<PAGE>
As filed with the Securities and Exchange Commission on May 16, 2000
Registration No. 333-67393
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 6
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)
DELAWARE 6749 87-0563475
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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
Four Times Square
New York, New York 10036
(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.
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<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)
May 16, 2000
Exchange Offer for
$55,000,000
14% Senior Secured Discount Notes Due 2005
Terms of the Exchange Offer
. The notes will increase
. Expires 12:00 midnight, in principal amount at a
New York City time, June rate of 14%, compounded
20, 2000, unless semi-annually, to a total
extended. principal amount of $55.0
million at December 1,
2002.
. Not subject to any
condition other than that
the exchange offer not
violate applicable law or
any interpretation of the
staff of the Securities
and Exchange Commission.
. The notes will mature on
December 1, 2005, and pay
interest on June 1 and
December 1 of each year,
beginning on June 1,
2003.
. We can amend or terminate
the exchange offer.
. We will not receive any
. We will exchange all proceeds from the
outstanding notes that exchange offer.
are validly tendered and
not validly withdrawn.
. The exchange of notes
will not be a taxable
exchange for U.S. income
tax purposes.
. You may withdraw tendered
outstanding notes any
time before the
expiration of the
exchange offer.
. The terms of the notes to
be issued are identical
to those of the
outstanding notes, except
for transfer restrictions
and registration rights.
. The notes are senior debt
issued at a discount,
secured by a pledge of
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 specific risks that you should consider before tendering
your outstanding notes in the exchange offer, see "Risk Factors" beginning on
page 13.
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.
May 16, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Summary Financial and Store Data......................................... 10
Risk Factors............................................................. 13
Forward-Looking Information.............................................. 23
The Transactions......................................................... 24
Use of Proceeds.......................................................... 27
Capitalization........................................................... 28
The Exchange Offer....................................................... 29
Selected Financial Data.................................................. 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Where You Can Find More Information...................................... 50
Business................................................................. 51
Management............................................................... 63
Beneficial Ownership of Capital Stock.................................... 68
Relationships and Related Transactions................................... 69
Description of Notes..................................................... 72
Description of Indebtedness.............................................. 103
Warrants................................................................. 103
Plan of Distribution..................................................... 103
United States Federal Income Tax Considerations.......................... 104
Legal Matters............................................................ 104
Experts.................................................................. 105
Index to 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 an offer or
solicitation is not authorized or in which the person making an offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make an 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
Registration Rights Holders of outstanding notes are entitled to exchange
Agreement.............. 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
became separately transferable on February 20, 1999,
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 this liability.
4
<PAGE>
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 when any notes
issued in the exchange offer are transferred. A
broker-dealer may use this prospectus for an 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 June 20, 2000, 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
certificateless depositary interests in those notes,
which represents a 100% interest in those 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 these 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 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 signed 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 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, under 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 before 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.
5
<PAGE>
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 signed letter of 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, June 20, 2000.
United States Federal
Income Tax The exchange offer should not result in any income,
Considerations......... gain or loss to the holders or Mrs. Fields' Holding
for United States federal income tax purposes. See
"United States Federal Income Tax Considerations."
Use of Proceeds......... We will not receive any proceeds from the issuance of
notes in the exchange offer.
The proceeds from the offering of notes in August
1998 were used to finance a capital contribution to
Mrs. Fields, which used the capital contribution,
along with proceeds from its own issuance of notes,
to finance the acquisition of Great American Cookie
Company, Inc., other acquisitions, and a tender offer
for outstanding Great American notes.
Exchange Agent..........
The Bank of New York is serving as the exchange agent
for the exchange offer.
Shelf Registration In limited circumstances, holders of notes may
Statement.............. require us to register their notes under a shelf
registration statement.
6
<PAGE>
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 52 weeks ended January 1, 2000, Mrs. Fields' Holding generated net
revenue and EBITDA of $180.9 million and $34.6 million, respectively, compared
to net revenues and EBITDA of $154.2 million and $13.9 million, respectively,
for the 52 weeks ended January 2, 1999. EBITDA consists of earnings before
depreciation, amortization, interest, income taxes, minority interest,
preferred stock accretion and dividends of subsidiaries and other income or
expense.
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:
. Build the Mrs. Fields brand in retail venues other than our traditional
mall-based locations.
. Grow concept and product licensing programs and revenues.
. Enhance the quality of our company-owned store base.
. Improve the productivity of continuing company-owned stores.
. Capitalize on the Strong "Mrs. Fields," "Great American," "Pretzel Time,"
and "Pretzelmaker" brand names.
. Develop new company-owned and franchised stores, including
internationally.
. Realize purchasing and overhead cost savings as a result of recent
acquisitions.
. Pursue further strategic acquisitions of related businesses.
. Perpetuate franchise growth in all our concepts, including franchising
company-owned cookie and pretzel stores that management has determined to
franchise.
7
<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 in the exchange offer are governed by the same indenture.
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 increase in principal amount 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 Interest on the notes will be payable in cash at a
Dates.................. 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
As of January 1, 2000, we had no indebtedness that
ranked equal in right of payment with the notes that
we will issue in the exchange offer. The notes that
we will issue will be effectively subordinated to
debt of Mrs. Fields because Mrs. Fields will be
required to make payments on its debt before it can
make dividend or other payments to Mrs. Fields'
Holding. As of January 1, 2000, Mrs. Fields and its
subsidiaries had $147.6 million of debt and
mandatorily redeemable preferred stock of a
subsidiary that effectively ranks senior to the notes
to be issued in the exchange offer.
Optional Redemption..... At our option, we may redeem the notes issued in the
exchange offer at any time on or after December 1,
2002. The notes were initially sold to investors as
part of units at a price of $561.17 per $1,000 in
face amount. Because the notes were sold at a
substantial discount from their principal amount at
maturity, they will increase in principal amount
daily at an annual rate of 14%, which is compounded
semi-annually, to reach a total principal amount of
$55.0 million on December 1, 2002. The value in
principal amount for each $1,000 in face amount at
any time is the sum
8
<PAGE>
of the initial price of $561.17 plus the increase in
principal amount at that time, calculated as just
described. 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
principal amount of the notes, as determined at the
date of redemption.
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 then principal amount if the date of
repurchase is before December 1, 2002, or 101% of the
principal amount at maturity 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."
Covenants...............
The indenture under which the outstanding notes have
been issued and will be issued in the exchange offer,
contains covenants that, among other things and
subject to exceptions, restrict our ability to:
. pay dividends
. redeem capital stock
. make 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--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."
9
<PAGE>
SUMMARY FINANCIAL AND STORE DATA
The following table presents:
(1) summary combined 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 28, 1996 and for the 52 weeks
then ended,
(2) summary consolidated financial and store data for Mrs. Fields' Holding as
of January 3, 1998, January 2, 1999 and January 1, 2000, and for the 53
weeks ended January 3, 1998, the 52 weeks ended January 2, 1999 and the 52
weeks ended January 1, 2000.
The summary financial and store data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Selected Financial Data," and the consolidated financial
statements and related notes, contained elsewhere in this Registration
Statement. The following information will also assist you in understanding
the Mrs. Fields' Holding and predecessors combined financial and store
data:
. On September 17, 1996, Mrs. Fields' Holding completed the
acquisitions of substantially all of the assets and assumed some of
the liabilities of the predecessors.
. The 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 Financial Data" but are combined
here. This presentation is not in conformity with accounting
principles generally accepted in the United States.
. In order for the data to be comparable for the periods presented,
some of the statements of operations data for the predecessors has
been reclassified to be consistent with the Mrs. Fields' Holding
financial statement presentation.
