Except as disclosed in Schedule 3.16(b)(ii), there
are no investigations by any governmental agency, termination proceedings or
other claims (except for benefits payable in the normal operation of the Benefit
Plans), suits or proceedings or against or involving any Benefit Plan or
asserting any rights or claims to benefits under any Benefit Plan that could
reasonably give rise to any material liability and, to the Company's and the
Subsidiary's knowledge, there are no facts that could reasonably give rise to
any material liability in the event of any such investigation, claim, suit or
proceeding.
(c) Except as disclosed in Schedule 3.16(c), all contributions to,
and payments from, the Benefit Plans that may have been required to be made in
accordance with the Benefit Plans have been timely made.
(d) No "prohibited transaction" (as defined in Section 4975 of the
Code or Section 406 of ERISA) has occurred that involves the assets of any
Benefit Plan and that could subject the Company or the Subsidiary or any of
their employees or, to the Company's and the Subsidiary's knowledge, a trustee,
administrator or other fiduciary of any trusts created under any Benefit Plan,
to any material tax or penalty on prohibited transactions imposed by Section
4975 of ERISA or the sanctions imposed under Title I of ERISA. None of the
Company, the Subsidiary or any trustee, administrator or other fiduciary of any
Benefit Plan nor any agent of any of the
30
<PAGE>
foregoing has engaged in any transaction or acted or failed to act in a manner
that could subject the Company or the Subsidiary to any material liability for
breach of fiduciary duty under ERISA or any other applicable law. No liability
under Title IV of ERISA has been incurred by the Company, the Subsidiary or
their affiliates within six years prior to the date hereof that has not been
satisfied in full, and no condition exists that presents a material risk of
incurring such liability.
(e) Except as disclosed in Schedule 3.16(e), at no time within the
five years preceding the Closing Date has either of the Subsidiary or the
Company been required to contribute to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) or incurred any withdrawal liability, within the
meaning of Section 4201 of ERISA, which liability has not been fully paid as of
the date hereof, or announced an intention to withdraw, but not yet completed
such withdrawal, from any multiemployer plan.
(f) Neither the Company nor the Subsidiary contributes to a Pension
Plan that is subject to Section 302 of ERISA or Section 412 of the Code.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan, except as disclosed in Schedule 3.16(g), (1) no such Benefit Plan
is funded through a welfare benefits fund, as such term is defined in Section
419(e) of the Code, and (2) each such Benefit Plan that is a group health plan,
as such term is defined in Section 5000(b)(1) of the Code, complies with the
applicable requirements
31
<PAGE>
of Section 4980B(f) of the Code.
(h) Neither the Company nor the Subsidiary has incurred any liability
under Section 4062(b) of ERISA to the Pension Benefit Guaranty Corporation in
connection with any Benefit Plan which is subject to Title IV of ERISA. Except
as set forth in Schedule 3.16(h), the Internal Revenue Service has issued a
letter for each Benefit Plan determining that such plan is exempt from United
States Federal Income Tax under Sections 401(a) and 501(a) of the Code, and
there has been no occurrence since the date of any such determination letter
which has adversely affected such qualification.
(i) Except as set forth in Schedule 3.16(i), neither the Company, the
Subsidiary nor any of their affiliates maintains or contributes to, or has any
liability (fixed, contingent or otherwise, under any current or former plan)
for, medical, health or life insurance benefits for terminated employees of the
Company or the Subsidiary or for present employees of the Company or the
Subsidiary after termination of their employment (other than any such welfare
benefits provided pursuant to Code Section 4980B or ERISA Sections 601-608).
(j) Schedule 3.16(j) contains a true and complete list, as of the
date of this Agreement, showing the names of all employees who during the last
fiscal year received, or in the current fiscal year are expected to receive,
compensation (including commissions and bonuses) in excess of $50,000. Except
as disclosed on
32
<PAGE>
Schedule 3.16(j), neither the Company nor the Subsidiary has agreed to increase
the salary payable to any employee listed on Schedule 3.16 by more than five
percent.
(k) The Company has made available to Buyer true and complete copies
of all contracts, agreements, plans or arrangements covering any employee or
former employee of the Company or the Subsidiary with "change of control" or
similar provisions or providing for "stay on" bonuses or severance payments
(each, a "Change of Control Arrangement"). No Change of Control Arrangement
individually or collectively could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G of the Code.
(l) Except as disclosed in Schedule 3.16(l) or as a result of the
transactions contemplated hereby, there has been no amendment to or announcement
by the Company, the Subsidiary or any of their affiliates relating to a change
in employee participation or coverage or benefits under any Benefit Plan that is
reasonably expected to increase materially the expense of maintaining such
Benefit Plan above the level of expense incurred in respect thereof for the
fiscal year ended June 29, 1997.
III.17 Certain Contracts and Arrangements. (a) Schedule 3.17(a)
----------------------------------
sets forth, as of the date of this Agreement, a true and complete list of all
contracts to which the Company or the Subsidiary is a party relating to the
business or assets of the Company or the Subsidiary (except, with respect to
clauses
33
<PAGE>
(ii) and (iv) below, any of the foregoing calling for aggregate payments
of less than $50,000), including, without limitation, all written or oral,
express or implied (i) contracts not made in the ordinary course of business
consistent with past practice; (ii) purchase, supply and customer contracts;
(iii) contracts relating to the borrowing of money or for lines of credit; (iv)
contracts involving leases and subleases of real or personal property; (v)
contracts for the sale of any assets other than in the ordinary course of
business consistent with past practice or for the grant of any options or
preferential rights to purchase any assets, property or rights; (vi) contracts
granting any power of attorney with respect to the affairs of either the Company
or the Subsidiary; (vii) suretyship contracts, working capital maintenance or
other forms of guaranty contracts; (viii) contracts limiting or restraining the
Company or the Subsidiary from engaging or competing in any lines of business or
with any person, firm, or corporation; (ix) partnership and joint venture
contracts; (x) employment contracts; (xi) indentures, mortgages, notes,
installment obligations, or other instruments relating to the borrowing of money
in excess of $50,000 by the Company or the Subsidiary; (xii) contracts which
have remaining terms, as of the date of this Agreement, of over one year in
length of obligation on the part of the Company or the Subsidiary and provide
for aggregate payments in excess of $50,000; (xiii) franchise contracts; and
(xiv) all amendments, modifications, extensions or renewals of any of the
foregoing. To the knowledge of the Company and the Subsidiary, each of such
contracts is valid, binding and enforceable against the parties thereto in
34
<PAGE>
accordance with its terms, and in full force and effect on the date hereof.
(b) Except as set forth on Schedule 3.17(b), the Company and the
Subsidiary have performed all obligations required to be performed by them to
date under, and are not in default in respect of, any of such contracts, and no
event has occurred which, with due notice or lapse of time or both, would
constitute such a default other than defaults which would not, individually or
in the aggregate, have a Material Adverse Effect. Except as set forth on
Schedule 3.17(b), no other party to any such contract is in default in respect
thereof, and no event has occurred which, with due notice or lapse of time or
both, would constitute such a default other than defaults which would not,
individually or in the aggregate, have a Material Adverse Effect. The Company
has made available to Buyer or its representatives true and complete originals,
copies or accurate summaries of all such contracts.
III.18 Intellectual Property. Schedule 3.18 sets forth a true and
---------------------
complete list of all material patents, trademarks (registered or unregistered),
trade names (registered or unregistered), service marks (registered or
unregistered), registered copyrights and computer software applications
(excluding noncritical, uncustomized shrink-wrap or off-the-shelf software)
owned or used by or licensed to the Company or the Subsidiary, and all license
agreements related thereto to which the Company or the Subsidiary is a party
(collectively, the "Intellectual Property"), and, with respect to trademarks,
contains a list of all jurisdictions in which such trademarks are registered or
applied for by the Company or the Subsidiary and all
35
<PAGE>
corresponding registration and application numbers. Except as disclosed on
Schedule 3.18 or as provided in any agreement listed on Schedule 3.18, each of
the Company and the Subsidiary owns or has the right to use, without payment to
any other party, the Intellectual Property used in or necessary for the conduct
of its business and the consummation of the transactions contemplated hereby
will not, by itself, materially alter or impair any such rights. Except as
disclosed on Schedule 3.18, all Intellectual Property owned or used by the
Company and the Subsidiary is free and clear of all Liens arising through
actions of the Company or the Subsidiary. Except as disclosed on Schedule 3.18,
to the knowledge of the Company and the Subsidiary, no material claims or other
proceedings are pending or threatened against the Company or the Subsidiary by
any third party person or entity with respect to the ownership, validity,
enforceability or the right to use any Intellectual Property.
III.19 Customers, Suppliers and Competitors. Schedule 3.19 sets
------------------------------------
forth a complete and correct list of (a) the ten largest suppliers of the
Subsidiary by dollar volume for the latest fiscal year, (b) the ten largest
franchisees of the Subsidiary by dollar volume of royalties paid to the
Subsidiary for the latest fiscal year and (c) all suppliers or franchisees who
since June 29, 1997 have terminated any agreement, contract or other arrangement
with the Subsidiary or with whom the Subsidiary has terminated any agreement,
contract or other arrangement resulting in aggregate payments in any fiscal year
in excess of $50,000, in each case with or with-
36
<PAGE>
out cause, prior to the stated expiration thereof. Except as disclosed in
Schedule 3.19, since January 1, 1998, the Subsidiary has not at any time
delivered to, or received from, any supplier or franchisee any formal notice or
written allegation of a default or breach with respect to any agreement,
contract or other arrangement, and none of such suppliers or franchisees has
delivered any formal notice stating its intention to terminate or change
significantly its relationship with the Subsidiary.
III.20 Legal Proceedings, etc. Except as set forth in Schedule 3.20,
-----------------------
there are no claims, actions, or proceedings pending, or investigations pending
or, to the knowledge of the Company and the Subsidiary, threatened, against or
relating to the Company or the Subsidiary before any court, governmental or
regulatory authority or body acting in an adjudicative capacity, which (a)
relate to or involve more than $50,000, (b) seek any injunctive relief, or (c)
relate to the transactions contemplated by this Agreement. Except as disclosed
on Schedule 3.20, neither the Company nor the Subsidiary is in default under any
material judgment, order or decree of any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, applicable to the Company or the Subsidiary.
III.21 Tax Matters. All material tax and information returns,
-----------
reports and other documents required to have been filed by the Company and the
Subsidiary
37
<PAGE>
(either separately or as part of a consolidated, unitary, combined or similar
group) with the United States, any state and local governmental authority and
any foreign jurisdiction ("Returns") have been duly and timely filed, and each
such Return is accurate and complete in all material respects. Copies of Returns
for the fiscal years ended June 29, 1997, June 30, 1996 and June 29, 1995 which
relate to the income of the Company and the Subsidiary have been made available
to Buyer or its representatives, and such copies are accurate and complete in
all material respects as of the date hereof. The Company has also made available
to Buyer correct and complete copies of all material notices and correspondence
sent or received since January 1, 1995 by the Company or the Subsidiary to or
from any federal, state, local or foreign tax authorities. Except as set forth
in Schedule 3.21, each of the Company and the Subsidiary has paid in full all
income, franchise, business, property, sales, use, value-added, withholding,
payroll, excise, capital and other taxes shown to be due and payable on said
Returns, and all penalties, assessments or deficiencies of every nature and
description incurred with respect to such taxes, except to the extent that the
Company or the Subsidiary, as the case may be, has established on its books
appropriate reserves for such amounts in accordance with GAAP. The United States
federal and state income tax Returns of the Company and the Subsidiary (or such
Returns for the consolidated group of which the Company and the Subsidiary is a
member) have been audited, and the audits thereof completed or the statute of
limitations has
38
<PAGE>
run, for all years through 1993. Except as set forth on Schedule 3.21, neither
the Company nor the Subsidiary has received any notice of deficiency or
assessment from any taxing authority with respect to liabilities for taxes of
the Company or the Subsidiary which have not been fully paid or finally settled,
and any such deficiencies have been paid or are being contested in good faith
and have been adequately reserved. Except as set forth in Schedule 3.21, neither
the Company nor the Subsidiary is a party to any agreement with respect to the
sharing or allocation of taxes or tax costs. There are no liens for any material
amount of federal, state, local or foreign taxes upon the property or assets of
the Company or the Subsidiary, except liens for taxes not yet due or delinquent
or the validity of which is being contested in good faith by appropriate
proceedings. Except as set forth on Schedule 3.21, there are no outstanding
waivers or comparable consents given by the Company or the Subsidiary regarding
the application of the statute of limitations with respect to any federal,
state, local or foreign taxes or Returns. Except as set forth on Schedule 3.21,
no power of attorney has been granted by the Company or the Subsidiary with
respect to any matter relating to federal, state, local or foreign taxes that is
currently in force. Except as set forth on Schedule 3.21, neither the Company
nor the Subsidiary has been a member of any other consolidated, unitary,
combined or similar group for federal, state, local or foreign tax purposes for
any taxable period for which the statute of limitations has not yet expired.
39
<PAGE>
III.22 Arrangements with Directors, Officers and Affiliates. Except
----------------------------------------------------
for the agreements and other arrangements disclosed in Schedule 3.22 (the
"Affiliate Arrangements"), as of the date hereof, there are no agreements or
other arrangements between the Company or the Subsidiary, on the one hand, and
any director, officer, employee, stockholder or other affiliate, as defined in
Rule 405 under the Securities Act (an "Affiliate," or, collectively,
"Affiliates"), of the Company or the Subsidiary, on the other hand, including,
without limitation, management agreements and loans to or by the Company or the
Subsidiary from or to any of such persons. Except as disclosed in Schedule 3.22,
since January 1, 1995, none of the officers or directors of the Company or the
Subsidiary, or any spouse or immediate relative of any of such persons, has been
a director or officer of, or has had any direct interest in, any firm,
corporation, association or business enterprise which during such period has
been a supplier, customer or sales agent of the Company or the Subsidiary or has
competed with or been engaged in any business of the kind being conducted by the
Company or the Subsidiary. Except as disclosed in Schedule 3.22, no Affiliate of
the Company or the Subsidiary owns or has any rights in or to any of the assets,
properties or rights used by the Company or the Subsidiary in its ordinary
course of business.
III.23 Compliance with Law. Except as set forth in Schedule 3.23 and
-------------------
except with respect to environmental matters which are covered exclusively by
Section 3.14, the operations of the Company and the Subsidiary are being
conducted
40
<PAGE>
in accordance with all franchising and other applicable laws, regulations,
orders and other requirements of all courts and other governmental or regulatory
authorities having jurisdiction over the Company and the Subsidiary and their
assets, properties and operations, except where non-compliance with such laws,
regulations, orders and other requirements would not reasonably be expected to
have a Material Adverse Effect. Except as set forth in Schedule 3.23 and except
with respect to environmental matters which are covered exclusively by Section
3.14, neither the Company nor the Subsidiary has received notice within the past
year of any violation of any such law, regulation, order or other legal
requirement, or is in default with respect to any order, writ, judgment, award,
injunction or decree of any federal, state or local court or governmental or
regulatory authority or arbitrator, domestic or foreign, applicable to the
Company or the Subsidiary or any of their assets, properties or operations,
except for such violations or defaults that do not have a Material Adverse
Effect.
III.24 Fees and Commissions. No broker, finder or other person is
--------------------
entitled to any brokerage fees, commissions or finder's fees in connection with
the transaction contemplated hereby by reason of any action taken by the Company
or the Subsidiary. Schedule 3.24 sets forth a complete and accurate list of all
transaction expenses (including management or other fees payable to the Sellers
or their respective Affiliates pursuant to any Affiliate Arrangement) previously
or to be paid
41
<PAGE>
or reimbursed by the Company or the Subsidiary on their own behalf or on the
behalf of the Sellers in connection with the transactions contemplated by this
Agreement (the "Company Transaction Expenses").
III.25 Representations of the Sellers. Each Seller represents
------------------------------
severally and not jointly that:
(a) Such Seller has all requisite power and authority to own and to
dispose of the Company Securities owned by such Seller.
(b) The number of shares and/or principal amount of the Company
Securities owned by such Seller as of the date of this Agreement is set forth
beside the name of such Seller on Annex A hereto. Except as set forth on
Schedule 3.25(b), such Seller owns his respective Company Securities, free and
clear of any Liens, and at the Closing, Buyer will acquire good, valid and
marketable title to the Company Securities owned by such Seller, free and clear
of any Liens.
(c) Such Seller has full power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby and to
sell to Buyer such Seller's Company Securities. This Agreement has been duly
and validly executed and delivered by such Seller and, assuming that this
Agreement constitutes a valid and binding agreement of Buyer, the Company and
each other Seller, constitutes a valid and binding agreement of such Seller,
enforceable against such Seller in accordance with its terms, except (i) as such
enforceability may be limited
42
<PAGE>
by bankruptcy, insolvency, moratorium and other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) as such
enforceability may be limited by general principles of equity, regardless of
whether asserted in a proceeding in equity or at law.
(d) Neither the execution and delivery of this Agreement by such
Seller nor the sale by such Seller of the Company Securities owned by such
Seller pursuant to this Agreement at the Closing will (i) conflict with or
result in any breach of (with or without notice or lapse of time, or both) any
provision of the Certificate of Incorporation, By-Laws or similar governing
documents of such Seller which is not a natural person, (ii) except for filings
required under the HSR Act, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority by such Seller, except where the failure to obtain such consent,
approval, authorization or permit, or to make such filing or notification, would
not reasonably be expected to have a Material Adverse Effect, (iii) result in a
violation of or default under (with or without notice or lapse of time, or both)
or give rise to any right of termination, cancellation or acceleration or result
in the creation of any Lien under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which such Seller is a party or by which such Seller or any of its
assets may be bound, except for such defaults or rights of termination,
cancellation or acceleration
43
<PAGE>
or Liens as to which requisite waivers or consents have been obtained or which,
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect, or (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to such Seller or any of its assets, which violation would
reasonably be expected to have a Material Adverse Effect.
(e) No broker, finder or other person is entitled to any brokerage
fees, commissions or finder's fees in connection with the transaction
contemplated hereby by reason of any action taken by such Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer represents and warrants to the Sellers as follows:
IV.1 Organization. Buyer is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware. Buyer
has heretofore delivered to the Company complete and correct copies of the
Certificate of Incorporation and By-Laws of Buyer as currently in effect.
IV.2 Authority Relative to this Agreement. Buyer has full corporate
------------------------------------
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
44
<PAGE>
validly authorized by the Board of Directors of Buyer, and no other corporate
proceedings on the part of Buyer are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Buyer and, assuming that this Agreement
constitutes a valid and binding agreement of the Sellers, constitutes a valid
and binding agreement of Buyer, enforceable against Buyer in accordance with its
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, moratorium and other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) as such enforceability may
be limited by general principles of equity, regardless of whether asserted in a
proceeding in equity or at law.
IV.3 Consents and Approvals; No Violation. (a) Except as set
------------------------------------
forth in Schedule 4.3, neither the execution and delivery of this Agreement by
Buyer nor the purchase by Buyer of the Company Securities pursuant to this
Agreement will (i) conflict with or result in any breach of (with or without
notice or lapse of time, or both) any provision of the Articles of Incorporation
or By-Laws of Buyer, (ii) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory authority,
(iii) result in a violation of or default under (with or without notice or lapse
of time, or both), or give rise to any right of termination, cancellation or
acceleration under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, agreement or other
45
<PAGE>
instrument or obligation to which Buyer is a party or by which Buyer or any of
its assets may be bound, except for such defaults or rights of termination,
cancellation or acceleration as to which requisite waivers or consents have been
obtained, or (iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer.
(b) Except as set forth in Schedule 4.3, and except for the filings
by the Sellers and Buyer required by the HSR Act, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
governmental or regulatory body or authority is necessary for the consummation
by Buyer of the transactions contemplated hereby.
IV.4 Acquisition of Stock for Investment. Buyer is acquiring the
-----------------------------------
Company Securities for investment and not with a view toward, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling such Company Securities. Buyer agrees that the Company
Securities may not be sold, transferred, offered for sale, pledged, hypothecated
or otherwise disposed of without registration under the Securities Act, except
pursuant to an exemption from such registration available under the Securities
Act.
IV.5 Financing. Buyer has provided to the Company and the Sellers
---------
accurate information as to its plans to obtain the Financing.
IV.6 Fees and Commissions. Buyer represents and warrants that no
--------------------
46
<PAGE>
broker, finder or other person is entitled to any brokerage fees, commissions or
finder's fees in connection with the transaction contemplated hereby by reason
of any action taken by Buyer.
IV.7 Knowledge of Inaccuracies. Buyer represents and warrants that
-------------------------
as of the date of this Agreement it has no actual knowledge that any of the
representations or warranties of the Company, the Subsidiary or any of the
Sellers in this Agreement are inaccurate or that any of such parties are in
breach of any agreement or covenant contained in this Agreement.
ARTICLE V
COVENANTS OF THE PARTIES
------------------------
V.1 HSR Act Compliance. The parties shall resist vigorously
------------------
(including, without limitation, the institution or defense of legal proceedings)
any assertion that the transactions contemplated herein constitute a violation
of the antitrust laws, all to the end of expediting consummation of the
transactions contemplated herein. The costs and expenses of compliance with
this Section 5.1 shall be borne by the Company, in the case of costs and
expenses of the Company or the Sellers, or by Buyer, in the case of costs and
expenses of Buyer, except that 50% of the fees previously paid in connection
with the notifications required to be filed in connection with the HSR Act shall
be reimbursed by the Company.
47
<PAGE>
V.2 Conduct of Business of the Company. Except as described in
----------------------------------
Schedule 5.2, during the period from the date of this Agreement to the Closing
Date, the Company will conduct its business and operations according to its
ordinary course of business consistent with past practice and will cause the
Subsidiary to conduct its business and operations according to its ordinary
course of business consistent with past practice and to keep its retail
operations substantially intact. The Company will cause the Subsidiary to
maintain in inventory, at all times prior to the Closing Date, quantities of raw
materials and other supplies and materials sufficient to allow Buyer to continue
and operate the business of the Subsidiary, after the Closing Date, free from
any shortage of such items (assuming Buyer continues to purchase such items
after the Closing Date in the ordinary course of business consistent with past
practice). The Company will use commercially reasonable efforts to preserve
intact the business organization of the Subsidiary and its goodwill, and keep
available the services of its present officers and key employees, and preserve
intact the business relationships with suppliers, customers and others having a
business relationship with the Subsidiary or the Company, and will also maintain
its present relationship in all material respects with the Subsidiary and the
Company. Without limiting the generality of the foregoing, and, except as
contemplated in this Agreement or as described in Schedule 5.2, prior to the
Closing Date, without the prior written consent of Buyer, the Company will not,
and will not permit the Subsidiary
48
<PAGE>
to:
(a) make any change in its Certificate of Incorporation or By-
Laws, issue any additional shares of capital stock or equity security or
grant any option, warrant, or right to acquire any capital stock or equity
securities, or issue any security convertible into or exchangeable for its
capital stock, or alter any material term of any of its outstanding
securities or make any change in its outstanding shares of capital stock or
other ownership interests in its capitalization, whether by reason of a
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise, or declare, set aside
or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock, or
redeem or otherwise acquire any shares of its capital stock;
(b) (i) create, incur or assume any indebtedness for money
borrowed, including obligations in respect of capital leases; or (ii)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
other person; provided, that the Subsidiary and the Company may endorse
--------
negotiable instruments in the ordinary course of business consistent with
past practice;
(c) sell, franchise, move or close any of its stores or make any
49
<PAGE>
other sale, assignment, transfer, abandonment or other conveyance of any of
its assets having a fair market value in excess of $50,000 or any material
part thereof, except transactions pursuant to existing contracts set forth
in the Schedules and dispositions of inventory or of worn-out or obsolete
equipment for fair or reasonable value in the ordinary course of business
consistent with past practice;
(d) subject any of its assets, or any part thereof, to any Lien,
or suffer such to be imposed, except for Permitted Exceptions and such
Liens as may arise in the ordinary course of business consistent with past
practice which will not, individually or in the aggregate, have a Material
Adverse Effect;
(e) acquire any assets, raw materials or properties, or enter
into any other transaction in an amount in excess of $10,000 individually
or $25,000 in the aggregate, other than in the ordinary course of business
consistent with past practice;
(f) (i) increase the rate or terms of compensation payable or to
become payable by the Subsidiary or the Company to its directors, officers
or key employees, except increases occurring in the ordinary course of
business in accordance with its customary practices (which shall include
normal periodic performance reviews and related compensation and benefit
in-
50
<PAGE>
creases); or (ii) increase the rate or terms of any bonus, insurance,
pension or other employee benefit plan, payment or arrangement made to, for
or with any such directors, officers or key employees;
(g) enter into any agreement, commitment or transaction
(including without limitation any borrowing, capital expenditure or capital
financing) relating to the business, operations or financial condition of
the Subsidiary or the Company other than in the ordinary course of business
consistent with past practice;
(h) pay, loan or advance any amount to, or sell, transfer or
lease any properties or assets to, or enter into any agreement or
arrangement with, any of its Affiliates;
(i) make any change in any method of accounting or accounting
principle, method, estimate or practice, except for any such change
required by reason of a concurrent change in GAAP, or write-down the value
of any inventory or write-off as uncollectible any accounts receivable,
except in the ordinary course of business consistent with past practice;
(j) settle, release or forgive any claim or litigation or waive
any right involving an amount greater than $50,000;
(k) amend in any material respect or terminate any of the
51
<PAGE>
agreements identified in Schedule 3.17 other than in the ordinary course of
business consistent with past practice;
(l) commence actual construction of any new facilities other
than those identified on Schedule 5.2;
(m) engage in any activity which would cause a material change
in the regulatory status of the Subsidiary or the Company which would be
reasonably expected to have a Material Adverse Effect; or
(n) commit itself to do any of the foregoing in any manner.
V.3 Access to Information.
---------------------
(a) Between the date of this Agreement and the Closing Date, the
Company will and will cause the Subsidiary to, during ordinary business hours
and upon reasonable notice, (i) give Buyer and its accountants, counsel,
environmental consultants, financial advisors and other authorized
representatives (the "Buyer Representatives") reasonable access to all books,
records, plants, offices and other facilities and properties of the Company to
which Buyer is permitted access by law, (ii) permit Buyer to make such
reasonable inspections thereof as Buyer may reasonably request, (iii) cause its
officers and advisors to furnish Buyer with such financial and operating data
and other information with respect to the business and properties of the
Subsidiary and the Company as Buyer may from time to time reasonably request,
(iv) cause its officers and advisors to furnish Buyer a copy of each report,
52
<PAGE>
schedule or other document filed with or received by them from the SEC with
respect to the Subsidiary and the Company; provided, however, that (A) any such
-------- -------
investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the business of the Subsidiary and the
Company, (B) the Subsidiary and the Company shall not be required to take any
action which would constitute a waiver of the attorney-client privilege, and (C)
the Subsidiary and the Company need not supply Buyer with any information which
the Subsidiary or the Company, as the case may be, is under a legal obligation
not to supply.
(b) All information furnished to or obtained by Buyer and the Buyer
Representatives pursuant to this Section 5.3 shall be subject to the provisions
of the Confidentiality Agreement, dated May 10, 1997, between the Company and
Buyer (the "Confidentiality Agreement") and shall be treated as "Information"
(as defined in the Confidentiality Agreement). In the event that this Agreement
shall be terminated without the Closing having occurred, Buyer agrees that for a
period of one year from the date of this Agreement it will not use "Information"
(as defined in the Confidentiality Agreement) to compete with the Company's
franchisees to obtain lease renewals in the malls where the Company's franchised
stores are presently located as of the date of this Agreement.
---------
V.4 Insurance. The Company shall keep, and shall cause the
---------
Subsidiary to keep, all insurance policies set forth on Schedule 3.13, or
replacements
53
<PAGE>
therefor with reputable firms and providing no lesser coverage (in amount or
scope), in full force and effect through the close of business on the Closing
Date.
V.5 WARN Act. To the extent required by law, the Company shall cause
--------
the Subsidiary to timely give any required notices under the WARN Act relating
to any "plant closing" or "mass layoff" (as those terms are defined in WARN)
arising prior to the Closing.
V.6 Expenses. Except as specifically provided in this Agreement,
--------
whether or not the transactions contemplated hereby are consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the party incurring such costs and
expenses. The Company shall be liable for the legal, accounting and
professional fees of the Sellers specified on Schedule 5.6 hereto.
V.7 Further Assurances. Subject to the terms and conditions of this
------------------
Agreement, each of the parties hereto will use all commercially reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the sale of Company Common Stock
pursuant to this Agreement. From time to time after the date hereof, without
further consideration, the Sellers will, at Buyer's expense, execute and deliver
such documents to Buyer as Buyer may reasonably request in order more
effectively to vest in Buyer good title to the
54
<PAGE>
Company Securities. From time to time after the date hereof, without further
consideration, Buyer will, at its own expense, execute and deliver such
documents to the Sellers as the Sellers may reasonably request in order more
effectively to consummate the sale of the Company Securities pursuant to this
Agreement.
V.8 Public Statements. The parties shall consult with each other
-----------------
prior to issuing any public announcement, statement or other disclosure with
respect to this Agreement or the transactions contemplated hereby and shall not
issue any such public announcement, statement or other disclosure prior to such
consultation, except as may be required by law and except that the parties may
make public announcements, statements or other disclosures with respect to this
Agreement and the transactions contemplated hereby to the extent and under the
circumstances in which the parties are expressly permitted by the
Confidentiality Agreement to make disclosures of "Information" (as defined in
the Confidentiality Agreement).
V.9 Consents and Approvals.
----------------------
(a) The Company and Buyer shall cooperate with each other and (i)
promptly prepare and file all necessary documentation, (ii) effect all necessary
applications, notices, petitions and filings and execute all agreements and
documents, (iii) use all commercially reasonable efforts to obtain all necessary
permits, consents, approvals and authorizations of all governmental bodies and
(iv) use all commercially reasonable efforts to obtain all necessary
Environmental Permits, Permits, consents,
55
<PAGE>
approvals and authorizations of all other parties, in the case of each of the
foregoing clauses (i), (ii), (iii) and (iv), necessary or advisable to
consummate the transactions contemplated by this Agreement or required by the
terms of any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, concession, contract, lease or other instrument to which the Company or
Buyer or any of its subsidiaries is a party or by which any of them is bound.
Without limiting the foregoing, the Company shall cooperate with Buyer in
connection with Buyer's efforts to obtain the Financing and to successfully
complete the Senior Note Tender Offer (as hereinafter defined), such cooperation
to include without limitation (i) facilitating due diligence investigations by
potential financing sources, (ii) assuring cooperation by the Company's and the
Subsidiary's independent accountants in any audit of the Company's and the
Subsidiary's, financial statements by Arthur Andersen LLP and providing
customary consents, comfort letters and access to work papers, and (iii)
executing and delivering any required supplemental indenture and other documents
in connection with the Financing and the Senior Note Tender Offer.
(b) The Sellers shall have the right but not the obligation to review
and approve in advance all characterizations of the information relating to the
Subsidiary and the Company, and each of the Sellers and Buyer shall have the
right but not the obligation to review and approve in advance all
characterizations of the information relating to the transactions contemplated
by this Agreement, which
56
<PAGE>
appear in any filing made in connection with the transactions contemplated
hereby or in the Offering Memorandum relating to the Financing. The Sellers and
Buyer agree that they will consult with each other with respect to the obtaining
of all such necessary Environmental Permits, consents, approvals and
authorizations of all third parties and governmental bodies. The Sellers and
Buyer shall designate separate counsel with respect to all applications,
notices, petitions and filings (joint or otherwise), relating to this Agreement
and the transactions contemplated hereby, on behalf of the Sellers, the
Subsidiary or the Company, on the one hand, and Buyer, on the other hand, with
all governmental bodies.
(c) The parties hereto shall consult with each other prior to
proposing or entering into any stipulation or agreement with any Federal, State
or local governmental authority or agency or any third party in connection with
any Federal, State, or local governmental consents and approvals legally
required for the consummation of the transactions contemplated hereby and shall
not propose or enter into any such stipulation or agreement without the other
party's prior written consent, which consent shall not be unreasonably withheld.
V.10 Sales and Transfer Taxes. All securities and other transfer
------------------------
taxes incurred in connection with this Agreement and the transactions
contemplated hereby shall be borne by the Company. Buyer will file all
necessary tax returns and other documentation with respect to all such transfer
taxes, and, if required by applicable
57
<PAGE>
law, the Sellers will join in the execution of any such tax returns or other
documentation, subject to their reasonable prior review thereof and opportunity
to comment thereon.
V.11 Supplemental Information. From time to time prior to the
------------------------
Closing Date and upon becoming aware of any such matter, condition or
occurrence, the Company and the Subsidiary will promptly disclose to Buyer, and
Buyer will promptly disclose to the Company, (i) any material development
affecting the ability of such party to consummate the transactions contemplated
by this Agreement, (ii) any matter, condition, occurrence or knowledge which, if
existing or occurring at the date of this Agreement, would have been required to
be excepted from any representation and warranty contained herein in order for
such representation or warranty to be true and correct on the date hereof or
otherwise set forth or described in the respective Schedule or (iii) any breach
of any covenant or agreement contained in this Agreement of which such party has
knowledge.
V.12 Employees. Buyer agrees that it will cause the Subsidiary to
---------
honor the agreements and arrangements with its employees that are identified in
Schedule 3.16. Notwithstanding the foregoing, it is understood that nothing in
this Agreement shall prohibit or restrict Buyer from terminating the employment
of any of the Subsidiary's employees, changing compensation levels or other
terms and conditions of employment (other than service credit for past
employment with the
58
<PAGE>
Subsidiary) subsequent to the Closing Date, subject to the obligations of Buyer
and the Subsidiary with respect to the items identified on Schedule 3.16.
Nothing in this Section 5.12, express or implied, is intended to confer or shall
confer upon any of the Subsidiary's employees or former employees any rights or
remedies of any nature or kind whatsoever under or by reason of this Agreement,
including, without limitation, any rights of employment.
ARTICLE VI
CLOSING CONDITIONS
------------------
VI.1 Conditions to Each Party's Obligations to Effect the
----------------------------------------------------
Transactions Contemplated Hereby. The respective obligations of each party to
- --------------------------------
effect the transactions contemplated hereby shall be subject to no preliminary
or permanent injunction or other order or decree by any federal or state court
which prevents the consummation of the transactions contemplated hereby having
been issued and remaining in effect (each party agreeing to use its reasonable
best efforts to have any such injunction, order or decree lifted), and no
statute, rule or regulation having been enacted by any Federal, State, or local
governmental agency in the United States which prohibits the consummation of the
transactions contemplated hereby.
VI.2 Conditions to Obligations of Buyer.
----------------------------------
59
<PAGE>
(a) The obligation of Buyer to effect the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Pre-
Closing Date of the following additional conditions:
(i) Buyer shall have entered into the Financing Agreements;
(ii) Buyer shall have received binding and irrevocable tenders
and consents from the holders of not less than 75% of the Subsidiary's
outstanding 10f% Senior Secured Notes due 2001 (the "Senior Notes") to sell
their Senior Notes to Buyer and to consent to such amendments to or waivers
under the Indenture under which the Senior Notes were issued as Buyer
determines are necessary to facilitate the Financing (such tender offer and
consent solicitation, collectively, the "Senior Note Tender Offer");
(iii) Buyer shall received executed Settlement Agreement and
Releases in the form of Annex B hereto from franchisees of the Subsidiary
and related investors accounting for at least 80% of the Subsidiary's
franchisees, excluding for such purposes the franchisees owned or
controlled by any of the Sellers or other significant franchisees that have
already been received;
(iv) the Company shall have provided to Buyer the information
necessary to permit the calculation of any adjustments pursuant to Section
1.2(b);
60
<PAGE>
(v) the Company shall have provided evidence reasonably
satisfactory to Buyer that all of the Warrants have been cancelled
consistent with Section 1.5 and that the Affiliate Arrangements identified
on Schedule 6.2(a)(v) other than the Franchise Agreements for franchisees
in which Mr. Karp is an investor, as amended in accordance with Annex B
hereto, have been terminated effective not later than the Closing Date with
no additional amounts payable thereunder by the Company or the Subsidiary;
and
(vi) the Company and the Sellers shall have performed and
complied with in all material respects the covenants and agreements
contained in this Agreement required to be performed and complied with by
it or them at or prior to the Closing Date, the representations and
warranties of the Company and the Sellers set forth in this Agreement shall
be true and correct in all material respects as of the date of this
Agreement and as of the Pre-Closing Date as though made at and as of the
Pre-Closing Date, there shall not have occurred and be continuing a
Material Adverse Effect, and Buyer shall have received a certificate to the
foregoing effect signed by an authorized officer of the Company.
(b) The obligation of Buyer to effect the transactions contemplated
by this Agreement shall be subject to the fulfillment at or prior to the Closing
Date of the following additional conditions:
61
<PAGE>
(i) the delivery to it of the Escrowed Seller Documents and the
Escrowed Company Documents; and
(ii) the Company and the Sellers shall have performed and complied
with in all material respects the covenants and agreements contained in this
Agreement required to be performed and complied with by it or them at or prior
to the Closing Date.
VI.3 Conditions to Obligations of the Sellers.
----------------------------------------
The obligation of the Sellers to effect the transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Pre-Closing
Date of the following additional conditions:
(a) Buyer shall have performed in all material respects its
covenants and agreements contained in this Agreement required to be performed at
or prior to the Pre-Closing Date; and
(b) the representations and warranties of Buyer set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made at and as of the
Closing Date, and the Company and the Sellers the Sellers shall have received a
certificate to that effect signed by an authorized officer of Buyer.
ARTICLE VII
62
<PAGE>
TERMINATION AND ABANDONMENT
---------------------------
VII.1 Termination.
-----------
(a This Agreement may be terminated at any time prior to the Closing
Date, by mutual written consent of Buyer, the Company and the Sellers.
(b This Agreement may be terminated by the Company, Buyer or the
Sellers if the transactions contemplated hereby shall not have been consummated
on or before August 24, 1998; provided that the right to terminate this
--------
Agreement under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing Date to occur on or before such date.
(c This Agreement may be terminated by either the Company or Buyer
if any court of competent jurisdiction in the United States or any State shall
have issued an order, judgment or decree permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby and such order,
judgment or decree shall have become final and nonappealable.
(d This Agreement may be terminated by Buyer if there has been a
material violation or breach by the Company or the Sellers of any agreement,
representation or warranty contained in this Agreement which has rendered the
satisfaction of any condition to the obligations of Buyer impossible and such
violation or breach has not been waived by Buyer.
63
<PAGE>
(e This Agreement may be terminated by the Company or the Sellers if
there has been a material violation or breach by Buyer of any agreement,
representation or warranty contained in this Agreement which has rendered the
satisfaction of any condition to the obligations of the Sellers impossible and
such violation or breach has not been waived by the Sellers.
VII.2 Procedure and Effect of Termination. In the event of
-----------------------------------
termination of this Agreement and abandonment of the transactions contemplated
hereby by either or both of the parties pursuant to Section 7.1, written notice
thereof shall forthwith be given by the terminating party to the other party and
this Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a none of the parties hereto nor any of their respective
directors, officers or affiliates, as the case may be, shall have any
liability or further obligation to the other party or any of their
respective directors, officers or affiliates, as the case may be, pursuant
to this Agreement, except for liability for any breach of this Agreement
and except in each case as stated in this Section 7.2 and in Sections
5.3(b), 5.6 and 5.8; provided, that the sole recourse of Buyer with respect
--------
to any such liability arising out of this Section 7.2(a) shall be to assert
a claim against the Company (which shall be
64
<PAGE>
responsible for any breaches by the Company or by the Sellers) and not the
Sellers; and
(b all filings, applications and other submissions made
pursuant to this Agreement, to the extent practicable, shall be withdrawn
from the agency or other person to which they were made.
ARTICLE VIII
INDEMNIFICATION
---------------
VIII.1 Coverage. Each of the Sellers, severally, but not jointly,
--------
shall indemnify, defend and hold harmless Buyer from all damages, liabilities,
losses, costs, expenses (including all reasonable fees), claim or cause of
action ("Losses") arising out of or resulting from, or shall pay or become
obligated to pay any sum on account of, any breach of representation and
warranty as to such Seller in Section 3.25.
VIII.2 Limitation of Liability. Any Seller's liability with respect
-----------------------
to indemnification in Section 8.1 shall be limited to that portion of the cash
purchase price received for Company Securities sold by such Seller.
ARTICLE IX
MISCELLANEOUS PROVISIONS
------------------------
IX.1 Amendment and Modification. Subject to applicable law, this
--------------------------
65
<PAGE>
Agreement may be amended, modified or supplemented only by written agreement of
the Company, the Sellers and Buyer.
IX.2 Waiver of Compliance; Consents. Except as otherwise provided in
------------------------------
this Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
IX.3 No Survival of Representations and Warranties. Each and every
---------------------------------------------
representation and warranty contained in this Agreement and each and every
covenant contained in this Agreement (other than the covenants in Section
5.3(b), 5.6, 5.8 and 5.12 and the representations and warranties in Section
3.25) shall expire with, and be terminated and extinguished by, (i) the
consummation of the sale of the Company Securities pursuant to this Agreement
and shall not survive the Closing Date, or (ii) the termination of this
Agreement pursuant to Section 7.1 or otherwise.
IX.4 Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed given if delivered personally or by facsimile
transmission or mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses or
facsimile numbers (or at
66
<PAGE>
such other address or facsimile number for a party as shall be specified by like
notice; provided that notices of a change of address shall be effective only
--------
upon receipt thereof):
(a If to Buyer, to:
Mrs. Fields' Original Cookies, Inc.
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
facsimile no.: (801) 736-5943
Attention: Mr. Larry A. Hodges
with copies to:
Mrs. Fields' Original Cookies, Inc.
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
facsimile no.: (801) 736-5943
Attention: Legal Department
Capricorn Management, G.P.
30 East Elm Street
Greenwich, Connecticut 06830
facsimile no.: (203) 861-6671
Attention: Mr. Herbert S. Winokur, Jr.
and
Skadden, Arps, Slate, Meagher
& Flom LLP
919 Third Avenue
New York, New York 10022
facsimile no.: (212) 735-2000
Attention: Randall H. Doud, Esq.
67
<PAGE>
(b if to the Company or the Sellers, to:
Cookies USA, Inc.
c/o The Jordan Company
9 West 57th Street, Suite 4000
New York, New York 10019
facsimile no.: (212) 755-5263
Attention: Mr. Adam Max
with copies to:
Mayer Brown & Platt
1675 Broadway
New York, New York 10019-5820
facsimile no.: (212) 262-1910
Attention: Martin J. Collins, Esq., and
Michael Coles
2450 Kirk Lane
Kennesaw, Georgia 30144, and
Arthur S. Karp
7902 Sanderling Road
Sarasota, Florida 34242
IX.5 Assignment. This Agreement and all of the provisions hereof
----------
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but, except to the extent
specifically provided in Section 1.1, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party
hereto, including by operation of law, without the prior written consent of the
other party, nor is this Agreement
68
<PAGE>
intended to confer upon any other person except the parties hereto any rights or
remedies hereunder.
IX.6 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York (regardless of
the laws that might otherwise govern under applicable New York principles of
conflicts of law) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
IX.7 Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IX.8 Interpretation. The article and section headings contained in
--------------
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. All references to Schedules are to the
Disclosure Schedule delivered by the Company to Buyer as of the date of this
Agreement, as they may be amended pursuant to Section 5.11 subject to Buyer's
rights under Section 7.1(d). As used in this Agreement, the term "person" shall
mean and include an individual, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a governmental entity or any
department or agency thereof. As used in this Agree-
69
<PAGE>
ment, the term "Permitted Exceptions" shall mean and include (i) those
exceptions to title to the properties and assets of the Company listed in
Schedule 3.11; (ii) all exceptions, restrictions, easements, rights of way and
encumbrances set forth in title reports or title insurance binders which have
been made available to Buyer; (iii) mortgages, liens, pledges, charges,
encumbrances and restrictions which secure debt that is reflected as a liability
on the Company Balance Sheet or which are otherwise reflected in the Company
Balance Sheet or disclosed in the notes thereto; (iv) mortgages, liens, pledges,
charges, encumbrances and restrictions incurred in connection with the Company's
purchase of properties and assets after the date of the Company Balance Sheet
securing all or a portion of the purchase price therefor; (v) statutory liens
for current taxes or assessments not yet due or delinquent or the validity of
which is being contested in good faith by appropriate proceedings; (vi)
mechanics', carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations as to which
there is no default on the part of the Company; (vii) zoning, entitlement and
other land use and environmental regulations by governmental authorities and
(viii) such other liens, imperfections in title, charges, easements,
restrictions and encumbrances which do not materially detract from the value of
or materially interfere with the present use of any property subject thereto or
affected thereby that is material to the business, operations or financial
condition of the Company or which relate to properties that are not mate-
70
<PAGE>
rial to the Company and do not, in the aggregate have a Material Adverse Effect.
As used in this Agreement, the term "subsidiary" when used in reference to any
other person shall mean any corporation of which outstanding securities having
ordinary voting power to elect a majority of the Board of Directors of such
corporation are owned directly or indirectly by such other person.
IX.9 Entire Agreement. This Agreement, including the documents,
----------------
Schedules, certificates and instruments referred to herein, and the
Confidentiality Agreement embody the entire agreement and understanding of the
parties hereto in respect of the transactions contemplated by this Agreement.
There are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein or
therein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such transactions other than the
Confidentiality Agreement.
71
<PAGE>
IN WITNESS WHEREOF, the Company, the Sellers and Buyer have caused
this agreement to be signed by their respective duly authorized officers as of
the date first above written.
MRS. FIELDS' ORIGINAL COOKIES,
INC.
By /s/Larry A. Hodges
-------------------
Name: Larry A. Hodges
Title: CEO
COOKIES USA, INC.
By /s/Adam E. Max
Name: Adam E. Max
Title: VP
THE SELLERS:
LEUCADIA INVESTORS, INC.
By /s/Joseph A. Orlardo
Name: Joseph A. Orlardo
Title: Vice President
JOHN W. JORDAN, II REVOCABLE TRUST
By /s/John W. Jordan
Name: John W. Jordan
Title:
72
<PAGE>
UNIVERSITY OF NOTRE DAME/THE JOHN
W. JORDAN II FUND
By: /s/E. William Beauchamze
Name: E. William Beauchamze
Title: EVP
/s/David W. Zalaznick
---------------------
David W. Zalaznick
/s/Johnathan F. Boucher
-----------------------
Jonathan F. Boucher
/s/John R. Lowden
-----------------
John R. Lowden
DELEWARE CHARTER GUARANTEE & TRUST
CO. F/B/O JOHN R. LOWDEN
By:/s/John R. Lowden
Name: John R. Lowden
Title: Trustee
/s/Adam E. Max
--------------
Adam E. Max
/s/John M. Camp
---------------
John M. Camp
JOHN M. CAMP III, PROFIT SHARING PLAN, 1/1/88,
JOHN M. CAMP III, TRUSTEE
By /s/John M. Camp
Name: John M. Camp
Title: Trustee
/s/A. Richard Caputo, Jr.
------------------------
A. Richard Caputo, Jr.
73
<PAGE>
JAMES E. JORDAN, JR. PROFIT SHARING PLAN & TRUST
By /s/James E. Jordan, Jr.
Name: James E. Jordan, Jr.
Title: Trustee
PAUL RODZEVIK PROFIT SHARING PLAN & TRUST
By /s/Paul Rodzevik
Name: Paul Rodzedvik
Title: Trustee
/s/Thomas H. Quinn
------------------
Thomas H. Quinn
JII PARTNERS
By /s/Thomas H. Quinn
Name: Thomas H. Quinn
Title:
MCIT (EXISTING POOL) LIMITED
By /s/James E. Jordan
Name: James E. Jordan
Title: Director
74
<PAGE>
COOKIES USA PARTNERS, L.P.
By Jefferies & Company, Inc. Its General Partner
By /s/Jerry M. Gluck
Name: Jerry M. Gluck
Title: Executive Vice President
/s/Michael J. Coles
-------------------
Michael J. Coles
/s/Arthur S. Karp
-----------------
Arthur S. Karp
GEORGIA COOKIES, INC.
By /s/Arthur S. Karp
Name: Arthur S. Karp
Title: President
THE ARTHUR S. KARP FAMILY FOUNDATION, INC.
By /s/Arthur S. Karp
Name: Arthur S. Karp
Title: Chair
75
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
MRS. FIELDS' HOLDING COMPANY, INC.
--------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
--------------------------------------------
Mrs Fields' Holding Company, Inc., a Delaware corporation
(hereinafter called the "Corporation"), does hereby certify as follows:
FIRST: Article FOURTH of the Corporation's Restated Certificate of
-----
Incorporation is hereby amended to read in its entirety as set forth below:
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 5,000,000 shares of Common Stock, par value
$0.001 per share.
SECOND: The foregoing amendment was duly adopted in accordance with
------
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed in its corporate name this 24/th/ day of August, 1998.
MRS. FIELDS' HOLDING COMPANY, INC.
By: /s/ Herbert S. Winokur, Jr.
----------------------------------
Name: Herbert S. Winokur, Jr.
Title: Chairman
<PAGE>
CERTIFICATE OF CHANGE OF REGISTERED AGENT
AND
REGISTERED OFFICE
* * * * *
Mrs. Fields' Holding Company, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
The present registered agent of the corporation is The Prentice-Hall
Corporation System, Inc. and the present registered office of the corporation is
in the county of New Castle.
The Board of Directors of Mrs. Fields' Holding Company, Inc. adopted the
following resolution on the 15 day of January, 1997.
Resolved, that the registered office of Mrs Fields' Holding Company, Inc.
in the state of Delaware be and it hereby is changed to Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, and
the authorization of the present registered agent of this corporation be and the
same is hereby withdrawn, and THE CORPORATION TRUST COMPANY, shall be and is
hereby constituted and appointed the registered agent of this corporation at the
address of its registered office.
IN WITNESS WHEREOF, Mrs. Fields' Holding Company, Inc. has caused this statement
to be signed by Larry A. Hodges, its President this 15 day of January, 1997.
By /s/ Larry A. Hodges
----------------------
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
MRS. FIELDS' HOLDING COMPANY, INC.
________________________________________________
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
________________________________________________
Mrs. Fields' Holding Company, Inc., a Delaware corporation
(hereinafter called the "Corporation"), does hereby certify as follows:
FIRST: Article FOURTH of the Corporation's Certificate of
-----
Incorporation is hereby amended to read in its entirety as set forth below:
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 5,000,000 shares of Common Stock, par value
$.01 per share.
SECOND: The foregoing amendment was duly adopted in accordance with
------
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed in its corporate name this 3rd day of June, 1998.
MRS. FIELDS' HOLDING COMPANY, INC.
By: /s/ Herbert S. Winokur
--------------------------------
Name: Herbert S. Winokur, Jr.
Title: Chairman of the Board
<PAGE>
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"corporation") is
Mrs. Fields' Holding Company, Inc.
2. The registered office of the corporation within the State of
Delaware is hereby changed to 1013 Centre Road, City of Wilmington 19805, County
of New Castle.
3. The registered agent of the corporation within the State of
Delaware is hereby changed to Corporation Service Company, the business office
of which is identical with the registered office of the corporation as hereby
changed.
4. The corporation has authorized the changes hereinbefore set forth
by resolution of its Board of Directors.
Signed on 7/21, 1998.
/s/ Michael Ward
------------------------------
Michael Ward, Vice President
<PAGE>
CERTIFICATE OF INCORPORATION
OF
MRS FIELDS' HOLDING COMPANY, INC.
FIRST: The name of the Corporation is Mrs. Fields' Holding Company,
-----
Inc. (hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of its registered agent at that address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware
Code (the "GCL").
FOURTH: The total number of shares of stock which the Corporation
------
shall have authority to issue is 1,000 shares of Common Stock, each having a par
value of one dollar ($1.00).
FIFTH: The name and mailing address of the Sole Incorporator is as
-----
follows:
Deborah M. Reusch
P.O. Box 636
Wilmington, DE 19899
SIXTH: The following provisions are inserted for the management of
-----
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the
stockholders to make, alter,
<PAGE>
amend, change, add to or repeal the By-Laws of the Corporation.
(3) The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided in, the By-Laws
of the Corporation. Election of directors need not be by written
ballot unless the By-Laws so provide.
(4) No director shall be personally liable to the Corporation
or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or modification of this Article SIXTH
by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the
time of such repeal or modification with respect to acts or omissions
occurring prior to such repeal or modification.
(5) In addition to the powers and authority hereinbefore or
by statute expressly conferred upon them, the directors are hereby
empowered to exercise all such powers and do all such acts and things
as may be exercised or done by the Corporation, subject, nevertheless,
to the provisions of the GCL, this Certificate of Incorporation, and
any By-Laws adopted by the stockholders; provided, however, that no
By-Laws hereafter adopted by the stockholders shall invalidate any
prior act of the directors which would have been valid if such By-Laws
had not been adopted.
SEVENTH: Meetings of stockholders may be held within or without
-------
the State of Delaware, as the By-Laws
2
<PAGE>
may provide. The books of the Corporation may be kept (subject to any
provision contained in the GCL) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors
or in the By-Laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter, change or
------
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the GCL, do make this
Certificate, hereby declaring and certifying that this is my act and deed
and the facts herein stated are true, and accordingly have hereunto set my
hand this 31st day of July, 1996.
/s/ Deborah M. Reusch
-----------------------
Deborah M. Reusch
Sole Incorporator
3
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
MRS. FIELDS' HOLDING COMPANY, INC.
(Pursuant to Sections 241 and 245 of the
Delaware General Corporation Law)
Mrs. Fields' Holding Company, Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify as follows:
1. The Corporation's present name is Mrs. Fields' Holding Company,
Inc.
2. The date of filing of its original Certificate of Incorporation
with the Secretary of State was July 31, 1996.
3. The text of the Certificate of Incorporation, as heretofore
amended and supplemented, is hereby amended and restated to read in full as set
forth below in this paragraph 3:
FIRST: The name of the Corporation is Mrs. Fields' Holding Company,
-----
Inc. (hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in
------
the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Prentice-
Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware
Code (the "GCL").
FOURTH: The total number of shares of stock which the Corporation
------
shall have authority to issue is 1,200 shares, of which 1,000 shares shall be
Common Stock, par value $.01 per share, and 200 shares shall be
<PAGE>
Preferred Stock, par value $.01 per share (the "Preferred Stock").
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes
or series, and to fix for each such class or series such voting powers,
full or limited, or no voting powers, and such distinctive designations,
preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions adopted by the Board
of Directors providing for the issuance of such class or series and as may
be permitted by the GCL, including, without limitation, the authority to
provide that any such class or series may be (i) subject to redemption at
such time or times and at such price or prices; (ii) entitled to receive
dividends (which may be cumulative or non-cumulative) at such rates, on
such conditions, and at such times, and payable in preference to, or in
such relation to, the dividends payable on any other class or classes or
any other series; (iii) entitled to such rights upon the dissolution of, or
upon any distribution of the assets of, the Corporation; or (iv)
convertible into, or exchangeable for, shares of any other class or classes
of stock, or of any other series of the same or any other class or classes
of stock, of the Corporation at such price or prices or at such rates of
exchange and with such adjustments; all as may be stated in such resolution
or resolutions.
FIFTH: The name and mailing address of the Sole Incorporator
-----
is as follows:
Deborah M. Reusch
P.O. Box 636
Wilmington, DE 19899
SIXTH: The following provisions are inserted for the
-----
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
2
<PAGE>
(2) The directors shall have concurrent power with the stockholders
to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation.
(3) The number of directors of the Corporation shall be as from time
to time fixed by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot unless the
By-Laws so provide.
(4) No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived
an improper personal benefit. Any repeal or modification of this Article
SIXTH by the stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time
of such repeal or modification with respect to acts or omissions occurring
prior to such repeal or modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the GCL, this Certificate of Incorporation, and any By-Laws
adopted by the stockholders; provided, however, that no By-Laws hereafter
adopted by the stockholders shall invalidate any prior act of the directors
which would have been valid if such By-Laws had not been adopted.
3
<PAGE>
SEVENTH: Meetings of stockholders may be held within or without the
-------
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter, change
------
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
4. This Restated Certificate of Incorporation was duly adopted in
accordance with Sections 241 and 245 of the Delaware General Corporation Law.
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the GCL, do make this
Certificate, hereby declaring and certifying that this is my act and deed and
the facts herein stated are true, and accordingly have hereunto set my hand this
7/th/ day of August, 1996.
/s/ Deborah M. Reusch
----------------------------------
Deborah M. Reusch
Sole Incorporator
4
<PAGE>
Certificate of Designations
OF THE
SERIES A
10% CUMULATIVE
ACCRUING PREFERRED STOCK
OF
MRS. FIELDS' HOLDING COMPANY, INC.
____________________________________________
Pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware
____________________________________________
MRS. FIELDS' HOLDING COMPANY, INC. (the "Company"), a company
organized and existing under and by virtue of the provisions of the General
Corporation Law of the State of Delaware (the "DGCL"), certifies as follows:
FIRST: The Company was incorporated in the State of Delaware on July
31, 1996;
SECOND: The Restated Certificate of Incorporation of the Company (the
"Certificate of Incorporation") filed with the Secretary of the State of
Delaware on August 7, 1996, authorizes the issuance of 200 shares of preferred
stock, par value $.01 per share, and, further, authorizes the Board of Directors
of the Company (the "Board of Directors"), by resolution or resolutions, at any
time and from time to time, to divide and establish any or all of the unissued
shares of preferred stock into one or more classes or series, and without
limiting the generality of the foregoing, to fix and determine the designation
of each such class or series, the number of shares which shall constitute such
class or series and certain relative rights and preferences of the shares of
each class or series so established.
<PAGE>
THIRD: The Board of Directors pursuant to authority conferred upon
the Board of Directors under the Certificate of Incorporation and by written
consent on September 17, 1996 did duly adopt the following resolutions
authorizing the issuance of a series of the Company's preferred stock, par value
$.01 per share, and setting forth terms and provisions of said preferred stock:
RESOLVED, that the Board of Directors, pursuant to authority
vested in it by the provisions of the Certificate of
Incorporation, hereby authorizes the creation and issuance of a
series of the Company's preferred stock, par value $.01 per
share, which shall consist of up to 100 shares of the 200 shares
of preferred stock that the Company now has authority to issue,
and hereby fixes the powers, designation, dividend rate,
redemption provisions, voting powers, rights on liquidation or
dissolution, and other preferences and relative participating,
optional or other rights, and the qualifications, limitations or
restrictions thereof (in addition to those set forth in said
Certificate of Incorporation) as follows:
1. Designation. The preferred stock of the Company created and
-----------
authorized for issuance hereby shall be designated as "Series A 10% Cumulative
Accruing Preferred Stock" (the "Preferred Stock"). The Preferred Stock will
consist of 100 shares of such Preferred Stock.
2. Priority. The Preferred Stock shall, with respect to dividend
--------
rights and rights on liquidation, winding up or dissolution, whether voluntary
or involuntary, whether now or hereafter issued, rank (i) on a parity with any
other series of preferred stock established hereafter by the Board of Directors,
the terms of which shall specifically provide that such series shall rank on
parity with the Preferred Stock with respect to dividend rights and rights on
liquidation, winding up or dissolution, (all of such series of preferred stock
to which the Preferred Stock ranks on a parity are at all times collectively
referred to as "Parity Securities"), (ii) junior to any series of preferred
stock established by the Board of Directors, the terms of which shall
specifically provide that such series shall rank senior to the Preferred Stock
with respect to dividend rights and rights on liquidation,
2
<PAGE>
winding up or dissolution (all of such series of preferred stock to which
the Preferred Stock ranks junior are at times collectively referred to herein as
the "Senior Securities"), and (iii) senior to the Company's Common Stock, $.01
par value per share (the "Common Stock"), and, subject to clauses (i) and (ii)
hereof, any other equity securities of the Company, with respect to dividend
rights and rights on liquidation, winding up or dissolution (all of such equity
securities of the Company to which the Preferred Stock ranks senior, including
the Common Stock, are at times collectively referred to herein as the "Junior
Securities"). Notwithstanding the foregoing, the Company shall not establish,
create, authorize or issue any shares of Parity Securities (other than
additional series of Preferred Stock) or Senior Securities without the prior
written consent of a majority of the holders of the Preferred Stock.
3. Dividends.
---------
(a) Holders of shares of Preferred Stock shall be entitled to
receive, out of funds legally available for the payment of dividends ("Legally
Available Funds"), cumulative dividends for each share of Preferred Stock in an
amount equal to the annual rate of 10% (or $3,500 per share per year) accruable
on a daily basis from September 19, 1996 (the "Issuance Date"). All accrued but
unpaid dividends shall be compounded quarterly on each March 15, June 15,
September 15 and December 15, commencing on December 15, 1996, at a rate equal
to an annual rate of 10%. The Board of Directors shall declare and pay such
accrued dividends at such time as contemplated by section 5 hereof (a "Dividend
Payment Date") to the extent permitted by law and the Company's debt instruments
and related agreements from time to time outstanding (the "Debt Instruments")
subject to the provisions of section 3(c) hereof. Such dividends shall be paid
to the holders of record at the close of business on the date specified by the
Board of Directors of the Company at the time such dividend is declared;
provided, however, that such declaration date shall not be more than 60 days nor
- -------- -------
less than 10 days prior to the respective Dividend Payment Date.
(b) All dividends paid with respect to shares of the Preferred
Stock pursuant to section 3(a) shall be paid pro rata to the holders entitled
--- ----
thereto.
3
<PAGE>
(c) Notwithstanding anything contained herein to the contrary, no
cash dividends on shares of Preferred Stock shall be declared by the Board of
Directors or paid or set apart for payment by the Company at such time as the
terms and provisions of the Notes specifically prohibit such declaration,
payment or setting apart for payment or provide that such declaration, payment
or setting apart for payment would (or, with notice or lapse of time or both,
would) constitute a breach thereof or a default thereunder.
(d) If at any time the Company shall have failed to pay all dividends
which have accrued on any outstanding shares of Senior Securities or any Parity
Securities at the times such dividends are payable, unless otherwise provided in
the terms of the Senior Securities or the Parity Securities, no cash or stock
dividend shall be declared by the Board of Directors or paid or set apart for
payment by the Company on shares of Preferred Stock unless prior to or
concurrently with such declaration, payment or setting apart for payment, all
accrued and unpaid dividends on all outstanding shares of such Senior Securities
and Parity Securities shall have been declared, paid or set apart for payment,
without interest; provided, however, that in the event such failure to pay
-------- -------
accrued dividends is with respect only to the outstanding shares of Preferred
Stock and any outstanding shares of any Parity Securities, cash or stock
dividends may be declared, paid or set apart for payment, without interest, pro
---
rata on shares of Preferred Stock and shares of such other series of Preferred
- ----
Stock so that the amounts of any dividends declared, paid or set apart for
payment (whether in cash or additional securities) on shares of Preferred Stock
and shares of such other series of preferred stock shall in all cases bear to
each other the same ratio that, at the time of such declaration, payment or
setting apart for payment, the amounts of all accrued but unpaid dividends on
shares of the Preferred Stock and shares of Parity Securities bear to each
other. Any dividend not paid pursuant to section 3(a) hereof or this section
3(d) shall be fully cumulative and shall accrue (whether or not declared),
without interest, as set forth in section 3(a) hereof, even if such dividend is
not paid pursuant to section 3(c).
(e) Holders of shares of Preferred Stock shall be entitled to receive
the dividends provided for in
4
<PAGE>
section 3(a) hereof in preference to and in priority over any dividends upon any
of the Junior Securities.
4. Liquidation Preference.
----------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of shares
of Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Company available for distribution to its stockholders an amount
in cash equal to $35,000 for each share outstanding, plus an amount in cash
equal to all accrued but unpaid dividends thereon to the date fixed for
liquidation, before any payment shall be made or any assets distributed to the
holders of any of the Junior Securities; provided, however, that the holders of
-------- -------
outstanding shares of Preferred Stock shall not be entitled to receive such
liquidation payment until the liquidation payments on all outstanding shares of
Senior Securities shall have been paid in full. No full preferential payment on
account of any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, shall be made to the holders of any class of Parity
Securities unless there shall likewise be paid at the same time to holders of
Preferred Stock the full amounts to which such holders are entitled with respect
to such distribution. If the assets of the Company are not sufficient to pay in
full the liquidation payments payable to the holders of outstanding shares of
Preferred Stock and outstanding shares of Parity Securities, then the holders of
all such shares shall share ratably in such distribution of assets in accordance
with the full respective preferential amounts that would be payable on such
shares of Preferred Stock and such shares of Parity Securities if all amounts
payable thereon were paid in full.
(b) For the purposes of this section 4, (x) the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company or (y) the consolidation or merger of the Company with one or more other
companies or entities shall not be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary.
5
<PAGE>
5. Redemption.
----------
(a) Mandatory Redemption. (i) To the extent permitted by law and
--------------------
subject to the prior or simultaneous prepayment in full of the Debt
Instruments, as a mandatory redemption for the retirement of the shares of
Preferred Stock, the Company shall redeem, out of Legally Available Funds (if
such shares remain outstanding) on September 18, 2003 (the "Mandatory Redemption
Date"), all remaining shares of Preferred Stock then outstanding, at the
redemption price of $35,000 for each share outstanding, plus an amount in cash
equal to all accrued but unpaid dividends thereon to the Mandatory Redemption
Date. Immediately prior to authorizing or making such redemption with respect to
the Preferred Stock, the Company, by resolution of its Board of Directors shall,
to the extent of any Legally Available Funds, declare a dividend on the
Preferred Stock payable on the Mandatory Redemption Date in an amount equal to
any accrued and unpaid dividends on the Preferred Stock as of such date and, if
the Company does not have sufficient Legally Available Funds to declare and pay
all dividends accrued at the time of such redemption, any remaining accrued and
unpaid dividends shall be added to the redemption price. If the Company shall
fail to discharge its obligation to redeem all of the outstanding shares of
Preferred Stock required to be redeemed pursuant to this section 5 (a) (the
"Mandatory Redemption Obligation"), the Mandatory Redemption Obligation shall be
discharged as soon as the Company is able to discharge such Mandatory Redemption
Obligation. If and so long as the Mandatory Redemption Obligation shall not be
fully discharged, (x) dividends on the Preferred Stock shall continue to accrue
and be added to the dividend payable pursuant to the second preceding sentence
and (y) the Company shall not declare or pay any dividend or make any
distribution on its securities not otherwise permitted by this certificate.
(b) Optional Redemption. To the extent permitted by law and subject to
-------------------
the prior or simultaneous prepayment in full of the Debt Instruments, the
Preferred Stock shall be redeemable at any time, or from time to time, in whole
or in part, out of Legally Available Funds, at the option of the Company, (an
"Optional Redemption Date"). Optional redemptions shall be made, upon giving
notice as provided in section 5 (c) hereof, at the redemption price of $35,000
for each share outstanding, plus an
6
<PAGE>
amount in cash equal to all accrued but unpaid dividends thereon to the Optional
Redemption Date. Immediately prior to authorizing or making any such redemption
with respect to the Preferred Stock, and as a condition precedent to the Company
so redeeming at its option, in whole or in part, shares of the Preferred Stock,
the Company, by resolution of its Board of Directors shall, to the extent of any
Legally Available Funds, declare a dividend on the Preferred Stock payable on
the Optional Redemption Date in an amount equal to any accrued and unpaid
dividends on the Preferred Stock as of such date and if the Company does not
have sufficient Legally Available Funds to declare and pay all dividends accrued
to the Optional Redemption Date, any remaining accrued and unpaid dividends
shall be added to the redemption price.
(c) Notice of Redemption. For the purposes of this section 5(c),
--------------------
a Mandatory Redemption Date and an Optional Redemption Date are hereinafter
collectively referred to as a "Redemption Date"). In the event the Company shall
redeem shares of Preferred Stock pursuant to section 5(a) or 5(b) hereof, a
notice of such redemption shall be given by first-class mail, postage prepaid,
mailed prior to the Redemption Date, to each holder of record of the shares to
be redeemed, at such holder's address as the same appears on the stock books of
the Company. Notice having been mailed as aforesaid, on and after the Redemption
Date, unless the Company shall be in default in providing money for the payment
of the redemption price (including an amount equal to any accrued and unpaid
dividends up to and including the Redemption Date), (x) dividends on the shares
of the Preferred Stock so called for redemption shall cease to accrue, (y) said
shares shall be deemed no longer outstanding, and (z) all rights of the holders
thereof as stockholders of the Company (except the right to receive from the
Company the monies payable upon redemption, without interest thereon, upon
surrender of the certificates evidencing such shares), shall cease.
Upon surrender of the certificates for any such shares so redeemed
(properly endorsed or assigned for transfer, if the Board of Directors shall so
require), such shares shall be redeemed by the Company at the applicable
redemption price aforesaid. If fewer than all the outstanding shares of
Preferred Stock are to be redeemed, shares to be redeemed shall be selected by
the Company from outstanding shares of Preferred Stock not previously called
7
<PAGE>
for redemption by lot or pro rata or by any other equitable method determined by
the Board of Directors in its sole discretion. If fewer than all the shares
represented by any certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
(d) The election by the Company to redeem shares of Preferred
Stock pursuant to this section 5 hereof shall become irrevocable only on the
relevant Optional Redemption Date.
6. Voting Rights. Except as required by law, holders of Preferred
-------------
Stock shall have no voting rights.
7. Limitation and Rights Upon Insolvency. Notwithstanding any other
-------------------------------------
provision of this Certificate of Designations, the Company shall not be required
to pay any dividend on, or to pay any amount in respect of any redemption of,
the Preferred Stock at a time when immediately after making such payment the
Company is or would be rendered insolvent (as defined by applicable law),
provided that the obligation of the Company to make any such payment shall not
be extinguished in the event the foregoing limitation applies.
8. Limitations under the Notes. Notwithstanding any other provision
---------------------------
of this Certificate of Designations, the Company shall not be required to pay
any dividend on, or to pay any amount in respect of any redemption of, the
Preferred Stock if upon, or after, making such payment the Company would, or
with the passage of time, or the giving of notice, or both, would be in default
under the terms of the Debt Instruments, provided that the obligation of the
Company to make any such payment shall not be extinguished in the event the
foregoing limitation applies.
9. Shares to Be Retired. Any share of Preferred Stock redeemed or
--------------------
otherwise acquired by the Company shall be retired and cancelled and shall upon
cancellation be restored to the status of authorized but unissued shares of
preferred stock, subject to reissuance by the Board of Directors as Preferred
Stock or shares of preferred stock of one or more other series.
8
<PAGE>
10. Record Holders. The Company may deem and treat the record holder
--------------
of any shares of Preferred Stock as the true and lawful owner thereof for all
purposes, and the Company shall not be affected by any notice to the contrary.
11. Notice. Except as may otherwise be provided for herein, all notices
------
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon, the earlier of receipt of such notice or three
Business Days after the mailing of such notice if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms of this Certificate of Designations) with postage prepaid, addressed:
if to the Company, to its offices at 462 West Bearcat Drive, Salt Lake City,
Utah 84115 (Attention: President) or to an agent of the Company designated as
permitted by the Certificate of Incorporation or, if to any holder of the
Preferred Stock, to such holder at the address of such holder of the Preferred
Stock as listed in the stock record books of the Company; or to such other
address as the Company or holder, as the case may be, shall have designated by
notice similarly given. "Business Day" shall mean the a date that is not a
Saturday, Sunday or legal holiday or which banks in the State of New York are
permitted to be closed.
9
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations has been duly
executed this 18/th/ day of September, 1996.
MRS. FIELDS' HOLDING COMPANY, INC.
BY:/s/ Herbert S. Winokur
-------------------------------
Name: Herbert S. Winokur, Jr.
Title: President
<PAGE>
Corrected
Certificate of Designations
OF THE
SERIES A
10% CUMULATIVE
ACCRUING PREFERRED STOCK
OF
MRS. FIELDS' HOLDING COMPANY, INC.
-----------------------------------------
Pursuant to Section 103(f) of the General
Corporation Law of the State of Delaware
-----------------------------------------
MRS. FIELDS' HOLDING COMPANY, INC. (the "Company"), a company organized and
existing under and by virtue of the provisions of the General Corporation Law of
the State of Delaware (the "DGCL"), certifies as follows:
FIRST: On September 19, 1996, the Company filed with the Secretary of State
a Certificate of Designations of Series A 10% Cumulative Accruing Preferred
Stock (the "Certificate of Designations").
SECOND: A reference to "$23,843" (in place of "$3,500") in the sixth line
of Section 3(a) of the Certificate of Designations was omitted.
THIRD: A reference to "Debt Instruments" (in place of "Notes") in the fifth
line of Section 3(c) of the Certificate of Designations was omitted.
FOURTH: A reference to "$238,430" (in place of "$35,000") in the sixth line
of Section 4(a) of the Certificate of Designations was omitted.
<PAGE>
FIFTH: A reference to "19" (in place of "18") in the seventh line of
Section 5(a) of the Certificate of Designations was omitted.
SIXTH: A reference to "$238,430" (in place of "$35,000") in the ninth line
of Section 5(a) of the Certificate of Designations was omitted.
SEVENTH: A reference to "$238,430" (in place of "$35,000") in the ninth
line of Section 5(b) of the Certificate of Designations was omitted.
EIGHTH: A reference to "Debt Instruments" (in place of "Notes") in the
title of Section 8 of the Certificate of Designations was omitted.
NINTH: The foregoing corrections were prepared in accordance with the
provisions of Section 103(f) of the General Corporation Law of the State of
Delaware.
TENTH: Set forth below is the text of the Corrected Certificate of
Designations:
FIRST: The Company was incorporated in the State of Delaware on July 31,
1996;
SECOND: The Restated Certificate of Incorporation of the Company (the
"Certificate of Incorporation") filed with the Secretary of the State of
Delaware on August 7, 1996, authorizes the issuance of 200 shares of preferred
stock, par value $.01 per share, and, further, authorizes the Board of Directors
of the Company (the "Board of Directors"), by resolution or resolutions, at any
time and from time to time, to divide and establish any or all of the unissued
shares of preferred stock into one or more classes or series, and without
limiting the generality of the foregoing, to fix and determine the designation
of each such class or series, the number of shares which shall constitute such
class or series and certain relative rights and preferences of the shares of
each class or series so established.
THIRD: The Board of Directors pursuant to authority conferred upon the
Board of Directors under the Certificate of Incorporation and by written consent
on September 17, 1996 did duly adopt the following resolutions authorizing the
issuance of a series of the
2
<PAGE>
Company's preferred stock, par value $.0l per share, and setting forth the terms
and provisions of said preferred stock:
RESOLVED, that the Board of Directors, pursuant to authority vested in
it by the provisions of the Certificate of Incorporation, hereby authorizes
the creation and issuance of a series of the Company's preferred stock, par
value $.01 per share, which shall consist of up to 100 shares of the 200
shares of preferred stock that the Company now has authority to issue, and
hereby fixes the powers, designation, dividend rate, redemption provisions,
voting powers, rights on liquidation or dissolution, and other preferences
and relative participating, optional or other rights, and the
qualifications, limitations or restrictions thereof (in addition to those
set forth in said Certificate of Incorporation) as follows:
1. Designation. The preferred stock of the Company created and
-----------
authorized for issuance hereby shall be designated as "Series A 10% Cumulative
Accruing Preferred Stock" (the "Preferred Stock"). The Preferred Stock will
consist of 100 shares of such Preferred Stock.
2. Priority. The Preferred Stock shall, with respect to dividend
--------
rights and rights on liquidation, winding up or dissolution, whether voluntary
or involuntary, whether now or hereafter issued, rank (i) on a parity with any
other series of preferred stock established hereafter by the Board of Directors,
the terms of which shall specifically provide that such series shall rank on
parity with the Preferred Stock with respect to dividend rights and rights on
liquidation, winding up or dissolution, (all of such series of preferred stock
to which the Preferred Stock ranks on a parity are at all times collectively
referred to as "Parity Securities"), (ii) junior to any series of preferred
stock established by the Board of Directors, the terms of which shall
specifically provide that such series shall rank senior to the Preferred Stock
with respect to dividend rights and rights on liquidation, winding up or
dissolution (all of such series of preferred stock to which the Preferred Stock
ranks junior are at times collectively referred to herein as the "Senior
Securities"), and (iii) senior to
3
<PAGE>
the Company's Common Stock, $.01 par value per share (the "Common Stock"), and,
subject to clauses (i) and (ii) hereof, any other equity securities of the
Company, with respect to dividend rights and rights on liquidation, winding up
or dissolution (all of such equity securities of the Company to which the
Preferred Stock ranks senior, including the Common Stock, are at times
collectively referred to herein as the "Junior Securities"). Notwithstanding the
foregoing, the Company shall not establish, create, authorize or issue any
shares of Parity Securities (other than additional series of Preferred Stock) or
Senior Securities without the prior written consent of a majority of the holders
of the Preferred Stock.
3. Dividends.
---------
(a) Holders of shares of Preferred Stock shall be
entitled to receive, out of funds legally available for the payment of dividends
("Legally Available Funds"), cumulative dividends for each share of Preferred
Stock in an amount equal to the annual rate of l0%(or $23,843 per share per
year) accruable on a daily basis from September 19, 1996 (the "Issuance Date").
All accrued but unpaid dividends shall be compounded quarterly on each March 15,
June 15, September 15 and December 15, commencing on December 15, 1996, at a
rate equal to an annual rate of 10%. The Board of Directors shall declare and
pay such accrued dividends at such time as contemplated by section 5 hereof (a
"Dividend Payment Date") to the extent permitted by law and the Company's debt
instruments and related agreements from time to time outstanding (the "Debt
Instruments") subject to the provisions of section 3(c) hereof. Such dividends
shall be paid to the holders of record at the close of business on the date
specified by the Board of Directors of the Company at the time such dividend is
declared; provided, however, that such declaration date shall not be more than
-------- -------
60 days nor less than 10 days prior to the respective Dividend Payment Date.
(b) All dividends paid with respect to shares of
the Preferred Stock pursuant to section 3(a) shall be paid pro rata to the
--- ----
holders entitled thereto.
(c) Notwithstanding anything contained herein to
the contrary, no cash dividends on shares of Preferred Stock shall be declared
by the Board of Direc-
4
<PAGE>
tors or paid or set apart for payment by the Company at such time as the terms
and provisions of the Debt Instruments specifically prohibit such declaration,
payment or setting apart for payment or provide that such declaration, payment
or setting apart for payment would (or, with notice or lapse of time or both,
would) constitute a breach thereof or a default thereunder.
(d) If at any time the Company shall have failed to
pay all dividends which have accrued on any outstanding shares of Senior
Securities or any Parity Securities at the times such dividends are payable,
unless otherwise provided in the terms of the Senior Securities or the Parity
Securities, no cash or stock dividend shall be declared by the Board of
Directors or paid or set apart for payment by the Company on shares of Preferred
Stock unless prior to or concurrently with such declaration, payment or setting
apart for payment, all accrued and unpaid dividends on all outstanding shares of
such Senior Securities and Parity Securities shall have been declared, paid or
set apart for payment, without interest; provided, however, that in the event
-------- -------
such failure to pay accrued dividends is with respect only to the outstanding
shares of Preferred Stock and any outstanding shares of any Parity Securities,
cash or stock dividends may be declared, paid or set apart for payment, without
interest, pro rata on shares of Preferred Stock and shares of such other series
--------
of Preferred Stock so that the amounts of any dividends declared, paid or set
apart for payment (whether in cash or additional securities) on shares of
Preferred Stock and shares of such other series of preferred stock shall in all
cases bear to each other the same ratio that, at the time of such declaration,
payment or setting apart for payment, the amounts of all accrued but unpaid
dividends on shares of the Preferred Stock and shares of Parity Securities bear
to each other. Any dividend not paid pursuant to section 3(a) hereof or this
section 3(d) shall be fully cumulative and shall accrue (whether or not
declared), without interest, as set forth in section 3(a) hereof, even if such
dividend is not paid pursuant to section 3 (c).
(e) Holders of shares of Preferred Stock shall be
entitled to receive the dividends provided for in section 3 (a) hereof in
preference to and in priority over any dividends upon any of the Junior
Securities.
5
<PAGE>
4. Liquidation Preference.
----------------------
(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, the
holders of shares of Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Company available for distribution to its
stockholders an amount in cash equal to $238,430 for each share outstanding,
plus an amount in cash equal to all accrued but unpaid dividends thereon to the
date fixed for liquidation, before any payment shall be made or any assets
distributed to the holders of any of the Junior Securities; provided, however,
-------- -------
that the holders of outstanding shares of Preferred Stock shall not be entitled
to receive such liquidation payment until the liquidation payments on all
outstanding shares of Senior Securities shall have been paid in full. No full
preferential payment on account of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, shall be made to the holders of
any class of Parity Securities unless there shall likewise be paid at the same
time to holders of Preferred Stock the full amounts to which such holders are
entitled with respect to such distribution. If the assets of the Company are not
sufficient to pay in full the liquidation payments payable to the holders of
outstanding shares of Preferred Stock and outstanding shares of Parity
Securities, then the holders of all such shares shall share ratably in such
distribution of assets in accordance with the full respective preferential
amounts that would be payable on such shares of Preferred Stock and such shares
of Parity Securities if all amounts payable thereon were paid in full.
(b) For the purposes of this section 4, (x) the
voluntary sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Company or (y) the consolidation or merger of the Company with
one or more other companies or entities shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary.
6
<PAGE>
5. Redemption.
----------
(a) Mandatory Redemption. (i) To the extent
--------------------
permitted by law and subject to the prior or simultaneous prepayment in full of
the Debt Instruments, as a mandatory redemption for the retirement of the shares
of Preferred Stock, the Company shall redeem, out of Legally Available Funds (if
such shares remain outstanding) on September 19, 2003 (the "Mandatory Redemption
Date"), all remaining shares of Preferred Stock then outstanding, at the
redemption price of $238,430 for each share outstanding, plus an amount in cash
equal to all accrued but unpaid dividends thereon to the Mandatory Redemption
Date. Immediately prior to authorizing or making such redemption with respect to
the Preferred Stock, the Company, by resolution of its Board of Directors shall,
to the extent of any Legally Available Funds, declare a dividend on the
Preferred Stock payable on the Mandatory Redemption Date in an amount equal to
any accrued and unpaid dividends on the Preferred Stock as of such date and, if
the Company does not have sufficient Legally Available Funds to declare and pay
all dividends accrued at the time of such redemption, any remaining accrued and
unpaid dividends shall be added to the redemption price. If the Company shall
fail to discharge its obligation to redeem all of the outstanding shares of
Preferred Stock required to be redeemed pursuant to this section 5(a) (the
"Mandatory Redemption Obligation"), the Mandatory Redemption Obligation shall be
discharged as soon as the Company is able to discharge such Mandatory Redemption
Obligation. If and so long as the Mandatory Redemption Obligation shall not be
fully discharged, (x) dividends on the Preferred Stock shall continue to accrue
and be added to the dividend payable pursuant to the second preceding sentence
and (y) the Company shall not declare or pay any dividend or make any
distribution on its securities not otherwise permitted by this certificate.
(b) Optional Redemption. To the extent permitted by law and
-------------------
subject to the prior or simultaneous prepayment in full of the Debt Instruments,
the Preferred Stock shall be redeemable at any time, or from time to time, in
whole or in part, out of Legally Available Funds, at the option of the Company,
(an "Optional Redemption Date"). Optional redemptions shall be made, upon giving
notice as provided in section 5(c) hereof, at
7
<PAGE>
the redemption price of $238,430 for each share outstanding, plus an amount in
cash equal to all accrued but unpaid dividends thereon to the Optional
Redemption Date. Immediately prior to authorizing or making any such redemption
with respect to the Preferred Stock, and as a condition precedent to the Company
so redeeming at its option, in whole or in part, shares of the Preferred Stock,
the Company, by resolution of its Board of Directors shall, to the extent of any
Legally Available Funds, declare a dividend on the Preferred Stock payable on
the Optional Redemption Date in an amount equal to any accrued and unpaid
dividends on the Preferred Stock as of such date and if the Company does not
have sufficient Legally Available Funds to declare and pay all dividends accrued
to the Optional Redemption Date, any remaining accrued and unpaid dividends
shall be added to the redemption price.
(c) Notice of Redemption. For the purposes of this section
--------------------
5(c), a Mandatory Redemption Date and an Optional Redemption Date are
hereinafter collectively referred to as a "Redemption Date"). In the event the
Company shall redeem shares of Preferred Stock pursuant to section 5(a) or 5(b)
hereof, a notice of such redemption shall be given by first-class mail, postage
prepaid, mailed prior to the Redemption Date, to each holder of record of the
shares to be redeemed, at such holder's address as the same appears on the stock
books of the Company. Notice having been mailed as aforesaid, on and after the
Redemption Date, unless the Company shall be in default in providing money for
the payment of the redemption price (including an amount equal to any accrued
and unpaid dividends up to and including the Redemption Date), (x) dividends on
the shares of the Preferred Stock so called for redemption shall cease to
accrue, (y) said shares shall be deemed no longer outstanding, and (z) all
rights of the holders thereof as stockholders of the Company (except the right
to receive from the Company the monies payable upon redemption, without interest
thereon, upon surrender of the certificates evidencing such shares) shall cease.
Upon surrender of the certificates for any such shares so
redeemed (properly endorsed or assigned for transfer, if the Board of Directors
shall so require), such shares shall be redeemed by the Company at the
applicable redemption price aforesaid. If fewer than
8
<PAGE>
all the outstanding shares of Preferred Stock are to be redeemed, shares to be
redeemed shall be selected by the Company from outstanding shares of Preferred
Stock not previously called for redemption by lot or pro rata or by any other
equitable method determined by the Board of Directors in its sole discretion. If
fewer than all the shares represented by any certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder thereof.
(d) The election by the Company to redeem shares of
Preferred Stock pursuant to this section 5 hereof shall become irrevocable only
on the relevant Optional Redemption Date.
6. Voting Rights. Except as required by law, holders of
-------------
Preferred Stock shall have no voting rights.
7. Limitation and Rights Upon Insolvency.
-------------------------------------
Notwithstanding any other provision of this Certificate of Designations, the
Company shall not be required to pay any dividend on, or to pay any amount in
respect of any redemption of, the Preferred Stock at a time when immediately
after making such payment the Company is or would be rendered insolvent (as
defined by applicable law), provided that the obligation of the Company to make
any such payment shall not be extinguished in the event the foregoing limitation
applies.
8. Limitations under the Debt Instruments. Notwithstanding
--------------------------------------
any other provision of this Certificate of Designations, the Company shall not
be required to pay any dividend on, or to pay any amount in respect of any
redemption of, the Preferred Stock if upon, or after, making such payment the
Company would, or with the passage of time, or the giving of notice, or both,
would be in default under the terms of the Debt Instruments, provided that the
obligation of the Company to make any such payment shall not be extinguished in
the event the foregoing limitation applies.
9. Shares to Be Retired. Any share of Preferred Stock
--------------------
redeemed or otherwise acquired by the Company shall be retired and cancelled and
shall upon cancellation be restored to the status of authorized but unissued
shares of preferred stock, subject to reissuance by
9
<PAGE>
the Board of Directors as Preferred Stock or shares of preferred stock of one or
more other series.
10. Record Holders. The Company may deem and treat the record
--------------
holder of any shares of Preferred Stock as the true and lawful owner thereof for
all purposes, and the Company shall not be affected by any notice to the
contrary.
11. Notice. Except as may otherwise be provided for herein,
------
all notices referred to herein shall be in writing, and all notices hereunder
shall be deemed to have been given upon, the earlier of receipt of such notice
or three Business Days after the mailing of such notice if sent by registered
mail (unless first-class mail shall be specifically permitted for such notice
under the terms of this Certificate of Designations) with postage prepaid,
addressed: if to the Company, to its offices at 462 West Bearcat Drive, Salt
Lake City, Utah 84115 (Attention: President) or to an agent of the Company
designated as permitted by the Certificate of Incorporation or, if to any
holder of the Preferred Stock, to such holder at the address of such holder of
the Preferred Stock as listed in the stock record books of the Company; or to
such other address as the Company or holder, as the case may be, shall have
designated by notice similarly given. "Business Day" shall mean the a date that
is not a Saturday, Sunday or legal holiday or which banks in the State of New
York are permitted to be closed.
10
<PAGE>
IN WITNESS WHEREOF, this Corrected Certificate of Designations
has been duly executed this 4th day of October , 1996.
MRS. FIELDS' HOLDING COMPANY, INC.
By:/s/ Herbert S. Winokur, Jr.
-----------------------------------
Name: Herbert S. Winokur, Jr.
Title: President
<PAGE>
BY-LAWS
OF
MRS. FIELDS' HOLDING COMPANY, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the election
of directors or for any other purpose shall be held at such time and place,
either within or without the State of Delaware as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
<PAGE>
Section 2. Annual Meetings. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or by the
Certificate of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes, may be called by either (i) the Chairman, if there be one, or (ii)
the President, (iii) any Vice President, if there be one, (iv) the Secretary or
(v) any Assistant Secretary, if there be one, and shall be called by any such
officer at the request in writing of a majority of the Board of Directors or at
the request in writing of stockholders owning a majority of the capital stock of
the Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose
2
<PAGE>
or purposes of the proposed meeting. Written notice of a Special Meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called shall be given not less than ten nor more than sixty days
before the date of the meeting to each stockholder entitled to vote at such
meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned
3
<PAGE>
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
Section 5. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder. Such votes
may be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 6. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without
4
<PAGE>
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Section 7. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at
5
<PAGE>
the place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and may
be inspected by any stockholder of the Corporation who is present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors shall
consist of not less than one nor more than fifteen members, the exact number of
which shall initially be fixed by the Incorporator and thereafter from time to
time by the Board of Directors. Except as provided in Section 2 of this Article,
directors shall be elected by a plurality of the votes cast at Annual Meetings
of Stockholders, and each director so elected shall hold office until the next
Annual Meeting and until his successor is duly elected and qualified, or until
his
6
<PAGE>
earlier resignation or removal. Any director may resign at any time upon notice
to the Corporation. Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and qualified,
or until their earlier resignation or removal.
Section 3. Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors.
7
<PAGE>
Special meetings of the Board of Directors may be called by the Chairman, if
there be one, the President, or any directors. Notice thereof stating the place,
date and hour of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting, by telephone or
telegram on twenty-four (24) hours' notice, or on such shorter notice as the
person or persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 5. Quorum. Except as may be otherwise specifically provided by law,
the Certificate of Incorporation or these By-Laws, at all meetings of the Board
of Directors, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
8
<PAGE>
Section 6. Actions of Board. Unless otherwise provided by the Certificate
of Incorporation or these By-Laws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more
9
<PAGE>
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent allowed by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 9. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
Corporation in any
10
<PAGE>
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
Section 10. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
dis-
11
<PAGE>
closed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, a Secretary and a Treasurer. The
Board of Directors, in its discretion, may also choose a Chairman of the Board
of Directors (who must be a director) and one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers. Any number of offices may
be held by the same person, unless otherwise prohibited by law, the Certificate
of Incorporation or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the
12
<PAGE>
case of the Chairman of the Board of Directors, need such officers be directors
of the Corporation.
Section 2. Election. The Board of Directors at its first meeting held after
each Annual Meeting of Stockholders shall elect the officers of the Corporation
who shall hold their offices for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board of
Directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President and any such
officer may, in the name of and on behalf of the Corporation, take all
13
<PAGE>
such action as any such officer may deem advisable to vote in person or by proxy
at any meeting of security holders of any corporation in which the Corporation
may own securities and at any such meeting shall possess and may exercise any
and all rights and power incident to the ownership of such securities and which,
as the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the Board of
Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. He shall be the Chief Executive Officer of the
Corporation, and except where by law the signature of the President is required,
the Chairman of the Board of Directors shall possess the same power as the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Chairman of the Board of Directors
shall exercise all the powers and discharge all the duties of the President. The
Chairman of the Board of Directors shall also perform such other duties and may
14
<PAGE>
exercise such other powers as from time to time may be assigned to him by these
By-Laws or by the Board of Directors.
Section 5. President. The President shall, subject to the control of the
Board of Directors and, if there be one, the Chairman of the Board of Directors,
have general supervision of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect. He
shall execute all bonds, mortgages, contracts and other instruments of the
Corporation requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and execute documents when so
authorized by these By-Laws, the Board of Directors or the President. In the
absence or disability of the Chairman of the Board of Directors, or if there be
none, the President shall preside at all meetings of the stockholders and the
Board of Directors. If there be no Chairman of the Board of Directors, the
President shall be the Chief Executive Officer of the Corporation. The President
shall also perform such other duties and may exercise such other powers as from
time to
15
<PAGE>
time may be assigned to him by these By-Laws or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or in his
absence or in the event of his inability or refusal to act (and if there be no
Chairman of the Board of Directors), the Vice President or the Vice Presidents
if there is more than one (in the order designated by the Board of Directors)
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. Each
Vice President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of stockholders and record all the proceedings
16
<PAGE>
thereat in a book or books to be kept for that purpose; the Secretary shall a1so
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors, and shall perform such other
duties as may be prescribed by the Board of Directors or President, under whose
supervision he shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to
17
<PAGE>
be kept or filed are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of
--------- ---------
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and
18
<PAGE>
other property of whatever kind in his possession or under his control belonging
to the Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise
--------- ---------------------
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
---------- --------------------
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in
19
<PAGE>
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of his office and for
the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
Section 11. Other Officers. Such other officers as the Board
---------- --------------
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the
--------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secre-
20
<PAGE>
tary of the Corporation, certifying the number of shares owned by him in the
Corporation.
Section 2. Signatures. Any or all of the signatures on a
--------- ----------
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may
--------- -----------------
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond
21
<PAGE>
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be
--------- ---------
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may
--------- -----------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such
22
<PAGE>
meeting, nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be
--------- -----------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
NOTICES
-------
Section 1. Notices. Whenever written notice is required by
--------- -------
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee
23
<PAGE>
or stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the United States mail. Written notice
may also be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required
--------- -----------------
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as
24
<PAGE>
the Board of Directors from time to time, in its absolute discretion, deems
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for any proper purpose, and the Board of Directors may modify or abolish any
such reserve.
Section 2. Disbursements. All checks or demands for money and
--------- -------------
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
--------- -----------
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
--------- --------------
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
25
<PAGE>
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1. Power to Indemnify in Actions, Suits or Proceedings
--------- ---------------------------------------------------
other Than Those by or in the Right of the Corporation. Subject to Section 3 of
- ------------------------------------------------------
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director or officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
26
<PAGE>
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings
--------- ---------------------------------------------------
by or in the Right of the Corporation. Subject to Section 3 of this Article
- -------------------------------------
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settle-
27
<PAGE>
ment of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Authorization of Indemnification.
--------- --------------------------------
Any indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if
28
<PAGE>
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (iii) by the stockholders. To the extent,
however, that a director or officer of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith, without the necessity of authorization
in the specific case.
Section 4. Good Faith Defined. For purposes of any
--------- ------------------
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records
29
<PAGE>
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Sections 1 or 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding
--------- --------------------------
any contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to any court of competent jurisdiction in the
State of Delaware for indemnification to the extent otherwise permissible under
Sections 1 and 2 of this Article VIII. The basis of such indemnification by a
court shall be a determination by such court that indemnification of the
director or officer is proper
30
<PAGE>
in the circumstances because he has met the applicable standards of conduct set
forth in Sections 1 or 2 of this Article VIII, as the case may be. Neither a
contrary determination in the specific case under Section 3 of this Article VIII
nor the absence of any determination thereunder shall be a defense to such
application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
--------- ---------------------------
director or officer in defending or investigating a threatened or pending
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
31
<PAGE>
Section 7. Nonexclusivity of Indemnification
--------- ---------------------------------
and Advancement of Expenses. The indemnification and advancement of expenses
- ---------------------------
provided by or granted pursuant to this Article VIII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-Law, agreement, contract,
vote of stockholders or disinterested directors or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that indemnification
of the persons specified in Sections 1 and 2 of this Article VIII shall be made
to the fullest extent permitted by law. The provisions of this Article VIII
shall not be deemed to preclude the indemnification of any person who is not
specified in Sections 1 or 2 of this Article VIII but whom the Corporation has
the power or obligation to indemnify under the provisions of the General
Corporation Law of the State of Delaware, or otherwise
Section 8. Insurance. The Corporation may purchase and
--------- ---------
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation,
32
<PAGE>
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against such
liability under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this
--------- -------------------
Article VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same
33
<PAGE>
position under the provisions of this Article VIII with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued. For purposes of this
Article VIII, references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
---------- ---------------------------------------------
Expenses. The indemnification and advancement of expenses provided by, or
- --------
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to
34
<PAGE>
the benefit of the heirs, executors and administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
---------- -----------------------------
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents.
---------- ---------------------------------------
The Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
----------
Section 1. Amendments. These By-Laws may be altered,
--------- ----------
amended or repealed, in whole or in part, or new
35
<PAGE>
By-Laws may be adopted by the stockholders or by the Board of Directors,
provided, however, that notice of such alteration, amendment, repeal or adoption
of new By-Laws be contained in the notice of such meeting of stockholders or
Board of Directors as the case may be. All such amendments must be approved by
either the holders of a majority of the outstanding capital stock entitled to
vote thereon or by a majority of the entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article
--------- -------------------------
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
36
<PAGE>
________________________________________________________________________________
MRS. FIELDS' HOLDING COMPANY, INC.
Issuer
SERIES A AND SERIES B
14% SENIOR SECURED DISCOUNT NOTES DUE 2005
INDENTURE
______________________________________
Dated as of August 24, 1998
______________________________________
THE BANK OF NEW YORK
Trustee
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE................................ 1
SECTION 1.01. DEFINITIONS........................................................... 1
SECTION 1.02. OTHER DEFINITIONS..................................................... 15
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT..................... 16
SECTION 1.04. RULES OF CONSTRUCTION................................................. 16
ARTICLE 2. THE NOTES................................................................. 16
SECTION 2.01. FORM AND DATING....................................................... 16
SECTION 2.02. EXECUTION AND AUTHENTICATION.......................................... 17
SECTION 2.03. REGISTRAR AND PAYING AGENT............................................ 18
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST................................... 18
SECTION 2.05. HOLDER LISTS.......................................................... 18
SECTION 2.06. TRANSFER AND EXCHANGE................................................. 19
SECTION 2.07. REPLACEMENT NOTES..................................................... 30
SECTION 2.08. OUTSTANDING NOTES..................................................... 30
SECTION 2.09. TREASURY NOTES........................................................ 31
SECTION 2.10. TEMPORARY NOTES....................................................... 31
SECTION 2.11. CANCELLATION.......................................................... 31
SECTION 2.12. DEFAULTED INTEREST.................................................... 31
ARTICLE 3. REDEMPTION AND PREPAYMENT................................................. 32
SECTION 3.01. NOTICES TO TRUSTEE.................................................... 32
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED..................................... 32
SECTION 3.03. NOTICE OF REDEMPTION.................................................. 32
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION.................................................................. 33
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE..................................................................... 33
SECTION 3.06. NOTES REDEEMED IN PART.......................................................................... 34
SECTION 3.07. OPTIONAL REDEMPTION............................................................................. 34
SECTION 3.08 MANDATORY REDEMPTION............................................................................. 34
SECTION 3.09 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.............................................. 34
ARTICLE 4. COVENANTS........................................................................................... 36
SECTION 4.01. PAYMENT OF NOTES................................................................................ 36
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY................................................................. 37
SECTION 4.03. REPORTS......................................................................................... 37
SECTION 4.04. COMPLIANCE CERTIFICATE.......................................................................... 37
SECTION 4.05. TAXES........................................................................................... 38
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.................................................................. 38
SECTION 4.07. RESTRICTED PAYMENTS............................................................................. 38
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.................................. 40
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK...................................... 41
SECTION 4.10. ASSET SALES..................................................................................... 43
SECTION 4.11. TRANSACTIONS WITH AFFILIATES................................................................... 43
SECTION 4.12. LIENS........................................................................................... 44
SECTION 4.13. LINE OF BUSINESS................................................................................ 44
SECTION 4.14. CORPORATE EXISTENCE............................................................................. 44
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL...................................................... 45
SECTION 4.16. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED SUBSIDIARIES................. 46
SECTION 4.17. ADVANCES TO SUBSIDIARIES........................................................................ 46
SECTION 4.18. PAYMENTS FOR CONSENT............................................................................ 47
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 4.19. CALCULATION OF ORIGINAL ISSUE DISCOUNT.......................................................... 47
ARTICLE 5. SUCCESSORS.......................................................................................... 47
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS......................................................... 47
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED............................................................... 47
ARTICLE 6. DEFAULTS AND REMEDIES............................................................................... 48
SECTION 6.01. EVENTS OF DEFAULT............................................................................... 48
SECTION 6.02. ACCELERATION.................................................................................... 49
SECTION 6.03. OTHER REMEDIES.................................................................................. 50
SECTION 6.04 WAIVER OF PAST DEFAULTS.......................................................................... 50
SECTION 6.05. CONTROL BY MAJORITY............................................................................. 51
SECTION 6.06. LIMITATION ON SUITS............................................................................. 51
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT................................................... 51
SECTION 6.08. COLLECTION SUIT BY TRUSTEE...................................................................... 51
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM................................................................ 52
SECTION 6.10. PRIORITIES...................................................................................... 52
SECTION 6.11. UNDERTAKING FOR COSTS........................................................................... 52
ARTICLE 7. TRUSTEE............................................................................................. 53
SECTION 7.01. DUTIES OF TRUSTEE............................................................................... 53
SECTION 7.02. RIGHTS OF TRUSTEE............................................................................... 54
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.................................................................... 54
SECTION 7.04. TRUSTEE'S DISCLAIMER............................................................................ 55
SECTION 7.05. NOTICE OF DEFAULTS.............................................................................. 55
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES...................................................... 55
SECTION 7.07. COMPENSATION AND INDEMNITY...................................................................... 55
SECTION 7.08 REPLACEMENT OF TRUSTEE........................................................................... 56
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC................................................................ 57
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION................................................................... 57
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY............................................... 57
SECTION 7.12. TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY......................................... 58
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE............................................................ 58
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE........................................ 58
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.................................................................. 58
SECTION 8.03. COVENANT DEFEASANCE............................................................................. 59
SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE....................................................... 59
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS... 60
SECTION 8.06. REPAYMENT TO COMPANY............................................................................ 61
SECTION 8.07. REINSTATEMENT................................................................................... 61
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER.................................................................... 61
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES............................................................. 61
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES................................................................ 62
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT............................................................. 63
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS............................................................... 64
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES................................................................ 64
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC................................................................. 64
ARTICLE 10. COLLATERAL AND SECURITY........................................................................... 64
SECTION 10.01. PLEDGE AGREEMENT............................................................................... 64
SECTION 10.02. RECORDING AND OPINIONS......................................................................... 65
SECTION 10.03. RELEASE OF COLLATERAL.......................................................................... 65
SECTION 10.04. CERTIFICATES OF THE COMPANY.................................................................... 66
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
SECTION 10.05. CERTIFICATES OF THE TRUSTEE.................................................................... 66
SECTION 10.06. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE PLEDGE AGREEMENT................. 67
SECTION 10.07. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE PLEDGE AGREEMENT.................... 67
SECTION 10.08. TERMINATION OF SECURITY INTEREST............................................................... 67
ARTICLE 11. MISCELLANEOUS...................................................................................... 67
SECTION 11.01. TRUST INDENTURE ACT CONTROLS................................................................... 67
SECTION 11.02. NOTICES........................................................................................ 67
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.................................. 68
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT............................................. 69
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.................................................. 69
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.................................................................... 69
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS....................... 69
SECTION 11.08. GOVERNING LAW.................................................................................. 70
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.................................................. 70
SECTION 11.10. SUCCESSORS..................................................................................... 70
SECTION 11.11. SEVERABILITY................................................................................... 70
SECTION 11.12. COUNTERPART ORIGINALS.......................................................................... 70
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC............................................................... 70
</TABLE>
EXHIBITS
- --------
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF CERTIFICATE OF TRANSFER
EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE
EXHIBIT D FORM OF CERTIFICATE OF ACQUIRING IAI
EXHIBIT E FORM OF PLEDGE AGREEMENT
EXHIBIT F FORM OF SUBSIDIARY INTERCOMPANY NOTE
EXHIBIT G LIST OF NON-CORE STORES
v
<PAGE>
INDENTURE dated as of August 24, 1998 between Mrs. Fields' Holding
Company, Inc., a Delaware corporation (the "Company"), and The Bank of New York,
a New York banking corporation as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 14% Series A
Notes due 2005 (the "Series A Notes") and the 14% Series B Notes due 2005 (the
"Series B Notes" and, together with the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Accreted Value" means, for each $1,000 face amount of Notes, as of
any date of determination prior to December 1, 2002, the sum of (i) $561.17 and
(ii) that portion of the excess of the principal amount of each Note over
$561.17 which shall have been accreted thereon through such date, such amount to
be so accreted on a daily basis and compounded semi-annually on each June 1 and
December 1 at the rate of 14% per annum from the Issue Date.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, excluding,
however, Indebtedness incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Subsidiary of such specified
Person, and (ii) Indebtedness secured by a Lien encumbering any assets acquired
by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary that apply to such transfer or exchange.
"Asset Sale" means (i) the sale, lease, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than sales of inventory in the ordinary course of
business consistent with past practices (provided that the sale, lease,
conveyance other
<PAGE>
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole will be governed by Section 4.15 hereof and/or
provisions described in Section 5.02 hereof and not by the provisions of Section
4.10 hereof, and (ii) the issue or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a singe transaction or a series of
related transactions (A) that have a fair market value in excess of $1.0 million
or (B) for net proceeds in excess of $1.0 million. Not withstanding the
foregoing, (i) a transfer of assets by the Company to a Wholly Owned Subsidiary
or by a Wholly Owned Subsidiary to the Company or to another Wholly Owned
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to
the Company or to another Wholly Owned Subsidiary, (iii) a Restricted Payment
that is permitted by Section 4.07 hereof, (iv) arrangements providing for the
receipt by the Company or any Subsidiary of franchise and royalty fees but not
otherwise involving the sale of assets of the Company or any of its Subsidiaries
(other than inventory in the ordinary course of business) and (v) a disposition
of any Non-Core Stores will not be deemed to be Asset Sales.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (iii) marketable direct
obligations issued by any State of the United States or any local government or
other political subdivision thereof rated (at the time of the acquisition of
such security) at least "AA" by S&P or the equivalent thereof by Moody's and
having the maturities of not more than one year from the acquisition of such
security, (iv) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any domestic commercial bank having capital and
surplus in excess of $500,000,000 and a Keefe Bank Watch Rating of "B" or better
or with any registered broker-dealer whose commercial paper is rated at least
"A-1" by S&P or the equivalent thereof by Moody's, (v) repurchase obligations
with a term of not more than seven days for underlying securities of the types
2
<PAGE>
described in clauses (ii) and (iv) above entered into with any financial
institution meeting the qualifications specified in clause (iv) above, (vi)
commercial paper rated at least "A-1" by S&P or the equivalent thereof by
Moody's and, in each case, maturing within six months after the date of
acquisition, and (vii) investments in money market funds all of whose assets
consist of securities described in clauses (ii) through (vi) above.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties; (ii) the adoption of a
plan relating to the liquidation or dissolution of the Company; (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals or their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares); or (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors. For purposes of this definition, any
transfer of an equity interest of an entity that was formed for the purpose of
acquiring Voting Stock of the Company will be deemed to be a transfer of such
portion of such Voting Stock as corresponds to the portion of such equity of
such entity that has been so transferred.
"Company" means Mrs. Fields' Holding Company, Inc., a Delaware
corporation, and any and all successors thereto.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing,
3
<PAGE>
the provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary of the referent Person
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent and in the same proportion that the net income of such Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net
Income of any Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded and (iv) the cumulative effect of a change in
accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Issue Date in the book value of any asset
owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the Issue Date or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
4
<PAGE>
"Credit Facility" means, with respect to MFOC, one or more debt
facilities or commercial paper facilities with banks or other institutional
lenders (including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith) providing for
revolving credit loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit up to a
maximum aggregate amount of not more than $15.0 million, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature, provided that a class
of Capital Stock shall not be Disqualified Stock solely as a result of any
maturity or redemption that is conditioned upon, and subject to, compliance with
Section 4.07.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange MFOC Senior Notes" means Series B 10 1/8% Senior Notes due
2004 of MFOC issued in exchange for the Series C Senior Notes.
"Exchange Notes" means the Notes issued in the Exchange Offer pursuant
to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration Rights
Agreement.
5
<PAGE>
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (including preferred stock of Pretzel Time outstanding on the Issue
Date but excluding any Indebtedness of the Company or any of its Subsidiaries
under any Credit Facility existing on the Issue Date) in existence on the Issue
Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the
sum, without duplication, of (i) the consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated
interest expense of such Person and its Subsidiaries that was capitalized during
such period, (iii) any interest expense on Indebtedness of another Person that
is guaranteed by such Person or one of its Subsidiaries or secured by a Lien on
assets of such Person or one of its Subsidiaries (whether or not such guarantee
or Lien is called upon), and (iv) the product of (A) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or any
of its Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests of the Company, times (B) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date, and (iv) the financial information
of the Company with respect to any portion of the four fiscal quarters prior
6
<PAGE>
to November 26, 1997 may be adjusted to eliminate certain historical expenses
that are not expected to recur after the consummation of the Pretzel
Contributions so long as such adjustments are not deemed to be contrary to the
requirements of Regulation S-X under the Securities Act. In calculating the
Fixed Charge Coverage Ratio for any period, to the extent that the proceeds from
the incurrence of any Indebtedness are to be used to fund the acquisition of
Equity Interests or assets in a Permitted Business, the Company may include any
pro forma adjustments permitted by Regulation S-X under the Securities Act in
its calculation of the amount of Consolidated Cash Flow that relate solely to
such acquisition, so long as such pro forma adjustments are not deemed to be
contrary to the requirements of Rule 11-02 of Regulation S-X under the
Securities Act.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Global Note" means a global note in the form of Exhibit A hereto
bearing the Global Note Legend and the Private Placement Legend and deposited
with or on behalf of, and registered in the name of, the Depositary or its
nominee that will be issued in a denomination equal to the outstanding principal
amount of the Notes sold in reliance on Rule 144A.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or foreign currency exchange rates.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset
7
<PAGE>
of such Person (whether or not such indebtedness is assumed by such Person) and,
to the extent not otherwise included, the guarantee by such Person of any
indebtedness of any other Person. The amount of any Indebtedness outstanding as
of any date shall be (i) the accreted value thereof, in the case of any
Indebtedness that does not require current payments of interest, and (ii) the
principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP,
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common stock of the Company shall
not be deemed to be an Investment. If the Company or any Subsidiary of the
Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company shall be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in
Section 4.07 hereof.
"IPO" means the first underwritten offering, with gross proceeds of
more than $20 million, of the MFH Common Stock that is registered under the
Securities Act or admitted to listing on a recognized stock exchange or
automated quotation system.
"Issue Date" means August 24, 1998.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise
8
<PAGE>
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction), provided that the definition of "Lien" shall not
include any option, call or similar right relating to treasury shares of the
Company to the extent that such option, call or right is granted (i) under any
employee stock option plan, employee stock ownership plan or similar plan or
arrangement of the Company or its Subsidiaries or (ii) in connection with the
issuance of Indebtedness permitted to be incurred pursuant to Section 4.09
hereof.
"Liquidated Damages" means all liquidated damages then owing pursuant
to the Registration Rights Agreement.
"MFH Capital Contributions" means the MFH Equity Infusion and all
future capital contributions or purchases made by MFH to or from MFOC in
exchange for capital stock of MFOC.
"MFH Equity Infusion" means the capital contribution by MFH to MFOC of
the net proceeds of the offering of the Units.
"MFOC" means Mrs. Fields' Original Cookies, Inc., a Delaware
corporation and a wholly owned subsidiary of the Company.
"MFOC Indenture" means the indenture, dated as of November 26, 1997,
governing the MFOC Notes.
"MFOC Notes" means the Series A/B Senior Notes, the Series C Senior
Notes and the Exchange MFOC Senior Notes.
"Moody's" means Moody's Investors Service, Inc.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (A) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or (B)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale but only as and when
received), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the permanent repayment of, or permanent reduction in availability or
commitment under, Indebtedness secured by a
9
<PAGE>
Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Core Stores" means the stores listed on Exhibit G to this
Indenture.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, a Person who has
an account with the Depositary.
"Permitted Business" means the same or a similar line of business as
the Company and its Subsidiaries were engaged in on the Issue Date, including,
without limitation, the specialty retail snack-food business.
"Permitted Investments" means (a) any Investment in the Company or in
a Wholly Owner Subsidiary of the Company that is engaged in a Permitted
Business, (b) any Investment in Cash Equivalents, (c) any Investment by the
Company or any Subsidiary of the Company in a Person, if as a result of such
Investment (i) such Person becomes a Wholly Owned Subsidiary of the Company that
is engaged in a Permitted Business or (ii) such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of
the Company and that is engaged in a Permitted Business, (d) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof,
(e) any acquisition of assets solely in exchange
10
<PAGE>
for the issuance of Equity Interests (other than Disqualified Stock) of the
Company, (f) any Investments in accounts and notes receivable acquired in the
ordinary course of business, (g) any Investments in notes of employees,
officers, directors and their transferees and Affiliates issued to the Company
or MFOC representing payment of the exercise price of options to purchase common
stock of the Company, (h) any Investments by the Company or MFOC in Hedging
Obligations otherwise permitted to be incurred under this Indenture, (i) any
Investments existing on the Issue Date and (j) any purchase of any and all
remaining common stock of Pretzel Time.
"Permitted Liens" means (i) Liens securing Indebtedness under a Credit
Facility that was permitted by the terms of the Indenture to be incurred, (ii)
Liens in favor of the Company or MFOC, (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Company
or any Subsidiary of the Company, provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company, (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition and do not extend to
any assets of the Company or any Subsidiary other than the property so acquired,
(v) Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business, (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clauses (iv) and (xi) of Section 4.09(b)
hereof, provided that, in the case of Indebtedness permitted by such clause
(iii), covering only the assets acquired with such Indebtedness, (vii) Liens
existing on the Issue Date, (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor, and (ix) Liens
incurred in the ordinary course of business of the Company or any Subsidiary of
the Company that (A) are not incurred in connection with the borrowing of money
or the obtaining of advances or credit (other than trade credit in the ordinary
course of business) and (B) do not in the aggregate materially detract from the
value of the property or materially impair the use thereof in the operation of
business by the Company or such Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries, provided that (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith), (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, and (iv) such Indebtedness is incurred either by the
Company or
11
<PAGE>
by the Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Pledge Agreement" means the Pledge Agreement dated as of the date of
this Indenture and substantially in the form attached as Exhibit E hereto, as
such agreement may be amended, modified or supplemented from time to time.
"Pledged Collateral" means any assets of the Company defined as
Pledged Collateral in the Pledge Agreement.
"Pretzel Contributions" means the contribution from the Company to
MFOC of the pretzel business formerly owned by H&M Concepts Ltd. Co., an Idaho
liability company, and its subsidiaries, and the common stock of Pretzel Time.
"Pretzel Time" means Pretzel Time, Inc., a Pennsylvania corporation.
"Pretzel Time Employment Agreement" means that certain Employment
Agreement, dated as of September 2, 1997, between Pretzel Time and Martin E.
Lisiewski.
"Pretzel Time Management Agreement" means that certain Management
Agreement, dated as of September 2, 1997, between the Company and Pretzel Time.
"Principals" means Herbert S. Winokur, Jr. and Capricorn Investors II,
L.P.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"Public Equity Offering" means a public offering registered under the
Securities Act (except for any registration pursuant to Form S-8) of common
stock of the Company.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of August 24, 1998, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Related Party" with respect to any Principal means (a) any greater
than 50% owned Subsidiary, or spouse or immediate family member (in the case of
an individual) of such Principal or (b) trust, corporation, general partnership
or other entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding a greater than 50% controlling interest of which consist,
or a limited partnership, the general partner of which consists, of the
Principals and/or such other Persons referred to in the immediately preceding
clause (a).
12
<PAGE>
"Responsible Officer" means, when used with respect to the Trustee,
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Separation Date" means the earliest of (i) 180 days following the
Issue Date, (ii) the date of redemption of the Notes, (iii) the date on which a
registration statement with respect to a registered exchange offer for the Notes
is declared effective under the Securities Act, (iv) the date a shelf
registration statement with respect to the Notes is declared effective under the
Securities Act, (v) such date as Jefferies & Company, Inc., in its sole
discretion, shall determine, (vi) the occurrence of a Change of Control and
(vii) upon an IPO. On the Separation Date, the Notes and Warrants will be
automatically separated.
"Series A/B Senior Notes" means MFOC's 10 1/8% Series A Senior Notes
due 2004 initially issued and sold on November 26, 1997 and MFOC's 10 1/8%
Series B Senior Notes due 2004 issued pursuant to an exchange offer on June 2,
1998.
"Series C Senior Notes" means MFOC's 10 1/8% Series C Senior Notes due
2004 being offered by MFOC concurrently with the Company's offering of the
Notes.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
13
<PAGE>
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Issue Date.
"Stated Maturity" means with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (A) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (B)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Intercompany Notes" means the intercompany notes, if any,
issued by Subsidiaries of the Company in favor of the Company to evidence
advances by the Company, in each case, in the form attached as Exhibit F to this
Indenture.
"Tax Sharing Agreement" means any tax allocation agreement between the
Company or any of its Subsidiaries with the Company or any direct or indirect
shareholder of the Company with respect to consolidated or combined tax returns
including the Company or any of its Subsidiaries, but, in each case, only to the
extent that amounts payable from time to time by the Company or any such
Subsidiary under any such agreement do not exceed the corresponding tax payments
that the Company or such Subsidiary would have been required to make to any
relevant taxing authority had the Company or such Subsidiary not joined in such
consolidated or combined returns, but instead had filed returns including only
the Company and its Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Global Note" means a permanent Global Note in the form
of Exhibit A attached hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.
14
<PAGE>
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Warrant Agent" means The Bank of New York.
"Warrant Agreement" means the Warrant Agreement dated as of August 24,
1998, by and among the Company and the Warrant Agent.
"Warrants" means the 55,000 Warrants to purchase an aggregate of
172,926 shares of Common Stock issued pursuant to the Warrant Agreement.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (A) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (B) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"........... 4.11
"Asset Sale"...................... 4.10
"Asset Sale Offer"................ 3.09
"Authentication Order"............ 2.02
"Change of Control Offer"......... 4.15
"Change of Control Payment"....... 4.15
"Change of Control Payment Date".. 4.15
"Covenant Defeasance"............. 8.03
"Event of Default"................ 6.01
"Excess Proceeds"................. 4.10
"incur"........................... 4.09
"Legal Defeasance"................ 8.02
"Offer Amount".................... 3.09
"Offer Period".................... 3.09
"Paying Agent".................... 2.03
"Payment Default"................. 6.01
"Permitted Indebtedness".......... 4.09
15
<PAGE>
"Purchase Date"................... 3.09
"Registrar"....................... 2.03
"Restricted Payments"............. 4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Company and any successor obligor
upon the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A hereto. The Notes may have
notations, legends or endorsements required by
16
<PAGE>
law, stock exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially
in the form of Exhibit A attached hereto (including the Global Note Legend
thereon and the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Notes issued in definitive form shall be substantially in the form of
Exhibit A attached hereto (but without the Global Note Legend thereon and
without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the Note
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.
(c) Notes Sold or Transferred to Institutional Accredited Investors.
Notes sold or transferred to Institutional Accredited Investors shall be issued
only in the form of a Restricted Definitive Note.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal may be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by one
Officer (an "Authentication Order"), authenticate Notes for original issue up to
the aggregate principal amount stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent.
17
<PAGE>
An authenticating agent has the same rights as an Agent to deal with Holders or
an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture. If the Company fails to appoint or maintain another entity
as Registrar or Paying Agent, the Trustee shall act as such. The Company or any
of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee in writing of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee.
Upon payment over to the Trustee, the Paying Agent (if other than the Company or
a Subsidiary) shall have no further liability for the money. If the Company or
a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Holders all money held by it as Paying Agent.
Upon any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA (S) 312(a).
18
<PAGE>
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes will be exchanged by
the Company for Definitive Notes if (i) the Company delivers to the Trustee
written notice from the Depositary that it is unwilling or unable to continue to
act as Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Company within 120 days after the date of such notice from the Depositary or
(ii) the Company in its sole discretion determines that the Global Notes (in
whole but not in part) should be exchanged for Definitive Notes and delivers a
written notice to such effect to the Trustee. Upon the occurrence of either of
the preceding events in (i) or (ii) above, Definitive Notes shall be issued in
such names as the Depositary shall instruct the Trustee in writing. Global Notes
also may be exchanged or replaced, in whole or in part, as provided in Sections
2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or
in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06
or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form
of, and shall be, a Global Note. A Global Note may not be exchanged for another
Note other than as provided in this Section 2.06(a); however, beneficial
interests in a Global Note may be transferred and exchanged as provided in
Section 2.06(b),(c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note. Beneficial
interests in any Restricted Global Note may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in the same Restricted
Global Note in accordance with the transfer restrictions set forth in the
Private Placement Legend. Beneficial interests in any Unrestricted Global
Note may be transferred to Persons who take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note. No written orders or
instructions shall be required to be delivered to the Registrar to effect the
transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in Global
Notes. In connection with all transfers and exchanges of beneficial interests
that are not subject to Section 2.06(b)(i) above, the transferor of such
beneficial interest must deliver to the Registrar either (A) (1) a written
order from a Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to credit
or cause to be credited a beneficial interest in another Global Note in an
amount equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures containing
information regarding the Participant account to be credited with such
increase or (B) (1) a written order from a Participant or an Indirect
Participant given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to cause to be issued a Definitive Note in
an amount
19
<PAGE>
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given by the Depositary to the Registrar containing information
regarding the Person in whose name such Definitive Note shall be registered to
effect the transfer or exchange referred to in (1) above. Upon consummation of
an Exchange Offer by the Company in accordance with Section 2.06(f) hereof,
the requirements of this Section 2.06(b)(ii) shall be deemed to have been
satisfied upon receipt by the Registrar of the instructions contained in the
Letter of Transmittal delivered by the Holder of such beneficial interests in
the Restricted Global Notes. Upon satisfaction of all of the requirements for
transfer or exchange of beneficial interests in Global Notes contained in this
Indenture and the Notes or otherwise applicable under the Securities Act, the
Trustee shall adjust the principal amount of the relevant Global Note(s)
pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives a certificate in the form of Exhibit B hereto, including
the certifications in item (1) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
Holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the holder
of the beneficial interest to be transferred, in the case of an exchange,
or the transferee, in the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a Person who
is an affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a beneficial interest in
an Unrestricted Global Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (1)(a) thereof; or
20
<PAGE>
(2) if the Holder of such beneficial interest in a Restricted Global
Note proposes to transfer such beneficial interest to a Person who shall
take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note, a certificate from such Holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any Holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who takes
delivery thereof in the form of a Restricted Definitive Note, then, upon
receipt by the Registrar of the following documentation:
(A) if the Holder of such beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a Restricted
Definitive Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item
(1) thereof;
(C) if such beneficial interest is being transferred to a Non-U.S.
Person in an offshore transaction in accordance with Rule 903 or Rule 904
under the Securities Act, a certificate to the effect set forth in Exhibit
B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an
exemption from the registration requirements of the Securities Act in
accordance with Rule 144 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item
(3)(a) thereof;
21
<PAGE>
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those listed in
subparagraphs (B) through (D) above, a certificate to the effect set forth
in Exhibit B hereto, including the certifications, certificates and Opinion
of Counsel required by item (3) thereof, if applicable;
(F) if such beneficial interest is being transferred to the Company
or any of its Subsidiaries, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(b) thereof; or
(G) if such beneficial interest is being transferred pursuant to an
effective registration statement under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications in
item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and
the Company shall execute and the Trustee shall authenticate and make
available for delivery to the Person designated in the instructions a
Definitive Note in the appropriate principal amount. Any Definitive Note
issued in exchange for a beneficial interest in a Restricted Global Note
pursuant to this Section 2.06(c) shall be registered in such name or names and
in such authorized denomination or denominations as the holder of such
beneficial interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall make
available for delivery such Definitive Notes to the Persons in whose names
such Notes are so registered. Any Definitive Note issued in exchange for a
beneficial interest in a Restricted Global Note pursuant to this Section
2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A Holder of a beneficial interest in a Restricted Global Note
may exchange such beneficial interest for an Unrestricted Definitive Note or may
transfer such beneficial interest to a Person who takes delivery thereof in the
form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the Exchange
Offer in accordance with the Registration Rights Agreement and the Holder
of such beneficial interest, in the case of an exchange, or the transferee,
in the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person participating
in the distribution of the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance with
the Registration Rights Agreement; or
(D) the Registrar receives the following:
22
<PAGE>
(1) if the Holder of such beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a Definitive Note
that does not bear the Private Placement Legend, a certificate from such
Holder in the form of Exhibit B hereto, including the certifications in
item (1)(b) thereof; or
(2) if the Holder of such beneficial interest in a Restricted Global
Note proposes to transfer such beneficial interest to a Person who shall
take delivery thereof in the form of a Definitive Note that does not bear
the Private Placement Legend, a certificate from such Holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), an Opinion of
Counsel in form reasonably acceptable to the Registrar to the effect that
such exchange or transfer is in compliance with the Securities Act and that
the restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any Holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute
and the Trustee shall authenticate and make available for delivery to the
Person designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall be registered in such
name or names and in such authorized denomination or denominations as the
Holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect Participant.
The Trustee shall make available for delivery such Definitive Notes to the
Persons in whose names such Notes are so registered. Any Definitive Note
issued in exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or to
transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note, a
certificate from such Holder in the form of Exhibit C hereto, including the
certifications in item (2)(b) thereof;
23
<PAGE>
(B) if such Restricted Definitive Note is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (2)
thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(F) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause
to be increased the aggregate principal amount of, in the case of clause
(A) above, the appropriate Restricted Global Note and in the case of clause
(B) above, the Global Note. In no event, shall an Institutional Accredited
Investor hold an interest in a Restricted Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted
Global Notes. A Holder of a Restricted Definitive Note (including an
Institutional Accredited Investor) may exchange such Note for a beneficial
interest in an Unrestricted Global Note or transfer such Restricted Definitive
Note to a Person who takes delivery thereof in the form of a beneficial
interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement; or
24
<PAGE>
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof in the
form of a beneficial interest in the Unrestricted Global Note, a
certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive
Notes and increase or cause to be increased the aggregate principal
amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Definitive Notes to a Person who takes delivery thereof in
the form of a beneficial interest in an Unrestricted Global Note at any
time. Upon receipt of a request for such an exchange or transfer, the
Trustee shall cancel the applicable Unrestricted Definitive Note and
increase or cause to be increased the aggregate principal amount of one of
the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of
transfer or exchange, the requesting Holder shall present or surrender to the
Registrar the Definitive Notes duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney, duly authorized in writing. In addition, the
requesting Holder shall provide any additional certifications, documents and
information, as applicable, required pursuant to the following provisions of
this Section 2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name
of Persons who take delivery thereof in the form of a Restricted Definitive
Note if the Registrar receives the following:
25
<PAGE>
(A) if the transfer will be made pursuant to Rule 144A under the
Securities Act, then the transferor must deliver a certificate in the
form of Exhibit B hereto, including the certifications in item (1)
thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof;
and
(C) if the transfer will be made pursuant to any other exemption
from the registration requirements of the Securities Act, then the
transferor must deliver a certificate in the form of Exhibit B hereto,
including the certifications, certificates and Opinion of Counsel
required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating Broker-
Dealer pursuant to the Exchange Offer Registration Statement in
accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes proposes
to exchange such Notes for an Unrestricted Definitive Note, a certificate
from such Holder in the form of Exhibit C hereto, including the
certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes proposes
to transfer such Notes to a Person who shall take delivery thereof in the
form of an Unrestricted Definitive Note, a certificate from such Holder in
the form of Exhibit B hereto, including the certifications in item (4)
thereof;
and, in each such case set forth in this subparagraph (D), if the Registrar
so requests, an Opinion of Counsel in form reasonably acceptable to the
Company to the effect that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
26
<PAGE>
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes.
A Holder of Unrestricted Definitive Notes may transfer such Notes to a
Person who takes delivery thereof in the form of an Unrestricted Definitive
Note. Upon receipt of a request to register such a transfer, the Registrar
shall register the Unrestricted Definitive Notes pursuant to the
instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not broker-
dealers, (y) they are not participating in a distribution of the Exchange Notes
and (z) they are not affiliates (as defined in Rule 144) of the Company, and
accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED
OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE
ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1),
(2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY
EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (C) IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE
27
<PAGE>
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER
IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN
$250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, AND,
IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY
OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY
RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv),
(c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to
this Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement
Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO
ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY
MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07
OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT
NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT
OF THE COMPANY."
(iii) Unit Legend. Each Note issued prior to the Separation Date
shall bear the following legend (the "Unit Legend") on the face thereof:
"THE NOTES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART
OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSIST OF $1,000 PRINCIPAL
AMOUNT AT MATURITY OF THE NOTES AND ONE WARRANT (EACH, A "WARRANT")
INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE 3.14411 SHARES, PAR
VALUE $0.001 PER SHARE, OF THE COMPANY. THE NOTES AND
28
<PAGE>
WARRANTS WILL BE AUTOMATICALLY SEPARATED UPON THE EARLIEST TO OCCUR OF
(i) 180 DAYS FROM THE DATE OF ISSUANCE, (ii) THE DATE OF REDEMPTION OF
THE NOTES, (iii) THE DATE ON WHICH A REGISTRATION STATEMENT WITH
RESPECT TO A REGISTERED EXCHANGE OFFER FOR THE NOTES IS DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (iv) THE DATE ON WHICH THE SHELF
REGISTRATION STATEMENT (AS DEFINED IN THE INDENTURE) IS DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (v) SUCH DATE AS JEFFERIES &
COMPANY, INC., IN ITS SOLE DISCRETION, SHALL DETERMINE, (vi) IN THE
EVENT OF A CHANGE OF CONTROL (AS DEFINED IN THE INDENTURE) AND (vii)
UPON AN IPO (AS DEFINED IN THE INDENTURE). THE NOTES EVIDENCED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED OR SEPARATED FROM, BUT MAY BE
TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE WARRANTS UNTIL THE
SEPARATION DATE."
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a Holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer of
or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company,
29
<PAGE>
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Global Notes or Definitive Notes surrendered upon such
registration of transfer or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business on
the day of selection, (B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part or (c) to register the transfer
of or to exchange a Note between a record date and the next succeeding
Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
SECTION 2.07. REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate a replacement Note
if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Company may charge for its expenses in replacing a
Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this Indenture equally
and proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation, those reductions in the interest in a Global Note effected
by the Trustee in accordance with the provisions hereof, and those described in
this Section as not outstanding. Except as set forth in Section 2.09 hereof, a
Note does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; however, Notes held by the Company or a Subsidiary of
the Company shall not be deemed to be outstanding for purposes of Section
3.07(b) hereof.
30
<PAGE>
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES
Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment and
not previously received by the Trustee. The Trustee and no one else shall
cancel all Notes surrendered for registration of transfer, exchange, payment,
replacement or cancellation and shall return such canceled Notes to the Company
(subject to the record retention requirement of the Exchange Act). The Company
may not issue new Notes to replace Notes that it has paid or that have been
delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee
in writing of the amount of
31
<PAGE>
defaulted interest proposed to be paid on each Note and the date of the proposed
payment. The Company shall fix or cause to be fixed each such special record
date and payment date, provided that no such special record date shall be less
than 10 days prior to the related payment date for such defaulted interest. At
least 30 days before the special record date, the Company (or, upon the written
request of the Company, the Trustee in the name and at the expense of the
Company) shall mail or cause to be mailed to Holders a notice that states the
special record date, the related payment date and the amount of such interest to
be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED
If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed (including CUSIP
numbers) and shall state:
32
<PAGE>
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Notes called for redemption ceases to accrue on and after the
redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture pursuant
to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE
On or prior to 12:00 noon (New York time) at least one Business Day
prior to the redemption date, the Company shall deposit with the Trustee or with
the Paying Agent money sufficient to pay the redemption price of and accrued
interest on all Notes to be redeemed on that date. The Trustee or the Paying
Agent shall promptly return to the Company any money deposited with the Trustee
or the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accrued interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note
33
<PAGE>
was registered at the close of business on such record date. If any Note called
for redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest shall be
paid on the unpaid principal, from the redemption date until such principal is
paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Notes and in Section 4.01
hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, the Company
shall not have the option to redeem the Notes pursuant to this Section 3.07
prior to December 1, 2002. Thereafter, the Company shall have the option to
redeem the Notes at anytime, upon not less than 30 nor more than 60 days'
notice, in whole or in part, at the redemption prices (expressed as percentages
of principal amount) set forth below, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on December 1 of the years
indicated below:
YEAR PERCENTAGE
---- ----------
2002..............................................107.000%
2003..............................................103.500%
2004 and thereafter...............................100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at
any time prior to December 1, 2002, the Notes will be redeemable at the option
of the Company, in whole but not in part, in cash at a redemption price equal to
114% of the Accreted Value (determined at the date of redemption) with the net
cash proceeds of one or more Public Equity Offerings; provided that such
redemption shall occur within 60 days of the date of any such closing of such
Public Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant to
the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08 MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
SECTION 3.09 OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), it shall follow the procedures specified below.
34
<PAGE>
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section 3.09
and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain
open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue to
accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an Asset
Sale Offer may only elect to have all of such Note purchased and may not elect
to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any Asset
Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Company, a depositary, if appointed by
the Company, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
35
<PAGE>
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee, upon written request from the Company shall authenticate and make
available for delivery such new Note to such Holder, in a principal amount equal
to any unpurchased portion of the Note surrendered. Any Note not so accepted
shall be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Asset Sale Offer on the
Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay
all Liquidated Damages, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
36
<PAGE>
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give
prompt written notice to the Trustee of any such designation or rescission and
of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the SEC, so
long as any Notes are outstanding, the Company shall furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company
were required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's independent
public accountants and (ii) all current reports that would be required to be
filed with the SEC on Form 8-K if the Company were required to file such
reports. The Company shall at all times comply with TIA (S) 314(a).
(b) For so long as any Notes remain outstanding, the Company shall furnish
to the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default
37
<PAGE>
in the performance or observance of any of the terms, provisions and conditions
of this Indenture (or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or she may have
knowledge and what action the Company is taking or proposes to take with respect
thereto) and that to the best of his or her knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company) or to the direct or indirect
holders
38
<PAGE>
of the Company's or any of its Subsidiaries' Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company or
other Affiliate of the Company (other than any such Equity Interests owned by
the Company or any Wholly Owned Subsidiary of the Company); (iii) make any
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is subordinated to the Notes, except a
payment of interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in Section 4.09(i) hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after the
Issue Date (excluding Restricted Payments permitted by clause (ii), (iii) or
(iv) of the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the
Issue Date to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds (other
than any proceeds referred to in the proviso to the first sentence of the
definition of "Investments") received by the Company from the issue or sale
since the Issue Date of Equity Interests of the Company (other than Disqualified
Stock) or of Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or convertible debt securities that
have been converted into Disqualified Stock), plus (ii) to the extent that any
Restricted Investment that was made after the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (A) the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (B) the initial amount of such Restricted Investment.
The foregoing provisions will not prohibit: (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase,
39
<PAGE>
retirement, defeasance or other acquisition shall be excluded from clause
(c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase
or other acquisition of subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of
any dividend by a Subsidiary of the Company to the holders of any Equity
Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any member of the Company's (or any of its
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement; provided that the aggregate price paid for
all such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed, during any twelve-month period, an aggregate amount equal to the sum of
$250,000, plus the amount of cash proceeds received by the Company or its
Subsidiaries from any reissuance of Equity Interests by the Company or its
Subsidiaries to members of management of the Company or its Subsidiaries during
such period, which aggregate amount shall in no event exceed $500,000 in any
such period, and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; (vi) payments to MFH pursuant to
the Tax Sharing Agreement; (vii) payments pursuant to the Pretzel Time
Employment Agreement and the Pretzel Time Management Agreement; and (viii) the
redemption or repurchase of preferred stock of Pretzel Time outstanding on the
Issue Date.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $2.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, together with a copy of any fairness opinion or appraisal required by
this Indenture.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
to (a)(i) pay dividends or make any other distributions to the Company or any of
its Subsidiaries (A) on its Capital Stock or (B) with respect to any other
interest or participation in, or measured by, its profits or (ii) pay any
indebtedness owed to the Company or any of its Subsidiaries, (b) make loans or
advances to the Company or any of its Subsidiaries or (c) transfer any of its
properties or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (i) Existing
Indebtedness as in effect on the Issue Date, (ii) this Indenture, the Notes, the
MFOC Indenture and the MFOC Notes, (iii) the Credit Facility, (iv) applicable
law, (v) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of this Indenture to be incurred, (vi) by reason of
customary non-assignment provisions in leases entered into in the ordinary
course of business
40
<PAGE>
and consistent with past practices, (vii) purchase money obligations or Capital
Lease Obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (v) above on the property
so acquired, (viii) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced; (ix) customary restrictions imposed
on the transfer of copyrighted or patented materials and customary provisions in
agreements that restrict the assignees of such agreements or any rights
thereunder or (x) restrictions with respect to a Subsidiary of the Company
imposed pursuant to a binding agreement relating to the sale or disposition of
all or substantially all of the Capital Stock or assets or such Subsidiary.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Indebtedness) and
the Company shall not issue any Disqualified Stock and shall not permit any of
its Subsidiaries to issue any shares of preferred stock; provided, however, that
the Company may incur Indebtedness (including Acquired Indebtedness) or issue
shares of Disqualified Stock if:
(i) the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock is issued would have been at least 1.5
to 1, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at
the beginning of such four-quarter period; and
(ii) the Weighted Average Life to Maturity of such Indebtedness is equal
to or greater than the remaining Weighted Average Life to Maturity of the
Notes, provided that this clause (ii) shall not apply in the case of Acquired
Indebtedness.
The provisions of the first paragraph of this Section 4.09 shall not
apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Indebtedness"):
(i) the incurrence by the Company and its Subsidiaries of the Existing
Indebtedness other than the Notes and the Series C Senior Notes and the
guarantees thereof;
(ii) the incurrence by the Company on the date hereof of Indebtedness
represented by the Notes;
(iii) the issuance by the Company of the Exchange Notes.
(iv) the incurrence by MFOC of Indebtedness represented by the Series C
Senior Notes and the Exchange MFOC Senior Notes, and the guarantee thereof by
MFOC's Subsidiaries, and any other Indebtedness of MFOC or its Subsidiaries
permitted under the MFOC Indenture and the guarantee thereof by MFOC's
Subsidiaries permitted under the MFOC Indenture;
41
<PAGE>
(v) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
purchase money obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(vi) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was permitted
by the Indenture to be incurred;
(vii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Subsidiaries, provided that (A) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior payment
in full in cash of all Obligations with respect to the Notes and (B)(1) any
subsequent issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Wholly Owned
Subsidiary and (2) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be;
(viii) the incurrence of Indebtedness in connection with one or more
standby letters of credit, guarantees, performance or surety bonds or other
reimbursement obligations, in each case, issued in the ordinary course of
business and not in connection with the borrowing of money or the obtaining of
advances or credit (other than (A) advances or credit on open account,
includible in current liabilities, for goods and services in the ordinary
course of business and on terms and conditions customary in a Permitted
Business and (B) the extension of credit represented by such letter of credit,
guarantee, bond or other obligations itself), provided that any draw under or
call upon any of the foregoing is repaid in full within 45 days, and provided
further that the aggregate amount of all Indebtedness incurred pursuant to
this clause (viii) shall not exceed $5.0 million at any time outstanding;
(ix) the incurrence of Indebtedness arising from agreements of the
Company or a Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, assets or Subsidiary (other than
guarantees of Indebtedness incurred by any Person acquiring all or a portion
of such business, assets or Subsidiary for the purpose of financing such
acquisition), provided that the maximum aggregate liability of all such
Indebtedness shall at no time exceed 50% of the gross proceeds actually
received by the Company or such Subsidiary in connection with such
disposition;
(x) the guarantee by the Company or any Subsidiary of Indebtedness of
the Company or any Subsidiary that was permitted to be incurred by another
provision of this covenant;
For purposes of determining compliance with this Section 4.09, in
the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness described in clauses (i) through (x)
above or is entitled to be incurred pursuant to the first paragraph of this
Section 4.09, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this Section 4.09 and such item of
Indebtedness will be treated as having been incurred
42
<PAGE>
pursuant to only one of such clauses or pursuant to the first paragraph hereof.
Accrual of interest and the accretion of accreted value shall not be deemed to
be an incurrence of Indebtedness for purposes of this Section 4.09.
SECTION 4.10. ASSET SALES
The Company shall not, and shall not permit any of its Subsidiaries
to, consummate an Asset Sale unless (i) the Company (or the Subsidiary, as the
case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value (in the case of an Asset Sale or Asset Sales
aggregating $10,000 or more, evidenced by an Officers' Certificate delivered to
the Trustee and, in the case of any Asset Sale having a fair market value or
resulting in net proceeds in excess of $5.0 million, evidenced by a resolution
of the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash, provided that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet) of the Company or any Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Subsidiary from
further liability and (y) any securities, notes or other obligations received by
the Company or any such Subsidiary from such transferee that are immediately
converted by the Company or such Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds to the making of a Permitted
Investment, the making of a capital expenditure in a Permitted Business or the
acquisition of long-term assets in a Permitted Business. Pending the final
application of any such Net Proceeds, the Company may temporarily or permanently
reduce Indebtedness under a Credit Facility or in accordance with the MFOC
Indenture or otherwise invest such Net Proceeds in any manner that is not
prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph shall be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an Asset
Sale Offer to purchase the maximum principal amount of Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the Accreted Value thereof on the date of purchase (if such
date of purchase is prior to December 1, 2002) or 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of purchase (if such date of purchase is on or after December 1,
2002), in each case in accordance with the procedures set forth in this
Indenture. To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Subsidiaries to
make any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any
43
<PAGE>
property or assets from, or enter into or make any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(a) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Subsidiary with an unrelated
Person and (b) the Company delivers to the Trustee (i) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (a) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (ii) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided, however, that (u)
payments to the Company pursuant to the Tax Sharing Agreement, (v) any
employment agreement entered into by the Company or any of its Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Subsidiary, (w) transactions between or among the Company and/or
its Subsidiaries, (x) Restricted Payments that are permitted under Section 4.07
hereof, (y) the payment of reasonable fees, expense reimbursements and customary
indemnification, advances and other similar arrangements to directors and
officers of the Company and its Subsidiaries and (z) reasonable loans or
advances to employees of the Company and its Subsidiaries in the ordinary course
of business of the Company or such Subsidiary, in each case, shall not be deemed
Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom, except Permitted Liens.
SECTION 4.13. LINE OF BUSINESS.
The Company shall not, and shall not permit any of its Subsidiaries
to, engage in any business other than a Permitted Business, except to such
extent as would not be material to the Company and its Subsidiaries taken as a
whole. In addition, (a) neither the Company nor MFOC shall engage in any Asset
Sale involving MFB, (b) none of the Company, MFOC or MFB will engage in any
Asset Sale involving the "Mrs. Fields" or "Pretzel Time" brand name and (c) for
so long as MFB is a Subsidiary of MFOC or the Company, MFB shall not incur any
Indebtedness (other than its guarantee of the MFOC Notes and any guarantee of
Indebtedness under a Credit Facility).
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or
44
<PAGE>
franchise, or the corporate, partnership or other existence of any of its
Subsidiaries, if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries, taken as a whole, and that the loss thereof is not adverse in
any material respect to the Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall make an
offer (a "Change of Control Offer") to each Holder to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price in cash equal to 101% of the Accreted Value thereof on the date
of purchase (if such date of purchase is prior to December 1, 2002) or 101% of
the aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of repurchase (if such date of
purchase is on or after December 1, 2002) (the "Change of Control Payment").
Within 60 days following any Change of Control, the Company shall mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control stating: (i) that the Change of Control Offer is being made
pursuant to this Section 4.15 and that all Notes tendered will be accepted for
payment; (ii) the purchase price and the purchase date, which shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date"); (iii) that any Note not tendered
will continue to accrue interest; (iv) that, unless the Company defaults in the
payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date; (v) that Holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date; (vi) that Holders will be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the second Business Day preceding the Change of Control Payment
Date, a facsimile transmission or letter setting forth the name of the Holder,
the principal amount of Notes delivered for purchase, and a statement that such
Holder is withdrawing his election to have the Notes purchased; and (vii) that
Holders whose Notes are being purchased only in part will be issued new Notes
equal in principal amount to the unpurchased portion of the Notes surrendered,
which unpurchased portion must be equal to $1,000 in principal amount or an
integral multiple thereof. The Company shall comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Notes in connection with a Change of Control.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (i) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Notes
or portions thereof so tendered and (iii) deliver or cause to be delivered to
the Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and make available for delivery (or cause to be
transferred by book entry) to each Holder a new Note equal in principal amount
to any unpurchased portion of the Notes surrendered by such Holder, if any;
provided that each such new Note shall be in a principal amount of $1,000 or an
integral multiple
45
<PAGE>
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of this Indenture are applicable. The Company shall
not be required to make a Change of Control Offer upon a Change of Control if a
third party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements set forth in Section 4.15 above
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
SECTION 4.16. LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY
OWNED SUBSIDIARIES.
The Company (a) shall not, and shall not permit any Wholly Owned
Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose
of any Capital Stock of any Wholly Owned Subsidiary of the Company to any Person
(other than the Company or a Wholly Owned Subsidiary of the Company), unless (i)
such transfer, conveyance, sale, lease or other disposition is of all the
Capital Stock of such Wholly Owned Subsidiary and (ii) the cash Net Proceeds
from such transfer, conveyance, sale, lease or other disposition are applied in
accordance with Section 4.10 hereof; and (b) shall not permit any Wholly Owned
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Subsidiary of
the Company.
SECTION 4.17. ADVANCES TO SUBSIDIARIES.
All advances to Subsidiaries made by the Company from time to time
after the Issue Date, other than the MFH Capital Contributions, shall be
evidenced by unsecured Subsidiary Intercompany Notes in favor of the Company
that will be pledged to the Collateral Agent pursuant to the Pledge Agreement as
Pledged Collateral to secure the Notes. All advances by the Company to any
Subsidiary outstanding on the date hereof shall be evidenced by an unsecured
Subsidiary Intercompany Note that will be pledged to the Collateral Agent
pursuant to the Pledge Agreement as Pledged Collateral for the Notes. Each
Subsidiary Intercompany Note shall be payable upon demand, shall bear interest
at the same rate as the Notes, and will be subordinated in right of payment to
all existing Senior Debt of the Subsidiary to which such loan is made. ''Senior
Debt'' of Subsidiaries for the purposes of the Subsidiary Intercompany Notes
will be defined as all Indebtedness of such Subsidiaries that is not
specifically by its terms made pari passu with or junior to such Subsidiary
Intercompany Notes. A form of Subsidiary Intercompany Note is attached as
Exhibit F hereto. Repayments of principal with respect to any Subsidiary
Intercompany Note shall be required to be pledged to the Collateral Agent
pursuant to the Pledge Agreement as Pledged Collateral to secure the Notes until
such amounts are advanced to a Subsidiary in accordance with this Indenture.
The Company shall not permit any Subsidiary in respect of which the
Company is a creditor by virtue of a Subsidiary Intercompany Note to incur any
Indebtedness that is subordinate or junior in right of payment to any Senior
Debt of such Subsidiary and senior in any respect in right of payment to any
Subsidiary Intercompany Note.
46
<PAGE>
SECTION 4.18. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
SECTION 4.19. CALCULATION OF ORIGINAL ISSUE DISCOUNT.
The Company shall provide to the Trustee on a timely basis such
information as the Trustee requires to enable the Trustee to prepare and file
any form required to be submitted by the Company with the Internal Revenue
Service and the Holders of Notes relating to original issue discount, including,
without limitation, Form 1099-OID or any successor form.
ARTICLE 5.
SUCCESSORS
SECTION 5.01 MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation) or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another corporation, Person or
entity unless (i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia, (ii) the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) or the entity or Person to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all the obligations of the Company under the Notes
and this Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, (iii) immediately after such transaction, no
Default or Event of Default exists, and (iv) except in the case of a merger of
the Company with or into a Wholly Owned Subsidiary of the Company, the Company
or the entity or Person formed by or surviving any such consolidation or merger
(if other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (A) shall have Consolidated
Net Worth (immediately after the transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) shall, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.09 hereof.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section
47
<PAGE>
5.01 hereof, the successor corporation formed by such consolidation or into or
with which the Company is merged or to which such sale, assignment, transfer,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for (so that from and after the date of such consolidation, merger,
sale, lease, conveyance or other disposition, the provisions of this Indenture
referring to the "Company" shall refer instead to the successor corporation and
not to the Company), and may exercise every right and power of the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; provided, however, that the predecessor Company shall not
be relieved from the obligation to pay the principal of and interest on the
Notes except in the case of a sale of all of the Company's assets that meets the
requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes and such default
continues for a period of 30 days;
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Notes when the same becomes due and payable at maturity,
upon redemption (including in connection with an offer to purchase) or
otherwise;
(c) the Company fails to observe or perform any covenant, representation,
warranty or other agreement in this Indenture or the Notes for 30 days after
notice to the Company by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding voting as a single class;
(d) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries),
whether such Indebtedness or guarantee now exists, or is created after the Issue
Date, which default (i) is caused by a failure to pay principal of or premium,
if any, or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a "Payment
Default") or (ii) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $2.5 million or more;
(e) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company or
any of its Subsidiaries and such judgment or judgments remain undischarged for a
period (during which execution shall not be effectively stayed) of 60 days,
provided that the aggregate of all such undischarged judgments exceeds $2.5
million;
48
<PAGE>
(f) a breach by the Company or any Subsidiary that has pledged a
Subsidiary Intercompany Note of any representation or warranty set forth in the
Pledge Agreement, or repudiation by the Company or any such Subsidiary of its
obligations under the Pledge Agreement or the unenforceability of the Pledge
Agreement against the Company or any such Subsidiary for any reason; or
(g) the Company or any of its Subsidiaries pursuant to or within the
meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is not paying its debts as they become due; or
(h) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(i) is for relief against the Company or any of its Subsidiaries in an
involuntary case;
(ii) appoints a Custodian of the Company or any of its Subsidiaries or for
all or substantially all of the property of the Company or any of its
Subsidiaries; or
(iii) orders the liquidation of the Company or any of its Subsidiaries; and
the order or decree remains unstayed and in effect for 60 consecutive days.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (g) of Section 6.01 hereof with respect to the Company, any Significant
Subsidiary or any group of Significant Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount at maturity of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Upon any such declaration, the Notes shall become due and payable immediately.
Notwithstanding the foregoing, if an Event of Default specified in clause (g) or
(h) of Section 6.01 hereof occurs with respect to the Company, any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary, all outstanding Notes shall be due
and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except
49
<PAGE>
nonpayment of principal, interest or premium that has become due solely because
of the acceleration) have been cured or waived.
If an Event of Default occurs by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding payment of the premium that the Company would have had to pay if the
Company then had elected to redeem the Notes pursuant to Section 3.07 hereof,
then, upon acceleration of the Notes, an equivalent premium shall also become
and be immediately due and payable, to the extent permitted by law, anything in
this Indenture or in the Notes to the contrary notwithstanding. If an Event of
Default occurs prior to December 1, 2002 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the intention
of avoiding the prohibition on redemption of the Notes prior to such date, then,
upon acceleration of the Notes, an additional premium shall also become and be
immediately due and payable, to the extent permitted by law, in an amount, for
each of the years beginning on December 1 of the years set forth below, as set
forth below (expressed as percentages of Accreted Value and Liquidated Damages,
if any, to the date of payment that would otherwise be due but for the
provisions of this sentence):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1998........................................ 114.000%
1999........................................ 112.250%
2000........................................ 110.500%
2001........................................ 108.750%
</TABLE>
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04 WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by written notice to the Trustee may on behalf of the
Holders of all of the Notes waive an existing Default or Event of Default and
its consequences hereunder, except a continuing Default or Event of Default in
the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
50
<PAGE>
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount at maturity of the
then outstanding Notes make a written request to the Trustee to pursue the
remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
51
<PAGE>
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall
be deemed to authorize the Trustee to authorize or consent to or accept or adopt
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its
52
<PAGE>
discretion may assess reasonable costs,including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to
Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount
of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express
provisions of this Indenture and the Trustee need perform only those duties
that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own negligent
action, its own negligent failure to act, or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in good
faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes
or omits to take in good faith in accordance with a direction received by it
pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have
53
<PAGE>
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection from liability in respect of any
action taken, suffered or omitted by it hereunder in good faith and in reliance
thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from the Company shall be sufficient if signed by
an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction.
(g) The Trustee shall not be deemed to have notice of any Default or Event
of Default unless a Responsible Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default is
received by the Trustee at the Corporate Trust Office of the Trustee, and such
notice references the Securities and this Indenture.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as
54
<PAGE>
trustee or resign. Any Agent may do the same with like rights and duties. The
Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the Issue Date, and for so long as Notes remain outstanding, the Trustee shall
mail to the Holders of the Notes a brief report dated as of such reporting date
that complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a)
has occurred within the twelve months preceding the reporting date, no report
need be transmitted). The Trustee also shall comply with TIA (S) 313(b)(2).
The Trustee shall also transmit by mail all reports as required by TIA (S)
313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA (S) 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange or delisted therefrom.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties
55
<PAGE>
under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this Section 7.07) and defending itself
against any claim (whether asserted by the Company or any Holder or any other
person) or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.
SECTION 7.08 REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
56
<PAGE>
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition, at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, provided
all sums owing to the Trustee hereunder have been paid and subject to the Lien
provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
57
<PAGE>
SECTION 7.12. TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY.
Any application by the Trustee for written instructions from the
Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the date
on and/or after which such action shall be taken or such omission shall be
effective. The Trustee shall not be liable for any action taken by, or omission
of, the Trustee in accordance with a proposal included in such application on or
after the date specified in such application (which date shall not be less than
three Business Days after the date any officer of the Company actually receives
such application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders
of outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest and Liquidated Damages, if any,
on such Notes when such payments are due, (b) the Company's obligations with
respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the Company's
obligations in connection therewith and (d) this Article Eight. Subject to
compliance with this Article Eight, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 hereof.
58
<PAGE>
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof with respect to
the outstanding Notes on and after the date the conditions set forth in Section
8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(d) through 6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders, cash in United States dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and Liquidated Damages,
if any, and interest on the outstanding Notes on the stated date for payment
thereof or on the applicable redemption date, as the case may be, and the
Company must specify whether the Notes are being defeased to maturity or to a
particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the Issue Date, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
59
<PAGE>
(c) in the case of an election under Section 8.03 hereof, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default resulting
from the incurrence of Indebtedness all or a portion of the proceeds of which
will be used to defease the Notes pursuant to this Article Eight concurrently
with such incurrence) or insofar as Sections 6.01(g) or 6.01(h) hereof are
concerned, at any time in the period ending on the 91/st/ day after the date of
deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;
(f) the Company shall have delivered to the Trustee an Opinion of Counsel
(which may be subject to customary exceptions) to the effect that on the 91/st/
day following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to
60
<PAGE>
Section 8.04 hereof or the principal and interest received in respect thereof
other than any such tax, fee or other charge which by law is for the account of
the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
61
<PAGE>
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not materially adversely affect any
Holder;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Notes by a successor to the Company pursuant to Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Note; or
(e) to comply with requirements of the SEC in order to effect or maintain
the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company in the execution of any
amended or supplemental Indenture authorized or permitted by the terms of this
Indenture and to make any further appropriate agreements and stipulations that
may be therein contained, but the Trustee shall not be obligated to enter into
such amended or supplemental Indenture that affects its own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture and the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in principal
amount of the Notes then outstanding voting as a single class (including,
without limitation, consents obtained in connection with a tender offer or
exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04
and 6.07 hereof, any existing Default or Event of Default (other than a Default
or Event of Default in the payment of the principal of, premium, if any, or
interest on the Notes, except a payment default resulting from an acceleration
that has been rescinded) or compliance with any provision of this Indenture or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes voting as a single class
(including consents obtained in connection with a tender offer or exchange offer
for, or purchase of, the Notes). Section 2.08 hereof shall determine which Notes
are considered to be "outstanding" for purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental Indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.
62
<PAGE>
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as a
single class may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the consent of
each Holder affected, an amendment or waiver under this Section 9.02 may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter or waive any of the provisions with respect to the redemption of the Notes
except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Notes (except a rescission of acceleration
of the Notes by the Holders of at least a majority in aggregate principal amount
of the then outstanding Notes and a waiver of the payment default that resulted
from such acceleration);
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, if any, or interest on the Notes;
(g) make any change in Section 6.04 or 6.07 hereof or in the foregoing
amendment and waiver provisions; or
(h) waive a redemption payment with respect to any Note (other than a
payment required by Section 4.10 or 4.15 hereof).
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
63
<PAGE>
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 11.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10.
COLLATERAL AND SECURITY
SECTION 10.01. PLEDGE AGREEMENT.
The due and punctual payment of the principal of and interest and
Liquidated Damages, if any, on the Notes when and as the same shall be due and
payable, whether on an interest payment date, at maturity, by acceleration,
repurchase, redemption or otherwise, and interest on the overdue principal of
and interest and Liquidated Damages (to the extent permitted by law), if any, on
the Notes and performance of all other obligations of the Company to the Holders
of Notes or the Trustee under this Indenture and the Notes, according to the
terms hereunder or thereunder, shall be secured as provided in the Pledge
Agreement which the Company has entered into simultaneously with the execution
of this Indenture and which is attached as Exhibit E hereto. Each Holder of
Notes, by its acceptance thereof, consents and agrees to the terms of the Pledge
Agreement (including, without limitation, the provisions providing for
foreclosure and release of Pledged Collateral) as the same may be in effect or
may be amended from time to time in accordance with its terms and authorizes and
directs the Collateral Agent
64
<PAGE>
to enter into the Pledge Agreement and to perform its obligations and exercise
its rights thereunder in accordance therewith. The Company shall deliver to the
Trustee copies of all documents delivered to the Collateral Agent pursuant to
the Pledge Agreement, and shall do or cause to be done all such acts and things
as may be necessary or proper, or as may be required by the provisions of the
Pledge Agreement, to assure and confirm to the Trustee and the Collateral Agent
the security interest in the Pledged Collateral contemplated hereby, by the
Pledge Agreement or any part thereof, as from time to time constituted, so as to
render the same available for the security and benefit of this Indenture and of
the Notes secured hereby, according to the intent and purposes herein expressed.
The Company shall take, or shall cause its Subsidiaries to take, upon request of
the Trustee, any and all actions reasonably required to cause the Pledge
Agreement to create and maintain, as security for the Obligations of the Company
hereunder, a valid and enforceable perfected first priority Lien in and on all
the Pledged Collateral, in favor of the Collateral Agent for the benefit of the
Holders of Notes, superior to and prior to the rights of all third Persons and
subject to no other Liens than Permitted Liens.
SECTION 10.02. RECORDING AND OPINIONS.
(a) The Company shall furnish to the Trustee, or shall permit the
Trustee to rely on, simultaneously with the execution and delivery of this
Indenture, an Opinion of Counsel either (i) stating that in the opinion of such
counsel all action has been taken to make effective the Lien intended to be
created by the Pledge Agreement, and reciting with respect to the security
interests in the Pledged Collateral, the details of such action, or (ii) stating
that, in the opinion of such counsel, no such action is necessary to make such
Lien effective.
(b) The Company shall furnish to the Collateral Agent and the Trustee
on April 30 in each year beginning with April 30, 1999, an Opinion of Counsel,
dated as of such date, either (i) (A) stating that, in the opinion of such
counsel, action has been taken with respect to the recording, registering,
filing, re-recording, re-registering and refiling of all supplemental
indentures, financing statements, continuation statements or other instruments
of further assurance as is necessary to maintain the Lien of the Pledge
Agreement and reciting with respect to the security interests in the Pledged
Collateral the details of such action or referring to prior Opinions of Counsel
in which such details are given, (B) stating that, based on relevant laws as in
effect on the date of such Opinion of Counsel, all financing statements and
continuation statements have been executed and filed that are necessary as of
such date and during the succeeding 12 months fully to preserve and protect, to
the extent such protection and preservation are possible by filing, the rights
of the Holders of Notes and the Collateral Agent and the Trustee hereunder and
under the Pledge Agreement with respect to the security interests in the Pledged
Collateral, or (ii) stating that, in the opinion of such counsel, no such action
is necessary to maintain such Lien and assignment.
(c) The Company shall otherwise comply with the provisions of TIA
(S)314(b).
SECTION 10.03. RELEASE OF COLLATERAL.
(a) Subject to subsections (b), (c) and (d) of this Section 10.03,
Pledged Collateral may be released from the Lien and security interest created
by the Pledge Agreement at any time or from time to time in accordance with the
provisions of the Pledge Agreement or as provided hereby. In addition, upon the
request of the Company pursuant to an Officers' Certificate certifying that all
conditions precedent hereunder have been met and stating whether or not such
release is in connection
65
<PAGE>
with an Asset Sale and (at the sole cost and expense of the Company) the
Collateral Agent shall release (i) Pledged Collateral that is sold, conveyed or
disposed of in compliance with the provisions of this Indenture; provided, that
if such sale, conveyance or disposition constitutes an Asset Sale, the Company
shall apply the Net Proceeds in accordance with Section 4.10 hereof. Upon
receipt of such Officers' Certificate the Collateral Agent shall execute,
deliver or acknowledge any necessary or proper instruments of termination,
satisfaction or release to evidence the release of any Pledged Collateral
permitted to be released pursuant to this Indenture or the Pledge Agreement.
(b) No Pledged Collateral shall be released from the Lien and
security interest created by the Pledge Agreement pursuant to the provisions of
the Pledge Agreement unless there shall have been delivered to the Collateral
Agent the certificate required by this Section 10.03.
(c) At any time when a Default or Event of Default shall have
occurred and be continuing and the maturity of the Notes shall have been
accelerated (whether by declaration or otherwise) and the Trustee shall have
delivered a notice of acceleration to the Collateral Agent, no release of
Pledged Collateral pursuant to the provisions of the Pledge Agreement shall be
effective as against the Holders of Notes.
(d) The release of any Pledged Collateral from the terms of this
Indenture and the Pledge Agreement shall not be deemed to impair the security
under this Indenture in contravention of the provisions hereof if and to the
extent the Pledged Collateral is released pursuant to the terms hereof. To the
extent applicable, the Company shall cause TIA (S) 313(b), relating to reports,
and TIA (S) 314(d), relating to the release of property or securities from the
Lien and security interest of the Pledge Agreement and relating to the
substitution therefor of any property or securities to be subjected to the Lien
and security interest of the Pledge Agreement, to be complied with. Any
certificate or opinion required by TIA (S) 314(d) may be made by an Officer of
the Company except in cases where TIA (S) 314(d) requires that such certificate
or opinion be made by an independent Person, which Person shall be an
independent engineer, appraiser or other expert selected or approved by the
Trustee and the Collateral Agent in the exercise of reasonable care.
SECTION 10.04. CERTIFICATES OF THE COMPANY.
The Company shall furnish to the Trustee and the Collateral Agent,
prior to each proposed release of Pledged Collateral pursuant to the Pledge
Agreement, (i) all documents required by TIA (S)314(d) and (ii) an Opinion of
Counsel, which may be rendered by internal counsel to the Company, to the effect
that such accompanying documents constitute all documents required by TIA
(S)314(d). The Trustee may, to the extent permitted by Sections 7.01 and 7.02
hereof, accept as conclusive evidence of compliance with the foregoing
provisions the appropriate statements contained in such documents and such
Opinion of Counsel.
SECTION 10.05. CERTIFICATES OF THE TRUSTEE.
In the event that the Company wishes to release Pledged Collateral in
accordance with the Pledge Agreement and has delivered the certificates and
documents required by the Pledge Agreement and Sections 10.03 and 10.04 hereof,
the Trustee shall determine whether it has received all documentation required
by TIA (S)314(d) in connection with such release and, based on such
66
<PAGE>
determination and the Opinion of Counsel delivered pursuant to Section 10.04(b),
shall deliver a certificate to the Collateral Agent setting forth such
determination.
SECTION 10.06. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE TRUSTEE UNDER THE
PLEDGE AGREEMENT.
Subject to the provisions of Section 7.01 and 7.02 hereof, the Trustee
may, in its sole discretion and without the consent of the Holders of Notes,
direct, on behalf of the Holders of Notes, the Collateral Agent to, take all
actions it deems necessary or appropriate in order to (a) enforce any of the
terms of the Pledge Agreement and (b) collect and receive any and all amounts
payable in respect of the Obligations of the Company hereunder. The Trustee
shall have power to institute and maintain such suits and proceedings as it may
deem expedient to prevent any impairment of the Pledged Collateral by any acts
that may be unlawful or in violation of the Pledge Agreement or this Indenture,
and such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Holders of Notes in the Pledged
Collateral (including power to institute and maintain suits or proceedings to
restrain the enforcement of or compliance with any legislative or other
governmental enactment, rule or order that may be unconstitutional or otherwise
invalid if the enforcement of, or compliance with, such enactment, rule or order
would impair the security interest hereunder or be prejudicial to the interests
of the Holders of Notes or of the Trustee).
SECTION 10.07. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE UNDER THE PLEDGE
AGREEMENT.
The Trustee is authorized to receive any funds for the benefit of the
Holders of Notes distributed under the Pledge Agreement, and to make further
distributions of such funds to the Holders of Notes according to the provisions
of this Indenture.
SECTION 10.08. TERMINATION OF SECURITY INTEREST.
Upon the payment in full of all Obligations of the Company under this
Indenture and the Notes, or upon Legal Defeasance, the Trustee shall, at the
request of the Company, deliver a certificate to the Collateral Agent stating
that such Obligations have been paid in full, and instruct the Collateral Agent
to release the Liens pursuant to this Indenture and the Pledge Agreement.
ARTICLE 11.
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the imposed duties shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telecopier or
overnight air courier guaranteeing next day delivery, to the others' address
67
<PAGE>
If to the Company:
Mrs. Fields' Holding Company, Inc.
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
Telecopier No.: (801) 736-5970
Attention: Michael Ward
If to the Trustee:
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Administration
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the
next Business Day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).
68
<PAGE>
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA
(S) 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee, incorporator
or stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
69
<PAGE>
SECTION 11.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 11.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
70
<PAGE>
SIGNATURES
Dated as of August 24, 1998
MRS. FIELDS' HOLDING COMPANY, INC.
By:_____________________________________
Name: Larry Hodges
Title: Chief Executive Officer
Attest:
_________________________
Name:
Title:
THE BANK OF NEW YORK, AS TRUSTEE
By:_____________________________________
Name:
Title:
<PAGE>
EXHIBIT A
(Face of Note)
================================================================================
FOR THE PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT.
YOU MAY CONTACT TIM PIERCE, THE CHIEF FINANCIAL OFFICER OF MRS. FIELDS' HOLDING
COMPANY, INC., AT 2855 EAST COTTONWOOD PARKWAY, SUITE 400, SALT LAKE CITY, UTAH
84121, TELEPHONE NUMBER: (801) 736-5600, WHO WILL PROVIDE YOU WITH ANY REQUIRED
INFORMATION REGARDING THE ORIGINAL ISSUE DISCOUNT.
CUSIP/CINS_____________
14% [SERIES A] [SERIES B] SENIOR SECURED DISCOUNT NOTES DUE 2005
NO.______ $
MRS. FIELDS' HOLDING COMPANY, INC.
promises to pay to__________________________________________________________
or registered assigns, the principal sum of_________________________________
Dollars on December 1, 2005.
Interest Payment Dates: June 1, and December 1
Record Dates: May 15 and November 15
MRS. FIELDS' HOLDING COMPANY, INC.
By:________________________________
Name: Larry Hodges
Title: Chief Executive Officer
(SEAL)
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
Dated:
The Bank of New York,
as Trustee
By:_______________________________
A-1
<PAGE>
Authorized Signatory
================================================================================
(Back of Note)
14% [Series A] [Series B] Senior Secured Discount Notes due 2005
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(A) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.]/1/
[THIS SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN
THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB") OR (B) IT IS
AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT IT
WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR
ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (C)
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES
ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
____________________________________
/1/ This paragraph should be included only if the Senior Secured Discount Note
is issued in global form.
A-2
<PAGE>
PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE
TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY)
OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING.]/1/
[THE NOTES EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS, EACH OF WHICH CONSIST OF $1,000 PRINCIPAL AMOUNT AT MATURITY
OF THE NOTES AND ONE WARRANT (EACH, A "WARRANT") INITIALLY ENTITLING THE HOLDER
THEREOF TO PURCHASE 3.14411 SHARES, PAR VALUE $0.001 PER SHARE, OF THE COMPANY.
THE NOTES AND WARRANTS WILL BE AUTOMATICALLY SEPARATED UPON THE EARLIEST TO
OCCUR OF (I) 180 DAYS FROM THE DATE OF ISSUANCE, (II) THE DATE OF REDEMPTION OF
THE NOTES, (III) THE DATE ON WHICH A REGISTRATION STATEMENT WITH RESPECT TO A
REGISTERED EXCHANGE OFFER FOR THE NOTES IS DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (IV) THE DATE ON WHICH THE SHELF REGISTRATION STATEMENT (AS
DEFINED IN THE INDENTURE) IS DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (V)
SUCH DATE AS JEFFERIES & COMPANY, INC., IN ITS SOLE DISCRETION, SHALL DETERMINE,
(VI) IN THE EVENT OF A CHANGE OF CONTROL (AS DEFINED IN THE INDENTURE) AND (VII)
UPON AN IPO, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR
SEPARATED FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE
WARRANTS UNTIL THE SEPARATION DATE.]/2/
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Mrs. Fields' Holding Company, Inc., a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 14% per annum from December 1, 2002 until maturity and shall pay
the Liquidated Damages, if any, payable pursuant to the
___________________________________
/1/ This paragraph should be removed upon the exchange of Series A Senior
Secured Discount Notes for Series B Senior Secured Discount Notes in the
Exchange Offer or upon the registration of the Series A Senior Secured Discount
Notes pursuant to the terms of the Registration Rights Agreement.
/2/ This paragraph should be removed on the Separation Date.
A-3
<PAGE>
Registration Rights Agreement referred to below. The Company will pay interest
and Liquidated Damages, if any, semi-annually on June 1 and December 1 of each
year, or if any such day is not a Business Day, on the next succeeding Business
Day (each an "Interest Payment Date"). The Notes will accrete at a rate of 14%
per annum, compounded semi-annually to an aggregate principal amount of $55.0
million at December 1, 2002. Thereafter, interest on the Notes will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from December 1, 2002. No cash interest will be payable on the Notes prior
to December 1, 2002. The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at a rate that is 1% per annum in
excess of the rate then in effect; it shall pay interest (including post-
petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages, if any, (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages, if any, to the Persons who
are registered Holders of Notes at the close of business on the May 15 or
November 15 next preceding the Interest Payment Date, even if such Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Notes will be payable as to principal, premium and Liquidated
Damages, if any, and interest at the office or agency of the Company maintained
for such purpose within or without the City and State of New York, or, at the
option of the Company, payment of interest and Liquidated Damages, if any, may
be made by check mailed to the Holders at their addresses set forth in the
register of Holders, and provided that payment by wire transfer of immediately
available funds will be required with respect to principal of and interest,
premium and Liquidated Damages, if any, on, all Global Notes and all other Notes
the Holders of which shall have provided wire transfer instructions to the
Company or the Paying Agent. Such payment shall be in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New York, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The Company
may change any Paying Agent or Registrar without notice to any Holder. The
Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE AND PLEDGE AGREEMENT. The Company issued the Notes under
an Indenture dated as of August 24, 1998 (the "Indenture") between the Company
and the Trustee. The terms of the Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Note conflicts with
the express provisions of the Indenture, the provisions of the Indenture shall
govern and be controlling. The Notes are secured obligations of the Company
limited to $55.0 million in aggregate principal amount. The Notes are secured by
a pledge of all of the outstanding capital stock of Mrs. Fields' Original
Cookies, Inc. pursuant to the Pledge Agreement referred to in the Indenture.
5. OPTIONAL REDEMPTION.
A-4
<PAGE>
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Company shall not have the option to redeem the Notes pursuant to this Paragraph
5 prior to December 1, 2002. Thereafter, the Company shall have the option to
redeem the Notes, in whole or in part at any time, upon not less than 30 nor
more than 60 days' notice, in whole or in part, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
December 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002................................................ 107.000%
2003................................................ 103.500%
2004 and thereafter................................. 100.000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to December 1, 2002, the Notes will be redeemable
at the option of the Company, in whole but not in part, in cash at a redemption
price equal to 114% of the Accreted Value (determined at the date of redemption)
with the net cash proceeds of one or more Public Equity Offerings; provided that
such redemption shall occur within 60 days of the date of any such closing of
such Public Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required to
make an offer (a "Change of Control Offer") to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price in cash equal to 101% of the Accreted Value thereof on the date of
purchase (if such date of purchase is prior to December 1, 2002) or 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of repurchase (if such date of
purchase is on or after December 1, 2002) (the "Change of Control Payment").
Within 60 days following any Change of Control, the Company shall mail a notice
to each Holder describing the transaction or transactions that constitute the
Change of Control and setting forth the procedures governing the Change of
Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five days of each date on which the aggregate amount of Excess Proceeds exceeds
$5.0 million, the Company shall commence an offer to all Holders of Notes (as
"Asset Sale Offer") pursuant to the Indenture to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds at an offer
price in cash in an amount equal to 100% of the Accreted Value thereof on the
date of purchase (if such date of purchase is prior to December 1, 2002) or 100%
of the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase (if such date of purchase is on
or after December 1, 2002), in each case, in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use such remaining Excess Proceeds for general
A-5
<PAGE>
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero. Holders of Notes
that are the subject of an offer to purchase will receive an Asset Sale Offer
from the Company prior to any related purchase date and may elect to have such
Notes purchased by completing the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes
or portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes voting as a single class (including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange offer for, Notes),
and any existing default or compliance with any provision of the Indenture or
the Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Notes voting as a single class
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes). Without the consent of any
Holder of a Note, the Indenture or the Notes may be amended or supplemented to
cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to provide for the assumption
of the Company's obligations to Holders of the Notes in case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, or to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages, if
any, with respect to the Notes; (ii) default in payment when due of principal of
or premium, if any, on the Notes, (iii) failure by the
A-6
<PAGE>
Company for 30 days to comply with any of its other agreements in the Indenture
or the Notes; (iv) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or guarantee exists as of the date of the Indenture or
is created after the date of the Indenture, which default (A) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (B) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $2.5 million or more; (v) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $2.5 million, which judgments are not paid, discharged or stayed for a
period of 60 days; (vi) breach by the Company or any Subsidiary that has pledged
a Subsidiary Intercompany Note of any representation or warranty set forth in
the Pledge Agreement, or repudiation by the Company or any such Subsidiary of
its obligations under the Pledge Agreement or the unenforceability of the Pledge
Agreement against the Company or any such Subsidiary for any reason; and (vii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes. The Company is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
A-7
<PAGE>
15. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of August 24, 1998, between the Company and the parties named
on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
A-8
<PAGE>
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Mrs. Fields' Holding Company, Inc.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah, 84121
Attention: Treasurer
A-9
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:__________ Your Signature:___________________________
(Sign exactly as your name appears on
the Note)
Signature Guarantee./1/
__________________________________
/1/ Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
[_] Section 4.10 [_] Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $________
Date:__________ Your Signature:_____________________________
(Sign exactly as your name appears on
the Note)
Tax Identification No:________________________________
Signature Guarantee./1/
__________________________________
/1/ Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include
membership or participation in the Security Transfer Agent Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
A-11
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<S> <C> <C> <C> <C>
Principal Amount
Amount of Amount of increase of
decrease in in Principal this Global Note Signature of
Principal Amount Amount following authorized officer
of of such decrease of Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ------------------- -------------------- -------------------- ------------------ ---------------------
</TABLE>
A-12
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Mrs. Fields' Holding Company, Inc.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah, 84121
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Re: 14% Senior Secured Discount Notes due 2005 of Mrs. Fields'
Holding Company, Inc.