10
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields'
Holding and
Predecessors Mrs. Fields' Holding
------------ ---------------------------------------
Combined Consolidated Consolidated Consolidated
52 Weeks 53 Weeks
Ended Ended 52 Weeks Ended
December 28, January January January
1996 3, 1998 2, 1999 1, 2000
------------ ------------ ------------ -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and food
sales................. $126,330 $127,845 $140,235 $152,268
Net store contribution
(1)................... 19,308 25,044 20,166 20,802
Franchising and
licensing, net........ 5,103 6,563 14,001 28,669
General and
administrative
expenses.............. 20,611 16,436 19,583 21,965
Store closure provision
(benefit)............. -- 538 7,303 (1,579)
Income (loss) from
operations............ 1,069 8,124 (6,002) 10,341
Net loss............... (5,825) (624) (21,505) (14,218)
Basic and diluted net
loss per common share
(2)................... N/A (0.88) (6.55) (4.23)
Other Data:
Cash flows from
operating activities.. 6,786 923 4,581 18,501
Cash flows from
investing activities.. (22,716) (17,070) (40,894) (4,696)
Cash flows from
financing activities.. 18,793 25,929 24,579 (13,645)
Interest expense....... 4,712 7,527 14,946 23,842
Total depreciation and
amortization.......... 9,204 10,450 19,867 24,253
Capital expenditures... 3,892 4,678 8,235 9,154
EBITDA (3)............. 10,273 18,574 13,865 34,594
Negative store
contribution for
stores in the process
of being closed or
franchised (1)........ $ (1,933) $ (1,798) $ (2,054) $ (312)
Ratio of earnings to
fixed charges (4)..... -- 1.00x -- --
Store Data:
Percentage change in
comparable store sales
(5)................... (1.2)% 0.6% (1.6)% (1.0)%
Total company-owned
stores open at end of
period................ 482 481 566 462
Total franchised or
licensed stores open
at end of period...... 418 553 972 981
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields'
Holding
Consolidated
January 1,
2000
------------
(dollars in
Balance Sheet Data: thousands)
<S> <C>
Cash and cash equivalents....................................... $ 4,919
Total assets.................................................... 210,117
Mandatorily redeemable cumulative preferred stock of subsidi-
ary............................................................. 1,070
Total debt and capital lease obligations, including current por-
tion............................................................ 181,402
Total stockholders' equity...................................... 1,155
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields'
Holding
and Predecessors Mrs. Fields' Holding
---------------- ----------------------------------------------
Combined Consolidated Consolidated Consolidated
52 Weeks 53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended
December January January January
28, 1996 3, 1998 2, 1999 1, 2000
---------------- ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
EBITDA Data:
Income (loss) from
operations............. $ 1,069 $ 8,124 $(6,002) $10,341
ADD:
Depreciation and
amortization.......... 9,204 10,450 19,867 24,253
------- ------- ------- -------
EBITDA................ $10,273 $18,574 $13,865 $34,594
======= ======= ======= =======
</TABLE>
See footnotes on following page.
11
<PAGE>
- --------
(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 accounting
principles generally accepted in the United States. 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 net loss applicable to common
shares for the 53 weeks ended January 3, 1998, the 52 weeks ended January
2, 1999 and the 52 weeks ended January 1, 2000 includes cumulative
redeemable Series A preferred stock dividends of $2,173,000, $0, and $0,
respectively.
(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 operating activities as defined by accounting
principles generally accepted in the United States 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 in this prospectus because it is one of the indicators by
which Mrs. Fields' Holding assesses its financial performance and its
capacity to service its debt.
(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 year 1996, earnings were insufficient to
cover fixed charges by $3,822,000. For the 53 weeks ended January 3, 1998,
earnings were sufficient to cover fixed charges by $31,000. For the 52
weeks ended January 2, 1999, earnings were insufficient to cover fixed
charges by $21,189,000. For the 52 weeks ended January 1, 2000, earnings
were insufficient to cover fixed charges by $14,000,000.
(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.
12
<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 three risk factors described below, the risk
factors generally apply to the outstanding notes as well as to the notes to be
issued.
You may have difficulty selling the notes which you do not exchange, since
outstanding notes will continue to have restrictions on transfer and cannot be
sold without registration under securities laws or exemptions from registration
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--Consequences of Failure to Exchange Outstanding
Notes." In addition, if there are only a small number of notes outstanding,
there may not be a very liquid market in those old notes. There may be few
investors that will purchase unregistered securities in which there is not a
liquid market. See "The Exchange Offer--Consequences of Failure to Exchange
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 described 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
no longer be entitled to an increase in interest payments on outstanding notes
that the indenture provides for if we fail to complete the exchange offer
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, which the
indenture provides for if we fail to complete the exchange offer. Holders of
outstanding notes will not have any further rights to have their outstanding
notes registered, except under limited circumstances, once the exchange offer
is completed.
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
You may not be able to resell notes you 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
. holders who are not "affiliates" of Mrs. Fields' Holding within the
meaning of Rule 405 of the Securities Act,
. holders who acquire their notes in the ordinary course of business, and
. 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 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
13
<PAGE>
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.
You 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 prevent us from fulfilling our debt
obligations, including those under the notes, and could hinder our growth by
preventing us from obtaining other financing and limiting the amount of funds
we have available for purposes other than servicing debt
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.
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
result in an acceleration of the notes; and
. 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 of
our stock or assets.
See "Description of Notes--Repurchase at the Option of Holders--Change of
Control."
The following chart shows important credit statistics:
<TABLE>
<CAPTION>
At January 1,
2000
--------------
<S> <C>
Total indebtedness and preferred stock of Mrs. Fields'
Holding and subsidiaries.................................. $182.5 million
</TABLE>
Of this amount, $147.6 million is senior in ranking to the notes.
These amounts include liabilities for capital leases of $3.9 million and
preferred stock required to be repurchased at a future date of $1.1 million
outstanding, together representing 2.4% of our liabilities and equity. All of
our subsidiaries' debt is effectively senior to the notes.
<TABLE>
<S> <C>
Stockholders' equity......................................... $ 1.2 million
Debt to equity ratio......................................... 152
Moreover, our earnings have not been sufficient to cover our fixed charges.
<CAPTION>
52 Weeks Ended
January 1, 2000
---------------
<S> <C>
Approximate deficiency in earnings to fixed charges.......... $14.0 million
</TABLE>
14
<PAGE>
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 Mrs. Fields' Holding's indenture and the 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 limited circumstances which effectively ranks senior to the notes
with respect to the assets securing debt. See "Description of Notes--
Covenants." Our subsidiary, Mrs. Fields, plans to incur additional debt for
working capital purposes, which will be effectively senior to the notes.
We may not be able to pay principal and interest on our existing debt, if our
business does not generate enough revenue; if we fail to service our debt, we
could have a default on the notes and on our credit agreement and may be unable
to obtain refinancing
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. These include possible legislation and regulations
affecting franchise businesses or retail food businesses and minimum wage
legislation that affects businesses like ours that rely heavily on minimum-wage
employees; demographic or economic trends that could affect mall traffic that
our business depends on, and food retailing trends, which could include
declining interest in products that are perceived as less healthful. 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. In particular, the fact that we have incurred
substantial debt in recent years, coupled with the highly seasonal nature of
our business creates a particular risk that large interest payments will come
due at a time when the cash flows from our business will not cover them. As a
result of our holding company structure, we depend on our subsidiaries,
especially Mrs. Fields, Great American, Pretzel Time and Pretzelmaker, to
contribute substantially to our revenues. Our ability to service our debt
depends in part on the revenues of these subsidiaries. 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
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, Great American and
Pretzelmaker, to secure its obligations under its credit agreement with LaSalle
National Bank, dated as of February 28, 1998, and Mrs. Fields' Brand, Great
American, Pretzel Time and Pretzelmaker 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 to
pay any amounts due under the notes or to make any funds available for those
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 to us. Accordingly,
repayment of the notes may depend upon our ability to offer our capital stock
or to refinance the notes.
15
<PAGE>
Mrs. Fields may not be able to renew its credit agreement; because Mrs. Fields'
business and cash flow is highly seasonal, if it does not have a working
capital facility, it may not have enough cash to meet its working capital needs
at all times during the fiscal year, which could reduce profits or increase
losses
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 could prevent us from purchasing
supplies and manufacturing our products at crucial times during our annual
sales cycles, which could reduce profits or increase losses.
The notes are secured by the outstanding capital stock of Mrs. Fields; the
stock may fluctuate in value and may not satisfy amounts due on the notes
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 limitations.
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; if Mrs.