Reference is hereby made to the Indenture, dated as of August 24, 1998
(the "Indenture"), between Mrs. Fields' Holding Company, Inc., as issuer (the
---------
"Company"), and The Bank of New York, as trustee. Capitalized terms used but
-------
not defined herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
----------
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
--------
to __________ (the "Transferee"), as further specified in Annex A hereto. In
----------
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [_] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
----------------------------------------------------------------------
GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being
- ------------------------------------------------------
effected pursuant to and in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the
---------- ---
Transferor hereby further certifies that the beneficial interest or Definitive
Note is being transferred to a Person that the Transferor reasonably believed
and believes is purchasing the beneficial interest or Definitive Note for its
own account, or for one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A in a transaction
meeting the requirements of Rule 144A and such Transfer is in compliance with
any applicable blue sky securities laws of any state of the United States. Upon
consummation of the proposed Transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the Global Note and/or the Definitive Note and in the
Indenture and the Securities Act.
2. [_] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A DEFINITIVE NOTE PURSUANT
--------------------------------------------------------------------
TO REGULATION S. The Transfer is being effected pursuant to and in accordance
- ---------------
with Rule 903 or Rule 904 under the Securities Act and, accordingly, the
Transferor hereby further certifies that (i) the Transfer is not being made to a
person in the United States and (x) at the time the buy order was originated,
the Transferee was
B-1
<PAGE>
outside the United States or such Transferor and any Person acting on its behalf
reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any Person
acting on its behalf knows that the transaction was prearranged with a buyer in
the United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act, (iii) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act and (iv) if the
proposed transfer is being made prior to the expiration of the Restricted
Period, the transfer is not being made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Definitive Note and in the Indenture and the Securities Act.
3. [_] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
-------------------------------------------------------------------
INTEREST IN A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT
- -----------------------------------------------------------------------------
OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in
- ------------------------------------
compliance with the transfer restrictions applicable to beneficial interests in
Restricted Global Notes and Restricted Definitive Notes and pursuant to and in
accordance with the Securities Act and any applicable blue sky securities laws
of any state of the United States, and accordingly the Transferor hereby further
certifies that (check one):
(a) [_] such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) [_] such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) [_] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) [_] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
Restricted Definitive Notes and the requirements of the exemption claimed, which
certification is supported by (1) a certificate executed by the Transferee in
the form of Annex A to the Offering Circular (if such Transfer is being effected
prior to the Separation Date) or in the form of Exhibit D to the Indenture (if
such Transfer is being effected after the Separation Date) and (2) if such
Transfer is in respect of a principal amount of Notes at the time of transfer of
less than $250,000, has attached to this certification), to the effect that such
Transfer is in compliance with the Securities Act. Upon consummation of the
proposed transfer in accordance with the terms of the
B-2
<PAGE>
Indenture, the transferred Definitive Note will be subject to the restrictions
on transfer enumerated in the Private Placement Legend printed on the Definitive
Notes and in the Indenture and the Securities Act.
4. [_] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN
---------------------------------------------------------------------
UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
- --------------------------------------------------------------
(a) [_] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [_] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
state of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act. Upon consummation of the proposed
Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the
Indenture.
(c) [_] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i)
The Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
__________________________________
[Insert Name of Transferor]
By:_______________________________
B-3
<PAGE>
Name:
Title:
Dated:_________, _____
B-4
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [_] a beneficial interest in the:
[_] Global Note (CUSIP _________), or
(b) [_] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE OF (a), (b) or (c)]
(a) [_] a beneficial interest in the:
(i) [_] Global Note (CUSIP ________), or
(ii) [_] Unrestricted Global Note (CUSIP ________); or
(b) [_] a Restricted Definitive Note; or
(c) [_] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-5
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Mrs. Fields' Holding Company, Inc.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah, 84121
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Re: 14% Senior Secured Discount Notes due 2005 of Mrs. Fields'
Holding Company, Inc.
(CUSIP ______________)
Reference is hereby made to the Indenture, dated as of August 24, 1998
(the "Indenture"), between Mrs. Fields' Holding Company, Inc., as issuer (the
---------
"Company"), and The Bank of New York, as trustee. Capitalized terms used but
- --------
not defined herein shall have the meanings given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the Note[s]
-----
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
--------
the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN AN UNRESTRICTED GLOBAL NOTE
(a) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
--------------------------------------------------
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE.
- ----------------------------------------------------------------------------
In connection with the Exchange of the Owner's beneficial interest in a
Restricted Global Note for a beneficial interest in an Unrestricted Global Note
in an equal principal amount, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to the Global Notes and pursuant to and in accordance with the United
States Securities Act of 1933, as amended (the "Securities Act"), (iii) the
--------------
restrictions on transfer contained in the Indenture and the Private Placement
Legend are not required in order to maintain compliance with the Securities Act
and (iv) the beneficial interest in an Unrestricted Global Note is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(b) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
--------------------------------------------------
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
- ------------------------------------------------------
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and
C-1
<PAGE>
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Definitive Note is being acquired in compliance with any applicable blue sky
securities laws of any state of the United States.
(c) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
-------------------------------------------------------
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
- --------------------------------------------------
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
-------------------------------------------------------
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
- ----------------------------
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES
(a) [_] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
--------------------------------------------------
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
- ----------------------------------------------------
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) [_] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
-------------------------------------------------------
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the
- -----------------------------------------------
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the Global Note, with an equal principal amount, the Owner hereby certifies (i)
the beneficial interest is being acquired for the Owner's own account without
transfer and (ii) such Exchange has been effected in compliance with the
transfer restrictions applicable to the Restricted Global Notes and pursuant to
and in accordance with the Securities Act, and in compliance with any applicable
blue sky securities laws of any state of the United States. Upon consummation
of the proposed Exchange in accordance with the terms of the Indenture, the
beneficial interest issued will be
C-2
<PAGE>
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the relevant Restricted Global Note and in the Indenture and
the Securities Act.
C-3
<PAGE>
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
___________________________________
[Insert Name of Owner]
By: _______________________________
Name:
Title:
Dated: ________________, ____
C-4
<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Mrs. Fields' Holding Company, Inc.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah, 84121
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Re: 14% Senior Secured Discount Notes due 2005 of Mrs. Fields'
Holding Company, Inc.
Reference is hereby made to the Indenture, dated as of August 24, 1998
(the "Indenture"), between Mrs. Fields' Holding Company, Inc., as issuer (the
---------
"Company"), and The Bank of New York, as trustee. Capitalized terms used but
-------
not defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________
aggregate principal amount of a Definitive Note, we confirm that:
1. We understand that the Senior Notes are not being and will not be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and are being sold to us in a transaction that is exempt from the registration
requirements of the Securities Act.
2. We acknowledge that (a) neither the Company, nor the Initial
Purchasers (as defined in the Offering Circular, dated August 13, 1998, relating
to the Senior Notes (the "Offering Circular")) nor any persons acting on behalf
of the Company or the Initial Purchasers have made any representation to us with
respect to the Company or the offer or sale of any Senior Notes and (b) any
information we desire concerning the Company and the Senior Notes or any other
matter relevant to our decision to purchase the Senior Notes (including a copy
of the Offering Circular) is or has been made available to us.
3. We have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an investment in
the Senior Notes, and we are (or any account for which we are purchasing under
paragraph 4 below is) an institutional "accredited investor" (within the meaning
of Rule 501 (a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
able to bear the economic risk of investment in the Senior Notes.
4. We are acquiring the Senior Notes for our own account (or for
accounts as to which we exercise sole investment discretion and have authority
to make, and do make, the statements contained in this letter) and not with a
view to any distribution of the Senior Notes in a transaction that
D-1
<PAGE>
would violate the Securities Act or the securities laws of any State of the
United States or any other applicable jurisdiction, subject, nevertheless, to
the understanding that the disposition of our property will at all times be and
remain within our control.
5. We understand that the Senior Notes will be in registered form
only and that any certificates delivered to us in respect of the Senior Notes
will bear a legend to the following effect:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) (A "QIB"), (B) IT IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (A)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), (2) AGREES THAT IT WILL
NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY
OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES
ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED
FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY)
OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION" AND "UNITED STATES" HAVE THE MEANING GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING."
We agree that in the event that at some future time we wish to dispose
of any of the Senior Notes, we will not do so unless such disposition is made in
accordance with any applicable
D-2
<PAGE>
securities laws of any state of the United States and: (a) the Senior Notes are
sold in compliance with Rule 114(k) under the Securities Act; (b) the Senior
Notes are sold in compliance with Rule 144A under the Securities Act; (c) the
Senior Notes are sold in compliance with Rule 904 of Regulation S under the
Securities Act; (d) the Senior Notes are sold pursuant to an effective
registration statement under the Securities Act; (e) the Senior Notes are sold
to the Company or an affiliate (as defined in Rule 501 (b) of Regulation D) of
the Company; or (f) the Senior Notes are disposed of in any other transaction
that does not require registration under the Securities Act, and prior to such
disposition we have furnished to the Company or its designee an opinion of
counsel experienced in securities law matters to such effect or such other
documentation as the Company or its designee may reasonably request.
7. We acknowledge that the registrar for the Senior Notes will not
be required to accept for registration of transfer any Senior Notes acquired by
us, except upon presentation of evidence satisfactory to the Company that the
restrictions on transfer set forth above have been compiled with. We understand
that Jefferies & Company, Inc. and BT Alex. Brown Incorporated, as the Initial
Purchasers, the Company and other persons will rely upon the truth and accuracy
of the statements set forth herein, and we agree that if any such statements are
no longer true or accurate we will promptly so notify the Company and Initial
Purchasers.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
___________________________________
(Name of Purchaser)
By: _______________________________
Name:
Title:
Address:
D-3
<PAGE>
EXHIBIT E
FORM OF PLEDGE AGREEMENT
E-1
<PAGE>
EXHIBIT F
FORM OF SUBSIDIARY INTERCOMPANY NOTE
<PAGE>
EXHIBIT G
Non-Core Stores
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made and entered into as
of August 24, 1998 by Mrs. Fields' Holding Company, Inc., a Delaware corporation
(the "Pledgor"), having its principal office at 2855 East Cottonwood Parkway,
Suite 400, Salt Lake City, Utah 84121, in favor of The Bank of New York, having
a principal corporate trust office at 101 Barclay Street, New York, New York
10286, as collateral agent (the "Collateral Agent") for the holders (the
"Holders") of the Pledgor's 14% Senior Secured Discount Notes due 2005.
Capitalized terms used and not defined herein shall have the meanings given to
such terms in the Indenture referred to below.
W I T N E S S E T H:
WHEREAS, the Pledgor is the legal and beneficial owner of (i) all of
the issued and outstanding shares of capital stock set forth on Schedule I
hereto (the "Pledged Shares") of Mrs. Fields' Original Cookies, Inc. (the
"Issuer") and (ii) those certain intercompany promissory notes (if any) set
forth on Schedule II hereto issued by the Issuer in favor of the Pledgor (the
"Pledged Notes"); and
WHEREAS, the Pledgor and The Bank of New York, as trustee, have
entered into that certain indenture dated as of August 24, 1998 (as amended,
amended and restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Pledgor issued $55,000,000 in aggregate
principal amount at maturity of 14% Senior Secured Discount Notes due 2005
(together with any notes issued in replacement thereof or in exchange or
substitution therefor, the "Senior Secured Discount Notes"); and
WHEREAS, the terms of the Indenture require that the Pledgor (i)
pledge to the Collateral Agent for the ratable benefit of the Holders of Senior
Secured Discount Notes, and grant to the Collateral Agent for the ratable
benefit of the Holders of Senior Secured Discount Notes a security interest in,
the Pledged Collateral (as defined herein) and (ii) execute and deliver this
Agreement in order to secure the payment and performance by the Pledgor of all
of the Obligations of the Pledgor under the Indenture and the Senior Secured
Discount Notes (the "Obligations").
AGREEMENT
NOW, THEREFORE, in consideration of the premises, and in order to
induce the Holders of Senior Secured Discount Notes to purchase the Senior
Secured Discount Notes, the Pledgor hereby agrees with the Collateral Agent for
its benefit and the ratable benefit of the Holders of Senior Secured Discount
Notes as follows:
SECTION 1. Pledge. The Pledgor hereby pledges to the Collateral Agent for
------
its benefit and for the ratable benefit of the Holders of Senior Secured
Discount Notes, and grants to the Collateral Agent for the ratable benefit of
the Holders of Senior Secured Discount Notes, a
<PAGE>
continuing first priority security interest in all of its right, title and
interest in the following (the "Pledged Collateral"):
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all products and proceeds of any of the Pledged Shares, including,
subject to Section 6(c) hereof, without limitation, all dividends, cash,
options, warrants, rights, instruments, subscriptions and other property or
proceeds from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares or any of the
foregoing; and
(b) all additional shares of, and all securities convertible into and all
warrants, options or other rights to purchase, Capital Stock of, or other
Equity Interests in, the Issuer from time to time acquired by the Pledgor in
any manner, and the certificates representing such additional shares and
Equity Interests (any such additional shares and Equity Interests and other
items shall constitute part of the Pledged Shares under and as defined in this
Agreement), and all products and proceeds of any of the foregoing, including,
without limitation, all dividends, cash, options, warrants, rights,
instruments, subscriptions, and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the foregoing; and
(c) the Pledged Notes and the instruments representing the Pledged Notes,
and all products and proceeds of the Pledged Notes, including, subject to
Section 6(b) hereof, without limitation, all interest, principal and premium
payments, and all instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for the
Pledged Notes or any of the foregoing; and
(d) all additional promissory notes of the Issuer from time to time held
by the Pledgor in any manner (any such additional promissory notes shall
constitute part of the Pledged Notes under and as defined in this Agreement)
and all products and proceeds of any of such additional Pledged Notes,
including, without limitation, all interest and principal payments,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
additional Pledged Notes or any of the foregoing.
SECTION 2. Security for Obligations. This Agreement secures the prompt and
------------------------
complete payment and performance when due (whether at stated maturity, by
acceleration or otherwise) of all Obligations of the Pledgor under the Indenture
and the Senior Secured Discount Notes (including, without limitation, interest
and any other Obligations accruing after the date of any filing by the Pledgor
of any petition in bankruptcy or the commencement of any bankruptcy, insolvency
or similar proceeding with respect to the Pledgor).
SECTION 3. Delivery of Pledged Collateral. Pledgor hereby agrees that all
------------------------------
certificates or instruments representing or evidencing the Pledged Collateral
shall be immediately delivered to and held at all times by the Collateral Agent
pursuant hereto in the State of New York and shall be in suitable form for
transfer by delivery, or issued in the name of Pledgor and accompanied by
instruments of transfer or assignment duly executed in blank and undated, and in
2
<PAGE>
either case having attached thereto all requisite federal or state stock
transfer tax stamps, all in form and substance satisfactory to the Collateral
Agent.
SECTION 4. Representations and Warranties. The Pledgor hereby makes all
------------------------------
representations and warranties applicable to the Pledgor contained in the
Indenture. The Pledgor further represents and warrants that:
(a) The execution, delivery and performance by the Pledgor of this
Agreement are within the Pledgor's corporate powers, have been duly authorized
by all necessary corporate action, and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
certificate of incorporation or bylaws of the Pledgor or of any agreement,
judgment, injunction, order, decree or other instrument binding upon the
Pledgor, or result in the creation or imposition of any Lien on any assets of
the Pledgor, other than the Lien contemplated hereby.
(b) The Pledged Shares have been duly authorized and validly issued and
are fully paid and non-assessable. Each Pledged Note has been duly authorized
and executed by the Issuer and constitutes a legal, valid and binding
obligation of the Issuer, enforceable against the Issuer in accordance with
its terms.
(c) The Pledged Shares constitute all of the authorized, issued and
outstanding Equity Interests of the Issuer and constitute all of the shares of
Equity Interests of the Issuer beneficially owned by the Pledgor.
(d) All intercompany indebtedness of the Issuer to the Pledgor is
evidenced by promissory notes in the form of Exhibit A hereto; the Pledged
Notes constitute all of the promissory notes of the Issuer in favor of the
Pledgor; and there are no other instruments, certificates, securities or other
writings or chattel paper, evidencing or representing any equity interest in
the Issuer.
(e) The Pledgor is the legal, record and beneficial owner of the Pledged
Collateral, free and clear of any Lien or claims of any Person except for the
security interest created by this Agreement.
(f) The Pledgor has full power and authority to enter into this Agreement
and has the right to vote, pledge and grant a security interest in the Pledged
Collateral as provided by this Agreement.
(g) This Agreement has been duly executed and delivered by the Pledgor and
constitutes a legal, valid and binding obligation of the Pledgor, enforceable
against the Pledgor in accordance with its terms.
(h) Upon the delivery to the Collateral Agent of the Pledged Collateral
and (as to certain proceeds therefrom) the filing of Uniform Commercial Code
(the "UCC") financing statements, the pledge of the Pledged Collateral
pursuant to this Agreement creates a valid and perfected first priority
security interest in the Pledged Collateral, securing the payment of
3
<PAGE>
the Obligations for the benefit of the Collateral Agent and the Holders of
Senior Secured Discount Notes, and enforceable as such against all creditors
of the Pledgor and any Persons purporting to purchase any of the Pledged
Collateral from the Pledgor.
(i) No consent of any other Person and no consent, authorization,
approval, or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required either (i) for the
pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or
for the execution, delivery or performance of this Agreement by the Pledgor or
(ii) for the exercise by the Collateral Agent of the voting or other rights
provided for in this Agreement or the remedies in respect of the Pledged
Collateral pursuant to this Agreement (except as may be required in connection
with such disposition by laws affecting the offering and sale of securities).
(j) No litigation, investigation or proceeding of or before any arbitrator
or governmental authority is pending or, to the best knowledge of the Pledgor,
threatened by or against the Pledgor or against any of its properties or
revenues with respect to this Agreement or any of the transactions
contemplated hereby.
(k) The pledge of the Pledged Collateral pursuant to this Agreement is not
prohibited by any applicable law or governmental regulation, release,
interpretation or opinion of the Board of Governors of the Federal Reserve
System or other regulatory agency (including, without limitation, Regulations
T, U and X of the Board of Governors of the Federal Reserve System).
(l) All information set forth herein relating to the Pledged Collateral is
accurate and complete in all respects.
SECTION 5. Further Assurance. Pledgor will at all times cause the
-----------------
security interests granted pursuant to this Agreement to constitute valid
perfected first priority security interests in the Pledged Collateral,
enforceable as such against all creditors of Pledgor and (except as otherwise
specifically provided herein) any Persons purporting to purchase any Pledged
Collateral from Pledgor. The Pledgor will, promptly upon request by the
Collateral Agent, execute and deliver or cause to be executed and delivered, or
use its best efforts to procure, all stock powers, proxies, tax stamps,
assignments, instruments and other documents, all in form and substance
satisfactory to the Collateral Agent, deliver any instruments to the Collateral
Agent and take any other actions that are necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect, continue the perfection
of, or protect the first priority of the Collateral Agent's security interest
in, the Pledged Collateral, to protect the Pledged Collateral against the
rights, claims, or interests of third persons, to enable the Collateral Agent to
exercise or enforce its rights and remedies hereunder, or otherwise to effect
the purposes of this Agreement. The Pledgor also hereby authorizes the
Collateral Agent to file any financing or continuation statements with respect
to the Pledged Collateral without the signature of the Pledgor to the extent
permitted by applicable law. The Pledgor will pay all costs incurred in
connection with any of the foregoing.
SECTION 6. Voting Rights; Dividends; Etc.
-----------------------------
4
<PAGE>
(a) So long as no Default or Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Shares or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the
Indenture; provided, however, that the Pledgor shall not exercise or shall
refrain from exercising any such right if such action would have a material
adverse effect on the value of the Pledged Collateral or any part thereof or
be inconsistent with or violate any provisions of this Agreement or the
Indenture.
(b) So long as no Default or Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to receive, and to utilize (subject
to the provisions of the Indenture) free and clear of the Lien of this
Agreement, all cash payments of interest paid from time to time with respect
to any Pledged Notes.
(c) So long as no Default or Event of Default shall have occurred and be
continuing, and subject to the other terms and conditions of the Indenture,
the Pledgor shall be entitled to receive, and to utilize (subject to the
provisions of the Indenture) free and clear of the Lien of this Agreement, all
regular and ordinary cash dividends paid from time to time in respect of the
Pledged Shares.
(d) Any and all (i) dividends, other distributions, interest and principal
payments paid or payable in the form of instruments and/or other property
(other than cash interest payments permitted under Section 6(b) hereof and
cash dividends permitted under Section 6(c) hereof) received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral, (ii) dividends and other distributions paid or payable in cash in
respect of any Pledged Shares in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in-surplus, and (iii) cash paid, payable or otherwise
distributed in redemption of, or in exchange for, any Pledged Collateral,
shall in each case be forthwith delivered to the Collateral Agent to hold as
Pledged Collateral and shall, if received by the Pledgor, be received in trust
for the benefit of the Collateral Agent and the Holders of Senior Secured
Discount Notes, be segregated from the other property and funds of the Pledgor
and be forthwith delivered to the Collateral Agent as Pledged Collateral in
the same form as so received (with any necessary endorsements).
(e) The Collateral Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other instruments
as the Pledgor may reasonably request for the purpose of enabling the Pledgor
to exercise the voting and other rights that it is entitled to exercise
pursuant to Sections 6(a) through 6(c) above.
(f) Upon the occurrence and during the continuance of a Default or an
Event of Default, (i) all rights of the Pledgor to exercise the voting and
other consensual rights that it would otherwise be entitled to exercise
pursuant to Section 6(a) shall cease, and all such rights shall thereupon
become vested in the Collateral Agent, which, to the extent permitted by law,
shall thereupon have the sole right to exercise such voting and other
consensual rights, and (ii) all cash interest payments and dividends and other
distributions payable in respect of the Pledged Collateral shall be paid to
the Collateral Agent and the Pledgor's right
5
<PAGE>
to receive such cash payments pursuant to Sections 6(b) and 6(c) hereof shall
immediately cease.
(g) Upon the occurrence and during the continuance of a Default or an
Event of Default, the Pledgor shall execute and deliver (or cause to be
executed and delivered) to the Collateral Agent all such proxies, dividend and
interest payment orders and other instruments as the Collateral Agent may
reasonably request for the purpose of enabling the Collateral Agent to
exercise the voting and other rights that it is entitled to exercise pursuant
to Section 6(f) above.
(h) All payments of interest, principal or premium and all dividends and
other distributions that are received by the Pledgor contrary to the
provisions of this Section 6 shall be received in trust for the benefit of the
Collateral Agent and the Holders, shall be segregated from the other property
or funds of the Pledgor and shall be forthwith delivered to the Collateral
Agent as Pledged Collateral in the same form as so received (with any
necessary endorsements).
SECTION 7. Covenants. The Pledgor hereby covenants and agrees with the
---------
Collateral Agent and the Holders of Senior Secured Discount Notes that it will
comply with all of the obligations, requirements and restrictions applicable to
the Pledgor contained in the Indenture. The Pledgor further covenants and
agrees, from and after the date of this Agreement and until the Obligations have
been paid in full, as follows:
(a) The Pledgor agrees that it will not (i) sell, assign, transfer, convey
or otherwise dispose of, or grant any option or warrant with respect to, any
of the Pledged Collateral without the prior written consent of the Collateral
Agent, (ii) create or permit to exist any Lien upon or with respect to any of
the Pledged Collateral, except for the security interest granted under this
Agreement, and at all times will be the sole beneficial owner of the Pledged
Collateral, (iii) enter into any agreement or understanding that purports to
or that may restrict or inhibit the Collateral Agent's rights or remedies
hereunder, including, without limitation, the Collateral Agent's right to sell
or otherwise dispose of the Pledged Collateral, (iv) take any action, or
permit the taking of any action by the Issuer, with respect to the Pledged
Collateral the taking of which would result in a material impairment of the
economic value of the Pledged Collateral as Collateral or a violation of the
Indenture or this Agreement, (v) without the prior written consent of the
Collateral Agent, enter into any agreement amending, modifying or
supplementing the interest, principal or maturity terms of the Pledged Notes
in a manner adverse to the interests of the Collateral Agent and the Holders
of Senior Secured Discount Notes, (vi) fail to give prompt notice to the
Collateral Agent of any notice of default given by or to the Pledgor under or
with respect to the Pledged Notes together with a complete copy of such
notice, (vii) except for the merger of Cookies USA, Inc. with and into the
Issuer, permit the Issuer to merge or consolidate with or into another person
or entity or sell or transfer all or substantially all of its assets to
another person or entity, unless (x) Pledgor shall have delivered to the
Collateral Agent an Opinion of Counsel in form and substance satisfactory to
the Collateral Agent and a certificate executed by the President and Chief
Financial Officer of Pledgor substantially in the form of Exhibit B
6
<PAGE>
hereto and (y) all outstanding capital stock of the surviving entity in such
merger or consolidation or of the entity to whom such sale or transfer was
made, together with any promissory notes issued by such entity in favor of
Pledgor are, upon such merger or consolidation, pledged hereunder to and
deposited with the Collateral Agent, or (viii) fail to pay or discharge any
tax, assessment or levy of any nature not later than five days prior to the
date of any proposed sale under any judgment, writ or warrant of attachment
with regard to the Pledged Collateral.
(b) The Pledgor agrees that immediately upon becoming the beneficial owner
of any additional shares of Capital Stock, notes, other securities or Equity
Interests of the Issuer (including as a result of the merger or consolidation
of the Issuer with or into another entity) it will pledge and deliver to the
Collateral Agent for its benefit and the ratable benefit of the Holders and
grant to the Collateral Agent for its benefit and the ratable benefit of the
Holders, a continuing first priority security interest in such shares, notes,
other securities or Equity Interests (as well as instruments of transfer or
assignment duly executed in blank and undated and any necessary stock transfer
tax stamps, all in form and substance satisfactory to the Collateral Agent).
The Pledgor further agrees that it will promptly (i) cause the Issuer upon
becoming indebted to the Pledgor to execute a promissory note in the form of
Exhibit A hereto evidencing such debt in order that such promissory note may
be promptly pledged as a Pledged Note pursuant hereto and (ii) deliver to the
Collateral Agent a certificate executed by a principal executive officer of
the Pledgor describing such additional shares, notes or other securities and
certifying that the same have been duly pledged and delivered to the
Collateral Agent hereunder.
(c) The Pledgor agrees that upon the acquisition or creation of any new
direct subsidiaries of the Pledgor, the Pledgor will promptly pledge and
deliver to the Collateral Agent for its benefit, the benefit of the Trustee
and the ratable benefit of the Holders and grant to the Collateral Agent for
its benefit, the benefit of the Trustee and the ratable benefit of the Holders
a first priority security interest in any shares, notes, other securities or
Equity Interests (as well as instruments of transfer or assignment duly
executed in blank and undated and any necessary stock transfer tax stamps, all
in form and substance satisfactory to the Collateral Agent) of such
subsidiaries.
SECTION 8. Power of Attorney. In addition to all of the powers granted to
-----------------
the Collateral Agent pursuant to Section 10.06 of the Indenture, the Pledgor
hereby appoints and constitutes the Collateral Agent as the Pledgor's attorney-
in-fact to exercise all of the following powers upon and at any time after the
occurrence of an Event of Default: (i) collection of proceeds of any Pledged
Collateral; (ii) conveyance of any item of Pledged Collateral to any purchaser
thereof; (iii) giving of any notices or recording of any Liens under Section 5
hereof; (iv) making of any payments or taking any acts under Section 9 hereof
and (v) paying or discharging taxes or Liens levied or placed upon or threatened
against the Pledged Collateral, the legality or validity thereof and the amounts
necessary to discharge the same to be determined by the Collateral Agent in its
sole discretion, and such payments made by the Collateral Agent to become the
obligations of the Pledgor to the Collateral Agent, due and payable immediately
without demand. The Collateral Agent's authority hereunder shall include,
without limitation,
7
<PAGE>
the authority to endorse and negotiate, for the Collateral Agent's own account,
any checks or instruments in the name of the Pledgor, execute and give receipt
for any certificate of ownership or any document, transfer title to any item of
Pledged Collateral, sign the Pledgor's name on all financing statements or any
other documents deemed necessary or appropriate to preserve, protect or perfect
the security interest in the Pledged Collateral and to file the same, prepare,
file and sign the Pledgor's name on any notice of Lien, and prepare, file and
sign the Pledgor's name on a proof of claim in bankruptcy or similar document
against any customer of the Pledgor, and to take any other actions arising from
or incident to the powers granted to the Collateral Agent in this Agreement.
This power of attorney is coupled with an interest and is irrevocable by the
Pledgor.
SECTION 9. Collateral Agent May Perform. If the Pledgor fails to perform
----------------------------
any agreement contained herein, the Collateral Agent may itself perform, or
cause performance of, such agreement, and the reasonable expenses of the
Collateral Agent incurred in connection therewith shall be payable by the
Pledgor under Section 14 hereof.
SECTION 10. No Assumption of Duties; Reasonable Care. The rights and powers
----------------------------------------
granted to the Collateral Agent hereunder are being granted in order to preserve
and protect the Collateral Agent's and the Holders' of Senior Secured Discount
Notes security interest in and to the Pledged Collateral granted hereby and
shall not be interpreted to, and shall not, impose any duties on the Collateral
Agent in connection therewith. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Collateral Agent accords its own property,
it being understood that the Collateral Agent shall not have any responsibility
for (i) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Collateral, whether or not the Collateral Agent has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.
SECTION 11. Subsequent Changes Affecting Collateral. The Pledgor
---------------------------------------
represents to the Collateral Agent and the Holders of Senior Secured Discount
Notes that the Pledgor has made its own arrangements for keeping informed of
changes or potential changes affecting the Pledged Collateral (including, but
not limited to, rights to convert, rights to subscribe, payment of dividends,
payments of interest and/or principal, reorganization or other exchanges, tender
offers and voting rights), and the Pledgor agrees that the Collateral Agent and
the Holders of Senior Secured Discount Notes shall have no responsibility or
liability for informing the Pledgor of any such changes or potential changes or
for taking any action or omitting to take any action with respect thereto. The
Pledgor covenants that it will not, without the prior written consent of the
Collateral Agent, vote to enable, or take any other action to permit, the Issuer
to issue any capital stock or other securities or to sell or otherwise dispose
of, or grant any option with respect to, any of the Pledged Collateral or create
or permit to exist any Lien upon or with respect to any of the Pledged
Collateral, except for the security interests granted under this Agreement. The
Pledgor will defend the right, title and interest of the Collateral Agent and
the Holders of Senior Secured Discount Notes in and to the Pledged Collateral
against the claims and demands of all Persons.
8
<PAGE>
SECTION 12. Remedies Upon Default.
---------------------
(a) If any Default or Event of Default shall have occurred and be
continuing, the Collateral Agent and the Holders of Senior Secured Discount
Notes shall have, in addition to all other rights given by law or by this
Agreement or the Indenture, all of the rights and remedies with respect to the
Pledged Collateral of a secured party under the UCC as in effect in the State
of New York at that time. The Collateral Agent may, without notice and at its
option, transfer or register, and the Pledgor shall register or cause to be
registered upon request therefor by the Collateral Agent, the Pledged
Collateral or any part thereof on the books of the Issuer into the name of the
Collateral Agent or the Collateral Agent's nominee(s), with or without any
indication that such Pledged Collateral is subject to the security interest
hereunder. In addition, with respect to any Pledged Collateral that shall then
be in or shall thereafter come into the possession or custody of the
Collateral Agent, the Collateral Agent may sell or cause the same to be sold
at any broker's board or at public or private sale, in one or more sales or
lots, at such price or prices as the Collateral Agent may deem best, for cash
or on credit or for future delivery, without assumption of any credit risk.
The purchaser of any or all Pledged Collateral so sold shall thereafter hold
the same absolutely, free from any claim, encumbrance or right of any kind
whatsoever. Unless any of the Pledged Collateral threatens to decline speedily
in value or is or becomes of a type sold on a recognized market, the
Collateral Agent will give Pledgor reasonable notice of the time and place of
any public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the Pledged Collateral
conducted in conformity with reasonable commercial practices of banks,
insurance companies, commercial finance companies, or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Any requirements of reasonable notice
shall be met if such notice is mailed to the Pledgor as provided below in
Section 18.1, at least ten days before the time of the sale or disposition.
Any other requirement of notice, demand or advertisement for sale is, to the
extent permitted by law, waived. The Collateral Agent or any Holder of Senior
Secured Discount Notes may, in its own name or in the name of a designee or
nominee, buy any of the Pledged Collateral at any public sale and, if
permitted by applicable law, at any private sale. All expenses (including
court costs and reasonable attorneys' fees and disbursements) of, or incident
to, the enforcement of any of the provisions hereof shall be recoverable from
the proceeds of the sale or other disposition of the Pledged Collateral.
(b) If the Collateral Agent shall determine to exercise its right to
sell any or all of the Pledged Shares pursuant to Section 12(a) above, and if
in the opinion of counsel for the Collateral Agent it is necessary, or if in
the opinion of the Collateral Agent it is advisable, to have the Pledged
Shares or that portion thereof to be sold, registered under the provisions of
the Securities Act of 1933, as amended (the "Securities Act"), Pledgor will
cause the Issuer to (i) execute and deliver, and cause its directors and
officers to execute and deliver, all at the Issuer's expense, all such
instruments and documents, and to do or cause to be done all such other acts
and things as may be necessary or, in the opinion of the Collateral Agent,
advisable to register such Pledged Shares under the provisions of the
Securities Act, (ii) cause the registration statement relating thereto to
become effective and to remain effective for a period
9
<PAGE>
of 180 days from the date of the first public offering of such Pledged Shares,
or that portion thereof to be sold and (iii) make all amendments thereto
and/or to the related prospectus that, in the opinion of the Collateral Agent,
are necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto. Pledgor agrees to cause the Issuer to comply
with the provisions of the securities or "Blue Sky" laws of any jurisdiction
that the Collateral Agent shall designate for the sale of the Pledged Shares
and to make available to the Issuer's security holders, as soon as
practicable, an earnings statement (which need not be audited) that will
satisfy the provisions of Section 11(a) of the Securities Act. The Pledgor
will cause such Issuer to furnish to the Collateral Agent such number of
copies as the Collateral Agent may reasonably request of each preliminary and
final prospectus, to notify the Collateral Agent promptly of the happening of
any event as a result of which any then effective prospectus 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 in the light of then existing circumstances, and to cause the
Collateral Agent to be furnished with such number of copies as the Collateral
Agent may request of such supplement to or amendment of such prospectus. The
Pledgor will cause the Issuer, to the extent permitted by law, to indemnify,
defend and hold harmless the Collateral Agent and the Holders of Senior
Secured Discount Notes from and against all losses, liabilities, expenses or
claims (including reasonable legal expenses and the reasonable costs of
investigation) that the Collateral Agent or the Holders of Senior Secured
Discount Notes may incur under the Securities Act or otherwise, insofar as
such losses, liabilities, expenses or claims arise out of or are based upon
any alleged untrue statement of a material fact contained in such registration
statement (or any amendment thereto) or in any preliminary or final prospectus
(or any amendment or supplement thereto), or arise out of or are based upon
any alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except to the extent
that any such losses, liabilities, expenses or claims arise solely out of or
are based upon any such alleged untrue statement made or such alleged omission
to state a material fact included or excluded on the written direction of the
Collateral Agent. Pledgor will cause the Issuer to bear all costs and expenses
of carrying out its obligations hereunder.
(c) In view of the fact that federal and state securities laws may
impose certain restrictions on the method by which a sale of the Pledged
Collateral may be effected after a Default or an Event of Default, Pledgor
agrees that upon the occurrence or existence of any Default or Event of
Default, the Collateral Agent may, from time to time, attempt to sell all or
any part of the Pledged Collateral by means of a private placement,
restricting the prospective purchasers to those who will represent and agree
that they are purchasing for investment only and not for distribution. In so
doing, the Collateral Agent may solicit offers to buy the Pledged Collateral,
or any part of it, for cash, from a limited number of investors who might be
interested in purchasing the Pledged Collateral. The Pledgor acknowledges and
agrees that any such private sale may result in prices and terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Collateral Agent shall be under
no obligation to delay a sale of any of the Pledged Collateral for the period
of time necessary to permit the Issuer to register such securities for public
sale
10
<PAGE>
under the Securities Act, or under applicable state securities laws, even if
the Issuer agrees to do so.
(d) The Pledgor further agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or sales
of all or any portion of the Pledged Collateral pursuant to this Section 12
valid and binding and in compliance with any and all other applicable
requirements of law. The Pledgor further agrees that a breach of any of the
covenants contained in this Section 12 will cause irreparable injury to the
Collateral Agent and the Holders of Senior Secured Discount Notes, that the
Collateral Agent and the Holders of Senior Secured Discount Notes have no
adequate remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section 12 shall be specifically
enforceable against the Pledgor, and the Pledgor hereby waives and agrees not
to assert any defenses against an action for specific performance of such
covenants except for a defense that no Default or Event of Default has
occurred under the Indenture.
SECTION 13. Irrevocable Authorization and Instruction to the Issuer. The
-------------------------------------------------------
Pledgor hereby authorizes and instructs the Issuer to comply with any
instruction received by the Issuer from the Collateral Agent that (i) states
that a Default or an Event of Default has occurred and (ii) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from the Pledgor, and the Pledgor agrees that the Issuer shall be
fully protected in so complying.
SECTION 14. Fees and Expenses. The Pledgor will upon demand pay to the
-----------------
Collateral Agent the amount of any and all reasonable fees and expenses
(including, without limitation, the reasonable fees and disbursements of its
counsel, of any investment banking firm, business broker or other selling agent
and of any other experts and agents retained by the Collateral Agent) that the
Collateral Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of the Collateral Agent and the Holders of
Senior Secured Discount Notes hereunder or (iv) the failure by the Pledgor to
perform or observe any of the provisions hereof.
SECTION 15. Senior Secured Discount Notes Interest Absolute. All rights of
-----------------------------------------------
the Collateral Agent and the Holders of Senior Secured Discount Notes and the
security interests created hereunder, and all obligations of the Pledgor
hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Indenture or any other
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Obligations, or any other amendment or waiver of or
any consent to any departure from the Indenture;
11
<PAGE>
(c) any exchange, surrender, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guarantee, for all or any of the Obligations; or
(d) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Pledgor in respect of the Obligations or
of this Agreement.
SECTION 16. Application of Proceeds. Upon the occurrence and during the
-----------------------
continuance of a Default or an Event of Default, the proceeds of any sale of, or
other realization upon, all or any part of the Pledged Collateral and any cash
held shall be applied by the Collateral Agent in the following order of
priorities:
first, to payment of the expenses of such sale or other realization,
-----
including reasonable compensation to agents and counsel for the Collateral
Agent, and all expenses, liabilities and advances incurred or made by the
Collateral Agent in connection therewith, and any other unreimbursed fees and
expenses for which the Collateral Agent is to be reimbursed pursuant to Section
14 hereof;
second, to the ratable payment (based on the principal amount of Senior
------
Secured Discount Notes deemed by the Indenture to be outstanding at the time of
distribution) of accrued but unpaid interest on such outstanding Senior Secured
Discount Notes;
third, to the ratable payment (based on the principal amount of Senior
-----
Secured Discount Notes deemed by the Indenture to be outstanding at the time of
distribution) of unpaid principal and premium, if applicable, as to the extent
contemplated by Section 6.02 of the Indenture, of such outstanding Senior
Secured Discount Notes;
fourth, to the ratable payment (based on the principal amount of Senior
------
Secured Discount Notes deemed by the Indenture to be outstanding at the time of
distribution) of all other Obligations, until all Obligations shall have been
paid in full; and
finally, to payment to the Pledgor or its successors or assigns, or as a
-------
court of competent jurisdiction may direct, of any surplus then remaining from
such proceeds.
SECTION 17. Uncertificated Securities. Notwithstanding anything to the
-------------------------
contrary contained herein, if any Pledged Shares (whether now owned or hereafter
acquired) are uncertificated Pledged Shares, the Pledgor shall promptly notify
the Collateral Agent, and shall promptly take all actions required to perfect
the security interest of the Collateral Agent under applicable law (including,
in any event, under Section 9-115(4) of the New York Uniform Commercial Code).
The Pledgor further agrees to take such actions as the Collateral Agent deems
necessary or desirable to effect the foregoing and to permit the Collateral
Agent to exercise any of its rights and remedies hereunder, and agrees to
provide an Opinion of Counsel satisfactory to the Collateral Agent with respect
to any such pledge of uncertificated Pledged Shares promptly upon request of the
Collateral Agent.
SECTION 18. Miscellaneous Provisions.
------------------------
12
<PAGE>
Section 18.1. Notices. All notices, approvals, consents or other
-------
communications required or desired to be given hereunder shall be in the form
and manner as set forth in Section 11.02 of the Indenture, and delivered to the
addresses set forth in such Section, or, in the case of the Collateral Agent,
to: the Bank of New York, 101 Barclay Street, Floor 21 West, New York, New York
10286, Attention: Corporate Trust Administration, Telecopy No. (212) 815-5915.
Section 18.2. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Pledgor to the Collateral Agent to take
any action or omit to take any action under this Agreement, the Pledgor shall
deliver to the Collateral Agent an Officers' Certificate and/or an Opinion of
Counsel in accordance with the requirements of Section 11.04 of the Indenture.
Section 18.3. No Adverse Interpretation of Other Agreements. This
---------------------------------------------
Agreement may not be used to interpret another pledge, security or debt
agreement of the Pledgor, the Issuer or any subsidiary thereof. No such pledge,
security or debt agreement may be used to interpret this Agreement.
Section 18.4. Severability. The provisions of this Agreement are
------------
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
Section 18.5. No Recourse Against Others. No director, officer,
--------------------------
employee, stockholder or affiliate, as such, of the Pledgor or the Issuer shall
have any liability for any obligations of the Pledgor under this Agreement or
for any claim based on, in respect of or by reason of such obligations or their
creation. Each Holder of Senior Secured Discount Notes, by accepting a Senior
Secured Discount Note, waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Senior Secured
Discount Notes.
Section 18.6. Headings. The headings of the Articles and Sections of
--------
this Agreement have been inserted for convenience of reference only, are not to
be considered a part hereof and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 18.7. Counterpart Originals. This Agreement may be signed in
---------------------
two or more counterparts. Each signed copy shall be an original, but all of them
together represent one and the same agreement. Each counterpart may be executed
and delivered by telecopy, if such delivery is promptly followed by the original
manually signed copy sent by overnight courier.
Section 18.8. Benefits of Agreement. Nothing in this Agreement,
---------------------
express or implied, shall give to any Person, other than the parties hereto and
their successors hereunder, and the Holders of Senior Secured Discount Notes,
any benefit or any legal or equitable right, remedy or claim under this
Agreement.
Section 18.9. Amendments, Waivers and Consents. Any amendment or
--------------------------------
waiver of any provision of this Agreement and any consent to any departure by
the Pledgor from any
13
<PAGE>
provision of this Agreement shall be effective only if made or given in
compliance with all of the terms and provisions of the Indenture necessary for
amendments or waivers of, or consents to any departure by the Pledgor from any
provision of the Indenture, as applicable, and neither the Collateral Agent nor
any Holder of Senior Secured Discount Notes shall be deemed, by any act, delay,
indulgence, omission or otherwise, to have waived any right or remedy hereunder
or to have acquiesced in any Default or Event of Default or in any breach of any
of the terms and conditions hereof. Failure of the Collateral Agent or any
Holder of Senior Secured Discount Notes to exercise, or delay in exercising, any
right, power or privilege hereunder shall not operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Collateral Agent or any Holder of
Senior Secured Discount Notes of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy that the
Collateral Agent or such Holder of Senior Secured Discount Notes would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
Section 18.10. Interpretation of Agreement. Time is of the essence in
---------------------------
each provision of this Agreement of which time is an element. All terms not
defined herein or in the Indenture shall have the meaning set forth in the
applicable UCC, except where the context otherwise requires. To the extent a
term or provision of this Agreement conflicts with the Indenture and is not
dealt with herein with more specificity, the Indenture shall control with
respect to the subject matter of such term or provision. Acceptance of or
acquiescence in a course of performance rendered under this Agreement shall not
be relevant to determine the meaning of this Agreement even though the accepting
or acquiescing party had knowledge of the nature of the performance and
opportunity for objection.
Section 18.11. Continuing Security Interest; Transfer of Notes. This
-----------------------------------------------
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) remain in full force and effect until the payment in full of all
the Obligations and all the fees and expenses owing to the Collateral Agent,
(ii) be binding upon the Pledgor, its successors and assigns, and (iii) inure,
together with the rights and remedies of the Collateral Agent hereunder, to the
benefit of the Collateral Agent, the Holders of Senior Secured Discount Notes
and their respective successors, transferees and assigns.
Section 18.12. Reinstatement. This Agreement shall continue to be
-------------
effective or be reinstated if at any time any amount received by the Collateral
Agent or any Holder of Senior Secured Discount Notes in respect of the
Obligations is rescinded or must otherwise be restored or returned by the
Collateral Agent or any Holder of Senior Secured Discount Notes upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Pledgor or upon the appointment of any receiver, intervenor, conservator,
trustee or similar official for the Pledgor or any substantial part of its
assets, or otherwise, all as though such payments had not been made.
Section 18.13. Survival of Provisions. All representations,
----------------------
warranties and covenants of the Pledgor contained herein shall survive the
execution and delivery of this
14
<PAGE>
Agreement, and shall terminate only upon the full and final payment and
performance by the Pledgor of the Obligations.
Section 18.14. Waivers. The Pledgor waives presentment and demand for
-------
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
Section 18.15. Authority of the Collateral Agent.
---------------------------------
(a) The Collateral Agent shall have and be entitled to exercise all
powers hereunder that are specifically granted to the Collateral Agent by
the terms hereof, together with such powers as are reasonably incident
thereto. The Collateral Agent may perform any of its duties hereunder or in
connection with the Pledged Collateral by or through agents or employees
and shall be entitled to retain counsel and to act in reliance upon the
advice of counsel concerning all such matters. Neither the Collateral Agent
nor any director, officer, employee, attorney or agent of the Collateral
Agent shall be responsible for the validity, effectiveness or sufficiency
hereof or of any document or security furnished pursuant hereto. The
Collateral Agent and its directors, officers, employees, attorneys and
agents shall be entitled to rely on any communication, instrument or
document believed by it or them to be genuine and correct and to have been
signed or sent by the proper person or persons. The Pledgor agrees to
indemnify and hold harmless the Collateral Agent, the Holders of Senior
Secured Discount Notes and any other Person from and against any and all
costs, expenses (including the reasonable fees and disbursements of counsel
(including, the allocated costs of inside counsel)), claims and liabilities
incurred by the Collateral Agent, the Holders of Senior Secured Discount
Notes or such Person hereunder, unless such claim or liability shall be due
to willful misconduct or gross negligence on the part of the Collateral
Agent, the Holders of Senior Secured Discount Notes or such Person.
(b) The Pledgor acknowledges that the rights and responsibilities of
the Collateral Agent under this Agreement with respect to any action taken
by the Collateral Agent or the exercise or non-exercise by the Collateral
Agent of any option, right, request, judgment or other right or remedy
provided for herein or resulting or arising out of this Agreement shall, as
between the Collateral Agent and the Holders of Senior Secured Discount
Notes, be governed by the Indenture and by such other agreements with
respect thereto as may exist from time to time among them, but, as between
the Collateral Agent and the Pledgor, the Collateral Agent shall be
conclusively presumed to be acting as agent for the Holders of Senior
Secured Discount Notes with full and valid authority so to act or refrain
from acting, and the Pledgor shall not be obligated or entitled to make any
inquiry respecting such authority.
Section 18.16. Resignation or Removal of the Collateral Agent. Until
----------------------------------------------
such time as the Obligations shall have been paid in full, the Collateral Agent
may at any time, by giving written notice to the Pledgor and Holders of Senior
Secured Discount Notes, resign and be discharged of the responsibilities hereby
created, such resignation to become effective upon
15
<PAGE>
(i) the appointment of a successor Collateral Agent and (ii) the acceptance of
such appointment by such successor Collateral Agent. As promptly as practicable
after the giving of any such notice, the Holders of Senior Secured Discount
Notes shall appoint a successor Collateral Agent, which successor Collateral
Agent shall be reasonably acceptable to the Pledgor. If no successor Collateral
Agent shall be appointed and shall have accepted such appointment within 90 days
after the Collateral Agent gives the aforesaid notice of resignation, the
Collateral Agent may apply to any court of competent jurisdiction to appoint a
successor Collateral Agent to act until such time, if any, as a successor shall
have been appointed as provided in this Section 18.16. Any successor so
appointed by such court shall immediately and without further act be superseded
by any successor Collateral Agent appointed by the Holders of Senior Secured
Discount Notes, as provided in this Section 18.16. Simultaneously with its
replacement as Collateral Agent hereunder, the Collateral Agent so replaced
shall deliver to its successor all documents, instruments, certificates and
other items of whatever kind (including, without limitation, the certificates
and instruments evidencing the Pledged Collateral and all instruments of
transfer or assignment) held by it pursuant to the terms hereof. The Collateral
Agent that has resigned shall be entitled to fees, costs and expenses to the
extent incurred or arising, or relating to events occurring, before its
resignation or removal.
Section 18.17. Release; Termination of Agreement.
---------------------------------
(a) Subject to the provisions of Section 18.12 hereof, this Agreement
shall terminate (i) upon full and final payment and performance of the
Obligations (and upon receipt by the Collateral Agent of the Pledgor's
written certification that all such Obligations have been satisfied) and
payment in full of all fees and expenses owing by the Pledgor to the
Collateral Agent or (ii) on the day after the first anniversary of the
Legal Defeasance of all of the Obligations pursuant to Section 8.02 of the
Indenture (other than those surviving Obligations specified therein). At
such time, the Collateral Agent shall, at the request of the Pledgor,
reassign and redeliver to the Pledgor all of the Pledged Collateral
hereunder that has not been sold, disposed of, retained or applied by the
Collateral Agent in accordance with the terms hereof. Such reassignment and
redelivery shall be without warranty by or recourse to the Collateral
Agent, except as to the absence of any prior assignments by the Collateral
Agent of its interest in the Pledged Collateral, and shall be at the
expense of the Pledgor.
(b) The Pledgor agrees that it will not, except as permitted by the
Indenture, sell or dispose of, or grant any option or warrant with respect
to, any of the Pledged Collateral; provided, however, that if the Pledgor
shall sell any of the Pledged Collateral in accordance with the terms of
the Indenture, including the requirement that Pledgor apply the Net
Proceeds of such sale in accordance with Section 4.10 of the Indenture, the
Collateral Agent shall, at the request of the Pledgor and subject to
requirements of Section 10.03 of the Indenture, release the Pledged
Collateral subject to such sale free and clear of the Lien and security
interest under this Agreement.
Section 18.18. Final Expression. This Agreement, together with any
----------------
other agreement executed in connection herewith, is intended by the parties as a
final expression of
16
<PAGE>
their Agreement and is intended as a complete and exclusive statement of the
terms and conditions thereof.
Section 18.19. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
----------------------------------------------------
JURY TRIAL; WAIVER OF DAMAGES.
- -----------------------------
(i) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER THE
LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR,
THE COLLATERAL AGENT AND THE HOLDERS OF SENIOR SECURED DISCOUNT NOTES IN
CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR
OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO
THE CONFLICTS OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF NEW YORK.
(ii) EXCEPT AS PROVIDED IN THE NEXT PARAGRAPH AND IN PARAGRAPH (vi)
BELOW, THE PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS OF SENIOR SECURED
DISCOUNT NOTES AGREE THAT ALL DISPUTES BETWEEN OR AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE OR FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK, BUT THE PLEDGOR, THE COLLATERAL AGENT AND THE
HOLDERS OF SENIOR SECURED DISCOUNT NOTES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK.
THE PLEDGOR WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT CONSIDERING THE DISPUTE INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(iii) THE PLEDGOR AGREES THAT THE COLLATERAL AGENT SHALL, IN ITS OWN
NAME OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF SENIOR SECURED DISCOUNT
NOTES, HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED
AGAINST THE PLEDGOR OR ITS PROPERTY IN A COURT IN ANY LOCATION REASONABLY
SELECTED IN GOOD FAITH TO ENABLE THE COLLATERAL AGENT TO REALIZE ON SUCH
PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE
COLLATERAL AGENT. THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY THE COLLATERAL AGENT TO REALIZE ON
SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
COLLATERAL AGENT. THE PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT IN WHICH THE COLLATERAL AGENT HAS COMMENCED A
17
<PAGE>
PROCEEDING DESCRIBED IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS.
(iv) THE PLEDGOR, THE COLLATERAL AGENT AND THE HOLDERS OF SENIOR
SECURED DISCOUNT NOTES EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING
OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED
IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(v) THE PLEDGOR HEREBY IRREVOCABLY DESIGNATES CT CORPORATION AS THE
DESIGNEE, APPOINTEE AND AGENT OF THE PLEDGOR TO RECEIVE, FOR AND ON BEHALF OF
THE PLEDGOR, SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THIS AGREEMENT. IT IS UNDERSTOOD THAT NOTICE AND A COPY OF SUCH PROCESS
SERVED ON SUCH AGENT, WILL BE FORWARDED PROMPTLY TO THE PLEDGOR, BUT THE FAILURE
OF THE PLEDGOR TO RECEIVE SUCH NOTICE AND COPY SHALL NOT AFFECT IN ANY WAY THE
SERVICE OF SUCH PROCESS. THE PLEDGOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO THE PLEDGOR AT ITS ADDRESS SET FORTH IN SECTION 11.02 OF THE
INDENTURE, SUCH SERVICE TO BECOME EFFECTIVE FIVE (5) BUSINESS DAYS AFTER SUCH
MAILING.
(vi) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE COLLATERAL AGENT
OR ANY HOLDER OF SENIOR SECURED DISCOUNT NOTES TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE PLEDGOR IN ANY OTHER JURISDICTION.
(vii) THE PLEDGOR HEREBY AGREES THAT NEITHER THE COLLATERAL AGENT NOR
ANY HOLDER OF SENIOR SECURED DISCOUNT NOTES SHALL HAVE ANY LIABILITY TO THE
PLEDGOR (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY
THE PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS
DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON
THE COLLATERAL AGENT OR SUCH HOLDER OF SENIOR SECURED DISCOUNT NOTES, AS THE
CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART
OF THE COLLATERAL AGENT OR SUCH HOLDER OF SENIOR SECURED DISCOUNT NOTES,
18
<PAGE>
AS THE CASE MAY BE, CONSTITUTING GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(viii) THE PLEDGOR WAIVES ALL RIGHTS OF NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY THE COLLATERAL AGENT OR ANY HOLDER OF SENIOR
SECURED DISCOUNT NOTES OF ITS RIGHTS DURING THE CONTINUANCE OF A DEFAULT OR AN
EVENT OF DEFAULT TO REPOSSESS THE COLLATERAL WITH JUDICIAL PROCESS OR TO
REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL OR OTHER SECURITY FOR THE
OBLIGATIONS. THE PLEDGOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF
THE COLLATERAL AGENT OR ANY HOLDER OF SENIOR SECURED DISCOUNT NOTES IN
CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO OBTAIN POSSESSION OF,
REPLEVY, ATTACH OR LEVY UPON COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS,
TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE COLLATERAL
AGENT OR ANY HOLDER OF SENIOR SECURED DISCOUNT NOTES, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION
THIS AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR, THE
COLLATERAL AGENT AND THE HOLDERS OF SENIOR SECURED DISCOUNT NOTES.
Section 18.20. Acknowledgments. The Pledgor hereby acknowledges that:
---------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement;
(b) neither the Collateral Agent nor any Holder of Senior Secured
Discount Notes has any fiduciary relationship to the Pledgor, and the
relationship between the Collateral Agent and the Holders of Senior Secured
Discount Notes, on the one hand, and the Pledgor, on the other hand, is
solely that of a secured party and a creditor; and
(c) no joint venture exists among the Holders of Senior Secured
Discount Notes or among the Pledgor and the Holders of Senior Secured
Discount Notes.
[Signature Page Follows]
19
<PAGE>
[Pledge Agreement Signature Page]
IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have each
caused this Agreement to be duly executed and delivered as of the date first
above written.
PLEDGOR:
Mrs. Fields' Holding Company, Inc.
a Delaware corporation
By:_________________________________
Name:
Title:
COLLATERAL AGENT:
The Bank of New York, as Collateral Agent
By:_________________________________
Name:
Title:
20
<PAGE>
SCHEDULE I
Pledged Shares
<TABLE>
<CAPTION>
Number of Pledged Share Certificate Percentage of
----------------- ----------------- -------------
Issuer Shares Number Outstanding
- ------ ------ ------ -----------
<S> <C> <C> <C>
Mrs. Fields' Original
Cookies, Inc. 1 1 0.25%
Mrs. Fields' Original
Cookies, Inc. 399 2 99.75%
------
100%
====
</TABLE>
21
<PAGE>
SCHEDULE II
Pledged Notes
None
22
<PAGE>
EXHIBIT A
FORM OF INTERCOMPANY NOTE
_________ __, ____
New York, New York
NOTE
----
FOR VALUE RECEIVED, Mrs. Fields' Original Cookies, Inc., a Delaware
corporation (the "Maker"), promises to pay to Mrs. Fields' Holding Company,
Inc., a Delaware corporation (the "Holding Company"), or order, the amount of
principal advanced from time to time by the Holding Company to such Maker as
reflected on the books and records of the Holding Company, together with
interest on the unpaid principal amount at a rate per annum equal to 14%, from
the date of advance to the date of payment. All principal and accrued interest
under this Note shall be due and payable on demand.
This Note may be prepaid in whole or in part at any time without
penalty or premium.
The right to plead any and all statutes of limitations as a defense to
demand hereunder is hereby waived to the extent permitted by law. The Maker, for
itself and its successors and assigns, waives presentment, demand, protest and
notice thereof or of dishonor, and waives the right to be released by reason of
any extension of time or change in the terms of payment or any change,
alteration or release of any security given for the payment hereof. The Maker
hereby acknowledges that this Note may be pledged by the Holding Company to the
Collateral Agent named below.
This Note shall be governed by and construed in accordance with the
laws of the State of New York.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By:___________________________
Title:
Pay to the Order of:
The Bank of New York, as Collateral Agent
MRS. FIELDS' HOLDING COMPANY, INC.
By: _________________________
Title:
<PAGE>
EXHIBIT B
FORM OF SOLVENCY CERTIFICATE
The undersigned, Larry A. Hodges and L. Tim Pierce, respectively the President
and Chief Financial Officer of Mrs. Fields' Holding Company, Inc., a Delaware
corporation ("Pledgor"), certify that they are authorized to execute this
Certificate in the name and on behalf of Pledgor, and further certify as follows
(capitalized terms used but not defined herein have the respective meanings
assigned to them in the Pledge Agreement, dated August 24, 1998 (the "Pledge
Agreement"), between Pledgor and Collateral Agent):
a. We are familiar with the historical and current financial condition of
Pledgor and the Issuer including, after the [merger] [consolidation] [sale
or transfer of all or substantially all assets] described in Section
7(a)(vii) of the Pledge Agreement.
b. For the purposes of this Certificate, we have reviewed other financial
information and forecasts relating to the Pledgor prepared by the Pledgor's
management, which we believe (as to the historical financial information)
fairly present the historical financial position and results of operations
of the Pledgor as of the dates and for the periods presented and (in the
case of the forecasts) were based upon reasonable assumptions and provide
reasonable estimations of future performance, although any forecasts are
necessarily uncertain of fulfillment. We know of no facts or circumstances
arising subsequent to the dates as of which such information and
projections were prepared that would materially alter such conclusions. We
have assumed that the fair saleable value of the Pledgor's assets is the
amount for which all the businesses of the Pledgor could be sold on the
date hereof either as an entirety or separately (including in any such sale
all property and assets used in the business or businesses sold) and, in
either case, on a going concern basis, without potential tax liabilities
arising on sale.
c. In addition to such review, we are familiar with and have considered
information, including the opinions of independent advisors, as to the fair
market values of the Pledgor's assets and the probable liability,
contingent or otherwise, of the Pledgor to its creditors. We have estimated
such values as reliably and as practicably as possible under the
circumstances.
Based upon the foregoing, we have reached the conclusions that, after
giving effect to the transactions contemplated by Section 7(a)(vii) of the
Pledge Agreement:
1. The Pledgor does not intend to or believe that it has incurred or will
incur, debts that will be beyond its ability to pay as they mature.
2. The present fair saleable value of the assets of the Pledgor the
amount that will be required to pay the probable liability on its existing debts
(whether matured or unmatured, liquidated or unliquidated, absolute, fixed or
contingent), as they become absolute and matured.
<PAGE>
In determining "present fair saleable value," we utilized as a guideline amounts
we believe would be reached by a willing seller and a willing buyer under no
compulsion to make the sale.
3. The Pledgor does not have unreasonably small capital for it to carry
on its businesses as proposed to be conducted. "Unreasonably small capital" is
dependent upon the nature of the particular business or businesses conducted or
to be conducted, and the statement made in the preceding sentence is correct
based upon anticipated future conduct of the businesses of the Pledgor.
4. The Pledgor is not incurring obligations or making transfers under any
evidence of indebtedness with the intent to hinder, delay or defraud any entity
to which it is or will become indebted.
WITNESS the signatures of the undersigned, this _____ day of ______, ____.
_________________________
President
_________________________
Chief Financial Officer
<PAGE>
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of August 24, 1998, by and among Mrs. Fields' Holding Company,
Inc., a Delaware corporation (the "Company"), and Jefferies & Company, Inc. and
BT Alex. Brown Incorporated (each, an "Initial Purchaser" and, collectively, the
"Initial Purchasers"), who have agreed to purchase an aggregate of 55,000 units
of the Company (the "Units") consisting of $55,000,000 in aggregate principal
amount at maturity of 14% Senior Secured Discount Notes due 2005 of the Company
(the "Senior Notes") and 55,000 warrants (the "Warrants") to purchase 172,926
shares of common stock, par value $0.001 per share, of the Company (the "Common
Stock") pursuant to the Purchase Agreement (as defined).
This Agreement is made pursuant to the Purchase Agreement, dated, as of
August 13, 1998 (the "Purchase Agreement"), by and among the Company and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Units, the Company has agreed to provide the registration rights for the Senior
Notes set forth in this Agreement. The execution and delivery of this Agreement
is a condition to the obligations of the Initial Purchasers set forth in Section
3 of the Purchase Agreement. Capitalized terms used herein and not otherwise
defined shall have the meaning assigned to them in the Indenture, dated August
24, 1998, between the Company and The Bank of New York, as Trustee, relating to
the Senior Notes and the New Notes (the "Indenture").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Advice: As defined in Section 6(d) hereof.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Broker-Dealer Transfer Restricted Securities: New Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Senior Notes
that such Broker-Dealer acquired for its own account as a result of market-
making activities or other trading activities (other than Senior Notes acquired
directly from the Company or any of its affiliates).
Business Day: Any day except a Saturday, Sunday or other day in the
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
Certificated Securities: As defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Securities Act of the Exchange Offer Registration
Statement relating to the New Notes to be issued in the Exchange Offer, (b) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period
1
<PAGE>
not less than the minimum period required pursuant to Section 3(b) hereof and
(c) the delivery by the Company to the Registrar under the Indenture of New
Notes in the same aggregate principal amount as the aggregate principal amount
of Senior Notes tendered by Holders thereof pursuant to the Exchange Offer.
controlling person: As defined in Section 8(a) hereof.
Damages Payment Date: With respect to the Senior Notes, each Interest
Payment Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Securities
Act of the New Notes pursuant to the Exchange Offer Registration Statement
pursuant to which the Company shall offer the Holders of all outstanding
Transfer Restricted Securities the opportunity to exchange all such outstanding
Transfer Restricted Securities for New Notes in an aggregate principal amount
equal to the aggregate principal amount of the Transfer Restricted Securities
tendered in such exchange offer by such Holders
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Senior Notes to certain "qualified institutional buyers," as
such term is defined in Rule 144A under the Securities Act, and to persons
permitted to purchase the Senior Notes in offshore transactions in reliance upon
Regulation S under the Securities Act.
Global Note Holder: As defined in the Indenture.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of August 24, 1998, among the
Company and The Bank of New York, as trustee (the "Trustee"), pursuant to which
the Notes are to be issued, as such Indenture is amended or supplemented from
time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
Liquidated Damages: As defined in Section 5 hereof.
NASD: The National Association of Securities Dealers, Inc.
New Notes: The Company's 14% Senior Secured Discount Notes due 2005,
identical in all material respects to the Senior Notes, which are to be issued
pursuant to the Indenture (i) in the Exchange Offer or (ii) upon the request of
any Holder of Senior Notes covered by a Shelf Registration Statement, in
exchange for such Senior Notes.
Notes: The Senior Notes and the New Notes.
2
<PAGE>
Person: An individual, partnership, corporation, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement at the
time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person
who is a Holder of Notes on the record date with respect to the Interest Payment
Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company (on
the appropriate form under the Securities Act selected by the Company) relating
to (a) an offering of New Notes pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) which is filed pursuant to the
provisions of this Agreement and (ii) including the Prospectus included therein,
all amendments and supplements thereto (including post-effective amendments) and
all exhibits and material incorporated by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
Securities Act: The Securities Act of 1933, as amended.
Shelf Registration Statement: As defined in Section 4(a) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-
77bbbb), as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Securities Act, (b) the date on
which such Note has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Note is disposed of by a Broker-Dealer
pursuant to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including delivery of the Prospectus contained therein)
or (d) the date on which such Note is distributed to the public pursuant to Rule
144 under the Securities Act.
underwriters: As defined in Section 11 hereof.
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. HOLDERS
3
<PAGE>
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "Holder") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) hereof have been
complied with), the Company shall (i) cause to be filed with the Commission as
soon as practicable after the Closing Date, but in no event later than 90 days
after the Closing Date, the Exchange Offer Registration Statement, (ii) use its
best efforts to cause such Exchange Offer Registration Statement to become
effective at the earliest possible time, but in no event later than 150 days
after the Closing Date, (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause such Exchange Offer Registration Statement to become
effective, (B) file, if applicable, a post-effective amendment to such Exchange
Offer Registration Statement pursuant to Rule 430A under the Securities Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the New Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the New Notes to be offered in
exchange for the Senior Notes that are Transfer Restricted Securities and to
permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) hereof.
(b) The Company shall use its best efforts to cause the Exchange
Offer Registration Statement to be effective continuously, and shall keep the
Exchange Offer open for a period of not less than the minimum period required
under applicable federal and state securities laws to Consummate the Exchange
Offer; provided that in no event shall such period be less than 20 Business
Days. The Company shall cause the Exchange Offer to comply with all applicable
federal and state securities laws. No securities other than the Notes shall be
included in the Exchange Offer Registration Statement. The Company shall use its
best efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Senior Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Senior Notes (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with its initial sale of each New Note received by such Broker-Dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers that the Commission
may require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such
4
<PAGE>
Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer,
except to the extent required by the Commission as a result of a change in
policy after the date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) hereof to the extent necessary to
ensure that it is available for sales of Broker-Dealer Transfer Restricted
Securities by Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the Securities Act
and the policies, rules and regulations of the Commission as announced from time
to time, for a period of 120 days from the date on which the Exchange Offer is
Consummated.
The Company shall promptly provide sufficient copies of the latest
version of such Prospectus to such Restricted Broker-Dealers promptly upon
request, and in no event later than one day after such request, at any time
during such 120-day period in order to facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
------------------
Exchange Offer Registration Statement with respect to the New Notes because the
Exchange Offer is not permitted by applicable law (after the procedures set
forth in Section 6(a)(i) hereof have been complied with) or (ii) if any Holder
of Transfer Restricted Securities shall notify the Company within 20 Business
Days following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the New Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the Prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder or (C) such Holder is a Broker-Dealer and holds
Senior Notes acquired directly from the Company or one of its affiliates, then
the Company shall (x) cause to be filed on or prior to 30 days after the date on
which the Company determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above or 60 days after the date on
which the Company receives the notice specified in clause (ii) above a shelf
registration statement pursuant to Rule 415 under the Securities Act, which may
be an amendment to the Exchange Offer Registration Statement (in either event,
the "Shelf Registration Statement"), relating to all Transfer Restricted
Securities the Holders of which shall have provided the information required
pursuant to Section 4(b) hereof, and shall (y) use their respective best efforts
to cause such Shelf Registration Statement to become effective on or prior to
120 days after the date on which the Company becomes obligated to file such
Shelf Registration Statement. If, after the Company has filed an Exchange Offer
Registration Statement which satisfies the requirements of Section 3(a) above,
the Company is required to file and make effective a Shelf Registration
Statement solely because the Exchange Offer shall not be permitted under
applicable federal law, then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above. Such
an event shall have no effect on the requirements of clause (y) above. The
Company shall use its best efforts to keep the Shelf Registration Statement
discussed in this Section 4(a) continuously effective, supplemented and amended
as required by and subject to the provisions of Sections 6(b) and (c) hereof to
the extent necessary to ensure that it is available for sales of Transfer
Restricted Securities by the Holders thereof entitled to the benefit of this
Section 4(a), and to ensure that it conforms with the requirements of this
Agreement, the Securities Act and the policies, rules and regulations of the
Commission as announced from time to time, for a period of at least two years
(as extended pursuant to Section 6(c)(i) hereof) following the date on which
such Shelf
5
<PAGE>
Registration Statement first becomes effective under the Securities Act or for
such shorter period which will terminate when (i) all of the Transfer Restricted
Securities covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement, (ii) the date on which, in the opinion of
counsel to the Company, all of the Transfer Restricted Securities then held by
the Holders may be sold by the Holders in the public United States securities
markets in the absence of a registration statement covering such sales or (iii)
the date on which there ceases to be outstanding any Transfer Restricted
Securities.
(b) Provision by Holders of Certain Information in Connection with
--------------------------------------------------------------
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
- --------------------------------
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in item 507 of Regulation S-K under the Securities Act for
use in connection with any Shelf Registration Statement or Prospectus or
preliminary Prospectus included therein. No Holder of Transfer Restricted
Securities shall be entitled to Liquidated Damages pursuant to Section 5 hereof
unless and until such Holder shall have used its best efforts to provide all
such information. Each Holder as to which any Shelf Registration Statement is
being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the date specified for such filing in
this Agreement, (ii) any such Registration Statement has not been declared
effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not been
Consummated within 30 Business Days after the Exchange Offer Registration
Statement is first declared effective by the Commission or (iv) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then the Company agrees to pay liquidated damages
("Liquidated Damages") to each Holder of Transfer Restricted Securities with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, in an amount equal to $.05 per week per $1,000 principal
amount of Transfer Restricted Securities held by such Holder for each week or
portion thereof that the Registration Default continues. The amount of the
Liquidated Damages shall increase by an additional $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal
amount of Transfer Restricted Securities. Notwithstanding anything to the
contrary set forth herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (i) above, (2) upon the effectiveness of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement), in the case
of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii)
above, or (4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration Statement)
to again be declared effective or made usable in the case of (iv) above, the
accrual of Liquidated Damages payable with respect to the Transfer Restricted
Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable,
shall
6
<PAGE>
cease.
All accrued Liquidated Damages shall be paid to the Global Note Holder
by wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by mailing checks to their registered
addresses on each Damages Payment Date. All obligations of the Company set forth
in the preceding paragraph that are outstanding with respect to any Transfer
Restricted Security at the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such obligations with respect to
such security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company shall comply with all applicable provisions of
Section 6(c) hereof, shall use its best efforts to effect such exchange and to
permit the sale of Broker-Dealer Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
shall comply with all reasonable requests from, or conditions specified by the
Commission in connection therewith, including, without limitation, as a
condition to its participation in the Exchange Offer pursuant to the terms of
this Agreement, each Holder of Transfer Restricted Securities shall furnish,
upon the request of the Company, prior to the Consummation of the Exchange
Offer, a written representation to the Company (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that (A) it is not an affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the New Notes
to be issued in the Exchange Offer and (C) it is acquiring the New Notes in its
ordinary course of business. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to participate in a
distribution of the securities to be acquired in the Exchange Offer (1) could
not under Commission policy as in effect on the date of this Agreement rely on
the position of the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
----------------------------------
13, 1988), as interpreted in the Commission's letter to Shearman & Sterling
dated July 2, 1993, and similar no-action letters (including, if applicable, any
no-action letter obtained by the Company), and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction and that such a secondary resale
transaction must be covered by an effective registration statement containing
the selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of New Notes obtained by such
Holder in exchange for Senior Notes acquired by such Holder directly from the
Company or an affiliate thereof.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) hereof and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the Securities Act, which form shall be available for the
sale of the Transfer Restricted Securities in accordance with the intended
method or methods of distribution thereof within the time periods and otherwise
in accordance with the provisions hereof.
7
<PAGE>
(c) General Provisions. In connection with any Registration Statement
------------------
and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus, to the extent
that the same are required to be available to permit sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
for the period specified in Section 3 or 4 hereof, as applicable. Upon
the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required
hereby, the Company shall file promptly an appropriate amendment to
such Registration Statement, (1) in the case of clause (A), correcting
any such misstatement or omission, and (2) in the case of clauses (A)
and (B), use its best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable
thereafter.
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, or such shorter
period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold; cause the
Prospectus to be supplemented by any required Prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act, and to comply fully with Rules 424, 430A and 462, as
applicable, under the Securities Act in a timely manner; and comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
of Transfer Restricted Securities covered by the applicable Shelf
Registration Statement, promptly and, if requested by such Persons,
confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and,
with respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any
request by the Commission for amendments to the Registration Statement
or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement under the Securities Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement in order
to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the Commission
shall
8
<PAGE>
issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) furnish to the Initial Purchasers, each selling Holder
named in any Registration Statement or Prospectus and each of the
underwriter(s) in connection with such sale, if any, before filing with
the Commission, copies of any Registration Statement or any Prospectus
included therein or any amendments or supplements to any such
Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review and comment
of such Holders and underwriter(s) in connection with such sale, if
any, for a period of at least five Business Days, and the Company will
not file any such Registration Statement or Prospectus or any amendment
or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which the
selling Holders of the Transfer Restricted Securities covered by such
Registration Statement or the underwriter(s) in connection with such
sale, if any, shall reasonably object within five Business Days after
the receipt thereof.
(v) promptly prior to the filing of any document that is to
be incorporated by reference into a Registration Statement or
Prospectus, provide copies of such document to the selling Holders and
to the underwriter(s) in connection with such sale, if any, make the
Company's representatives available for discussion of such document and
other customary due diligence matters, and include such information in
such document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any managing underwriter participating in any
disposition pursuant to such Registration Statement and any attorney or
accountant retained by such selling Holders or any of such
underwriter(s), all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney or accountant in
connection with such Registration Statement or any post-effective
amendment thereto subsequent to the filing thereof and prior to its
effectiveness as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities, provided that
each such person shall first agree in writing with the Company that (A)
any information that is designated in writing by the Company in good
faith as confidential at the time of delivery of such information (the
"Information") to such person shall be kept confidential by such
person, unless such disclosure is made in connection with a court
proceeding or required by law, or such Information becomes available to
the public generally or through a third party without an accompanying
obligation of confidentiality, (B) such Information shall be deemed
confidential and shall not be used by such person as the basis for any
market transactions in the securities of the Company unless and until
such Information is made generally available to the public, and (C)
such person will, upon learning that disclosure of such Information is
sought in a court of competent jurisdiction, give notice to the Company
and allow the Company (at the Company's expense, as applicable) to
undertake appropriate action to prevent disclosure of such Information;
9
<PAGE>
(vii) if requested by any selling Holders or the
underwriter(s) in connection with such sale, if any, promptly include
in any Registration Statement or Prospectus, pursuant to a supplement
or post-effective amendment if necessary, such information as such
selling Holders and underwriter(s), if any, may reasonably request to
have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Transfer Restricted
Securities, information with respect to the principal amount of
Transfer Restricted Securities being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the offering
of the Transfer Restricted Securities to be sold in such offering; and
make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is
notified of the matters to be included in such Prospectus supplement or
post-effective amendment; provided, that the Company shall not be
required to take any action pursuant to this Section 6(c)(vii) that
would, in the opinion of counsel to the Company, violate applicable
law.
(viii) furnish to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without charge, at
least one copy of the Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(ix) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company
hereby consents to the use (in accordance with law) of the Prospectus
and any amendment or supplement thereto by each of the selling Holders
(but, in the case of a Shelf Registration Statement, only those holders
selling Transfer Restricted Securities included in such Shelf
Registration Statement) and each of the underwriter(s), if any, in
connection with the offering and the sale of the Transfer Restricted
Securities covered by the Prospectus or any amendment or supplement
thereto;
(x) in the case of a Shelf Registration Statement, enter
into such agreements (including an underwriting agreement) and make
such customary representations and warranties and take all such other
actions in connection therewith reasonably necessary in order to
expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any Shelf Registration Statement contemplated by
this Agreement as may be reasonably requested by any Holder of Transfer
Restricted Securities or underwriter in connection with any sale or
resale pursuant to any Shelf Registration Statement contemplated by
this Agreement, and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an
Underwritten Registration, the Company shall:
(A) furnish to each selling Holder and each
underwriter, if any, upon the effectiveness of the Shelf
Registration Statement (1) an opinion, dated the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement, as the case
may be, of counsel for the Company, in form and substance
reasonably satisfactory to the underwriters, if any, and the
Holders of a majority in principal amount of the Transfer
Restricted Securities being sold, covering customary matters,
and (2) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement or the date
of Consummation of the Exchange Offer, as the
10
<PAGE>
case may be, from the Company's independent accountants, in
the customary form and covering matters of the type
customarily covered in comfort letters to underwriters in
connection with primary underwritten offerings; and
(B) deliver such other documents and certificates as
may be reasonably requested by the selling Holders, the
underwriter(s), if any, and Restricted Broker Dealers, if any,
to evidence compliance with clause (A) above and with any
customary conditions contained in the underwriting agreement
or other agreement entered into by the Company pursuant to
this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at
any time the representations and warranties of the Company contained in
such underwriting or similar agreement cease to be true and correct,
the Company shall so advise the underwriter(s), if any, the selling
Holders and each Restricted Broker-Dealer promptly and if requested by
such Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration
and qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such jurisdictions as the selling
Holders or underwriter(s), if any, may request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided that the Company shall not
be required to register or qualify as a foreign corporation where it is
not now so qualified or to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters
and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xii) issue, upon the request of any Holder of Senior Notes
covered by any Shelf Registration Statement contemplated by this
Agreement and upon surrender of the Senior Notes held by such Holder to
the Company for cancellation, New Notes having an aggregate principal
amount equal to the aggregate principal amount of Senior Notes
surrendered to the Company by such Holder in exchange therefor or being
sold by such Holder; such New Notes to be registered in the name of
such Holder or in the name of the purchaser(s) of such Notes, as the
case may be; in return, the Senior Notes held by such Holder shall be
surrendered to the Company for cancellation;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to
be sold and not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such names as
the Holders or the underwriter(s), if any, may request at least two
Business Days prior to such sale of Transfer Restricted Securities;
(xiv) subject to Section 6(c)(i) hereof, if any fact or event
contemplated by Section 6(c)(iii)(D) hereof shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by
11
<PAGE>
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(xv) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration
Statement covering such Transfer Restricted Securities and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with The
Depository Trust Company;
(xvi) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter") that is required to be retained in accordance with the
rules and regulations of the NASD, and use their respective best
efforts to cause such Registration Statement to become effective and
approved by and upon surrender of the Senior Notes held by such Holder
to the Company for cancellation, such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities;
(xvii) otherwise use their respective best efforts to comply
with all applicable rules and regulations of the Commission, and make
generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month period beginning
after the effective date of the Registration Statement (as such term is
defined in paragraph (c) of Rule 158 under the Securities Act);
(xviii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement
required by this Agreement and, in connection therewith, cooperate with
the Trustee and the Holders of Notes to effect such changes to the
Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use its best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner; and
(d) Restrictions on Holders.
(i) Each Holder agrees by acquisition of a Transfer
Restricted Security that, upon receipt of the notice referred to in Section
6(c)(i) hereof or any notice from the Company of the existence of any fact of
the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xiv) hereof,
or until it is advised in writing by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus (the "Advice"). If
so directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of
12
<PAGE>
receipt of either such notice. In the event the Company shall give any such
notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D) hereof
to and including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xiv) hereof or shall have received the
Advice.
(ii) The Holders will furnish the information required to be
furnished pursuant to Section 4(b) hereof within the time period set forth
herein.
(iii) Sales of such Transfer Restricted Securities pursuant to
a Registration Statement shall only be made in the manner set forth in such
currently effective Registration Statement.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including, without
limitation,: (i) all registration and filing fees and expenses (including
filings made by any Initial Purchaser or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter")
and its counsel that may be required by the rules and regulations of the NASD);
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the New Notes to be issued in the Exchange Offer and printing
of Prospectuses), messenger and delivery services and telephone; (iv) all fees
and disbursements of counsel for the Company, and, subject to Section 7(b)
hereof, the Holders of Transfer Restricted Securities; (v) all application and
filing fees in connection with listing the Notes on a national securities
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel (which counsel
shall be reasonably satisfactory to the Company), who shall be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared; provided that
such fees and disbursements of such counsel shall not exceed $50,000.
SECTION 8. INDEMNIFICATION
13
<PAGE>
(a) The Company agrees to indemnify and hold harmless (i) each Holder
and (ii) each person, if any, who controls (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act) any Holder (any of the
persons referred to in this clause (ii) being hereinafter referred to as a
"controlling person") and (iii) the respective officers, directors, partners,
employees, representatives and agents of any Holder or any controlling person
(any person referred to in clause (i), (ii) or (iii) may hereinafter be referred
to as an "Indemnified Holder"), to the fullest extent lawful, from and against
any and all losses, claims, damages, liabilities, judgments, actions and
expenses (including, without limitation, and as incurred, reimbursement of all
reasonable costs of investigating, preparing, pursuing or defending any claim or
action, or any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of counsel
to any Indemnified Holder) directly or indirectly caused by, related to, based
upon, arising out of or in connection with any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto),
or 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 (i) insofar as such losses, claims, damages, liabilities or expenses are
caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders furnished in writing to the Company by any of the
Holders expressly for use therein or (ii) to the extent that any such loses,
claims, damages, liabilities, or expenses result solely from an untrue statement
of a material fact contained in, or the omission of a material fact from the
Registration Statement or Prospectus, which untrue statement or omission was
corrected in an amended or supplemented Registration Statement or Prospectus, if
the person alleging such loss, claim, damage, liability or expense was not sent
or given, at or prior to the written confirmation of such sale, a copy of the
amended or supplemented Registration Statement or Prospectus if the Company had
previously furnished copies thereof to such indemnified party and if delivery of
a prospectus was required by the Securities Act and was not so made.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company, such Indemnified Holder (or the Indemnified Holder controlled by
such controlling person) shall promptly notify the Company in writing, and the
Company shall assume the defense of such action, including the employment of
counsel reasonably satisfactory to such Indemnified Holder and the payment of
all fees and expenses of such counsel, as incurred (except that, in the case of
any action in respect of which indemnity may be sought pursuant to both Section
8(a) and 8(b) hereof, such Indemnified Holder shall not be required to assume
the defense of such action pursuant hereto, but may employ separate counsel and
participate in the defense thereof; however, the fees and expense of such
counsel, except as provided below, shall be at the expense of such Indemnified
Holder). Such Indemnified Holder shall have the right to employ it own counsel;
any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expenses of such Indemnified Holder
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the Company, (ii) the Company shall have failed to
assume the defense of such action or employ counsel reasonably satisfactory to
such Indemnified Holder within a reasonable period of time after notice of the
institution of such action or (iii) the named parties to any such action
(including any impleaded parties) include both such Indemnified Holder and the
Company, and such Indemnified Holder shall have been advised by such counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Company (in which case the Company
shall not have the right to assume the defense of such action on behalf of such
Indemnified Holder). In any such case, the Company
14
<PAGE>
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expense of more
than on separate firm of attorneys (in addition to any local counsel) for all
indemnified parties and all such fees and expenses shall be reimbursed as they
are incurred (upon written request and presentation of reasonably satisfactory
invoices). Such firm shall be designated in writing by all Indemnified Holders,
in the case of the parties indemnified pursuant to Section 8(a) hereof, and by
the Company, in the case of parties indemnified pursuant to Section 8(b) hereof.
The Company shall indemnify and hold harmless such Indemnified Holder from and
against any and all losses, claims, damages, liabilities and judgments by reason
of any settlement of any action (i) effected with its written consent or (ii)
effected without its written consent if the settlement is entered into more than
twenty business days after the Company shall have received a request form such
Indemnified Holder for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the Company, and
prior to the date of such settlement, the Company shall have received written
notice of such settlement and shall have failed to comply with such
reimbursement request. The Company shall not, without the prior written consent
of such Indemnified Holder, effect any settlement or compromise of, or consent
to the entry of judgment with respect to, any pending or threatened action in
respect of which such Indemnified Holder is or could have been a party and
indemnity or contribution may be or could have been sought hereunder by such
Indemnified Holders, unless such settlement, compromise or judgement includes an
unconditional release of such Indemnified Holder from all liability on claims
that are or could have been the subject matter of such action.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and its directors,
officers, and any person controlling (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) the Company, and the
respective officers, directors, partners, employees, representatives and agents
of each such person, to the same extent as the foregoing indemnity from the
Company to each of the Indemnified Holders, but only with respect to claims and
actions based on information relating to such Holder furnished in writing by
such Holder expressly for use in any Registration Statement. In case any action
or proceeding shall be brought against the Company, or its directors or officers
or any such controlling person in respect of which indemnity may be sought
against a Holder of Transfer Restricted Securities, such Holder shall have the
rights and duties given the Company and such directors or officers or such
controlling person shall have the rights and duties given to each Holder by the
preceding paragraph. In no event shall any Holder be liable or responsible for
any amount in excess of the amount by which the total received by such Holder
with respect to its sale of Transfer Restricted Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Holder for such
Transfer Restricted Securities and (ii) the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or 8(b) hereof (other
than by reason of exceptions provided in those Sections) in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Holders, on the other hand, from their sale of
Transfer Restricted Securities or if such allocation is not permitted by
applicable law, the relative fault of the Company, on the one hand, and of the
Indemnified Holder, on the
15
<PAGE>
other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of the Company, on the one
hand, and of the Indemnified Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Indemnified Holder. The
amount paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph of Section 8(a) hereof, any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim.
(d) The Company and each Holder of Transfer Restricted Securities agree
that it would not be just and equitable if contribution pursuant to this Section
8(c) were determined by pro rata allocation (even if the Holders were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, no Holder or
its related Indemnified Holders shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of its Transfer Restricted Securities
pursuant to a Registration Statement exceeds the sum of (A) the amount paid by
such Holder for such Transfer Restricted Securities plus (B) the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Holders' obligations to
contribute pursuant to this Section 8(c) are several in proportion to the
respective principal amount of Senior Notes held by each of the Holders
hereunder and not joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any Transfer
Restricted Securities remain outstanding and during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request of any Holder of Transfer Restricted Securities, to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Securities Act in order to permit resales
of such Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in customary underwriting arrangements entered
into in connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.
16
<PAGE>
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment
bankers and manager or managers for any Underwritten Offering that will
administer such offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering provided, that such underwriters must be reasonably satisfactory
to the Company. Such investment bankers and managers are referred to herein as
the "underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to exercise
--------
all rights provided herein, in the Indenture, the Purchase Agreement or granted
by law, including recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by them of the provisions of this Agreement and hereby agree
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the
--------------------------
date hereof, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
(c) Adjustments Affecting the Notes. The Company will not take any
-------------------------------
action, or voluntarily permit any change to occur, with respect to the Notes
that would materially and adversely affect the ability of the Holders to
Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 12(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities affected by such
amendment, modification, supplement, waiver or consent, and (ii) in the case of
all other provisions hereof, the Company has obtained the written consent of
Holders of a majority of the outstanding principal amount of Transfer Restricted
Securities. Notwithstanding the foregoing, a waiver or consent to departure from
the provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does not
affect directly or indirectly the rights of other Holders whose securities are
not being tendered pursuant to such Exchange Offer may be given by the Holders
of a majority of the outstanding principal amount of Transfer Restricted
Securities being sold rather than being registered in such Exchange Offer.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
17
<PAGE>
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under
the Indenture; and
(ii) if to the Company:
Mrs. Fields' Holding Company, Inc.
2855 E. Cottonwood Parkway
Salt Lake City, Utah 84121
Telecopier No.: (801) 736-5600
Attention: Chief Financial Officer
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 735-2000
Attention: Randall H. Doud, Esq.
All such notices and communications shall be deemed to have been duly
given: (i) at the time delivered by hand, if personally delivered; (ii) five
Business Days after being deposited in the mail, postage prepaid, if mailed;
(iii) when receipt acknowledged, if telecopied; and (iv) on the next business
day, if timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including, without limitation, and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and
18
<PAGE>
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MRS. FIELDS' HOLDING COMPANY, INC.
By: _______________________________
Name: Tim Pierce
Title: Chief Financial Officer
JEFFERIES & COMPANY, INC.
By: _______________________________
Name:
Title:
BT ALEX. BROWN INCORPORATED
By: _______________________________
Name:
Title:
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as
of August 24, 1998, among Mrs. Fields' Original Cookies, Inc. (or its permitted
successor), a Delaware corporation (the "Company"), The Mrs. Fields' Brand, Inc.
(the "Guaranteeing Subsidiary"), and The Bank of New York, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of November 26, 1997,
providing for the issuance of an aggregate principal amount of up to $200.0
million of 101/8% Notes due 2004 (the "Notes");
WHEREAS, the Company has previously issued $100 million aggregate
principal amount of Notes designated as Series A or Series B Notes;
WHEREAS, the Company desires to issue $40 million aggregate principal
amount of Notes on the date hereof, to be designated Series C Notes; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Company and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
-----------------
definition shall have the meanings assigned to them in the Indenture.
2. Designation of Series C Notes. The Company, the Guaranteeing
------------------------------
Subsidiary and the Trustee hereby agree as follows:
The second paragraph of the preamble to the Indenture is replaced by
the following:
"The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 101/8% Series
A Notes
<PAGE>
due 2004 (the "Series A Notes" ), the 101/8% Series B Notes due 2004 (the
"Series B Notes") and such additional 101/8% notes in any series that the
Company may choose to designate in amounts that are permitted to be issued under
the Indenture (collectively, the "Notes"):"
3. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
4. Counterparts. The parties may sign any number of copies of this
-------------
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
5. Effect of Headings. The Section headings herein are for
------------------
convenience only and shall not affect the construction hereof.
6. The Trustee. The Trustee shall not be responsible in any manner
-----------
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiary and the Company.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: August 24, 1998
MRS. FIELDS' ORIGINAL COOKIES, INC.
By: __________________________
Name:
Title:
THE MRS. FIELDS' BRAND, INC.
By: _________________________
Name:
Title
THE BANK OF NEW YORK,
AS TRUSTEE
By: __________________________
Name:
Title:
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE (this Supplemental Indenture), dated
as of August 24, 1998, among Mrs. Fields' Original Cookies, Inc., a Delaware
corporation (or its permitted successor) (the "Company"), Great American Cookie
Company, Inc. (the Guaranteeing Subsidiary), a Delaware corporation and a
subsidiary of the Company, The Mrs. Fields' Brand, Inc., a Delaware corporation
("MFB" and, together with the Guaranteeing Subsidiary, the "Guarantors"), and
The Bank of New York, as trustee under the Indenture referred to herein (the
Trustee).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the Indenture), dated as of November 26, 1997, as
amended by the First Supplemental Indenture, dated August 24, 1998, providing
for the issuance of an aggregate principal amount of up to $200.0 million of
10 1/8% Notes due 2004 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company,s Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
-----------------
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees
----------------------
as follows:
<PAGE>
(a) Along with MFB, to jointly and severally Guarantee to each
Holder of a Note authenticated and delivered by the Trustee and to the
Trustee and its successors and assigns, irrespective of the validity
and enforceability of the Indenture, the Notes or the obligations of
the Company hereunder or thereunder, that:
(i) the principal of and interest on the Notes will be promptly
paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful,
and all other obligations of the Company to the Holders or
the Trustee hereunder or thereunder will be promptly paid in
full or performed, all in accordance with the terms hereof
and thereof; and
(ii) in case of any extension of time of payment or renewal of
any Notes or any of such other obligations, that same will
be promptly paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at
stated maturity, by acceleration or otherwise. Failing
payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the
Guarantors shall be jointly and severally obligated to pay
the same immediately.
(b) The obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the
Notes or the Indenture, the absence of any action to enforce the same,
any waiver or consent by any Holder of the Notes with respect to any
provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or
defense of a guarantor.
(c) The following is hereby waived: diligence presentment,
demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a
2
<PAGE>
proceeding first against the Company, protest, notice and all demands
whatsoever.
(d) This Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the
Indenture.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guaranteeing Subsidiary, MFB,
or any Custodian, Trustee, liquidator or other similar official acting
in relation to either the Company or the Guaranteeing Subsidiary or
MFB, any amount paid by either to the Trustee or such Holder, this
Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to any
right of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby.
(g) As between the Guarantors, on the one hand, and the Holders
and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in
Article 6 of the Indenture for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and
(y) in the event of any declaration of acceleration of such
obligations as provided in Article 6 of the Indenture, such
obligations (whether or not due and payable) shall forthwith become
due and payable by the Guarantors for the purpose of this Guarantee.
(h) The Guarantors shall have the right to seek contribution from
any non-paying Guarantor so long as the exercise of such right does
not impair the rights of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after giving
effect to any maximum amount and any other contingent and fixed
liabilities that are relevant under any applicable Bankruptcy or
fraudulent conveyance laws, and after giving effect to any collections
from, rights
3
<PAGE>
to receive contribution from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such
other Guarantor under Article 10 of the Indenture shall result in the
obligations of such Guarantor under its Guarantee not constituting a
fraudulent transfer or conveyance.
3 Execution and Delivery. The Guaranteeing Subsidiary agrees that
----------------------
the Guarantee shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms.
--------------------------------------------------------------
(a) The Guaranteeing Subsidiary may not consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person)
another corporation, Person or entity whether or not affiliated with
such Guarantor unless:
(i) subject to Section 10.05 of the Indenture, the Person formed
by or surviving any such consolidation or merger (if other
than a Guarantor or the Company) unconditionally assumes all
the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably
satisfactory to the Trustee, under the Notes, the Indenture
and the Guarantee on the terms set forth herein or therein;
and
(ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or
conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the Guarantee endorsed upon
the Notes and the due and punctual performance of all of the covenants
and conditions of the Indenture to be performed by the Guarantor, such
successor corporation shall succeed to and be substituted for the
Guarantor with the same effect as if it had been named herein as a
Guarantor. Such successor corporation thereupon may cause to be signed
any or all of the Guarantees to be endorsed upon all of the Notes
4
<PAGE>
issuable hereunder which theretofore shall not have been signed by the
Company and delivered to the Trustee. All the Guarantees so issued
shall in all respects have the same legal rank and benefit under the
Indenture as the Guarantees theretofore and thereafter issued in
accordance with the terms of the Indenture as though all of such
Guarantees had been issued at the date of the execution hereof.
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in the
Indenture or in any of the Notes shall prevent any consolidation or
merger of a Guarantor with or into the Company or another Guarantor,
or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety to the Company or
another Guarantor.
5. Releases.
---------
(a) In the event of a sale or other disposition of all of the
assets of any Guarantor, by way of merger, consolidation or otherwise,
or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other
disposition, by way of merger, consolidation or otherwise, of all of
the capital stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) will be released
and relieved of any obligations under its Guarantee; provided that the
Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture, including
without limitation Section 4.10 of the Indenture. Upon delivery by the
Company to the Trustee of an Officers' Certificate and an Opinion of
Counsel to the effect that such sale or other disposition was made by
the Company in accordance with the provisions of the Indenture,
including without limitation Section 4.10 of the Indenture, the
Trustee shall execute any documents reasonably required in order to
evidence the release of any Guarantor from its obligations under its
Guarantee.
(b) Any Guarantor not released from its obligations under its
Guarantee shall remain liable for the full amount of principal of and
5
<PAGE>
interest on the Notes and for the other obligations of any Guarantor
under the Indenture as provided in Article 10 of the Indenture.
6. No Recourse Against Others. No past, present or future director,
----------------------------
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the
Company, the Guaranteeing Subsidiary or under the Notes, any Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the Commission that such a waiver is against public
policy.
8. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
----------------------
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
9. Counterparts. The parties may sign any number of copies of this
------------
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
10. Effect of Headings. The Section headings herein are for
------------------
convenience only and shall not affect the construction hereof.
11. The Trustee. The Trustee shall not be responsible in any manner
-----------
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiary, MFB and the Company.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: August 24, 1998
GREAT AMERICAN COOKIE COMPANY, INC.
By:___________________________
Name:
Title:
MRS. FIELDS' ORIGINAL COOKIES, INC.
By: __________________________
Name:
Title:
THE MRS. FIELDS' BRAND, INC.
By: __________________________
Name:
Title:
THE BANK OF NEW YORK,
AS TRUSTEE
By: __________________________
Name:
Title:
7
<PAGE>
MFOC Exhibit 4.6
MFH Exhibit 4.10
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
November 20 , 1998, among Mrs. Fields' Original Cookies, Inc., a Delaware
corporation (or its permitted successor) (the "Company"), Great American Cookie
Company, Inc. ("Great American"), a Delaware corporation and a subsidiary of the
Company, The Mrs. Fields' Brand, Inc., a Delaware corporation and a subsidiary
of the Company ("MFB"), Pretzelmaker Holdings, Inc., a Colorado corporation and
a subsidiary of the Company (the "Guaranteeing Subsidiary" and, together with
the other Guarantors defined in the Indenture referred to herein, the
"Guarantors"), and The Bank of New York, as trustee under the Indenture referred
to herein (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of November 26, 1997, as amended by the
First Supplemental Indenture, dated as of August 24, 1998, and the Second
Supplemental Indenture, dated as of August 24, 1998, providing for the issuance
of an aggregate principal amount of up to $200.0 million of 101/8% Notes due
2004 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company"s Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
-----------------
shall have the meanings assigned to them in the Indenture.
<PAGE>
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as
----------------------
follows:
(a) Along with all Guarantors named in the Indenture, to jointly and
severally Guarantee to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, irrespective
of the validity and enforceability of the Indenture, the Notes or the
obligations of the Company hereunder or thereunder, that:
(i) the principal of and interest on the Notes will be promptly paid
in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of
and interest on the Notes, if any, if lawful, and all other
obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full or
performed, all in accordance with the terms hereof and thereof;
and
(ii) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise. Failing payment when due
of any amount so guaranteed or any performance so guaranteed for
whatever reason, the Guarantors shall be jointly and severally
obligated to pay the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or consent by any
Holder of the Notes with respect to any provisions hereof or thereof, the
recovery of any judgment against the Company, any action to enforce the
same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor.
(c) The following is hereby waived: diligence presentment, demand of
payment, filing of claims with a court in the event of
<PAGE>
insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest, notice and all demands whatsoever.
(d) This Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the Indenture.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guaranteeing Subsidiary, MFB, Great
American, or any Custodian, Trustee, liquidator or other similar official
acting in relation to either the Company or the Guaranteeing Subsidiary,
MFB or Great American, any amount paid by either to the Trustee or such
Holder, this Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed
hereby.
(g) As between the Guarantors, on the one hand, and the Holders and
the Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article 6 of the
Indenture for the purposes of this Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of
the obligations guaranteed hereby, and (y) in the event of any declaration
of acceleration of such obligations as provided in Article 6 of the
Indenture, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantors for the purpose of this
Guarantee.
(h) The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair
the rights of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after giving effect
to any maximum amount and any other contingent and fixed liabilities that
are relevant under any applicable Bankruptcy or fraudulent conveyance laws,
and after giving effect to any collections from, rights
3
<PAGE>
to receive contribution from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under
Article 10 of the Indenture shall result in the obligations of such
Guarantor under its Guarantee not constituting a fraudulent transfer or
conveyance.
3. Execution and Delivery. The Guaranteeing Subsidiary agrees that the
----------------------
Guarantee shall remain in full force and effect notwithstanding any failure to
endorse on each Note a notation of such Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms.
--------------------------------------------------------------
(a) The Guaranteeing Subsidiary may not consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person)
another corporation, Person or entity whether or not affiliated with such
Guarantor unless:
(i) subject to Section 10.05 of the Indenture, the Person formed by
or surviving any such consolidation or merger (if other than a
Guarantor or the Company) unconditionally assumes all the
obligations of such Guarantor, pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Guarantee on the
terms set forth herein or therein; and
(ii) immediately after giving effect to such transaction, no Default
or Event of Default exists.
(b) In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and satisfactory in form
to the Trustee, of the Guarantee endorsed upon the Notes and the due and
punctual performance of all of the covenants and conditions of the
Indenture to be performed by the Guarantor, such successor corporation
shall succeed to and be substituted for the Guarantor with the same effect
as if it had been named herein as a Guarantor. Such successor corporation
thereupon may cause to be signed any or all of the Guarantees to be
endorsed upon all of the Notes issuable hereunder which theretofore shall
not have been signed by the
4
<PAGE>
Company and delivered to the Trustee. All the Guarantees so issued shall in
all respects have the same legal rank and benefit under the Indenture as
the Guarantees theretofore and thereafter issued in accordance with the
terms of the Indenture as though all of such Guarantees had been issued at
the date of the execution hereof.
(c) Except as set forth in Articles 4 and 5 of the Indenture, and
notwithstanding clauses (a) and (b) above, nothing contained in the
Indenture or in any of the Notes shall prevent any consolidation or merger
of a Guarantor with or into the Company or another Guarantor, or shall
prevent any sale or conveyance of the property of a Guarantor as an
entirety or substantially as an entirety to the Company or another
Guarantor.
5. Releases.
--------
(a) In the event of a sale or other disposition of all of the assets
of any Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all of the capital stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition, by way of
merger, consolidation or otherwise, of all of the capital stock of such
Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets of such
Guarantor) will be released and relieved of any obligations under its
Guarantee; provided that the Net Proceeds of such sale or other disposition
are applied in accordance with the applicable provisions of the Indenture,
including without limitation Section 4.10 of the Indenture. Upon delivery
by the Company to the Trustee of an Officers" Certificate and an Opinion of
Counsel to the effect that such sale or other disposition was made by the
Company in accordance with the provisions of the Indenture, including
without limitation Section 4.10 of the Indenture, the Trustee shall execute
any documents reasonably required in order to evidence the release of any
Guarantor from its obligations under its Guarantee.
(b) Any Guarantor not released from its obligations under its
Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other obligations of any Guarantor under
the Indenture as provided in Article 10 of the Indenture.
5
<PAGE>
6. No Recourse Against Others. No past, present or future director,
--------------------------
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the
Company, the Guaranteeing Subsidiary or under the Notes, any Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such a waiver is against public policy.
8. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
----------------------
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
9. Counterparts. The parties may sign any number of copies of this
------------
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
10. Effect of Headings. The Section headings herein are for convenience
------------------
only and shall not affect the construction hereof.
11. The Trustee. The Trustee shall not be responsible in any manner
-----------
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiary, MFB, Great American and
the Company.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first above written.
Dated: As of November 20, 1998
PRETZELMAKER HOLDINGS, INC.
By:
------------------------------
Name:
Title:
MRS. FIELDS' ORIGINAL COOKIES, INC.
By: /s/ Larry A. Hodges
------------------------------
Name:
Title:
THE MRS. FIELDS' BRAND, INC.
By: /s/ Larry A. Hodges
------------------------------
Name:
Title:
GREAT AMERICAN COOKIE COMPANY, INC.
By: /s/ Larry A. Hodges
------------------------------
Name:
Title:
THE BANK OF NEW YORK,
AS TRUSTEE
By: /s/ Michele L. Russo
------------------------------
Name:
Title:
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
MRS. FIELDS' ORIGINAL COOKIES, INC.
$40,000,000
Aggregate Principal Amount of
10% Series C Senior Notes due 2004
____________________________________
REGISTRATION RIGHTS AGREEMENT
Dated as of August 24, 1998
____________________________________
Jefferies & Company, Inc. BT Alex. Brown Incorporated
- --------------------------------------------------------------------------------
<PAGE>
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered into
as of August 13, 1998, by and among Mrs. Fields' Original Cookies, Inc., a
Delaware corporation (the "Company"), The Mrs. Fields' Brand, Inc., a Delaware
corporation ("MFB") and Great American Cookie Company, Inc., a Delaware
corporation ("Great American" and, together with MFB, the "Guarantors") and
Jefferies & Company, Inc. and BT Alex. Brown Incorporated (each, an "Initial
Purchaser" and, collectively, the "Initial Purchasers"), each of whom has agreed
to purchase the Company's 10% Series C Senior Notes due 2004 (the "Senior
Notes") pursuant to the Purchase Agreement (as defined).
This Agreement is made pursuant to the Purchase Agreement, dated, as of August
13, 1998 (the "Purchase Agreement"), by and among the Company, the Guarantors
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Senior Notes, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the obligations of the Initial Purchasers set forth
in Section 3 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Advice: As defined in Section 6(d) hereof.
Business Day: Any day except a Saturday, Sunday or other day in the City of
New York, or in the city of the corporate trust office of the Trustee, on which
banks are authorized to close.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Broker-Dealer Transfer Restricted Securities: New Notes that are acquired
by a Broker-Dealer in the Exchange Offer in exchange for Senior Notes that such
Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Senior Notes acquired
directly from the Company or any of its affiliates).
Certificated Securities: As defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of
this Agreement upon the occurrence of (a) the filing and effectiveness under the
Securities Act of the Exchange Offer Registration Statement relating to the New
Notes to be issued in the Exchange Offer, (b) the maintenance of such
Registration Statement continuously effective and the keeping of the Exchange
Offer open for a period not less than the minimum period required pursuant to
Section 3(b) hereof and (c) the delivery by the Company to the Registrar under
the Indenture of New Notes in the same aggregate principal amount as the
aggregate principal amount of Senior Notes tendered by Holders thereof pursuant
to the Exchange Offer.
1
<PAGE>
controlling person: As defined in Section 8(a) hereof.
Damages Payment Date: With respect to the Senior Notes, each Interest Payment
Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Securities Act of
the New Notes pursuant to the Exchange Offer Registration Statement pursuant to
which the Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities for New Notes in an aggregate principal amount equal to the aggregate
principal amount of the Transfer Restricted Securities tendered in such exchange
offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement relating to
the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers propose to
sell the Senior Notes to certain "qualified institutional buyers," as such term
is defined in Rule 144A under the Securities Act, and to persons permitted to
purchase the Senior Notes in offshore transactions in reliance upon Regulation S
under the Securities Act.
Global Note Holder: As defined in the Indenture.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of November 26, 1997, among the Company,
the Guarantors and The Bank of New York, as trustee (the "Trustee"), pursuant to
which the Notes are to be issued, as such Indenture is amended or supplemented
from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
Liquidated Damages: As defined in Section 5 hereof.
NASD: The National Association of Securities Dealers, Inc.
New Notes: The Company's 10% Senior Notes due 2004, identical in all
material respects to the Senior Notes, which are to be issued pursuant to the
Indenture (i) in the Exchange Offer or (ii) upon the request of any Holder of
Senior Notes covered by a Shelf Registration Statement, in exchange for such
Senior Notes.
Notes: The Senior Notes and the New Notes.
Person: An individual, partnership, corporation, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
2
<PAGE>
Prospectus: The prospectus included in a Registration Statement at the time
such Registration Statement is declared effective, as amended or supplemented by
any prospectus supplement and by all other amendments thereto, including post-
effective amendments, and all material incorporated by reference into such
Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person who is a
Holder of Notes on the record date with respect to the Interest Payment Date on
which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and the
Guarantors (on the appropriate form under the Securities Act selected by the
Company) relating to (a) an offering of New Notes pursuant to an Exchange Offer
or (b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) which is filed pursuant to
the provisions of this Agreement and (ii) including the Prospectus included
therein, all amendments and supplements thereto (including post-effective
amendments) and all exhibits and material incorporated by reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer Transfer
Restricted Securities.
Securities Act: The Securities Act of 1933, as amended.
Shelf Registration Statement: As defined in Section 4(a) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb), as in
effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur of (a)
the date on which such Note is exchanged in the Exchange Offer and entitled to
be resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Securities Act, (b) the date on which
such Note has been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Note is disposed of by a Broker-Dealer
pursuant to the "Plan of Distribution" contemplated by the Exchange Offer
Registration Statement (including delivery of the Prospectus contained therein)
or (d) the date on which such Note is distributed to the public pursuant to Rule
144 under the Securities Act.
underwriters: As defined in Section 11 hereof.
Underwritten Registration or Underwritten Offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each, a
"Holder") whenever such Person owns Transfer Restricted Securities.
3
<PAGE>
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) hereof have been complied
with), the Company and the Guarantors shall (i) cause to be filed with the
Commission as soon as practicable after the Closing Date, but in no event later
than 90 days after the Closing Date, the Exchange Offer Registration Statement,
(ii) use their best efforts to cause such Exchange Offer Registration Statement
to become effective at the earliest possible time, but in no event later than
150 days after the Closing Date, (iii) in connection with the foregoing, (A)
file all pre-effective amendments to such Exchange Offer Registration Statement
as may be necessary in order to cause such Exchange Offer Registration Statement
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Securities
Act and (C) cause all necessary filings, if any, in connection with the
registration and qualification of the New Notes to be made under the Blue Sky
laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, commence and Consummate the Exchange Offer. The Exchange
Offer shall be on the appropriate form permitting registration of the New Notes
to be offered in exchange for the Senior Notes that are Transfer Restricted
Securities and to permit sales of Broker-Dealer Transfer Restricted Securities
by Restricted Broker-Dealers as contemplated by Section 3(c) hereof.
(b) The Company and the Guarantors shall use their respective best efforts to
cause the Exchange Offer Registration Statement to be effective continuously,
and shall keep the Exchange Offer open for a period of not less than the minimum
period required under applicable federal and state securities laws to Consummate
the Exchange Offer; provided that in no event shall such period be less than 20
Business Days. The Company and the Guarantors shall cause the Exchange Offer to
comply with all applicable federal and state securities laws. No securities
other than the Notes shall be included in the Exchange Offer Registration
Statement. The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Senior Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Senior Notes (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with its initial sale of each New Note received by such Broker-Dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such sales of Broker-Dealer
Transfer Restricted Securities by Restricted Broker-Dealers that the Commission
may require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Notes held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy after the date of this Agreement.
4
<PAGE>
The Company and the Guarantors shall use their respective best efforts to keep
the Exchange Offer Registration Statement continuously effective, supplemented
and amended as required by the provisions of Section 6(c) hereof to the extent
necessary to ensure that it is available for sales of Broker-Dealer Transfer
Restricted Securities by Restricted Broker-Dealers, and to ensure that such
Registration Statement conforms with the requirements of this Agreement, the
Securities Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of 120 days from the date on which the
Exchange Offer is Consummated.
The Company and the Guarantors shall promptly provide sufficient copies of the
latest version of such Prospectus to such Restricted Broker-Dealers promptly
upon request, and in no event later than one day after such request, at any time
during such 120-day period in order to facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
------------------
Exchange Offer Registration Statement with respect to the New Notes because the
Exchange Offer is not permitted by applicable law (after the procedures set
forth in Section 6(a)(i) hereof have been complied with) or (ii) if any Holder
of Transfer Restricted Securities shall notify the Company within 20 Business
Days following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the New Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the Prospectus contained
in the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder or (C) such Holder is a Broker-Dealer and holds
Senior Notes acquired directly from the Company or one of its affiliates, then
the Company and the Guarantors shall (x) cause to be filed on or prior to 30
days after the date on which the Company determines that it is not required to
file the Exchange Offer Registration Statement pursuant to clause (i) above or
60 days after the date on which the Company receives the notice specified in
clause (ii) above a shelf registration statement pursuant to Rule 415 under the
Securities Act, which may be an amendment to the Exchange Offer Registration
Statement (in either event, the "Shelf Registration Statement"), relating to all
Transfer Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof, and shall (y) use their
respective best efforts to cause such Shelf Registration Statement to become
effective on or prior to 120 days after the date on which the Company becomes
obligated to file such Shelf Registration Statement. If, after the Company has
filed an Exchange Offer Registration Statement which satisfies the requirements
of Section 3(a) above, the Company is required to file and make effective a
Shelf Registration Statement solely because the Exchange Offer shall not be
permitted under applicable federal law, then the filing of the Exchange Offer
Registration Statement shall be deemed to satisfy the requirements of clause (x)
above. Such an event shall have no effect on the requirements of clause (y)
above. The Company and the Guarantors shall use their respective best efforts to
keep the Shelf Registration Statement discussed in this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for sales of Transfer Restricted Securities by the Holders
thereof entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Securities Act and the
policies, rules and regulations of the Commission as announced from time to
time, for a period of at least two years (as extended pursuant to Section
6(c)(i) hereof) following the date on which such Shelf Registration Statement
first becomes effective under the Securities Act or for such shorter period
which will terminate when (i) all of the Transfer
5
<PAGE>
Restricted Securities covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement, (ii) the date on which, in the
opinion of counsel to the Company, all of the Transfer Restricted Securities
then held by the Holders may be sold by the Holders in the public United States
securities markets in the absence of a registration statement covering such
sales or (iii) the date on which there ceases to be outstanding any Transfer
Restricted Securities.
(b) Provision by Holders of Certain Information in Connection with the Shelf
------------------------------------------------------------------------
Registration Statement. No Holder of Transfer Restricted Securities may include
- ----------------------
any of its Transfer Restricted Securities in any Shelf Registration Statement
pursuant to this Agreement unless and until such Holder furnishes to the Company
in writing, within 20 days after receipt of a request therefor, such information
specified in item 507 of Regulation S-K under the Securities Act for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such information.
Each Holder as to which any Shelf Registration Statement is being effected
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed with
the Commission on or prior to the date specified for such filing in this
Agreement, (ii) any such Registration Statement has not been declared effective
by the Commission on or prior to the date specified for such effectiveness in
this Agreement, (iii) the Exchange Offer has not been Consummated within 30
Business Days after the Exchange Offer Registration Statement is first declared
effective by the Commission or (iv) any Registration Statement required by this
Agreement is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose without being succeeded
immediately by a post-effective amendment to such Registration Statement that
cures such failure and that is itself declared effective immediately (each such
event referred to in clauses (i) through (iv), a "Registration Default"), then
the Company and the Guarantors hereby jointly and severally agree to pay
liquidated damages ("Liquidated Damages") to each Holder of Transfer Restricted
Securities with respect to the first 90-day period immediately following the
occurrence of such Registration Default, in an amount equal to $.05 per week per
$1,000 principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration Default continues. The
amount of the Liquidated Damages shall increase by an additional $.05 per week
per $1,000 in principal amount of Transfer Restricted Securities with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages of $.50 per week per $1,000
principal amount of Transfer Restricted Securities. Notwithstanding anything to
the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (iv) above, the accrual of Liquidated Damages payable with
respect to the Transfer Restricted Securities as a result of such clause (i),
(ii), (iii) or (iv), as applicable, shall cease.
6
<PAGE>
All accrued Liquidated Damages shall be paid to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to Holders
of Certificated Securities by mailing checks to their registered addresses on
each Damages Payment Date. All obligations of the Company and the Guarantors
set forth in the preceding paragraph that are outstanding with respect to any
Transfer Restricted Security at the time such security ceases to be a Transfer
Restricted Security shall survive until such time as all such obligations with
respect to such security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
-------------------------------------
Offer, the Company and the Guarantors shall comply with all applicable
provisions of Section 6(c) hereof, shall use their respective best efforts to
effect such exchange and to permit the sale of Broker-Dealer Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof, and shall comply with all reasonable requests from, or
conditions specified by the Commission in connection therewith, including,
without limitation, as a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the Company and
the Guarantors (which may be contained in the letter of transmittal contemplated
by the Exchange Offer Registration Statement) to the effect that (A) it is not
an affiliate of the Company, (B) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the New Notes to be issued in the Exchange
Offer and (C) it is acquiring the New Notes in its ordinary course of business.
Each Holder hereby acknowledges and agrees that any Broker-Dealer and any such
Holder using the Exchange Offer to participate in a distribution of the
securities to be acquired in the Exchange Offer (1) could not under Commission
policy as in effect on the date of this Agreement rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991)
----------------------
and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted
----------------------------------
in the Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action letter
obtained by the Company), and (2) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction and that such a secondary resale transaction must
be covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of New Notes obtained by such Holder in
exchange for Senior Notes acquired by such Holder directly from the Company or
an affiliate thereof.
(b) Shelf Registration Statement. In connection with the Shelf Registration
----------------------------
Statement, the Company and the Guarantors shall comply with all the provisions
of Section 6(c) hereof and shall use their respective best efforts to effect
such registration to permit the sale of the Transfer Restricted Securities being
sold in accordance with the intended method or methods of distribution thereof
(as indicated in the information furnished to the Company pursuant to Section
4(b) hereof), and pursuant thereto the Company and the Guarantors will prepare
and file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Securities Act, which form shall
be available for the sale of the Transfer Restricted Securities in accordance
with the intended method or methods of distribution thereof within the time
periods and otherwise in accordance with the provisions hereof.
(c) General Provisions. In connection with any Registration Statement and
------------------
related
7
<PAGE>
Prospectus required by this Agreement to permit the sale or resale of Transfer
Restricted Securities (including, without limitation, any Exchange Offer
Registration Statement and the related Prospectus, to the extent that the same
are required to be available to permit sales of Broker-Dealer Transfer
Restricted Securities by Restricted Broker-Dealers), the Company and the
Guarantors shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 hereof, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required hereby,
the Company and the Guarantors shall file promptly an appropriate amendment
to such Registration Statement, (1) in the case of clause (A), correcting
any such misstatement or omission, and (2) in the case of clauses (A) and
(B), use their respective best efforts to cause such amendment to be
declared effective and such Registration Statement and the related
Prospectus to become usable for their intended purpose(s) as soon as
practicable thereafter.
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration
Statement have been sold; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the Securities Act, and to comply fully with Rules 424,
430A and 462, as applicable, under the Securities Act in a timely manner;
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders of
Transfer Restricted Securities covered by the applicable Shelf Registration
Statement, promptly and, if requested by such Persons, confirm such advice
in writing, (A) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to any Registration
Statement or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Securities Act or of the suspension by any
state securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation of
any proceeding for any of the preceding purposes, (D) of the existence of
any fact or the happening of any event that makes any statement of a
material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes
in the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in
the Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time
the Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, or any state
8
<PAGE>
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the
Transfer Restricted Securities under state securities or Blue Sky laws, the
Company and the Guarantors shall use their respective best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time;
(iv) furnish to the Initial Purchasers, each selling Holder named in
any Registration Statement or Prospectus and each of the underwriter(s) in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders and underwriter(s) in
connection with such sale, if any, for a period of at least five Business
Days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by
reference) to which the selling Holders of the Transfer Restricted
Securities covered by such Registration Statement or the underwriter(s) in
connection with such sale, if any, shall reasonably object within five
Business Days after the receipt thereof;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s) in connection with such sale, if any, make the Company's and
the Guarantors' representatives available for discussion of such document
and other customary due diligence matters, and include such information in
such document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any managing underwriter participating in any disposition
pursuant to such Registration Statement and any attorney or accountant
retained by such selling Holders or any of such underwriter(s), all
financial and other records, pertinent corporate documents and properties
of the Company and the Guarantors and cause the Company's and the
Guarantors' officers, directors and employees to supply all information
reasonably requested by any such Holder, underwriter, attorney or
accountant in connection with such Registration Statement or any post-
effective amendment thereto subsequent to the filing thereof and prior to
its effectiveness as shall be reasonably necessary to enable them to
exercise any applicable due diligence responsibilities, provided that each
such person shall first agree in writing with the Company and the
Guarantors that (A) any information that is designated in writing by the
Company or the Guarantors in good faith as confidential at the time of
delivery of such information (the "Information") to such person shall be
kept confidential by such person, unless such disclosure is made in
connection with a court proceeding or required by law, or such Information
becomes available to the public generally or through a third party without
an accompanying obligation of confidentiality, (B) such Information shall
be deemed confidential and shall not be used by such person as the basis
for any market transactions in the securities of the Company or the
Guarantors unless and until such Information is made generally available to
the public, and (C) such person will, upon learning that disclosure of such
Information is sought in a court of competent jurisdiction, give notice to
the Company or the Guarantors and allow the Company or the Guarantors (at
the Company's or the Guarantors' expense, as applicable) to undertake
appropriate action to prevent disclosure of such Information;
9
<PAGE>
(vii) if requested by any selling Holders or the underwriter(s) in
connection with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the purchase price being paid therefor and any
other terms of the offering of the Transfer Restricted Securities to be
sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment; provided, that the Company shall
not be required to take any action pursuant to this Section 6(c)(vii) that
would, in the opinion of counsel to the Company, violate applicable law;
(viii) furnish to each selling Holder and each of the underwriter(s)
in connection with such sale, if any, without charge, at least one copy of
the Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(ix) deliver to each selling Holder and each of the underwriter(s),
if any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company and the Guarantors hereby
consent to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each of the selling Holders (but, in the
case of a Shelf Registration Statement, only those holders selling Transfer
Restricted Securities included in such Shelf Registration Statement) and
each of the underwriter(s), if any, in connection with the offering and the
sale of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(x) in the case of a Shelf Registration Statement, enter into such
agreements (including an underwriting agreement) and make such customary
representations and warranties and take all such other actions in
connection therewith reasonably necessary in order to expedite or
facilitate the disposition of the Transfer Restricted Securities pursuant
to any Shelf Registration Statement contemplated by this Agreement as may
be reasonably requested by any Holder of Transfer Restricted Securities or
underwriter in connection with any sale or resale pursuant to any Shelf
Registration Statement contemplated by this Agreement, and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten Registration, the
Company and the Guarantors shall:
(A) furnish to each selling Holder and each underwriter, if
any, upon the effectiveness of the Shelf Registration Statement (1) an
opinion, dated the date of Consummation of the Exchange Offer or the
date of effectiveness of the Shelf Registration Statement, as the case
may be, of counsel for the Company and the Guarantors, in form and
substance reasonably satisfactory to the underwriters, if any, and the
Holders of a majority in principal amount of the Transfer Restricted
Securities being sold, covering customary matters, and (2) a customary
comfort letter, dated as of the date of effectiveness of the
10
<PAGE>
Shelf Registration Statement or the date of Consummation of the
Exchange Offer, as the case may be, from the Company's independent
accountants, in the customary form and covering matters of the type
customarily covered in comfort letters to underwriters in connection
with primary underwritten offerings; and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders, the underwriter(s), if
any, and Restricted Broker Dealers, if any, to evidence compliance
with clause (A) above and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the
Company and the Guarantors pursuant to this clause (x).
The above shall be done at each closing under such underwriting or similar
agreement, as and to the extent required thereunder, and if at any time the
representations and warranties of the Company and the Guarantors contained
in such underwriting or similar agreement cease to be true and correct, the
Company and the Guarantors shall so advise the underwriter(s), if any, the
selling Holders and each Restricted Broker-Dealer promptly and if requested
by such Persons, shall confirm such advice in writing;
(xi) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of
the Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as the selling Holders or underwriter(s), if any, may
request and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement; provided that
neither the Company nor any Guarantor shall be required to register or
qualify as a foreign corporation where it is not now so qualified or to
take any action that would subject it to the service of process in suits or
to taxation, other than as to matters and transactions relating to the
Registration Statement, in any jurisdiction where it is not now so subject;
(xii) issue, upon the request of any Holder of Senior Notes covered
by any Shelf Registration Statement contemplated by this Agreement, and
upon surrender of the Senior Notes held by such Holder to the Company for
cancellation, New Notes having an aggregate principal amount equal to the
aggregate principal amount of Senior Notes surrendered to the Company by
such Holder in exchange therefor or being sold by such Holder; such New
Notes to be registered in the name of such Holder or in the name of the
purchaser(s) of such Notes, as the case may be; in return, the Senior Notes
held by such Holder shall be surrendered to the Company for cancellation;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities in
such denominations and such names as the Holders or the underwriter(s), if
any, may request at least two Business Days prior to such sale of Transfer
Restricted Securities;
(xiv) subject to Section 6(c)(i) hereof, if any fact or event
contemplated by Section
11
<PAGE>
6(c)(iii)(D) hereof shall exist or have occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers
of Transfer Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(xv) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer Restricted Securities which are
in a form eligible for deposit with The Depository Trust Company;
(xvi) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use their respective best efforts to cause such Registration
Statement to become effective and approved by and the disposition of the
Transfer Restricted Securities covered by such Registration Statement to be
registered with or approved by, such governmental agencies or authorities
as may be necessary to enable the Holders selling Transfer Restricted
Securities to consummate the disposition of such Transfer Restricted
Securities;
(xvii) otherwise use their respective best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Securities Act);
(xviii) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement and, in connection therewith, cooperate with the Trustee and
the Holders of Notes to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the terms
of the TIA; and execute and use its best efforts to cause the Trustee to
execute, all documents that may be required to effect such changes and all
other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner; and
(d) Restrictions on Holders.
-----------------------
(i) Each Holder agrees by acquisition of a Transfer Restricted
Security that, upon receipt of the notice referred to in Section 6(c)(i) hereof
or any notice from the Company of the existence of any fact of the kind
described in Section 6(c)(iii)(D) hereof, such Holder will forthwith discontinue
disposition of Transfer Restricted Securities pursuant to the applicable
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xiv) hereof, or
until it is advised in writing by the Company that the use of the Prospectus may
be resumed, and has received copies of any additional or supplemental filings
that are incorporated by reference in the Prospectus (the "Advice"). If so
directed by the Company, each Holder will deliver to the
12
<PAGE>
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of either such
notice. In the event the Company shall give any such notice, the time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 6(c)(i) or Section 6(c)(iii)(D) hereof to and including the date when
each selling Holder covered by such Registration Statement shall have received
the copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xiv) hereof or shall have received the Advice.
(ii) The Holders will furnish the information required to be
furnished pursuant to Section 4(b) hereof within the time period set forth
herein.
(iii) Sales of such Transfer Restricted Securities pursuant to a
Registration Statement shall only be made in the manner set forth in such
currently effective Registration Statement.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors' performance
of or compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including, without
limitation,: (i) all registration and filing fees and expenses (including
filings made by any Initial Purchaser or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter")
and its counsel that may be required by the rules and regulations of the NASD);
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the New Notes to be issued in the Exchange Offer and printing
of Prospectuses), messenger and delivery services and telephone; (iv) all fees
and disbursements of counsel for the Company, the Guarantors and, subject to
Section 7(b) hereof, the Holders of Transfer Restricted Securities; (v) all
application and filing fees in connection with listing the Notes on a national
securities exchange or automated quotation system pursuant to the requirements
hereof; and (vi) all fees and disbursements of independent certified public
accountants of the Company and the Guarantors (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its and the Guarantors' internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel (which counsel
shall be reasonably satisfactory to the Company), who shall be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared; provided that
such fees and disbursements of such counsel shall not exceed $50,000.
13
<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless (i) each Holder and (ii) each person, if any, who
controls (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) any Holder (any of the persons referred to in this clause
(ii) being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including, without limitation, and
as incurred, reimbursement of all reasonable costs of investigating, preparing,
pursuing or defending any claim or action, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, including the
reasonable fees and expenses of counsel to any Indemnified Holder) directly or
indirectly caused by, related to, based upon, arising out of or in connection
with any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, preliminary prospectus or Prospectus
(or any amendment or supplement thereto), or 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 (i) insofar as such losses,
claims, damages, liabilities or expenses are caused by an untrue statement or
omission or alleged untrue statement or omission that is made in reliance upon
and in conformity with information relating to any of the Holders furnished in
writing to the Company by any of the Holders expressly for use therein or (ii)
to the extent that any such loses, claims, damages, liabilities, or expenses
result solely from an untrue statement of a material fact contained in, or the
omission of a material fact from the Registration Statement or Prospectus, which
untrue statement or omission was corrected in an amended or supplemented
Registration Statement or Prospectus, if the person alleging such loss, claim,
damage, liability or expense was not sent or given, at or prior to the written
confirmation of such sale, a copy of the amended or supplemented Registration
Statement or Prospectus if the Company had previously furnished copies thereof
to such indemnified party and if delivery of a prospectus was required by the
Securities Act and was not so made.
In case any action or proceeding (including any governmental or regulatory
investigation or proceeding) shall be brought or asserted against any of the
Indemnified Holders with respect to which indemnity may be sought against the
Company or the Guarantors, such Indemnified Holder (or the Indemnified Holder
controlled by such controlling person) shall promptly notify the Company and the
Guarantors in writing, and the Company or the Guarantors shall assume the
defense of such action, including the employment of counsel reasonably
satisfactory to such Indemnified Holder and the payment of all fees and expenses
of such counsel, as incurred (except that, in the case of any action in respect
of which indemnity may be sought pursuant to both Section 8(a) and 8(b) hereof,
such Indemnified Holder shall not be required to assume the defense of such
action pursuant hereto, but may employ separate counsel and participate in the
defense thereof; however, the fees and expense of such counsel, except as
provided below, shall be at the expense of such Indemnified Holder). Such
Indemnified Holder shall have the right to employ it own counsel; any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expenses of such Indemnified Holder unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Company or the Guarantors, (ii) the Company or the Guarantors shall have
failed to assume the defense of such action or employ counsel reasonably
satisfactory to such Indemnified Holder within a reasonable period of time after
notice of the institution of such action or (iii) the named parties to any such
action (including any impleaded parties)
14
<PAGE>
include both such Indemnified Holder and the Company or the Guarantors, and such
Indemnified Holder shall have been advised by such counsel that there may be one
or more legal defenses available to it which are different from or additional to
those available to the Company or the Guarantors (in which case the Company or
the Guarantors shall not have the right to assume the defense of such action on
behalf of such Indemnified Holder). In any such case, the Company and the
Guarantors shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expense of more than on separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred (upon written request and presentation of
reasonably satisfactory invoices). Such firm shall be designated in writing by
all Indemnified Holders, in the case of the parties indemnified pursuant to
Section 8(a) hereof, and by the Company, in the case of parties indemnified
pursuant to Section 8(b) hereof. The Company and the Guarantors shall indemnify
and hold harmless such Indemnified Holder from and against any and all losses,
claims, damages, liabilities and judgments by reason of any settlement of any
action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the Company or the Guarantors shall have received a request form such
Indemnified Holder for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the Company or the
Guarantors), and prior to the date of such settlement, the Company or the
Guarantors shall have received written notice of such settlement and shall have
failed to comply with such reimbursement request. Neither the Company nor the
Guarantors shall, without the prior written consent of such Indemnified Holder,
effect any settlement or compromise of, or consent to the entry of judgment with
respect to, any pending or threatened action in respect of which such
Indemnified Holder is or could have been a party and indemnity or contribution
may be or could have been sought hereunder by such Indemnified Holders, unless
such settlement, compromise or judgement includes an unconditional release of
such Indemnified Holder from all liability on claims that are or could have been
the subject matter of such action.
(b) Each Holder of Transfer Restricted Securities agrees, severally and
not jointly, to indemnify and hold harmless the Company and the Guarantors, and
their respective directors, officers, and any person controlling (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
the Company, and the respective officers, directors, partners, employees,
representatives and agents of each such person, to the same extent as the
foregoing indemnity from the Company and the Guarantors to each of the
Indemnified Holders, but only with respect to claims and actions based on
information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company, any Guarantor or its directors
or officers or any such controlling person in respect of which indemnity may be
sought against a Holder of Transfer Restricted Securities, such Holder shall
have the rights and duties given the Company and the Guarantors, and the
Company, such Guarantors, such directors or officers or such controlling person
shall have the rights and duties given to each Holder by the preceding
paragraph. In no event shall any Holder be liable or responsible for any amount
in excess of the amount by which the total received by such Holder with respect
to its sale of Transfer Restricted Securities pursuant to a Registration
Statement exceeds (i) the amount paid by such Holder for such Transfer
Restricted Securities and (ii) the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(c) If the indemnification provided for in this Section 8 is unavailable
to an indemnified party under Section 8(a) or 8(b) hereof (other than by reason
of exceptions provided in those Sections) in respect
15
<PAGE>
of any losses, claims, damages, liabilities or expenses referred to therein,
then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Guarantors, on the one hand, and the Holders, on
the other hand, from their sale of Transfer Restricted Securities or if such
allocation is not permitted by applicable law, the relative fault of the Company
and the Guarantors, on the one hand, and of the Indemnified Holder, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of the Company and the Guarantors,
on the one hand, and of the Indemnified Holder, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or such Guarantor
or by the Indemnified Holder. The amount paid or payable by a party as a result
of the losses, claims, damages, liabilities and expenses referred to above shall
be deemed to include, subject to the limitations set forth in the second
paragraph of Section 8(a) hereof, any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
(d) The Company, the Guarantors and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 8(c) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no Holder or its related Indemnified Holders shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the total received by such Holder with respect to the sale of its
Transfer Restricted Securities pursuant to a Registration Statement exceeds the
sum of (A) the amount paid by such Holder for such Transfer Restricted
Securities plus (B) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Senior Notes held by each of the Holders hereunder and not joint.
SECTION 9. RULE 144A
The Company and each Guarantor hereby agrees with each Holder, for so long
as any Transfer Restricted Securities remain outstanding and during any period
in which the Company or such Guarantor is not subject to Section 13 or 15(d) of
the Exchange Act, to make available, upon request of any Holder of Transfer
Restricted Securities, to any Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Securities Act in
order to permit resales of such Transfer Restricted Securities pursuant to Rule
144A.
16
<PAGE>
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder unless
such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on
the basis provided in customary underwriting arrangements entered into in
connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment bankers
and manager or managers for any Underwritten Offering that will administer such
offering will be selected by the Holders of a majority in aggregate principal
amount of the Transfer Restricted Securities included in such offering provided,
that such underwriters must be reasonably satisfactory to the Company. Such
investment bankers and managers are referred to herein as the "underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled to exercise all
--------
rights provided herein, in the Indenture, the Purchase Agreement or granted by
law, including recovery of liquidated or other damages, will be entitled to
specific performance of its rights under this Agreement. The Company and the
Guarantors agree that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by them of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any Guarantor
--------------------------
will, on or after the date hereof, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Neither the Company
nor any Guarantor has previously entered into any agreement granting any
registration rights with respect to its securities to any Person. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's and the
Guarantors' securities under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. Neither the Company nor any Guarantor
-------------------------------
will take any action, or voluntarily permit any change to occur, with respect to
the Notes that would materially and adversely affect the ability of the Holders
to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not be
----------------------
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 12(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities affected by such
amendment, modification, supplement, waiver or consent, and (ii) in the case of
all other provisions hereof, the Company has obtained the written consent of
Holders of a majority of the outstanding principal amount of Transfer Restricted
Securities. Notwithstanding the foregoing, a waiver or consent to departure from
the provisions hereof that relates exclusively to the rights of Holders whose
securities are being tendered pursuant to the Exchange Offer and that does not
affect directly or indirectly the rights of other Holders
17
<PAGE>
whose securities are not being tendered pursuant to such Exchange Offer may be
given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being sold rather than being registered in such
Exchange Offer.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantors:
Mrs. Fields' Original Cookies, Inc.
2855 E. Cottonwood Parkway
Salt Lake City, Utah 84121
Telecopier No.: (801) 736-5600
Attention: Chief Financial Officer
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 735-2000
Attention: Randall H. Doud, Esq.
All such notices and communications shall be deemed to have been duly
given: (i) at the time delivered by hand, if personally delivered; (ii) five
Business Days after being deposited in the mail, postage prepaid, if mailed;
(iii) when receipt acknowledged, if telecopied; and (iv) on the next business
day, if timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties,
including, without limitation, and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall
18
<PAGE>
not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MRS. FIELDS' ORIGINAL COOKIES, INC.
By: _______________________________
Name: Tim Pierce
Title: Chief Financial Officer
THE MRS. FIELDS' BRAND, INC.
By: _______________________________
Name: Tim Pierce
Title: Chief Financial Officer
GREAT AMERICAN COOKIE COMPANY, INC.
By: ______________________________
Name: Tim Pierce
Title: Chief Financial Officer
JEFFERIES & COMPANY, INC.
By: _______________________________
Name:
Title:
BT ALEX. BROWN INCORPORATED
By: _______________________________
Name:
Title:
<PAGE>
================================================================================
_________________________________
WARRANT AGREEMENT
Dated as of August 24, 1998
by and among
Mrs. Fields' Holding Company, Inc.
and
The Bank of New York
as Warrant Agent
_________________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. Certain Definitions................................................ 1
SECTION 2. Appointment of Warrant Agent....................................... 5
SECTION 3. Issuance of Warrants; Warrant Certificates......................... 5
SECTION 4. Separation of Warrants............................................. 14
SECTION 5. Registration and Countersignature.................................. 14
SECTION 6. Terms of Warrants; Exercise of Warrants............................ 15
SECTION 7. Payment of Taxes................................................... 17
SECTION 8. Mutilated or Missing Warrant Certificates.......................... 17
SECTION 9. Reservation of Warrant Shares...................................... 17
SECTION 10. [Intentionally Omitted]............................................ 18
SECTION 11. Adjustment of Exercise Price and Number of Warrant Shares.......... 18
SECTION 12. Statement on Warrants.............................................. 26
SECTION 13. No Dilution or Impairment; Capital and Ownership Structure......... 26
SECTION 14. Fractional Interest................................................ 26
SECTION 15. Notices to Warrant Holders......................................... 27
SECTION 16. Merger, Consolidation or Change of Name of Warrant Agent........... 28
SECTION 17. Warrant Agent...................................................... 29
SECTION 18. Resignation and Removal of Warrant Agent; Appointment of Successor. 30
SECTION 19. Registration....................................................... 31
SECTION 20. Reports............................................................ 31
SECTION 21. Rule 144A and Rule 144............................................. 31
SECTION 22. Notices to Company and Warrant Agent............................... 31
SECTION 23. Supplements and Amendments......................................... 32
SECTION 24. Successors......................................................... 32
SECTION 25. Governing Law...................................................... 32
SECTION 26. Benefits of This Agreement......................................... 32
SECTION 27. Counterparts....................................................... 33
</TABLE>
<PAGE>
WARRANT AGREEMENT, dated as of August 24, 1998 (the "AGREEMENT"),
between Mrs. Fields' Holding Company, Inc., a Delaware corporation (the
"COMPANY"), and The Bank of New York, as warrant agent (the "WARRANT AGENT").
WHEREAS, the Company proposes to issue warrants, as hereinafter
described (the "WARRANTS"), to purchase up to an aggregate of 172,926 shares of
Common Stock (as defined below), in connection with the offering of an aggregate
of $55,000,000 principal amount at maturity of the Company's 14% Senior Secured
Discount Notes due 2005 (the "NOTES") and 55,000 Warrants, each Warrant
entitling the holder thereof to purchase 3.14411 shares of Common Stock. The
Notes and Warrants will be sold in Units (the "UNITS"), each Unit consisting of
$1,000 principal amount of Notes and one Warrant.
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance of Warrant Certificates (as defined below) and other matters as
provided herein.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, and for the purpose of defining the respective
rights and obligations of the Company, the Warrant Agent and the Holders (as
defined below), the parties hereto agree as follows:
SECTION 1. Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the following respective meanings:
"144A GLOBAL WARRANT" means a Global Warrant in the form of Exhibit A
hereto bearing the Global Warrant Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
number of the Warrants sold in reliance on Rule 144A.
"AFFILIATE" of any specified Person means (A) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person and (B) any director, officer or
employee of such specified person. For purposes of this definition "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with") as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"APPLICABLE PROCEDURES" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Warrant, the rules and
procedures of the Depositary, Euroclear and Cedel Bank that apply to such
transfer or exchange.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CEDEL BANK" means Cedel Bank, SA.
"CHANGE OF CONTROL" has the meaning ascribed to such term in the
Indenture.
"CLOSING DATE" means the date hereof.
"COMMISSION" means the Securities and Exchange Commission.
1
<PAGE>
"COMMON EQUITY SECURITIES" means Common Stock and securities
convertible into, or exercisable or exchangeable for, Common Stock or rights or
options to acquire Common Stock or such other securities, excluding the
Warrants.
"COMMON STOCK" means the common stock, par value $.001 per share, of
the Company, and any other capital stock of the Company into which such common
stock may be converted or reclassified or that may be issued in respect of, in
exchange for, or in substitution for, such common stock by reason of any stock
splits, stock dividends, distributions, mergers, consolidations or other like
events.
"COMPANY" means Mrs. Fields' Holding Company, Inc., a Delaware
corporation, and its successors and assigns.
"DEFINITIVE WARRANT" means a certificated Warrant registered in the
name of the holder thereof and issued in accordance with Section 3.5 hereof, in
the form of Exhibit A hereto except that such Warrant shall not bear the Global
Warrant Legend and shall not have the "Schedule of Exchanges of Interests in the
Global Warrant" attached thereto.
"DEPOSITARY" means, with respect to the Warrants issuable or issued in
whole or in part in global form, the Person specified in Section 3.3 hereof as
the Depositary with respect to the Warrants, and any and all successors thereto
appointed as Depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"DISINTERESTED DIRECTOR" means, in connection with any issuance of
securities that gives rise to a determination of the Fair Market Value thereof,
each member of the Board of Directors who is not an officer, employee, director
or other Affiliate of the party to whom the Company is proposing to issue the
securities giving rise to such determination.
"EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE DATE" means any time on or after the Separation Date.
"EXERCISE PRICE" means the purchase price per share of Common Stock to
be paid upon the exercise of each Warrant in accordance with the terms hereof,
which price shall initially be $0.001 per share, subject to adjustment from time
to time pursuant to Sections 11 or 13 hereof.
"GLOBAL WARRANT" means the Warrant in the form of Exhibit A hereto,
issued in accordance with Section 3.1(b) hereof.
"GLOBAL WARRANT LEGEND" means the legend set forth in Section
3.5(g)(ii), which is required to be placed on all Global Warrants issued under
this Warrant Agreement.
"HOLDER" means a person who owns Registrable Securities.
"IAI WARRANTS" means the Warrants in the form of Exhibit A hereto
bearing the Private Placement Legend issued in certificate form and
denominations equal to the number of Warrants sold to Institutional Accredited
Investors.
2
<PAGE>
"INDENTURE" means the indenture, dated the date hereof, between the
Company and The Bank of New York, as trustee.
"INDIRECT PARTICIPANT" means a Person who holds a beneficial interest
in a Global Warrant through a Participant.
"INITIAL PURCHASERS" means Jefferies & Company, Inc. and BT Alex.
Brown.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"IPO" means the first underwritten offering with gross proceeds of
more than $20.0 million of the Common Stock that is registered under the
Securities Act or admitted to listing on a recognized stock exchange or
automated quotation system.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, the City of Chicago, Illinois or at a
place of payment are authorized by law, regulation or executive order to remain
closed. If a payment date is a Legal Holiday at a place of payment, payment may
be made at that place on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue on such payment for the intervening period.
"NON-U.S. PERSON" means a Person who is not a U.S. Person.
"NOTES" means the 14% Senior Secured Discount Notes due 2005 of the
Company, being issued pursuant to the Indenture.
"OFFICER" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Warrant Agent in form and substance reasonably
acceptable to the Warrant Agent. The counsel may be an employee of or counsel
to the Company, any subsidiary of the Company or the Warrant Agent.
"PARTICIPANT" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof, including any
subdivision or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business.
"PRIVATE PLACEMENT LEGEND" means the legend set forth in Section
3.5(f)(i) to be placed on all Warrants issued under this Warrant Agreement
except where otherwise permitted by the provisions of this Warrant Agreement.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
3
<PAGE>
"REGISTRABLE SECURITIES" shall have the meaning ascribed to such term
in the Warrant Registration Rights Agreement.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of August 24, 1998, by and among the Company and the Initial
Purchasers relating to the Notes.
"REGULATION S" means Regulation S promulgated under the Securities
Act.
"REGULATION S GLOBAL WARRANT" means a Global Warrant in the form of
Exhibit A hereto bearing the Global Warrant Legends, the Private Placement
Legend and the Regulation S Legend and deposited with or on behalf of and
registered in the name of the Depositary or its nominee, issued in a
denomination equal to the outstanding number of the Warrants sold in reliance on
Rule 903 of Regulation S.
"RESTRICTED DEFINITIVE WARRANT" means a Definitive Warrant bearing the
Private Placement Legend.
"RESTRICTED GLOBAL WARRANT" means a Global Warrant bearing the Private
Placement Legend.
"RULE 144" means Rule 144 promulgated under the Securities Act.
"RULE 144A" means Rule 144A promulgated under the Securities Act.
"RULE 903" means Rule 903 promulgated under the Securities Act.
"RULE 904" means Rule 904 promulgated under the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SEPARATION DATE" means the earliest of (i) 180 days following the
Closing Date, (ii) the date of redemption of the Notes, (iii) the date on which
a registration statement with respect to a registered exchange offer for the
Notes is declared effective under the Securities Act, (iv) the date a Shelf
Registration Statement (as defined in the Registration Rights Agreement) with
respect to the Notes is declared effective under the Securities Act, (v) such
date as Jefferies & Company, Inc., in its sole discretion, shall determine, (vi)
in the event of a Change of Control, the date the Company mails the required
notice thereof to the Note holders and (vii) upon an IPO.
"TRUSTEE" means the trustee under the Indenture.
"U.S. PERSON" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"WARRANT AGENT" means The Bank of New York or the successor or
successors of such Warrant Agent appointed in accordance with the terms hereof.
"WARRANT REGISTRATION RIGHTS AGREEMENT" means the registration rights
agreement, dated as of August 24, 1998, by and among the Company, the Initial
Purchasers and Capricorn Investors II, L.P. relating to the Warrants and the
Warrant Shares.
"WARRANT SHARES" means the shares of Common Stock issued or issuable
upon the exercise of the Warrants.
4
<PAGE>
SECTION 2. Appointment of Warrant Agent. The Company hereby appoints
----------------------------
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 3. Issuance of Warrants; Warrant Certificates.
------------------------------------------
3.1. Form and Dating.
(a) General.
The Warrants shall be substantially in the form of Exhibit A hereto
(the "WARRANT CERTIFICATES"). The Warrants may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each Warrant shall
be dated the date of the countersignature.
The terms and provisions contained in the Warrants shall constitute,
and are hereby expressly made, a part of this Warrant Agreement. The Company
and the Warrant Agent, by their execution and delivery of this Warrant
Agreement, expressly agree to such terms and provisions and to be bound thereby.
However, to the extent any provision of any Warrant conflicts with the express
provisions of this Warrant Agreement, the provisions of this Warrant Agreement
shall govern and be controlling.
(b) Global Warrants.
Warrants issued in global form shall be substantially in the form of
Exhibit A attached hereto (including the Global Warrant Legend thereon and the
"Schedule of Exchanges of Interests in the Global Warrant" attached thereto).
Warrants issued in definitive form shall be substantially in the form of Exhibit
A attached hereto (but without the Global Warrant Legend thereon and without the
"Schedule of Exchanges of Interests in the Global Warrant" attached thereto).
Each Global Warrant shall represent such of the outstanding Warrants as shall be
specified therein and each shall provide that it shall represent the number of
outstanding Warrants from time to time endorsed thereon and that the number of
outstanding Warrants represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions. Any
endorsement of a Global Warrant to reflect the amount of any increase or
decrease in the number of outstanding Warrants represented thereby shall be made
by the Warrant Agent in accordance with instructions given by the holder thereof
as required by Section 3.5 hereof.
(c) Euroclear and Cedel Procedures Applicable.
The provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be
applicable to transfers of beneficial interests in the Regulation S Global
Warrant that are held by Participants through Euroclear or Cedel Bank.
3.2. Execution.
An Officer shall sign the Warrants for the Company by manual or
facsimile signature.
If the Officer whose signature is on a Warrant no longer holds that
office at the time a Warrant is authenticated, the Warrant shall nevertheless be
valid.
5
<PAGE>
A Warrant shall not be valid until countersigned by the manual
signature of the Warrant Agent. The signature shall be conclusive evidence that
the Warrant has been authenticated under this Warrant Agreement.
The Warrant Agent shall, upon a written order of the Company signed by
an Officer (a "WARRANT COUNTERSIGNATURE ORDER"), countersign Warrants for
original issue up to the number stated in the preamble hereto.
The Warrant Agent may appoint an agent acceptable to the Company to
countersign Warrants. Such an agent may countersign Warrants whenever the
Warrant Agent may do so. Each reference in this Warrant Agreement to a
countersignature by the Warrant Agent includes a countersignature by such agent.
Such an agent has the same rights as an Agent to deal with the Company or an
Affiliate of the Company.
3.3. Warrant Agent.
The Company shall maintain an office or agency where Warrants may be
presented for registration of transfer or for exchange ("WARRANT AGENT"). The
Warrant Agent shall keep a register of the Warrants and of their transfer and
exchange. The Company may appoint one or more co-Warrant Agents. The term
"WARRANT AGENT" includes any co-Warrant Agent. The Company may change any
Warrant Agent without notice to any holder. The Company shall notify the
Warrant Agent in writing of the name and address of any Agent not a party to
this Warrant Agreement. If the Company fails to appoint or maintain another
entity as Warrant Agent, the Warrant Agent shall act as such. The Company or
any of its subsidiaries may act as Warrant Agent.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Warrants.
The Company initially appoints the Warrant Agent to act as the Warrant
Agent with respect to the Global Warrants.
3.4. Holder Lists.
The Warrant Agent shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all holders. If the Warrant Agent is not the Warrant Agent, the Company shall
furnish to the Warrant Agent at such other times as the Warrant Agent may
request in writing, a list in such form and as of such date as the Warrant Agent
may reasonably require of the names and addresses of the holders of Warrants.
3.5. Registration of Transfers and Exchanges.
(a) Transfer and Exchange of Global Warrants. The transfer and
exchange of Global Warrants or beneficial interests therein shall be effected
through the Depositary, in accordance with this Agreement and the procedures of
the Depositary therefor.
(b) Exchange of a Beneficial Interest in a Global Warrant for a
Definitive Warrant.
(i) Any holder of a beneficial interest in a Global Warrant may
upon request exchange such beneficial interest for a Definitive
Warrant. Upon receipt by the Warrant Agent of written instructions or
such other form of instructions as is customary for the
6
<PAGE>
Depositary from the Depositary or its nominee on behalf of any Person
having a beneficial interest in a Global Warrant and, in the case of a
Registrable Security, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being delivered to the
Person designated by the Depositary as being the beneficial
owner, a certification to that effect (in substantially the form
of Exhibit B hereto);
(B) if such beneficial interest is being transferred (1) to
a "qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act, or (2) pursuant to an exemption from registration
in accordance with Rule 144 under the Securities Act (based on an
opinion of counsel if the Company so requests) or (3) pursuant to
an effective registration statement under the Securities Act, a
certification to that effect (in substantially the form of
Exhibit B hereto);
(C) if such beneficial interest is being transferred to any
institutional "accredited investor," within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a
private placement exemption from the registration requirements of
the Securities Act (based on an opinion of counsel if the Company
so requests), a certification to that effect (in substantially
the form of Exhibit B hereto) and a certification from the
applicable transferee;
(D) if such beneficial interest is being transferred
pursuant to an exemption from registration in accordance with
Rule 904 under the Securities Act (and based on an opinion of
counsel if the Company so requests), a certification to that
effect (in substantially the form of Exhibit B); or
(E) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements
of the Securities Act (and based on an opinion of counsel if the
Company so requests), a certification to that effect (in
substantially the form of Exhibit B hereto);
then the Warrant Agent shall cause, in accordance with the standing
instructions and procedures existing between the Depositary and Warrant Agent,
the number of Warrants and Warrant Shares represented by the Global Warrant to
be reduced by the number of Warrants and Warrant Shares to be represented by the
Definitive Warrants to be issued in exchange for the interest of such Person in
the Global Warrant and, following such reduction, the Company shall execute and
the Warrant Agent shall countersign and deliver to the transferee, as the case
may be, a Definitive Warrant.
(ii) Definitive Warrants issued in exchange for a beneficial
interest in a Global Warrant pursuant to this Section 3.5(b) shall be
registered in such names as the Depositary, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct
the Warrant Agent. The Warrant Agent shall deliver such Definitive
Warrants to the Persons in whose names such Warrants are so
registered.
(c) Transfer and Exchange of Definitive Warrants.
When Definitive Warrants are presented to the Warrant Agent with a
request:
7
<PAGE>
(i) to register the transfer of the Definitive Warrants; or
(ii) to exchange such Definitive Warrants for an equal number of
Definitive Warrants of other authorized denominations,
the Warrant Agent shall register the transfer or make the exchange as requested
if its requirements for such transactions are met; provided, however, that the
Definitive Warrants presented or surrendered for registration of transfer or
exchange:
(x) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Warrant Agent, duly executed by the holder
thereof or by his or her attorney, duly authorized in writing; and
(y) in the case of Registrable Securities, such request shall be
accompanied by the following additional information and documents, as
applicable:
(A) if such Registrable Security is being delivered to the
Warrant Agent by a holder for registration in the name of such holder,
without transfer, a certification from such holder to that effect (in
substantially the form of Exhibit B hereto);
(B) if such Registrable Security is being transferred (1)
to a "qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the Securities
Act, or (2) pursuant to an exemption from registration in accordance
with Rule 144 under the Securities Act (and based on an opinion of
counsel if the Company so requests) or (3) pursuant to an effective
registration statement under the Securities Act, a certification to
that effect (in substantially the form of Exhibit B hereto);
(C) if such Registrable Security is being transferred to an
institutional "accredited investor," within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act pursuant to a
private placement exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Company so
requests), a certification to that effect (in substantially the form
of Exhibit B hereto) and a certification from the applicable
transferee;
(D) if such Registrable Security is being transferred
pursuant to an exemption from registration in accordance with Rule 904
under the Securities Act (and based on an opinion of counsel if the
Company so requests), a certification to that effect (in substantially
the form of Exhibit B hereto); or
(E) if such Registrable Security is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act (and based on an opinion of counsel if the Company
so requests), a certification to that effect (in substantially the
form of Exhibit B hereto).
(d) Restrictions on Exchange or Transfer of a Definitive Warrant for
a Beneficial Interest in a Global Warrant. A Definitive Warrant may not be
exchanged for a beneficial interest in a Global Warrant except upon satisfaction
of the requirements set forth below. Upon receipt by the
8
<PAGE>
Warrant Agent of a Definitive Warrant, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Warrant Agent,
together with:
(i) if such Definitive Warrant is a Registrable Security,
certification from the holder thereof (in substantially the form of
Exhibit B hereto) to the effect that such Definitive Warrant is being
transferred by such holder either (A) to a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act, or (B) outside the
United States to a foreign Person in a transaction meeting the
requirements of Rule 904 under the Securities Act (and based on an
opinion of counsel if the Company so requests), or (C) if such
Definitive Warrant is registered pursuant to an effective registration
statement under the Securities Act, certification from the holder
thereof (in substantially the form of Exhibit B hereto) to the effect
that such Definitive Warrant is being transferred to such holder
pursuant to an effective registration statement under the Securities
Act; and
(ii) whether or not such Definitive Warrant is a Registrable
Security, written instructions directing the Warrant Agent to make, or
to direct the Depositary to make, an endorsement on the Global Warrant
to reflect an increase in the number of Warrants and Warrant Shares
represented by the Global Warrant equal to the number of Warrants and
Warrant Shares represented by such Definitive Warrant,
then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct
the Depositary to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Warrant Agent, the number of
Warrants and Warrant Shares represented by the Global Warrant to be increased
accordingly. If no Global Warrants are then outstanding, the Company shall
issue and the Warrant Agent shall countersign a new Global Warrant representing
the appropriate number of Warrants and Warrant Shares.
(e) Restrictions on Transfer and Exchange of Global Warrants.
Notwithstanding any other provisions of this Agreement (other than the
provisions set forth in subsection (f) of this Section 3.5), a Global Warrant
may not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Countersigning of Definitive Warrants in Absence of Depositary.
If at any time:
(i) the Depositary for the Global Warrants notifies the Company
that the Depositary is unwilling or unable to continue as Depositary
for the Global Warrants and a successor Depositary for the Global
Warrants is not appointed by the Company within 90 days after delivery
of such notice; or
(ii) the Company, in its sole discretion, notifies the Warrant
Agent in writing that it elects to cause the issuance of Definitive
Warrants under this Agreement,
then the Company shall execute, and the Warrant Agent, upon written instructions
signed by an officer of the Company, shall countersign and deliver Definitive
Warrants, in an aggregate number equal to the number of Warrants represented by
the Global Warrants, in exchange for such Global Warrants.
(g) Legends.
9
<PAGE>
The following legends shall appear on the face of all Global Warrants
and Definitive Warrants issued under this Warrant Agreement unless specifically
stated otherwise in the applicable provisions of this Warrant Agreement.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each
Global Warrant and each Definitive Warrant (and all Warrants issued in
exchange therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY
ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS
ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A) (1), (2), (3) OR (7)
OR REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"), (2) AGREES THAT
IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF
RULE 903 OR 904 OF THE SECURITIES ACT WHERE THE PURCHASER, PRIOR TO
SUCH TRANSACTION, FURNISHES THE WARRANT AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM THE
WARRANT AGENT) AND, IF SUCH TRANSFER IS IN RESPECT OF A FAIR MARKET
VALUE OF SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE WARRANT AGENT A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF
THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED FROM THE WARRANT
AGENT) AND, IF SUCH TRANSFER IS IN RESPECT OF A FAIR MARKET VALUE OF
SECURITIES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT,
(F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
10
<PAGE>
THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL DELIVER
TO EACH PERSON TO WHOM THIS SECURITY OR AN INTEREST HEREIN IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE
THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING
THE WARRANT AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY
IN VIOLATION OF THE FOREGOING."
(B) Notwithstanding the foregoing, any Global Warrant or
Definitive Warrant issued pursuant to subparagraphs (b)(i)(B)(2) or
(3), (c)(y)(B)(2) or (3) or (d)(i)(c) to this Section 3.5 (and all
Warrants issued in exchange therefor or substitution thereof) shall
not bear the Private Placement Legend.
(ii) Global Warrant Legend. Each Global Warrant shall bear a
legend in substantially the following form:
"THIS GLOBAL WARRANT IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
WARRANT AGREEMENT GOVERNING THIS WARRANT) OR ITS NOMINEE IN CUSTODY FOR THE
BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY
PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE WARRANT AGENT MAY MAKE
SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 3.5 OF THE
WARRANT AGREEMENT, (II) THIS GLOBAL WARRANT MAY BE EXCHANGED IN WHOLE BUT
NOT IN PART PURSUANT TO SECTION 3.5(a) OF THE WARRANT AGREEMENT, (III) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE WARRANT AGENT FOR CANCELLATION PURSUANT
TO SECTION 3.8 OF THE WARRANT AGREEMENT AND (IV) THIS GLOBAL WARRANT MAY BE
TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE
COMPANY."
(iii) Unit Legend. Each Warrant issued prior to the Separation
Date shall bear a legend in substantially the following form:
"THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED
AS PART OF AN ISSUANCE OF UNITS (THE "UNITS"), EACH OF WHICH CONSIST OF
$1,000 PRINCIPAL AMOUNT AT MATURITY OF THE 14% SENIOR SECURED NOTES DUE
2005 OF THE COMPANY (THE "NOTES") AND ONE WARRANT (THE "WARRANT") INITIALLY
ENTITLING THE HOLDER THEREOF TO PURCHASE 3.14411 SHARES OF COMMON STOCK,
PAR VALUE $0.001 PER SHARE, OF THE COMPANY. PRIOR TO THE EARLIEST TO OCCUR
OF (i) 180 DAYS FOLLOWING THE ISSUANCE OF THE WARRANTS, (ii) THE DATE OF
REDEMPTION OF THE NOTES, (iii) THE DATE ON WHICH A REGISTRATION STATEMENT
WITH RESPECT TO THE NOTES IS DECLARED EFFECTIVE UNDER THE SECURITIES ACT,
(iv) SUCH DATE AS JEFFERIES & COMPANY, INC., IN ITS SOLE DISCRETION SHALL
DETERMINE, (v) IN THE EVENT OF A CHANGE OF CONTROL (AS DEFINED IN THE
INDENTURE RELATING TO THE NOTES) OCCURS, THE DATE THE COMPANY MAILS THE
REQUIRED NOTICE THEREOF TO HOLDERS AND (vii) UPON AN IPO (AS DEFINED IN THE
WARRANT AGREEMENT PURSUANT TO WHICH THE WARRANTS HAVE BEEN
11
<PAGE>
ISSUED) OF THE COMPANY'S COMMON STOCK. THE WARRANTS EVIDENCED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE
TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE NOTES."
(iv) Regulation S. Legend. Each Warrant that is a Registrable
Security shall bear the following legend on the fact thereof:
"THIS WARRANT AND THE SECURITIES TO BE ISSUED UPON ITS EXERCISE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND THE WARRANT MAY NOT BE
EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON UNLESS REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. IN ORDER TO EXERCISE THIS
WARRANT, THE HOLDER MUST FURNISH TO THE COMPANY AND THE WARRANT AGENT
EITHER (A) A WRITTEN CERTIFICATION THAT IT IS NOT A U.S. PERSON AND THE
WARRANT IS NOT BEING EXERCISED ON BEHALF OF A U.S. PERSON OR (B) A WRITTEN
OPINION OF COUNSEL TO THE EFFECT THAT THE SECURITIES DELIVERED UPON
EXERCISE OF THE WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR
THAT THE DELIVERY OF SUCH SECURITIES IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. TERMS IN THIS LEGEND HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT."
(h) Cancellation and/or Adjustment of Global Warrants.
At such time as all beneficial interests in a particular Global
Warrant have been exercised or exchanged for Definitive Warrants or a particular
Global Warrant has been exercised, redeemed, repurchased or canceled in whole
and not in part, each such Global Warrant shall be returned to or retained and
canceled by the Warrant Agent in accordance with Section 3.8 hereof. At any
time prior to such cancellation, if any beneficial interest in a Global Warrant
is exercised or exchanged for or transferred to a Person who will take delivery
thereof in the form of a beneficial interest in another Global Warrant or for
Definitive Warrants, the amount of Warrants represented by such Global Warrant
shall be reduced accordingly and an endorsement shall be made on such Global
Warrant by the Warrant Agent or by the Depositary at the direction of the
Warrant Agent to reflect such reduction; and if the beneficial interest is being
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Warrant, such other Global
Warrant shall be increased accordingly and an endorsement shall be made on such
Global Warrant by the Warrant Agent or by the Depositary at the direction of the
Warrant Agent to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Warrant Agent shall countersign Global
Warrants and Definitive Warrants upon the Company's order or at the
Warrant Agent's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Warrant or to a holder of a Definitive Warrant
for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other
than
12
<PAGE>
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 7 hereof).
(iii) All Global Warrants and Definitive Warrants issued upon
any registration of transfer or exchange of Global Warrants or
Definitive Warrants shall be the duly authorized, executed and issued
warrants for Common Stock of the Company, not subject to any
preemptive rights, and entitled to the same benefits under this
Warrant Agreement, as the Global Warrants or Definitive Warrants
surrendered upon such registration of transfer or exchange.
(iv) Prior to due presentment for the registration of a transfer
of any Warrant, the Warrant Agent, any Agent and the Company may deem
and treat the Person in whose name any Warrant is registered as the
absolute owner of such Warrant for all purposes and none of the
Warrant Agent, any agent or the Company shall be affected by notice to
the contrary.
(v) The Warrant Agent shall countersign Global Warrants and
Definitive Warrants in accordance with the provisions of Section 3.2
hereof.
(j) Facsimile Submissions to Warrant Agent.
All certifications, certificates and Opinions of Counsel required to
be submitted to the Warrant Agent pursuant to this Section 3.5 to effect a
registration of transfer or exchange may be submitted by facsimile. The form of
letter of representations referred to in (2)(C) and (E) of the Private Placement
Legend to be furnished to the Warrant Agent are attached hereto as Exhibit D and
E, respectively.
Notwithstanding anything herein to the contrary, as to any
certificates and/or certifications delivered to the Warrant Agent pursuant to
this Section 3.5, the Warrant Agent's duties shall be limited to confirming that
any such certifications and certificates delivered to it are in the form of
Exhibits B attached hereto. The Warrant Agent shall not be responsible for
confirming the truth or accuracy of representations made in any such
certifications or certificates. As to any Opinions of Counsel delivered
pursuant to this Section 3.5, the Warrant Agent may rely upon, and be fully
protected in relying upon, such opinions.
3.6. Replacement Warrants.
If any mutilated Warrant is surrendered to the Warrant Agent or the
Company and the Warrant Agent receives evidence to its satisfaction of the
destruction, loss or theft of any Warrant, the Company shall issue and the
Warrant Agent, upon receipt of a Warrant Countersignature Order, shall
countersign a replacement Warrant if the Warrant Agent's requirements are met.
If required by the Warrant Agent or the Company, an indemnity bond must be
supplied by the holder that is sufficient in the judgment of the Warrant Agent
and the Company to protect the Company, the Warrant Agent, and any agent for
purposes of the countersignature from any loss that any of them may suffer if a
Warrant is replaced. The Company may charge for its expenses in replacing a
Warrant.
Every replacement Warrant is an additional warrant of the Company and
shall be entitled to all of the benefits of this Warrant Agreement equally and
proportionately with all other Warrants duly issued hereunder.
13
<PAGE>
3.7. Temporary Warrants
Until certificates representing Warrants are ready for delivery, the
Company may prepare and the Warrant Agent, upon receipt of a Warrant
Authentication Order, shall authenticate temporary Warrants. Temporary Warrants
shall be substantially in the form of certificated Warrants but may have
variations that the Company considers appropriate for temporary Warrants and as
shall be reasonably acceptable to the Warrant Agent. Without unreasonable
delay, the Company shall prepare and the Warrant Agent shall countersign
definitive Warrants in exchange for temporary Warrants.
Holders of temporary Warrants shall be entitled to all of the benefits
of this Warrant Agreement.
3.8. Cancellation.
Subject to Section 3.7 hereof, the Company at any time may deliver
Warrants to the Warrant Agent for cancellation. The Warrant Agent and no one
else shall cancel all Warrants surrendered for registration of transfer,
exchange, exercise, replacement or cancellation (subject to the record retention
requirement of the Exchange Act). The Company may not issue new Warrants to
replace Warrants that have been exercised or that have been delivered to the
Warrant Agent for cancellation.
SECTION 4. Separation of Warrants. The Notes and Warrants shall not
----------------------
be separately transferable prior to the Separation Date.
SECTION 5. Registration and Countersignature.
---------------------------------
(a) The Warrant Agent, on behalf of the Company, shall number and
register the Warrant Certificates in a register as they are issued by the
Company.
(b) Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
The Warrant Agent shall, upon written instructions of the Chairman of the Board,
the President or the Treasurer of the Company, initially countersign, issue and
deliver Warrants entitling the Holders thereof to purchase not more than the
number of Warrant Shares referred to above in the first recital hereof and shall
countersign and deliver Warrants as otherwise provided in this Agreement.
(c) The Company and the Warrant Agent may deem and treat the
Holder(s) of the Warrant Certificates as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for all purposes, and neither the Company nor the Warrant Agent shall
be affected by any notice to the contrary. Prior to a Separation Date, the
Depository Trust Company shall be deemed the registered Holder of such Warrants
for all purposes hereunder.
SECTION 6. Terms of Warrants; Exercise of Warrants. Subject to the
---------------------------------------
terms of this Agreement, each Warrant Holder shall have the right, which may be
exercised commencing at the opening of business on the Exercise Date to receive
from the Company the number of fully paid and nonassessable Warrant Shares which
the Holder may at the time be entitled to receive on exercise of such Warrants
and payment of the Exercise Price; provided that no Warrant Holder shall be
entitled to exercise such Holder's Warrants at any time, unless, at the time of
exercise (A), (i) a registration statement under the Securities Act relating to
the Warrant Shares has been filed with, and declared effective by, the
Commission, and no stop order suspending the effectiveness of such registration
14
<PAGE>
statement has been issued by the Commission or (ii) the issuance of the Warrant
Shares is permitted pursuant to an exemption from the registration requirements
of the Securities Act and (B) such Warrant Shares are qualified for sale or
exempt from qualification under the applicable securities laws of the states in
which the various holders of the Warrants or other Persons to whom it is
proposed that the Warrant Shares be issued on exercise of the Warrants reside.
No adjustments as to dividends will be made upon exercise of the Warrants. Upon
the occurrence of a Change of Control or an IPO, Holders will be required to
exercise their Warrants at such time in the manner set forth in Section 6.
In order to exercise all or any of the Warrants represented by a
Warrant Certificate, (i) in the case of Definitive Warrants, the holder thereof
must surrender for exercise the Warrant Certificate to the Company at the office
of the Warrant Agent at its New York corporate trust office, (ii) in the case of
a book-entry interest in a Global Warrant, the exercising Participant whose name
appears on a securities position listing of the Depositary as the holder of such
book-entry interest must comply with the Depositary's procedures relating to the
exercise of such book-entry interest in such Global Warrant and (iii) in the
case of both Global Warrants and Definitive Warrants, the holder thereof or the
Participant, as applicable, must deliver to the Company at the office of the
Warrant Agent the form of election to purchase on the reverse thereof duly
filled in and signed, which signature shall be a medallion guaranteed by an
institution which is a member of a Securities Transfer Association recognized
signature guarantee program, and upon payment to the Warrant Agent for the
account of the Company of the Exercise Price, which is set forth in the form of
Warrant Certificate as adjusted as herein provided, for the number of Warrant
Shares in respect of which such Warrants are then exercised. In addition, if
the holder is exercising warrants sold pursuant to Regulation S, (A) such holder
must certify in writing that (i) it is not a "U.S. person" within the meaning of
Rule 902(k) of Regulation S under the Securities Act, (ii) the Warrants are not
being purchased or exercised on behalf of or for the account or benefit of a
"U.S. person", (iii) such Holder will resell such Warrants only in accordance
with the provisions of Rules 901 through 905 of Regulation S, pursuant to
registration under the Securities Act or pursuant to an available exemption from
registration, and (iv) such Holder will not engage in hedging transactions with
regard to the Warrants and the shares issuable on exercise of such Warrants
unless in compliance with the Securities Act or (B) give a written opinion of
counsel to the effect that the warrant and the securities delivered upon
exercise thereof have been registered under the Securities Act or are exempt
from registration thereunder.
Payment of the aggregate Exercise Price shall be made (i) in cash or
by certified or official bank check, payable to the order of the Company, (ii)
by tendering Notes having an aggregate principal amount at the time of tender,
plus accrued and unpaid interest, if any, thereon, to the date of exercise (or
if such exercise occurs prior to December 1, 2002, an Accreted Value (as defined
in the Indenture) on the date of exercise) equal to the Exercise Price, (iii) by
tendering Warrants having a fair market value equal to the Exercise Price or
(iv) by tendering a combination of cash, Notes and Warrants. For purposes of
clause (iii) above, the fair market value of the Warrants shall be determined as
follows: (A) to the extent the Common Stock is publicly traded and listed on
the Nasdaq National Market or a national securities exchange, the fair market
value shall be equal to the greater of (1) the difference between (a) the
average closing price as quoted on the Nasdaq National Market of the Common
Stock for each of the 10 trading days immediately prior to the exercise date
(or, if the Common Stock is listed on a national securities exchange, the
average closing price as reported on such national securities exchange during
such 10-trading-day period) and (b) the Exercise Price, and (2) zero; or (B) to
the extent the Common Stock is not publicly traded, or otherwise is not listed
on a national securities exchange, the fair market value shall be equal to the
value per share as determined in good faith by the Board of Directors of the
Company.
The exercise of Warrants by Holders of beneficial interest in Global
Warrants shall be effected in accordance with this Agreement and the procedures
of the Depositary therefor. If Notes are
15
<PAGE>
surrendered in payment of the Exercise Price, the Warrant Agent shall deliver
such Notes to the Company and the Company shall deliver such Notes to the
Trustee for cancellation and, upon written notification from the Trustee to the
Company that such Notes were in good form, the Company shall notify the Warrant
Agent in writing that the Company has received full and proper payment of the
Exercise Price. Upon surrender of any Notes in payment of the Exercise Price and
cancellation of such Notes, the Trustee or the Depositary (as defined in the
Indenture) at the direction of the Trustee, as applicable, shall issue a new
Note with a principal amount at maturity adjusted to reflect the reduction for
payment of the Exercise Price, in accordance with Article 2 of the Indenture.
Subject to the provisions of Section 9 hereof, upon surrender of
Warrants and payment of the Exercise Price as provided above, the Warrant Agent
shall thereupon promptly notify the Company, and the Company shall promptly
transfer to the Holder of such Warrant Certificate a certificate or certificates
for the appropriate number of Warrant Shares or other securities or property
(including any money) to which the Holder is entitled, registered or otherwise
placed in, or payable to the order of, such name or names as may be directed in
writing by the Holder, and shall deliver such certificate or certificates
representing the Warrant Shares and any other securities or property (including
any money) to the person or persons entitled to receive the same, together with
an amount in cash in lieu of any fraction of a share as provided in Section 14.
Any such certificate or certificates representing the Warrant Shares shall be
deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a Holder of record of such Warrant Shares as of
the date of the surrender of such Warrants and payment of the Exercise Price.