Fields does not have the ability to raise the funds necessary to finance the
change of control offer required by the indenture, no assets of Mrs. Fields
would be available to holders of our notes and the value of the stock we have
pledged would be diminished
If we default on our obligations under the notes, there could be a
foreclosure on the Mrs. Fields' stock that we have pledged, and the 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. 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 this event to repay
in full borrowings under its credit agreement and its notes and to repurchase
all of the 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 may continue to
have losses if our business strategies do not succeed
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 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 if we are unable to integrate our businesses so as to achieve
efficiencies from increased volumes of production
We have achieved growth through acquisitions such as the acquisition of Great
American and some of its franchisees and their stores, the acquisitions of
Pretzel Time and Pretzelmaker, and the business of H&M and Cookie Conglomerate
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 these 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
16
<PAGE>
developments, can affect our ability to realize the economic benefits from
prior acquisitions and 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; if we do not obtain leases
in high quality shopping malls at reasonable rents, we may not be able to
conduct our business at a profit
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; if we close an
unprofitable store but must still make lease payments on it, we will lose money
We lease locations for all the stores we own, and for most of our franchised
stores, have leased and sublet these locations to our franchisees. Accordingly,
we are the primary obligor for payments under the leases. If locations should
prove to be unprofitable, we would remain obligated for lease payments if we
determined to withdraw from those locations. Although we cannot know how many
stores we may close but on which we will continue to have to make lease
payments, we will lose money on those leases. If we have a large number of
stores like this, there will be an adverse effect on our results of operations.
See "Business--Properties."
A decline in mall traffic could decrease the revenues from our business, which
depends to a large extent on purchases by pedestrians in malls
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. This 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 increase our costs, which
we may not be able to compensate for by raising prices
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. 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.
17
<PAGE>
The minimum wage increase may increase our costs, with the result of decreasing
our profits or increasing our losses
As of January 1, 2000, 602 of our 3,893 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 $354,000 annually. These increased labor
costs could increase our costs, with the result of decreasing our profits or
increasing our losses. 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. Legislation that has been approved by the U.S. House of
Representatives would raise the minimum wage another dollar per hour over a two
year period. If the legislation becomes law, Mrs. Fields would have an
additional increase in its labor costs.
We depend upon key franchisees and licensees for revenue; there is no assurance
that franchise and license agreements will not be terminated, decreasing our
revenues as a result
We depended upon 11 franchisees, representing 130 franchised stores, for 9.5%
of our franchise revenues for the 52 weeks ended January 1, 2000. For the same
period, franchise revenues made up 13.7% 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, two
licensees accounted for 63.1% of our licensing revenue for the 52 weeks ended
January 1, 2000. For the same period, licensing revenue was 2.1% of our total
net revenues. 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 decrease our revenues.
If our trademarks are challenged, our revenues and results of operations could
be reduced because of the cost of defending against claims or because we are
prevented from using our trademarks, which we need to market our products
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 reduce our
18
<PAGE>
revenues, 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.
If we lose key management personnel, we may have difficulty in implementing the
business strategy that current management has developed, and may fail to
achieve expected profits as a result
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, we may have difficulty in
implementing the business strategy they have developed, and may fail to achieve
expected profits as a result. 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.
Competition with other specialty food retailers and changes in demographic
trends and consumer preferences could decrease our profits by reducing our
market share or forcing price reductions; increased costs of production and
delays in introducing new products could decrease our profits
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 including 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 these trends adequately.
Any changes in these factors could decrease our profitability. In addition, the
failure of customers to respond favorably to our marketing or new products,
could decrease our results of operations. See "Business--Competition."
Adverse publicity, particularly about health concerns, could reduce our sales
and decrease results of operations
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. In addition, Mrs. Fields uses ingredients, such as nuts, to which
some people may have allergies, and butter, which is high in fat, and there may
be adverse publicity about the health risks relating to these ingredients. We
cannot be sure that adverse publicity about these factors will not reduce sales
of our products and decrease results of operations.
Government regulation of our business could increase our costs
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
19
<PAGE>
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, our costs
could increase as we attempt to comply with regulations, or our revenues could
decrease if we are unable to manufacture or sell products in locations in which
we do not have required licenses. 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 reduce our results of
operations because of costs of compliance or inability to manufacture or sell
products for failure to comply with regulations.
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 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 similar
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, including product liability litigation, could reduce our results of
operations or increase our losses because of the cost of paying on successful
claims, and we may not be able to continue to obtain adequate insurance
We are involved in routine litigation in the ordinary course of business,
including franchise disputes. Although we have not been significantly 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 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 reduce our results of
operations.
Our controlling stockholder may take actions that may be contrary to your
interests
Capricorn Investors II, L.P. owns a majority of 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."
20
<PAGE>
We may not continue to have increased sales in the fourth quarter; without
these anticipated sales we may suffer reduced results of operations.
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, we
may suffer reduced results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
Fraudulent conveyance risks; federal and state statutes allow courts, under
specific circumstances, to void payments under the notes 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." Because we have incurred a substantial amount of debt in
connection with the acquisition of Great American and the assets and capital
stock of other 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.
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 come due.
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 obligation incurred by the borrower in these situations
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 of these 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:
. that we were not insolvent when, or as a result of, the issuance of
the notes,
. that we will not engage in a business or transaction for which our
remaining assets would constitute unreasonably small capital, and
. 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.
21
<PAGE>
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. Mrs. Fields' Holding and its subsidiaries' have total
indebtedness representing 86.9 % of their total liabilities and equity. 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 and in
recent periods we have not had earnings sufficient to cover our fixed charges.
In any future fraudulent transfer litigation concerning the notes and the
payments made to the holders of the notes, a court may rely on these facts in
determining our solvency, the adequacy of our capital and our ability to pay
our debts as they become due.
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 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.
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 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.
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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. These
forward-looking statements relate to future events or our future performance,
including financial performance, growth in net sales and earnings, cash flows
from operating activities, 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 some 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 cost savings and other synergies related to these
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.
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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 $29.1 million from the offering of units.
Mrs. Fields made a simultaneous offering of notes and completed the acquisition
of Great American and the 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
Under a securities purchase agreement, dated as of August 23, 1998, 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 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, debt on the balance sheet of one corporation was retired with
cash on hand, and 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 their 29 Great American franchises and with several 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 provide that the Great American franchisees that are
parties to the agreements released, subject to exceptions, all of their claims
against Mrs. Fields, Great American, Capricorn and 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,
(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,
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we will purchase all of the franchises of these 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 the 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 profit margin over our cost on batter sold to Great
American franchisees, for a three year period from August 13, 1998,
the date of acquisition,
(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.
Maintaining the gross profit margin percentage on batter sold to Great
American franchisees only affects the gross profit per case of batter sold.
Total profits earned on batter sales will fluctuate with the number of cases of
batter actually sold to franchisees. For example, if our cost of producing the
batter sold to Great American franchisees increases, we are permitted to raise
our sales price to the franchisees only to the same percentage as our
production costs increased. If the cost of producing the batter decreases, we
are required to decrease our sales price to the franchisees by the same
percentage as our costs decreased. The gross profit percentage agreed to in the
settlement was the same gross profit percentage that was being realized from
the Great American franchisees prior to the acquisition. Therefore, the
agreement would not have had an impact on the earnings of Great American if it
had been entered into prior to the acquisition by Mrs. Fields. Total revenue
earned from sales of batter to Great American franchisees is less than 10% of
total revenues earned by Mrs. Fields. We believe that the negotiated gross
profit margin percentage is sufficient to allow Mrs. Fields to maintain a
reasonable gross profit margin percentage on its sales throughout the duration
of the settlement agreement.
The Mrs. Fields Offering
Simultaneously with our offering of units, Mrs. Fields completed its offering
of $40.0 million in total principal amount of notes.
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 and received net
proceeds of $29.1 million. 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 a total 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
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(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.
Maintaining the gross profit margin percentage on batter sold to Great
American franchisees only affects the gross profit per case of batter sold.
Total profits earned on batter sales will fluctuate with the number of cases of
batter actually sold to franchisees.
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.
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, $2 million of which was assumed by Mrs. Fields' Holding as
discussed below and the remaining $200,000 of which was payable in installments
through December 30, 1999.
Other 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 one
additional Pretzel Time store from a franchisee and two cookie stores operating
under other brand names, which we converted into Mrs. Fields brand stores at
purchase prices aggregating $750,000. Mrs. Fields has remodeled the two cookie
stores, at a total cost of $156,600. 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 some of the
securities of Cookies USA that were sold under the agreement to purchase Great
American and was a party to that agreement.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for a total
purchase price of $2,800,000 under an asset purchase agreement dated as of
October 5, 1998, 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 Holdings was
the holding company for Pretzelmaker. Pretzelmaker Holdings has since been
merged into Pretzelmaker. The purchase price was approximately $5.7 million and
Mrs. Fields assumed indebtedness, including severance payments, totaling
approximately $1.6 million.
Recent Developments
On February 9, 2000, an affiliate of our parent company, Capricorn, entered
into an agreement to acquire TCBY Enterprises, Inc., a retail snack food
company. It is expected that, if this acquisition is completed, Mrs. Fields
will enter into a management agreement to provide management services to TCBY.
If completed, this acquisition would occur no earlier than the second quarter
of 2000. We cannot be sure that this acquisition will be completed, and the
terms of the management agreement have not been finalized. Management of Mrs.
Fields believes that, if completed, this acquisition would offer Mrs. Fields
the opportunity to sell its various products in TCBY stores.
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<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds under the exchange offer. In
consideration for issuing the notes as contemplated in this prospectus, we will
receive an equal principal amount of outstanding notes.
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 acquisitions 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 other
acquisitions and approximately $6.8 million of fees and expenses related to the
offering of units and some of the other acquisitions described in this
prospectus.
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CAPITALIZATION
The following shows the cash and cash equivalents and capitalization of Mrs.
Fields' Holding Company, Inc. and subsidiaries at January 1, 2000. This table
should be read in conjunction with the financial statements and related notes
included elsewhere in this Registration Statement. See "Selected Financial
Data."
<TABLE>
<CAPTION>
Mrs. Fields'
Holding at
January 1, 2000
----------------------
(dollars in thousands)
<S> <C>
Cash and Cash Equivalents............................... $ 4,919
========
Debt and Capital Lease Obligations, including current
portions:
Credit Facility(1).................................... $ --
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 and Discount Related to Warrant Allocations.... (20,083)
Discount on Mrs. Fields' 10 1/8% Series C Senior Notes
due 2004............................................. (489)
Pretzel Time Debt..................................... 106
Mrs. Fields Capital Lease Obligations and Other Debt.. 6,448
Pretzelmaker Debt and Capital Lease Obligations....... 148
Great American Debt and Capital Lease Obligations..... 272
--------
Total Debt and Capital Lease Obligations, including
current portion.................................... 181,402
--------
Mandatorily Redeemable Preferred Stock of Pretzel
Time(4)................................................ 1,070
--------
Stockholders' Equity:
Common Stock.......................................... 3
Warrants to Purchase Common Stock..................... 2,895
Additional Paid-in Capital............................ 35,711
Deferred Compensation Expense......................... (385)
Accumulated Deficit................................... (37,069)
--------
Total Stockholders' Equity.......................... 1,155
--------
Total Capitalization................................ $183,627
========
</TABLE>
- --------
(1) Under its indenture, Mrs. Fields is permitted to have one or more credit
facilities to borrow up to a maximum total principal amount of $15.0
million on a secured basis. Mrs. Fields' Amended and Restated Loan
Agreement, dated as of February 28, 1998, with LaSalle National Bank
provides for a maximum commitment of up to $15.0 million secured by
essentially all of the assets of Mrs. Fields. As of January 1, 2000, Mrs.
Fields had approximately $8.1 million of available borrowings under its
credit facility. See "Description of Indebtedness--Credit Agreement."
(2) Consists of $55.0 million of Mrs. Fields' Holding notes prior to
considering an original estimated discount of approximately $17.9 million,
and additional discount due to allocating, for accounting purposes of
$2.2 million of the net proceeds to the warrants.
(3) Includes $100.0 million of Series A and Series B 10 1/8% Senior Notes and
$40.0 million of Series C 10 1/8% Senior Notes of Mrs. Fields prior to
considering the original unamortized discount of approximately $0.5
million.
(4) Liquidation preference as of January 1, 2000 was approximately $1.1
million. Fully redeemed on January 15, 2000.
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THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Outstanding Notes
On August 24, 1998, Mrs. Fields' Holding sold notes to Jefferies & Company,
Inc. and BT Alex. Brown. When we sold the notes, we entered into a registration
rights agreement with Jefferies and BT Alex. Brown. The registration rights
agreement requires that we register new notes with the Commission and offer to
exchange the new registered notes for the outstanding notes.
We will accept any validly tendered notes that you do not withdraw before
12:00 midnight, New York City time, on the expiration date. We will issue
$1,000 of principal amount of new notes in exchange for each $1,000 principal
amount of your outstanding notes. You may tender some or all of your notes in
the exchange offer.
The form and terms of the new notes are the same as the form and terms of the
outstanding notes except that:
(1) the notes being issued in the exchange offer will be registered under
the Securities Act and will not have legends restricting their
transfer,
(2) the notes being issued in the exchange offer will not contain the
registration rights and liquidated damages provisions contained in the
outstanding notes, and
(3) interest on the new notes will accrue from the last interest date on
which interest was paid on your notes.
Outstanding notes that we accept for exchange will not accrue interest after
we complete the exchange offer.
The exchange offer will expire at 12:00 midnight, New York City time, on June
20, 2000, unless we extend it. If we extend the exchange offer, we will issue a
notice by press release or other public announcement before 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
We reserve the right, in our sole discretion:
(1) to extend the exchange offer,
(2) to delay accepting your notes,
(3) to terminate the exchange offer and not accept any notes for exchange
if any of the conditions have not been satisfied, or
(4) to amend the exchange offer in any manner.
We will promptly give oral or written notice of any extension, delay, non-
acceptance, termination or amendment. We will also file a post-effective
amendment with the Commission if we amend the terms of the exchange offer.
If we extend the exchange offer, notes that you have previously tendered will
still be subject to the exchange offer and we may accept them. We will promptly
return your notes if we do not accept them for exchange for any reason without
expense to you after the exchange offer expires or terminates.
Procedures for Tendering Notes
Only you may tender your notes in the exchange offer.
To tender in the exchange offer, you must:
(1) complete, sign and date the enclosed letter of transmittal, or a copy
of it,
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(2) have the signature on the letter of transmittal guaranteed if required
by the letter of transmittal, and
(3) mail, fax or otherwise deliver the letter of transmittal or copy to the
exchange agent
OR
if you tender your notes under The Depository Trust Company's book-entry
transfer procedures, transmit an agent's message to the exchange agent
on or before 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 a timely confirmation of a book-entry
transfer of your notes into the exchange agent's account at The
Depository Trust Company, along with the agent's message, or
(3) you must comply with the guaranteed delivery procedures described
below.
An agent's message is a computer-generated message transmitted by The
Depository Trust Company through its Automated Tender Offer Program to the
exchange agent.
To tender your notes effectively, you must make sure that the exchange agent
receives a letter of transmittal and other required documents before the
expiration date.
When you tender your outstanding notes and we accept them, the tender will be
a binding agreement between you and us in accordance with the terms and
conditions in this prospectus and in the letter of transmittal.
The method of delivery of outstanding notes, letters of transmittal and all
other required documents to the exchange agent is at your election and risk. We
recommend that you use an overnight or hand delivery service instead of mail.
If you do deliver by mail, we recommend that you use registered mail, properly
insured, with return receipt requested. In all cases, you should allow enough
time to make sure your documents reach the exchange agent before the expiration
date. Do not send a letter of transmittal or notes directly to us. You may
request your brokers, dealers, commercial banks, trust companies, or nominees
to make the exchange on your behalf.
Unless you are a registered holder who requests that the new notes to be
mailed to you and issued in your name, or unless you are an eligible
institution, you must have your signature guaranteed on a letter of transmittal
or a notice of withdrawal by an eligible institution. An eligible institution
is a firm which is a financial institution that is a member of a registered
national securities exchange or a member of the participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program.