The Warrants shall be exercisable commencing on the Exercise Date, at
the election of the Holders thereof, either in full or from time to time in
part. If less than all the Warrants represented by a Definitive Warrant are
exercised, such Definitive Warrant shall be surrendered and a new Definitive
Warrant of the same tenor and for the number of Warrants which were not
exercised shall be executed by the Company and delivered to the Warrant Agent
and the Warrant Agent shall countersign the new Definitive Warrant, registered
in such name or names as may be directed in writing by the holder, and shall
deliver the new Definitive Warrant to the Person or Persons entitled to receive
the same. The Warrant Agent shall make such notations on Schedule A to each
Global Warrant as are required to reflect any change in the number of Warrants
represented by such Global Warrant resulting from any exercise in accordance
with the terms hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall
be canceled by the Warrant Agent. The Warrant Agent shall account promptly to
the Company with respect to Warrants exercised and concurrently pay to the
Company all monies received by the Warrant Agent for the purchase of the Warrant
Shares through the exercise of such Warrants. The Warrant Agent shall keep
copies of this Agreement and any notices given or received hereunder by or from
the Company available for inspection by the Holders during normal business hours
at its office. The Company shall supply the Warrant Agent from time to time
with such numbers of copies of this Agreement as the Warrant Agent may
reasonably request.
All certificates representing Warrant Shares issued in a transaction
exempt from registration under the Securities Act shall bear the following
legend (provided that if no legend is required none shall be placed on the
Warrant Shares):
THIS SECURITY MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND ANY APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM REGISTRATION REQUIREMENTS.
16
<PAGE>
SECTION 7. Payment of Taxes. The Company will pay all documentary
----------------
stamp taxes attributable (a) to the initial issuance of Warrant Shares upon the
exercise of Warrants or (b) to any separation of the Warrants and Notes;
provided that, in each case, the Company shall not be required to pay any tax or
taxes which may be payable in respect of any transfer involved in the issue of
any Warrant Certificates or any certificates for Warrant Shares in a name other
than that of the Holder of a Warrant Certificate surrendered upon the exercise
of a Warrant, and the Company shall not be required to issue or deliver such
Warrant Certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
SECTION 8. Mutilated or Missing Warrant Certificates. In case any of
-----------------------------------------
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue and the Warrant Agent may countersign, in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing an
equivalent number of Warrants, but only upon receipt of evidence reasonably
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant Certificate and indemnity, if requested, also
reasonably satisfactory to them. Applicants for such substitute Warrant
Certificates shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company or the Warrant Agent may prescribe.
SECTION 9. Reservation of Warrant Shares.
-----------------------------
(a) The Company will at all times reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but unissued
Common Stock or its authorized and issued Common Stock held in its treasury, for
the purpose of enabling it to satisfy any obligation to issue Warrant Shares
upon exercise of Warrants, the maximum number of shares of Common Stock which
may then be deliverable upon the exercise of all outstanding Warrants.
(b) The Company or, if appointed by the Company, the transfer agent
for the Common Stock (the "TRANSFER AGENT") and every subsequent transfer agent
for any shares of the Company's capital stock issuable upon the exercise of any
of the rights of purchase aforesaid will be irrevocably authorized and directed
at all times to reserve such number of authorized shares as shall be required
for such purpose. The Company shall keep a copy of this Agreement on file with
the Transfer Agent and with every subsequent transfer agent for any shares of
the Company's capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably authorized
to requisition from time to time from such Transfer Agent the stock certificates
required to honor outstanding Warrants upon the exercise thereof in accordance
with the terms of this Agreement. The Company shall supply such Transfer Agent
with duly executed certificates for such purposes and shall provide or otherwise
make available any cash which may be payable. The Company shall furnish such
Transfer Agent a copy of all notices of adjustments and certificates related
thereto, transmitted to each Holder of the Warrants pursuant to Section 15
hereof.
(c) Before taking any action which would cause an adjustment pursuant
to Sections 11 or 13 hereof to reduce the Exercise Price below the then par
value (if any) of the Warrant Shares, the Company will take any corporate action
which may, in the opinion of its counsel (which may be counsel employed by the
Company), be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares at the Exercise Price as so
adjusted.
(d) The Company covenants that all Warrant Shares which may be issued
upon exercise of Warrants in accordance with the terms of this Agreement
(including the terms of the Exercise
17
<PAGE>
Price) will, upon issue, be duly and validly issued, fully paid and
nonassessable, free of preemptive rights and free from all taxes, liens, charges
and security interests with respect to the issue thereof.
SECTION 10. [Intentionally Omitted]
SECTION 11. Adjustment of Exercise Price and Number of Warrant
--------------------------------------------------
Shares. The Exercise Price and the number of Warrant Shares issuable upon the
- ------
exercise of each Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 11.
(a) Adjustment for Change in Capital Stock.
If the Company:
(1) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(3) combines its outstanding shares of Common Stock into a smaller
number of shares;
(4) makes a distribution on its Common Stock in shares of its capital
stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any shares of its
capital stock; then the Exercise Price in effect immediately prior to such
action shall be proportionately adjusted so that the holder of any Warrant
thereafter exercised may receive the aggregate number and kind of shares of
capital stock of the Company which such holder would have owned immediately
following such action if such Warrant had been exercised immediately prior to
such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) Adjustment for Rights Issue.
If the Company distributes any rights, options or warrants to all
holders of its Common Stock entitling them for a period expiring within 60 days
after the record date mentioned below to purchase shares of Common Stock at a
price per share less than the Fair Market Value per share on that record date,
the Exercise Price shall be adjusted in accordance with the formula:
N x P
-----
O +
M
E = Ex ---------
O + N
where:
18
<PAGE>
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of Common Stock outstanding on the record
date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Fair Market Value per share of Common Stock on the record
date.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, not all rights, options or warrants
shall have been exercised, the Exercise Price shall be immediately readjusted to
what it would have been if "N" in the above formula had been the number of
shares actually issued.
(c) Adjustment for Other Distributions.
If the Company distributes to all holders of its Common Stock any of
its assets or debt securities or any rights or warrants to purchase debt
securities, assets or other securities of the Company, the Exercise Price shall
be adjusted in accordance with the formula:
M - F
E' = Ex -----
M
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the Fair Market Value per share of Common Stock on the record
date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants to be distributed in respect of
one share of Common Stock as determined in good faith by the
Board of Directors of the Company (the "BOARD OF DIRECTORS").
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This Section 11(c) does not apply to cash dividends or cash
distributions paid out of consolidated current or retained earnings as shown on
the books of the Company prepared in accordance with generally accepted
accounting principles. Also, this subsection does not apply to rights, options
or warrants referred to in Section 11(b) hereof.
19
<PAGE>
(d) Adjustment for Common Stock Issue.
---------------------------------
If the Company issues shares of Common Stock for a consideration per
share less than the Fair Market Value per share on the date the Company fixes
the offering price of such additional shares, the Exercise Price shall be
adjusted in accordance with the formula:
P
-----
O + M
E' = Ex -----
A
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such additional shares.
P = the aggregate consideration received for the issuance of such
additional shares.
M = the Fair Market Value per share on the date of issuance of such
additional shares.
A = the number of shares outstanding immediately after the issuance
of such additional shares.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
This Section 11(d) does not apply to:
(1) any of the transactions described in Sections 11(b) and (c)
hereof,
(2) the exercise of Warrants, or the conversion or exchange of other
securities convertible or exchangeable for Common Stock,
(3) Common Stock issued to the Company's employees under bona fide
employee benefit plans adopted by the Board of Directors and approved by the
holders of Common Stock when required by law, if such Common Stock would
otherwise be covered by this Section 11(d),
(4) Common Stock upon the exercise of rights or warrants issued to
the holders of Common Stock,
(5) Common Stock issued to shareholders of any person which merges
into the Company in proportion to their stock holdings of such person
immediately prior to such merger, upon such merger,
20
<PAGE>
(6) the issuance of shares of Common Stock pursuant to rights,
options or warrants which were originally issued in a Non-Affiliate Sale (as
defined below) together with one or more other securities as part of a unit at a
price per unit,
(7) Common Stock issued in a bona fide public offering pursuant to a
firm commitment underwriting, or
(8) Common Stock issued in a bona fide private placement through a
placement agent which is a member firm of the National Association of Securities
Dealers, Inc. (except to the extent that any discount from the current market
price attributable to restrictions on transferability of the Common Stock, as
determined in good faith by the Board of Directors and described in a Board
resolution which shall be filed with the Trustee, shall exceed 20%).
(e) Adjustment for Convertible Securities Issue.
If the Company issues any securities convertible into or exchangeable
for Common Stock (other than securities issued in transactions described in
Sections 11(b) and (c) hereof) for a consideration per share of Common Stock
initially deliverable upon conversion or exchange of such securities less than
the Fair Market Value per share on the date of issuance of such securities, the
Exercise Price shall be adjusted in accordance with this formula:
P
-----
O + M
E' = Ex -----
O + D
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares outstanding immediately prior to the
issuance of such securities.
P = the aggregate consideration received for the issuance of such
securities.
M = the Fair Market Value per share on the date of issuance of such
securities.
D = the maximum number of shares deliverable upon conversion or in
exchange for such securities at the initial conversion or
exchange rate.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
If all of the Common Stock deliverable upon conversion or exchange of
such securities have not been issued when such securities are no longer
outstanding, then the Exercise Price shall promptly be readjusted to the
Exercise Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of the actual number of
shares of Common Stock issued upon conversion or exchange of such securities.
21
<PAGE>
This Section 11(e) does not apply to:
(1) convertible securities issued to shareholders of any person which
merges into the Company, or with a subsidiary of the Company, in proportion to
their stock holdings of such person immediately prior to such merger, upon such
merger,
(2) convertible securities issued in a bona fide public offering
pursuant to a firm commitment underwriting, or
(3) convertible securities issued in a bona fide private placement
through a placement agent which is a member firm of the National Association of
Securities Dealers, Inc. (except to the extent that any discount from the
current market price attributable to restrictions on transferability of Common
Stock issuable upon conversion, as determined in good faith by the Board of
Directors and described in a Board resolution which shall be filed with the
Trustee, shall exceed 20% of the then current market price).
(f) Consideration Received.
For purposes of any computation respecting consideration received
pursuant to Sections 11 (d) and (e) hereof, the following shall apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors (irrespective of the accounting treatment
thereof), whose determination shall be conclusive, and described in a Board
resolution which shall be filed with the Warrant Agent;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor shall be
deemed to be the consideration received by the Company for the issuance of such
securities, plus the additional consideration, if any, to be received by the
Company upon the conversion or exchange thereof (the consideration in each case
to be determined in the same manner as provided in clauses (1) and (2) of this
subsection); and
(4) in the case of the issuance of shares of Common Stock pursuant to
rights, options or warrants which rights, options or warrants were originally
issued together with one or more other securities as part of a unit, the
consideration shall be deemed to be (i) the fair value of such rights, options
or warrants at the time of issuance thereof as determined in good faith by the
Board of Directors whose determination shall be conclusive and described in a
Board resolution which shall be filed with the Warrant Agent, plus (ii) the
additional consideration, if any, to be received by the Company upon the
exercise, conversion or exchange thereof (as determined in the same manner as
provided in clause (1) and (2) of this subsection).
(g) Fair Market Value. In Sections 11(d) and (e) hereof, the "FAIR
MARKET VALUE" per security at any date of determination shall be (1) in
connection with a sale by the Company to a party that is not an Affiliate of the
Company in an arm's-length transaction (a "NON-AFFILIATE SALE"), the price
22
<PAGE>
per security at which such security is sold and (2) in connection with any sale
by the Company to an Affiliate of the Company, (a) the last price per security
at which such security was sold in a Non-Affiliate Sale within the three-month
period preceding such date of determination or (b) if clause (a) is not
applicable, the fair market value of such security determined in good faith by
(i) a majority of the Board of Directors, including a majority of the
Disinterested Directors, and approved in a Board resolution delivered to the
Warrant Agent or (ii) a nationally recognized investment banking, appraisal or
valuation firm, which is not an Affiliate of the Company, in each case, taking
into account, among all other factors deemed relevant by the Board of Directors
or such investment banking, appraisal or valuation firm, the trading price and
volume of such security on any national securities exchange or automated
quotation system on which such security is traded. Notwithstanding the
foregoing, any sale to Jefferies & Company, Inc. (or any successor thereto)
pursuant to an underwritten public offering registered under the Securities Act
shall be deemed to be and treated as a Non-Affiliate Sale.
In Sections 11(b) and (c) hereof, the "FAIR MARKET VALUE" per security
at any date of determination shall be (a) the last price per security at which
such security was sold by the Company in a Non-Affiliate Sale within the three-
month period preceding such date of determination or (b) if clause (a) is not
applicable, the fair market value of such security determined in good faith by
(i) a majority of the Board of Directors, including a majority of the
Disinterested Directors, and approved in a Board resolution delivered to the
Warrant Agent or (ii) a nationally recognized investment banking, appraisal or
valuation firm, which is not an Affiliate of the Company, in each case, taking
into account, among all other factors deemed relevant by the Board of Directors
or such investment banking, appraisal or valuation firm, the trading price and
volume of such security on any national securities exchange or automated
quotation system on which such security is traded.
(h) When De Minimis Adjustment May Be Deferred.
No adjustment in the Exercise Price need be made unless the adjustment
would require an increase or decrease of at least 1% in the Exercise Price. Any
adjustments that are not made shall be carried forward and taken into account in
any subsequent adjustment.
All calculations under this Section 11 shall be made to the nearest
cent or to the nearest 1/100th of a share, as the case may be.
(i) When No Adjustment Required.
No adjustment need be made for a transaction referred to in Sections
11(a), (b), (c), (d) or (e) hereof, if Warrant holders are to participate in the
transaction on a basis and with notice that the Board of Directors determines to
be fair and appropriate in light of the basis and notice on which holders of
Common Stock participate in the transaction.
No adjustment need be made for (i) rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest or (ii) a
change in the par value or no par value of the Common Stock.
To the extent the Warrants become convertible into cash, no adjustment
need be made thereafter as to the cash. Interest will not accrue on the cash.
(j) Notice of Adjustment.
23
<PAGE>
Whenever the Exercise Price is adjusted, the Company shall provide the
notices required by Section 15 hereof.
(k) Voluntary Reduction.
The Company from time to time may reduce the Exercise Price by any
amount for any period of time if the period is at least 20 days and if the
reduction is irrevocable during the period; provided that in no event may the
Exercise Price be less than the par value of a share of Common Stock.
Whenever the Exercise Price is reduced, the Company shall mail to
Warrant holders a notice of the reduction. The Company shall mail the notice at
least 15 days before the date the reduced Exercise Price takes effect. The
notice shall state the reduced Exercise Price and the period in which it will be
in effect.
A reduction of the Exercise Price does not change or adjust the
Exercise Price otherwise in effect for purposes of Sections 11 (a), (b), (c),
(d) and (e) hereof.
(l) Notice of Certain Transactions.
If (i) the Company takes any action that would require an adjustment
in the Exercise Price pursuant to Sections 11(a), (b), (c), (d) or (e) hereof
and if the Company does not arrange for Holders to participate pursuant to
Section 11(i) hereof, (ii) the Company takes any action that would require a
supplemental Warrant Agreement pursuant to Section 11(m) hereof, or (iii) there
is a liquidation or dissolution of the Company, then the Company shall mail to
Holders a notice stating the proposed record date for a dividend or distribution
or the proposed effective date of a subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or dissolution. The Company
shall mail the notice at least 15 days before such date. Failure to mail the
notice or any defect in it shall not affect the validity of the transaction.
(m) Reorganization of the Company.
If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation of
such transaction the Warrants shall automatically become exercisable for the
kind and amount of securities, cash or other assets which the Holder would have
owned immediately after the consolidation, merger, transfer or lease if the
Holder had exercised the Warrant immediately before the effective date of the
transaction. Concurrently with the consummation of such transaction, the
corporation formed by or surviving any such consolidation or merger if other
than the Company, or the person to which such sale or conveyance shall have been
made, shall enter into a supplemental Warrant Agreement so providing and further
providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided for in this Section 11(m). The successor
Company shall mail to Holders a notice describing the supplemental Warrant
Agreement.
If the issuer of securities deliverable upon exercise of Warrants
under the supplemental Warrant Agreement is an affiliate of the formed,
surviving, transferee or lessee corporation, that issuer shall join in the
supplemental Warrant Agreement.
If this Section 11(m) applies, Sections 11(a), (b), (c), (d) and (e)
hereof do not apply.
(n) Company Determination Final.
24
<PAGE>
Any determination that the Company or the Board of Directors must make
pursuant to Section 11(a), (b), (c), (d), (e), (f), (g) or (i) hereof is
conclusive.
(o) Warrant Agent's Disclaimer.
The Warrant Agent has no duty to determine when an adjustment under
this Section 11 should be made, how it should be made or what it should be. The
Warrant Agent has no duty to determine whether any provisions of a supplemental
Warrant Agreement under Section 11(m) hereof are correct. The Warrant Agent
makes no representation as to the validity or value of any securities or assets
issued upon exercise of Warrants. The Warrant Agent shall not be responsible
for the Company's failure to comply with this Section 11.
(p) When Issuance or Payment May Be Deferred.
In any case in which this Section 11 shall require that an adjustment
in the Exercise Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event (i)
issuing to the holder of any Warrant exercised after such record date the
Warrant Shares and other capital stock of the Company, if any, issuable upon
such exercise over and above the Warrant Shares and other capital stock of the
Company, if any, issuable upon such exercise on the basis of the Exercise Price
and (ii) paying to such holder any amount in cash in lieu of a fractional share
pursuant to Section 14 hereof; provided that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional Warrant Shares, other capital stock and cash upon the
occurrence of the event requiring such adjustment.
(q) Adjustment in Number of Shares.
Upon each adjustment of the Exercise Price pursuant to this Section
11, each Warrant outstanding prior to the making of the adjustment in the
Exercise Price shall thereafter evidence the right to receive upon payment of
the adjusted Exercise Price that number of shares of Common Stock (calculated to
the nearest hundredth) obtained from the following formula:
E
---
N' = N x E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of
a Warrant by payment of the adjusted Exercise Price.
N = the number or Warrant Shares previously issuable upon exercise
of a Warrant by payment of the Exercise Price prior to
adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
SECTION 12. Statement on Warrants. Irrespective of any adjustment in
the number or kind of shares issuable upon the exercise of the Warrants,
Warrants theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
25
<PAGE>
SECTION 13. No Dilution or Impairment; Capital and Ownership
------------------------------------------------
Structure. If any event shall occur as to which the provisions of Section 11 are
- ---------
not strictly applicable but the failure to make any adjustment would adversely
affect the purchase rights represented by the Warrants in accordance with the
essential intent and principles of such Section, then, in each such case, the
Company shall appoint an investment banking firm of recognized national standing
that does not have a direct or material indirect financial interest in the
Company or any of its subsidiaries, who has not been, and, at the time it is
called upon to give independent financial advice to the Company, is not (and
none of its directors, officers, employees, affiliates or stockholders are) a
promoter, director or officer of the Company or any of its subsidiaries, which
shall give their opinion upon the adjustment, if any, on a basis consistent with
the essential intent and principles established in Section 11, necessary to
preserve, without dilution, the purchase rights represented by the Warrants.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the holders of the Warrants and shall make the adjustments described therein.
The Company will not, by amendment of its certificate of incorporation
or through any consolidation, merger, reorganization, transfer of assets,
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 the Warrants,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holder of the Warrants against dilution or other
impairment. Without limiting the generality of the foregoing, the Company (a)
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
Common Stock on the exercise of the Warrants from time to time outstanding and
(b) will not take any action which results in any adjustment of the Exercise
Price if the total number of Warrant Shares issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock then authorized by the Company's certificate of incorporation and
available for the purposes of issue upon such exercise. A consolidation,
merger, reorganization or transfer of assets involving the Company covered by
Section 11(m) shall not be prohibited by or require any adjustment under this
Section 13.
SECTION 14. Fractional Interest. The Company shall not be required to
-------------------
issue fractional shares of Common Stock on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full shares of Common Stock which shall be issuable
upon such exercise shall be computed on the basis of the aggregate number of
shares of Common Stock acquirable on exercise of the Warrants so presented. If
any fraction of a share of Common Stock would, except for the provisions of this
Section, be issuable on the exercise of any Warrant (or specified portion
thereof), the Company shall direct the Transfer Agent to pay an amount in cash
calculated by it to equal the then current market price per share multiplied by
such fraction computed to the nearest whole cent less such fraction of the
Exercise Price. The Holders, by their acceptance of the Warrant Certificates,
expressly waive any and all rights to receive any fraction of a share of Common
Stock or a stock certificate representing a fraction of a share of Common Stock.
SECTION 15. Notices to Warrant Holders. Upon any adjustment of the
--------------------------
Exercise Price pursuant to Sections 11 or 13, the Company shall promptly
thereafter (i) cause to be filed with the Warrant Agent a certificate of a firm
of independent public accountants of nationally recognized standing selected by
the Board of Directors of the Company (who may be the regular auditors of the
Company) setting forth the Exercise Price after such adjustment and setting
forth in reasonable detail the method of calculation and the facts upon which
such calculations are based and setting forth the number of Warrant Shares (or
portion thereof) issuable after such adjustment in the Exercise Price, upon
exercise of a Warrant and payment of the adjusted Exercise Price, which
certificate shall be conclusive evidence of the correctness of the matters set
forth therein, and (ii) cause to be given to each of the registered Holders of
26
<PAGE>
the Warrant Certificates (or the DTC participants with interests in the Global
Warrant) at his address appearing on the Warrant register written notice of such
adjustments by first-class mail, postage prepaid. The Warrant Agent shall be
entitled to rely on the above-referenced accountant's certificate and shall be
under no duty or responsibility with respect to any such certificate, except to
exhibit the same from time to time to any Holder desiring an inspection thereof
during reasonable business hours. The Warrant Agent shall not at any time be
under any duty or responsibility to any Holder to determine whether any facts
exist that may require any adjustment of the number of shares of Common Stock or
other stock or property issuable on exercise of the Warrants or the Exercise
Price, or with respect to the nature or extent of any such adjustment when made,
or with respect to the method employed in making such adjustment or the validity
or value (or the kind or amount) of any shares of Common Stock or other stock or
property which may be issuable on exercise of the Warrants. The Warrant Agent
shall not be responsible for any failure of the Company to make any cash payment
or to issue, transfer or deliver any shares of Common Stock or stock
certificates or other common stock or property upon the exercise of any Warrant.
In case:
(a) the Company shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants; or
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other
than cash dividends or cash distributions payable out of consolidated
earnings or earned surplus or dividends payable in shares of Common Stock
or distributions referred to in Section 13 hereof); or
(c) of any consolidation or merger to which the Company is a party
and for which approval of any shareholders of the Company is required, or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon exercise of the Warrants (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or a tender offer
or exchange offer for shares of Common Stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(e) a Change of Control occurs; or
(f) the Company proposes to take any other action that would require
an adjustment of the Exercise Price or the number of Warrant Shares
pursuant to Section 13;
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be given to each of the registered Holders of the Warrant Certificates at
such Holder's address appearing on the Warrant register, at least 20 days (or 10
days in any case specified in clauses (a) or (b) above) prior to the applicable
record date hereinafter specified, or promptly in the case of events for which
there is no record date, by first class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Common Stock
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up or Change of Control is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of
27
<PAGE>
Common Stock shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up or Change of
Control. The failure to give the notice required by this Section 16 or any
defect therein shall not affect the legality or validity of any distribution,
right, option, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or Change of Control or the vote upon
any action. Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the Holders thereof the right
to vote or to consent or to receive notice as shareholders in respect of the
meetings of shareholders or the election of Directors of the Company or any
other matter, or any rights whatsoever as shareholders of the Company.
SECTION 16. Merger, Consolidation or Change of Name of Warrant Agent.
--------------------------------------------------------
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
the business of the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor warrant agent under the provisions of
Section 17. Any such successor Warrant Agent shall promptly cause notice of its
succession as Warrant Agent to be mailed (by first class mail, postage prepaid)
to each Holder at such Holder's last address as shown on the register maintained
by the Warrant Agent pursuant this Agreement. In case at the time such successor
to the Warrant Agent shall succeed to the agency created by this Agreement, and
in case at that time any of the Warrant Certificates shall have been
countersigned but not delivered, any such successor to the Warrant Agent may
adopt the countersignature of the original Warrant Agent; and in case at that
time any of the Warrant Certificates shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrant Certificates either
in the name of the predecessor Warrant Agent or in the name of the successor to
the Warrant Agent; and in all such cases such Warrant Certificates shall have
the full force and effect provided in the Warrant Certificates and in this
Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent whose name has been changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name, and in all such cases such Warrant Certificates shall have the full force
and effect provided in the Warrant Certificates and in this Agreement.
SECTION 17. Warrant Agent. The Warrant Agent undertakes the duties
-------------
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the Holders of Warrants, by their
acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Company and the Warrant Agent assumes
no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of
the Warrant Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or
in the Warrant Certificates to be complied with by the Company.
28
<PAGE>
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to any
Holder of any Warrant Certificate in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with the opinion
or the advice of such counsel.
(d) Before the Warrant Agent acts or refrains from acting, it may
require an officer's certificate or an opinion of counsel, or both. The
Warrant Agent shall incur no liability or responsibility to the Company or
to any Holder of any Warrant Certificate for any action taken in reliance
on any Warrant Certificate, certificate of shares, notice, resolution,
waiver, consent, order, certificate, or other paper, document or instrument
believed by it to be genuine and to have been signed, sent or presented by
the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind and
nature reasonably incurred by the Warrant Agent in the execution of this
Agreement and to indemnify the Warrant Agent and save it harmless against
any and all liabilities, including judgments, reasonable costs and counsel
fees, for anything done or omitted by the Warrant Agent in the execution of
this Agreement or arising out of or in connection with its performance of
its obligations or duties under this Agreement, except to the extent such
liabilities are attributable to its gross negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more Holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred, but this
provision shall not affect the power of the Warrant Agent to take such
action as it may consider proper, whether with or without any such security
or indemnity. All rights of action under this Agreement or under any of
the Warrants may be enforced by the Warrant Agent without the possession of
any of the Warrant Certificates or the production thereof at any trial or
other proceeding relative thereto, and any such action, suit or proceeding
instituted by the Warrant Agent shall be brought in its name as Warrant
Agent and any recovery of judgment shall be for the ratable benefit of the
Holders of the Warrants, as their respective rights or interests may
appear.
(g) The Warrant Agent, and any stockholder, director, officer or
employee of it, may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Warrant Agent under this Agreement. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for
any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for the
Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not be liable for anything which it may do
or refrain from doing in connection with this Agreement except for its own
gross negligence or bad faith.
(i) The Warrant Agent shall not at any time be under any duty or
responsibility to any Holder of any Warrant Certificate to make or cause to
be made any adjustment of the Exercise Price or number of the Warrant
Shares or other securities or property deliverable as provided in
29
<PAGE>
this Agreement, or to determine whether any facts exist which may require
any of such adjustments, or with respect to the nature or extent of any
such adjustments, when made, or with respect to the method employed in
making the same. The Warrant Agent shall not be accountable with respect to
the validity or value or the kind or amount of any Warrant Shares or of any
securities or property which may at any time be issued or delivered upon
the exercise of any Warrant or with respect to whether any such Warrant
Shares or other securities will when issued be validly issued and fully
paid and nonassessable, and makes no representation with respect thereto.
SECTION 18. Resignation and Removal of Warrant Agent; Appointment of
--------------------------------------------------------
Successor. No resignation or removal of the Warrant Agent and no appointment of
- ---------
a successor warrant agent shall become effective until the acceptance of
appointment by the successor warrant agent as provided herein. The Warrant Agent
may resign its duties and be discharged from all further duties and liability
hereunder (except liability arising as a result of the Warrant Agent's own
negligence or willful misconduct) after giving written notice to the Company.
The Company may remove the Warrant Agent upon written notice, and the Warrant
Agent shall thereupon in like manner be discharged from all further duties and
liabilities hereunder, except as aforesaid. The Warrant Agent shall, at the
Company's expense, cause to be mailed (by first class mail, postage prepaid) to
each Holder of a Warrant at his last address as shown on the register of the
Company maintained by the Warrant Agent a copy of said notice of resignation or
notice of removal, as the case may be. Upon such resignation or removal, 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 by the resigning Warrant Agent or after such
removal, then the resigning Warrant Agent or the Holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a new warrant
agent. Any new warrant agent, whether appointed by the Company or by such a
court, shall be a corporation doing business under the laws of the United States
or any state thereof, in good standing and having a combined capital and surplus
of not less than $50,000,000. The combined capital and surplus of any such new
warrant agent shall be deemed to be the combined capital and surplus as set
forth in the most recent annual report of its condition published by such
warrant agent prior to its appointment, provided that such reports are published
at least annually pursuant to law or to the requirements of a federal or state
supervising or examining authority. After acceptance in writing of such
appointment by the new warrant agent, it shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein as
the Warrant Agent, without any further assurance, conveyance, act or deed; but
if for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning or removed Warrant Agent. Not later than the effective date of
any such appointment, the Company shall give notice thereof to the resigning or
removed Warrant Agent. Failure to give any notice provided for in this Section,
however, or any defect therein, shall not affect the legality or validity of the
resignation of the Warrant Agent or the appointment of a new warrant agent, as
the case may be.
SECTION 19. Registration. The Company and the Warrant Agent
------------
acknowledge that Holders shall have the registration rights set forth in the
Warrant Registration Rights Agreement, a copy of which is attached hereto as
Exhibit C.
SECTION 20. Reports. So long as any of the Warrants remain
-------
outstanding, and to the extent the Company is required to send such documents to
the holders of its outstanding Common Stock, whether or not required by the
rules and regulations of the Securities and Exchange Commission (the
"Commission"), the Company shall furnish to the registered Holders of the
Warrants (and to the beneficial Holders, upon request) (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms l0-Q and 10-K if the Company were required
30
<PAGE>
to file such Forms, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants; and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports.
SECTION 21. Rule 144A and Rule 144. The Company hereby agrees with
----------------------
each Holder, for so long as any Registrable Securities remain outstanding, and
during any period in which the Company (i) is not subject to Section 13 or 15(d)
of the Exchange Act, to make available, upon request of any Holder of
Registrable Securities, to such Holder or beneficial owner of Registrable
Securities, the information required by Rule 144A(d)(4) under the Securities Act
in order to permit resales of such Registrable Securities pursuant to Rule 144A,
and (ii) is subject to Section 13 or 15(d) of the Exchange Act, to make all
filings required thereby in a timely manner in order to permit resales of such
Registrable Securities pursuant to Rule 144.
SECTION 22. Notices to Company and Warrant Agent. Any notice or
------------------------------------
demand authorized by this 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 when and if deposited in the mail, first class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
Mrs. Fields' Holding Company, Inc.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah 84121
Attention: Chief Financial Officer
In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the Company or by
the Holder(s) of any Warrant Certificate to the Warrant Agent shall be
sufficiently given when and if deposited in the mail, first-class or registered,
postage prepaid, addressed (until another address is filed in writing by the
Warrant Agent with the Company) to the Warrant Agent as follows:
The Bank of New York
Address: 101 Barclay Street
New York, New York 10286
Telecopier No.: (212) 815-5915 ]
Attention: Corporate Trust Trustee Administration
SECTION 23. Supplements and Amendments. The Company and the Warrant
--------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any Holders of Warrant Certificates in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Warrant Agent may deem necessary or desirable and which shall not in any
way materially adversely affect the interests of any Holder of Warrant
Certificates. Any amendment or supplement to this Agreement that has a material
adverse effect on the interests of Holders shall require the written consent of
Holders representing a majority of the then outstanding Warrants (excluding
Warrants held by the Company or
31
<PAGE>
any of its Affiliates). The consent of each Holder of a Warrant affected shall
be required for any amendment pursuant to which the Exercise Price would be
increased or the number of Warrant Shares purchasable upon exercise of Warrants
would be decreased (other than pursuant to adjustments provided by this
Agreement). The Warrant Agent shall be entitled to receive and, subject to
Section 17, shall be fully protected in relying upon, an officers' certificate
and opinion of counsel as conclusive evidence that any such amendment or
supplement is authorized or permitted hereunder, that it is not inconsistent
herewith, and that it will be valid and binding upon the Company in accordance
with its terms.
SECTION 24. Successors. All the covenants and provisions of this
----------
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 hereunder.
SECTION 25. Governing Law. THIS AGREEMENT AND EACH WARRANT
-------------
CERTIFICATE ISSUED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
CONFLICTS OF LAWS PRINCIPLES.
SECTION 26. Benefits of This Agreement. (a) Nothing in this
--------------------------
Agreement shall be construed to give to any person or corporation other
than the Company, the Warrant Agent and the Holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Warrant Agent and the Holders of the Warrant
Certificates.
(b) Prior to the exercise of the Warrants, no Holder of a Warrant
Certificate, as such, shall be entitled to any rights of a stockholder of
the Company, including, without limitation, the right to receive dividends
or subscription rights, the right to vote, to consent, to exercise any
preemptive right, to receive any notice of meetings of stockholders for the
election of directors of the Company or any other matter or to receive any
notice of any proceedings of the Company, except as may be specifically
provided for herein. The Holders of the Warrants are not entitled to share
in the assets of the Company in the event of the liquidation, dissolution
or winding up of the Company's affairs.
(c) All rights of action in respect of this Agreement are vested in
the Holders of the Warrants, and any Holder of any Warrant, without the
consent of the Warrant Agent or the Holder of any other Warrant, may, on
such Holder's own behalf and for such Holder's own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the
Company suitable to enforce, or otherwise in respect of, such Holder's
rights hereunder, including the right to exercise, exchange or surrender
for purchase such Holder's Warrants in the manner provided in this
Agreement.
SECTION 27. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
[Signature Page Follows]
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
MRS. FIELDS' HOLDING COMPANY, INC.
By: ______________________________
Name:
Title:
THE BANK OF NEW YORK
By: ______________________________
Name:
Title:
33
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
[Face]
Unit Legend. Each Warrant issued prior to the Separation Date shall
bear the following legend (the "UNIT LEGEND") on the face thereof:
THE WARRANTS EVIDENCED BY THIS CERTIFICATE ARE INITIALLY ISSUED AS PART OF AN
ISSUANCE OF UNITS (THE "UNITS"), EACH OF WHICH CONSIST OF $1,000 PRINCIPAL
AMOUNT AT MATURITY OF THE 14% SENIOR SECURED NOTES DUE 2005 OF THE COMPANY (THE
"NOTES") AND ONE WARRANT (THE "WARRANT") INITIALLY ENTITLING THE HOLDER THEREOF
TO PURCHASE 3.14411 SHARES OF COMMON STOCK, PAR VALUE $0.001 PER SHARE, OF THE
COMPANY. PRIOR TO THE EARLIEST TO OCCUR OF (i) 180 DAYS FOLLOWING THE ISSUANCE
OF THE WARRANTS, (ii) THE DATE OF REDEMPTION OF THE NOTES, (iii) THE DATE ON
WHICH A REGISTRATION STATEMENT WITH RESPECT TO THE NOTES IS DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (iv) SUCH DATE AS JEFFERIES & COMPANY, INC., IN ITS
SOLE DISCRETION SHALL DETERMINE, (v) IN THE EVENT OF A CHANGE OF CONTROL (AS
DEFINED IN THE INDENTURE RELATING TO THE NOTES) OCCURS, THE DATE THE COMPANY
MAILS THE REQUIRED NOTICE THEREOF TO HOLDERS AND (vii) UPON AN IPO (AS DEFINED
IN THE WARRANT AGREEMENT PURSUANT TO WHICH THE WARRANTS HAVE BEEN ISSUED) OF THE
COMPANY'S COMMON STOCK. THE WARRANTS EVIDENCED BY THIS CERTIFICATE MAY NOT BE
TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED
ONLY TOGETHER WITH, THE NOTES.
No. _______ ____ Warrants
CUSIP No. ________
Warrant Certificate
MRS. FIELDS' HOLDING COMPANY, INC.
This Warrant Certificate certifies that Cede & Co., or its registered
assigns, is the registered holder of Warrants (the "WARRANTS") to purchase
Common Stock, par value $.001 (the "COMMON STOCK"), of Mrs. Fields' Holding
Company, Inc., a Delaware corporation (the "COMPANY"). Each Warrant entitles
the registered holder upon exercise at any time from 9:00 a.m. on the Separation
Date referred to below (the "EXERCISE DATE") to receive from the Company 3.14411
fully paid and nonassessable shares of Common Stock (the "WARRANT SHARES") at
the initial exercise price (the "EXERCISE PRICE") of $.001 per share payable
upon surrender of this Warrant Certificate and payment of the Exercise Price at
the office or agency of the Warrant Agent, but only subject to the conditions
set forth herein and in the Warrant Agreement referred to on the reverse hereof.
The Exercise Price and number of Warrant Shares issuable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain events set
forth in the Warrant Agreement.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
A-1
<PAGE>
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent, as such term is used in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the internal laws of the State of New York.
A-2
<PAGE>
IN WITNESS WHEREOF, Mrs. Fields' Holding Company, Inc.. has caused this
Warrant Certificate to be signed.
MRS. FIELDS' HOLDING COMPANY, INC.
By: ____________________________________
Name:
Title:
Dated: August 24, 1998
Countersigned:
The Bank of New York,
as Warrant Agent
By:_______________________
Authorized Signature
<PAGE>
[Form of Warrant]
[Reverse]
THIS SECURITY (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT
HAS ACQUIRED THIS SECURITY IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT
IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(A) (1), (2), (3) OR (7) OR REGULATION D UNDER THE SECURITIES
ACT) (AN "IAI"),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES,
(B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904
OF THE SECURITIES ACT WHERE THE PURCHASER, PRIOR TO SUCH
TRANSACTION, FURNISHES THE WARRANT AGENT A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN BE OBTAINED
FROM THE WARRANT AGENT) AND, IF SUCH TRANSFER IS IN RESPECT OF A
FAIR MARKET VALUE OF SECURITIES LESS THAN $250,000, AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (D) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN
IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE WARRANT AGENT A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS SECURITY (THE FORM OF WHICH CAN
BE OBTAINED FROM THE WARRANT AGENT) AND, IF SUCH TRANSFER IS IN
RESPECT OF A FAIR MARKET VALUE OF SECURITIES LESS THAN $250,000,
AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES
A-3
<PAGE>
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE WARRANT AGREEMENT CONTAINS A PROVISION REQUIRING
THE WARRANT AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY
IN VIOLATION OF THE FOREGOING.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants entitling the holder on exercise to receive shares
of Common Stock, par value $.001, of the Company (the "COMMON STOCK"), and are
issued or to be issued pursuant to a Warrant Agreement dated as of August 24,
1998 (the "WARRANT AGREEMENT"), duly executed and delivered by the Company to
The Bank of New York, as warrant agent (the "WARRANT AGENT"), which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Warrant Agent,
the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants. A copy of the Warrant
Agreement may be obtained by the holder hereof upon written request to the
Company. Capitalized terms used herein without definition shall have the
meanings ascribed to them in the Warrant Agreement.
Warrants may be exercised at any time from 9:00 a.m. on or after the
Separation Date. The holder of Warrants evidenced by this Warrant Certificate
may exercise them by surrendering this Warrant Certificate, with the form of
election to purchase set forth hereon properly completed and executed, together
with payment of the Exercise Price at the office of the Warrant Agent, all in
accordance with the Warrant Agreement. In the event that upon any exercise of
Warrants evidenced hereby the number of Warrants exercised shall be less than
the total number of Warrants evidenced hereby, there shall be issued to the
holder hereof or his assignee a new Warrant Certificate evidencing the number of
Warrants not exercised. No adjustment shall be made for any dividends on any
Common Stock issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof and/or the number of
shares of Common Stock issuable upon the exercise of each Warrant shall, subject
to certain conditions, be adjusted. No fractions of a share of Common Stock will
be issued upon the exercise of any Warrant, but the Company will pay the cash
value thereof determined as provided in the Warrant Agreement.
The Warrant Agreement, together with the Warrant Registration Rights
Agreement referred to therein, provides that the Company shall be bound by
certain registration obligations with respect to the Common Stock issuable upon
exercise of the Warrants.
Warrant Certificates, when surrendered at the office of the Warrant
Agent by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but
A-4
<PAGE>
without payment of any service charge, for another Warrant Certificate or
Warrant Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
The Company and the Warrant Agent may deem and treat the registered
holder(s) thereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof, of any distribution to the
holder(s) hereof, and for all other purposes, and neither the Company nor the
Warrant Agent shall be affected by any notice to the contrary. Neither the
Warrants nor this Warrant Certificate entitles any holder hereof to any rights
of a stockholder of the Company.
A-5
<PAGE>
[Form of Election to Purchase]
(To Be Executed Upon Exercise Of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive _______ shares of Common
Stock and herewith tenders payment for such shares to the order of MRS. FIELDS'
HOLDING COMPANY, INC., in the amount of $__________ in accordance with the terms
hereof. The undersigned requests that a certificate for such shares be
registered in the name of _______________, whose address is __________________
and that such shares be delivered to ___________, whose address is
____________________________. If said number of shares is less than all of the
shares of Common Stock purchasable hereunder, the undersigned requests that a
new Warrant Certificate representing the remaining balance of such shares be
registered in the name of ______________________, whose address is
____________________, and that such Warrant Certificate be delivered to whose
address is ____________________.
___________________________________
Signature
Date:
___________________________________
Signature Guaranteed
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Warrant Agent, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Warrant Agent in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A-6
<PAGE>
SCHEDULE OF EXCHANGES OF GLOBAL WARRANTS
----------------------------------------
The following exchanges of a part of this Global Warrant have been made:
<TABLE>
<S> <C> <C> <C> <C>
Number of Warrants
Amount of decrease Amount of increase in this Global
in Number of in Number of Warrant following Signature of
warrants in this Warrants in this such decrease or authorized signatory
Date of Exchange Global Warrant Global Warrant increase of Warrant Agent
- -----------------------------------------------------------------------------------------------------------
</TABLE>
A-7
<PAGE>
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
WARRANTS
Re: _____________ Warrants to Purchase Common Stock (the "WARRANTS") of MRS.
FIELDS' HOLDING COMPANY, INC.
This Certificate relates to ______ Warrants held in *__________ book-
entry or * _____________ definitive form by __________ (the "TRANSFEROR").
The Transferor*:
[_] has requested the Warrant Agent by written order to deliver in
exchange for its beneficial interest in the Global Warrants held by the
depositary a Warrant or Warrants in definitive, registered form equal to its
beneficial interest in such Global Warrant (or the portion thereof indicated
above); or
[_] has requested the Warrant Agent by written order to exchange or
register the transfer of a Warrant or Warrants.
In connection with such request and in respect of each such Warrant,
the Transferor does hereby certify that the Transferor is familiar with the
Warrant Agreement relating to the above captioned Warrants and that the transfer
of this Warrant does not require registration under the Securities Act of 1933,
as amended (the "SECURITIES ACT") because:
[_] Such Warrant is being acquired for the Transferor's own account
without transfer (in satisfaction of Section 7 of the Warrant Agreement).
[_] Such Warrant is being transferred (i) to a qualified institutional
buyer (as defined in Rule 144A under the Securities Act), in reliance on Rule
144A.
[_] Such Warrant is being transferred (i) in accordance with Rule 144
under the Securities Act (and based on an opinion of counsel if the Company so
requests) or (ii) pursuant to an effective registration statement under the
Securities Act and the Transferor is named as a selling security holder in the
prospectus that forms a part of such registration statement or a supplement
thereto and the Transferor has complied with prospectus delivery requirement if
required to do so.
[_] Such Warrant is being transferred to an institutional accredited
investor within the meaning of Rule 50l(a)(1), (2), (3) or (7) under the
Securities Act pursuant to a private placement exemption from the registration
requirements of the Securities Act (together with a certification).
__________
* Check applicable box.
<PAGE>
[_] Such Warrant is being transferred in reliance on and in compliance
with another exemption from the registration requirements of the Securities Act
(and based on an opinion of counsel if the Company so requests).
[INSERT NAME OF TRANSFEROR]
By:__________________________________
Date:
<PAGE>
EXHIBIT D
ACCREDITED INVESTOR LETTER
<PAGE>
EXHIBIT E
FORM OF LETTER OF REPRESENTATIONS TO BE DELIVERED BY PURCHASERS OF WARRANTS
PURSUANT TO REGULATION S
<PAGE>
EXHIBIT C
FORM OF WARRANT REGISTRATION RIGHTS AGREEMENT
C-1
<PAGE>
================================================================================
_______________________________
WARRANT REGISTRATION RIGHTS AGREEMENT
Dated as of August 24, 1998
by and between
MRS. FIELDS' HOLDING COMPANY, INC.
CAPRICORN INVESTORS II, L.P.
JEFFERIES & COMPANY, INC.
and
BT ALEX. BROWN INCORPORATED
_______________________________
================================================================================
<PAGE>
This Warrant Registration Rights Agreement (the "AGREEMENT") is made
---------
and entered into as of August 24, 1998, by and between Mrs. Fields' Holding
Company, Inc., a Delaware corporation (the "COMPANY"), Capricorn Investors II,
-------
L.P. ("CAPRICORN") (only with respect to Sections 11 and 12 of this Agreement)
---------
and Jefferies & Company, Inc. and BT. Alex Brown Incorporated (the "INITIAL
-------
PURCHASERS"), who have agreed to purchase an aggregate of 55,000 Units each
- ----------
consisting of $1,000 in aggregate principal amount at maturity of the Company's
14% Senior Discount Note due 2005 (the "NOTES") and warrants (the "WARRANTS") to
----- --------
purchase 3.14411 shares of the Company's Common Stock (the "WARRANT SHARES"),
--------------
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement (the
"PURCHASE AGREEMENT"), dated as of August 13, 1998, by and between the Company
- -------------------
and the Initial Purchasers. In order to induce the Initial Purchasers to
purchase the Units, the Company and Capricorn have agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchasers set
forth in Section 3 of the Purchase Agreement. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in the Indenture
(as defined below).
The parties hereby agree as follows:
SECTION 1.DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
---
AFFILIATE: As defined in Rule 144 of the Act.
---------
BUSINESS DAY: Any day except a Saturday, Sunday or other day in the
------------
City of New York, or in the city of the corporate trust office of the Trustee,
on which banks are authorized to close.
CLOSING DATE: The date hereof.
------------
COMMISSION: The Securities and Exchange Commission.
----------
COMMON STOCK: The common stock, par value $0.001 per share, of the
------------
Company.
DEMAND REGISTRATION: As defined in Section 5 of this Agreement.
-------------------
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
------------
EXCHANGE OFFER: As defined in the Registration Rights Agreement,
--------------
dated the Closing Date, between the Company and the Initial Purchaser with
respect to the Notes.
HOLDERS: As defined in Section 2 hereof.
-------
INDENTURE: The Indenture, dated the Closing Date, between the Company
---------
and The Bank of New York, as trustee (the "TRUSTEE"), relating to the Notes, as
-------
such Indenture is amended or supplemented from time to time in accordance with
the terms thereof.
<PAGE>
INITIATING HOLDERS: One or more Holders owning individually or in the
------------------
aggregate not less than the Requisite Securities.
PERSON: Any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
PIGGY-BACK REGISTRATION. As defined in Section 6 of this Agreement.
-----------------------
PROSPECTUS: The prospectus included in a Registration Statement at
----------
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such prospectus.
PRO RATA PORTION: With reference to any Holder at any time, a
----------------
fraction, the numerator of which is the number of Warrant Shares then issued and
outstanding and held by such Holder or issuable to such Holder upon exercise of
the Warrants and which such Holder commits to exercise in connection with the
transaction giving rise to the determination of "Pro Rata Portion", and the
denominator of which is the aggregate number of Warrant Shares then issued and
outstanding held by the Holder taken together or issuable upon exercise of the
Warrants and which the Holders commit to exercise in connection with the
transaction giving rise to the determination of "Pro Rata Portion" taken
together.
PUBLIC EQUITY OFFERING: A public offering registered under the
----------------------
Securities Act (except for any registration pursuant to Form S-8) of common
stock of MFH.
REGISTRABLE SECURITIES: Any of (i) the Warrant Shares (whether or not
----------------------
the related Warrants have been exercised) and (ii) any other securities issued
or issuable with respect to any Warrant Shares by way of stock dividends or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, such securities shall cease to be Registrable Securities
when (i) a Registration Statement with respect to the offering of such
securities by the Warrant Share Holder thereof shall have been declared
effective under the Securities Act and such securities shall have been disposed
of by such Warrant Shares Holder pursuant to such Registration Statement, (ii)
such securities are eligible for sale to the public pursuant to Rule 144(k) (or
any similar provisions then in force, but not Rule 144A) promulgated under the
Securities Act, (iii) such securities shall have been otherwise transferred by
such Warrant Share Holder thereof and new certificates for such securities not
bearing a legend restricting further transfer shall have been delivered by the
Company or its transfer agent and subsequent disposition of such securities
shall not require registration or qualification under the Securities Act or any
similar state law then in force or (iv) such securities shall have ceased to be
outstanding.
REGISTRATION EXPENSES: All expenses incident to the Company's
---------------------
performance of or compliance with this Agreement, including, without limitation,
all Commission and stock exchange or National Association of Securities Dealers,
Inc. registration and filing fees and expenses, fees and expenses of compliance
with securities or blue sky laws (including, without limitation, reasonable fees
and disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), preparing, printing, filing,
duplicating and distributing the Registration Statement and the related
prospectus, the cost of printing stock certificates, the cost and charges of any
transfer agent, rating agency fees, printing expenses, messenger, telephone and
delivery expenses, reasonable fees
2
<PAGE>
and disbursements of counsel for the Company and all independent certified
public accountants, the fees and disbursements of underwriters customarily paid
by issuers or sellers of securities (but not including any underwriting
discounts or commissions or transfer taxes, if any, attributable to the sale of
Registrable Securities by Selling Holders), reasonable fees and expenses of one
counsel for the Holders.
REGISTRATION STATEMENT: Any registration statement, including,
----------------------
without limitation, the Shelf Registration Statement described in Section 4
hereof, of the Company relating to the registration for resale of Transfer
Restricted Securities that is filed pursuant to the provisions of this Agreement
and including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and all material
incorporated by reference therein.
REQUISITE SECURITIES: A number of Registrable Securities equal to not
---------------------
less than 25% of the then Registrable Securities held in aggregate by all
Holders.
SEC: The Securities and Exchange Commission.
---
SELLING HOLDER: A Holder who is selling Registrable Securities in
--------------
accordance with the provisions of this Agreement.
STOCKHOLDERS' AGREEMENT: The Stockholders' Agreement, dated as of
-----------------------
July 17, 1998, among Mrs. Fields' Holding Company, Inc. and its Stockholders, a
copy of which is attached as Annex A hereto.
SPECIAL COUNSEL: Any special counsel to the Holders, for which
---------------
Holders will be reimbursed pursuant to this Agreement.
TRANSFER RESTRICTED SECURITIES: Each Warrant or Warrant Share, until
------------------------------
the earliest to occur of: (i) the date on which such Warrant or Warrant Share
has been effectively registered under the Act and disposed of in accordance with
the Registration Statement covering it (and the purchasers thereof have been
issued a registered freely tradable security) and (ii) the date on which such
Warrant or Warrant Share is distributed to the public pursuant to Rule 144 under
the Act.
WARRANTS: The warrants of the Company issued and sold pursuant to the
--------
Purchase Agreement and the Warrant Agreement, together with any warrants issued
in substitution or replacement therefor.
WARRANT AGREEMENT: The Warrant Agreement dated the Closing Date by
-----------------
and between the Company and The Bank of New York, as Warrant Agent.
WARRANT SHARES: The Common Stock or other securities which any Holder
--------------
may acquire upon exercise of a Warrant, together with any other securities which
such Holder may acquire on account of any such securities, including, without
limitation, as the result of any dividend or other distribution on Common Stock
or any split-up of such Common Stock as provided for in the Warrant Agreement.
SECTION 2.SECURITIES SUBJECT TO THIS AGREEMENT.
Holders of Registrable Securities. A Person is deemed to be a Holder
---------------------------------
of Registrable Securities (a "HOLDER") whenever such Person owns Registrable
------
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected.
3
<PAGE>
SECTION 3. INTENTIONALLY OMMITED
SECTION 4. REGISTRATION PROCEDURES.
In connection with any Demand Registration or Piggy-Back Registration,
the Company shall (provided that it will not be required to take any action
pursuant to this Section 4 that would, in the written opinion of counsel for the
Company, violate applicable law):
(a) No fewer than five Business Days prior to the initial filing of a
Registration Statement or Prospectus and no fewer than two Business Days prior
to the filing of any amendment or supplement thereto (including any document
that would be incorporated or deemed to be incorporated therein by reference),
if requested, furnish to the Holders, their Special Counsel and the managing
underwriters, if any, copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such Holders, their Special Counsel
and such underwriters, if any, and cause the officers and directors of the
Company, counsel to the Company and independent certified public accountants to
the Company to respond to such inquiries as shall be necessary, in the opinion
of respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act, and shall use
reasonable efforts to reflect in each such document filed pursuant to a Demand
Registration, when so filed with the SEC, such reasonable comments as the
Holders, their Special Counsel and the managing underwriters, if any, may
propose in writing; provided, however, that the Company shall not be deemed to
-------- -------
have kept a Registration Statement effective during the applicable period if it
voluntarily takes or fails to take any action that results in Selling Holders
covered thereby not being able to sell such Registrable Securities pursuant to
Federal securities laws during that period; provided, further, the Company shall
-------- -------
not file any such Registration Statement or related Prospectus or any amendments
or supplements thereto in connection with a Demand Registration to which the
Holders of a majority of the Registrable Securities, their Special Counsel, or
the managing underwriters, if any, shall reasonably object on a timely basis;
(b) Take such action as may be necessary so that (i) any Registration
Statement and any amendment thereto and any Prospectus forming part thereof and
any amendment or supplement thereto (and each report or other document
incorporated herein by reference in each case) complies in all material respects
with the Securities Act and the Exchange Act and the respective rules and
regulations thereunder, (ii) any Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any Prospectus
forming part of any Registration Statement, and any amendment or supplement to
such Prospectus, does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements, in the light
of the circumstances under which they were made, not misleading;
(c) Prepare and file with the SEC such amendments, including post-
effective amendments, to each Registration Statement as may be necessary to keep
such Registration Statement continuously effective for the applicable time
period; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act; and comply
with the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the
4
<PAGE>
sellers thereof set forth in such Registration Statement as so amended or in
such Prospectus as so supplemented;
(d) Notify the Selling Holders, their Special Counsel and the managing
underwriters, if any, promptly (and in any case within 2 Business Days), and (if
requested by any such Person), confirm such notice in writing, (i)(A) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, (B) with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC or
any other Federal or state governmental authority for amendments or supplements
to a Registration Statement or related Prospectus or for additional information;
(iii) of the issuance by the SEC, any state securities commission, any other
governmental agency or any court of any stop order or injunction suspending or
enjoining the use or the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) if at any time any of the
representations and warranties of either the Company contained in any agreement
(including any underwriting agreement) contemplated hereby cease to be true and
correct in all material respects, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose, (vi) of the happening of any event that makes any statement made in
such Registration Statement or related Prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in such Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any 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, not misleading, and that in the case of the Prospectus, it will not
contain any 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 light of the circumstances under which they were made, not misleading and
(vii) of the Company's reasonable determination that a post-effective amendment
to such Registration Statement would be appropriate;
(e) Use its reasonable efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of any order enjoining or suspending the use or
effectiveness of a Registration Statement or the lifting of any suspension of
the qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment;
(f) If requested by the managing underwriters, if any, or the Holders
of a majority in aggregate number of the Registrable Securities being sold in
connection with such offering reasonably in advance of the filing thereof, (i)
promptly incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and such Holders reasonably
agree should be included therein, (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as soon as practicable
after the Company has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment and (iii) supplement or
make amendments to such Registration Statement;
(g) Furnish to Special Counsel and each managing underwriter, if any,
without charge, at least one conformed copy of each Registration Statement and
each amendment thereto, including financial statements and schedules, all
documents incorporated or deemed to be incorporated therein by reference, and
all exhibits to the extent requested as soon as practicable after the filing of
such documents with the SEC;
5
<PAGE>
(h) Deliver to each Selling Holder, their Special Counsel, and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons reasonably request; and the Company hereby
consents to the use of such Prospectus and each amendment or supplement thereto
by each of the Selling Holders and the underwriters, if any, in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto;
(i) Prior to any public offering of Registrable Securities, use its
reasonable efforts to register or qualify or cooperate with the Holders of
Registrable Securities to be sold or tendered for, the underwriters, if any, and
their respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions within the United States as any Holder or underwriter reasonably
requests in writing; provided, however, that where Registrable Securities are
-------- -------
offered other than through an underwritten offering, the Company agrees to cause
its counsel to perform "blue sky" investigations and file registrations and
qualifications required to be filed pursuant to this Section 4(i); to use its
reasonable best efforts to keep each such registration or qualification (or
exemption therefrom) effective during the period such Registration Statement is
required to be kept effective and to use its reasonable best efforts do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by such Registration
Statement; provided, however, that the Company shall not be required to qualify
-------- -------
generally to do business in any jurisdiction where they are not then so
qualified or to take any action that would subject them to general service of
process in any such jurisdiction where they are not then so subject or subject
the Company to any tax in any such jurisdiction where it is not then so subject;
(j) In connection with any sale or transfer of Registrable Securities
that will result in such securities no longer being Registrable Securities,
cooperate with the Holders and the managing underwriters, if any, to facilitate
the timely preparation and delivery of certificates (with appropriate CUSIP
numbers) representing Registrable Securities to be sold, which certificates
shall not bear any restrictive legends and shall be in a form eligible for
deposit with the DTC, and to enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters, if any,
or Holders many request at least two Business Days prior to any sale of
Registrable Securities;
(k) Use its best efforts to cause the offering of the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities within the United
States, except as may be required as a consequence of the nature of such Selling
Holder's business, in which case the Company will cooperate in all reasonable
respects at the expense of such Selling Holder with the filing of such
Registration Statement and the granting of such approvals as may be necessary to
enable the seller or sellers thereof or the underwriters, if any, to consummate
the disposition of such Registrable Securities; provided, however, that the
-------- -------
Company shall not be required to register the Registrable Securities in any
jurisdiction that would subject them to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any tax
in any such jurisdiction where it is not then so subject or to require the
Company to qualify to do business in any jurisdiction where it is not then so
qualified;
(l) Upon the occurrence of any event contemplated by Section 4(d)(vi)
or 4(d)(vii), as promptly as practicable, prepare a supplement or amendment,
including, if appropriate, a post-effective amendment, to each Registration
Statement or a supplement to the related Prospectus or any
6
<PAGE>
document incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered, such
Prospectus will not contain an untrue statement of a material fact or omit 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. If the Company notifies the Holders of the occurrence of any
event contemplated by paragraph 4(d)(vi) or 4(d)(vii) above, the Holders shall
suspend the use of the Prospectus until the requisite changes to the Prospectus
have been made;
(m) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in underwritten offerings) and take
all such other reasonable actions in connection therewith (including those
reasonably requested by the managing underwriters, if any, or the Holders of a
majority in aggregate number of the Registrable Securities being sold) in order
to expedite or facilitate the disposition of such Registrable Securities, and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration, (i) make such
representations and warranties to the Holders of such Registrable Securities and
the underwriters, if any, with respect to the business of the Company (including
with respect to businesses or assets acquired or to be acquired by it), and the
Registration Statement, Prospectus and documents, if any, incorporated or deemed
to be incorporated by reference therein, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in underwritten
offerings, and confirm the same if and when requested; (ii) obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing or sole
underwriters, if any, addressed to the underwriters, if any, covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters; (iii)
obtain customary "comfort" letters and updates thereof (including, if such
registration includes an underwritten public offering, a "bring down" comfort
letter dated the date of the closing under the underwriting agreement) from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any business which may
hereafter be acquired by the Company for which financial statements and
financial data are required to be included in the Registration Statement),
addressed to each of the underwriters, if any, such letters to be in customary
form and covering matters of the type customarily covered in "comfort" letters
in connection with underwritten offerings and such other matters as reasonably
required by the managing underwriter or underwriters and as permitted by the
Statement of Auditing Standards No. 72; (iv) in an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
no less favorable to the Selling Holders and the underwriters, if any, than
those set forth in Section 9 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate number of Registrable
Securities covered by such Registration Statement and the managing
underwriters); and (v) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority in aggregate number of the
Registrable Securities being sold, their Special Counsel and the managing
underwriters, if any, to evidence the continued validity of the representations
and warranties made pursuant to clause 4(n)(i) above and to evidence compliance
with any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company;
(n) Make available for inspection by one representative of the Selling
Holders, the managing underwriter participating in any such disposition of
Registrable Securities, if any, and any attorney, consultant or accountant
retained by such Selling Holders or underwriter (collectively, the
"INSPECTORS"), at the offices where normally kept, during reasonable business
----------
hours, all financial and other records, pertinent corporate documents and
properties of the Company (including with respect to
7
<PAGE>
business and assets acquired or to be acquired to the extent that such
information is available to the Company), and cause the officers, directors,
agents and employees of the Company (including with respect to business and
assets acquired or to be acquired to the extent that such information is
available to the Company) to supply all information in each case reasonably
requested by any such Inspector in connection with such Registration; provided,
--------
however, the Company may first require that such Persons agree to keep
- -------
confidential any non-public information relating to the Company received by such
Person and not disclose such information (other than to an Affiliate or
prospective purchaser who agrees to respect the confidentiality provisions of
this Section 4(n)) until such information has been made generally available to
the public (other than as a result of a disclosure or failure to safeguard by
such Inspector) unless the release of such information is required by law or
necessary to respond to inquiries of regulatory authorities (including the
National Association of Insurance Commissioners, or similar organizations or
their successors); without limiting the foregoing, no such information shall be
used by such Inspector as the basis for any market transactions in securities of
the Company or its subsidiaries in violation of law;
(o) Use its best efforts to cause the Warrant Shares issuable upon
exercise of the Warrants to be quoted or listed on any exchange upon which the
Company's Common Stock is then quoted or listed;
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to their security holders earning statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act), no later than 45
days after the end of any 12-month period (or 90 days after the end of any 12-
month period if such period is a fiscal year) (i) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in a
firm commitment or reasonable efforts underwritten offering and (ii) if not sold
to underwriters in such an offering commencing on the first day of the first
fiscal quarter after the effective date of a Registration Statement, which
statement shall cover said period, consistent with the requirements of Rule 158;
and
(q) Use its best efforts to take all other steps reasonably necessary
to effect the registration, offering and sale of the Registrable Securities
covered by the Registration Statement.
The Company may require each Selling Holder as to which any
registration is being effected to furnish to the Company such information
regarding the distribution of such Registrable Securities as is required by law
to be disclosed in the applicable Registration Statement and the Company may
exclude from such registration the Registrable Securities of any Selling Holder
who unreasonably fails to furnish such information promptly after receiving such
request.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder or any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the holding
by such Holder of such securities is not to be construed as a recommendation by
such Holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such Holder will assist in
meeting any future financial requirements of the Company, or (ii) in the event
that such reference to such Holder by name or otherwise is not required by the
Securities Act or any similar Federal statute then in force, the deletion of the
reference to such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such reference ceases to
be required.
8
<PAGE>
Each Holder agrees by acquisition of such Registrable Securities that,
upon receipt of any notice from the Company of the happening of any event of the
kind described in Section 4(d)(ii), 4(d)(iii), 4(d)(v) or 4(d)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Securities
covered by such Registration Statement or Prospectus until such Holder's receipt
of the copies of the supplemented or amended Prospectus contemplated by Section
4(l) hereof, or until it is advised in writing (the "ADVICE") by the Company
------
that the use of the applicable Prospectus may be resumed, and, in either case,
has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus. If
the Company shall give any such notice, the 90-day period referred to in Section
5(d) shall be extended by the number of days during such period from and
including the date of giving of such notice to and including the date when each
seller of Registrable Securities covered by such Registration Statement shall
have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 4(l) hereof or (y) the Advice, and, in either case, has
received copies of any additional or supplemental filings that are incorporated
or deemed to be incorporated by reference in such Prospectus.
SECTION 5. DEMAND REGISTRATION.
(a) One or more Initiating Holders owning individually or in the
aggregate not less than the Requisite Securities may request in writing that the
Company effect the registration under the Securities Act of all or part of such
Initiating Holders' Registrable Securities and shall specify the number of
Registrable Securities proposed to be sold and the intended method of
disposition thereof (the "DEMAND REQUEST"). The Company will give written
--------------
notice of the Demand Request to all registered holders of Registrable Securities
within fifteen (15) days of receipt thereof. Within 120 days of receipt of the
Demand Request the Company will, subject to the terms of this Agreement, file a
Registration Statement and use its best efforts to effect the registration under
the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders for disposition in
accordance with the intended method of disposition stated in such request;
(ii) all other Registrable Securities, the Holders of which
shall have made a written request to the Company for registration thereof
within 20 days after the giving of such written notice by the Company
(which request shall specify the number of Registrable Securities proposed
to be sold and the intended method of disposition of such Registrable
Securities); and
(iii) all shares of securities which the Company may elect to
register in connection with the offering of Registrable Securities pursuant
to this Section 5.
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities and the
additional securities so to be registered.
(b) Registrations under this Section 5 (each, a "DEMAND
------
REGISTRATION") shall be on such appropriate registration form of the SEC (i) as
- ------------
shall be selected by the Company and (ii) as shall permit the disposition of
such Registrable Securities in accordance with the intended method or methods of
disposition specified in their request for such registration.
9
<PAGE>
(c) The Company will pay all Registration Expenses in connection with
any registration requested pursuant to this Section 5. The Selling Holders
shall pay the underwriting discounts, commissions, and transfer taxes, if any,
in connection with each Registration Statement requested under this Section 5,
which costs shall be allocated pro rata among all Selling Holders on whose
--- ----
behalf Registrable Securities of the Company are included in such registration
on the basis of the respective amounts of the Registrable Securities then being
registered on their behalf.
(d) The Holders shall be entitled to request two (2) registrations
pursuant to this Section 5. A Registration Statement requested pursuant to this
Section 5 shall not be deemed to have been effected (i) unless a Registration
Statement with respect thereto has been declared effective by the SEC and (ii)
the Company has complied in a timely manner and in all material respects with
all of its obligations under this Agreement; provided, (i) if, after such
--------
Registration Statement has become effective, the offering of Warrant Shares
pursuant to such Registration Statement is or becomes subject to any stop order,
injunction or other order or requirement of the SEC or other governmental or
administrative agency or court that prevents, restrains or otherwise limits the
sale of Warrant Shares under such Registration Statement for any reason, other
than by reason of some act or omission by any Holder participating in such
registration, and does not become effective within a reasonable period of time
thereafter, such period not to exceed 60 days from the date of such stop order,
injunction, or other governmental order or requirement, (ii) the Registration
Statement does not remain effective under the Securities Act until at least the
earlier of (A) an aggregate of 90 days after the effective date thereof or (B)
the consummation of the distribution by the Selling Holders of all of the
Registrable Securities covered thereby or (iii) if the Selling Holders are not
able to sell at least 70% of the Registrable Securities to be included therein,
less any Registrable Securities withdrawn or excluded from such Demand
Registration in accordance with the provisions hereof, then, in each case, such
Registration Statement shall be deemed not to have been effected. For purposes
of calculation the 90-day period referred to in the preceding sentence, any
period of time during which such Registration Statement was not in effect shall
be excluded. The Holders shall be permitted to withdraw all or any part of the
Registrable Securities from a Demand Registration at any time prior to the
effective date of such Demand Registration.
(e) If a requested registration pursuant to this Section 5 involves an
underwritten offering, and the managing underwriter or underwriters shall advise
the Company in writing (with a copy to each Holder requesting registration)
that, in such managing underwriter's or underwriters' opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) is such as to adversely
affect the success of such offering, including the price at which such
securities can be sold, then the Company will include in such registration, to
the extent of the number which the Company is so advised can be sold in such
offering, (i) first, Registrable Securities requested to be included in such
registration by the Holders, pro rata among such holders requesting such
--- ----
registration on the basis of the number of such securities requested to be
included by such Holders and (ii) second, securities held by other Persons,
including the Company.
SECTION 6. PIGGY-BACK REGISTRATION.
(a) If the Company proposes to file a Registration Statement under the
Securities Act with respect to an offering by the Company for its own account or
for the account of any of the holders of any class of its Common Stock in a
firmly underwritten Public Equity Offering (other than (i) a Registration
Statement on Form S-4 or S-8 (or any substitute form that may be adopted by the
SEC) or (ii) a Registration Statement filed in connection with an exchange offer
or offering of securities solely to
10
<PAGE>
the Company's existing security holders), then the Company shall give written
notice of such proposed filing to the Holders as soon as practicable (but in no
event fewer than 10 days before the anticipated filing date), and such notice
shall offer such Holders the opportunity to register such number of Warrant
Shares as each such Holder may request in writing within 20 days after receipt
of such written notice from the Company (which request shall specify the Warrant
Shares intended to be disposed of by such Selling Holder) (a "PIGGY-BACK
----------
REGISTRATION"). Upon the written request of any such Holder made within 20 days
- ------------
after the receipt of any such notice (which request shall specify the number of
Registrable Securities intended to be disposed of by such Holder and the
intended method of disposition thereof), the Company will, subject to the terms
of this Agreement, effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register by
the Holders thereof, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Registrable
Securities so to be registered, by inclusion of such Registrable Securities in
the registration statement that covers the securities which the Company proposes
to register, provided that, if at any time after giving written notice of its
--------
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason either not to register or to delay registration
of such securities, the Company may, at its election, give written notice of
such determination to each Holder and, thereupon, (i) in the case of a
determination not to register shall be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith),
without prejudice, however, to the rights of any holder or holders of
Registrable Securities entitled to do so to request that such registration be
effected as a registration under Section 5, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering such
other securities. No registration effected under this Section 6 shall relieve
the Company of its obligation to effect any registration upon request under
Section 5, nor shall any such registration hereunder be deemed to have been
effected pursuant to Section 5. The Company shall use its best efforts to keep
such Piggy-Back Registration continuously effective under the Securities Act
until the earlier of (A) an aggregate of 90 days after the effective date
thereof or (B) the consummation of the distribution by the Holders of all of the
Warrant Shares covered thereby.
(b) The Company shall use its reasonable efforts to cause the managing
underwriter or underwriters of such proposed offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
in the same terms and conditions as any similar securities of the Company or any
other security holder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Selling Holder shall have the right to
withdraw its request for inclusion of its Registrable Securities in any
Registration Statement pursuant to these provisions by giving written notice to
the Company of its request to withdraw prior to the effective date of such
registration statement. The Company may withdraw a Piggy-Back Registration at
any time prior to the time it becomes effective or the Company may elect to
delay the registration; provided, however, that the Company shall give prompt
-------- -------
written notice thereof to participating Holders.
(c) The Company will pay all Registration Expenses in connection with
registration of Registrable Securities requested pursuant to this Section 6 and
the Selling Holders shall pay the underwriting discounts, commissions, and
transfer taxes, if any, relating to the sale of such Selling Holders'
Registrable Securities pursuant to this Section 6, such costs being allocated
pro rata among all Selling Holders on whose behalf Registrable Securities of the
- --- ----
Company are included in such registration on the basis of the respective amounts
of Registrable Securities then being registered on their behalf.
11
<PAGE>
(d) Priority in Piggy-Back Registrations. If a registration pursuant
------------------------------------
to this Section 6 involves an underwritten offering of the securities so being
registered, whether or not for sale for the account of the Company, the Company
will, if requested by any Holder and subject to the provisions of this Section
6, use its reasonable efforts to arrange for such underwriters to include all
the Registrable Securities to be offered and sold by such Holder among the
securities to be distributed by such underwriters. Notwithstanding anything to
the contrary, if the managing underwriter of such underwritten offering shall,
in writing, inform the Holders requesting such registration and the holders of
any of the Company's other securities which shall have exercised registration
rights in respect of such underwritten offering of its belief that the number of
securities requested to be included in such registration exceeds the number
which can be sold in (or during the time of) such offering, then the Company
will be required to include in such registration statement only the amount of
securities that it is so advised should be included in such registration. In
such event, (x) in cases initially involving the registration for sale of
securities for the Company's own account, securities shall be registered in such
offering in the following order of priority: (i) first, the securities that the
Company proposes to register, and (ii) second, the securities that have been
requested to be included in such registration by Holders and by Persons entitled
to exercise "piggy-back" registration rights pursuant to contractual commitments
of the Company (pro rata on the amount of securities sought to be registered by
--- ----
such Holders and Persons) and (y) in cases not initially involving the
registration for sale of securities for the Company's own account, securities
shall be registered in such offering as follows: (i) first, the securities of
any person whose exercise of a "demand" registration right pursuant to a
contractual commitment of the Company is the basis for the registration
(provided that if such person is a Holder, there shall be no priority as among
Holders and Warrant Shares sought to be included by Holders shall be included
pro rata based on the amount of securities sought to be registered by such
- --- ----
persons), (ii) second, the securities that have been requested to be included in
such registration by Holders and other persons entitled to exercise "piggy-back"
registration rights pursuant to contractual commitments (pro rata based on the
--- ----
amount of securities sought to be registered by such Holders and persons) and
(iii) third, the securities which the Company proposes to register.
SECTION 7. LIMITATIONS, CONDITIONS AND QUALIFICATIONS TO OBLIGATIONS UNDER
REGISTRATION COVENANTS.
The obligations of the Company described in Sections 5 and 6 of this
Agreement are subject to each of the following limitations, conditions and
qualifications:
(a) The Company shall not be required to file a Registration Statement
pursuant to a request for a Demand Registration if the Company has in effect a
shelf registration statement which is available to the Holders.
(b) Subject to the next sentence of this paragraph, the Company shall
be entitled to postpone, for a reasonable period of time, the filing of
effectiveness of, or suspend the rights of any Holder to make sales pursuant to,
any Registration Statement otherwise required to be prepared, filed and made and
kept effective by it under the registration covenants described in Section 5
hereof; provided, however, that the duration of such postponement or suspension
may not exceed the earlier to occur of (A) 30 days after the cessation of the
circumstances described in the next sentence of this paragraph on which such
postponement or suspension is based or (B) 120 days after the date of the
determination of the Board of Directors of the Company referred to in the next
sentence, and the duration of such postponement or suspension shall be excluded
from the calculation of the 90-day period described in Section 5(d) hereof. Such
postponement or suspension may only be effected if the Board of Directors of
12
<PAGE>
the Company determines in good faith that the filing or effectiveness of, or
sales pursuant to, such registration statement would materially impede, delay or
interfere with any financing, offer or sale of securities, acquisition,
corporate reorganization or other significant transaction involving the Company
or any of its affiliates (whether or not planned, proposed or authorized prior
to the exercise of demand registration rights hereunder or any other
registration rights agreement) or require disclosure of material information
which the Company has a bona fide business purpose for preserving as
confidential. If the Company shall so postpone the filing or effectiveness of,
or suspend the rights of any Holders to make sales pursuant to, a Registration
Statement it shall, as promptly as possible, notify any Selling Holders of such
determination, and the Selling Holders shall (y) have the right, in the case of
a postponement of the filing or effectiveness of a Registration Statement, upon
the affirmation vote of the Selling Holders of not less than a majority of the
Registrable Securities to be included in such Registration Statement, to
withdraw the request for registration by giving written notice to the Company
within 10 days after receipt of such notice, or (z) in the case of a suspension
of the right to make sales, receive an extension of the registration period
equal to the number of days of the suspension. Any Demand Registration as to
which the withdrawal election referred to in the preceding sentence has been
effected shall not be counted for purposes of the two Demand Registrations
referred to in Section 5(d) hereof.
(c) The Company shall not be required by this Agreement to include
securities in a Registration Statement relating to a Piggy-back Registration
above if (i) in the written opinion of counsel to the Company, addressed to the
Holders seeking registration and delivered to them, the Holders of such
securities seeking registration would be free to sell all such securities within
the succeeding three-month period, without registration, under Rule 144 under
the Securities Act, which opinion may be based in part upon the representation
by the Holders of such securities seeking registration, which registration shall
not be unreasonably withheld, that each such Holder is not an affiliate of the
Company within the meaning of the Securities Act, and (ii) all requirements
under the Securities Act for effecting such sales are satisfied at such time.
(d) The Company's obligations shall be subject to the obligations of
the Selling Holders to furnish all information and materials and not to take any
and all actions as may be required under Federal and state securities laws and
regulations to permit the Company to comply with all applicable requirements of
the SEC and to obtain any acceleration of the effective date of such
Registration Statement.
(e) The Company shall not be obligated to cause any special audit to
be undertaken in connection with any registration pursuant to this Agreement
unless such audit is requested by the underwriters with respect to such
registration.
SECTION 8. REGISTRATION EXPENSES.
The Company shall pay all Registration Expenses.
SECTION 9. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Holder, its
directors, officers and each Person, if any, who controls such Holder (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act), from
and against any and all losses, claims, damages, liabilities, judgments,
(including without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action that
could give rise to any such losses, claims,
13
<PAGE>
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto)
provided by the Company to any Holder or any prospective purchaser of
Registrable Securities, or caused by 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 (i) insofar as such losses, claims,
damages, liabilities or judgments are caused by an untrue statement or omission
or alleged untrue statement or omission that is based upon information relating
to any of the Holders furnished in writing to the Company by any of the Holders
or (ii) to the extent that any such losses, claims, damages, liabilities or
judgments result solely from an untrue statement of a material fact contained
in, or the omission of a material fact from the Registration Statement or
Prospectus, which untrue statement or omission was corrected in an amended or
supplemented Registration Statement or Prospectus, if the person alleging such
loss, claim, damage, liability or judgment was not sent or given, at or prior to
the written confirmation of such sale, a copy of the amended or supplemented
Registration Statement or Prospectus if the Company had previously furnished
copies thereof to such indemnified party and if delivery of a prospectus was
required by the Securities Act and was not so made.
(b) Each Holder of Registrable Securities agrees, severally and not
jointly, to indemnify and hold harmless the Company, and its directors and
officers, and each person, if any, who controls (within the meaning of Section
15 of the Act or Section 20 of the Exchange Act) the Company, to the same extent
as the foregoing indemnity from the Company set forth in section (a) above, but
only with reference to information relating to such Holder furnished in writing
to the Company by such Holder expressly for use in any Registration Statement.
In no event shall any Holder, its directors, officers or any Person who controls
such Holder be liable or responsible for any amount in excess of the amount by
which the total amount received by such Holder with respect to its sale of
Registrable Securities pursuant to a Registration Statement exceeds (i) the
amount paid by such Holder for such Registrable Securities and (ii) the amount
of any damages that such Holder, its directors, officers or any Person who
controls such Holder has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 9(a) or 9(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
-----------------
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
-------------------
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 9(a) and 9(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 9(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the
14
<PAGE>
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred upon written request and presentation of
reasonably satisfactory invoices. Such firm shall be designated in writing by
all indemnified Holders, in the case of the parties indemnified pursuant to
Section 9(a), and by the Company, in the case of parties indemnified pursuant to
Section 9(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty Business Days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 9 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company, on
the one hand, and the Holders, on the other hand, from their sale of Registrable
Securities or (ii) if the allocation provided by clause 9(d)(i) is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(d)(i) above but also the relative
fault of the Company, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Company, on the one hand,
and of the Holder, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or by the Holder, on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and judgments referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph of Section 9(a), any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 9(d) were determined by pro
rata allocation (even if the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments
15
<PAGE>
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any matter, including any action that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 9, no Holder, its directors, its officers or any
Person, if any, who controls such Holder shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the total received by
such Holder with respect to the sale of Registrable Securities pursuant to a
Registration Statement exceeds (i) the amount paid by such Holder for such
Registrable Securities and (ii) the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 9(c) are several in proportion to the respective principal amount of
Registrable Securities held by each Holder hereunder and not joint.
SECTION 10. RULE 144A AND RULE 144.
The Company agrees with each Holder, for so long as any Registrable
Securities remain outstanding and during any period in which the Company (i) is
not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder, to such Holder or beneficial owner of Registrable
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and
(ii) is subject to Section 13 or 15(d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
SECTION 11. DRAG-ALONG RIGHTS.
(a) If Capricorn approves or authorizes a sale or exchange, whether
directly or pursuant to a merger, consolidation or otherwise (the "COMPANY
-------
SALE"), of at least a majority of the then outstanding Common Stock in a bona
fide arm's-length transaction to a third party that is not an Affiliate of
Capricorn or of the Company (an "INDEPENDENT THIRD PARTY"), then Capricorn shall
-----------------------
have the right, subject to all the provisions of this Section 11 (the "DRAG-
----
ALONG RIGHT"), to require each of the Holders to (i) if such Company Sale is
- -----------
structured as a sale of stock, sell, transfer and deliver or cause to be sold,
transferred and delivered to such Independent Third Party all Warrants and
Warrant Shares owned by them; provided, however, that if Capricorn agrees to
-------- -------
sell less than all (the "AMOUNT") of its shares of Common Stock to such
------
Independent Third Party, each of the other Holders shall only be required to
sell, transfer and deliver to such Independent Third Party an amount of Warrants
and Warrant Shares equal to the Warrants and Warrant Shares owned by it
multiplied by a fraction the numerator of which is the Amount and the
denominator of which is the total amount of shares of Common Stock owned by
Capricorn or (ii) if such Company Sale is structured as a merger, consolidation
or other transaction requiring the consent or approval of the Company's
shareholders, vote such Holder's Warrant Shares in favor thereof, and otherwise
consent to and raise no objection to such transaction, and waive any dissenters'
rights, appraisal rights or similar rights that such Holder may have in
connection therewith; and, in any such event, except to the extent otherwise
provided in subsection (c) of this Section 11, each such Holder shall agree to
and shall be bound by the same terms, provisions and conditions (including,
16
<PAGE>
without limitation, provisions in respect of indemnification) in respect of the
Company Sale as are applicable to Capricorn.
(b) If Capricorn desires to exercise Drag-Along Rights, it shall give
written notice to the Holders (the "DRAG-ALONG NOTICE") of the Company Sale,
-----------------
setting forth the name and address of the transferee, the date on which such
transaction is proposed to be consummated (which shall be not less than 30 days
after the date such Drag-Along Notice is given), and the proposed amount and
form of consideration and terms and conditions of payment offered by such
transferee, including, without limitation, the material terms of any debt or
equity securities proposed to be included as part of such consideration,
identifying the issuer or issuers thereof. If such consideration includes any
non-cash consideration, such notice shall also state the fair market value of
such non-cash consideration and shall describe in reasonable detail the method
by which such value shall have been determined.
(c) The obligations of the Holders in respect of a Company Sale under
this Section 11 are subject to the satisfaction of the following conditions:
(i) upon the consummation of the Company Sale, the same form of consideration
and the same portion of the aggregate consideration realized upon such Company
Sale shall be paid or distributed in respect of each share of Common Stock then
issued and outstanding (except as contemplated by the proviso to Section 11 (a)
hereof); (ii) if any Holder is given an option as to the form and amount of
consideration to be received, each Holder will be given the same option; (iii)
each Holder will be given a reasonable opportunity to exercise its Warrants
prior to the consummation of the Company Sale and thereby to participate in the
sale as a holder of such Common Stock; (iv) the maximum liability of any Holder
for indemnification in respect of all matters arising pursuant to or in
connection with the Company Sale shall not exceed the net proceeds received by
such Holder from such Company Sale; and (v) no Holder shall be required to make
general representations or warranties regarding the financial condition,
business, assets or affairs of the Company and its Subsidiaries.
SECTION 12. TAG-ALONG RIGHTS.
(a) Notwithstanding anything in this Agreement to the contrary, except
in the case of (i) transfers by Capricorn to a Permitted Transferee referred to
in Section 3.3(a) of the Stockholders' Agreement, (ii) transactions where Drag-
Along Rights are exercised pursuant to Section 11 hereof and (iii) sales
pursuant to Section 5 of the Stockholders' Agreement, Capricorn shall refrain
from effecting any transfer or sale of the Common Stock unless, prior to the
consummation thereof, the Holders shall have been afforded the opportunity to
join in such sale on the basis provided for in this Section 12.
(b) Prior to consummation of the proposed transfer by Capricorn
referred to in Section 12(a) above, Capricorn shall cause the person or group
that proposes to acquire such shares (the "PROPOSED PURCHASER") to offer in
------------------
writing (the "PURCHASE OFFER") to purchase shares of Common Stock owned by the
--------------
Holders, such that the number of Warrants and Warrant Shares so offered to be
purchased from the Holders shall be equal to the product obtained by multiplying
the aggregate number of shares of Common Stock proposed to be purchased by the
Proposed Purchaser by such Holder's Pro Rata Portion. If the Purchase Offer is
accepted by any Holder, then the number of shares of Common Stock to be sold to
the Proposed Purchaser by Capricorn, shall be reduced by the aggregate number of
shares of Common Stock to be purchased by the Proposed Purchaser from such
Holders pursuant thereto. Such purchase shall be made on the same terms and
conditions as the Proposed Purchaser shall have offered to purchase shares of
Common Stock to be sold by Capricorn (net, in the case of any options, warrants
or rights, of any amounts required to be paid by the Holder upon exercise
thereof). The Holders shall have 20 days
17
<PAGE>
from the date of receipt of the Purchase Offer during which to accept such
Purchase Offer, and the closing of such purchase shall occur within 30 days
after such acceptance or at such other time as the Holders and the Proposed
Purchaser may agree.
SECTION 13. MISCELLANEOUS.
(a) Remedies. The Company acknowledges and agrees that any failure by
--------
the Company to comply with its obligations under Section 3 hereof may result in
material irreparable injury to the Holders for which there is no adequate remedy
at law, that it will not be possible to measure damages for such injuries
precisely and that, in the event of any such failure, the any Holder may obtain
such relief as may be required to specifically enforce the Company's obligations
under Section 3 hereof. The Company further agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the
--------------------------
date of this Agreement enter into or amend any agreement with respect to its
securities that conflicts with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The Company has not previously entered into any agreement granting any
registration rights of its securities to any Person except for the Registration
Rights Agreement relating to the Notes by and between the Company and the
Initial Purchaser. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's securities under any other agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given unless (i) in the case of Section 4
hereof and this Section 11(c)(i), the Company has obtained the written consent
of Holders of all of the outstanding Registrable Securities and (ii) in the case
of all other provisions hereof, the Company has obtained the written consent of
Holders of a majority of the outstanding principal amount of Registrable
Securities (excluding Registrable Securities held by the Company or its
Affiliates). Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not affect directly or indirectly the
rights of other Holders whose Registrable Securities are not being sold pursuant
to a Registration Statement may be given by the Holders of at least a majority
of the Registrable Securities being sold.
(d) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchaser, on the other hand, and shall have the right to
enforce such agreements directly to the extent they may deem such enforcement
necessary or advisable to protect its rights or the rights of Holders hereunder.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
18
<PAGE>
(ii) if to the Company:
Mrs. Fields' Holding Company, Inc.
2855 East Cottonwood Parkway
Suite 400
Salt Lake City, Utah 84121
Attention: Chief Financial Officer
With a copy to:
Skadden, Arps, Slate, Meagher & Flom L.L.P.
919 Third Avenue
New York, New York 10021
Attention: Randall Doud
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Warrant Agent at the
address specified in the Warrant Agreement.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders; provided, that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Registrable Securities in violation
of the terms hereof or of the Purchase Agreement or the Warrant Agreement. If
any transferee of any Holder shall acquire Registrable Securities in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such Person shall be entitled to
receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity,
19
<PAGE>
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be affected or impaired
thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Registrable
Securities. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
[Signature Page Follows]
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MRS. FIELDS' HOLDING COMPANY, INC.
By: ______________________________
Name:
Title:
<PAGE>
CAPRICORN INVESTORS II, L.P.,
with respect to Sections 11 and 12 of this
Agreement
By Capricorn Holdings L.L.C.,
General Partner
By: _______________________________________
Name:
Title:
<PAGE>
JEFFERIES & COMPANY, INC.