If the person who signs the letter of transmittal and tenders the notes is
not the registered holder of the notes, the registered holders must endorse the
notes or sign a written instrument of transfer or exchange that is included
with the notes, with the registered holder's signature guaranteed by an
eligible institution. We will decide whether the endorsement or transfer
instrument is satisfactory.
We will decide all questions about the validity, form, eligibility,
acceptance and withdrawal of tendered notes, and our determination will be
final and binding on you. We reserve the absolute right to:
(1) reject any and all tenders of any particular note not properly
tendered,
(2) refuse to accept any note if, in our judgment or the judgment of our
counsel, the acceptance would be unlawful, and
(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.
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<PAGE>
Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on all parties. You must cure any defects or irregularities in
connection with tenders of notes as we will determine. Neither we, the exchange
agent nor any other person will incur any liability for failure to notify you
of any defect or irregularity with respect to your tender of notes.
If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of outstanding notes, the 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 power of attorney on
your behalf, those persons must indicate their capacity when signing, and
submit satisfactory evidence to us with the letter of transmittal demonstrating
their authority to act on your behalf.
To participate in the exchange offer, we require that you represent to us
that:
(1) you or any other person acquiring notes for your outstanding notes in
the exchange offer is acquiring them in the ordinary course of
business,
(2) neither you nor any other person acquiring notes in exchange for your
outstanding notes is engaging in or intends to engage in a distribution
of the notes issued in the exchange offer,
(3) neither you nor any other person acquiring notes in exchange for your
outstanding notes has an arrangement or understanding with any person
to participate in the distribution of notes issued in the exchange
offer,
(4) neither you nor any other person acquiring notes in exchange for your
outstanding notes is our "affiliate" as defined under Rule 405 of the
Securities Act, and
(5) if you or another person acquiring notes for your outstanding notes is
a broker-dealer, you will receive new notes for your own account, you
acquired new notes as a result of market-making activities or other
trading activities, and you acknowledge that you will deliver a
prospectus in connection with any resale of your notes.
If you are our "affiliate," as defined under Rule 405 of the Securities Act,
you are a broker-dealer who acquired your outstanding notes in the initial
offering and not as a result of market-making or trading activities, or if you
are engaged in or intend to engage in or have an arrangement or understanding
with any person to participate in a distribution of notes acquired in the
exchange offer, you or that 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 when reselling the notes.
Broker-dealers who cannot make the representations in item (5) of the paragraph
above cannot use this exchange offer prospectus in connection with resales of
the notes issued in the exchange offer.
Acceptance of Outstanding Notes for Exchange; Delivery of Notes Issued in the
Exchange Offer
We will accept validly tendered notes when the conditions to the exchange
offer have been satisfied or we have waived them. We will have accepted your
validly tendered notes when we have given oral or written notice to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purpose of receiving the new notes from us. If we do not accept any
tendered notes for exchange because of an invalid tender or other valid reason,
the exchange agent will return the certificates, without expense, to the
tendering holder. If a holder has tendered notes by book-entry transfer, we
will credit the notes to an account maintained with The Depository Trust
Company. We will return certificates or credit the account at The Depository
Trust Company as promptly as practicable after the exchange offer terminates or
expires.
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<PAGE>
Book-Entry Transfers
The exchange agent will make a request to establish an account at The
Depository Trust Company for purposes of the exchange offer within two business
days after the date of this prospectus. Any financial institution that is a
participant in The Depository Trust Company's systems must make book-entry
delivery of outstanding notes by causing The Depository Trust Company to
transfer those outstanding notes into the exchange agent's account at The
Depository Trust Company in accordance with The Depository Trust Company's
Automated Tender Offer Procedures. The participant should transmit its
acceptance to The Depository Trust Company on or prior to the expiration date
or comply with the guaranteed delivery procedures described below. The
Depository Trust Company will verify acceptance, execute a book-entry transfer
of the tendered outstanding notes into the exchange agent's account at The
Depository Trust Company and then send to the exchange agent confirmation of
the book-entry transfer. The confirmation of the book-entry transfer will
include an agent's message confirming that The Depository Trust Company has
received an express acknowledgment from the participant that the participant
has received and agrees to be bound by the letter of transmittal and that we
may enforce the letter of transmittal against the participant. Delivery of
notes issued in the exchange offer may be effected through book-entry transfer
at The Depository Trust Company. However, the letter of transmittal or
facsimile of it 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 before the expiration date, or
(2) the guaranteed delivery procedures described below must be complied
with.
Guaranteed Delivery Procedures
If you are a registered holder of outstanding notes who desires to tender
notes but your notes are not immediately available, or time will not permit
your 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, you may effect a tender if:
(1) you tender the notes through an eligible institution,
(2) prior to the expiration date, the exchange agent received from the
eligible institution a notice of guaranteed delivery in the form we
have provided. The notice of guaranteed delivery will state the name
and address of the holder of the notes being tendered and the amount of
notes being tendered, that the tender is being made and guarantee that
within five New York Stock Exchange trading days after the notice of
guaranteed delivery is signed, the certificates for all physically
tendered notes, in proper form for transfer, or a book-entry
confirmation, together with a properly completed and signed letter of
transmittal 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, together with a
properly completed and signed letter of transmittal 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
You may withdraw your tender of outstanding notes at any time before 12:00
midnight, New York City time, on the expiration date.
For a withdrawal to be effective, you must make sure that, before 12:00
midnight on the expiration date, the exchange agent receives a written notice
of withdrawal at one of the addresses below or, if you are a participant of The
Depository Trust Company, an electronic message using The Depository Trust
Company's Automated Tender Offer Program.
32
<PAGE>
Any 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
the notes,
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the notes were tendered or be
accompanied by documents of transfer, and
(4) if you have transmitted certificates for outstanding notes, specify the
name in which the notes are registered, if different from that of the
withdrawing holder, and identify the serial numbers of the
certificates.
If you have tendered notes under the book-entry transfer procedure, your
notice of withdrawal must also specify the name and number of an account at The
Depository Trust Company to which your withdrawn notes can be credited.
We will decide all questions as to the validity, form and eligibility of the
notices and our determination will be final and binding on all parties. Any
tendered notes that you withdraw will not be considered to have been validly
tendered. We will return any outstanding notes that have been tendered but not
exchanged, or credit them to The Depository Trust Company account, as soon as
practicable after withdrawal, rejection of tender, or termination of the
exchange offer. You may retender properly withdrawn notes by following one of
the procedures described above before the expiration date.
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 has 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 is threatened or in effect with respect to the
registration statement or the qualification of the indenture under the
Trust Indenture Act of 1939, or
(3) there is a change in the current interpretation by the staff of the
Commission which permits holders who have made the required
representations to us to resell, offer for resale, or otherwise
transfer notes issued in the exchange offer without registration of the
notes and delivery of a prospectus, as discussed above.
These conditions are for our sole benefit and we may assert or waive them at
any time and for any reason. However, 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 will not be a waiver of our
rights.
33
<PAGE>
Exchange Agent
You should direct all signed letters of transmittal to the exchange agent,
The Bank of New York. You should direct questions, requests for assistance, and
requests for additional copies of this prospectus, the letter of transmittal
and the notice 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 or fax of the letter of transmittal to an address or number other
than those above is not a valid delivery of the 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 connected with the exchange offer. We
estimate that these expenses will be approximately $1,500,000.
Transfer Taxes
If you tender outstanding notes for exchange you will not be obligated to pay
any transfer taxes. However, if you instruct us to register new notes in the
name of, or request that your notes not tendered or not accepted in the
exchange offer be returned to, a person other than you, you will be responsible
for paying any transfer tax owed.
You May Suffer Adverse Consequences if You Fail to Exchange Outstanding Notes
If you do not tender your outstanding notes, you will not have any further
registration rights, except for the rights described in the registration rights
agreements and described above, and your notes will continue to be subject to
restrictions on transfer when we complete the exchange offer. Accordingly, if
you do not tender your notes in the exchange offer, your ability to sell your
notes could be adversely affected. Once we have completed the exchange offer,
holders who have not tendered notes will continue to be entitled to any
increase in interest rate that the indenture provides for if we do not complete
the exchange offer.