By: ___________________________
Name:
Title:
BT ALEX. BROWN INCORPORATED
By: ___________________________
Name:
Title:
<PAGE>
ANNEX A
-------
STOCKHOLDERS' AGREEMENT
<PAGE>
[LOGO OF COCA COLA USA FOUNTAIN APPEARS HERE]
December 1, 1997
Mr. Larry Hodges
President
Mrs. Field's Original Cookies, Inc.
462 West Bearcat Drive
Salt Lake City, Utah 84115
Dear Mr. Hodges:
This letter will constitute an amendment (the "Amendment") to that certain
amended and restated marketing agreement between Mrs. Field's Original
Cookies, Inc. ("MFOC") and Coco-Cola USA Fountain ("CCF") dated January 9,
1997 (the "Restated Agreement"). The capitalized terms contained in this
Amendment will have the same meanings set forth in the Restated Agreement
unless otherwise defined herein.
Effective as of the date of execution of this Amendment, the Restated
Agreement is amended to reflect that the Term will end the Letter of
December 31, 2002 or when the MFOC System has purchased the Volume
Commitment of CCF's Fountain Syrups, unless terminated earlier pursuant to
the terms of the Restated Agreement. The Restated Agreement id further
amended to reflect the fact that CCF forgives MFOC's repayment of the
Unearned 1993 Funding which currently amounts to Five Hundred Four Thousand
Dollars ($504,000). Accordingly, the second to the last sentence of Section
4 of the Restated Agreement is deleted in its entirety and the last
sentence of such sections is replaced by the following: "Once the $600,000
advance has been earned, Company will begin to pay any additional funding
earned by the MFOC System to MFOC on a quarterly basis, after the end of
the three month period in which it is earned."
Except as specifically set forth above, the Restated Agreement and the
terms and conditions thereof will remain in full force and effect for the
remainder of the Term. From and after the date of execution of this
Amendment, all references to
<PAGE>
Mr. Larry Hodges
December 1, 1997
Page 2
the Restated Agreement shall be deemed to be references to the Restated
Agreement as amended hereby.
Sincerely,
/s/ Tom Moore
Tom Moore
Vice President, Field Sales
Accepted and agreed to this 8/th/ day
of Dec, 1997.
MRS. FIELDS ORIGINAL COOKIES, INC.
By: /s/ Larry Hodges
-------------------------------
Larry Hodges, President
Date:_____________________________
<PAGE>
[Insert LOGO Here]
September 21, 1998
Mr. Larry Hodges
President and CEO
Mrs. Field's Original Cookies, Inc.
2855 E. Cottonwood Pkwy, Suite 400
Salt Lake City, UT 84121-0750
Dear Mr. Hodges:
This letter will constitute a corollary agreement to our existing marketing
agreement between Mrs. Fields' Original Cookies, Inc. ("MFOC") and Coca-Cola
USA Fountain ("CCF") dated January 9, 1997 and amended in writing on December
1, 1997.
In return for mutually agreed upon marketing promotions beginning September 1,
1998 and completed by December 31, 1998, CCF will provide marketing funds in
the amount of Four Hundred Fifty Thousand Dollars ($450,000) to MFOC.
Sincerely,
/s/ Tom Moore
Tom Moore
Vice President, Field Sales
Accepted and agreed to this ____________ day of ____________ 1998
MRS. FIELD'S ORIGINAL COOKIES, INC.
By: /s/ Larry Hodges
------------------------------
Larry Hodges, President
Date:______________________________
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into this
10th day of July, 1997, by and between GARRY REMINGTON ("Employee") and MRS.
FIELDS' ORIGINAL COOKIES, INC., a Delaware corporation (the "Company").
RECITAL
-------
This Agreement is made and entered into with reference to the following
facts and objectives:
The Company desires to establish its right to the services of Employee in
the capacities described below, on the terms and conditions hereinafter set
forth, and Employee is willing to accept such employment on such terms and
conditions.
Therefore, in consideration of the mutual agreements hereinafter set forth,
Employee and the Company have agreed and do hereby agree as follows:
AGREEMENT
---------
1. DUTIES. The Company does hereby hire, engage, and employ the Employee
------
as the Senior Vice President of Real Estate of the Company and Employee does
hereby accept and agree to such hiring, engagement, and employment. Employee
shall serve the Company in such position fully, diligently, competently, and in
conformity with provisions of this Agreement and the corporate policies of the
Company as they presently exist, and as such policies may be amended, modified,
changed, or adopted during the Period of Employment, as hereinafter defined.
During the Period of Employment Employee shall also serve as the Senior
Vice President of Real Estate of each subsidiary or affiliate of the Company
that is now or that becomes a part of the Mrs. Fields Company Group. As used in
this Agreement, the term the "Mrs. Fields Company Group" shall mean and refer to
the Company and the Company's subsidiaries and affiliates from time to time.
Subject to specific elaboration by the Board of Directors of the Company as
to the duties (which shall be consistent herewith and with Employee offices
provided for hereunder) that are to be performed by Employee and the manner in
which such duties are to be performed, the duties of Employee shall entail those
duties customarily performed by a Senior Vice President of Real Estate of a
company with a sales volume and the number of employees commensurate with those
of the Company. Provided, however, that at all times during the Period of
Employment, Employee shall perform those duties and fulfill those
responsibilities and refrain from those activities that are reasonably
prescribed or proscribed by the Board of Directors of the Company to be
performed or refrained from by his consistent with his positions with the
Company.
Employee shall be responsible and report only to the Company's President
and Chief Executive Officer.
<PAGE>
Throughout the Period of Employment, Employee shall devote his full time,
energy, and skill to the performance of his duties for the Company and for the
benefit of the Company and the Mrs. Fields Company Group. The foregoing
notwithstanding, Employee shall be permitted to (i) engage in charitable and
community affairs, (ii) act as a director of any corporations or organizations
outside the Mrs. Fields Company Group not in competition with the Company or any
member of the Mrs. Fields Company Group and to manage such investments, not to
exceed three (3) in number, and receive compensation therefore, and (iii) to
make investments of any character in any business or businesses not in
competition with the Company or any member of the Mrs. Fields Company Group and
to manage such investments (but not be involved in the day to day operations of
any such business), provided, in each case and collectively, that the same does
or do not constitute or involve Employee in a conflict of interest vis-(-vis the
Company or any member of the Mrs. Fields Company Group or interfere with the
performance of Employee's duties under this Agreement.
Employee shall exercise due diligence and care in the performance of his
duties for and the fulfillment of his obligations to the Company under this
Agreement.
The Company shall furnish Employee with office, secretarial and other
facilities and services as are reasonably necessary or appropriate for the
performance of Employee's duties hereunder and consistent with his position as
the Senior Vice President of Real Estate of the Company.
2. PERIOD OF EMPLOYMENT. The Period of Employment (as defined below)
--------------------
shall, unless sooner terminated as provided herein, be the two (2) year period
commencing on the date of execution of this Agreement.
Unless the Company gives notice of termination as provided under this
Agreement, this Agreement will automatically renew on each annual anniversary
from the execution of this Agreement for a successive two-year period.
3. COMPENSATION.
------------
(a) BASE SALARY. During the Period of Employment, the Company shall
-----------
pay Employee, and Employee agrees to accept from the Company, in payment for his
services a base salary of One Hundred Seventy-Five Thousand Dollars
($175,000.00) per year ("Base Salary"), payable in equal semi-monthly
installments or at such other time or times as Employee and the Company shall
agree. Upward adjustment to the Base Salary shall be considered by the Company's
Board of Directors not less frequently than annually. The Company's Board of
Directors at any time or times may, but shall have no obligation to, supplement
Employee's salary by such bonuses and/or other special payments and benefits as
the Board of Directors of the Company in its sole and absolute discretion may
determine.
(b) INCENTIVE COMPENSATION. During the Period of Employment, Employee
----------------------
shall:
(i) participate in any incentive compensation plan adopted by
the Company; or
2
<PAGE>
(ii) if the Company, for any reason, shall not adopt and
implement an incentive compensation plan in replacement of the 1997 Incentive
Plan for eligible employees of the Company (including Employee), Company and
Employee agree that this Agreement shall provide Employee with the opportunity
to earn and be paid incentive compensation to the same extent that he was
eligible to earn and be paid incentive compensation under the incentive
compensation plan under which, pursuant to the provisions of this Section 3(b),
Employee was most recently eligible to earn and be paid incentive compensation
by the Company.
4. FRINGE BENEFITS. During the Period of Employment, Employee shall be
---------------
entitled to the following fringe benefits.
(a) BENEFIT PLANS. Employee shall be entitled to participate in all
-------------
benefit plans and programs generally available to all other senior management
employees of the Company or to all employees of the Company working in Salt Lake
City, Utah, subject to any restrictions specified in such plans and to receive
such other benefits and conditions of employment as are provided to all other
senior officers or executives of the Company as of the date of this Agreement.
(b) EQUITY PLAN. Employee shall be entitled to participate in an
-----------
equity based plan or arrangement which shall consist of a minimum of .75% of the
total equity of the Company (the "Equity Plan") consistent with the letter from
Herbert S. Winokur, Jr. to Lawrence Hodges, dated August 5, 1996. In the event
that (i) the Company fails to adopt the Equity Plan, Employee may terminate this
Agreement and his employment hereunder with Good Reason, as hereinafter defined,
in accordance with the provisions of Section 9(b) ("Termination by Employee-
Termination-With Good Reason"). Employee's right to terminate this Agreement and
his employment hereunder with Good Reason in accordance with said Section 9(b)
shall be Employee's sole and exclusive remedy for or resulting from the failure,
for any reason, of the Company or its Board of Directors to create or implement
the Equity Plan or to take any other action specified in this Section 4(b).
Anything in this Agreement or in such plan or arrangement to the contrary
notwithstanding, the inclusion in such plan or arrangement of any provision(s)
addressing participation by Employee in such plan or arrangement for a period of
years shall not be interpreted as a promise of continued employment by the
Company for such period of years or any other period of time.
The plan or arrangement to be proposed by Employee shall provide that any
payments made thereunder, in conjunction with any other payments that constitute
"parachute payments" (as defined in Section 280G(b)(A) of the Internal Revenue
Code) (the "Code"), shall be limited such that no such payments or portions
thereof constitute an "excess parachute payment" (as defined in Section
280G(b)(1) of the Code) or are otherwise nondeductible by the Company for tax
purposes under any other provision of the Code.
(c) VACATION AND OTHER LEAVE. Employee shall be entitled to such
------------------------
amounts of paid vacation and other leave, but not less than three (3) weeks
vacation per twelve-month period of employment, as from time to time may be
allowed to the Company's senior management personnel generally, with such
vacation to be scheduled and taken in accordance with the Company's standard
vacation policies applicable to such personnel.
3
<PAGE>
(d) VESTING ON DEATH OR DISABILITY. Upon any termination of this
------------------------------
Agreement and Employee's employment hereunder by reason of Employee's death or
Permanent Disability, as defined in Section 7(b) ("Death or Disability -
Definition of Permanently Disabled and Permanent Disability"), provided that the
terms and provisions of such plan and applicable law permit, any theretofore
deferred or unvested portion of any award made to Employee in respect of any
retirement, pension, profit sharing, long term incentive, and similar plans
automatically shall become fully vested in Employee and shall be nonforfeitable,
and shall continue in effect and be redeemable by or payable to Employee (or his
designated beneficiary or estate) at the time and on the same conditions as
would have applied had Employee's employment not been so terminated. It is
expressly provided, however, that nothing in this Section 4(d) shall obligate
the Company to provide full vesting upon death or disability in connection with
participation by Employee in the equity plan or arrangement contemplated under
Section 4(b) ("Fringe Benefits-Equity Plan"), further, the provisions governing
payment of any incentive compensation payable to Employee pursuant to the
incentive compensation plan(s) referred to in Section 3(b) ("Compensation-
Incentive Compensation") shall govern any payment of incentive compensation due
thereunder in the event of Employee's death or disability.
5. BUSINESS EXPENSES AND AUTOMOBILE ALLOWANCE. During the Period of
------------------------------------------
Employment, the Company shall pay, or in case paid by Employee in the first
instance, reimburse Employee for, any and all necessary, customary, and usual
expenses incurred by him in connection with the performance of his duties
hereunder, including, without limitation, all traveling expenses, and
entertainment expenses, upon submission of appropriate vouchers and
documentation.
To the extent provided to all other senior officers or executives of the
Company, during the Period of Employment, Employee shall be entitled to receive
an automobile allowance and reimbursement for expenses associated with the
operation and maintenance of an automobile which is comparable to Employee's
current automobile. The Company will reimburse Employee upon presentation of
vouchers and documentation for any such operational and maintenance expenses
which are consistent with the usual accounting procedures of the Company.
6. NO OTHER BENEFITS OR COMPENSATION. Employee, as a result of his
---------------------------------
employment by the Company, shall be entitled to only the compensation and
benefits provided for in this Agreement, subject to the terms thereof, and no
others.
7. DEATH OR DISABILITY.
-------------------
(a) TERMINATION OF EMPLOYMENT. If Employee dies during the
-------------------------
Period of Employment, Employee's employment shall automatically cease and
terminate as of the date of Employee's death.
If Employee becomes Permanently Disabled (as hereinafter defined) while
employed by the Company, (i) Employee's employment and the Company's obligations
hereunder, including the payment of Base Salary pursuant to Section 3(a)
("Compensation-Base Salary") shall continue for a period of ninety (90) days
from the date on which the Employee is determined to be Permanently Disabled
("Employee s Disability Date"), and (ii) ninety (90) days after the Employee's
Disability Date, Employee's employment and all obligations of the Company
hereunder shall automatically cease and terminate.
4
<PAGE>
In the case of Employee's death or Permanent Disability (as hereinafter
defined), the Company shall be obligated to pay to Employee (or to Employee s
estate in the case of Employee's death) any Base Salary and any incentive
compensation accrued to Employee as of the date of the Employee's death, or in
the case of Employee's Permanent Disability, as of the Employee's Disability
Date. In the event Employee's employment is terminated on account of Employee's
Permanent Disability, he shall, so long as his Permanent Disability continues,
remain eligible for all benefits provided under any long-term disability
programs of the Company in effect at the time of such termination, subject to
the terms and conditions of any such programs, as the same may be changed,
modified, or terminated for or with respect to all senior management personnel
of the Company.
(b) DEFINITION OF PERMANENTLY DISABLED AND PERMANENT DISABILITY.
-----------------------------------------------------------
For purposes of this Agreement (other than Sections 4 (a) ("Fringe Benefits-
Benefit Plans"), 4 (d) ("Fringe Benefits-Vesting on Death or Disability"), and
the provisions relating to disability insurance contained in the last sentence
of Section 7(a) ("Death or Disability-Termination of Employment"), the terms
"Permanently Disabled" and "Permanent Disability" shall mean Employee's
inability, because of physical or mental illness or injury, to perform
substantially all of his customary duties pursuant to this Agreement, and the
continuation of such disabled condition for a period of ninety (90) continuous
days, or for not less than one hundred eighty (180) days during any continuous
twenty-four (24) month period. Whether Employee is Permanently Disabled shall be
certified to the Company by a Qualified Physician (as hereinafter defined), or
if requested by Employee a panel of three Qualified Physicians. If Employee
requests such a panel, Employee and the Company shall each select a Qualified
Physician who together shall then select a third Qualified Physician. The
determination of the individual Qualified Physician or the panel, as the case
may be, shall be binding and conclusive for all purposes. As used herein, the
term "Qualified Physician" shall mean any medical doctor who is licensed to
practice medicine in the State of Utah and is reasonably acceptable to each of
Employee and the Company. Employee and the Company may in any instance, and in
lieu of a determination by a Qualified Physician or panel of Qualified
Physicians, agree between themselves that Employee is Permanently Disabled. The
terms Permanent Disability and Permanently Disabled as used herein may have
meanings different from those used in any disability insurance policy or program
maintained by Employee or the Company.
8. TERMINATION BY THE COMPANY.
--------------------------
(a) TERMINATION FOR CAUSE. The Company, by action of its Board
---------------------
of Directors, may, by providing written notice to Employee, terminate the
employment of Employee under this Agreement for "cause" at any time. The term
"cause" for purpose of this Agreement shall mean:
(i) The refusal of Employee to implement or adhere to
lawful policies or directives of the Board of Directors of the Company
consistent with this Agreement; or
(ii) Employee's conviction of or entrance of a plea of nolo
contendere to (A) a felony, (B) to any other crime, which other crime is
punishable by incarceration for a period of one (1) year or longer, or (C) other
conduct of a criminal nature that may have an adverse impact on the Company s
reputation and standing in the community; or
5
<PAGE>
(iii) conduct that is in violation of Employee's common law
duty of loyalty to the Company; or
(iv) fraudulent conduct by Employee in connection with the
business affairs of the Company, regardless of whether said conduct is designed
to defraud the Company or others; or
(v) theft, embezzlement, or other criminal
misappropriation of funds by Employee, whether from the Company or any other
person; or
(vi) any breach of or Employee's failure to fulfill any of
Employee's obligations, covenants, agreements, or duties under this Agreement.
Provided, however, that "cause" pursuant to clause (i) or (vi) shall not be
deemed to exist unless the Company has given Employee written notice thereof
specifying in reasonable detail the facts and circumstances alleged to
constitute "cause", and thirty (30) days after such notice such conduct or
circumstances has not entirely ceased or been entirely remedied. If Employee's
employment is terminated for "cause," the termination shall take effect upon the
effective date (pursuant to Section 24 ("Notices")) of written notice of such
termination to Employee. In the event Employee's employment is terminated for
"cause," then except for unpaid accrued vacation, the Company shall have no
obligation to pay Employee any amounts, including, but not limited to Base
Salary, for or with respect to any period after the effective date of the
termination of Employee's employment for "cause," including any obligation under
the replacement to the 1994 Incentive Plan or the Equity Plan.
If the Company attempts to terminate Employee's employment pursuant to this
Section 8(a) and it is ultimately determined that the Company lacked "cause,"
the provisions of Section 8(b) ("Termination by the Company-Termination Without
Cause") shall apply, and Employee's sole and exclusive remedy for such breach of
this Agreement by the Company and/or any other damages that Employee shall have
suffered or incurred of any nature whatsoever, shall be to receive the payments
expressly called for by Section 8(b) ("Termination by the Company-Termination
Without Cause") with interest on any past due payments at the rate of eight
percent (8%) per year from the date on which the applicable payment would have
been made pursuant to Section 8(b) ("Termination by the Company-Termination
Without Cause") plus Employee's costs and expenses (including but not limited to
reasonable attorneys' fees) incurred in connection with such dispute.
(b) TERMINATION WITHOUT CAUSE. The Company may, with or without
-------------------------
reason, terminate Employee's employment under this Agreement without "cause" at
any time, by providing Employee thirty (30) days prior written notice of such
termination. If Employee's employment is terminated pursuant to this Section
8(b), Employee shall not be obligated to render services to the Company
following the effective date of such notice (the "Notice Date") except such
services as are requested by the Company pursuant to Section 11 ("Transition
Period Services"), and as its sole and exclusive obligation and duty to Employee
resulting directly or indirectly from the termination of Employee's employment
with the Company and in full and complete settlement of any and all claims that
Employee may have or claim to have arising directly or indirectly out of the
termination of his employment with the Company, the Company shall, subject to
Section 12 ("Non Competition") pay Employee, as severance pay, an amount (the
"Severance Amount") equal to the product of multiplying the then current semi-
monthly base salary
6
<PAGE>
by thirty-six (36) semi-monthly periods (the "Severance Period"). The Severance
Amount shall be payable by the Company to Employee in an amount equal to the
Base Salary payable in twelve (12) equally monthly installments commencing on
the Notice Date. The Company shall also pay to the Employee a portion of any
discretionary bonus (the "Bonus Portion"), as determined by the Company's Board
of Directors, referred to in Section 3(a) ("Compensation-Base Salary"), that,
but for the termination of Employee's employment, would have been paid to
Employee for or with respect to the calendar year in which Employee's employment
is terminated. The Bonus Portion shall consist of that percentage of the said
discretionary bonus determined by dividing the number of full or partial
calendar months during the calendar year in which Employee's employment is
terminated that Employee was in the employ of the Company by twelve (12). Until
the end of the Severance Period or until Employee is gainfully employed by
another employer, which ever time period is less, the Company shall allow
Employee to continue participation in the Company s group health insurance plan
at the Company's expense. In accordance with all applicable laws, Employee shall
be extended all COBRA rights and benefits at the end of the Severance Period.
9. TERMINATION BY EMPLOYEE.
-----------------------
(a) TERMINATION-WITHOUT GOOD REASON. Employee shall have the right to
-------------------------------
terminate this Agreement and his employment hereunder at any time upon thirty
(30) days prior written notice of such termination to the Company. Except as
expressly set forth in Section 11 ("Transition Period Services"), upon the
effective date of any such termination all obligations and rights of Employee
and the Company hereunder shall terminate and cease.
(b) TERMINATION-WITH GOOD REASON. If the Company:
----------------------------
(i) requires Employee to relocate his home, without Employee's
consent, to a location which is more than 75 miles from 462 West Bearcat Drive,
Salt Lake City, Utah 84115; or
(ii) fails to provide Employee with the compensation and
benefits called for by this Agreement; or
(iii) assigns Employee to a lower organizational level than the
level at which he is on the date of this Agreement assigned, or substantially
diminishes Employee's assignment, duties, responsibilities, or operating
authority from those specified in Section 1 ("Duties"); or
(iv) fails to implement an incentive compensation plan required
by Section 3(b) ("Compensation-Incentive Compensation"); or
(v) fails to implement an equity plan or arrangement required
by Section 4(b) ("Fringe Benefits-Equity Plan"); or
(vi) is divested, by sale, closure, liquidation, foreclosure, or
other means, of any substantial part of its assets or business as now held or
conducted; or
7
<PAGE>
(vii) breaches this Agreement and such breach continues for a
period of thirty (30) days after written notice thereof given by Employee to the
Company, then any one or more of such circumstances shall constitute "Good
Reason", and, subject to the provisions of Section 10 ("Means and Effect of
Termination"), Employee shall have the right to terminate this Agreement and his
employment hereunder for Good Reason, if, thirty (30) days after the effective
date of Employee's notice to the Company of such circumstances constituting Good
Reason, such circumstances continue to exist, and for all purposes of this
Agreement any such termination of this Agreement by Employee shall have the same
effects under this Agreement as the termination of the Employee's employment
under this Agreement by Company without "cause."
10. MEANS AND EFFECT OF TERMINATION. Any termination of Employee's
-------------------------------
employment under this Agreement shall be communicated by written notice of
termination from the terminating party to the other party. The notice of
termination shall indicate the specific provision(s) of this Agreement relied
upon in effecting the termination and shall set forth in reasonable detail the
facts and circumstances alleged to provide a basis for termination, if any such
basis is required by the applicable provision(s) of this Agreement. Any notice
of termination by the Company shall be approved by a resolution duly adopted by
a majority of the directors of the Company then in office. The burden of
establishing the existence of "cause" or Good Reason shall be upon the
terminating party. If Employee's employment is terminated by either party, then
promptly after the effective date of such termination or in the manner and at
the time or times provided in the relevant Section of this Agreement, the
Company promptly shall provide and pay to Employee, or in case of his death his
estate or heirs, all compensation, benefits, and reimbursements due or payable
to Employee for the period to the effective date of the termination. To the
extent permitted by applicable law, the calendar month in which Employee's
employment is terminated shall be counted as a full month in determining amount
and vesting of any benefits under benefit plans of the Company.
11. TRANSITION PERIOD SERVICES. In the event Employee's employment is
--------------------------
terminated by the Company pursuant to section 8(b) ("Termination by the Company-
Termination Without Cause") or by Employee pursuant to Section 9(a)
("Termination by Employee-Without Good Reason"), if requested by the Company in
writing, Employee shall render such services, on a part-time basis for a period
not to exceed sixty (60) days after the effective date of the notice of
termination (whether given by the Company or by Employee), as the Company's
Board of Directors reasonably requests for transition purposes. Employee shall
receive no compensation for such services, other than the payment of Base Salary
as provided in Section 8(b) ("Termination by the Company-Termination Without
Cause") and reimbursement for expenses incurred by Employee in providing such
services as provided in, and subject to the provisions of, Section 5 ("Business
Expenses and Automobile Allowance").
12. NON COMPETITION. For a period of one year from the date of the
---------------
termination of Employee's employment hereunder, Employee shall not become an
employee, owner (except for passive investments of not more than three percent
(3%) of the outing shares of, or any other equity interest in, any company or
entity listed or traded on a national securities exchange or in an
8
<PAGE>
over-the-counter securities market), officer, agent or director of any firm or
person which either directly competes with a line or lines of business (which
shall be defined as cookies or pretzels only) of the Company accounting for ten
percent (10%) or more of the Company's gross sales, revenues or earnings before
taxes. If, in any judicial proceeding, a court shall refuse to enforce all of
the separate covenants deemed included in this paragraph, the parties intend
that those of such covenants which, if eliminated, would permit the remaining
separate covenants to be enforced in such proceedings shall, for the purpose of
such proceedings, be deemed eliminated from the provisions of this Section 12.
In addition to any other remedies that may otherwise be available for a
breach of Section 12 hereof by Employee, Employee agrees that in the event of
such breach he shall irrevocably forfeit any right he may have to any remaining
severance payment to be made under Section 8(b) ("Termination by the Company-
Termination Without Cause") subsequent to such breach.
13. ASSIGNMENT. This Agreement is personal in its nature and neither of
----------
the parties hereto shall, without the consent of the other, assign or transfer
this Agreement or any rights or obligations hereunder; provided, however, that,
in the event of the merger, consolidation, or transfer or sale of all or
substantially all of the assets of the Company with or to any other individual
or entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all the promises, covenants, duties, and obligations of
the Company hereunder.
14. GOVERNING LAW. This Agreement and the legal relations hereby created
-------------
between the parties hereto shall be governed by and construed under and in
accordance with the internal laws of the State of Utah, which internal laws
exclude any law or rule of the State of Utah, or any interpretation thereof,
that would require or call for the application of the laws of any other state or
jurisdiction hereto.
15. ENTIRE AGREEMENT. Except with respect to final agreement regarding
----------------
those open incentive compensation matters described in Section 3(b)
("Compensation-Incentive Compensation") and the equity plan or arrangement
contemplated under Section 4(b) ("Fringe Benefits-Equity Plan"), this Agreement
embodies the entire agreement of the parties hereto respecting the matters
within its scope. This Agreement supersedes all prior agreements of the parties
hereto on the subject matter hereof. Any prior negotiations, correspondence,
agreements, proposals, or understandings relating to the subject matter hereof
shall he deemed to be merged into this Agreement and to the extent inconsistent
herewith, such negotiations, correspondence, agreements, proposals, or
understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as set forth
herein.
This Agreement shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and be signed by
the parties hereto. The provisions of this and the immediately preceding
sentence themselves may not be modified, either orally or by conduct, either
express or implied, and it is the declared intention of the parties hereto that
no
9
<PAGE>
provision of this Agreement, including said two sentences, shall be modifiable
in any way or manner whatsoever other than through a written document signed by
the parties hereto.
16. WAIVER. Failure to insist upon strict compliance with any of the
------
terms, covenants, or conditions hereof shall not be deemed a waiver of such
term, covenant, or condition, nor shall any waiver or relinquishment of, or
failure to insist upon strict compliance with, any right or power hereunder at
any one or more times be deemed a waiver or relinquishment of such right or
power at any other time or times.
17. NUMBER AND GENDER. Where the context requires, the singular shall
-----------------
include the plural, the plural shall include the singular, and any gender shall
include all other genders.
18. SECTION HEADINGS. The section headings in this Agreement are for the
----------------
purpose of convenience only and shall not limit or otherwise affect any of the
terms hereof.
19. DISPUTE RESOLUTION.
------------------
(a) NEGOTIATION AND MEDIATION. In the event any dispute arises
-------------------------
hereunder, the parties shall first attempt to resolve the dispute by negotiation
in good faith. If the dispute cannot be timely resolved through negotiation, the
parties will, before resorting to any of their remedies at law or in equity, try
to settle the dispute in good faith by mediation in Salt Lake City, Utah or such
other location as the parties may agree, under the then operative mediation
rules of the American Arbitration Association or such other mediation tribunal
or private mediator or medication services provider as the parties agree. The
mediator shall be such person as the parties mutually agree, but if the parties
have failed to agree on a mediator within seven (7) days after the date on which
any party demands that the parties proceed to mediation, the mediator shall be
selected by the American Arbitration Association or such other mediation
services provider as the parties agree.
(b) OTHER REMEDIES. Failing settlement of the dispute by negotiation
--------------
or mediation, the parties shall, unless they mutually agree to resolve the
dispute finally by arbitration, be entitled to pursue their legal and equitable
remedies (subject to the provisions of Section 20 ("Liquidated Damages-Breach by
the Company") in any court having jurisdiction.
20. LIQUIDATED DAMAGES-BREACH BY THE COMPANY. Because the damages
----------------------------------------
suffered by Employee in such an event would be difficult or impossible to
estimate, establish, ascertain, or prove, and in order to provide Employee with
a remedy in such an event without the necessity and associated cost of Employee
having to establish or prove the damages suffered by Employee as a result
thereof (which remedy the parties hereto have and do agree would be appropriate
and adequate compensation to Employee in such event), in the event that this
Agreement and Employee's employment hereunder shall be terminated (whether by
the Company or Employee) and thereafter Employee shall prevail in any dispute
between Employee and the Company relative to, involving, or concerning the
legality of or justification for the termination of this Agreement and
Employee's employment hereunder and any other issues or matters directly or
indirectly arising out of or in connection with such termination and Employee's
employment by the Company, subject to Section 12 ("Non Competition") Employee
shall be entitled to the continued payment of the Base Salary as provided in
Section 8(b) ("Termination by the Company-Termination Without Cause") as
liquidated and exclusive damages and not as a penalty, and in such case this
10
<PAGE>
Agreement and Employee's employment hereunder, shall for all purposes be treated
as having been terminated by the Company without "cause" pursuant to Section
8(b) ("Termination by the Company-Termination Without Cause").
In the event Employee files any claim, complaint, charge, action, or
lawsuit against the Company or its employees, agents, officers, directors, or
any other person affiliated or associated with the Company, with any
governmental agency, any state or federal court, or any mediation or arbitration
body or group, for or with respect to a matter, claim, or incident, known or
unknown, which has occurred or arisen or which shall hereafter occur or arise
relative to, involving, or concerning the termination of this Agreement and
Employee's employment hereunder (whether as a result of action of Employee or
the Company) and any other issues or matters directly or indirectly arising out
of or in connection with such termination and Employee's employment by the
Company, and in such claim, complaint, action, charge, or lawsuit, Employee
alleges or asserts the right to recover, receive, or be awarded damages from the
Company or its employees, agents, officers, directors, or any other person
affiliated or associated with the Company in addition to or in lieu of the
liquidated damages expressly provided for in this Section 20, Employee hereby
stipulates, agrees, and consents to the dismissal or withdrawal, with prejudice,
of any such claim, complaint, action, charge, or lawsuit (collectively, a
"Dismissable Claim"). In the event that Employee files any Dismissable Claim,
Employee shall be liable to the party or parties against whom the Dismissable
Claim is filed (the "Nonfiling Party") and shall indemnify and save the
Nonfiling Party harmless from all costs and expenses, including, but not limited
to, attorneys fees, incurred by the Nonfiling Party and/or the Nonfiling Party s
officers, agents, employees, directors, and/or any other person affiliated or
associated with the Nonfiling Party, if any, in defending or responding to any
such Dismissable Claim, regardless of whether such defense or response is before
a state or federal court or administrative agency or a mediation or arbitration
body and regardless of who might ultimately be deemed to be the prevailing party
as to any such Dismissable Claim.
21. ATTORNEY'S FEES. Employee and the Company agree that in any dispute
---------------
resolution proceedings arising out of this Agreement, the prevailing party shall
be entitled to its or his reasonable attorney's fees and costs incurred by it or
his in connection with resolution of the dispute in addition to any other relief
granted.
22. INDEMNIFICATION. If Employee is made a party to, is threatened to be
---------------
made a party to, or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding") by
reason of the fact that he is or was a director, officer, or employee of the
Company or is or was serving at the request of the Company as a director,
officer, employee, or agent of another corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to employee
benefit plans, whether before, during or after expiration or termination of this
Agreement, the Company shall indemnify and hold Employee harmless to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Company to provide broader
indemnification rights than such law permitted the Company to provide prior to
such amendment), against all expense, liability, and loss (including attorneys
fees, judgment fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by Employee in connection therewith,
and such indemnification shall continue after Employee ceases to be a director,
officer, employee, or agent of the Company and shall inure to the benefit of
Employee's heirs, executors, and administrators. The right to indemnification
conferred hereby shall include the right to be paid by the Company the
11
<PAGE>
reasonable expenses incurred in defending any Proceeding in advance of its final
disposition as such expenses are incurred. The indemnification provided herein
shall not be deemed exclusive of any other rights to which Employee may be
entitled under the Certificate of Incorporation, Bylaws, any agreement, or vote
of stockholders or disinterested directors of the Company, or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office or position, and shall continue with respect to action in
such capacities even if Employee has thereafter ceased to be a director,
officer, employee, or agent of the Company, and shall inure to the benefit of
Employee's heirs, executors and administrators. Except in the case of
fraudulent conduct or theft, embezzlement, or other criminal misappropriation of
funds by Employee, then nothing in this Agreement waives the Company's
obligations under this paragraph, even if Employee is terminated.
23. SEVERABILITY. In the event that a court of competent jurisdiction
------------
determines that any portion of this Agreement is in violation of any statute or
public policy, then only the portions of this Agreement which violate such
statute or public policy shall be stricken, All portions of this Agreement which
do not violate any statute or public policy shall continue in full force and
effect. Furthermore, any court order striking any portion of this Agreement
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Agreement.
24. NOTICES. All notices under this Agreement shall be in writing and
-------
shall be either personally delivered or mailed postage prepaid, by certified
mail, return receipt requested, (a) if to the Company, to it at 462 West Bearcat
Drive, Salt Lake City, Utah 84115 Attention: President or (b) if to Employee to
him at 462 West Bearcat Drive, Salt Lake City, Utah 84115 by the same means, or
in either party's case to such other address or to the attention of such person
as the party has specified by prior written notice to the other party. Notice
shall be effective when personally delivered, or five (5) business days after
being so mailed.
25. COUNTERPARTS. This Agreement may be executed in counterparts
------------
collectively containing the signatures of each of the parties.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and Employee has hereunto signed this Agreement, on
the date first written above.
MRS. FIELDS' ORIGINAL COOKIES, INC.,
a Delaware Corporation (the "Company")
By:___________________________________
Its:__________________________________
______________________________________
GARRY REMINGTON ("Employee")
12
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC.
DIRECTOR STOCK OPTION PLAN
1 Purpose.
-------
The purpose of the MRS. FIELDS' HOLDING COMPANY, INC. Director Stock
Option Plan (the "Plan") is to align the interests of outside directors of MRS.
FIELDS' HOLDING COMPANY, INC., a Delaware corporation (the "Company"), and its
subsidiaries, with those of the stockholders of the Company; and to attract,
motivate and retain as directors the best available individuals.
2 Definitions.
-----------
The following terms, as used herein, shall have the following
meanings:
(a) "Award" shall mean any Option granted pursuant to the Plan.
(b) "Award Agreement" shall mean any written agreement, contract or other
instrument or document between the Company and a Participant
evidencing an Award.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Capricorn" shall mean Capricorn Investors II,L.P. together with any
affiliated persons.
(e) "Change of Control" shall mean the earliest to occur of (i) a
transaction in which Capricorn's equity investment in the Company is
reduced(including through the operation of a merger in which the
Company is not the surviving corporation and the Common Stock is
converted into the right to receive cash or other property) such that
Capricorn is no longer the largest equity investor in the Company or
(ii) a sale by the Company or MFOC of all or substantially all of its
assets.
<PAGE>
(f) "Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(h) "Committee" shall mean a committee of the Board which administers the
Plan as provided herein.
(i) "Company" shall mean MRS. FIELDS' HOLDING COMPANY, INC.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(k) "Initial Public Offering" shall mean a public offering of Common Stock
pursuant to a registration statement under the Securities Act.
(l) "MFOC" shall mean Mrs. Fields' Original Cookies, Inc., the Company's
subsidiary.
(m) "Option" shall mean the right, granted pursuant to the Plan, of a
holder to purchase shares of Common Stock. Options granted hereunder
shall not qualify as "incentive stock options" within the meaning of
Section 422 of the Code.
(n) "Participant" shall mean a director of the Company who is, pursuant to
Section 4 of the Plan, selected to participate in the Plan.
(o) "Plan" shall have the meaning set forth in Section 1 hereof.
(p) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(q) "Time Vested Option" shall mean an Option that will vest 25% per year
on the anniversaries of the date as of which it was awarded and will
vest in full upon the occurrence of a Change of Control.
3 Administration.
--------------
<PAGE>
The Plan shall be administered by the Committee. The Committee shall
have the authority, in its sole discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in connection with the administration of the Plan,
including, without limitation, the authority to take the following actions: to
grant Awards; to determine the persons to whom and the time or times at which
Awards shall be granted; to determine the type and number of Awards to be
granted, the number of shares of Common Stock to which an Award may relate and
the terms, conditions, restrictions and performance criteria relating to any
Award; to determine whether, to what extent, and under what circumstances an
Award may be settled, cancelled, adjusted, forfeited, exchanged, or surrendered
or accelerated or an Option or Options may be repriced to a lower exercise
price; to make adjustments to performance goals in recognition of unusual or
non-recurring events affecting the Company or its financial statements, or in
response to changes in applicable laws, regulations or accounting principles; to
construe and interpret the Plan and any Award; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of Award Agreements, consistent with the terms and provisions of the
Plan; and to make all other determinations deemed necessary or advisable for the
administration of the Plan, consistent with the terms and provisions of the
Plan. From and after the Initial Public Offering, the Committee shall consist of
two or more persons who are intended to be "disinterested persons" within the
meaning of Rule 16b-3 under the Exchange Act.
4 Eligibility.
-----------
Awards may be granted to officers or other employees of the Company
and its subsidiaries in the sole discretion of the Committee. In determining
the persons to whom Awards shall be granted and the type of Award, the Committee
shall take into account such factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the Plan.
5 Stock Subject to the Plan.
-------------------------
(a) Number of Shares. The maximum number of shares of Common Stock
----------------
reserved for issuance pursuant to the Plan shall be 50,000. All such shares of
Common Stock shall be subject to equitable adjustment as provided herein. Such
shares may, in whole or in part, be authorized but unissued shares or shares
that shall have been or may be reacquired by the Company in the open market, in
private trans-
3
<PAGE>
actions or otherwise. If any shares subject to an Award are forfeited,
cancelled, exchanged or surrendered or if an Award otherwise terminates or
expires without a distribution of shares to the Participant, the shares of
Common Stock with respect to such Award shall, to the extent of any such
forfeiture, cancellation, exchange, surrender, termination or expiration, again
be available for Awards under the Plan.
(b) Equitable Adjustment. In the event that an extraordinary
--------------------
transaction or other event or circumstance affecting the Common Stock shall
occur, including, but not limited to, any dividend or other distribution
(whether in the form of cash, stock or other property), recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, sale of assets or other similar
transaction or event, and the Committee determines that a change or adjustment
in the terms of any Award is appropriate, then the Committee may, in its sole
discretion, make such equitable changes or adjustments or take any other actions
that it deems necessary or appropriate (which shall be effective at such time as
the Committee in its sole discretion determines), including, but not limited to
causing changes or adjustments to any or all of (i) the number and kind of
shares of stock or other securities or property which may thereafter be issued
in connection with Awards, (ii) the number and kind of shares of stock or other
securities or property issued or issuable in respect of outstanding Awards,
(iii) the exercise price relating to any Award, and (iv) any performance
criteria relating to any Award.
6 Stock Options.
-------------
Each Option granted pursuant to this Section 6 shall be evidenced by
an Award Agreement, in such form and containing such terms and conditions as the
Committee shall from time to time approve, which Award Agreement shall comply
with and be subject to the following terms and conditions, as applicable. Each
Option shall be a Time-Vested Option.
(a) Stock Options
-------------
(1) Number of Shares. Each Award Agreement shall state the
----------------
number of shares of Common Stock to which the Option relates.
(2) Option Exercise Price. Each Award Agreement shall state the
---------------------
Option exercise price. The Option exercise price shall be subject to adjustment
as provided in Section 5 hereof. Unless otherwise expressly stated in the
4
<PAGE>
Committee resolution expressly granting an Option, the date as of which the
Committee adopts the resolution expressly granting an Option shall be considered
the day on which such Option is granted.
(3) Method and Time of Payment. The Option exercise price shall
--------------------------
be paid in full, at the time of exercise, in cash, in shares of Common Stock
having a fair market value (determined by the Committee) equal to such Option
exercise price, in a combination of cash and Common Stock (or other
consideration deemed acceptable by the Committee) or, in the sole discretion of
the Committee, through a cashless exercise procedure.
(4) Term and Exercisability of Options. Each Award Agreement
----------------------------------
shall provide that each Option shall become exercisable in accordance with its
characterization as a Time-Vested Option ; provided, that the Committee shall
--------
have the authority to accelerate the exercisability of any outstanding Option at
such time and under such circumstances as it, in its sole discretion, deems
appropriate. The exercise period shall be not more than ten (10) years from the
date of the grant of the Option, or such shorter period as is determined by the
Committee. The exercise period shall be subject to earlier termination as
provided in Section 6(a)(5) hereof. An Option may be exercised, as to any or all
full shares of Common Stock as to which the Option has become exercisable, by
written notice delivered in person or by mail to the Secretary of the Company,
specifying the number of shares of Common Stock with respect to which the Option
is being exercised, together with payment in full of the Option exercise price.
For purposes of the preceding sentence, the date of exercise will be deemed to
be the date upon which the Secretary of the Company receives both the
notification and such payment.
(5) Termination. If a Participant's status as a director of the
-----------
Company or a subsidiary terminates, the Committee will have the exclusive
authority to determine if and for how long, and under what conditions, such
Option may be exercised after such termination; provided, however, that the
-------- -------
Committee may not shorten any exercise period set forth in an Award Agreement,
and provided, further, that in no event will an Option continue to be
-------- -------
exercisable beyond the expiration date of such Option.
(6) Nontransferability of Common Stock. Each Award Agreement
----------------------------------
shall provide that prior to an Initial Public Offering, the Participant shall
execute a stockholders agreement prior to being granted any Option hereunder
with respect to the shares of Common Stock to which such Option relates, in such
form
5
<PAGE>
and containing such terms and conditions as the Committee shall from time to
time approve, including without limitation, any restrictions on the
transferability of such shares.
7 General Provisions.
------------------
(a) Compliance with Legal Requirements. The Plan and the granting and
----------------------------------
exercising of Awards, and the other obligations of the Company under the Plan
and any Award Agreement or other agreement shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
regulatory or governmental authority or agency as may be required. The Company,
in its discretion, may postpone the issuance or delivery of Common Stock under
any Award as the Company may consider appropriate and may require any
Participant to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Common Stock
in compliance with applicable laws, rules and regulations.
(b) Nontransferability. Awards shall not be transferable by a
------------------
Participant other than by will or the laws of descent and distribution or, if
then permitted by Rule 16b-3 under the Exchange Act, pursuant to a qualified
domestic relations order as defined under the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
shall be exercisable during the lifetime of a Participant only by such
Participant or his guardian or legal representative.
(c) No Right To Continued Service. Nothing in the Plan or in any
-----------------------------
Award granted or any Award Agreement or other agreement entered into pursuant
hereto shall confer upon any Participant the right to continue as a director of
the Company or any of its subsidiaries or to be entitled to any remuneration or
benefits not set forth in the Plan or such Award Agreement or other agreement or
to interfere with or limit in any way the right of the Company or its
shareholders to terminate such Participant's status as a director
(d) Withholding Taxes. Where a Participant or other person is
-----------------
entitled to receive shares of Common Stock pursuant to the exercise of an
Option, the Company shall have the right to require the Participant or such
other person to pay to the Company the amount of any taxes which the Company may
be required to withhold before delivery to such Participant or other person of a
certificate or certificates representing such shares.
6
<PAGE>
Unless otherwise prohibited by the Committee or by applicable law, a
Participant may satisfy any such withholding tax obligation by any of the
following methods, or by a combination of such methods: (a) tendering a cash
payment or (b) delivering to the Company previously acquired shares of Common
Stock (none of which shares may be subject to any claim, lien, security
interest, community property right or other right of spouses or present or
former family members, pledge, option, voting agreement or other restriction or
encumbrance of any nature whatsoever) having an aggregate fair market value,
determined by the Committee as of the date the withholding tax obligation
arises, equal to the amount of the total withholding tax obligation.
(e) Amendment and Termination of the Plan. The Board or the
-------------------------------------
Committee may at any time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part; provided that, no amendment which
-------- ----
requires stockholder approval under applicable law or in order for the Plan to
continue to comply with Rule 16b-3 under the Exchange Act shall be effective
unless the same shall be approved by the requisite vote of the stockholders of
the Company. Notwithstanding the foregoing, subject to the other provisions of
the Plan, no amendment shall affect adversely any of the rights of any
Participant, without such Participant's consent, under any Award theretofore
granted under the Plan. The power to grant Options under the Plan will
automatically terminate on September 18, 2006. If the Plan is terminated,
any unexercised Option shall continue to be exercisable in accordance with its
terms and the terms of the Plan in effect immediately prior to such termination.
(f) Participant Rights. No Participant shall have any claim to be
------------------
granted any Award under the Plan, and there is no obligation for uniformity of
treatment for Participants. Except as provided specifically herein, a
Participant or a transferee of an Award shall have no rights as a stockholder
with respect to any shares of stock covered by any Award until the date of the
issuance of a certificate to him for such shares.
(g) Unfunded Status of Awards. The Plan is intended to constitute an
-------------------------
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.
7
<PAGE>
(h) Fractional Shares. Fractional shares of Common Stock may be
-----------------
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards or other property shall be issued or paid
in lieu of such fractional shares.
(i) Governing Law. The Plan and all determinations made and actions
-------------
taken pursuant hereto shall be governed by the laws of the State of New York
without giving effect to the conflict of laws principles thereof.
(j) Effective Date. The Plan shall become effective on September 18,
--------------
1996.
(k) Beneficiary. A Participant may file with the Committee a written
-----------
designation of a beneficiary on such form as may be prescribed by the Committee
and may, from time to time, amend or revoke such designation. If no designated
beneficiary survives the Participant, the executor or administrator of the
Participant's estate shall be deemed to be the grantee's beneficiary.
(l) Interpretation. The Plan is designed and intended to comply with
--------------
Rule 16b-3 promulgated under the Exchange Act.
8
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC.
EMPLOYEE STOCK OPTION PLAN
1 Purpose.
-------
The purpose of the MRS. FIELDS' HOLDING COMPANY, INC. Employee Stock
Option Plan (the "Plan") is to align the interests of officers and other
employees of MRS. FIELDS' HOLDING COMPANY, INC., a Delaware corporation (the
"Company"), and its subsidiaries, with those of the stockholders of the Company;
to attract, motivate and retain the best available executive personnel and key
employees of the Company and its subsidiaries by permitting them to acquire or
increase their proprietary interest in the Company; and to reward the
performance of individual officers and other employees in fulfilling their
personal responsibilities for long-range achievements.
2 Definitions.
-----------
The following terms, as used herein, shall have the following
meanings:
(a) "Adjusted EBITDA" shall mean, for any fiscal year of MFOC, MFOC's
consolidated earnings before depreciation, amortization, interest,
income taxes and other income (expense) for such fiscal year after
making pro forma adjustment from the beginning of such fiscal year for
any acquisitions, divestitures or discontinued operations during such
fiscal year.
(b) "Award" shall mean any Option granted pursuant to the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document between the Company and a Participant
evidencing an Award.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Capricorn" shall mean Capricorn Investors II, L.P. together with any
affiliated persons.
(f) "Change of Control" shall mean the earliest to occur of (i) a
transaction in which Capricorn's equity investment in the Company is
<PAGE>
reduced (including through the operation of a merger in which the
Company is not the surviving corporation and the Common Stock is
converted into the right to receive cash or other property) such that
Capricorn is no longer the single largest equity investor in the
Company or (ii) a sale by the Company or MFOC of all or substantially
all of its assets.
(g) "Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(i) "Committee" shall mean a committee of the Board which administers the
Plan as provided herein.
(j) "Company" shall mean MRS. FIELDS' HOLDING COMPANY, INC.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(l) "Implied Valuation" shall mean, for any fiscal year or other period of
four consecutive fiscal quarters of MFOC, the excess of 5.5x Adjusted
EBITDA for such fiscal year or other period over the Net Debt as of
the end of such fiscal year or other period; provided, that the
--------
Implied Valuation for fiscal year 1997 shall be deemed to be
$41,354,000.
(m) "Initial Public Offering" shall mean a public offering of Common Stock
pursuant to a registration statement under the Securities Act.
(n) "IRR" shall mean, as of any date, the internal rate of return,
determined in accordance with generally accepted practice, on one
share of Common Stock calculated from September 18, 1996 through the
date as of which the determination is being made, using (i)$10.00 as
the value of one share at September 18, 1996 (subject to equitable
adjustment in the event of a transaction of the nature contemplated by
Section 5(b)), (ii) if the relevant date of determination is a Change
of Control, the value per share of Common Stock paid pursuant to or
implicit in such Change of Control as determined in good faith by the
2
<PAGE>
Committee, and (iii) if the relevant date of determination is the
expiration of such Option, the value per share of Common Stock as
determined in good faith based on the Implied Valuation determined by
using the four most recently completed fiscal quarters of MFOC for
which financial statements are vaailable as of the date of
determination as the relevant fiscal period.
(o) "MFOC" shall mean Mrs. Fields' Original Cookies, Inc., the Company's
subsidiary.
(p) "Net Debt" shall mean, for any fiscal year or other fiscal period of
MFOC, MFOC's consolidated debt net of cash and short term investments
at the end of such fiscal year.
(q) "Option" shall mean the right, granted pursuant to the Plan, of a
holder to purchase shares of Common Stock. Options granted hereunder
shall not qualify as "incentive stock options" within the meaning of
Section 422 of the Code.
(r) "Participant" shall mean an officer or other employee of the Company
or a subsidiary who is, pursuant to Section 4 of the Plan, selected to
participate in the Plan.
(s) "Performance-Vested Option" shall mean an Option that will be deemed
to be vested 20% for fiscal year 1997 and shall vest an additional 20%
per year for each fiscal year during the term of such Option beginning
with fiscal year 1998 in which the Implied Valuation for such fiscal
year shall equal or exceed 110% of the Implied Valuation for the
previous fiscal year.
(t) "Plan" shall have the meaning set forth in Section 1 hereof.
(u) "Securities Act" shall mean the Securities Act of 1933, as amended
from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(v) "Time Vested Option" shall mean an Option that will vest 25% per year
on the anniversaries of the date as of which it was awarded and will
vest in full upon the occurrence of a Change of Control.
3
<PAGE>
(w) "Upside Option" shall mean an Option that will vest upon the earlier
to occur of the expiration of such Option and a Change of Control in
accordance with the following: (i) IRR through such date less than
20%, no vesting; (ii) IRR through such date in the range of 20%-
24.99%, 1/3 vesting; (iii) IRR through such date in the range of 25%-
29.99%, 2/3 vesting; and (iii) IRR through such date of 30% or more,
full vesting.
3 Administration.
--------------
The Plan shall be administered by the Committee. The Committee shall
have the authority, in its sole discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in connection with the administration of the Plan,
including, without limitation, the authority to take the following actions: to
grant Awards; to determine the persons to whom and the time or times at which
Awards shall be granted; to determine the type and number of Awards to be
granted, the number of shares of Common Stock to which an Award may relate and
the terms, conditions, restrictions and performance criteria relating to any
Award; to determine whether, to what extent, and under what circumstances an
Award may be settled, cancelled, adjusted, forfeited, exchanged, or surrendered
or accelerated or an Option or Options may be repriced to a lower exercise
price; to make adjustments to performance goals in recognition of unusual or
non-recurring events affecting the Company or its financial statements, or in
response to changes in applicable laws, regulations or accounting principles; to
construe and interpret the Plan and any Award; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of Award Agreements, consistent with the terms and provisions of the
Plan; and to make all other determinations deemed necessary or advisable for the
administration of the Plan, consistent with the terms and provisions of the
Plan. From and after the Initial Public Offering, the Committee shall consist
of two or more persons who are intended to be "disinterested persons" within the
meaning of Rule 16b-3 under the Exchange Act.
4 Eligibility.
-----------
Awards may be granted to officers or other employees of the Company
and its subsidiaries in the sole discretion of the Committee. In determining
the persons to whom Awards shall be granted and the type of Award, the Committee
4
<PAGE>
shall take into account such factors as the Committee shall deem relevant in
connection with accomplishing the purposes of the Plan.
5 Stock Subject to the Plan.
-------------------------
(a) Number of Shares. The maximum number of shares of Common Stock
----------------
reserved for issuance pursuant to the Plan shall be 492,840 allocated evenly
among Time-Vested Options, Performance-Vested Options and Upside Options. All
such shares of Common Stock shall be subject to equitable adjustment as provided
herein. Such shares may, in whole or in part, be authorized but unissued shares
or shares that shall have been or may be reacquired by the Company in the open
market, in private transactions or otherwise. If any shares subject to an Award
are forfeited, cancelled, exchanged or surrendered or if an Award otherwise
terminates or expires without a distribution of shares to the Participant, the
shares of Common Stock with respect to such Award shall, to the extent of any
such forfeiture, cancellation, exchange, surrender, termination or expiration,
again be available for Awards under the Plan.
(b) Equitable Adjustment. In the event that an extraordinary
--------------------
transaction or other event or circumstance affecting the Common Stock shall
occur, including, but not limited to, any dividend or other distribution
(whether in the form of cash, stock or other property), recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, sale of assets or other similar
transaction or event, and the Committee determines that a change or adjustment
in the terms of any Award is appropriate, then the Committee may, in its sole
discretion, make such equitable changes or adjustments or take any other actions
that it deems necessary or appropriate (which shall be effective at such time as
the Committee in its sole discretion determines), including, but not limited to
causing changes or adjustments to any or all of (i) the number and kind of
shares of stock or other securities or property which may thereafter be issued
in connection with Awards, (ii) the number and kind of shares of stock or other
securities or property issued or issuable in respect of outstanding Awards,
(iii) the exercise price relating to any Award, and (iv) any performance
criteria relating to any Award.
6 Stock Options.
-------------
Each Option granted pursuant to this Section 6 shall be evidenced by
an Award Agreement, in such form and containing such terms and conditions as the
Committee shall from time to time approve, which Award Agreement shall comply
5
<PAGE>
with and be subject to the following terms and conditions, as applicable. Each
Option shall be a Performance-Vested Option, a Time-Vested Option or an Upside-
Vested Option as determined by the Committee at the time of the grant of the
Award and specified in the related Award Agreement.
(a) Stock Options
-------------
(1) Number of Shares. Each Award Agreement shall state the type
----------------
or types of Options covered by such Award and the number of shares of Common
Stock to which the Option relates.
(2) Option Exercise Price. Each Award Agreement shall state the
---------------------
Option exercise price. The Option exercise price shall be subject to adjustment
as provided in Section 5 hereof. Unless otherwise expressly stated in the
Committee resolution expressly granting an Option, the date as of which the
Committee adopts the resolution expressly granting an Option shall be considered
the day on which such Option is granted.
(3) Method and Time of Payment. The Option exercise price shall
--------------------------
be paid in full, at the time of exercise, in cash, in shares of Common Stock
having a fair market value (determined by the Committee) equal to such Option
exercise price, in a combination of cash and Common Stock (or other
consideration deemed acceptable by the Committee) or, in the sole discretion of
the Committee, through a cashless exercise procedure.
(4) Term and Exercisability of Options. Each Award Agreement
----------------------------------
shall provide that each Option shall become exercisable in accordance with its
characterization as a Performance-Vested Option, a Time-Vested Option or an
Upside Option; provided, that the Committee shall have the authority to
--------
accelerate the exercisability of any outstanding Option at such time and under
such circumstances as it, in its sole discretion, deems appropriate. The
exercise period shall be not more than ten (10) years from the date of the grant
of the Option, or such shorter period as is determined by the Committee. The
exercise period shall be subject to earlier termination as provided in Section
6(a)(5) hereof. An Option may be exercised, as to any or all full shares of
Common Stock as to which the Option has become exercisable, by written notice
delivered in person or by mail to the Secretary of the Company, specifying the
number of shares of Common Stock with respect to which the Option is being
exercised, together with payment in full of the Option exercise price. For
purposes of the preceding sentence, the date of exercise will be
6
<PAGE>
deemed to be the date upon which the Secretary of the Company receives both the
notification and such payment.
(5) Termination. If a Participant's employment by the Company or
-----------
a subsidiary terminates, the Committee will have the exclusive authority to
determine if and for how long, and under what conditions, such Option may be
exercised after such termination; provided, however, that the Committee may not
-------- -------
shorten any exercise period set forth in an Award Agreement, and provided,
--------
further, that in no event will an Option continue to be exercisable beyond the
- -------
expiration date of such Option.
(6) Nontransferability of Common Stock. Each Award Agreement
----------------------------------
shall provide that prior to an Initial Public Offering, the Participant shall
execute a stockholders agreement prior to being granted any Option hereunder
with respect to the shares of Common Stock to which such Option relates, in such
form and containing such terms and conditions as the Committee shall from time
to time approve, including without limitation, any restrictions on the
transferability of such shares.
7 General Provisions.
------------------
(a) Compliance with Legal Requirements. The Plan and the granting and
----------------------------------
exercising of Awards, and the other obligations of the Company under the Plan
and any Award Agreement or other agreement shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
regulatory or governmental authority or agency as may be required. The Company,
in its discretion, may postpone the issuance or delivery of Common Stock under
any Award as the Company may consider appropriate and may require any
Participant to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Common Stock
in compliance with applicable laws, rules and regulations.
(b) Nontransferability. Awards shall not be transferable by a
------------------
Participant other than by will or the laws of descent and distribution or, if
then permitted by Rule 16b-3 under the Exchange Act, pursuant to a qualified
domestic relations order as defined under the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
shall be exercisable during the lifetime of a Participant only by such
Participant or his guardian or legal representative.
7
<PAGE>
(c) No Right To Continued Employment. Nothing in the Plan or in any
--------------------------------
Award granted or any Award Agreement or other agreement entered into pursuant
hereto shall confer upon any Participant the right to continue in the employ of
the Company or a subsidiary or to be entitled to any remuneration or benefits
not set forth in the Plan or such Award Agreement or other agreement or to
interfere with or limit in any way the right of the Company to terminate such
Participant's employment.
(d) Withholding Taxes. Where a Participant or other person is
-----------------
entitled to receive shares of Common Stock pursuant to the exercise of an
Option, the Company shall have the right to require the Participant or such
other person to pay to the Company the amount of any taxes which the Company may
be required to withhold before delivery to such Participant or other person of a
certificate or certificates representing such shares.
Unless otherwise prohibited by the Committee or by applicable law, a
Participant may satisfy any such withholding tax obligation by any of the
following methods, or by a combination of such methods: (a) tendering a cash
payment or (b) delivering to the Company previously acquired shares of Common
Stock (none of which shares may be subject to any claim, lien, security
interest, community property right or other right of spouses or present or
former family members, pledge, option, voting agreement or other restriction or
encumbrance of any nature whatsoever) having an aggregate fair market value,
determined by the Committee as of the date the withholding tax obligation
arises, equal to the amount of the total withholding tax obligation.
(e) Amendment and Termination of the Plan. The Board or the
-------------------------------------
Committee may at any time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part; provided that, no amendment which
-------- ----
requires stockholder approval under applicable law or in order for the Plan to
continue to comply with Rule 16b-3 under the Exchange Act shall be effective
unless the same shall be approved by the requisite vote of the stockholders of
the Company. Notwithstanding the foregoing, subject to the other provisions of
the Plan, no amendment shall affect adversely any of the rights of any
Participant, without such Participant's consent, under any Award theretofore
granted under the Plan. The power to grant Options under the Plan will
automatically terminate on September 18, 2006. If the Plan is terminated,
any unexercised Option shall continue to be exercisable in accordance with its
terms and the terms of the Plan in effect immediately prior to such termination.
8
<PAGE>
(f) Participant Rights. No Participant shall have any claim to be
------------------
granted any Award under the Plan, and there is no obligation for uniformity of
treatment for Participants. Except as provided specifically herein, a
Participant or a transferee of an Award shall have no rights as a stockholder
with respect to any shares of stock covered by any Award until the date of the
issuance of a certificate to him for such shares.
(g) Unfunded Status of Awards. The Plan is intended to constitute an
-------------------------
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.
(h) Fractional Shares. Fractional shares of Common Stock may be
-----------------
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards or other property shall be issued or paid
in lieu of such fractional shares.
(i) Governing Law. The Plan and all determinations made and actions
-------------
taken pursuant hereto shall be governed by the laws of the State of New York
without giving effect to the conflict of laws principles thereof.
(j) Effective Date. The Plan shall become effective on September 18,
--------------
1996.
(k) Beneficiary. A Participant may file with the Committee a written
-----------
designation of a beneficiary on such form as may be prescribed by the Committee
and may, from time to time, amend or revoke such designation. If no designated
beneficiary survives the Participant, the executor or administrator of the
Participant's estate shall be deemed to be the grantee's beneficiary.
(l) Interpretation. The Plan is designed and intended to comply with
--------------
Rule 16b-3 promulgated under the Exchange Act.
9
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC.
DIRECTOR STOCK PURCHASE PLAN
1 Purpose.
-------
The purpose of the MRS. FIELDS' HOLDING COMPANY, INC. Director Stock
Purchase Plan (the "Plan") is to align the interests of outside directors of
MRS. FIELDS' HOLDING COMPANY, INC., a Delaware corporation (the "Company"), and
its subsidiaries, with those of the stockholders of the Company; and to attract,
motivate and retain as directors the best available individuals.
2 Definitions.
-----------
The following terms, as used herein, shall have the following
meanings:
(a) "Capricorn" shall mean Capricorn Investors II, L.P. together with any
affiliated persons.
(b) "Change of Control" shall mean the earliest to occur of (i) a
transaction in which Capricorn's equity investment in the Company is
reduced (including through the operation of a merger in which the
Company is not the surviving corporation and the Common Stock is
converted into the right to receive cash or other property) such that
Capricorn is no longer the largest equity investor in the Company or
(ii) a sale by the Company or MFOC of all or substantially all of its
assets.
(c) "Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
(d) "Company" shall mean MRS. FIELDS' HOLDING COMPANY, INC.
(e) "MFOC" shall mean Mrs. Fields' Original Cookies, Inc., the Company's
subsidiary.
(f) "Participant" shall mean Capricorn and each of the directors of the
Company indicated on Annex A hereto.
<PAGE>
(g) "Plan" shall have the meaning set forth in Section 1 hereof.
(h) "Restricted Shares" shall mean the shares of Common Stock granted to
each Participant as indicated on Annex A hereto, which are subject to
vesting as to each Participant, with 50% of the shares vesting on
January 1, 1999 and the other 50% of the shares vesting on January 1,
2000, subject to early vesting of all shares upon the occurrence of a
Change of Control.
(i) "Vested Shares" shall mean the shares of Common Stock purchased by
each Participant as indicated on Annex A hereto.
3 Issuance of Shares of Common Stock.
-----------------------------------
Shares of Common Stock being issued under the Plan include Vested
Shares, as to which each Participant is paying (or in the case of Capricorn is
deemed to have paid) the amount in cash indicated on Annex A, and Restricted
Shares, which each Participant is being granted in consideration of such
Participant's cash investment in Vested Shares. The number of Vested Shares and
Restricted Shares for each Participant is set forth on Annex A hereto.
4 General Provisions.
------------------
(a) Compliance with Legal Requirements. The Plan and the other
----------------------------------
obligations of the Company under the Plan shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
regulatory or governmental authority or agency as may be required. The Company,
in its discretion, may require any Participant to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of Common Stock in compliance with applicable laws, rules
and regulations.
(b) No Right To Continued Service. Nothing in the Plan shall confer
-----------------------------
upon any Participant the right to continue as a director of the Company or any
of its subsidiaries or to be entitled to any remuneration or benefits not set
forth in the Plan or to interfere with or limit in any way the right of the
Company or its shareholders to terminate such Participant's status as a
director.
(c) Withholding Taxes. Where a Participant or other person is
-----------------
entitled to receive shares of Common Stock pursuant to the vesting of Restricted
<PAGE>
Shares, the Company shall have the right to require the Participant or such
other person to pay to the Company the amount of any taxes which the Company may
be required to withhold before delivery to such Participant or other person of a
certificate or certificates representing such shares.
A Participant may satisfy any such withholding tax obligation by any
of the following methods, or by a combination of such methods: (a) tendering a
cash payment or (b) delivering to the Company previously acquired shares of
Common Stock (none of which shares may be subject to any claim, lien, security
interest, community property right or other right of spouses or present or
former family members, pledge, option, voting agreement or other restriction or
encumbrance of any nature whatsoever) having an aggregate fair market value,
determined by the Committee as of the date the withholding tax obligation
arises, equal to the amount of the total withholding tax obligation.
(d) Amendment and Termination of the Plan. The Board may at any time
-------------------------------------
and from time to time alter, amend, suspend, or terminate the Plan in whole or
in part. Notwithstanding the foregoing, subject to the other provisions of the
Plan, no amendment shall affect adversely any of the rights of any Participant,
without such Participant's consent.
(e) Unfunded Status of Awards. The Plan is intended to constitute an
-------------------------
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to the Plan, nothing contained
in the Plan shall give any such Participant any rights that are greater than
those of a general creditor of the Company.
(f) Governing Law. The Plan and all determinations made and actions
-------------
taken pursuant hereto shall be governed by the laws of the State of New York
without giving effect to the conflict of laws principles thereof.
(g) Beneficiary. A Participant may file with the Board a written
-----------
designation of a beneficiary on such form as may be prescribed by the Board and
may, from time to time, amend or revoke such designation. If no designated
beneficiary survives the Participant, the executor or administrator of the
Participant's estate shall be deemed to be the grantee's beneficiary.
3
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Name Amount Paid Vested Restricted
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Larry Hodges $250,000 25,000 5,000
- ------------------------------------------------------------------------------------------
Peter Mullin $100,000 10,000 5,000
- ------------------------------------------------------------------------------------------
Richard Ferry $ 66,667 6,667 3,333
- ------------------------------------------------------------------------------------------
Walker Lewis $ 50,000 5,000 2,500
- ------------------------------------------------------------------------------------------
Gilbert Osnos $ 50,000 5,000 2,500
- ------------------------------------------------------------------------------------------
Herbert Winokur, Jr.* 5,000
- ------------------------------------------------------------------------------------------
Nat Gregory* 5,000
- ------------------------------------------------------------------------------------------
</TABLE>
* Issued to Capricorn Investors II, L.P.
4
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
----------------------------------------
THIS INTELLECTUAL PROPERTY SECURITY AGREEMENT (this "Agreement"), dated
as of the 28th day of February, 1998, by MRS. FIELDS' ORIGINAL COOKIES, INC., a
Delaware corporation ("Borrower") and LASALLE NATIONAL BANK, a national banking
association, ("Lender").
W I T N E S S E T H:
WHEREAS, on the date hereof, Borrower has entered into that certain
Amended and Restated Loan Agreement of even date herewith (the same, as it may
be amended, restated, modified or supplemented and in effect from time to time,
being herein referred to as the "Loan Agreement") by and between Borrower and
Lender, providing for Lender to make available to Borrower certain revolving
credit facilities (collectively, the "Loans") on the terms and conditions set
forth therein; and
WHEREAS, Borrower has or may hereafter acquire trademarks and service
marks, patents, patent applications and inventions, copyrights and related or
similar rights and interests; and
WHEREAS, as of the date hereof, Borrower and Lender have entered into a
Security Agreement (the "Security Agreement") pursuant to which Borrower has
pledged certain collateral to Lender as security for the Obligations (as defined
in the Loan Agreement); and
WHEREAS, to induce Lender to enter into the Loan Agreement and make the
Loans thereunder, Borrower has agreed to pledge and grant a security interest in
the Collateral (as hereinafter defined) as additional security for the
Obligations.
NOW, THEREFORE, for and in consideration of the premises set forth
above, the terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
Section 1. Definitions. Capitalized terms used herein without
-----------
definition and defined in the Loan Agreement are used herein as defined therein.
Section 2. Grant of Security Interest. As collateral security for the
--------------------------
prompt payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Obligations, Borrower hereby pledges and grants to Lender a
Lien on and security interest in and to all of Borrower's right, title and
interest in and to the following property and interests in property, whether now
owned by Borrower or hereafter acquired and whether now existing or hereafter
coming into existence (collectively referred to herein as "Collateral"):
----------
<PAGE>
(a) all of Borrower's right, title and interest in and to
trademarks, trade names, trade styles, service marks, logos, emblems,
prints and labels, all elements of package or trade dress of goods, and
all general intangibles of like nature, now existing or hereafter
adopted or acquired by Borrower, together with the goodwill of
Borrower's business connected with the use thereof and symbolized
thereby, and all applications, registrations and recordings thereof,
including, without limitation, applications, registrations and
recordings in the United States Patent and Trademark Office or in any
similar office or agency of the United States or in any office of the
Secretary of State (or equivalent) of any state thereof, or in any
similar office or agency of any country or political subdivision
thereof throughout the world, whether now owned or hereafter acquired
by Borrower, together with all extensions, renewals and corrections
thereof and all licenses thereof or pertaining thereto (all of the
foregoing assets encompassed by this clause (a) being hereinafter
collectively referred to as the "Trademarks");
----------
(b) all of Borrower's right, title and interest in and to all
inventions and letters patent and applications therefor, and all
registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Patent
and Trademark Office or in any similar office or agency of the United
States or any state thereof, or in any similar office or agency of any
country or political subdivision thereof throughout the world, whether
now owned or hereafter acquired by Borrower, together with all
re-examinations, reissues, continuations, continuations-in-part,
divisions, improvements and extensions thereof and all licenses thereof
or pertaining thereto and all licenses of patent rights to Borrower now
in effect or entered during the term of this Agreement, and the rights
to make, use and sell, and all other rights with respect to, the
inventions disclosed or claimed therein, all inventions, designs,
proprietary or technical information, know-how, other data or
information, software, databases, all embodiments or fixations thereof
and related documentation, and all other trade secret rights not
described above (all of the foregoing assets encompassed by this clause
(b) being hereinafter collectively referred to as the "Patents");
-------
(c) all of Borrower's right, title and interest in and to
copyrights in works of authorship of any kind, and all applications,
registrations and recordings thereof in the Office of the United States
Register of Copyrights, Library of Congress, or in any similar office
or agency of any country or political subdivision thereof throughout
the world, whether now owned or hereafter acquired by Borrower,
together with all extensions, renewals, reversionary rights, and
corrections thereof and all licenses thereof or pertaining thereto (all
of the foregoing assets encompassed by this clause (c) being
hereinafter collectively referred to as the "Copyrights");
----------
(d) all of Borrower's customer lists and other records of
Borrower relating to the distribution of products bearing, constituting
or incorporating any of the Trademarks, Patents and/or Copyrights; and
-2-
<PAGE>
(e) any and all proceeds of the foregoing, including, without
limitation, the proceeds from any claims by Borrower against third
parties for past, present or future infringement of the Trademarks,
Patents or Copyrights and any royalties from licenses to third parties
of the Trademarks, Patents or Copyrights.
Section 3. Representations, Warranties and Covenants. Borrower hereby
-----------------------------------------
represents and warrants to, and covenants and agrees with, Lender as follows:
(a) Borrower has the sole, full and clear title to the
Trademarks, including any Trademarks shown on Schedule A hereto, for
----------
the goods and services with which the Trademarks are used, and any
registrations thereof are valid and subsisting and in full force and
effect. Borrower has used and will continue to use for the duration of
this Agreement standards of quality in the manufacture of products sold
under the Trademarks that are at least equal to those standards in
effect as of the date of this Agreement.
(b) Borrower (either itself or through its licensees) will
continue to use the Trademarks on each and every trademark class of
goods applicable to its current lines of goods as reflected in its
current catalogs, brochures and price lists in order to maintain the
Trademarks in full force and effect, in the ordinary course of
business, free from any claim of abandonment for nonuse and Borrower
will not (and will not permit any licensee thereof to) do any act or
knowingly omit to do any act whereby any Trademark may become
invalidated provided, however, that Borrower may abandon any Trademark
-------- -------
if Borrower believes in its reasonable business judgment that such
abandonment is in the best interest of Borrower's business, provided,
--------
further, that (i) Borrower gives Lender written notice of Borrower's
-------
intent to abandon any Trademark at least thirty (30) days prior to
abandonment, and (ii) such abandonment will not, itself or in
conjunction with any other event, materially decrease the value of the
Collateral.
(c) Borrower has the sole, full and clear title to any Patents
shown on Schedule B hereto and such Patents are valid and subsisting
----------
and in full force and effect and have not been claimed or adjudged
invalid or unenforceable in whole or in part (except as otherwise
permitted by this Agreement and the other Loan Documents). Borrower
shall mark products made and sold under the Patents in accordance with
the U.S. Patent Act and other applicable laws. Borrower shall
diligently prosecute any patent application now pending or acquired or
made by it during the term of this Agreement, shall make applications
on unpatented but patentable inventions, and shall preserve and
maintain all rights of any kind in the Patents, which, in each case,
Borrower believes in its reasonable business judgment are in the best
business interests of Borrower. Borrower believes that none of the
Patents has been abandoned or dedicated and Borrower will not do any
act, or omit to do any act, nor permit any licensee thereof to do any
act, whereby any Patent may become abandoned or dedicated and shall
notify Lender immediately if it knows of any reason or has reason to
know that any material Patent may become abandoned or dedicated,
provided, however, that Borrower may abandon any Patent if Borrower
-------- -------
believes in its reasonable business
-3-
<PAGE>
judgment that such abandonment is in the best interest of Borrower's
business, provided, further, that (i) Borrower gives Lender written
-------- -------
notice of Borrower's intent to abandon any Patent at least thirty (30)
days prior to abandonment, and (ii) such abandonment will not, itself
or in conjunction with any other event, materially decrease the value
of the Collateral.
(d) Borrower has the sole, full and clear title to any
copyrights shown on Schedule C hereto and such copyrights are valid and
----------
subsisting and in full force and effect and have not been claimed or
adjudged invalid or unenforceable in whole or in part (except as
otherwise permitted by this Agreement and the other Loan Documents).
Borrower (either itself or through its licensees) will place
appropriate notice of copyright on all copies embodying copyrighted
works which are publicly distributed and Borrower will not (and will
not permit any licensee thereof to) do any act or knowingly omit to do
any act whereby any Copyright may become invalidated or dedicated to
the public domain.
(e) Borrower will promptly perform all acts and execute all
documents, including, without limitation, grants of security in forms
acceptable to Lender and suitable for recording with the United States
Patent and Trademark Office and the United States Register of
Copyrights, and the appropriate offices and agencies of foreign
jurisdictions reasonably requested by Lender at any time to evidence,
perfect, maintain, record or enforce Lender's interest in the
Collateral or otherwise in furtherance of the provisions of this
Agreement. Borrower hereby authorizes Lender to execute and file one or
more financing or continuation statements (and any similar documents)
or copies thereof or of this Agreement with respect to the Collateral
without the signature of Borrower to the extent permitted by law.
(f) In the event that Borrower, either itself or through any
subsidiary, affiliate, agent, employee, licensee or designee, shall
file an application for the issuance of any Patent or registration of
any Trademark with the United States Patent and Trademark Office, or
any similar office of the United States or in any office of the
Secretary of State (or equivalent) of any state thereof, or for the
registration of any Copyright with the United States Register of
Copyrights, or for the registration of any Patent, Trademark or
Copyright in any similar office or agency of any country or political
subdivision thereof throughout the world, or shall obtain issuance of
any Patent or registration of any Trademark or Copyright previously
applied for, or shall adopt, acquire or obtain rights to any new
trademark, patent application or work for which a copyright application
has been or is expected to be filed, or become entitled to the benefit
of any patent application or any patent or any part thereof for
reissue, re-examination, continuation, continuation-in-part, division,
improvement or extension, Borrower shall:
(i) promptly inform Lender of any such event or action;
and
(ii) execute and deliver any and all assignments,
agreements, instruments, documents and papers as are necessary
or appropriate or as Lender may request to
-4-
<PAGE>
evidence Lender's interest in such Trademark, Patent or
Copyright and the goodwill and general intangibles of Borrower
relating thereto or represented thereby.
Borrower hereby constitutes Lender, or its agent, as Borrower's
attorney-in-fact to execute and file all such writings for the
foregoing purposes, all acts of such attorney being hereby ratified and
confirmed; such power being coupled with an interest is irrevocable
until the Obligations are indefeasibly paid and satisfied in full.
Borrower authorizes the amendment of the schedules hereto to include
any future Trademark, Patent or Copyright registrations or applications
which may be acquired or made by Borrower.
(g) Borrower has the authority, right and power to enter into
this Agreement and to perform its terms and to grant the security
interest herein granted, and has not entered and will not enter into
any oral or written agreements which would prevent Borrower from
complying with the terms hereof; provided, however, Borrower may enter
--------
into or maintain in effect such license agreements (including, without
limitation, any referred to in Schedules A, B and C hereto) with
--------------------
respect to the Collateral as Borrower believes in its reasonable
business judgment are in the best interest of Borrower's business, so
long as any such license agreement permits the assignment thereof to
Lender.
(h) The Collateral is not now, to Borrower's knowledge, and at
all times will not be, subject to any Liens, licenses, claims, shop
rights, covenants not to sue third persons, or encumbrances of any
nature whatsoever, except Permitted Liens; provided, however, Borrower
may enter into such license agreements with respect to the Collateral
as Borrower believes in its reasonable business judgment are in the
best interest of Borrower's business, so long as any such license
agreement permits the assignment thereof to Lender. To the best
knowledge of Borrower, none of the Collateral is subject to any claims
of any other party, except as may be indicated on Schedules A, B and C
--------------------
to this Agreement.
(i) As of the date hereof neither Borrower nor any affiliate
or subsidiary thereof has any Trademarks, Patents or Copyrights
registered, or the subject of any pending application, in the United
States Patent and Trademark Office, or any similar office of the United
States or in any office of the Secretary of State (or equivalent) of
any state thereof, or the United States Register of Copyrights, or in
any similar office or agency of any country or political subdivision
thereof throughout the world, other than those identified in Schedules
---------
A, B and C hereto.
----------
(j) Borrower will take all commercially reasonable steps in
any proceeding before the United States Patent and Trademark Office,
United States Register of Copyrights or similar office or agency of the
United States or any office of the Secretary of State (or equivalent)
of any state thereof, or in any similar office or agency of any country
or political subdivision thereof throughout the world, to maintain each
application and registration of any Collateral, including, without
limitation, filing of renewals, extensions, affidavits of use and
incontestability, and opposition, interference and cancellation
proceedings (except to
-5-
<PAGE>
the extent that dedication, abandonment or invalidation is permitted
under Sections 3(b) and 3(c) hereof). Borrower shall notify Lender
promptly in writing if any application or registration relating to any
Collateral may become abandoned or dedicated or subject to an adverse
final determination in any proceeding in the United States Patent and
Trademark Office or United States Register of Copyrights or in any
similar office or agency of any country or political subdivision
thereof throughout the world or in any court regarding Borrower's
ownership of such Patent, Trademark or Copyright, its right to register
same, or to keep or maintain the validity of same.
(k) In the event that Borrower acquires knowledge that any
Trademark, Patent or Copyright is infringed, misappropriated or diluted
by a third party, Borrower shall promptly sue for infringement,
misappropriation and/or dilution and obtain injunctive relief and
recover damages therefor, and Borrower shall take such other actions
reasonably required to protect such Trademark, Patent or Copyright
under the circumstances, unless Borrower shall determine in its
reasonable business judgment that such suit or action is not in the
best interest of Borrower's business. Upon the occurrence and during
the continuation of an Event of Default, Lender shall have the right,
but in no way shall be obligated, to bring suit in its or Borrower's
name to enforce the Trademarks, Patents and Copyrights and any licenses
thereunder, in which event Borrower shall, at the request of Lender, do
any and all lawful acts requested by Lender and execute any and all
documents required by Lender to aid such enforcement, and Borrower
shall, upon demand, promptly reimburse and indemnify Lender for all
costs and expenses incurred in such enforcement.
Section 4. Remedies. Upon the occurrence of an Event of Default which
--------
is continuing, in addition to all other rights and remedies provided for in the
Loan Documents, all such rights and remedies being cumulative, not exclusive and
enforceable alternatively, successively or concurrently, without (except as
provided herein) notice to, or consent by, Borrower, Lender shall have the
following rights and remedies:
(a) Lender may (without assuming any obligations or liability
thereunder), at any time, enforce (and shall have the exclusive right
to enforce) against any licensee or sublicensee all rights and remedies
of Borrower in, to and under any one or more license agreements with
respect to the Collateral, and take or refrain from taking any action
under any thereof, and Borrower hereby releases Lender from, and agrees
to indemnify and hold Lender and its agents and their respective
officers, directors, employees and agents, free and harmless from and
against any claims arising out of any action taken or omitted to be
taken with respect to any such license agreement, except for acts
constituting gross negligence or willful misconduct;
(b) Lender may, at any time and from time to time, upon ten
(10) days' prior written notice to Borrower, assign, sell, or otherwise
dispose of the Collateral or any of it, either with or without special
or other conditions or stipulations, with power to buy the Collateral
or any part of it at any such sale, and do all other acts and things
for completing
-6-
<PAGE>
the assignment, sale or disposition which Lender shall, in its sole
discretion, deem appropriate or proper;
(c) in addition to the foregoing, in order to implement any
assignment, sale, license or other disposal of any of the Collateral
pursuant to this Agreement, Lender may, at any time, pursuant to the
authority granted in the power of attorney described in Section 3(f)
hereof (such authority becoming effective upon occurrence of an Event
of Default), execute and deliver on behalf of Borrower one or more
instruments of assignment, sale, license or other disposition of the
Collateral. Borrower agrees to pay when due all reasonable costs
incurred in any such transfer of the Collateral, including any taxes,
fees and reasonable attorneys' fees, and all such costs shall be added
to the Obligations. Lender may apply the proceeds actually received
from any such license, assignment, sale or other disposition in
accordance with clause (d) of this Section 4, and Borrower shall remain
liable and will pay Lender on demand any deficiency remaining, together
with interest thereon at a rate equal to the rate then payable on the
Obligations and the balance of any expenses unpaid.
Nothing herein contained shall be construed as requiring Lender to take any such
action at any time.
(d) The proceeds of any collection, sale or other realization of
all or any part of the Collateral, and any other cash at the time held by Lender
under this Agreement, shall be applied:
first, to payment of all the costs and expenses of disposition
-----
of and/or realization upon the Collateral and any other expenses payable or
reimbursable by Borrower under this Agreement;
second, to payment of all expenses payable or reimbursable by
------
Borrower under the Loan Agreement;
third, to payment of all accrued unpaid interest on the
-----
Obligations;
fourth, to payment of principal of the Obligations;
------
fifth, to payment of any other amounts owing constituting
-----
Obligations; and
last, any remainder shall be for the account of and paid to
----
Borrower or as otherwise directed by a court of competent jurisdiction.
The application of proceeds of Collateral hereunder to the Obligations shall be
made pro-rata to the holders of such Obligations based on the aggregate
outstanding principal amount of such Obligations held by such holders.
Section 5. Powers of Attorney. Concurrently with the execution and
------------------
delivery hereof, Borrower is executing and delivering to Lender three (3)
original powers of attorney for the
-7-
<PAGE>
implementation of any assignment, sale or other disposition of the Trademarks,
Patents or Copyrights pursuant to this Agreement and Borrower will, upon request
of Lender, execute and deliver such additional copies thereof as Lender may
require for purposes hereof.
Section 6. Termination. This Agreement and the Liens and security
-----------
interests granted hereunder shall not terminate until the full and complete
performance and indefeasible satisfaction of all the Obligations (regardless of
whether the Loan Agreement shall have earlier terminated), whereupon Lender
shall forthwith cause to be assigned, transferred and delivered, against receipt
but without any recourse, warranty or representation whatsoever, any remaining
Collateral to or on the order of Borrower. Lender shall also execute and deliver
to Borrower upon such termination, such termination statements, certificates for
terminating the Liens and such other documentation as shall be reasonably
requested by Borrower to effect the termination and release of the Liens and
security interests in favor of Lender affecting the Collateral.
Section 7. Further Assurances. At any time and from time to time, upon
------------------
the written request of Lender or its agent, and at the sole expense of Borrower,
Borrower will promptly and duly execute and deliver any and all such further
instruments, documents and agreements and take such further actions as Lender or
its agent may reasonably require in order for Lender to obtain the full benefits
of this Agreement and of the rights and powers herein granted in favor of
Lender, including, without limitation, using Borrower's best efforts to secure
all consents and approvals necessary or appropriate for the assignment to Lender
of any Collateral not heretofore assigned and the filing of any financing or
continuation statements under the Uniform Commercial Code with respect to the
Liens and security interests granted hereby.
Section 8. Limitation on Duty of Lender. The powers conferred on Lender
----------------------------
under this Agreement are solely to protect Lender's interest in the Collateral
and shall not impose any duty upon it to exercise any such powers. Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither Lender nor its agent, nor any of their
respective officers, directors, employees or agents shall be responsible to
Borrower for any act or failure to act, except for gross negligence or willful
misconduct. Without limiting the generality of the foregoing, neither Lender nor
any of its agents shall have any obligation or liability under any license by
reason of or arising out of this Agreement or the granting to Lender of a
security interest therein or assignment thereof or the receipt by Lender or any
such agent of any payment relating thereto pursuant hereto, nor shall Lender or
any such agent be required or obligated in any manner to perform or fulfill any
of the obligations of Borrower under or pursuant to any license, or to make any
payment, or to make any inquiry as to the nature or the sufficiency of any
payment received by it or the sufficiency of any performance by any party under
any license, or to present or file any claim, or to take any action to collect
or enforce any performance or the payment of any amounts which may have been
assigned to Lender or to which Lender may be entitled at any time or times.
Section 9. Miscellaneous.
-------------
(a) No Waiver. No failure on the part of Lender or any of its agents to
---------
exercise, and no
-8-
<PAGE>
course of dealing with respect to, and no delay in exercising, any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise by Lender or any of its agents of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law.
(b) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws (as opposed to conflicts of law) and
decisions of the State of Illinois.
(c) Notices. All notices, demands and requests that any party is
-------
required or elects to give to any other party shall be given in accordance with
the provisions of the Loan Agreement.
(d) Amendments, Etc. The terms of this Agreement may be waived,
---------------
altered or amended only by an instrument in writing duly executed by Borrower
and Lender. Any such amendment or waiver shall be binding upon Lender and
Borrower and their respective successors and assigns.
(e) Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the respective successors and assigns of each of the
parties hereto, provided, that Borrower shall not assign or transfer its rights
or obligations hereunder without the prior written consent of Lender.
(f) Counterparts; Headings. This Agreement may be executed in any
----------------------
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart. The headings in this Agreement are for convenience
of reference only and shall not alter or otherwise affect the meaning hereof.
(g) Severability. If any provision hereof is invalid and unenforceable
------------
in any jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of Lender and its agent in order to carry
out the intentions of the parties hereto as nearly as may be possible and (ii)
the invalidity or unenforceability of any provision hereof in any jurisdiction
shall not affect the validity or enforceability of such provision in any other
jurisdiction.