Holders of the notes issued in the exchange offer and notes that are not
tendered in the exchange offer will vote together as a single class under the
indenture.
Consequences of Exchanging Outstanding Notes
If you make the representations that we discuss above, we believe that you
may offer, sell or otherwise transfer the new notes to another party without
registration of your notes or delivery of a prospectus.
We base our belief on interpretations by the staff of the Commission in no-
action letters issued to third parties. If you cannot make these
representations, you cannot rely on this interpretation by the commission's
staff and you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale of the notes. A
broker-dealer that receives new notes for its own account in exchange
34
<PAGE>
for its outstanding notes must acknowledge that it acquired as a result of
market-making activities or other trading activities and that it will deliver a
prospectus in connection with any resale of the new notes. Broker-dealers who
can make these representations may use this exchange offer prospectus, as
supplemented or amended, in connection with resales of notes issued in the
exchange offer.
However, because the Commission has not issued a no-action letter in
connection with this exchange offer, we cannot be sure that the staff of the
Commission would make a similar determination regarding the exchange offer as
it has made in similar circumstances.
Shelf Registration
The registration rights agreement also requires that we file a shelf
registration statement if:
(1) we cannot file a registration statement for the exchange offer because
the exchange offer is not permitted by law,
(2) law or Commission policy prohibits a holder from participating in the
exchange offer,
(3) a holder cannot resell the notes it acquires in the exchange offer
without delivering a prospectus and this prospectus is not appropriate
or available for resales by the holder, or
(4) a holder is a broker-dealer and holds notes acquired directly from us
or one of our affiliates.
We will also register the notes under the securities laws of jurisdictions
that holders may request before offering or selling notes in a public offering.
We do not intend to register notes in any jurisdiction unless a holder requests
that we do so.
Notes will be subject to restrictions on transfer until:
(1) a person other than a broker-dealer has exchanged notes in the exchange
offer,
(2) a broker-dealer has exchanged notes in the exchange offer and sells
them to a purchaser that receives a prospectus from the broker-dealer
on or before the sale,
(3) the notes are sold under an effective shelf registration statement that
we have filed, or
(4) the notes are sold to the public under Rule 144 of the Securities Act.
35
<PAGE>
SELECTED FINANCIAL DATA
The following table presents financial data for Mrs. Fields' Holding Company,
Inc. and subsidiaries 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 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 are not indicative of the results for the full fiscal year. The selected
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, some of the statement
of operations information for the predecessors has been reclassified to be
consistent with the Mrs. Fields' Holding financial statement presentation. Mrs.
Fields' Holding and its predecessors operate using a 52/53-week year ending
near December 31. The selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and related notes, contained
elsewhere in this registration statement.
<TABLE>
<CAPTION>
Predecessors
----------------------------------------------------------------------------
The Original Cookie Company,
Incorporated and the Carved-
Out Portion of Hot
Mrs. Fields Inc. and Subsidiaries Sam Company, Inc. (Combined)
--------------------------------------- ----------------------------
December December
31, 1995 31, 1995
52 Weeks Ended Through 52 Weeks Ended Through
December September December September
30, 1995 17, 1996 30, 1995 17, 1996
------------------- ----------------- ---------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and food
sales................. $ 59,956 $29,674 $ 85,581 $ 54,366
Net store
contribution(1)....... 6,591 3,797 13,063 5,854
Franchising and
licensing, net ....... 5,993 3,786 -- --
General and
administrative
expenses.............. 15,612 8,984 9,216 7,538
Income (loss) from
operations............ (3,526) (1,742) 2,435 (2,772)
Net loss............... (2,368) (2,304) (2,096) (5,645)
Other Data:
Cash flows from
operating activities.. (4,478) (447) 4,451 (378)
Cash flows from
investing activities.. 2,526 (385) (568) (1,200)
Cash flows from
financing activities.. (185) (58) (4,599) (1,380)
Interest expense....... 51 80 4,356 2,895
Total depreciation and
amortization.......... 3,525 1,911 6,902 4,937
Capital expenditures... 4,146 1,054 568 1,200
EBITDA(2).............. (1) 169 9,337 2,165
Store contribution for
stores in the process
of being closed or
franchised(1)......... $ (802) $ (695) $ (1,542) $ (1,751)
Ratio of earnings to
fixed charges(3)...... -- -- -- --
Balance Sheet Data:
Working capital
(deficit)............. $ (3,114) $ (21,704) $ 128 $ (3,640)
Total assets........... 23,033 19,144 66,282 59,024
Debt and capital lease
obligations including
current portion....... 21,226 21,224 32,357 30,977
Total stockholders'
equity (deficit)...... (28,017) (30,318) 22,588 16,943
</TABLE>
See footnotes on page 38
36
<PAGE>
<TABLE>
<CAPTION>
Mrs. Fields' Holding
----------------------------------------------
September 18, 53 Weeks 52 Weeks 52 Weeks
1996 Through Ended Ended Ended
December 28, January 3, January 2, January 1,
1996 1998 1999 2000
------------- ---------- ---------- ----------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net store and food
sales................ $ 40,849 $127,845 $140,235 $152,268
Net store
contribution(1)...... 9,707 25,044 20,166 20,802
Franchising and
licensing, net....... 1,267 6,563 14,001 28,669
General and
administrative
expenses............. 4,089 16,436 19,583 21,965
Store closure
provision (benefit).. -- 538 7,303 (1,579)
Income (loss) from
operations........... 5,583 8,124 (6,002) 10,341
Net income (loss)..... 2,124 (624) (21,505) (14,218)
Basic and diluted net
income (loss) per
common share(4)...... 0.48 (0.88) (6.55) (4.23)
Other Data:
Cash flows from
operating
activities........... 7,611 923 4,581 18,501
Cash flows from
investing
activities........... (21,131) (17,070) (40,894) (4,696)
Cash flows from
financing
activities........... 20,231 25,929 24,579 (13,645)
Interest expense...... 1,737 7,527 14,946 23,842
Total depreciation and
amortization......... 2,356 10,450 19,867 24,253
Capital expenditures.. 1,638 4,678 8,235 9,154
EBITDA(2)............. 7,939 18,574 13,865 34,594
Store contribution for
stores in the process
of being closed or
franchised(1)........ $ 513 $ (1,798) $ (2,054) $ (312)
Ratio of earnings to
fixed charges(3)..... 3.26x 1.00x -- --
Balance Sheet Data:
Working capital
(deficit)............ $ (2,827) $ 12,790 $(12,548) $ (4,517)
Total assets.......... 110,705 150,635 234,400 210,117
Cumulative redeemable
Series A preferred
stock................ 23,785 -- -- --
Mandatorily redeemable
cumulative preferred
stock of
subsidiaries......... -- 902 1,261 1,070
Line of credit, debt
and capital lease
obligations,
including current
portion.............. 62,920 101,081 180,633 181,402
Total stockholders'
equity............... 1,482 31,062 13,528 1,155
</TABLE>
<TABLE>
<CAPTION>
Predecessors
-------------------------------------------
The Original Cookie
Company, Incorporated
and the Carved-Out
Portion of Hot Sam
Mrs. Fields Inc. Company, Inc.
and Subsidiaries (Combined)
------------------- -----------------------
December December
52 Weeks 31, 1995 52 Weeks 31, 1995
Ended Through Ended Through
December September December September
30, 1995 17, 1996 30, 1995 17, 1996
-------- --------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
EBITDA Data:
Income (loss) from
operations........... $(3,526) $(1,742) $ 2,435 $ (2,772)
ADD:
Depreciation and
amortization......... 3,525 1,911 6,902 4,937
------- ------- ---------- -----------
EBITDA................ $ (1) $ 169 $ 9,337 $ 2,165
======= ======= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Mrs. Fields' Holding
----------------------------------------------
September 18, 53 Weeks 52 Weeks 52 Weeks
1996 Through Ended Ended Ended
December 28, January 3, January 2, January 1,
1996 1998 1999 2000
------------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
EBITDA Data:
Income (loss) from
operations.............. $5,583 $ 8,124 $(6,002) $10,341
ADD:
Depreciation and
amortization............ 2,356 10,450 19,867 24,253
------ ------- ------- -------
EBITDA................... $7,939 $18,574 $13,865 $34,594
====== ======= ======= =======
</TABLE>
37
<PAGE>
- --------
(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 accounting
principles generally accepted in the United States. Store contribution may
not be comparable to other similarly titled measures.
(2) EBITDA consists of earnings before depreciation, amortization, interest,
income taxes, minority interest, preferred stock accretion and dividends of
subsidiaries and other income or expense. EBITDA is not intended to
represent cash flows from operating activities as defined by accounting
principles generally accepted in the United States 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 in this prospectus 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 3). EBITDA may not be comparable
to similarly titled measures reported by other companies.
(3) 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 year, 1995 and the period December 31, 1995
through September 17, 1996, Mrs. Fields Inc. and subsidiaries' earnings
were insufficient to cover fixed charges by $2,127,000 and $2,099,000,
respectively. For fiscal year 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 $1,833,000 and $5,645,000,
respectively. For the 52 weeks ended January 2, 1999, Mrs. Fields'
Holding's earnings were insufficient to cover fixed charges by $21,189,000.
For the 52 weeks ended January 1, 2000, Mrs. Fields Holding's earnings were
insufficient to cover fixed charges by $14,000,000.
(4) 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.
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF
OPERATIONS
Overview
In 1996, an investor group led by Capricorn Investors II, L.P. formed Mrs.
Fields' Original Cookies, Inc. and The Mrs. Fields' Brand, Inc. as subsidiaries
of Mrs. Fields' Holding Company, Inc.
On September 17, 1996, Mrs. Fields initiated operations when it purchased
substantially all of the assets and assumed 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 selected 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 to be franchised or closed as "core" stores,
meaning continuing company-owned stores. Continuing company-owned stores will
be operated by Mrs. Fields into the foreseeable future. As a result of
converting selected stores to franchises, royalty revenues are expected to
increase and net store sales and overhead expenses associated with operating
those stores are expected to be reduced.
As Mrs. Fields exits stores it has identified for closure through closing or
franchising, results from operations are expected to improve on both a short-
term and 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. A complete analysis of Mrs. Fields' store closure plans is
included in Note 5 to the Consolidated Financial Statements.
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 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 received as a contribution from Mrs.
Fields' Holding all of the common stock of The Mrs. Fields' Brand, Inc., the
business of Mrs. Fields' Pretzel Concepts and 56% of the shares of common stock
of Pretzel Time. 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 December 9, 1998, Mrs. Fields purchased three
percent of Pretzel Time common stock for $0.5 million in cash and on December
30, 1998 Mrs. Fields completed the acquisition of the remaining outstanding
common stock of Pretzel Time under a stock purchase agreement, for a purchase
price of approximately $4.7 million.
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 a total purchase price of $18.4 million.
Mrs. Fields also retired approximately $38.9 million of outstanding Great
American 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 also purchased the
39
<PAGE>
stock of two Great American franchisees, Deblan Corporation and Chocolate Chip
Cookies of Texas, Inc., together owning and operating 29 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
("Karp") 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
("Cookie Conglomerate") from a Great American franchisee for a total purchase
price of $2.8 million.
On November 19, 1998, Mrs. Fields, under a stock purchase agreement among
Pretzelmaker Holdings, Inc., holders of all outstanding capital stock of
Pretzelmaker Holdings, and Mrs. Fields, acquired all of the outstanding capital
stock of Pretzelmaker Holdings for $5.7 million, including $5.4 million related
to outstanding capital stock and $.3 million related to severance payments, in
lieu of outstanding stock options, and assumed liabilities of $1.3 million.
Pretzelmaker Holdings has since been merged into Pretzelmaker.
Year 2000
Prior to January 1, 2000, management assessed the Year 2000 issue and
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 expectation of systems used for collecting and
communicating sales data from retail locations. This assessment was based
primarily on independent, third-party verification from Mrs. Fields' Holding's
vendors and suppliers.
We replaced Mrs. Fields' sales collection systems with software and hardware
that is Year 2000 compliant. The approximate cost of this project was $1.79
million and included software development and new store computers and
registers. The costs to complete this project were included in Mrs. Fields'
Holding's 1999 budget. Funding for this project was provided by internal cash
flow and by a lease finance company. No information technology projects have
been deferred as a result of Mrs. Fields' Holding's Year 2000 efforts.
Prior to January 1, 2000, Mrs. Fields completed its assessment of Year 2000
issues with respect to its significant vendors and financial institutions as to
their compliance plans and whether any Year 2000 issues would impede the
ability of such third-party vendors to continue providing goods and services to
us. Failure of our key suppliers to remedy their own Year 2000 issues could
have delayed 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. We did
not experience any disruption of our operations due to Year 2000 issues or Year
2000 issues experienced by any of our vendors.
Inflation
The impact of inflation on the earnings of the business has not been
significant in recent years. Most of Mrs. Fields' Holding's leases contain
escalation clauses (however, such leases are accounted for on a straight-line
basis as required by accounting principles generally accepted in the United
States which minimizes fluctuations in operating income) and many of Mrs.
Fields' Holding's employees are paid hourly wages at the Federal minimum wage
level. Minimum wage increases 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.
Results of Operations of Mrs. Fields' Holding
The following table sets forth, for the periods indicated, certain
information relating to the operations of Mrs. Fields' Holding expressed in
thousands of dollars and percentage changes from period to period. Annual data
in the table reflects the consolidated results of Mrs. Fields' Holding for the
53 weeks ended January 3, 1998 ("fiscal year 1997"), for the 52 weeks ended
January 2, 1999 ("fiscal year 1998") and for the 52 weeks
40
<PAGE>
ended January 1, 2000 ("fiscal year 1999").
<TABLE>
<CAPTION>
%
For the 53 % of Change
Weeks For the 52 Change For the 52 from
Ended Weeks Ended from Weeks Ended 1998
January 3, January 2, 1997 to January 1, to
1998 1999 1998 2000 1999
---------- ----------- ------- ----------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Net store and food
sales................. $127,845 $140,235 9.7 % $152,268 8.6%
Franchising, net....... 4,535 12,464 174.8 24,782 98.8
Licensing, net......... 2,028 1,537 (24.2) 3,887 152.9
-------- -------- --------
Total revenues......... 134,408 154,236 14.8 180,937 17.3
-------- -------- --------
Operating costs and
expenses:
Selling and store
occupancy costs....... 66,832 75,003 12.2 79,634 6.2
Cost of sales.......... 32,028 38,482 20.2 46,323 20.4
General and
administrative
expenses.............. 16,436 19,583 19.1 21,965 12.2
Store closure provision
(benefit)............. 538 7,303 1,257.4 (1,579) (121.6)
Depreciation and
amortization.......... 10,450 19,867 90.1 24,253 22.1
-------- -------- --------
Total operating costs
and expenses.......... 126,284 160,238 26.9 170,596 6.5
-------- -------- --------
Interest expense........ (7,527) (14,946) 98.6 (23,842) 59.5
-------- -------- --------
Interest income......... 246 623 153.3 54 (91.3)
-------- -------- --------
Other expense, net...... (1,467) (1,180) (19.6) (771) (34.7)
-------- -------- --------
Net loss................ $ (624) $(21,505) 3,346.3 % $(14,218) (33.9)%
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
%
For the 53 % of Change
Weeks For the 52 Change 52 Week from
Ended Weeks Ended from Ended 1998
January 3, January 2, 1997 to January 1, to
1998 1999 1998 2000 1999
---------- ----------- ------- ---------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Supplemental Information:
Continuing company-owned
stores:
Net store and food sales.. $108,174 $122,713 13.4 % $136,821 11.5%
-------- -------- --------
Operating costs and
expenses:
Selling and store
occupancy costs......... 50,858 60,900 19.7 68,564 12.6
Cost of sales............ 26,578 33,621 26.5 36,916 9.8
Depreciation and
amortization............ 3,896 5,972 53.3 10,227 71.2
-------- -------- --------
Total operating costs and
expenses................ 81,332 100,493 23.6 115,707 15.1
-------- -------- --------
Continuing company-owned
store contribution....... $ 26,842 $ 22,220 (17.2)% $ 21,114 (5.0)%
======== ======== ========
Stores in the process of
being closed or
franchised:
Net store and food sales.. $ 19,671 $ 17,522 (10.9)% $ 15,447 (11.8)
-------- -------- --------
Operating costs and
expenses:
Selling and store
occupancy costs......... 15,974 14,103 (11.7) 11,070 (21.5)
Cost of sales............ 5,450 4,861 (10.8) 4,529 (6.8)
Depreciation and
amortization............ 45 612 1,260.0 160 (73.9)
-------- -------- --------
Total operating costs and
expenses................ 21,469 19,576 (8.8) 15,759 (19.5)
-------- -------- --------
Stores in the process of
being closed or
franchised negative
contribution............. $ (1,798) $ (2,054) 14.2 % $ (312) (84.8)%
======== ======== ========
</TABLE>
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. Core store
contribution measures the amount of store contribution from stores that the
Company does not intend to close or franchise. Store contribution for stores in
the process of being closed or franchised measures the amount of store
contribution from stores that the Company has determined to either close or
franchise and the Company has included in a store closure reserve. Store
contribution for stores in the process of being closed or franchised as a
separate caption is not in accordance with accounting principles generally
accepted in the United States. Store contribution may not be comparable to
other similarly titled measures.