(h) Other Loan Documents. This Agreement supplements the other Loan
--------------------
Documents and nothing in this Agreement shall be deemed to limit or supersede
the rights granted to Lender in any of the other Loan Documents. In the event of
any conflict between this Agreement and the Loan Agreement, for purposes of the
obligations of Borrower or Lender, as applicable, the provisions of the Loan
Agreement shall govern.
(I) SUBMISSION TO JURISDICTION; WAIVER OF VENUE. EACH OF THE PARTIES
-------------------------------------------
HERETO CONSENTS AND AGREES TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
SITTING IN THE COUNTY OF COOK, STATE OF
-9-
<PAGE>
ILLINOIS, AND WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH
----- --- ----------
RESPECT TO ANY ACTION INSTITUTED THEREIN, AND AGREES THAT ANY DISPUTE CONCERNING
THE INTERPRETATION OR ENFORCEMENT OF ANY PROVISION OF THIS AGREEMENT OR THE
RELATIONSHIP BETWEEN ANY OF SUCH PERSONS WITH RESPECT TO THE SUBJECT MATTER OF
THIS AGREEMENT SHALL BE HEARD ONLY IN THE COURTS DESCRIBED ABOVE.
(j) WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE PARTIES HERETO HEREBY
--------------------------------
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM IN RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. EACH OF SUCH PERSONS HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
THE PROVISIONS OF THIS SUBSECTION (j) SHALL SURVIVE THE TERMINATION OF THIS
AGREEMENT.
[Balance of page intentionally left blank; signature page follows.]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this INTELLECTUAL
PROPERTY SECURITY AGREEMENT to be executed by their respective officers
thereunto duly authorized as of the day and year first above written.
Borrower:
--------
MRS. FIELDS. ORIGINAL COOKIES,
INC., a Delaware corporation
By:_____________________________
Title:__________________________
Lender:
------
LASALLE NATIONAL BANK, a national
banking association
By:_____________________________
Title:__________________________
-11-
<PAGE>
STATE OF ____________ )
) SS
COUNTY OF ___________ )
On this ____ day of February, 1998, before me personally appeared the
above-named ________________________, to me known, who being by me duly sworn
according to law, on his oath stated that he is the _______________________ of
MRS. FIELDS. ORIGINAL COOKIES, INC. and acknowledged that he signed, sealed and
delivered the foregoing instrument as the free and voluntary act and deed of
said corporation.
___________________________________
Notary Public
My Commission Expires:
______________________
<PAGE>
STATE OF ____________ )
) SS
COUNTY OF __________ )
On this ______ day of February 1998, before me personally appeared the
above-named Kristen P. Freund, to me known, who being by me duly sworn according
to law, on her oath stated that she is a Vice President of LASALLE NATIONAL BANK
and acknowledged that she signed, sealed and delivered the foregoing instrument
as the free and voluntary act and deed of the corporation, by virtue of her
authority.
_______________________________________
Notary Public
My Commission Expires:
______________________
<PAGE>
Schedule A
Trademarks
----------
<PAGE>
Schedule B
Patents
-------
<PAGE>
Schedule C
Copyrights
----------
<PAGE>
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT (this "Agreement") dated as of February 28,
1998 between MRS. FIELDS? ORIGINAL COOKIES, INC., a Delaware corporation
("Debtor"), and LASALLE NATIONAL BANK, a national banking association (the
"Secured Party").
W I T N E S S E T H:
WHEREAS, on the date hereof, Debtor has entered into that certain Amended
and Restated Loan Agreement of even date herewith (the same, as it may be
amended, restated, modified or supplemented and in effect from time to time,
being herein referred to as the "Loan Agreement") between Debtor and Secured
Party, as lender, providing for the Secured Party to make available to the
Debtor certain revolving credit facilities (collectively, the "Loans") on the
terms and conditions set forth therein (the Loans, together with all other
"Obligations" as defined in the Loan Agreement, are collectively referred to
herein as the "Obligations"); and
WHEREAS, to induce the Secured Party to enter into the Loan Agreement and
make the Loans thereunder, Debtor has agreed to pledge and grant a security
interest in the Collateral (as hereinafter defined) as security for the
Obligations;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein without definition
-----------
and defined in the Loan Agreement are used herein as defined therein. In
addition, as used herein:
"Accounts" means any "account," as such term is defined in the Uniform
--------
Commercial Code.
"Chattel Paper" means any "chattel paper," as such term is defined in
-------------
the Uniform Commercial Code.
"Collateral" has the meaning ascribed thereto in Section 3 hereof.
----------
"Contracts" means all contracts, undertakings, or other agreements
---------
(other than rights evidenced by Chattel Paper, Documents or Instruments) in
or under which Debtor may now or hereafter have any right, title or
interest, including, without limitation, with respect to an Account, any
agreement relating to the terms of payment or the terms of performance
thereof.
<PAGE>
"Documents" means any "documents," as such term is defined in the
---------
Uniform Commercial Code, and shall include, without limitation, all
documents of title (as defined in the Uniform Commercial Code) or other
receipts evidencing or representing Inventory or Equipment.
"Equipment" means any "equipment," as such term is defined in the
---------
Uniform Commercial Code.
"Financial Asset" means any "financial asset," as such term is defined
---------------
in the Uniform Commercial Code.
"Fixtures" means any "fixtures," as such term is defined in the
--------
Uniform Commercial Code.
"General Intangibles" means any "general intangibles," as such term is
-------------------
defined in the Uniform Commercial Code, and, in any event, shall include,
without limitation, all right, title and interest in or under any
Contracts, models, drawings, materials and records, claims, goodwill and
rights of indemnification.
"Goods" means any "goods," as such term is defined in the Uniform
-----
Commercial Code.
"Indebtedness" means Indebtedness as defined in the Loan Agreement.
------------
"Instruments" means any "instrument," as such term is defined in the
-----------
Uniform Commercial Code, and shall include, without limitation, promissory
notes, drafts, bills of exchange, trade acceptances, letters of credit, and
Chattel Paper.
"Inventory" means any "inventory," as such term is defined in the
---------
Uniform Commercial Code.
"Investment Property" means any "investment property," as such term is
-------------------
defined in the Uniform Commercial Code.
"Liabilities" means, collectively, the Obligations and all
-----------
obligations, liabilities and Indebtedness of Debtor under or in respect of
this Agreement.
"Motor Vehicles" means motor vehicles, tractors, trailers and other
--------------
like property, whether or not the title thereto is governed by a
certificate of title or ownership.
"Permitted Liens" means Permitted Liens as defined in the Loan
---------------
Agreement.
-2-
<PAGE>
"Person" means and includes an individual, a partnership, a joint
------
venture, a corporation, a limited liability company, a trust, an
unincorporated organization or a government or any department or agency
thereof.
"Pledged Instruments" has the meaning ascribed thereto in Section 3(b)
-------------------
hereof.
"Pledged Stock" has the meaning ascribed thereto in Section 3(a)
-------------
hereof.
"Proceeds" means "proceeds," as such term is defined in the Uniform
--------
Commercial Code and, in any event, includes, without limitation, (a) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable
with respect to any of the Collateral, (b) any and all payments (in any
form whatsoever) made or due and payable from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of
all or any part of the Collateral by any governmental body, authority,
bureau or agency (or any person acting under color of governmental
authority), and (c) any and all other amounts from time to time paid or
payable under, in respect of or in connection with any of the Collateral.
"Security" means any "security," as such term is defined in the
--------
Uniform Commercial Code.
"Stock Collateral" has the meaning ascribed thereto in Section 3(a)
----------------
hereof.
"Uniform Commercial Code" means the Uniform Commercial Code as in
-----------------------
effect from time to time in the State of Illinois.
Section 2. Representations, Warranties and Covenants of Debtor. Debtor
---------------------------------------------------
represents and warrants to, and covenants with, the Secured Party as follows:
(a) Debtor is the owner of the Collateral in which it purports to
grant a security interest pursuant to Section 3 hereof (subject, with
respect to after-acquired Collateral, to Debtor's acquiring the same) and
no Lien other than Permitted Liens exists or will exist upon such
Collateral at any time;
(b) the pledge and security interest granted hereunder in favor of
the Secured Party is a first priority (subject to Permitted Liens)
perfected pledge and security interest in and to all of the Collateral
(subject, with respect to after-acquired Collateral, to Debtor's acquiring
the same);
(c) the Pledged Stock evidenced by the certificates identified in
Exhibit I hereto is, and all other Pledged Stock in which Debtor shall
---------
hereafter grant a security interest pursuant to Section 3 hereof will be,
duly authorized, validly existing, fully paid and non-assessable and none
of such Pledged Stock is or will be subject to any contractual
-3-
<PAGE>
restriction, or any restriction under the charter or by-laws of the issuer
of such Pledged Stock, upon the transfer of such Pledged Stock (except for
any such restriction contained herein or in the other Loan Documents);
(d) the Pledged Instruments identified in Exhibit I hereto constitute
---------
all of the Instruments owned by Debtor on the date hereof (whether or not
registered in the name of Debtor) and Exhibit I correctly identifies, as of
---------
the date hereof, the issuer of each Pledged Instrument, the date of
issuance thereof, the original amount thereof, the due date thereof and the
outstanding balance thereof;
(e) all existing collateral is located at the addresses set forth in
Schedule 1 hereto, and this Agreement is effective to create in favor of
Secured Party a valid security interest in and Lien upon all of the
Debtor's right, title and interest in and to the Collateral, and, upon the
filing of appropriate Uniform Commercial Code financing statements in the
jurisdictions listed on Schedule 2 attached hereto, and upon delivery of
----------
the Pledged Stock and the Pledged Instruments to the Secured Party, duly
endorsed by Debtor or accompanied by stock powers or other appropriate
instruments of transfer duly executed by Borrower, such security interest
will be duly perfected in all the Collateral; and
(f) Debtor agrees to deliver to the Secured Party all certificates
evidencing any shares of capital stock and all Instruments which Debtor
acquires after the date of this Agreement, duly endorsed in blank or
accompanied by appropriate stock powers or other instruments of transfer
executed in blank by the Debtor, promptly (and in any event within five (5)
days) upon the Debtor's receipt thereof, and, upon request from the Secured
Party, to also promptly deliver to Secured Party an updated Exhibit I to
---------
this Agreement reflecting such additional Pledged Stock and/or Pledged
Instruments.
Section 3. Grant of Security Interest. As collateral security for the
--------------------------
prompt payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Liabilities, Debtor hereby pledges and grants to the Secured
Party a Lien on and security interest in and to all of Debtor's right, title and
interest in the following property and interests in property, whether now owned
by Debtor or hereafter acquired and whether now existing or hereafter coming
into existence (all being collectively referred to as the "Collateral"):
----------
(a) the shares of capital stock evidenced by the certificates
identified in Exhibit I hereto under the name of Debtor and all other
---------
shares of capital stock of whatever class now or hereafter owned or
acquired by Debtor, together with the certificates evidencing the same and
all other Financial Assets and Investment Property now or hereafter owned
by Debtor, including all Securities, together with any certificates
evidencing the same (collectively, the "Pledged Stock"), and:
-------------
(i) all rights and privileges of Debtor with respect to the
Pledged Stock, all shares, securities, moneys or property representing
a dividend on or proceeds of any
-4-
<PAGE>
of the Pledged Stock, or representing a distribution or return of
capital upon or in respect of any of the Pledged Stock, or resulting
from a split-up, revision, reclassification or other like change of
any of the Pledged Stock or otherwise received in exchange therefor,
and any subscription warrants, rights or options issued to the holders
of, or otherwise in respect of, any of the Pledged Stock;
(ii) without affecting the obligations of Debtor under any
provision prohibiting such action hereunder or in the other Loan
Documents, in the event of any consolidation or merger in which the
issuer of any of the Pledged Stock is not the surviving corporation,
all shares of each class of capital stock of the successor corporation
formed by or resulting from such consolidation or merger;
(the Pledged Stock, together with all other certificates, shares,
securities, properties or moneys as may from time to time be pledged
hereunder pursuant to clause (i) or (ii) above or any other provision of
this Agreement are herein collectively called the "Stock Collateral");
----------------
(b) the Instruments identified in Exhibit I hereto and all other
---------
Instruments now or hereafter owned or acquired by Debtor (collectively, the
"Pledged Instruments"), together with all payments thereon or thereunder:
-------------------
(c) all Accounts of Debtor;
(d) all Inventory of Debtor;
(e) all General Intangibles of Debtor, including, without limitation,
all warranties, rights under insurance policies (including any policy for
key man term life insurance as to which Debtor is the beneficiary) and
indemnification rights arising out of any Contract to which Debtor is a
party;
(f) all Equipment of Debtor;
(g) all Documents of Debtor, including, without limitation, all
negotiable and non-negotiable bills of lading;
(h) all Contracts of Debtor, including without limitation any
agreement relating to the sale, use or management of any real property now
or hereafter owned or leased by Debtor;
(i) all Goods of Debtor;
(j) all Fixtures of Debtor;
-5-
<PAGE>
(k) all cash of Debtor and all balances from time to time in any bank
or depositary account now or hereafter maintained by Debtor; and
(l) all other tangible and intangible property of Debtor, including,
without limitation, all Proceeds, products, accessions, rents, profits,
income, benefits, substitutions, additions and replacements of and to any
of the property of Debtor described in the preceding clauses of this
Section 3 (including, without limitation, any proceeds of insurance thereon
and all rights, claims and benefits against any Person relating thereto)
and, to the extent related to any property described in said clauses or
such Proceeds, products and accessions, all books, correspondence, credit
files, records, invoices and other papers, including without limitation all
tapes, cards, computer runs, computer programs, computer files and other
papers, documents and records in the possession or under the control of
Debtor or any computer bureau or service company from time to time acting
for Debtor.
Section 4. Covenants; Remedies. In furtherance of the grant of the pledge
-------------------
and security interest pursuant to Section 3 hereof, Debtor hereby agrees with
the Secured Party as follows:
4.1. Delivery and Other Perfection; Maintenance, Etc.
(a) Delivery of Securities. Debtor shall, if any of the above-
----------------------
described shares, securities, moneys or property required to be pledged by
Debtor under clause (a) of Section 3 hereof are received by or issued in
the name of Debtor, subject to the provisions of Section 4.4(b) hereof,
forthwith:
(i) transfer and deliver to the Secured Party such shares or
securities so received by Debtor (together with the certificates for
any such shares and securities, duly endorsed in blank or accompanied
by undated stock powers duly executed in blank), all of which
thereafter shall be held by the Secured Party pursuant to the terms of
this Agreement, as part of the Collateral; and
(ii) take such other action, at Debtor's expense, as may be
necessary or as the Secured Party shall deem appropriate to duly
perfect the Lien created hereunder in such shares, securities, moneys
or property, including, without limitation, executing and delivering
to the issuers of any uncertificated securities, registration of
pledge documents in form sufficient to perfect the Secured Party's
security interest in such uncertificated securities.
(b) Delivery of Instruments. Debtor shall deliver and pledge to the
-----------------------
Secured Party any and all Instruments, duly endorsed and/or accompanied by
such instruments of assignment and transfer executed by Debtor in such form
and substance as the Secured Party may request; provided, that so long as
--------
no Event of Default shall have occurred and be continuing, Debtor may
retain for collection in the ordinary course any Instruments received
-6-
<PAGE>
by Debtor in the ordinary course of business, and the Secured Party shall,
promptly upon request of Debtor, make appropriate arrangements for making
any other Instrument pledged by Debtor available to Debtor for purposes of
presentation, collection or renewal (any such arrangement to be effected,
to the extent deemed appropriate by the Secured Party, against trust
receipt or like document).
(c) Other Documents and Actions. Debtor shall give Secured Party not
---------------------------
less than thirty (30) days prior written notice of any change in the
location of any Collateral from the locations specified on Schedule 1
----------
hereto, which notice shall specify each new location of any Collateral and
the Collateral to be located at such new location. Debtor shall give,
execute, deliver, file and/or record any financing statement, notice,
instrument, document, agreement or other papers that may be necessary or
desirable (in the reasonable judgment of the Secured Party) to create,
preserve, perfect or validate the pledged security interest granted
pursuant hereto or to enable the Secured Party to exercise and enforce the
rights of the Secured Party hereunder with respect to such pledge and
security interest, including, without limitation, causing any or all of the
Stock Collateral to be transferred of record into the name of the Secured
Party or nominee following the occurrence and during the continuance of an
Event of Default, provided that notices to account debtors in respect of
--------
any Accounts or Instruments shall be subject to the provisions of clause
(f) below.
(d) Books and Records. Debtor shall maintain at its own cost and
-----------------
expense complete and accurate records of the Collateral, including, without
limitation, a record of all payments received and all credits granted with
respect to the Collateral and all other dealings with the Collateral. The
Secured Party shall have a special property interest in all of Debtor's
books and records pertaining to the Collateral and, upon the occurrence and
during the continuation of any Event of Default, Debtor shall deliver and
turn over any such books and records (or true and correct copies thereof)
to the Secured Party at any time on demand. Debtor shall permit any
representative of the Secured Party to inspect such books and records at
any time during reasonable business hours and will provide photocopies
thereof at Debtor's expense to the Secured Party upon request of the
Secured Party.
(e) Motor Vehicles. Debtor shall, promptly upon the request of the
--------------
Secured Party, cause the Secured Party to be listed as the Lienholder on
each certificate of title or ownership covering any Motor Vehicles.
(f) Notice to Account Debtors; Verification. Upon the occurrence and
---------------------------------------
during the continuance of any Event of Default, (i) upon request of the
Secured Party, Debtor shall promptly notify (and Debtor hereby authorizes
the Secured Party so to notify) each account debtor in respect of any
Accounts or Instruments that such Collateral has been assigned to the
Secured Party hereunder, and that any payments due or to become due in
respect of such Collateral are to be made directly to the Secured Party,
and (ii) the Secured Party shall have the right at any time or times to
make direct verification with the account debtors of any and all of the
Accounts.
-7-
<PAGE>
(g) Further Identification of Collateral. Debtor will, when and as
------------------------------------
often as requested by the Secured Party, furnish to the Secured Party,
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the Secured
Party may reasonably request, all in reasonable detail.
(h) Compliance with Loan Agreements. With respect to the Collateral,
-------------------------------
Debtor shall comply with the provisions of the Loan Agreement applicable
thereto, including, without limitation, maintenance of insurance,
restrictions on dispositions, and providing Secured Party and its
representatives the right to inspections with respect to the Collateral.
4.2 Other Liens. Debtor will not create, permit or suffer to exist, and
-----------
will defend the Collateral against and take such other action as is necessary to
remove, any Lien on the Collateral except Permitted Liens, and will defend the
right, title and interest of the Secured Party in and to the Collateral and in
and to all Proceeds thereof against the claims and demands of all Persons
whatsoever.
4.3 Preservation of Rights. At any time when the Debtor is obligated to do
----------------------
so and has failed to do so after notice to the Debtor from the Secured Party,
and whether or not any Event of Default has occurred or is continuing, the
Secured Party may, but shall not be required to, take any steps the Secured
Party deems necessary or appropriate to preserve any Collateral or any rights
against third parties to any of the Collateral, including obtaining insurance of
Collateral required by the Loan Agreement or any of the other Loan Documents, at
any time when Debtor has failed to do so, and Debtor shall promptly pay, or
reimburse the Secured Party for, all expenses incurred in connection therewith.
4.4 Special Provisions Relating to Stock Collateral.
-----------------------------------------------
(a) So long as no Event of Default shall have occurred and be
continuing, Debtor shall have the right to (i) exercise all voting,
consensual and other powers of ownership pertaining to the Stock Collateral
for all purposes not inconsistent with the terms of this Agreement, the
other Loan Documents or any other instrument or agreement referred to
herein or therein, and Debtor agrees that it will not vote the Stock
Collateral in any manner that is inconsistent with the terms of this
Agreement, the other Loan Documents or any such other instrument or
agreement; and (ii) receive cash dividends or other distributions in the
ordinary course made in respect of the Stock Collateral.
(b) Debtor hereby grants to the Secured Party an irrevocable proxy to
vote the Stock Collateral, which proxy shall be effective immediately upon
the occurrence of, and during the continuance of, an Event of Default.
(c) If any Event of Default shall have occurred, then so long as such
Event of Default shall continue, and whether or not the Secured Party
exercises any available right to
-8-
<PAGE>
declare any Liabilities due and payable or seeks or pursues any other
relief or remedy available to it under applicable law or under this
Agreement or any other agreement relating to such Liabilities, all
dividends and other distributions on the Stock Collateral shall be paid
directly to the Secured Party and retained by it as part of the Stock
Collateral, subject to the terms of this Agreement, and, if the Secured
Party shall so request in writing, Debtor agrees to execute and deliver to
the Secured Party appropriate additional dividend, distribution and other
orders and documents to that end.
4.5 Events of Default, Etc. During the period during which an Event of
----------------------
Default shall have occurred and be continuing:
(a) Debtor shall, at the request of the Secured Party, assemble the
Collateral at such place or places as may be reasonably designated by the
Secured Party;
(b) the Secured Party may make any reasonable compromise or
settlement deemed desirable with respect to any of the Collateral and may
extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, any of the Collateral;
(c) the Secured Party shall have all of the rights and remedies with
respect to the Collateral of a secured party under the Uniform Commercial
Code (whether or not said Code is in effect in the jurisdiction where the
rights and remedies are asserted) and such additional rights and remedies
to which a secured party is entitled under the laws in effect in any
jurisdiction where any rights and remedies hereunder may be asserted,
including, without limitation, the right, to the maximum extent permitted
by law, to exercise all voting, consensual and other powers of ownership
pertaining to the Collateral as if the Secured Party were the sole and
absolute owner thereof (and Debtor agrees to take all such action as may be
appropriate to give effect to such right);
(d) the Secured Party in its discretion may, in the name of the
Secured Party or in the name of Debtor or otherwise, demand, sue for,
collect or receive any money or property at any time payable or receivable
on account of or in exchange for any of the Collateral, but shall be under
no obligation to do so;
(e) the Secured Party in its discretion may take immediate possession
and occupancy of any premises owned, used or leased by Debtor and exercise
all other rights and remedies of an assignee which may be available to the
Secured Party;
(f) the Secured Party may, without demand or notice of any kind,
appropriate and apply toward the payment of such of the Obligations,
whether matured or unmatured, including costs of collection and attorneys'
and paralegals' fees, and in such order of application as the Secured Party
may, from time to time, elect, any Indebtedness of the Secured Party to the
Debtor, however created or arising, including, but not limited to,
balances, credits, deposits, accounts or moneys of the Debtor in the
possession, control or
-9-
<PAGE>
custody of, or in transit to the Secured Party, and the Debtor hereby
waives the benefit of any law that would otherwise restrict or limit the
Secured Party in the exercise of its right, which is hereby acknowledged,
to appropriate at any time hereafter any such Indebtedness owing from the
Secured Party to the Debtor; and
(g) the Secured Party may, upon ten (10) Business Days' prior written
notice to Debtor of the time and place (which notice Debtor hereby agrees
is commercially reasonable notification for purposes hereof), with respect
to the Collateral or any part thereof which shall then be or shall
thereafter come into the possession, custody or control of the Secured
Party, sell, lease, assign or otherwise dispose of all or any part of such
Collateral, at such place or places as the Secured Party deems suitable,
and for cash or for credit or for future delivery (without thereby assuming
any credit risk), at public or private sale, without demand of performance
or notice of intention to effect any such disposition or of the time or
place thereof (except such notice as is required above or by applicable
statute and cannot be waived), and the Secured Party or anyone else may be
the purchaser, lessee, assignee or recipient of any or all of the
Collateral so disposed of at any public sale (or, to the extent permitted
by law, at any private sale) and thereafter hold the same absolutely, free
from any claim or right of whatsoever kind, including any right or equity
of redemption (statutory or otherwise), of Debtor, any such demand, notice
and right or equity being hereby expressly waived and released. The Secured
Party may, without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at
the time and place fixed for the sale, and such sale may be made at any
time or place to which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
4.5 shall be applied in accordance with Section 4.8 hereof.
4.6 Deficiency. If the proceeds of sale, collection or other realization
----------
of or upon the Collateral are insufficient to cover the costs and expenses of
such realization and the payment in full of the Liabilities, Debtor shall remain
liable for any deficiency.
4.7 Private Sale. Debtor recognizes that the Secured Party may be unable
------------
to effect a public sale of any or all of the Collateral consisting of securities
by reason of certain prohibitions contained in the Securities Act of 1933, as
amended (the "Act"), and applicable state securities laws, but may be compelled
to resort to one or more private sales thereof to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account for investment and not with a view to the
distribution or resale thereof. Debtor acknowledges and agrees that any such
private sale may result in prices and other terms less favorable to the seller
than if such sale were a public sale and, notwithstanding such circumstances,
agrees that any such sale shall not be deemed to have been made in a
commercially unreasonable manner by reason of its being conducted as a private
sale. The Secured Party shall be under no obligation to delay a sale of any of
the Collateral to permit Debtor to register such Collateral for public sale
under the Act, or under applicable state securities laws, even if Debtor would
agree to
-10-
<PAGE>
do so. The Secured Party shall not incur any liability as a result of the sale
of any such Collateral, or any part thereof, at any private sale provided for in
this Agreement conducted in a commercially reasonable manner, and Debtor hereby
waives any claims against the Secured Party arising by reason of the fact that
the price at which the Collateral may have been sold at such a private sale was
less than the price which might have been obtained at a public sale or was less
than the aggregate amount of the Liabilities, even if the Secured Party accepts
the first offer received and does not offer the Collateral to more than one
offeree.
Debtor further agrees to do or cause to be done all such other acts and
things as may be necessary to make such sale or sales of any portion or all of
any such Collateral valid and binding and in compliance with any and all
applicable laws, regulations, orders, writs, injunctions, decrees or awards of
any and all courts, arbitrators or governmental instrumentalities, domestic or
foreign, having jurisdiction over any such sale or sales, all at Debtor's
expense, provided that Debtor shall be under no obligation to take any action to
enable any or all of such Collateral to be registered under the provisions of
the Act. Debtor further agrees that a breach of any of the covenants contained
in this Section 4.7 will cause irreparable injury to the Secured Party, that the
Secured Party has no adequate remedy at law in respect of such breach and, as a
consequence, agrees that each and every covenant contained in this Section 4.7
shall be specifically enforceable against Debtor, and Debtor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants, except for a defense that no Event of Default has occurred and
is continuing.
4.8 Application of Proceeds. The proceeds of any collection, sale or
-----------------------
other realization of all or any part of the Collateral, and any other cash at
the time held by the Secured Party under this Agreement, shall be applied:
first, to payment of all the costs and expenses of disposition of
-----
and/or realization upon the Collateral and any other expenses payable or
reimbursable by Debtor under this Agreement;
second, to payment of all expenses payable or reimbursable by Debtor
------
under the Loan Agreement;
third, to payment of all accrued unpaid interest on the Obligations;
-----
fourth, to payment of principal of the Obligations;
------
fifth, to payment of any other amounts owing constituting
-----
Liabilities; and
last, any remainder shall be for the account of and paid to Debtor,
----
or as may be directed by a court having jurisdiction.
The application of proceeds of Collateral hereunder to the Obligations shall be
made pro-rata to the holders of such Obligations based on the aggregate
outstanding principal amount of such
-11-
<PAGE>
Obligations held by such holders.
4.9 Attorney-in-Fact. Debtor hereby irrevocably constitutes and appoints
----------------
the Secured Party, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Debtor and in the name of Debtor or in its own name, from time to time
in the discretion of the Secured Party, for the purpose of carrying out the
terms of this Agreement, at any time when an Event of Default exists to take any
and all appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement and, without limiting the generality of the foregoing, hereby
gives the Secured Party the power and right, on behalf of Debtor, without notice
to or assent by Debtor, to do the following:
(a) to ask, demand, collect, receive and give acquittance and
receipts for any and all moneys due and to become due under any Collateral
and, in the name of Debtor or its own name or otherwise, to take possession
of and endorse and collect any checks, drafts, notes, acceptances or other
Instruments for the payment of moneys due under any Collateral and to file
any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Secured Party for the purpose
of collecting any and all such moneys due under any Collateral whenever
payable and to file any claim or to take any other action or proceeding in
any court of law or equity or otherwise deemed appropriate by the Secured
Party for the purpose of collecting any and all such moneys due under any
Collateral whenever payable;
(b) to pay or discharge charges or Liens levied or placed on or
threatened against the Collateral (other than the Permitted Liens), to
effect any insurance called for by the terms of this Agreement and to pay
all or any part of the premiums therefor;
(c) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due, and to become due
thereunder, directly to the Secured Party or as the Secured Party shall
direct, and to receive payment of and receipt for any and all moneys,
claims and other amounts due, and to become due at any time, in respect of
or arising out of any Collateral;
(d) to sign and indorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts and
other Documents constituting or relating to the Collateral;
(e) to commence and prosecute any suits, actions or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect of
any Collateral;
(f) to defend any suit, action or proceeding brought against Debtor
with respect to any Collateral;
-12-
<PAGE>
(g) to settle, compromise or adjust any suit, action or proceeding
described above and, in connection therewith, to give such discharges or
releases as the Secured Party may deem appropriate; and
(h) generally to sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Secured Party was the absolute owner thereof for
all purposes, and to do, at the Secured Party's option and at Debtor's
expense, at any time, or from time to time, all acts and things which the
Secured Party reasonably deems necessary to protect, preserve or realize
upon the Collateral and the Secured Party's Lien therein, in order to
effect the intent of this Agreement, all as fully and effectively as Debtor
might do.
Debtor hereby ratifies, to the extent permitted by law, all that such attorney
lawfully does or causes to be done by virtue hereof. The power of attorney
granted hereunder is a power coupled with an interest and shall be irrevocable
until the Liabilities are indefeasibly paid in full.
Debtor also authorizes the Secured Party, at any time from and after the
occurrence and during the continuation of any Event of Default, (x) to
communicate in its own name with any party to any Contract with regard to the
assignment of the right, title and interest of Debtor in and under the Contracts
hereunder and other matters relating thereto and (y) to execute, in connection
with any sale of Collateral provided for in Section 4.5 or Section 4.7 hereof,
any endorsements, assignments or other instruments of conveyance or transfer
with respect to the Collateral.
4.10 Perfection. Prior to or concurrently with the execution and delivery
----------
of this Agreement (or, if required after the date of this Agreement, promptly
upon request therefor by Secured Party), Debtor shall:
(a) execute and file such financing statements, assignments for
security, registrations of pledge agreements and other documents in such
offices as may be necessary or as the Secured Party may request to perfect
the security interests granted by Section 3 of this Agreement;
(b) enter into tri-party agreements, in form and substance acceptable
to Secured Party, with Secured Party and other financial institutions with
which Debtor may from time to time invest any funds or otherwise open
investment accounts (as permitted by the Loan Agreement), which create a
lien on and security interest in such funds or accounts in favor of Secured
Party;
(c) deliver to the Secured Party the originals of all certificates
evidencing any Pledged Stock, accompanied by undated stock powers or other
instruments of transfer duly executed by Debtor in blank;
-13-
<PAGE>
(d) deliver to the Secured Party the originals of all Pledged
Instruments together with, in the case of Instruments constituting
promissory notes, allonges attached thereto showing such promissory notes
to be payable to the order of a blank payee; and
(e) deliver to the Secured Party, upon request at any time, the
originals of all Motor Vehicle titles, duly endorsed indicating the Secured
Party's interest therein as Lienholder.
4.11 Termination. This Agreement and the Liens and security interests
-----------
granted hereunder shall not terminate until the full and complete performance
and indefeasible satisfaction of all the Liabilities (regardless of whether the
Loan Agreement shall have earlier terminated), whereupon the Secured Party shall
forthwith cause to be assigned, transferred and delivered, against receipt but
without any recourse, warranty or representation whatsoever, any remaining
Collateral to or on the order of Debtor. The Secured Party shall also execute
and deliver to Debtor upon such termination such Uniform Commercial Code
termination statements, certificates for terminating the Liens on the Motor
Vehicles (if any) and such other documentation as shall be reasonably requested
by Debtor to effect the termination and release of the Liens and security
interests in favor of the Secured Party affecting the Collateral.
4.12 Further Assurances; Continuous Perfection. (a) At any time and from
-----------------------------------------
time to time, upon the written request of the Secured Party, and at the sole
expense of Debtor, Debtor will promptly and duly execute and deliver any and all
such further instruments, documents and agreements and take such further actions
as the Secured Party may reasonably require in order for the Secured Party to
obtain the full benefits of this Agreement and of the rights and powers herein
granted in favor of the Secured Party, including, without limitation, using
Debtor's best efforts to secure all consents and approvals necessary or
appropriate for the assignment to the Secured Party of any Collateral held by
Debtor or in which Debtor has any rights not heretofore assigned, the filing of
any financing or continuation statements under the Uniform Commercial Code with
respect to the Liens and security interests granted hereby, transferring
Collateral to the Secured Party's possession (if a security interest in such
Collateral can be perfected by possession), placing the interest of the Secured
Party as Lienholder on the certificate of title of any Motor Vehicle (subject to
Section 4.1(e) hereof) and using reasonable efforts to obtain waivers of Liens
from landlords and mortgagees. Debtor also hereby authorizes the Secured Party
to file any such financing or continuation statement without the signature of
Debtor to the extent permitted by applicable law.
(b) Upon the request of the Secured Party, Debtor shall use its best
efforts to procure insurers' acknowledgments of any assignments of key man life
insurance policies (if any) which may be assigned to the Secured Party as
additional security for the Liabilities and will take all such further action as
required by any insurer or the Secured Party in connection with any such
assignment.
4.13 Limitation on Duty of Secured Party. The powers conferred on the
-----------------------------------
Secured Party under this Agreement are solely to protect the Secured Party's
interest in the Collateral and shall not
-14-
<PAGE>
impose any duty upon it to exercise any such powers. The Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers and neither the Secured Party nor any of its officers,
directors, employees or agents shall be responsible to Debtor for any act or
failure to act, except for willful misconduct. Without limiting the foregoing,
the Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in their possession if such
Collateral is accorded treatment substantially equivalent to that which the
Secured Party, in its individual capacity, accords its own property consisting
of the type of Collateral involved, it being understood and agreed that the
Secured Party shall not have any responsibility for taking any necessary steps
(other than steps taken in accordance with the standard of care set forth above)
to preserve rights against any person with respect to any Collateral.
Also without limiting the generality of the foregoing, the Secured Party
shall not have any obligation or liability under any Contract or license by
reason of or arising out of this Agreement or the granting to the Secured Party
of a security interest therein or assignment thereof or the receipt by the
Secured Party of any payment relating to any Contract or license pursuant
hereto, nor shall the Secured Party be required or obligated in any manner to
perform or fulfill any of the obligations of Debtor under or pursuant to any
Contract or license, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party under any Contract or license, or to present or
file any claim, or to take any action to collect or enforce any performance or
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
Section 5. Miscellaneous.
-------------
5.1 No Waiver. No failure on the part of the Secured Party to exercise,
---------
and no course of dealing with respect to, and no delay in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise by the Secured Party of any right, power or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights and remedies provided by law.
5.2 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Illinois, without giving effect to the
choice of law principles thereof.
5.3 Notices. All notices, demands and requests that any party is required
-------
or elects to give to any other party shall be given in accordance with the
provisions of the Loan Agreement.
5.4 Amendments, Etc. The terms of this Agreement may be waived, altered or
---------------
amended only by an instrument in writing duly executed by Debtor and the Secured
Party. Any such amendment or waiver shall be binding upon the Secured Party and
Debtor and their respective successors and assigns.
-15-
<PAGE>
5.5 Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the respective successors and assigns of each of the parties
hereto, provided, that Debtor shall not assign or transfer its rights hereunder
--------
without the prior written consent of the Secured Party.
5.6 Counterparts; Headings. This Agreement may be executed in any number
----------------------
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof.
5.7 Severability. If any provision hereof is invalid and unenforceable in
------------
any jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Secured Party in order to carry out
the intentions of the parties hereto as nearly as may be possible and (b) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.
5.8 Other Loan Documents. This Agreement supplements the other Loan
--------------------
Documents and nothing in this Agreement shall be deemed to limit or supersede
the rights granted to the Secured Party in any other Loan Document. In the event
of any conflict between this Agreement and the Loan Agreement, the provisions of
the Loan Agreement shall govern.
5.9 SUBMISSION TO JURISDICTION; WAIVER OF VENUE. EACH OF THE PARTIES
-------------------------------------------
HERETO CONSENTS AND AGREES TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
SITTING IN THE COUNTY OF COOK, STATE OF ILLINOIS, AND WAIVES ANY OBJECTION BASED
ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN,
----- --- ----------
AND AGREES THAT ANY DISPUTE CONCERNING THE INTERPRETATION OR ENFORCEMENT OF ANY
PROVISION OF THIS AGREEMENT OR THE RELATIONSHIP BETWEEN ANY OF SUCH PERSONS WITH
RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE HEARD ONLY IN THE
COURTS DESCRIBED ABOVE.
5.10 WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE PARTIES HERETO HEREBY
--------------------------------
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM IN RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER
-16-
<PAGE>
SOUNDING IN CONTRACT OR TORT OR OTHERWISE. EACH OF SUCH PERSONS HEREBY AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
THE PROVISIONS OF THIS SUBSECTION 5.10 SHALL SURVIVE THE TERMINATION OF THIS
AGREEMENT.
[Balance of page intentionally left blank. Signature page follows.]
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge and Security
Agreement to be duly executed and delivered as of the day and year first above
written.
DEBTOR:
------
MRS. FIELDS* ORIGINAL COOKIES, INC.,
a Delaware corporation
By:______________________________
Title:___________________________
SECURED PARTY:
-------------
LASALLE NATIONAL BANK,
a national banking association
By:______________________________
Title:___________________________
<PAGE>
EXHIBIT I
Description of Pledged Stock
----------------------------
<TABLE>
<CAPTION>
Certificate Number of
No. Issuer Class Par Value Shares
- ----------- ------ ----- --------- ---------
<S> <C> <C> <C> <C>
</TABLE>
Description of Pledged Instruments
----------------------------------
<TABLE>
<CAPTION>
Original Outstanding
Principal Due Principal
Issuer Date Issued Amount Date Balance
- ------ ----------- --------- ---- -----------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
Schedule 1
Locations of Collateral
-----------------------
<PAGE>
Schedule 2
Jurisdictions
-------------
<PAGE>
________________________________________________________________________________
_______________________________
MRS. FIELDS' HOLDING COMPANY, INC.
_______________________________
STOCKHOLDERS' AGREEMENT
among
MRS. FIELDS' HOLDING COMPANY, INC.
and
ITS STOCKHOLDERS
________________________________
Dated as of June , 1998
________________________________
________________________________________________________________________________
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(Not Part of Agreement)
Section Heading Page
- ------- ------- ----
<S> <C>
1. Certain Definitions.................................................... 2
2. Management............................................................. 7
2.1. Board of Directors; Shareholders............................... 7
2.2. Authority of Board of Directors................................ 8
2.3. No Conflict with Agreement..................................... 8
3. Transfers of Shares of Common Stock.................................... 8
3.1. Restrictions on Transfer....................................... 8
3.2. Exceptions to Restrictions..................................... 9
3.3. Endorsement of Certificates.................................... 10
3.4. Improper Transfer.............................................. 11
4. Rights of First Refusal; Drag-Along Rights; Tag-Along Rights........... 11
4.1. Transfers by Shareholders...................................... 11
4.2. Transfer of Offered Securities to Third
Parties................................................... 13
4.3. Purchase of Offered Securities................................. 13
4.4. Drag-Along Rights.............................................. 14
4.5. Tag-Along Rights............................................... 16
5. Registration Rights.................................................... 17
5.1. Demand Registration............................................ 17
5.2. Piggyback Registrations........................................ 20
5.3. Registration Procedures........................................ 22
5.4. Indemnification................................................ 27
5.5. Contribution................................................... 30
5.6. Rule 144....................................................... 31
6. Call Right of the Company; Put Right of
Management Investors................................................. 32
6.1. Call Right; Purchase Price..................................... 32
6.2. Call Notices................................................... 32
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
6.3. Put Right; Sale Price............................................32
6.4. Put Notices......................................................33
6.5. Method of Payment................................................33
6.6. Closing..........................................................33
7. Miscellaneous............................................................34
7.1. Inspection Rights................................................34
7.2. Confidentiality..................................................34
7.3. Successors and Assigns...........................................35
7.4. Amendment and Modification: Waiver of
Compliances; Conflicts..........................................35
7.5. Notices..........................................................36
7.6. Entire Agreement: Governing Law..................................37
7.7. Injunctive Relief................................................38
7.8. Availability of Agreement........................................38
7.9. Headings.........................................................38
7.10. Recapitalizations, Exchanges, Etc.
Affecting the Shares of Common Stock;
New Issuances...................................................38
7.11. Counterparts.....................................................38
7.12. Arbitration......................................................39
</TABLE>
2
<PAGE>
STOCKHOLDERS' AGREEMENT
-----------------------
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of March , 1998,
among Mrs. Fields' Holding Company, Inc., a Delaware corporation (the
"Company"), Capricorn Investors II, L.P., a Delaware limited partnership
("Capricorn"), Harvard Private Caoital Holdings, Inc., a Massachusetts
corporation ("Harvard"), the individuals identified on the signature pages
hereto as "Management Investors", the individuals identified on the signature
pages hereto as the "Director Investors", the individuals identified on the
signature pages hereto as the "Other Investors" and such other persons to become
parties to this Agreement as described herein.
W I T N E S S E T H:
-------------------
WHEREAS, the parties hereto deem it in their best interests and in the best
interests of the Company to provide consistent and uniform management for the
Company and desire to enter into this Agreement in order to effectuate that
purpose and to set forth their respective rights and obligations in connection
with their investment in the Company; and
WHEREAS, the parties hereto also desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of the shares of Common Stock, and to
provide for certain rights and obligations in respect thereto as hereinafter
provided;
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
Section 1. Certain Definitions. As used in this Agreement, the following
-------------------
terms shall have the following respective meanings:
"Affiliate" means as to any Person (a) any Person which directly or
indirectly controls, is controlled by, or is under common control with such
Person, (b) any Person who is a director, officer, partner or principal of such
Person or of any Person which directly or indirectly controls, is controlled by,
or is under common control with such Person, and (c) any individual who is a
member of the immediate family of any Person described in clause (a) or clause
(b) above. For purposes of this definition, "control" of a Person shall mean
the power, direct or indirect, (i) to vote or direct the voting of 5% or more of
the Voting Stock of such Person or (ii) to direct or cause the direction of the
<PAGE>
management and policies of such Person whether by ownership of Capital Stock, by
contract or otherwise.
"Agreement" means this Agreement as in effect on the date hereof and as
hereafter from time to time amended, modified or supplemented in accordance with
the terms hereof.
"Board of Directors" means the Board of Directors of the Company as from
time to time hereafter constituted.
"By-Laws" means the By-Laws of the Company in effect on the date hereof and
as hereafter further amended in accordance with the terms hereof and pursuant to
applicable law.
"Call Notice" has the meaning specified in Section 6.1.
"Capital Stock" means and includes (i) any and all shares, interests,
participations or other equivalents of or interests in (however designated)
corporate stock of any Person, including, without limitation, shares of
preferred or preference stock, (ii) all partnership interests (whether general
or limited) in any Person which is a partnership, (iii) all membership interests
or limited liability company interests in any limited liability company, and
(iv) all equity or ownership interests in any Person of any other type.
"Cause" means, when used in connection with the termination of a Management
Investor's employment with the Company or any of its Subsidiaries, (i) the
refusal of such Management Investor to implement or adhere to lawful policies or
directives of the Board of Directors consistent with such Management Investor's
employment agreement with the Company; (ii) such Management Investor's
conviction of or entrance of a plea of nolo contendere to (A) a felony, (B) to
any other crime, which other crime is punishable by incarceration for a period
of one year or longer, or (C) other conduct of a criminal nature that may have
an adverse impact on the Company's reputation and standing in the community;
(iii) conduct that is in violation of such Management Investor's common law duty
of loyalty to the Company; (iv) fraudulent conduct by such Management Investor
in connection with the business affairs of the Company, regardless of whether
said conduct is designed to defraud the Company or others; (v) theft,
embezzlement, or other criminal misappropriation of funds by such Management
Investor, whether from the Company or any other person; or (vi) any breach of or
such Management Investor's failure to fulfill any of such Management Investor's
obligations, covenants, agreements, or duties under his employment agreement
with the Company; provided, however, that "Cause" pursuant
-------- -------
2
<PAGE>
to clause (i) or (vi) shall not be deemed to exist unless the Company has given
such Management Investor written notice thereof specifying in reasonable detail
the facts and circumstances alleged to constitute "cause", and 30 days after
such notice such conduct or circumstances has not entirely ceased or been
entirely remedied. Any determination of Cause shall be made by the Board of
Directors, which determination shall be final and binding on a Management
Investor.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company as in effect on the date hereof and as hereafter from time to time
amended, modified, supplemented or restated in accordance with the terms hereof
and pursuant to applicable law.
"Commission" means the Securities and Exchange Commission and any successor
commission or agency having similar powers.
"Date of Termination" means, with respect to any Management Investor, the
date such Management Investor ceases to be an employee of the Company or any of
its Subsidiaries or, with respect to any Director Investor, the date such
Director Investor ceases to be a director of the Company.
"Director Investor" means any director of the Company who is not a
Management Investor who purchases Common Stock, or receives options to purchase
Common Stock, from the Company, and each Permitted Transferee of any such
Person.
"Exchange Act" means, as of any date, the Securities Exchange Act of 1934,
as amended, or any similar Federal statute then in effect and superseding such
act, and any reference to a particular section thereof shall include a reference
to the comparable section, if any, of such similar Federal statute, and the
rules and regulations thereunder.
"Fair Market Value" means the fair market value of shares of Common Stock
as determined from time to time by the Board of Directors as evidenced by a
resolution thereof.
"Management Investor" means any employee of the Company or any Subsidiary
thereof who purchases Common Stock, or receives options to purchase Common
Stock, from the Company, and each Permitted Transferee of any such Person.
"NASD" means the National Association of Securities Dealers, Inc. and its
successors and assigns.
3
<PAGE>
"Offered Securities" has the meaning specified in Section 4.1(a).
"Other Investor" means any person other than Capricorn, Harvard, the
Management Investors and the Director Investors who purchases Common Stock from
the Company and each Permitted Transferee of any such Person.
"Permitted Transferee" has the meaning specified in Section 3.2.
"Person" means an individual or a corporation, association, partnership,
limited liability company, joint venture, organization, business, trust or any
other entity or organization, including a government or any subdivision or
agency thereof.
"Pro Rata Portion" means, with reference to any Shareholder at any time, a
fraction, the numerator of which is the number of shares of Common Stock then
issued and outstanding and held by such Shareholder or issuable to such
Shareholder pursuant to options that are vested at such time and which such
Shareholder commits to exercise in connection with the transaction giving rise
to the determination of "Pro Rata Portion", and the denominator of which is the
aggregate number of shares of Common Stock then issued and outstanding held by
the Shareholders taken together or issuable pursuant to options that are vested
at such time and which the Shareholders commit to exercise in connection with
the transaction giving rise to the determination of "Pro Rata Portion" taken
together; provided, that options shall be deemed to be vested for such purpose
--------
if they will vest by reason of ther transaction giving rise to the determination
of "Pro Rata Portion".
"Put Notice" has the meaning specified in Section 6.3.
"Registrable Securities" means(i) all shares of Common Stock outstanding on
the date hereof and now or hereafter owned of record or beneficially by the
Shareholders, (ii) any shares of Common Stock issued or issuable upon the
exercise of options and (iii) any shares of Capital Stock issued by the Company
in respect of any shares of Common Stock referred to in (i) or (ii) by way of a
stock dividend or stock split or in connection with a combination or subdivision
of shares, reclassification, recapitalization, merger, consolidation or other
reorganization of the Company.
As to any particular Registrable Securities that have been issued, such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of under such registration statement, (ii) they shall
4
<PAGE>
have been distributed to the public pursuant to Rule 144 under the Securities
Act, (iii) they shall have been otherwise transferred or disposed of, and new
certificates therefor not bearing a legend restricting further transfer shall
have been delivered by the Company, and subsequent transfer or disposition of
them shall not require their registration or qualification under the Securities
Act or any similar state law then in force, (iv) they shall have ceased to be
outstanding, or (v) with respect to the Registrable Securities held by any
Person, when such Registrable Securities, when aggregated with the Registrable
Securities held by such Person's Affiliates, constitute 1% or less of the shares
of Common Stock at the time outstanding.
"Registration Expenses" shall mean any and all out-of-pocket expenses
incident to the Company's performance of or compliance with Section 5 hereof,
including, without limitation, all Commission, stock exchange and NASD
registration and filing fees, all fees and expenses of complying with securities
and blue sky laws (including the reasonable fees and disbursements of
underwriters' counsel in connection with blue sky qualifications and NASD
filings), all fees and expenses of the transfer agent and registrar for the
Registrable Securities, all printing expenses, the fees and disbursements of
counsel for the Company and of its independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, and one firm of counsel retained by each
Shareholder exercising its rights under Section 5 hereof, but excluding
underwriting discounts and commissions and applicable transfer and documentary
stamp taxes, if any, which shall be borne by the seller of the Registrable
Securities in all cases.
"Securities Act" means, as of any date, the Securities Act of 1933, as
amended, or any similar Federal statute then in effect and superseding such act,
and any reference to a particular section thereof shall include a reference to
the comparable section, if any, of any such similar Federal statute, and the
rules and regulations thereunder.
"Shareholder" means (i) Capricorn, (ii) Harvard, (iii) any Management
Investor who becomes a party hereto, (iv) any Director Investor who becomes a
party hereto, (v) any Other Investor who becomes a party hereto and (vi) each
Permitted Transferee who becomes a party to or bound by the provisions of this
Agreement in accordance with the terms hereof, in each case for so long as such
person continues to hold shares of Common Stock.
"Subsidiary" means, as to any Person, another Person of which outstanding
Voting Stock having the power to elect a majority of the members of the board of
directors (or comparable body or authority performing similar functions) of such
other Person are at
5
<PAGE>
the time owned, directly or indirectly through one or more intermediaries, or
both, by such first Person.
"Underwritten Offering" means a firm commitment underwriting through a
nationally recognized underwriter.
"Voting Stock" means Capital Stock of any class or classes, the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for the
election of corporate directors (or Persons performing similar functions).
Section 20 Management.
----------
Section 2.1. Board of Directors. Subject to the terms of this Agreement
------------------
and the Certificate of Incorporation and the By-Laws, the business and affairs
of the Company shall be managed by the Board of Directors, the members of which
will be elected annually by majority vote of the Shareholders and with any
vacancies to be filled by action of the remaining members of the Board of
Directors.
Section 2.2. No Conflict with Agreement. Each Shareholder shall vote its
--------------------------
shares of Voting Stock of the Company, and shall take all actions necessary, to
ensure that the Certificate of Incorporation and By-Laws do not, at any time,
conflict with the provisions of this Agreement.
Section 30 Transfers of Shares of Common Stock and Preferred Stock.
-------------------------------------------------------
Section 3.1. Confirmation of Ownership. The Company hereby confirms that
-------------------------
the number of shares of Common Stock set forth opposite each Shareholder's name
on Annex A hereto has been validly issued to such Shareholder and is fully paid
and nonassessable. Each Shareholder hereby confirms and agrees that as of the
date of this Agreement the number of shares of Common Stock and options to
purchase Common Stock set forth opposite such Shareholder's name on Annex A
hereto is such Shareholder's entire equity interest in the Company and that any
and all agreements heretofore entered into by such Shareholder with the Company
contemplating the issuance of Common Stock or other equity interest in the
Company to such Shareholder are no longer in effect.
Section 3.2. Restrictions on Transfer. Each Shareholder agrees that such
------------------------
Shareholder will not, directly or indirectly, offer, sell, transfer, assign or
otherwise dispose of (or make any exchange, gift, assignment or pledge of)
(collectively, for purposes of Sections 3 and 4 only, a "transfer") any of its
shares of Common Stock, or op-
6
<PAGE>
tions, warrants or rights to subscribe for or purchase shares of Common Stock
that may be issued hereafter to such Shareholder, except as provided in Section
3.3 or other than an exercise of options, warrants or rights to subscribe for or
purchase shares of Common Stock. In addition to the other restrictions contained
in this Section 3, each Shareholder agrees that it will not, directly or
indirectly, transfer any of its shares of Common Stock (or options, warrants or
rights that may be hereafter issued to such Shareholder) except as permitted
under the Securities Act and other applicable securities laws.
Section 3.3. Exceptions to Restrictions. The provisions of Section 3.2
--------------------------
shall not apply to any of the following transfers:
(a) Any transfer from Capricorn to any Affiliate of Capricorn.
(b) Any transfer from Harvard to any Affiliate of Harvard.
(c) Any transfer from a Management Investor to members of such Management
Investor's immediate family or trusts for their benefit and, upon such
Management Investor's death, such Management Investor's executors,
administrators, testamentary trustees, legatees and beneficiaries.
(d) Any transfer from a Director Investor to members of such Director
Investor's immediate family or trusts for their benefit and, upon such Director
Investor's death, such Director Investor's executors, administrators,
testamentary trustees, legatees and beneficiaries.
(e) Any transfer from an Other Investor to members of such Other
Investor's immediate family or trusts for their benefit and, upon such Other
Investor's death, such Other Investor's executors, administrators, testamentary
trustees, legatees and beneficiaries.
(f) Any transfer approved by the Board of Directors (which approval shall
not be unreasonably withheld, it being understood that the Board of Directors
must provide reasons in writing to the proposed transferor in the event that it
withholds such consent).
(g) Any transfer of shares of Common Stock in accordance with Section 4,
Section 5 or Section 6 hereof.
The exceptions in clauses (a), (b), (c), (d) and (e) above are subject to the
condition that each such Affiliate or other transferee referred to therein (each
a "Permitted Transferee") shall execute the agreement referred to in Section
3.4(b) hereof. The provisions of this
7
<PAGE>
Agreement shall be applied to the shares of Common Stock acquired by any
Permitted Transferee of a Shareholder in the same manner and to the same extent
as such provisions were applicable to such shares of Common Stock in the hands
of such Shareholder. Any reference in this Agreement to Capricorn shall be
deemed to include Capricorn and its Permitted Transferees, any reference in this
Agreement to Harvard shall be deemed to include Harvard and its Permitted
Transferees, any reference to a Management Investor shall be deemed to include
such Management Investor and his Permitted Transferees, any reference to a
Director Investor shall be deemed to include such Director Investor and his
Permitted Transferees and any reference to an Other Investor shall be deemed to
include such Other Investor and its Permitted Transferees.
No transfer of any shares of Common Stock to a Permitted Transferee shall be
effective unless such transfer is made (i) pursuant to an effective registration
statement under the Securities Act and is qualified under applicable state
securities or blue sky laws or (ii) without registration under the Securities
Act and qualification under applicable state securities or blue sky laws, as a
result of the availability of an exemption from registration and qualification
under such laws, and such Shareholder shall have furnished to the Company a
certificate or, if reasonably requested by the Company, an opinion of counsel,
in either case reasonably satisfactory in form and substance to the Company and
its counsel, to that effect; provided, however, that no such certificate or
-------- -------
opinion of counsel shall be required in connection with a transfer of shares of
Common Stock pursuant to Sections 4.1, 4.4 or 4.5 hereof.
Section 3.4. Endorsement of Certificates.
---------------------------
(a) Upon the execution of this Agreement, in addition to any other legend
that the Company may deem advisable under the Securities Act and certain state
securities laws, all certificates representing shares of issued and outstanding
shares of Common Stock that are subject to any of the provisions of this
Agreement shall be endorsed at all times as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO,
AND ARE TRANSFERABLE ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF
A STOCKHOLDERS' AGREEMENT DATED AS OF JUNE __, 1998, AMONG THE
COMPANY AND ITS STOCKHOLDERS. A COPY OF THE ABOVE-REFERENCED
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
8
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN
EXEMPTION FROM REGISTRATION, UNDER SAID ACT.
(b) Except as otherwise expressly provided in this Agreement, all
certificates representing shares of Common Stock hereafter issued to or acquired
by any of the Shareholders or their successors or assigns shall bear the legends
set forth above, and the shares of Common Stock represented by such certificates
shall be subject to the applicable provisions of this Agreement. The
obligations of a party hereto shall be binding upon any transferee to whom
shares of Common Stock are transferred by such party, whether or not such
transfer is permitted under the terms of this Agreement. Prior to consummation
of any such transfer, such party shall cause the transferee to execute an
agreement in form and substance reasonably satisfactory to the other parties
hereto, providing that such transferee shall be bound by and shall fully comply
with the terms of this Agreement. Prompt notice shall be given to the Company
and each Shareholder by the transferor of any transfer (whether or not to a
Permitted Transferee) of any shares of Common Stock.
Section 3.5. Improper Transfer. Any attempt to transfer or encumber any
-----------------
shares of Common Stock other than in accordance with the terms of this Agreement
shall be null and void and neither the Company nor any transfer agent of such
securities shall give any effect to such attempted transfer or encumbrance in
its stock records.
Section 40 Rights of First Refusal; Drag-Along Rights; Tag-Along Rights.
------------------------------------------------------------
Section 4.1. Transfers by Shareholders.
-------------------------
(a) Except for (i) transfers to a Permitted Transferee and (ii) the sale
of securities contemplated by Sections 5 and 6 hereof, if, at any time following
the seventh anniversary of the date hereof, a Shareholder other than Capricorn
(the "Selling Shareholder") receives a bona fide offer, which it desires to
accept (a "Transfer Offer"), to purchase any shares of Common Stock (or options,
warrants or rights to subscribe for or purchase shares of Common Stock) owned by
it, then the Selling Shareholder shall cause the Transfer Offer to be reduced to
writing and shall deliver written notice of such Transfer Offer (a "Transfer
Notice"), accompanied by a copy of such Transfer Offer, to the other
Shareholders (individually and collectively referred to as the "Other
Shareholders") and the Company, setting forth the identity of the offeror, the
number of shares of Common
9
<PAGE>
Stock (or options, warrants, or rights to subscribe for or purchase shares of
Common Stock) proposed to be transferred (the "Offered Securities"), the price
per security contained in the Transfer Offer (the "Transfer Offer Price Per
Security"), and all other terms applicable thereto. The Transfer Notice shall
also contain an irrevocable offer by the Selling Shareholder to sell the Offered
Securities to the Other Shareholders and the Company at a price equal to the
Transfer Offer Price Per Security and upon substantially the same terms as
contained in the Transfer Offer. In the event that the form of consideration
specified in the Transfer Offer is other than cash, the Other Shareholders and
the Company shall have the option of paying the Transfer Offer Price Per
Security in cash in an amount equal to the fair market value of such
consideration unless it is reasonably practicable to deliver substantially
identical consideration, in which case the purchaser may so deliver. Fair market
value shall be determined by a nationally recognized investment banking firm
mutually acceptable to the parties, unless they agree otherwise.
(b) Upon receipt of the Transfer Notice, the Company shall then have the
irrevocable right to accept such offer at the Transfer Offer Price Per Security
and on the other terms specified in the Transfer Offer with respect to all or
any portion of the Offered Securities; provided, however, that in the event the
-------- -------
Company does not purchase any or all of the Offered Securities, the Other
Shareholders shall have the irrevocable right to purchase such unpurchased
Offered Securities (including any such Offered Securities not purchased by such
Other Shareholders hereunder) in proportion to each of such Other Shareholder's
Pro Rata Portion until all of such Offered Securities are purchased or until no
Other Shareholder desires to purchase any more Offered Securities. The rights
of each of the Other Shareholders and the Company pursuant to this Section
4.1(b) shall be exercisable by the delivery of notice to the Selling Shareholder
(the "Notice of Exercise"), within 30 calendar days from the date of delivery of
the Transfer Notice. The Notice of Exercise shall state the total number of
shares of the Offered Securities as to which each of the Other Shareholders or
the Company, as the case may be, is accepting under the offer, without regard to
whether or not the Company purchases any Offered Securities. A copy of such
Notice of Exercise shall also be delivered by the Other Shareholders to the
Company. The rights of the Other Shareholders and the Company pursuant to this
Section 4.1(b) shall terminate if unexercised 30 calendar days after the date of
delivery of the Transfer Notice.
(c) In the event that the Other Shareholders or the Company exercise their
rights to purchase all of the Offered Securities in accordance with Section
4.1(b) hereof, then the Selling Shareholder must sell such Offered Securities to
the Other Shareholders or the Company, as the case may be, at the Transfer Offer
Price Per Security and on the other terms specified in the Transfer Offer.
10
<PAGE>
(d) For purposes of this Section 4, any Person who has failed to give
notice of the election of an option hereunder within the specified time period
will be deemed to have waived its rights with respect thereto on the day
immediately following the last day of such period.
Section 4.2. Transfer of Offered Securities to Third Parties. If all
-----------------------------------------------
notices required to be given pursuant to Section 4.1 hereof have been duly given
and the Other Shareholders and the Company offer to purchase fewer than all of
the Offered Securities pursuant to the provisions hereof, then the Selling
Shareholder shall have the right, subject to compliance by the Selling
Shareholder with the provisions of Section 3.4(b) hereof for a period of 120
calendar days from the earlier of (i) the expiration of the option period
pursuant to Section 4.1 hereof with respect to such Transfer Offer or (ii) the
date on which the Selling Shareholder receives notice from the Other
Shareholders and the Company that they will not exercise the option granted
pursuant to Section 4.1 hereof, to sell to any third party that is not an
Affiliate of the Selling Shareholder the Offered Securities at a price per
Offered Security of not less than 100% of the Transfer Offer Price Per Security
and on substantially the other terms specified in the Transfer Offer.
Section 4.3. Purchase of Offered Securities. The consummation of any
------------------------------
purchase and sale pursuant to Section 4.1 hereof shall take place on such date,
not later than 30 calendar days after the expiration of the option period
pursuant to Section 4.1 hereof with respect to such option, as the Other
Shareholders or the Company, as the case may be, shall select. Prior to the
consummation of any sale pursuant to Section 4.1 hereof, the Selling Shareholder
shall comply with Section 3.4(b) hereof. Upon the consummation of any such
purchase and sale, the Selling Shareholder shall deliver certificates
representing the Offered Securities sold duly endorsed, free and clear of any
liens, against delivery of the Transfer Offer Price Per Security for each of the
Offered Securities purchased by certified or bank check, wire transfer or, in
the case of non-cash consideration, such other manner reasonably acceptable to
the parties.
Section 4.4. Drag-Along Rights.
-----------------
(a) If Capricorn approves or authorizes a sale or exchange, whether
directly or pursuant to a merger, consolidation or otherwise (the "Company
Sale"), of at least a majority of the then outstanding Common Stock in a bona
fide arm's-length transaction to a third party that is not an Affiliate of
Capricorn or of the Company (an "Independent Third Party"), then Capricorn shall
have the right, subject to all the provisions of this Section 4.4 (the "Drag-
Along Right"), to require each of the other Shareholders to (i) if
11
<PAGE>
such Company Sale is structured as a sale of stock, sell, transfer and deliver
or cause to be sold, transferred and delivered to such Independent Third Party
all shares of Common Stock, and other options, warrants or rights to subscribe
for or purchase Common Stock (the "Other Rights"), owned by them; provided,
--------
however, that if Capricorn agrees to sell less than all (the "Amount") of its
- -------
shares of Common Stock to such Independent Third Party, each of the other
Shareholders shall only be required to sell, transfer and deliver to such
Independent Third Party an amount of shares of Common Stock and Other Interests
equal to the shares of Common Stock, and Other Interests, owned by it multiplied
by a fraction the numerator of which is the Amount and the denominator of which
is the total amount of shares of Common Stock, and Other Interests, owned by
Capricorn or (ii) if such Company Sale is structured as a merger, consolidation
or other transaction requiring the consent or approval of the Company's
shareholders, vote such Shareholder's shares of Voting Stock in favor thereof,
and otherwise consent to and raise no objection to such transaction, and waive
any dissenters' rights, appraisal rights or similar rights that such Shareholder
may have in connection therewith; and, in any such event, except to the extent
otherwise provided in subsection (c) of this Section 4.4, each such other
Shareholder shall agree to and shall be bound by the same terms, provisions and
conditions (including, without limitation, provisions in respect of
indemnification) in respect of the Company Sale as are applicable to Capricorn.
The provisions of Sections 4.1 through 4.3 hereof, inclusive, shall not apply to
any transactions to which this Section 4.4 applies.
(b) If Capricorn desires to exercise Drag-Along Rights, it shall give
written notice to the other Shareholders (the "Drag-Along Notice") of the
Company Sale, setting forth the name and address of the transferee, the date on
which such transaction is proposed to be consummated (which shall be not less
than 30 days after the date such Drag-Along Notice is given), and the proposed
amount and form of consideration and terms and conditions of payment offered by
such transferee, including, without limitation, the material terms of any debt
or equity securities proposed to be included as part of such consideration,
identifying the issuer or issuers thereof. If such consideration includes any
non-cash consideration, such notice shall also state the fair market value of
such non-cash consideration and shall describe in reasonable detail the method
by which such value shall have been determined.
(c) The obligations of the Shareholders in respect of a Company Sale under
this Section 4.4 are subject to the satisfaction of the following conditions:
(i) upon the consummation of the Company Sale, the same form of consideration
and the same portion of the aggregate consideration realized upon such Company
Sale shall be paid or distributed in respect of each share of Common Stock then
issued and outstanding (except as contemplated by the proviso to Section 4.4 (a)
hereof); (ii) if any Shareholder is given
12
<PAGE>
an option as to the form and amount of consideration to be received, each
Shareholder will be given the same option; (iii) each holder of then currently
vested rights to acquire shares of Common Stock will be given a reasonable
opportunity to exercise such rights prior to the consummation of the Company
Sale and thereby to participate in such sale as a holder of such Common Stock;
(iv) the maximum liability of any Shareholder for indemnification in respect of
all matters arising pursuant to or in connection with the Company Sale shall not
exceed the net proceeds received by such Shareholder from such Company Sale; and
(v) no Shareholders shall be required to make general representations or
warranties regarding the financial condition, business, assets or affairs of the
Company and its Subsidiaries.
Section 4.5. Tag-Along Rights.
----------------
(a) Notwithstanding anything in this Agreement to the contrary, except in
the case of (i) transfers by Capricorn to a Permitted Transferee referred to in
Section 3.3(a) hereof, (ii) transactions where Drag-Along Rights are exercised
pursuant to Section 4.4 hereof and (iii) sales pursuant to Section 5 hereof,
Capricorn shall refrain from effecting any transfer of the Common Stock unless,
prior to the consummation thereof, the other Shareholders shall have been
afforded the opportunity to join in such sale on the basis provided for in this
Section 4.5.
(b) Prior to consummation of such proposed transfer, Capricorn shall cause
the person or group that proposes to acquire such shares (the "Proposed
Purchaser") to offer in writing (the "Purchase Offer") to purchase shares of
Common Stock owned by the other Shareholders, such that the number of shares of
such Common Stock so offered to be purchased from the other Shareholders shall
be equal to the product obtained by multiplying the aggregate number of shares
of Common Stock proposed to be purchased by the Proposed Purchaser by such other
Shareholder's Pro Rata Portion. If the Purchase Offer is accepted by any other
Shareholder, then the number of shares of Common Stock to be sold to the
Proposed Purchaser by Capricorn, shall be reduced by the aggregate number of
shares of Common Stock to be purchased by the Proposed Purchaser from such other
Shareholder pursuant thereto. Such purchase shall be made on the same terms and
conditions as the Proposed Purchaser shall have offered to purchase shares of
Common Stock to be sold by Capricorn (net, in the case of any options, warrants
or rights, of any amounts required to be paid by the holder upon exercise
thereof). The other Shareholders shall have 20 days from the date of receipt of
the Purchase Offer during which to accept such Purchase Offer, and the closing
of such purchase shall occur within 30 days after such acceptance or at such
other time as the other Shareholders and the Proposed Purchaser may agree.
13
<PAGE>
Section 50 Registration Rights.
-------------------
Section 5.1. Demand Registration.
-------------------
(a) Subject to the conditions and limitations hereinafter set forth in
this Section 5.1, following the one year anniversary of the effectuation of an
initial public offering by the Company of the Common Stock, Harvard may request
in writing that the Company effect the registration under the Securities Act of
all or part of Harvard's Registrable Securities specifying in the request the
number and type of Registrable Securities to be registered by Harvard and the
intended method of disposition thereof (such notice is hereinafter referred to
as a "Harvard Request"). A registration requested pursuant to this Section
5.1(a) is referred to herein as a "Demand Registration." Upon receipt of such
Harvard Request, the Company will promptly give written notice of such requested
Demand Registration to all other holders of Registrable Securities, which other
holders shall have the right (subject to the limitations set forth in Section
5.1(f) hereof) to include the Registrable Securities held by them in such
registration and thereupon the Company will, as expeditiously as possible, use
its best efforts to effect the registration under the Securities Act of the
following:
(i) the Registrable Securities that the Company has been so requested
to register by Harvard; and
(ii) all other Registrable Securities that the Company has been
requested to register by any other holder thereof by written request given
to the Company within 10 calendar days after the giving of such written
notice by the Company (which request shall specify the intended method of
disposition of such Registrable Securities), all to the extent necessary to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities so to be registered.
(b) Subject to the proviso set forth in Section 5.1(e) hereof, (i) the
Company shall not be obligated to effect more than (A) one Demand Registration
pursuant to this Section 5.1 at the request of Harvard and (ii) the Company
shall not be obligated to file a registration statement under Section 5.1(a)
hereof unless the Company shall have received requests for such registration
with respect to at least 5% of the outstanding shares of Common Stock.
14
<PAGE>
(c) The Company shall not be obligated to file a registration statement
relating to any Harvard Request under Section 5.1(a) hereof within a period of
12 months after the effective date of any other registration statement filed by
the Company with the Commission.
(d) In connection with any offering pursuant to this Section 5.1, the only
shares that may be included in such offering are (i) Registrable Securities and
(ii) shares of authorized but unissued Common Stock that the Company elects to
include in such offering ("Company Securities").
(e) If the Board of Directors of the Company makes a good faith
determination, certified by the Chief Executive Officer of the Company, that (i)
the filing of a registration statement or the compliance by the Company with its
disclosure obligations in connection with a registration statement would require
the disclosure of material information that the Company has a bona fide business
---- ----
purpose for preserving as confidential or (ii) such registration would be likely
to have an adverse affect on any proposal or plan by the Company to engage in
any financing transaction, acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction, the Company may delay the filing of a registration statement and
shall not be required to maintain the effectiveness thereof or amend or
supplement a registration statement for a period expiring upon the earlier to
occur of (A) the date on which such material information is disclosed to the
public or ceases to be material, in the case of clause (i), (B) the date on
which such transaction is completed or abandoned, in the case of clause (ii), or
(C) 120 days after the Company makes such good faith determination, in the case
of either clauses (i) or (ii); provided that in such event, the holders of
--------
Registrable Securities initiating the request for such registration will be
entitled to withdraw such request, and if such request is withdrawn such
registration will not count as the permitted registration under this Section 5.1
in such event or in any other event, if in the case of any other event, such
holder reimburses the Company for all Registration Expenses relating to such
withdrawn registration.
(f) If, in connection with any Underwritten Offering, the managing
underwriter shall advise the Company and any holder of Registrable Securities
that has requested registration that, in its judgment, the number of securities
proposed to be included in such offering should be limited due to market
conditions, the Company will so advise each holder of Registrable Securities
that has requested registration, and shares shall be excluded from such offering
in the following order until such limitation has been met: First, the
-----
Registrable Securities requested to be included by the Company shall be excluded
until all such Registrable Securities shall have been so excluded; and
thereafter,
- ----------
15
<PAGE>
the Registrable Securities requested to be included in such offering pursuant to
Section 5.1(a)(i) hereof by Harvard or pursuant to Section 5.1(a)(ii) hereof by
other Shareholders shall be excluded pro rata, based on the respective number of
Registrable Securities as to which registration has been so requested by such
Shareholders.
(g) A registration requested pursuant to Section 5.1(a) hereof will not be
deemed to have been effected unless it has become effective; provided, that if
--------
after it has become effective, the offering of Registrable Securities pursuant
to such registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court,
such registration will be deemed not to have been effected.
(h) If Harvard specifies in the Harvard Request an Underwritten Offering,
Harvard shall have the right, with the approval of the Company, which approval
shall not be unreasonably withheld, to select the managing underwriter;
provided, however, in the event that the Company has elected to include Company
- -------- -------
Securities in such offering, the Company shall have the right, with the approval
of a majority of the holders of Registrable Securities that have requested to be
included in such offering, which approval shall not be unreasonably withheld, to
select the managing underwriter.
(i) The Company will pay all Registration Expenses incurred in connection
with any Demand Registration effected by it pursuant to this Section 5.1.
Section 5.2. Piggyback Registrations.
-----------------------
(a) If at any time the Company proposes to register any of its equity
securities under the Securities Act (other than a registration on Form S-4 or S-
8 or any successor forms thereto) for the account of another Person or, at any
time following the effectuation of an initial public offering by the Company of
the Common Stock, for its own account, on a form and in a manner that would
permit registration of Registrable Securities for sale to the public under the
Securities Act, it will give written notice to all the holders of Registrable
Securities promptly of its intention to do so, describing such securities and
specifying the form and manner and the other relevant facts involved in such
proposed registration, including, without limitation, (x) the intended method of
disposition of the securities offered, including whether or not such
registration will be effected through an underwriter in an Underwritten Offering
or on a "best efforts" basis, and, in any case, the identity of the managing
underwriter, if any, and (y) the price at which the Registrable Securities are
reasonably expected to be sold. Upon the written request of any holder of
Registrable Securities delivered to the Company within 30 calendar days after
the receipt
16
<PAGE>
of any such notice (which request shall specify the Registrable Securities
intended to be disposed of by such holder), the Company will effect the
registration under the Securities Act of all the Registrable Securities that the
Company has been so requested to register; provided, however, that:
-------- -------
(i) if, at any time after giving such written notice of its intention
to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to
each holder of Registrable Securities who shall have made a request for
registration as hereinabove provided and thereupon the Company shall be
relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith); and
(ii) if such registration involves an Underwritten Offering, all
holders of Registrable Securities requesting to be included in the
Company's registration must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as
apply to the Company.
(b) The Company shall not be obligated to effect any registration of
Registrable Securities under this Section 5.2 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee benefit plans.
(c) If a registration pursuant to this Section 5.2 involves an
Underwritten Offering and the managing underwriter advises the issuer that, in
its opinion, the number of securities proposed to be included in such
registration should be limited due to market conditions, the Company will so
advise each holder of Registrable Securities that has requested registration
pursuant to Section 5.2(a) hereof, and shares shall be excluded from such
offering pro rata, based on the respective number of Registrable Securities as
--- ----
to which registration has been so requested by such Shareholders, until all such
Registrable Securities shall have been so excluded; and thereafter, the
securities requested to be registered by the Company shall be excluded.
(d) In connection with any Underwritten Offering with respect to which
holders of Registrable Securities shall have requested registration pursuant to
this Section 5.2, the Company shall have the right to select the managing
underwriter with respect to the offering; provided that such managing
--------
underwriter shall be a nationally recognized investment banking firm.
17
<PAGE>
(e) The Company will pay all Registration Expenses incurred in connection
with each of the registrations of Registrable Securities effected by it pursuant
to this Section 5.2.
Section 5.3. Registration Procedures.
-----------------------
(a) If and whenever the Company is required to use its best efforts to
effect or cause the registration of any Registrable Securities under the
Securities Act as provided in Section 5.1 or 5.2 hereof, the Company will, as
expeditiously as possible:
(i) prepare and, in any event within 90 calendar days after the end
of the period within which requests for registration may be given to the
Company, file with the Commission a registration statement with respect to
such Registrable Securities and use its best efforts to cause such
registration statement to become and remain effective; provided, that the
--------
Company may discontinue any registration of its securities that is being
effected pursuant to Section 5.2 hereof at any time prior to the effective
date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for such period as may be requested
by the Shareholders not exceeding nine months and to comply with the
provisions of the Securities Act with respect to the disposition of all the
shares of Common Stock covered by such registration statement during such
period in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
(iii) furnish to each holder of Registrable Securities covered by the
registration statement and to each underwriter, if any, of such Registrable
Securities, such number of copies of a prospectus and preliminary
prospectus for delivery in conformity with the requirements of the
Securities Act, and such other documents, as such Person may reasonably
request, in order to facilitate the public sale or other disposition of the
Registrable Securities;
(iv) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all
18
<PAGE>
other acts and things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition of the Registrable
Securities owned by such seller in such jurisdictions, except that the
Company shall not for any such purpose be required (A) to qualify to do
business as a foreign corporation in any jurisdiction where, but for the
requirements of this Section 5.3(a)(iv), it is not then so qualified, (B)
to subject itself to taxation in any such jurisdiction, or (C) to take any
action which would subject it to general or unlimited service of process in
any such jurisdiction where it is then so subject;
(v) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 5.3(a)(ii) hereof, if
the Company becomes aware that the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing, and, at the request of any such seller,
deliver a reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission and make generally available to its
security holders, in each case as soon as practicable, but not later than
45 calendar days after the close of the period covered thereby (90 calendar
days in case the period covered corresponds to a fiscal year of the
Company), an earnings statement of the Company which will satisfy the
provisions of Section 11(a) of the Securities Act;
(viii) use its best efforts in cooperation with the underwriters to
list such Registrable Securities on each securities exchange on which the
shares of Common Stock are then listed or, if the shares of Common Stock
are not then
19
<PAGE>
listed on a securities exchange, on each securities exchange as the
underwriters may reasonably designate;
(ix) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration
statement;
(x) in the event such registration is effected through an
Underwritten Offering, use its best efforts to obtain a "cold comfort"
letter from the independent public accountants for the Company in customary
form and covering such matters of the type customarily covered by such
letters as the holders of Registrable Securities requesting registration
may reasonably request in order to effect an underwritten public offering
of such Registrable Securities; and
(xi) execute and deliver all instruments and documents (including in
an Underwritten Offering an underwriting agreement in customary form) and
take such other actions and obtain such certificates and opinions as the
holders of Registrable Securities requesting registration may reasonably
request in order to effect an underwritten public offering of such
Registrable Securities.
(b) It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Section 5 in respect of Registrable Securities
that each holder requesting registration thereof shall furnish to the Company
such information regarding the Registrable Securities held by such holder and
the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company; provided, however, that the failure of any holder of Registrable
-------- -------
Securities to furnish such information shall not affect the obligations of the
Company pursuant to this Section 5 with respect to any holder of Registrable
Securities who furnishes such information to the Company. Notwithstanding any
provision to the contrary contained herein, no holder of Registrable Securities
(other than any such holder who holds of record or beneficially owns more than
10% of the outstanding Voting Stock of the Company or who is a director, nominee
for director or executive officer of the Company) shall be required (i) to
furnish any information to the Company or the underwriters in connection with
such registration, other than in a writing furnished by such holder expressly
for use in such registration statement which shall be limited to matters
concerning such holder's identity, its beneficial ownership of securities of the
Company, the class and number of such securities it intends to include in such
registration and its intended method of distribution, or (ii) to make any
representations or warranties to the Company, the underwriters or any other
Person (whether in the underwriting agreement or otherwise), except with respect
to the information so furnished.
20
<PAGE>
(c) Each holder of Registrable Securities will, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
5.3(a)(vi) hereof, forthwith discontinue disposition of the Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 5.3(a)(vi) hereof.
(d) If a registration pursuant to Section 5.1 or 5.2 hereof involves an
Underwritten Offering, each holder of Registrable Securities agrees, whether or
not such holder's Registrable Securities are included in such registration, not
to effect any sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Registrable Securities, or of any security
convertible into or exchangeable or exercisable for any Registrable Securities
(other than as part of such Underwritten Offering), without the consent of the
managing underwriter, during a period commencing seven calendar days before and
ending 180 calendar days (or such lesser number as the managing underwriter
shall designate) after the effective date of such registration; provided, that
--------
such period shall not extend beyond the period during which the Company is
subject to such a restriction.
(e) If a registration pursuant to Section 5.1 or 5.2 hereof involves an
Underwritten Offering, the Company agrees, if so required by the managing
underwriter, not to effect any sale or distribution of any of its equity or debt
securities, as the case may be, or securities convertible into or exchangeable
or exercisable for any of such equity or debt securities, as the case may be,
during a period commencing seven calendar days before and ending 180 calendar
days after the effective date of such registration, except for such Underwritten
Offering or except in connection with a stock option plan, stock purchase plan,
savings or similar plan, or an acquisition, merger or exchange offer.
(f) If a registration pursuant to Section 5.1 or 5.2 hereof involves an
Underwritten Offering, any holder of Registrable Securities requesting to be
included in such registration may elect, in writing, not less than five days
prior to the effective date of the registration statement filed in connection
with such registration, not to register such securities in connection with such
registration, unless such holder has agreed with the Company or the managing
underwriter to limit its rights under this Section 5.3.
(g) It is understood that in any Underwritten Offering in addition to any
shares of Common Stock (the "initial shares") the underwriters have committed to
purchase, the underwriting agreement may grant the underwriters an option to
purchase up to a number of additional authorized but unissued shares of Common
Stock (the "option shares")
21
<PAGE>
equal to 15% of the initial shares (or such other maximum amount as the NASD may
then permit), solely to cover over-allotments. Shares of Common Stock proposed
to be sold by the Company and the other sellers shall be allocated between
initial shares and option shares as agreed or, in the absence of agreement,
pursuant to Section 5.1(f) or 5.2(c) hereof, as the case may be. The number of
initial shares and option shares to be sold by requesting holders shall be
allocated pro rata among all such holders on the basis of the relative number of
--- ----
shares of Registrable Securities each such holder has requested to be included
in such registration.
Section 5.4. Indemnification.
---------------
(a) In the event of any registration of any securities under the
Securities Act pursuant to Section 5.1 or 5.2 hereof, the Company will, and it
hereby agrees to, indemnify and hold harmless, to the extent permitted by law,
each seller of any Registrable Securities covered by such registration
statement, its directors, officers, employees and agents, each Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such seller or underwriter within the
meaning of the Securities Act, as follows:
(i) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration statement
(or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading, or arising out of an untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein not misleading;
(ii) against any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any
state securities law in connection with any matter relating to such
registration statement;
(iii) against any and all loss, liability, claim, damage and expense
whatsoever to the extent of the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
22
<PAGE>
omission, if such settlement is effected with the written consent of the
Company; and
(iv) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under clauses
(i), (ii) or (iii) above;
provided, however, that this indemnity does not apply to any loss, liability,
- -------- -------
claim, damage or expense to the extent arising out of an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any such seller or underwriter specifically stating that it is for use
in the preparation of any registration statement (or any amendment thereto) or
any preliminary prospectus or prospectus (or any amendment or supplement
thereto); and provided, further, that the Company will not be liable (A) in the
-------- -------
case of any Underwritten Offering, to any Person who participates as an
underwriter in the offering or sale of Registrable Securities or any other
Person, if any, who controls such underwriter within the meaning of the
Securities Act, or (B) in the case of any offering other than an Underwritten
Offering, to any seller of Registrable Securities covered by such registration
statement or any other Person, if any, who controls such seller within the
meaning of the Securities Act, under the indemnity agreement in this Section
5.4(a) with respect to any preliminary prospectus or final prospectus or final
prospectus as amended or supplemented, as the case may be, to the extent that
any such loss, claim, damage or liability of such underwriter or controlling
Person (or seller or controlling Person, as the case may be) results from the
fact that such underwriter (or seller, as the case may be) sold Registrable
Securities to a Person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final prospectus or of the
final prospectus as then amended or supplemented, whichever is most recent, if
the Company has previously furnished copies thereof to such underwriter. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller, director, officer, employee, agent,
underwriter or controlling Person, and shall survive the transfer of such
securities by such seller.
(b) The Company may require, as a condition to including any Registrable
Securities in any registration statement filed in accordance with Section 5.1 or
5.2 hereof, that the Company shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registrable Securities or
any underwriter, to indemnify and
23
<PAGE>
hold harmless (in the same manner and to the same extent as set forth in Section
5.4(a) hereof) the Company and its directors and officers and each other Person,
if any, who controls the Company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary, final or summary prospectus
contained therein, or any such amendment or supplement, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by or on behalf
of such seller or underwriter specifically stating that it is for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement; provided, however, that the maximum
-------- -------
liability of any seller of Registrable Securities for such indemnification shall
not exceed the net proceeds received by such seller from the sale of such
Registrable Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the transfer of such
securities by such seller.
(c) Promptly after receipt by an indemnified party hereunder of written
notice of the commencement of any action or proceeding involving a claim
referred to in this Section 5.4, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to such indemnifying party of the commencement of such action; provided,
--------
however, that the failure of any indemnified party to give notice as provided
- -------
herein shall not relieve the indemnifying party of its obligations under this
Section 5.4, except to the extent (not including any such notice of an
underwriter) that the indemnifying party is actually prejudiced by such failure
to give notice. In case any such action is brought against an indemnified
party, unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim (in which case the indemnifying party shall not be liable for the
fees and expenses of more than one counsel for the sellers of Registrable
Securities or for more than one counsel for the underwriters in connection with
any one action or separate but similar or related actions), the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified party, and
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 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof.
24
<PAGE>
(d) The Company and each seller of Registrable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any underwriting
agreement with respect to any required registration or other qualification of
securities under any federal or state law or regulation of any governmental
authority.
Section 5.5. Contribution. In order to provide for just and equitable
------------
contribution in circumstances under which the indemnity contemplated by Section
5.4 hereof is for any reason not available, the parties required to indemnify by
the terms thereof shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company, any seller of Registrable Securities and one or more of
the underwriters, except to the extent that contribution is not permitted under
Section 11(f) of the Securities Act. In determining the amounts that the
respective parties shall contribute, there shall be considered the relative
benefits received by each party from the offering of the Registrable Securities
(taking into account the portion of the proceeds of the offering realized by
each), the parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity to correct
and prevent any statement or omission and any other equitable considerations
appropriate under the circumstances. The Company and each Person selling
securities agree with each other that no seller of Registrable Securities shall
be required to contribute any amount in excess of the amount such seller would
have been required to pay to an indemnified party if the indemnity under Section
5.4 hereof were available. The Company and each such seller agree with each
other and the underwriters of the Registrable Securities, if requested by such
underwriters, that it would not be equitable if the amount of such contribution
were determined by pro rata or per capita allocation (even if the underwriters
--- ----
were treated as one entity for such purpose) or for the underwriters' portion of
such contribution to exceed the percentage that the underwriting discount bears
to the initial public offering price of the Registrable Securities. For
purposes of this Section 5.5, each Person, if any, who controls an underwriter
within the meaning of the Securities Act shall have the same rights to
contribution as such underwriter, and each director and each officer of the
Company who signed the registration statement, and each Person, if any, who
controls the Company or a seller of Registrable Securities, shall have the same
rights to contribution as the Company or a seller of Registrable Securities, as
the case may be.
Section 5.6. Rule 144. If the Company shall have filed a registration
--------
statement pursuant to the requirements of Section 12 of the Exchange Act or a
registration statement pursuant to the requirements of the Securities Act, the
Company covenants that it will file the reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder (or, if the
25
<PAGE>
Company is not required to file such reports, it will, upon the request of any
holder of Registrable Securities, make publicly available other information),
and it will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell shares of Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (i) Rule 144
under the Securities Act, as such Rule may be amended from time to time or (ii)
any similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether the Company has complied with such
requirements.
Section 6. Call Right of the Company; Put Right of Management Investors
------------------------------------------------------------
and the Director Investors.
- --------------------------
Section 6.1. Call Right; Purchase Price. If a Management Investor's
--------------------------
employment with the Company or any of its Subsidiaries is terminated, or a
Director Investor' status as a director of the Company is terminated, for any
reason prior to equity securities of the Company having been registered under
the Securities Act, the Company shall have the option, for a period commencing
46 days and ending 90 days after the Date of Termination, to purchase all or any
portion of the shares of Common Stock held by such Management Investor, Director
Investor or his Permitted Transferees. The Company may exercise such option by
giving notice thereof (the "Call Notice") to such Management Investor or
Director Investor prior to the expiration of such period. If such termination
is other than by the Company for Cause, the purchase price applicable to such
shares of Common Stock shall be the Fair Market Value of such shares as of the
Date of Termination and if such termination is by the Company for Cause, the
Company shall have the right to require such Management Investor to forfeit to
the Company on the Termination Date all of the shares of Common Stock held by
such Management Investor or his Permitted Transferees.
Section 6.2. Call Notices. The Call Notice shall specify the number of
------------
shares of Common Stock owned by the Management Investor or Director Investor as
to which the Company is exercising its call right pursuant to Section 6.1 and
shall contain an irrevocable offer to purchase such shares at a price equal to
the price required to be paid by the Company pursuant to Section 6.1.
Section 6.3. Put Right; Sale Price. If a Management Investor's employment
---------------------
with the Company or any of its Subsidiaries is terminated other than for Cause,
or a Director Investor's status a director of the Company is terminated, prior
to equity securities of the
26
<PAGE>
Company having been registered under the Securities Act, then such Management
Investor or Director Investor shall have the right for a period of 45 days after
the Date of Termination to sell all or any portion of his shares of Common Stock
to the Company and the Company shall be obligated to purchase such shares. The
Management Investor or Director Investor may exercise such right by giving
notice thereof (the "Put Notice") to the Company prior to the expiration of such
period. The purchase price applicable to such shares of Common Stock shall be:
(i) if the Management Investor's employment with the Company is terminated
involuntarily other than for Cause, the greater of (A) the amount paid (or
deemed to have been paid) by such Management Investor for such shares and (B)
the Fair Market Value of such shares as of the Date of Termination; (ii) if the
Management Investor's employment with the Company is terminated voluntarily, the
lesser of (A) the amount paid (or deemed to have been paid) by such Management
Investor for such shares and (B) the Fair Market Value of such shares as of the
Date of Termination; (iii) if the Director Investor's status as a director of
the Company is terminated involuntarily, the greater of (A) the amount paid (or
deemed to have been paid) by such Director Investor for such shares and (B) the
Fair Market Value of such shares as of the Date of Termination; or (ii) if the
Director Investor's status as a director of the Company is terminated
voluntarily, the lesser of (A) the amount paid (or deemed to have been paid) by
such Director Investor for such shares and (B) the Fair Market Value of such
shares as of the Date of Termination.
Section 6.4. Put Notices. The Put Notice shall specify the number of
-----------
shares owned by the Management Investor or Director Investor as to which he is
exercising his put right pursuant to Section 6.3 and shall contain an
irrevocable offer to purchase such shares at a price equal to the price required
to be paid by the Company pursuant to Section 6.3.
Section 6.5. Method of Payment. Upon any exercise by the Company of its
-----------------
call right or the Management Investor or Director Investor of his put right
under Section 6, the Company shall pay the applicable purchase price by a
certified check or checks or in cash; provided, however, that, at the election
-------- -------
of the Company, the purchase price may be paid by a certified check or checks
for 25% of the appropriate amount, plus a note of the Company in the principal
amount of 75% of the purchase price, payable in three equal annual installments
commencing on the first anniversary of the issuance thereof and bearing interest
payable annually at the rate then paid by the Company on its bank debt or other
senior debt as determined by the Board of Directors. If the Company is
prohibited by any agreement from making a payment contemplated by this Section 6
or if any Subsidiary of the Company is prohibited from making a payment to the
Company to
27
<PAGE>
enable the Company to make such payment, such payment by the Company shall be
deferred until such time as such payments are permitted.
Section 6.6. Closing. The closing by the Company of any exercise of its
-------
call right under Section 6.1 or of any exercise by a Management Investor or
Director Investor of his put right under Section 6.3 shall take place at the
offices of the Company, or such other place as may be mutually agreed, not less
than 15 nor more than 30 days after the date such right is exercised, as
specified by the Company in its Call Notice or by the Management Investor or the
Director Investor in his Put Notice. At such closing, such Management Investor
or the Director Investor shall deliver certificates for the shares of Common
Stock to be sold to the Company duly endorsed, or accompanied by written
instruments to transfer in form satisfactory to the Company duly executed, by
such Management Investor or Director Investor, free and clear of any liens,
against payment by the Company of the applicable purchase price therefor.
Shares of Common Stock forfeited pursuant to Section 6.1 hereof shall be
transferred to, and reacquired by, the Company without payment of any
consideration by the Company, and neither the Management Investor or the
Director Investor nor any of his successors, heirs, assigns or personal
representatives shall thereafter have any further rights or interests in such
shares or certificates. If certificates containing restrictive legends shall
have theretofore been delivered to the Management Investor or the Director
Investor, such certificates shall be returned to the Company, complete with any
necessary signatures or instruments of transfer.
Section 7. Miscellaneous.
-------------
Section 7.1. Inspection Rights. Each Shareholder shall have the right,
-----------------
upon reasonable prior notice to the Company, to visit and inspect the properties
of the Company and its Subsidiaries and to examine and copy (at its own expense)
their books of record and accounts, and to discuss their affairs, finances, and
accounts with their officers and their current and prior independent public
accountants, all at such times (during normal business hours) as such
Shareholder may reasonably request. The foregoing rights are in addition to,
and are not intended to limit, any rights that the Shareholders may have under
the law of the State of Delaware, including Sections 219 and 220 of the Delaware
General Corporation Law.
Section 7.2. Confidentiality. All materials and information obtained by
---------------
any Shareholder pursuant to Section 7.1 hereof shall be kept confidential and
shall not be disclosed to any third party except (a) as has become generally
available to the public (other than through disclosure by such Shareholder in
contravention of this Agreement), (b) to such Shareholder's directors, officers,
trustees, partners, employees, agents, and professional consultants on a need to
know basis, (c) to any other holder of shares of
28
<PAGE>
Common Stock, (d) to any Person to which such Shareholder offers to sell or
transfer any shares of Common Stock, provided that the prospective transferee
--------
shall agree to be bound by the provisions of this Section 7.2, (e) in any
report, statement, testimony or other submission to any governmental authority
having or claiming to have jurisdiction over such Shareholder, or (f) in order
to comply with any law, rule, regulation, or order applicable to such
Shareholder, or in response to any summons, subpoena or other legal process or
formal or informal investigative demand issued to such Shareholder in the course
of any litigation, investigation or administrative proceeding.
Section 7.3. Successors and Assigns. Except as otherwise provided herein,
----------------------
all the terms and provisions of this Agreement shall be binding upon, shall
inure to the benefit of and shall be enforceable by the respective successors
and assigns of the parties hereto. No Shareholder may assign any of its rights
hereunder to any Person other than a transferee that has complied in all
respects with the requirements of this Agreement (including, without limitation,
Section 3.4 hereof). The Company may not assign any of its rights hereunder to
any other Person. If any transferee of any Shareholder shall acquire any shares
of Common Stock in any manner, whether by operation of law or otherwise, such
shares shall be held subject to all of the terms of this Agreement, and by
taking and holding such shares such Person shall be entitled to receive the
benefits of and be conclusively deemed to have agreed to be bound by and to
comply with all of the terms and provisions of this Agreement.
Section 7.4. Amendment and Modification: Waiver of Compliances; Conflicts.
------------------------------------------------------------
(a This Agreement may be amended only by a written instrument duly
executed by all of the Shareholders. In the event of the amendment or
modification of this Agreement in accordance with its terms, the Shareholders
shall cause the Board of Directors to meet within 30 calendar days following
such amendment or modification or as soon thereafter as is practicable for the
purpose of adopting any amendment to the Certificate of Incorporation and By-
Laws that may be required as a result of such amendment or modification to this
Agreement, and, if required, proposing such amendments to the Shareholders
entitled to vote thereon, and the Shareholders agree to vote in favor of such
amendments.
(b Except as otherwise provided in this Agreement, any failure of any of
the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but such waiver or
failure to insist upon strict compliance
29
<PAGE>
with such obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure.
(c In the event of any conflict between the provisions of this Agreement
and the provisions of any other agreement, the provisions of this Agreement
shall govern and prevail.
Section 7.5. Notices. All notices and other communications provided for
-------
hereunder shall be in writing and delivered by hand or sent by first class mail
or sent by telecopy (with such telecopy to be confirmed promptly in writing sent
by first class mail), sent as follows:
(i) If to Capricorn, addressed to:
Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(ii) If to a Management Investor, a Director Investor or an
Other Investor,addressed to such shareholder at the address set forth in
the stock records of the Company;
(iii) If to the Company, addressed to:
Mrs. Fields' Holding Company, Inc.
c/o Capricorn Investors II, L.P.
30 East Elm Street
Greenwich, Connecticut 06830
Attention: Herbert S. Winokur, Jr.
30
<PAGE>
Telecopy: (203) 861-6671
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Randall H. Doud
Telecopy: (212) 735-3636
(iv) If to Harvard, addressed to:
Harvard Private Capital Group, Inc.
600 Atlantic Avenue
26th Floor
Boston, Massachusetts 02210-2203
Attention: John Sallay
Telecopy: (617) 523-1063
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: Larry Rowe
Telecopy: (617) 951-7050
or to such other address or addresses or telecopy number or numbers as any of
the parties hereto may most recently have designated in writing to the other
parties hereto by such notice. All such communications shall be deemed to have
been given or made when so delivered by hand or sent by telecopy, or three
business days after being so mailed.
Section 7.6. Entire Agreement: Governing Law.
-------------------------------
(a This Agreement and the other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire agreement among the
parties hereto with respect to the subject transactions contemplated hereby and
supersede all prior oral and written agreements and memoranda and undertakings
among the parties hereto with
31
<PAGE>
regard to this subject matter. The Company represents to the Shareholders that
the rights granted to the holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted or obligations accepted under any
other agreement (including the Certificate of Incorporation) to which the
Company is a party. Neither the Company nor any Subsidiary of the Company will
hereafter enter into any agreement with respect to its equity or debt securities
which is inconsistent with the rights granted to any Shareholder under this
Agreement without obtaining the prior written consent of such Shareholder.
(B THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
PRINCIPLES THEREOF).
Section 7.7. Injunctive Relief. The Shareholders acknowledge and agree
-----------------
that a violation of any of the terms of this Agreement will cause the
Shareholders irreparable injury for which an adequate remedy at law is not
available. Therefore, the Shareholders agree that each Shareholder shall be
entitled to, an injunction, restraining order or other equitable relief from any
court of competent jurisdiction, restraining any Shareholder from committing any
violations of the provisions of this Agreement.
Section 7.8. Availability of Agreement. For so long as this Agreement
-------------------------
shall be in effect, this Agreement shall be made available for inspection by any
Shareholder upon request at the principal executive offices of the Company.
Section 7.9. Headings. The section and paragraph headings contained in
--------
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
Section 7.10. Recapitalizations, Exchanges, Etc. Affecting the Shares of
----------------------------------------------------------
Common Stock; New Issuances. The provisions of this Agreement shall apply, to
- ---------------------------
the full extent set forth herein with respect to the shares of Common Stock and
to any and all equity or debt securities of the Company or any successor or
assign of the Company (whether by merger, consolidation, sale of assets, or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of, such equity or debt securities and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
reclassifications, recapitalizations, reorganizations and the like occurring
after the date hereof.
32
<PAGE>
Section 7.11. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.12. Arbitration.
-----------
(a) Any disagreement, dispute, controversy or claim arising out of
or relating to this Agreement or the transactions contemplated hereby,
including, without limitation, the interpretation hereof and any breach,
termination or invalidity hereof, shall be settled exclusively and finally (i)
through good faith negotiation of the parties for a period not in excess of 30
days and (ii) in the event such negotiations do not yield a settlement within
such 30-day period, by arbitration (irrespective of the magnitude thereof, the
amount in controversy or whether such matter would otherwise be considered
justiciable or ripe by a court or arbitral tribunal).
(b) The arbitration shall be conducted in accordance with the
commercial arbitration rules of the American Arbitration Association (the
Arbitration Rules@), except as those rules conflict with the provisions of this
Section 7.12, in which event the provisions of this Section 7.12 shall control.
(c) The arbitral tribunal shall consist of three arbitrators chosen
in accordance with the Arbitration Rules. The arbitration shall be conducted in
New York City. Any submission of a matter for arbitration shall include joint
written instructions of the parties requiring the arbitral tribunal to render a
decision resolving the matters submitted within 60 days following the submission
thereof.
(d) Any decision or award of the arbitral tribunal shall be final and
binding upon the parties to the arbitration proceeding. The parties agree that
the arbitral award may be enforced against the parties to the arbitration
proceeding or their assets wherever they may be found and that a judgment upon
the arbitral award may be entered in any court having jurisdiction thereof.
(e) All out-of-pocket costs and expenses incurred by any party in
connection with the resolution of any disagreement, dispute, controversy or
claim pursuant to this Section 7.12, including, but not limited to, reasonable
attorney's fees and disbursements, shall be borne by the party incurring the
same; provided, however, that the arbitral tribunal shall have the discretion to
-------- -------
declare any party as the Aprevailing party@ with respect to one or more of the
issues that were the subject of the arbitration and to
33
<PAGE>
require the other parties to the arbitration to reimburse such Aprevailing
party@ for some or all of its costs and expenses incurred in connection with
such proceeding.
(f) The costs of the arbitral tribunal shall be divided evenly
between the parties, unless there is a Aprevailing party,@ in which case the
arbitral tribunal may allocate more or all of such costs to the party thereto
that is not the Aprevailing party@.
(g) This Section 7.12 shall not prohibit or limit in any way any
party from seeking or obtaining preliminary or interim injunctive or other
equitable relief from a court for a breach or alleged breach of any of the
covenants and agreements of another party contained in this Agreement.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MRS. FIELDS' HOLDING COMPANY, INC.
By:__________________________
Name:
Title:
HARVARD PRIVATE CAPITAL HOLDINGS, INC.
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
CAPRICORN INVESTORS II, L.P.
By Capricorn Holdings L.L.C.,
General Partner
By:___________________________
Name:
Title:
35
<PAGE>
MANAGEMENT INVESTORS:
_________________________________
Larry A. Hodges
_________________________________
L. Timothy Pierce
_________________________________
Michael R. Ward
_________________________________
Garry Remington
_________________________________
Julie Byerlein
_________________________________
Pat W. Knotts
36
<PAGE>
DIRECTOR INVESTORS:
_________________________________
Peter Mullin
_________________________________
Richard Ferry
_________________________________
Walker Lewis
_________________________________
Gilbert Osnos
OTHER INVESTORS:
_________________________________
Karen Mills
37
<PAGE>
SETTLEMENT AGREEMENT AND RELEASE
SETTLEMENT AGREEMENT AND RELEASE, dated as of June , 1998 (this
"Agreement"), by and among Mrs. Fields' Original Cookies, Inc., a Delaware
corporation ("Mrs. Fields"), Capricorn Investors II, L.P., a Delaware limited
partnership ("Capricorn"), Great American Cookie Company, Inc., a Delaware
corporation ("GACC"), Cookies USA, Inc., a Delaware corporation ("Cookies USA"),
The Jordan Company ("Jordan"), ____________ (the "Franchisee"), and
____________, the controlling investor in the Franchisee (the "Franchisee
Principal").
WHEREAS, Mrs. Fields proposes to enter into an agreement pursuant to which
it would acquire Cookies USA, the parent entity of GACC (the "Proposed GACC
Acquisition");
WHEREAS, Mrs. Fields, its indirect controlling shareholder Capricorn, GACC
and Jordan are defendants in an action brought by certain franchisees of GACC in
the Superior Court of New Jersey, Law Division, Mercer County, under the caption
Robert and Sheila Goldberg, et al, vs. Great American Cookie Company, et al (the
- ---------------------------------------------------------------------------
"Litigation"), in which the plaintiffs in the Litigation have made certain
claims, including claims relating to the Proposed GACC Acquisition;
WHEREAS, Mrs. Fields, without conceding that there is a legal basis for any
such claims, is prepared to address such claims by making certain undertakings
provided for in Sections 2 and 3 of this Agreement (the "Undertakings") if the
Proposed GACC Acquisition is consummated and as an inducement to franchisees of
GACC and the investors in such franchisees (the "GACC Franchisees") to waive and
release such claims and any other claims that they may have relating to their
status as franchisees of GACC on terms and conditions satisfactory to Mrs.
Fields (the "Necessary Releases");
WHEREAS, Mrs. Fields is only willing to complete the Proposed GACC
Acquisition if the Litigation is dismissed with prejudice and the Necessary
Releases are received from all of the GACC Franchisees who are selling stock or
franchises pursuant to or contemporaneously with the Proposed GACC Acquisition
and at least 80% of the other GACC Franchisees;
WHEREAS, Mrs. Fields is willing to provide the Undertakings upon the terms
and conditions of this Agreement but only to GACC Franchisees that provide the
Necessary Releases; and
WHEREAS, the Franchisee and the Franchisee Principal are willing to provide
the Necessary Releases upon the terms and conditions of this Agreement.
NOW, THEREFORE,
The parties to this Agreement hereby agree as follows:
1. The Release. (a) In consideration of the Undertakings and other good
and valuable consideration and to settle a dispute among the parties, the
receipt and sufficiency of which is hereby acknowledged, the Franchisee and the
Franchisee Principal, on behalf of themselves, any predecessor or other past,
current or future direct or indirect investors in or directors, officers and
employees of the Franchisee and each such person's successors and assigns
(collectively with the Franchisee and
<PAGE>
the Franchisee Principal, the "Releasor Group") hereby release any and all
rights, causes and actions, whether or not known or anticipated, that any member
of the Releasor Group may have, directly or indirectly, against Mrs. Fields,
Capricorn, Cookies USA, GACC or Jordan and any of their respective past, current
or future direct or indirect investors, lenders, affiliates, directors, officers
or employees or any such person's successors and assigns (collectively, the
"Releasees") arising out of or otherwise relating to, directly or indirectly,
the Releasor Group's franchising, lease and supplier relationships with GACC or
the Proposed GACC Acquisition (the "Released Matters"), except for any rights,
causes of action or claims that (i) arise out of the express terms of this
Agreement, (ii) arise out of any failure by GACC to remit to any lessor any
sublease payments received from the Franchisee that were required under the
related lease to be remitted to such lessor, (iii) arise out of product
liability for ingredients or products supplied by GACC to the Franchisee, or
(iv) otherwise arise following the completion of the Proposed GACC Acquisition,
or (y) arise out of inadvertent errors of fact in the ordinary course of
business. The Released Matters include but are not limited to the subject matter
of each and every right, cause of action or claim (A) relating to the offering
and purchase of the GACC franchises owned by the Franchisee, (B) relating to the
proximity of any Mrs. Fields owned or franchised stores to GACC owned or
franchised stores or (C) otherwise asserted against any of the Releasees by the
plaintiffs in the Litigation or the Association of Great American Cookie
Franchisees (the "GACC Franchisee Association") in a writing addressed to Mrs.
Fields, Cookies USA, GACC, Capricorn or Jordan.
(1) The members of the Releasor Group understand and agree that this
is a full and final release applicable to all unknown and unanticipated claims,
as well as those known or disclosed, and in consideration of and as an
inducement for the Undertakings, the members of the Releasor Group hereby
expressly waive all rights or benefits which they now have or may in the future
have against any of the Releasees under the provisions of Section 1542 of the
California Civil Code, which section provides that "a general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known to him must have
materially affected his settlement with the debtor", or of provisions of similar
import under the laws of other jurisdictions.
(2) The Franchisee and the Franchisee Principal hereby represent and
warrant that (i) this Agreement has been approved by all necessary action
required to make it a valid and binding obligation of the Franchisee, the
Franchisee Principal and all the other members of the Releasor Group, as the
case may be, and
2
<PAGE>
(ii) this Agreement is the valid, binding and legal obligation of the
Franchisee, the Franchisee Principal and all other members of the Releasor
Group.
(3) Mrs. Fields, Capricorn, GACC, Jordan and their respective
successors and assigns, in consideration of the benefits afforded to them in
consequence of the execution of this Agreement, do hereby release and waive,
irrevocably, any and all rights, causes of actions, whether or not known or
anticipated, that they or any of them has or may have, directly or indirectly,
against the Franchisee, or the Franchisee Principal, or against the GACC
Franchisee Association and its officers, agents and directors (said Association
and its officers, agents and directors being intended beneficiaries of this
provision), arising out of or otherwise relating to, directly or indirectly the
assertion of claims in the Litigation or the Proposed GACC Acquisition; but
excluding claims arising out of or in relation to the execution and performance
of this Agreement.
2. Tag-Along Rights. (a) If following the consummation of the Proposed
GACC Acquisition (i) Mrs. Fields, its parent company Mrs. Fields' Holding
Company, Inc. or any parent company thereof of Mrs. Fields ("MFH") or GACC
proposes to sell, in a single transaction or a series of related transactions,
to an unaffiliated party substantially all of its rights as owner of the GACC
brand or as the franchisor of GACC (the "Franchise Sale"), (ii) Mrs. Fields or
MFH proposes to make a public offering of its common stock (the first such
public offering, the "Qualifying Public Offering") or (iii) Mrs. Fields or MFH
proposes to enter into a transaction that is not a Franchise Sale or a
Qualifying Public Offering but would effect a transfer of control of Mrs. Fields
or of MFH to an unaffiliated party (a "Change of Control" and, together with a
Franchise Sale or a Qualified Public Offering, the "Transaction"), Mrs. Fields
shall notify the Franchisee of the proposed Franchise Sale, the proposed
Qualifying Public Offering or the proposed Change of Control if at the time of
the notice the Franchisee is the franchisee of one or more stores franchising
the GACC, Mrs. Fields or Pretzel Time brands or any other brand or concept then
franchised by MFH or a subsidiary thereof (the "Stores"). In the case of the
proposed Franchise Sale or Change of Control, Mrs. Fields shall give 60 days'
written notice prior to the consummation of the proposed Franchise Sale, and, in
the case of the proposed Qualifying Public Offering, Mrs. Fields shall give not
less than 120 days' notice before the filing of the initial registration
statement prepared in connection with the proposed Qualifying Public Offering.
(1) If upon its receipt of a notice pursuant to Section 2(a) the
Franchisee is not a Qualifying Franchisee (as defined in Section 2(c)), it shall
have
3
<PAGE>
the right, subject to the completion of such proposed Franchise Sale, Qualifying
Public Offering or Change of Control and to the Franchisee then being in
compliance with its obligations under its franchising arrangements with GACC,
Mrs. Fields, Pretzel Time and any other subsidiary of MFH, upon notice to Mrs.
Fields within thirty (30) days of the right of sending of the notice by Mrs.
Fields, to receive, at Mrs. Fields' election, either the greater of $3,500 in
cash or $2,000 per store for each such Store (the "Payment Amount") or, if the
proposed Qualifying Public Offering is completed, shares of common stock of Mrs.
Fields or MFH (the "Shares") issued therein with a value not less than the
Payment Amount based on the initial offering price of such stock in such
Qualifying Public Offering, subject to such reasonable transfer restrictions as
Mrs. Fields determines to be advisable to ensure successful completion of such
Qualifying Public Offering. For purposes of Sections 2 and 3, the Franchisee
shall be deemed to be in compliance with its obligations under its various
franchising agreements if there are no uncured notices of material defaults by
the Franchisee during the period from the date by which a Qualifying Franchisee
must give a notice pursuant to Section 2(c) to exercise its rights through the
Payment Date (as defined in Section 2(e)). The delivery of the Franchisees
notice to Mrs. Fields pursuant to this Section 2(b) shall obligate Mrs. Fields,
within thirty (30) days after the completion of the Transaction, either (i) to
pay the Payment Amount to the Franchisee, or (ii) to deliver the Shares to the
Franchisee.
(2) If upon its receipt of a notice of election pursuant to this
Section 2(c) the Franchisee is the franchisee of five or more Qualifying Stores
or within 30 days after the date of the sending of such notice enters into a
binding agreement to acquire additional stores bringing its number to five or
more Qualifying Stores (as defined below) (a "Qualifying Franchisee"), and
wishes to exercise its rights under this Section 2 in connection with such
proposed Franchise Sale, Qualified Public Offering or Change of Control, it must
do so by providing written notice to Mrs. Fields within 30 days of the date of
the sending by Mrs. Fields of such notice. If the Franchisee is a Qualifying
Franchisee and fails to so notify Mrs. Fields within such 30 day period, it will
be deemed to have waived its rights hereunder. If the Franchisee is a Qualifying
Franchisee, provides such notice within such period and is in material
compliance with its obligations under its franchising arrangements with GACC,
Mrs. Fields, Pretzel Time and any other subsidiary of MFH, or for any other
concept franchised by GACC, Mrs. Fields, or MFH or any of their affiliates, the
Franchisee shall have the right to sell, at the Purchase Price (as defined
below), subject to the terms and conditions hereof, all, but not less than all,
of the Franchisee's Qualifying Stores to Mrs. Fields or a subsidiary thereof.
For purposes of this Section 2, a "Qualifying Store" is deemed to be a Store
which has had cash flow
4
<PAGE>
in the aggregate for the twelve fiscal months (or such fewer number of fiscal
months as it has been operating) most recently completed for which financial
information is available as of the date of the sending of the notice pursuant to
Section 2(a) that is both positive in the aggregate for such period and sales
not more than twenty (20%) percent below the twelve (12) fiscal month period
immediately preceding such period. The delivery of the Franchisee' notice to
Mrs. Fields pursuant to the provisions of this Section 2(c) shall create an
agreement between the Franchisee and Mrs. Fields whereby Mrs. Fields shall
purchase from the Franchisee, and the Franchisee shall sell to Mrs. Fields, the
Franchisee's Qualifying Stores for the Purchase Price and upon the other terms
and conditions contained in this Section 2.
(3) The aggregate purchase price (the "Purchase Price") for all of
the Qualifying Stores of a Qualifying Franchisee shall be (i) in the case of
Stores which have had at least twelve fiscal months of completed operations, 5 x
EBITDA (as defined below) for all such Stores for the twelve fiscal months most
recently completed for which financial information is available as of the date
of the sending of the notice pursuant to Section 2(a) attributable to such
Stores as of the end of the latest such fiscal month and (ii) in the case of
Stores which have had less than twelve fiscal months of completed operations,
the greater of the amount determined pursuant to clause (i) and the documented
development costs of the Franchisee with respect to such Store. "EBITDA" shall
mean, for any period of twelve fiscal months (or such fewer number of fiscal
months as it has been operating), the aggregate earnings before depreciation,
amortization, interest, income taxes and other income (expense) during such
period attributable to the Stores as to which the determination is being made,
as adjusted to reflect any increased annual lease payments necessitated by
reason of the sale of the Qualifying Stores. Mrs. Fields and the Franchisee
agree that the Purchase Price will be allocated to the assets acquired at their
book value with any residual amount allocated to goodwill.
(4) The Purchase Price shall be paid by wire transfer to an account
designated by written notice from the Franchisee at least three business days
before payment is due on the third business day after Mrs. Fields or MFH
receives the proceeds from the Franchise Sale or the Qualifying Public Offering,
as the case may be (the "Payment Date").
(5) Mrs. Fields' obligation to pay the Purchase Price shall be
subject to (i) completion of the Franchise Sale, the Qualifying Public Offering
or the Change of Control and the receipt by Mrs. Fields or MFH of the proceeds
therefrom, (ii) each Store being purchased having customary equipment, inventory
and
5
<PAGE>
smallwares as of the closing, (iii) any required consent to the assignment of
the leases relating to the Stores having been obtained and delivered to Mrs.
Fields in form and substance reasonably satisfactory to Mrs. Fields not later
than 30 days following the giving of the notice of exercise by the Franchisee
pursuant to Section 2(c), and (iv) the Qualifying Franchisee executing and
delivering to Mrs. Fields an asset purchase agreement contemplating a sale of
all the assets and, to the extent indicated below, the ordinary course
liabilities attributable to the Stores to be transferred and containing
representations and warranties, covenants, conditions and indemnification
arrangements as are customary to the purchases of stores from franchisees by
Mrs. Fields, and exemplified in an agreement in the form of the Asset Purchase
Agreement attached hereto. The asset purchase agreement will provide that Mrs.
Fields will assume and indemnify the Qualifying Franchisee against post-closing
leasehold obligations and liabilities and obtain the release of any related
personal guaranties and that the Qualifying Franchisee will retain
responsibility for and indemnify Mrs. Fields against all pre-closing leasehold
obligations and liabilities, all pre-closing taxes, all debt and all other pre-
closing fixed or contingent liabilities (including litigation). Unless otherwise
agreed to by Mrs. Fields in its sole discretion, any employment agreements or
other agreements or arrangements with the Franchisee Principal or affiliates
thereof that relate to the Stores purchased will be terminated on or prior to
the closing without liability or cost to the Store or Mrs. Fields.
3. Other Undertakings. As further consideration for the members of the
Releasor Group providing the release pursuant to Section 1, Mrs. Fields hereby
agrees for the benefit of the Franchisee as follows, each such undertaking to be
subject to the consummation of the Proposed GACC Acquisition and to the
Franchisee then being in compliance with its obligations under its franchising
arrangements with GACC, Mrs. Fields, Pretzel Time and any other subsidiary of
MFH:
(1) The margin that is presently in effect for batter that is
provided to the Franchisee by GACC for use in the Franchisee's Stores will not
be changed for at least three years following completion of the Proposed GACC
Acquisition. For purposes of the foregoing, it is agreed that (i) costs taken
into account shall consist only of ingredients, utilities and labor and other
direct or indirect costs (as defined by Arthur Andersen) and (ii) any and all
increases or decreases in ingredient prices or shipping costs (without respect
to inefficiencies brought about by lower volumes) will be passed through on a
dollar for dollar basis except to the extent that an increase is reasonably
determined by Mrs. Fields to have been caused primarily by
6
<PAGE>
actions of Mrs. Fields and that Mrs. Fields' compliance with this undertaking
will be subject to verification by Mrs. Fields' independent auditors in
connection with their annual audit of Mrs. Fields' financial statements.
(2) At the time that the license agreement relating to any of the
Stores owned by the Franchisee as of the date of this Agreement is next up for
renewal, the Franchisee will be permitted to extend its franchise relating to
such Store for a renewal period equal to the new term of its lease and otherwise
on the terms and conditions as are now applicable under the 1998 version of
GACC's license agreement.
(3) The Franchisee may elect to convert some or all of the Stores
owned by the Franchisee (if there is not an existing MFOC cookie store in the
mall) to Mrs. Fields franchises, subject to the Franchisee entering into Mrs.
Fields' standard form of franchising agreement as then in effect, paying the
difference, if any, between the initial franchise fee it originally paid and the
then current fee required under the new franchise agreement and paying the cost
of conversion in accordance with Mrs. Fields' current store design.
(4) The Franchisee will be eligible on an equal footing with existing
franchisees of Mrs. Fields to acquire new Mrs. Fields and, subject to then-
existing area development rights, Pretzel Time franchises as and when Mrs.
Fields determines to offer them to existing franchises in the geographical areas
where the Franchisee currently owns Stores. In any such cases in which Mrs.
Fields must choose between the Franchisee and other potential franchisees for
the same location, the location will be offered to the best franchisee for the
location that is in good standing, based on criteria that will be developed by
the GACC Franchisee Association (which Mrs. Fields agrees to recognize) and
approved by Mrs. Fields. The same procedures shall apply to any brand or concept
franchised by Mrs. Fields. The procedures set forth in this Section 3(d) shall
not apply to any proposed or potential site in a mall in which a franchisee has
developed or created the opportunity for through his or her own efforts. If a
second GACC franchise is to be developed in a mall where there is an existing
GACC franchised store, the terms of the existing GACC franchise agreement shall
apply.
(5) Mrs. Fields will maintain product development support and
marketing expense for GACC products at no less than their fiscal year 1997
levels.
7
<PAGE>
(6) Any material change made to the GACC franchise agreement will be
made with the involvement of the GACC Franchisee Association.
(7) Mrs. Fields agrees to recognize and discuss with the GACC
Franchisee Association on all material matters directly affecting the GACC
franchisees for so long as the GACC Franchisee Association continues to
represent a majority of the existing GACC franchise stores and its Board of
Directors is elected through democratic procedures.
(8) Unless otherwise agreed to by the GACC Franchisee Association,
Mrs. Fields agrees to maintain the GACC product and brand indefinitely.
4. Undertakings Not Transferable. The Undertakings of Mrs. Fields in
Section 2 are specific to the Franchisee and may not be transferred to any other
party without the prior written consent of Mrs. Fields in its sole and absolute
discretion, but Mrs. Fields shall allow a GACC franchisee's heirs or other
successors by operation of law to exercise the tag-along rights provided for in
Section 2. The benefits of the Undertakings in Section 3 are transferable to a
successor franchisee in conjunction with an assignment of the GACC franchise
agreement.
5. Miscellaneous. This Agreement may be executed in one or more
counterparts, may not be changed orally and is made and shall be governed by and
construed in all respects in accordance with the laws of the State of Delaware,
without regard to the principles of conflicts of laws thereof which might refer
such interpretation to the laws of a different state or jurisdiction. This
Agreement benefits and binds the parties hereto and, subject to Section 4, their
respective successors and assigns. Notices hereunder shall be in writing and
addressed to the address indicated below or to such other address as the
intended recipient has specified in writing, and (assuming actual receipt) are
deemed given when delivered in person, one business day after being sent by
telecopier or by overnight express mail service, or four business days after
being sent by mail. All disputes arising in connection with the interpretation,
performance and enforcement of this Agreement shall be resolved through binding
arbitration under the Federal Arbitration Act and conducted by the American
Arbitration Association under its rules for commercial arbitration, provided
that the arbitrator may award reasonable fees and costs to the prevailing party.
Arbitration shall take place in the state where the respondent's principal place
of business is located.
8
<PAGE>
6. Nonseverability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
<TABLE>
<S> <C>
Mrs. Fields' Original Cookies, Inc. Capricorn Investors II, L.P.
By:______________________________________________ By:______________________________________________
Name:____________________________________________ Name:____________________________________________
Title:___________________________________________ Title:___________________________________________
Address: 2855 East Cottonwood Parkway, Suite 400 Address: 30 East Elm Street
Salt Lake City, Utah 84121 Greenwich, Connecticut 06830
Great American Cookie Company, Inc. The Jordan Company
By:______________________________________________ By:______________________________________________
Name:____________________________________________ Name:____________________________________________
Title:___________________________________________ Title:___________________________________________
Address: 4685 Frederick Drive, SW Address: 9 West 57th Street, Suite 4000
Atlanta, Georgia 30336 New York, New York 10019
Cookies USA, Inc.
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
Address: 9 West 57th Street, Suite 4000
New York, New York 10019
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
The Franchisee: The Franchisee Principal:
[ ]
By:____________________________________ Name:___________________________________
Name:__________________________________ Address:________________________________
Title:_________________________________
Address:
</TABLE>
10
<PAGE>
PENNANT
FOODS
March 30, 1998
Mrs. Fields Original Cookie Company
462 West Bearcat Drive
Salt Lake City, UT 84115
Re: Supply Agreement
Ladies and Gentlemen:
This letter sets forth the terms of the agreement between Mrs. Fields
Original Cookie Company ("Buyer") and LBI Acquisition Corp. d/b/a Pennant Foods
("Seller"), relating to the purchase by Buyer, and the sale by Seller, of cookie
dough and other bakery products, having the item codes and names listed on
attached Exhibit A, and "new bakery products" designated as such under Paragraph
5 below (collectively, "Products").
1.- Minimum Annual Purchase and Sale of the Products. Buyer agrees to
buy, and Seller agrees to sell, an amount not less than 23,000,000 pounds of the
Products during each of calendar years 1998, 1999, and 2000 (the "term").
2. Volume Incentives and Penalties.
(a) Rebate to Buyer. Within sixty (60) days after the end of
each calendar year during the term, Seller shall pay to Buyer a rebate for
purchases of the Products that exceed the minimum annual purchase obligation in
Paragraph 1 above. The amount of the rebate shall be determined by multiplying
the actual total pounds of the Products purchased by Buyer during the year by
the corresponding incentive payment rate listed in attached Exhibit B.
(b) Penalty Payment by Buyer. If Buyer fails to meet its
minimum annual purchase obligation under Paragraph 1, then, within sixty (60)
days after the end of the applicable calendar year during the term, Buyer shall
pay to Seller a penalty in an amount determined by multiplying 23,000,000 by the
per pound penalty rate listed in attached Exhibit C corresponding to the volume
of Products actually purchased by Buyer. The penalty is intended to compensate
Seller for its incremental unit cost of producing the lesser volume actually
purchased by the Buyer.
<PAGE>
Mrs. Fields Original Cookie Company
Page 2
March 30,1998
(c) Remedies For Failure to Meet Minimum. If Buyer's failure
to purchase the minimum annual quantities of the Products required under
Paragraph 1 is attributable to a decrease in requirements for the Products due
to declines in Buyer's business, then the penalty payment by Buyer under
Paragraph 2(b) is the Seller's exclusive remedy. However, if Buyer's failure to
make such purchases is attributable to Buyer's purchase of like products from an
alternative supplier, then, in addition to the penalty payment by Buyer under
Paragraph 2(b), Buyer shall pay Seller a sum determined by multiplying the
volume shortfall by an amount equal to the Seller's weighted average of the
conversion charges for the Products purchased, as set forth on Exhibit A, less
Seller's variable manufacturing costs not incurred.
3. (a) Distributor Purchases. Distributors designated by Buyer,
who are approved by Seller and who meet Seller's normal standards of
creditworthiness, may order and purchase the Products and otherwise act on
Buyer's behalf pursuant to this Agreement. Any such distributor purchases, or
any purchases by or on behalf of Buyer's franchisees or licensees shall be
governed by the terms of this Supply Agreement (except to the extent
inconsistent with any separate agreement between Seller and any such franchisee
or licensee) and shall be counted towards Buyer's minimum annual purchase
obligation under Paragraph 1.
(b) Recovery of increased Distribution Costs.
(i) All shipments from Seller to Buyer's distributor
(currently BlueLine Distribution) will be on a full truck load basis. Less than
truck load shipments will be approved by Buyer's Distributor and the cost
between actual cost and full truck rate will be paid by Buyer's Distributor. In
the event that Buyer changes distributors or if the current distributor changes
its destination points from the current "ship to" locations, Seller is entitled
to recalculate freight costs and adjust the total conversion costs accordingly.
(ii) Should a Force Majeure Event (as defined in
Section 20 (a)) occur which affects the cost of transportation, Seller is
entitled to recalculate the freight costs and adjust the conversion costs
accordingly.
4. Price.
(a) The price to be paid for the Products shall be an amount
equal to the Total Price ($ per lb.) as listed on the attached Exhibit A,
adjusted as may be provided in Paragraphs 4(b) through 4(e) below.
(b) Commodity Items - Price Adjustment. Commodity Items are
listed in Exhibit D and include bagged flour, bagged sugar, eggs, chocolate,
butter, nuts, oil and packaging ("Commodity Items"). Standards for Commodity
Items will be set at the beginning of the year based on a forecasted average
annual cost ("Commodity Standards"). These Commodity Standards will be evaluated
quarterly and adjusted to market conditions. At the end of each quarter, an
average of actual purchases costs paid during the quarter will be tallied
against the standard. If the aggregate for the quarter varies by at least
$50,000 (positively or negatively), the total variance will be applied to raw
material pricing across all
<PAGE>
Mrs. Fields Original Cookie Company
Page 3
February 12, 1998
products for the next quarterly pricing period. Aggregate amounts less than
$50,000 will be rolled forward and added into the aggregate of the next quarter.
This process will be settled at the end of each calendar year.
Volume (pounds) to be used for allocating the rate of the raw material
variances per quarter for re-pricing will be the minimum volume of 23,000,000
lbs. divided by the four quarters or 5,750,000 lbs. per quarter. (This is to
lessen the volume swings of seasonal business).
(c) Non-Commodity Items - Price Adjustment. Raw material and
packaging costs for non-commodity items will be adjusted by the Seller at the
end of each calendar year and applied to Products purchased in the following
year as follows:
All ingredients and packaging (except for Commodity
Items listed in 4(b)and Exhibit D) shall be adjusted to a standard cost which is
derived by using the last actual cost paid by Seller for the item. This cost
will be used for the subsequent calendar year.
(d) Labor and Energy Costs - Price Adjustment To enable
Seller to cover rising labor and energy costs during the term of this agreement,
Buyer agrees to the following annual increases to total conversion cost on all
manufactured items as follows:
(i) January 1, 1999 - $0.00333 per pound; and
(ii) January 1, 2000 - $0.00333 per pound.
(e) Price Rebates. At the end of each calendar quarter
Seller shall rebate to Buyer $0.071 for each pound of Product sold by Seller
during the calendar quarter. Seller shall rebate an additional $0.02 for each
pound of Product sold in accordance with the attached Schedule A.
Except as to Legacy Brands, Inc., the price under this Paragraph 4
shall not apply to purchases by any of Buyer's franchisees or licensees to the
extent inconsistent with any separate agreement between Seller and any such
franchisee or licensee unless Product can be priced to include any rebate.
5. New Bakery Products. If compatible with the normal operation
of Seller's business, Seller agrees to manufacture any new bakery products
designated as such by Buyer (whereupon they will be deemed "Products" for all
purposes under this agreement) pursuant to the directions, formulations and
recipes communicated by Buyer to Seller. Seller's obligation to supply new
bakery products to Buyer under this Paragraph 5 is subject to agreement between
Buyer and Seller on the initial price to be charged Buyer for the same. For
purposes of computing the price to be paid by Buyer under Paragraph 4, such
initial price shall be deemed to be the price as if listed on attached Exhibit
A. Seller agrees to cooperate and offer reasonable assistance to Buyer in the
development of new bakery products,
<PAGE>
Mrs. Fields Original Cookie Company
Page 4
February 12, 1998
provided in each case that Buyer agrees to compensate Seller for costs incurred.
6. Quantities and Orders.
(a) Buyer shall, prior to September 30 of each Calendar year
during the term, furnish Seller with a schedule forecasting monthly estimated
quantities of the specific Products to be purchased by Buyer during the
following calendar year.
(b) Buyer or its designated representative shall submit an
order to Seller on or prior to Wednesday of each week for Products to be
produced by Seller during the following week. Seller may decline to accept any
actual orders for Products during any quarter to the extent that such order
exceeds by more than twenty (20) percent of the amount of Products scheduled for
production during an average production week. Seller reserves the right to
decline any order which is less than a full batch size. Each order submitted by
Buyer for Products shall state that it is submitted pursuant to this Agreement,
shall be transmitted to Seller in writing, and shall include the quantity,
description, and item number of Products ordered, delivery points, delivery
schedules, shipping instructions, and such other information as Seller may
reasonably require. Each order shall be for a minimum of one batch of the
Products ordered, and shipping instructions shall correspond with the regional
delivery schedule provided from time to time by Seller. Seller shall confirm in
writing receipt of each order.
7. Delivery. Seller shall ship Products ordered by Buyer pursuant
to Paragraph 6 (b) hereof such that the Products are delivered to the
destination designated by Buyer by the dates specified for delivery, except that
the date specified for delivery shall be an approximate date for unloading
Products and shall allow for normal transportation delays. Seller shall notify
Buyer in writing of the date on which Products ordered have been shipped and all
related shipping information. Delivery of products shall be C.I.F. the
destination (within the 48 contiguous states) designated by Buyer in the notice
given pursuant to Paragraph 6 (b). Seller shall ship Products in refrigerated
containers at 0 degrees F. or below.
8. Payment The price for the Products shall be payable net cash
within 20 days from the date of invoice or shipment, whichever is earlier. Buyer
or its representative may dispute any invoice in good faith as long as Buyer or
its Representative shall pay all undisputed amounts in a timely manner. Buyer or
its Representative shall pay interest on all overdue accounts at the lessor of
(1) the "Prime Rate" (or any successor rate) as then published in the Wall
Street Journal plus 1% or (ii) the highest applicable legal rate (the "Penalty
Rate").
9. Sale of Products to Others. Seller will not sell or offer to
sell the Products or any bakery items produced from the Licensed Trade Secrets
(as hereinafter defined) or derived therefrom to any persons, entities, or
parties other than Buyer or any Licensee of Buyer. Nothing in this Agreement
shall be construed to limited Seller's right to sell to other customers items
which are of a similar type to the Products but which do not use the Licensed
Trade Secrets in their manufacture, production, formulation, or otherwise.
<PAGE>
Mrs. Fields Original Cookie Company
Page 5
February 12,1998
10. Purchase of Supplies. If Seller acquires raw materials or
supplies which are unique to the production of Products and which are not
customarily used in the production of other bakery items by Seller (the
"Supplies'), and the Supplies are not used in the production of Products ordered
by Buyer during the shelf life of the Supplies, and the Supplies cannot be used
by Seller in the manufacture of other bakery items in the normal course of
Seller's business, Buyer shall pay to Seller the actual costs of the Supplies
not used by Seller and all expenses incurred by Seller in the storage and any
disposal thereof. In addition, if Seller has produced Products to fill an order
received from Buyer pursuant to Paragraph 6 (b) hereof, and Buyer does not call
for delivery of the same before the expiration of the shelf life thereof, Seller
shall destroy the same and invoice Buyer for the price with respect thereto.
11. Duty To Examine. Upon receipt of the Products at their
destination, Buyer shall examine the Products for impurities, damage, spoilage,
and any and all other defects to such Products. Promptly upon discovery thereof
by Buyer, but in any event not later than thirty (30) days after receipt, Buyer
shall notify Seller of any products which are damaged, defective, opened or
improperly packaged. If Buyer has previously paid for defective Products, Buyer
shall be entitled to a refund of the portion of the Price attributable to such
defective Products within ten (10) days after the notice of the defect, unless
the same is disputed by Seller in good faith, except that if the amount to be
refunded does not exceed $1,000, such amount shall be a credit against the next
invoice. Seller shall pay Buyer interest on all overdue accounts calculated at
the Penalty Rate. If requested by Seller, Buyer shall promptly return defective
Products to Seller at Seller's expense. Buyer further agrees to take reasonable
steps at Seller's expense, for a period not to exceed ten (10) days after notice
to Seller of the defect, to preserve the rejected Products pending Seller's
instructions.
12. Replacement of Damaged Goods. If Seller discovers, upon
examination pursuant to Paragraph 11 hereof, that any of the Products delivered
to Buyer are spoiled, damaged or otherwise defective, Buyer shall have the right
to require Seller to replace such defective Products, provided that at least
five (5) percent (by price) of the total shipment of Products is spoiled,
damaged or otherwise defective. If Buyer so elects to have such Products
replaced, the shipment of any replacement products will have priority over
shipments by Seller to other customers of Seller, and will be effected within
seventy-two (72) hours (or three working days, if later). Seller shall, if
requested by Buyer, cause such replacement Products to be delivered to Buyer, at
Seller's expense, by the most rapid means of commercially feasible ground
transportation available.
13. Rotation of Finished Products. Seller agrees to rotate all
finished Products stored by Seller after production on a "first in-first out"
basis.
14. License. For purposes of this Agreement, "Licensed Trade
Secrets" means all transferable techniques, processes, methods of production and
know-how uniquely pertaining to and necessary for use in relation to the
formulation, composition and production of Products. Information which was
already in the possession of Seller, but which was not obtained in connection
with this transaction or past transactions with Buyer, or information which is
or becomes publicly available without breach of (i) this Agreement, (ii) any
agreement or instrument with Buyer to which Seller is a
<PAGE>
Mrs. Fields Original Cookie Company
Page 6
February 12,1998
party or beneficiary, or (iii) any duty owed Buyer by Seller or any other
subsidiary of Seller, shall be excluded from the definition of Licensed Trade
Secrets. Buyer hereby grants to Seller, and Seller accepts from Buyer, a
non-exclusive license to employ the Licensed Trade Secrets solely for the
purpose of producing the Products for sale to Buyer and Licensees of Buyer.
15. Confidentiality. Seller understands that the Licensed Trade
Secrets disclosed to Seller under this agreement are secret, proprietary and of
value to Buyer, which value may be impaired if the secrecy of such information
is not maintained. Seller will take reasonable security measures to preserve and
protect the secrecy of the Licensed Trade Secrets. Seller agrees to hold the
Licensed Trade Secrets in confidence and not to disclose any of the Licensed
Trade Secrets, either directly or indirectly, to any person or entity, including
any subsidiary or affiliate of Seller (or any director, officer, or employee
thereof) during the term of this agreement or at any time within five (5) years
following the expiration or termination hereof, except that Seller may disclose
the Licensed Trade Secrets to its key officers and employees to whom disclosure
is necessary for the manufacture of the Products pursuant to this agreement.
Seller shall exercise such other reasonable precautions to protect and safeguard
the secrecy of the Licensed Trade Secrets except that Seller shall not be
required to employ any more stringent measures than it employs in connection
with protection of its own confidential information.
16. Representations and Warranties of Seller. Seller represents,
warrants and agrees as follows:
(a) Conformity with Specifications. The Products will be
manufactured strictly in accordance with the standards, procedures,
specifications, formulations and recipes from time to time reasonably
established by Buyer. If at any time Buyer deems the quality of the Products to
be below such standards, Buyer may so notify Seller in writing, and Seller will
immediately bring such substandard Products up to the quality standards required
by this agreement. Buyer's right to oversee the quality of the Products shall
not in any way replace, supersede, or substitute for the quality control
required to be exercised by Seller hereunder. The exercise of any action of
quality control by Buyer shall be for its sole and exclusive benefit. If at any
time Seller adapts or modifies the Products in accordance with a request from
Buyer, Seller will produce and manufacture such alternate or modified Products
using the same quality control standards and procedures with respect to such
Products as Seller is required to observe in the manufacture of the Products.
(b) Compliance with Law. Seller will manufacture the
Products in compliance with all applicable federal, state and local laws or
regulations to which Seller is subject, except that Seller shall not be liable
to Buyer for any violation of any such laws or regulations if arising from the
adherence by Seller to the instructions of Buyer.
17. Indemnification.
(a) Seller agrees to indemnify and hold Buyer harmless from
and against any and all demands, liabilities, damages, expenses, causes of
action, suits, claims or judgments (including
<PAGE>
Mrs. Fields Original Cookie Company
Page 7
February 12, 1998
reasonable attorneys' fees) arising out of or in connection with (i) any damage
to property, injuries, illness or loss of life which occur on account of, or in
connection with the use or consumption of Products which were defective in
condition, quality or purity as of delivery to Buyer, whether such condition was
discovered at the time of delivery or at a later date, and (ii) any default by
Seller in the observation or performance of its covenants and agreements
contained herein. Buyer agrees to indemnify and hold Seller harmless from and
against any and all demands, liabilities, damages, expenses, causes of actions,
suits or judgments (including reasonable attorneys' fees) arising out of or in
connection with (i) the sale, distribution, handling or misuse of the Products
after delivery to Buyer except to the extent to which Buyer is indemnified by
Seller under this Paragraph 17, and (ii) any default by Buyer in the observance,
payment or performance of its covenants and agreements contained herein. Any
amounts payable by one party to the other pursuant to this Paragraph 17 shall be
limited to actual damages, and shall not include any amounts attributable to
incidental or consequential damages.
(b) Buyer represents to Seller that it has made and will
continue to make all required disclosures to its franchisees concerning rebates
or other payments by Seller to Buyer or its affiliates, and Buyer agrees to
defend, indemnify and hold Seller harmless from any claims, liabilities, or
damages, including attorneys' fees, arising out of any breach by Buyer of this
representation.
18. Termination.
(a) Seller's Rights. Seller, at its option, shall have the
right by notice to Buyer, in addition to any other remedy available at law, in
equity or pursuant to this agreement (including but not limited to an
injunction, specific performance and damages) to suspend or terminate Buyers
right to purchase, and Sellers obligation to supply Buyer with Products and any
other future right of Buyer pursuant to this agreement upon the happening and
during the continuance of any one or more of the following events:
(i) Buyer fails to pay any amount owing to
Seller hereunder within thirty (30) days from the date Buyer receives notice of
a default hereunder; and
(ii) Buyer defaults in the performance of any
other term, covenant,agreement or condition of this agreement and if within
sixty (60) days after notice from Seller describing the specific activities
constituting such default, Buyer shall fail to cure default, or if such default
cannot be cured with the exercise of due diligence within said sixty (60) day
period, shall fail thereafter to proceed to cure the same diligently and in
good faith, and in any case, to cure such default within one hundred-twenty
(120) days.
(b) Buyer's Rights. Buyer, at its option, shall have
the right by notice to Seller, in addition to any other remedy available by law,
in equity or pursuant to this agreement (including but not limited to the right
to an injunction, specific performance and damages) to terminate Buyers
obligation to purchase Products from Seller, and any other future right of
Seller pursuant to this agreement, if Seller defaults in the performance of any
material term, covenant, agreement or condition of this agreement, and if within
sixty (60) days after notice from Buyer describing the specific activities
<PAGE>
Mrs. Fields Original Cookie Company
Page 8
February 12, 1998
constituting such default, Seller shall fail to cure the default, or if such
default cannot be cured with the exercise of due diligence within a sixty (60)
day period, shall fail thereafter to proceed to cure the same diligently and in
good faith, and in any case, to cure such default within one hundred-twenty
(120) days;
(c) Remaining Obligations. The termination of this agreement
by either party pursuant to this Paragraph 18 shall not relieve (i) either party
of its obligation to pay all such sums owed to the other hereunder, (ii) Seller
of its obligation of confidentiality under Paragraph 16, and (iii) either party
of its respective obligations of indemnity contained herein.
19. Assignment. Buyer and Seller may, without the consent of the
other party, with notice to the other party, assign its rights and obligations
hereunder to a related entity, but shall remain liable therefor. For purposes of
this Paragraph 19, the term "related entity." shall mean any corporation,
partnership or joint venture which is fifty percent (5 0%) or more owned by
Buyer or Seller, as the case may be. Except as provided in this Paragraph 19,
Buyer and Seller may not assign their rights or obligations hereunder without
the prior written consent of the other party. Subject to the foregoing
limitation, all the terms and provisions of this agreement shall be binding
upon, and shall inure to the benefit of, the successors in interest or the
assigns of the parties hereto with the same effect as is mentioned in each
instance, or the party hereto is named or referred to, except that no
assignment, transfer, pledge or mortgage and violation of the provisions of this
agreement shall vest any rights and any assignee, transferee, pledgee, or
mortgagee.
20. Miscellaneous.
(a) Force Majeure. Neither party shall be deemed to be in
default under this agreement because of delays or inability to perform
occasioned by war, civil disturbance, strikes, boycotts, lock-outs, shortages,
transportation and communication problems, natural calamities such as fire,
flood, earthquake, storm, acts of God, governmental regulations or actions,
inability to obtain labor or materials from usual sources of supply, or. other
means beyond the parties' control (a "Force Majeure Event"). In case of a Force
Majeure Event affecting production of Products by Seller, (i) deliveries of
Products by Seller hereunder shall be allocated among Buyer and Seller's other
customers on a fair and reasonable basis and (ii) (a) Buyer's minimum annual
purchase obligation under paragraph I shall be reduced, for each month (or
fraction thereof that such Force Majeure Event continues, by an amount that
represents Buyer's monthly average purchases of Products during the preceding
twelve (12) months under this (or a predecessor) agreement; and (b) the amount
by which Buyer's minimum annual purchase obligation is decreased under clause
(a) of this subparagraph (ii) shall be added to the amount of Products actually
purchased by Buyer for purposes of determining any rebates due Buyer or
penalties payable by Buyer under paragraphs 2(a) or 2(b), respectively.
(b) Headings. Headings in this agreement are included for
convenience of reference only, and shall not constitute a part of this agreement
for any other purpose.
<PAGE>
Mrs. Fields Original Cookie Company
Page 9
February 12, 1998
(c) Notices. All notices provided by this agreement shall be
in writing and shall be given by facsimile transmission with the copy thereof
mailed by first class mail, postage prepaid, or by personal delivery, by one
party to the other, addressed to such other party at the applicable address set
forth, or to such other address as may be given for such purpose by such other
party by notice duly given hereunder. Notice shall be deemed properly given on
the date of facsimile transmission or on the date of delivery whichever applies.
To order Products:
Pennant Foods
2200 Cabot Drive
Suite 100
Lisle, Illinois 60532
Facsimile No.: (630) 955-5532
For all other Purposes:
LBI Acquisition Corp.
100 Northfield Street
Greenwich, Connecticut 06830
Facsimile No.: (203) 622-6976
Attention: Thomas C. Ewing
Mrs. Fields Original Cookie Company
462 West Bearcat Drive
Salt Lake City, Utah 84115
Facsimile No.: (801) 463-2223
(d) Applicable Law. This agreement shall be construed and
enforced in accordance with, and governed by the laws of the State of
Connecticut.
(e) Integration. This agreement represents the only
agreement and understanding between the parties and their affiliates with
respect to the subject matter hereof, and supersedes all prior negotiations,
representations and agreements made by the parties and their affiliates with
respect to the subject matter hereof. This agreement may be amended,
supplemented or changed, and any provision hereof waived, only by a written
instrument making specific reference to this agreement signed by the party
against whom enforcement of any such amendment, supplement or change or waiver
is sought. Waiver by either party of any breach or default hereunder by the
other party shall not operate as a waiver of any other breach or default,
whether similar to or different from the breach or default waived.
(f) Counterparts. This agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one of the same agreement,
binding upon all parties thereto, notwithstanding that all parties are not
signatories to the original or the same counterpart.
<PAGE>
Mrs. Fields Original Cookie Company
Page 10
February 12, 1998
(g) Severability. In the event any provision of this
agreement is found to be unenforceable or invalid, such provision shall be
severable from this agreement if it is capable of being identified with and
apportioned to reciprocal consideration or to the extent it is a provision which
is not essential and the absence of which would not have prevented the parties
from entering into this agreement. The unenforceability or invalidity of a
provision which has been performed shall not be grounds for invalidation of this
agreement under circumstances in which the true controversy between the parties
does not involve any such provision.
(h) Extension. This agreement may be extended beyond the
term upon such terms and conditions as the parties shall agree upon in writing.
If the foregoing accurately reflects our agreement, please so indicate
by having the original of this letter signed in the spaces provided below and
returning it to me; a copy is enclosed for your files.
Very truly yours,
LBI Acquisition Corp.
d/b/a Pennant Foods
By /s/ Gerald W. Hanna
Its: President
AGREED TO AND ACCEPTED.
MRS. FIELDS ORIGINAL COOKIE COMPANY
By: /s/ Larry A. Hodges
Its:
<PAGE>
January 1, 1998
<TABLE>
<CAPTION>
Raw MFC
Materials Total Req. Total
PROD & Packaging Conversion Add on Price
# DESCRIPTION ($ per lb.) ($ per lb.) ($ per lb.) ($ per lb.)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <S> <C> <C> <C> <C>
1553 MFC P.B. FILLING 0.7836 0.3340 0.0200 1.1376
1560 MFC BRAN MUFFIN 05 LB CHUB 0.6130 0.3005 0.0200 0.9334
1561 MFC ORANGE MFFN 05 LB CHUB 0.7463 0.3411 0.0200 1.1074
1563 MFC CORN MUFN 4X5 LB CHUB 0.5399 0.3031 0.0200 0.8630
1564 MFC PLAIN MUFN BATTR 05 CHUB 0.5520 0.2852 0.0200 0.8572
1565 MFC PUMPKIN MFN 05 CHUB 0.7470 0.3193 0.0200 1.0863
1666 MFC BANANA NUT MUFFIN 4X5 CHUB 0.8095 0.3067 0.0200 1.1362
2910 MFC DOUBLE FUDGE BROWNIE 0.6986 0.2738 0.0200 0.9924
2911 MFC WALNUT FUDGE BROWNIE 0.7522 0.2738 0.0200 1.0460
2912 MFC PECAN FUDGE BROWNIE 0.7523 0.2738 0.0200 1.0461
2913 MFC MACADAMIA FUDGE BROWNIE 0.8702 0.2738 0.0200 1.1640
2915 MFC PECAN PIE BROWNIE 0.8004 0,2792 0.0200 1.0997
3050 MFC CHOC CHIP COOKIE 0.6935 0,3342 0.0200 1.0477
3052 MFC MILK CHOC CHIP COOKIE 0.7035 0.3346 0,0200 1.0581
3054 MFC BUTTER TOFFEE COOKIE 0.8291 0.3252 0.0200 1.1743
3060 MFC BUTTER COOKIE 0.5663 0.3321 0.0200 0.9184
3061 MFC CHOC CHIP WALNUT COOKIE 0.8121 0.3297 0.0200 1.1618
3062 MFC WHITE CHUNK W/MAC COOKIE 1.1317 0.3288 0.0200 1.4805
3063 MFC COCO MAC COOKIE 1.1847 0.3435 0.0200 1.5482
3064 MFC TRIPLE CHOC COOKIE 0.7337 0.3346 0.0200 1.0883
3065 MFC OATMEAL RAISIN NUT COOKIE 0.7472 0.3449 0.0200 1.112l
3069 MFC MLK CHOC W/WALNT COOKIE 0.8262 0.3313 0.0200 1.1775
3075 MFC PEANUT BUTTER COOKIE 0.6185 0.3442 0.0200 0.9827
3079 MFC CHEWY CHOC COOKIE 0.7936 0.3268 0,0200 1.1404
3091 MFC MLK CHC CHP W/MC COOKIE 1.1146 0.3312 0.0200 1.4658
6350 MFC CHOCOLATE CHIP "COOKIE DOUGH" 0.6900 0,3342 0.0200 1.0442
6352 MFC MILK CHOCOLATE CHIP "COOKIE DOUGH" 0.7000 0.3346 0.0200 1.0546
6354 MFC BUTTER TOFFEE "COOKIE DOUGH" 0.8256 0.3252 0.0200 1.1708
6358 MFC PUMPKIN HARVEST "COOKIE DOUGH" 0.8401 0.3451 0.0200 1.2052
6360 MFC BUTTER "COOKIE DOUGH" 0.5628 0.3321 0.0200 0.9149
6361 MFC CHOCOLATE CHIP WALNUT COOKIE DOUGH" 0.8086 0.3297 0.0200 1.1583
6362 MFC WHITE CHUNK MAC. NUT COOKIE DOUGH" 1.1170 0.3288 0.0200 1.4658
6363 MFC COCNUT MAC. NUT "COOKIE DOUGH" 1.1693 0.3435 0.0200 1.5328
6364 MFC TRIPLE CHOCOLATE "COOKIE DOUGH" 0.7243 0.3346 0.0200 1.0789
6365 MFC OATMEAL RAISIN W/NUTS "COOKIE DOUGH" 0.7438 0.3449 0.0200 1.1087
6369 MFC MILK CHOCOLATE WALNUT "COOKIE DOUGH" 0.8145 0.3313 0.0200 1.1658
6375 MFC PEANUT BUTTER COOKIE DOUGH" 0.6150 0.3442 0.0200 0.9792
6379 MFC CHEWY CHOCOLATE FUDGE "COOKIE DOUGH" 0.7901 0.3268 0.0200 1.1369
6391 MFC MILK CHOCOLATE MAC NUT COOKIE DOUGH" 1.1000 0,3312 0.0200 1.4512
6392 MFC SEMI-SWEET CHUNK PECAN COOKIE DOUGH" 0.7933 0.3318 0.0200 1.1451
6650 MFC CHOCOLATE CHIP NIB COOKIE 0.6837 0.3348 0.0200 1.0385
6652 MFC MILK CHOCOLATE CHIP NIB COOKIE 0.7056 0.3348 0.0200 1.0604
6660 MFC BUTTER NIB COOKIE 0.5726 0.3417 0.0200 0.9343
</TABLE>
<PAGE>
January 1, 1998
<TABLE>
<CAPTION>
Raw MFC
Materials Total Req. Total
PROD & Packaging Conversion Add on Price
# DESCRIPTION ($ per lb.) ($ per lb.) ($ per lb.) ($ per lb.)
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C>
6662 MFC WHITE CHUNK MAC. NUT NIB COOKIE 1.0912 0.3283 0.0200 1.4395
6665 MFC OATMEAL RAISIN NIB COOKIE W/NUTS 0.7248 0.3451 0.0200 1.0899
6669 MFC MILK CHOCOLATE WALNUT NIB COOKIE 0.8278 0.3313 0.0200 1.1791
6675 MFC PEANUT BUTTER NIB COOKIE 0.6166 0.3537 0.0200 0.9903
7010 MFC MFC CASHEW FUDGE BROWNIE (INTL) 0.8137 0.3411 0.0200 1.1749
7030 MFC MFC DBLE FUDGE CHOC MUFFIN (INTL) 0.6363 0.3411 0.0200 0.9974
7050 MFC CHOC CHIP COOKIE (INTL) 0.6933 0.3342 0.0200 1.0475
7051 MFC WHITE CHIP COOKIE (INTL) 0.6749 0.3346 0.0200 1.0295
7052 MFC MILK CHOC COOKIE (INTL) 0.7033 0.3346 0.0200 1.0579
7054 MFC MFC BUTTER TOFFEE (INTL) 0.8298 0.3252 0.0200 1.1750
7060 MFC BUTTER COOKIE (INTL) 0.5661 0.3321 0.0200 0.9182
7062 MFC WHT CHK MAC COOK (INTL) 1.1369 0,3288 0.0200 1.4857
7063 MFC COCO/MACNUT COOK (INTL) 1.1845 0.3435 0.0200 1.5480
7064 MFC TRIPLE CHOC COOK (INTL) 0.7365 0.3346 0.0200 1.0911
7065 MFC OATM RAISIN COOK (INTL) 0.7470 0.3449 0.0200 1.1119
7066 MFC CC WLNT COOKIE (INTL) 0.1819 0.3297 0.0200 1.1616
7079 MFC CHEWY CHOC COOK (INTL) 0.7934 0.3268 0.0200 1.1402
7091 MFC CC MAC NUT COOKIE (INTL) 1.1144 0.3312 0.0200 1.4656
7092 MFC SS CHNK PEC COOK (INTL) 0.8045 0.3318 0.0200 1.1563
7094 MFC MFC MILK CHOC CHIP W/CASHEW (INTL) 0.9959 0.3422 0.0200 1.3581
7203 MFC SWEET FRENCH ROLLS 0.1206 0.3192 0.0200 0.4598
7401 MFC APPLE CROISSANT 0.5423 0.3484 0.0200 0.9107
7403 MFC BUTTER CROISSANT 0.5193 0.3704 0,0200 0.9097
7404 MFC CHOCOLATE CROISSANT 0.6932 0.3616 0.0200 1.0748
7410 MFC CHEESE CROISSANT 0.8415 0.3720 0.0200 1.2334
7447 MFC BUTTER COOKIE SHEETS 0.6527 0.3616 0.0200 1.0343
7450 MFC CINNAMON ROLL 0.2914 0.3596 0.0200 0.6710
7500 MFC EGG TWIST 0.1831 0.3052 0.0200 0.5083
7501 MFC NINE GRAIN 0.2048 0.2738 0.0200 0.4986
7503 MFC RAISIN NUT 0.4450 0.2744 0.0200 0.7394
7505 MFC RYE REGULAR 0.1794 0.2796 0,0200 0.4790
7506 MFC HONEYWHEAT BERRY 0.2487 0.2773 0.0200 0.5459
7552 MFC NEW SWT BAGT 0.1344 0.2779 0.0200 0.4323
7553 MFC NEW SWEET REGULAR 0.1317 0.2728 0.0200 0.4245
7570 MFC SOUR FRENCH REGULAR BREAD 0.1647 0.2828 0.0200 0.4675
7750 MFC ALMOND PASTE 1.3325 0.3102 0.0200 1.6627
7751 MFC MAPLE TOPPING 0.4044 0.2872 0.0200 0.7115
7754 MFC NEW STREUSEL 0.5302 0.2683 0.0200 0.8184
7782 MFC BUTTERCREME ICING 0.7123 0.3067 0.0200 1.0390
33330 INGR BULK PECANS (10 lbs.) 2.0000 0.1958 0.0200 2.2158
33332 INGR BULK FROZEN RASPBERRIES 1.4500 0.1958 0.0200 1.6658
33333 INGR BULK MACADAMIA NUTS 4.7100 0.1958 0.0200 4.9258
33334 INGR BULK FROZEN BLUEBERRIES 1.2800 0.1958 0.0200 1.4958
33335 INGR BULK SEMI SWEET CHOC CHIPS 0.9290 0,1958 0.0200 1.1448
</TABLE>
<PAGE>
January 1, 1998
<TABLE>
<CAPTION>
Raw MFC
Materials Total Req. Total
PROD & Packaging Conversion Add on Price
# DESCRIPTION ($ per lb.) ($ per lb.) ($ per lb.) ($ per lb.)
- --------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C>
33336 INGR BULK MILK CHOC CHIPS 0.9500 0.1958 0.0200 1.1658
33337 INGR BULK WALNUTS 2.1700 0.1958 0.0200 2.3858
33338 INGR BULKPECANS 2.0000 0.1958 0.0200 2.2158
33339 INGR BULK WHITE CHUNK CHOC CHIPS 0.8510 0.1958 0.0200 1.0668
64101 OCC OLD FASHION CHOC. CHIP COOKIE DOUGH 0.5353 0.3383 0.0200 0.8936
64102 OCC OLD FASHION CHOC. PECAN COOKIE DOUGH 0.7122 0.3383 0.0200 1.0705
64105 OCC OLD FASHION SUGAR BUTTER COOKIE DOUGH 0.4395 0.3383 0.0200 0.7978
64106 OCC OLD FASHION PEANUT BUTTER COOKIE DOUGH 0.5400 0.3383 0.0200 0.8983
64107 OCC OLD FASHION OATMEAL RAISIN COOKE DOUGH 0.4398 0.3383 0,0200 0.7981
64114 OCC OLD FASHION DOUBLE CHOC. COOKIE DOUGH 0.5429 0.3383 0.0200 0.9012
64119 OCC OLD FASHION GINGER SNAPS COOKIE DOUGH 0.5631 0.3383 0.0200 0.9214
64122 OCC OLD FASHION BTTRSCTCH OATML COOKIE DO 0.4988 0.3383 0.0200 0.8571
64201 OCC BITE SIZE CHOC. CHIP COOKIE DOUGH 0.5363 0.3383 0.0200 0.8946
64202 OCC BITE SIZE CHOC. PECAN COOKIE DOUGH 0.7207 0.3383 0.0200 1.0790
64206 OCC BITE SIZE PEANUT BUTTER COOKIE DOUGH 0.5352 0.3383 0,0200 0.8935
64207 OCC SITE SIZE OATMEAL COOKIE DOUGH 0.4482 0.3383 0.0200 0.8065
64214 OCC BITE SIZE DOUBLE CHOC. COOKIE DOUGH 0.5428 0.3383 0.0200 0.9011
64223 OCC SITE SIZE SUGAR M&M COOKIE DOUGH 0.8262 0.3383 0.0200 1.1845
64275 OCC BITE SIZE BUTTER COOKIE DOUGH 0.7462 0.3383 0.0200 1.1045
</TABLE>
<PAGE>
Exhibit B
Rebate to Buyer
Annual Volume Rebate
(000's lbs.) ($ per lb.)
----------------- -----------
23,000 or less 0.0000
23,001 - 24,999 0.0100
25,000 - 26,999 0.0125
27,000 - 28,999 0.0150
29,000 - or more 0.0175
<PAGE>
Exhibit C
Penalty Payment by Buyer
Annual Volume Penalty
(QOQ's ) ($ per lb.)
---------------- -----------
23,000 - + 0.0000
21,000 - 21,999 0.0025
19,000 - 20,999 0.0050
17,000 - 18,999 0.0075
15,000 - 16,999 0.0100
13,000 - 14,999 0.0125
11,000 - 12,999 0.0150
9,000 - 10,999 0.0175
7,000 - 8,999 0.0200
5,000 - 6,999 0.0225
3,000 - 4,999 0.0250
1,000 - 2,999 0.0275
0 - 999 0.0300
<PAGE>
Exhibit D
Commodity Items
Butter
Chocolate
Eggs
Flour (bagged)
Milk / Milk Products
Nuts (Including but not limited to)
Macadamia Nuts
Pecans
Walnuts
Raisins
Shortening / Oils
Sugar(bagged)
Packaging
Corrugated
Roll Stock Film
<PAGE>
EXHIBIT 12.1
MRS. FIELDS AND PREDECESSORS
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
The Original Cookie Company, Incorporated and
Mrs. Fields Inc. and Subsidiaries the Carved-out Portion of Hot Sam Company, Inc.
------------------------------------------------ -----------------------------------------------
DECEMBER DECEMBER
FISCAL YEARS ENDED 31, 1995 FISCAL YEARS ENDED 31, 1995
-------------------------------------- THROUGH ------------------------------- THROUGH
DECEMBER DECEMBER DECEMBER SEPTEMBER DECEMBER DECEMBER DECEMBER SEPTEMBER
31, 1993 31, 1994 30, 1995 17, 1996 31, 1993 31, 1994 30, 1995 17, 1996
------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net loss....................... $ (2,243) $ (5,320) $ (2,368) $ (2,304) $ (333) $ (5,355) $ (2,096) $ (5,645)
Add: Income taxes......... 215 191 241 205 213 224 263 -
Fixed charges.................. 1,088 2,155 51 80 4,172 4,381 4,268 2,828
--------- --------- --------- --------- --------- --------- --------- ---------
Total loss.................. $ (940) $ (2,974) $ (2,076) $ (2,019) $ 4,052 $ (750) $ 2,435 $ (2,817)
========= ========= ========= ========= ========= ========= ========= =========
Fixed charges:
Total fixed charges... $ 1,088 $ 2,155 $ 51 $ 80 $ 4,172 $ 4,381 $ 4,268 $ 2,828
========= ========= ========= ========= ========= ========= ========= =========
Ratio of earnings to
fixed charges(a)..... - - - - 0.97x - 0.57x -
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
(a) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (whether paid or accrued
and net of debt premium amortization), including the amortization of debt
issuance costs and original issue discount, noncash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with capital lease obligations, letter
of credit commissions, fees or discounts and the product of all dividends
and accretion on mandatorily redeemable preferred stock multiplied by a
fraction, the numerator of which is one and the denominator of which is one
minus the current combined federal, state and local statutory tax rate.
<TABLE>
<CAPTION>
MRS. FIELDS' HOLDING COMPANY, INC.
-------------------------------------------------------------------------------------
SEPTEMBER FISCAL
18, 1996 YEAR
THROUGH ENDED PRO FORMA 39 WEEKS ENDED PRO FORMA
DECEMBER 28, JANUARY 3, JANUARY 3, SEPTEMBER 27, 39 WEEKS ENDED OCTOBER 3,
1996 1998 1998 1997 OCTOBER 3, 1998 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income before provision for
income taxes.................. $ 3,922 $ 475 $(6,467) $(2,586) $(9,607) (15,844)
Fixed charges....................... 1,737 8,031 22,186 4,783 9,969 18,015
Exclude pref. dividends............. -- (306) (1,098) -- (333) (845)
Full minority interest loss...... -- (138) (307) (2,767) (268) (268)
--------- ------ ------- ------- ------- --------
Total earnings .............. $ 5,659 $8,062 $14,314 $ (570) $ (239) $ 1,058
========= ====== ======= ======= ======= ========
Fixed charges:
Interest expense .................. $ 1,737 $7,527 $20,378 $4,783 $ 9,421 $ 16,623
Preferred stock dividends as
adjusted...................... -- 504 1,808 -- 548 $ 1,392
--------- ------ ------- ------- ------- --------
Total fixed charges........... $ 1,737 $8,031 $22,186 $ 4,783 $ 9,969 $ 18,015
========= ====== ======= ======= ======= ========
Ratio of earnings to fixed charges(a)... 3.26x 1.00x 0.66x (0.12)x (0.02)x 0.06x
========= ====== ======= ======= ======= ========
</TABLE>
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC.
SUBSIDIARY COMPANIES:
Great American Cookie Company, Inc.
Mrs. Fields Cookies (Canada) Ltd.
Mrs. Fields Cookies Australia
Mrs. Fields' Brand, Inc.
Mrs. Fields' Other Names, Inc.
Fairfield Foods, Inc.
Airport Cookies, Inc.
Pretzel Time, Inc.
Uvest
LV-H&M
H&M Concepts of Idaho, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement on Form S-4.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 3, 1999
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-67393 of Mrs. Fields' Holding Company, Inc. of our report dated February 9,
1996, appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 2, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use of our report dated August 17, 1998 on the
financial statements of Deblan Corporation included in this Registration
Statement on Form S-4 and to the reference to our Firm under the caption
"Experts" in the Prospectus.
WEINSTEIN SPIRA & COMPANY P.C.
Houston, Texas
February 3, 1999
<PAGE>
[LOGO OF PRICEWATERHOUSECOOPERS LLP APPEARS HERE]
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Mrs. Fields' Holding Company, Inc. of our
report dated August 24, 1998 relating to the financial statements of Cookies
USA, Inc., which appears in such Amendment No. 1 of Form S-4 filing. We also
consent to the references to us under the heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
February 1, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Mrs. Fields' Original Cookies, Inc., and
in the Prospectus constituting part of this registration Statement on Form S-4
of Mrs. Fields' Holding Company, Inc. of our report dated November 12, 1998
relating to the financial statements of Cookie Conglomerate, Inc. and its
Affiliates, which appears in such documents.
/s/ Habif, Arogeti & Wynne, P.C.
- ----------------------------------
Habif, Arogeti & Wynne, P.C.
Atlanta, Georgia 30309-3837
February 2, 1999
<PAGE>
[LETTERHEAD OF BDO SEIDMAN LLP APPEARS HERE]
INDEPENDENT AUDITORS' CONSENT
-----------------------------
Pretzelmaker Holdings, Inc.
Denver, Colorado
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement our report dated February 7, 1997, relating to the
consolidated financial statement of Pretzelmaker Holdings, Inc., for the period
from inception (February 24, 1995) to December 31, 1995 and for the year ended
December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
Denver, Colorado
February 4, 1999
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Mrs. Fields' Original Cookies, Inc. and
in the Prospectus constituting part of this Registration Statement on Form S-4
of Mrs. Fields' Holding, Company, Inc. of our report dated December 11, 1998
relating to the consolidated financial statements of Pretzelmaker Holdings,
Inc. and to the reference made to our firm under the caption "Experts" which
appear in such documents.
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
Denver, Colorado
February 3, 1999
<PAGE>
[LETTERHEAD OF MRS. FIELDS COOKIES APPEARS HERE]
Exhibit 23.9
Consent
-------
We hereby request your consent to refer to you as the Chief Operating and
Accounting Officer (prior management) of (GACC/CUSA) in referring to relevant
MD&A sections in the MFOC and MFH S-4 filings. We confirm that we have not made
changes to the MD&A prepared by you previously.
Consent /s/ David Barr Acknowledgement /s/ Tim Pierce
-------------------- -----------------------
David Barr Tim Pierce
President and CEO Chief Financial Officer
May 26, 1996 - August 24, 1998 Jan 30, 1999
CFO
May 31, 1994 - May 26, 1996
<PAGE>
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
MRS. FIELDS' HOLDING COMPANY, INC.
(Exact name of obligor as specified in its charter)
Delaware 87-0563475
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
(Address of principal executive offices) (Zip code)
______________________
14% Series B Senior Notes due 2005
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT
IS SUBJECT.
- ------------------------------------------- -----------------------------------
Name Address
- ------------------------------------------- -----------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-
29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(D).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 9th day of November, 1998.
THE BANK OF NEW YORK
By: /s/ THOMAS C. KNIGHT
--------------------------------
Name: THOMAS C. KNIGHT
Title:ASSISTANT VICE PRESIDENT
- -----------------------------
<PAGE>
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin.................... $ 7,301,241
Interest-bearing balances............. 1,385,944
Securities:
Held-to-maturity securities........... 1,000,737
Available-for-sale securities......... 4,240,655
Federal funds sold and Securities pur-
chased under agreements to resell..... 971,453
Loans and lease financing
receivables:
Loans and leases, net of unearned
income.............................. 38,788,269
LESS: Allowance for loan and
lease losses........................ 632,875
LESS: Allocated transfer risk
reserve............................. 0
Loans and leases, net of unearned
income, allowance, and reserve ..... 38,155,394
Assets held in trading accounts......... 1,307,562
Premises and fixed assets (including
capitalized leases)................... 670,445
Other real estate owned................. 13,598
Investments in unconsolidated
subsidiaries and associated
companies............................. 215,024
Customers' liability to this bank on
acceptances outstanding............... 974,237
Intangible assets....................... 1,102,625
Other assets............................ 1,944,777
-----------
Total assets............................ $59,283,692
===========
LIABILITIES
Deposits:
In domestic offices................... $26,930,258
Noninterest-bearing................... 11,579,390
Interest-bearing...................... 15,350,868
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 16,117,854
Noninterest-bearing................... 187,464
Interest-bearing...................... 15,930,390
Federal funds purchased and Securities
sold under agreements to repurchase... 2,170,238
Demand notes issued to the U.S.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Treasury.............................. 300,000
Trading liabilities..................... 1,310,867
Other borrowed money:
With remaining maturity of one year
or less............................. 2,549,479
With remaining maturity of more than
one year through three years........ 0
With remaining maturity of more than
three years......................... 46,654
Bank's liability on acceptances exe-
cuted and outstanding................. 983,398
Subordinated notes and debentures....... 1,314,000
Other liabilities....................... 2,295,520
-----------
Total liabilities....................... 54,018,268
-----------
EQUITY CAPITAL
Common stock............................ 1,135,284
Surplus................................. 731,319
Undivided profits and capital
reserves.............................. 3,385,227
Net unrealized holding gains
(losses) on available-for-sale
securities............................ 51,233
Cumulative foreign currency transla-
tion adjustments...................... ( 37,639)
-----------
Total equity capital.................... 5,265,424
-----------
Total liabilities and equity capital ... $59,283,692
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot
Thomas A. Renyi Directors
Alan R. Griffith
- ---------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001071629
<NAME> MRS. FIELDS' HOLDING COMPANY, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> OCT-03-1998
<CASH> 5,801
<SECURITIES> 0
<RECEIVABLES> 7,512
<ALLOWANCES> 1,019
<INVENTORY> 4,790
<CURRENT-ASSETS> 24,702
<PP&E> 51,367
<DEPRECIATION> 16,364
<TOTAL-ASSETS> 225,228
<CURRENT-LIABILITIES> 26,801
<BONDS> 167,853
1,171
0
<COMMON> 33
<OTHER-SE> 24,314
<TOTAL-LIABILITY-AND-EQUITY> 225,228
<SALES> 89,938
<TOTAL-REVENUES> 95,959
<CGS> 21,588
<TOTAL-COSTS> 96,430
<OTHER-EXPENSES> 256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,421
<INCOME-PRETAX> (9,607)
<INCOME-TAX> 68
<INCOME-CONTINUING> (9,675)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,276)
<EPS-PRIMARY> (3.13)
<EPS-DILUTED> (3.13)
</TABLE>
<PAGE>
EXHIBIT 99.3
------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Mrs. Fields' Holding Company, Inc. and
subsidiaries as of December 28, 1996 and January 3, 1998 and for the period from
inception (September 18, 1996) to December 28, 1996 and for the year ended
January 3, 1998 included in this registration statement and have issued our
report thereon dated June 10, 1998. Our audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. Schedule II, "Valuation and Qualifying Accounts", is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
Arthur Andersen LLP
Salt Lake City, Utah
June 10, 1998
<PAGE>
EXHIBIT 99.3
-----------------
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at
beginning Balance at
Description of period Additions Deductions end of period
- -------------------------------------------------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
Period from Inception (September
18, 1996) through December 28, 1996 ............... $ 269,000 $ 106,000 $ -- $ 375,000
=========== =========== =========== ===========
Year Ended January 3, 1998 ........................... $ 375,000 $ 494,000 $ 255,000 $ 614,000
=========== =========== =========== ===========
Period Ended October 3, 1998 (unaudited) ............. $ 614,000 $ 681,000 $ 276,000 $ 1,019,000
=========== =========== =========== ===========
Store Closure Reserve:
Store Closure Reserve ............................... $ 5,060,000 -- 305,000 $ 4,755,000
Transaction Fee Accrual ............................. 2,400,000 -- 2,173,000 227,000
Legal Accrual ........................................ 1,250,000 -- 53,000 1,197,000
Lease Obligation Accrual ............................. 1,200,000 -- 174,000 1,026,000
Finders' Fee Accrual ................................ 735,000 -- -- 735,000
Severance and Related Costs Accrual .................. 655,000 -- 539,000 116,000
----------- ----------- ----------- -----------
Period from Inception (September
18, 1996) through December 28, 1996 .................... $11,300,000 $ -- $ 3,244,000 $ 8,056,000
=========== =========== =========== ===========
Store Closure Reserve ............................... $ 4,755,000 $ 3,395,000 $ 2,684,000 $ 5,466,000
Transaction Fee Accrual ............................. 227,000 -- 227,000 --
Legal Accrual ........................................ 1,197,000 -- 548,000 649,000
Lease Obligation Accrual ............................. 1,026,000 -- 867,000 159,000
Finders' Fee Accrual ................................ 735,000 -- 735,000 --
Severance and Related Costs Accrual .................. 116,000 -- 116,000 --
----------- ----------- ----------- -----------
Year Ended January 3, 1998 ............................. $ 8,056,000 $ 3,395,000 $ 5,177,000 $ 6,274,000
=========== =========== =========== ===========
Store Closure Reserve (unaudited) ................... $ 5,466,000 $ 3,548,000 $ 1,891,000 $ 7,123,000
Transaction Fee Accrual (unaudited) ................. -- -- -- --
Legal Accrual (unaudited) ............................ 649,000 -- 252,000 397,000
Lease Obligation Accrual (unaudited) ................. 159,000 -- 159,000 --
Finders' Fee Accrual (unaudited) .................... -- -- -- --
Severance and Related Costs Accrual (unaudited) ...... -- -- -- --
----------- ----------- ----------- -----------
Period Ended October 3, 1998 (unaudited) ............. $ 6,274,000 $ 3,548,000 $ 2,302,000 $ 7,520,000
=========== =========== =========== ===========
Impairment Reserve (1):
Stores to be Closed .................................. $ 7,587,000 $ -- $ 854,000 $ 6,733,000
Stores to be Franchised .............................. 3,334,000 -- 215,000 3,119,000
----------- ----------- ----------- -----------
Period from Inception (September
18, 1996) through December 28, 1996 ............... $10,921,000 $ -- $ 1,069,000 $ 9,852,000
=========== =========== =========== ===========
Stores to be Closed .................................. $ 6,733,000 $ 1,423,000 $ 3,507,000 $ 4,649,000
Stores to be Franchised .............................. 3,119,000 1,077,000 492,000 3,704,000
----------- ----------- ----------- -----------
Year Ended January 3, 1998 ........................... $ 9,852,000 $ 2,500,000 $ 3,999,000 $ 8,353,000
=========== =========== =========== ===========
Stores to be Closed (unaudited) ...................... $ 4,649,000 $ 1,942,000 1,779,000 $ 4,812,000
Stores to be Franchised (unaudited) .................. 3,704,000 208,000 676,000 3,236,000
----------- ----------- ----------- -----------
Period Ended October 3, 1998 (unaudited) ............... $ 8,353,000 $ 2,150,000 $ 2,455,000 $ 8,048,000
=========== =========== =========== ===========
</TABLE>
(1) THE IMPAIRMENT RESERVE REDUCES THE CARRYING AMOUNTS OF PROPERTY AND
EQUIPMENT AT STORES TO BE CLOSED TO ZERO AND THE CARRYING AMOUNTS OF
PROPERTY AND EQUIPMENT AT STORES TO BE FRANCHISED TO NET REALIZABLE VALUE.