41
<PAGE>
52 Weeks Ended January 1, 2000 ("Fiscal 1999") Compared to the 52 Weeks Ended
January 2, 1999 ("Fiscal 1998")
Company-owned and Franchised or Licensed Store Activity
As of January 1, 2000, there were 462 company-owned stores and 981 franchised
or licensed stores in operation. The store activity for fiscal 1998 and fiscal
1999 is summarized as follows:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1999
-------------------- --------------------
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..................... 481 553 566 972
Stores opened (including relocations
and acquisitions)................... 128 504 13 100
Stores closed (including
relocations)........................ (20) (78) (26) (123)
Non-continuing company-owned (exit
plan) stores closed (September 18,
1996 forward)....................... (30) -- (59) --
Stores sold to franchisees........... (11) 11 (13) 13
Non-continuing company-owned (exit
plan) stores franchised (September
18, 1996 forward)................... (15) 15 (24) 24
Stores acquired from franchisees..... 33 (33) 5 (5)
--- --- --- ----
Stores open as of the end of the
fiscal year......................... 566 972 462 981
=== === === ====
</TABLE>
Revenues
Net Store and Food Sales. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $12,033,000, or 8.6%,
from $140,235,000 to $152,268,000 for fiscal 1999 compared to fiscal 1998.
Net store sales from continuing company-owned stores and mail order increased
$14,108,000, or 11.5%, from $122,713,000 to $136,821,000 for fiscal 1999
compared to fiscal 1998. The increase in net store sales from continuing
company-owned stores was primarily attributable to:
(1) the operation for a full year of 66 Great American stores acquired
in connection with the acquisitions of Great American, Deblan,
Chocolate Chip and Karp in August and September 1998,
(2) the operation for a full year of two Pretzelmaker continuing
company-owned stores acquired in connection with the Pretzelmaker
acquisition in November 1998,
(3) a 23.1% increase in mail order sales.
(4) the introduction of a refrigerated cookie dough product for sale in
retail supermarkets.
The increase in net store sales was offset in part by negative same store
sales. Based on stores that have been open for at least two years (adjusted for
the calendar shift), system-wide continuing company-owned store sales were down
1% during fiscal 1999 compared to the same period in fiscal 1998.
Net store sales from stores in the process of being closed or franchised
decreased $2,075,000, or 11.8%, from $17,522,000 to $15,447,000 for fiscal 1999
compared to fiscal 1998. This decrease results from closing or franchising 150
stores during fiscal 1999.
Franchising Revenues. Franchising revenues increased $12,318,000, or 98.8%,
from $12,464,000 to $24,782,000 for fiscal 1999 compared to fiscal 1998. The
increase in franchising revenues was primarily attributable to royalties earned
from the 211 Great American franchised stores obtained in connection with the
acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and
September 1998, the 199 Pretzelmaker franchised stores acquired in November
1998 and the additional stores that were franchised by the Company in fiscal
1999.
42
<PAGE>
Licensing Revenues. Licensing revenues increased $2,350,000, or 152.9%, from
$1,537,000 to $3,887,000 for fiscal 1999 compared to fiscal 1998. The increase
in licensing revenues was attributable to license fees on new contracts entered
into in 1999 and royalties earned on existing licensing agreements. The
increase was partially offset by a decrease in the number of licensed locations
during 1999.
Total Revenues. Total revenues increased by $26,701,000, or 17.3%, from
$154,236,000 to $180,937,000 for fiscal 1999 compared to fiscal 1998 due to the
reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $4,631,000, or 6.2%, from $75,003,000 to $79,634,000 for fiscal 1999
compared to fiscal 1998.
Selling and store occupancy costs for continuing company-owned stores
increased by $7,664,000, or 12.6%, from $60,900,000 to $68,564,000 for fiscal
1999 compared to fiscal 1998. Within this overall increase, selling expenses
for continuing company-owned stores increased by $4,222,000, or 15.7%, from
$26,930,000 to $31,152,000 for fiscal 1999 compared to fiscal 1998. The
increase in selling expenses was primarily attributable to the 66 Great
American continuing company-owned stores acquired in connection with the
acquisitions of Great American, Deblan, Chocolate Chip and Karp in August and
September 1998 and the two Pretzelmaker stores acquired in November 1998. Store
occupancy costs for continuing company-owned stores increased $3,442,000, or
10.1%, from $33,970,000 to $37,412,000 for fiscal 1999 compared to fiscal 1998.
The increase in store occupancy costs was primarily attributable to the
increase in the number of stores discussed above, rent escalations in existing
leases and lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $3,033,000, or 21.5%, from $14,103,000 to $11,070,000
for fiscal 1999 compared to fiscal 1998. This decrease was primarily the result
of closing 150 stores throughout fiscal 1999.
Cost of Sales. Total cost of sales increased $7,841,000, or 20.4%, from
$38,482,000 to $46,323,000 for fiscal 1999 compared to fiscal 1998.
Cost of sales for continuing company-owned stores decreased $3,295,000, or
9.8%, from $33,621,000 to $36,916,000 for fiscal 1999 compared to fiscal 1998.
This increase was primarily the result of the addition 65 Great American
continuing company-owned stores acquired in connection with the acquisitions of
Great American, Deblan, Chocolate Chip and Karp in August and September 1998
and 2 Pretzelmaker stores acquired in November 1998.
Cost of sales for stores in the process of being closed or franchised
decreased $332,000, or 6.8%, from $4,861,000 to $4,529,000 for fiscal 1999
compared to fiscal 1998. This decrease was primarily the result of closing or
franchising 150 stores during fiscal 1999.
Cost of Sales in fiscal 1999 also included $4,878,000 associated with the
mail order business. Mail order cost of sales increased consistent with mail
order sales.
General and Administrative Expenses. General and administrative expenses
increased $2,382,000, or 12.2%, from $19,583,000 to $21,965,000 for fiscal 1999
compared to fiscal 1998. The increase in general and administrative expenses
was primarily attributable to the additional resources required to support the
stores acquired in 1998.
Store Closure Provision. During the fourth quarter of 1998, the Company
recorded an additional $7,303,000 in store closure reserves to cover early
lease termination costs under a plan to close or franchise 54 existing stores
that were not earning acceptable levels of contribution. During 1999, the
Company was successful in closing certain of these stores at a negotiated cost
less than had been provided for in the plan. A total of $1,579,000 of costs in
excess of the amounts required to close the stores have been reversed in 1999.
See Note 5 to the Consolidated Financial Statements for a detailed explanation
of the store closure reserve.
Depreciation and Amortization Expense. Total depreciation and amortization
expense increased by $4,386,000, or 22.1%, from $19,867,000 to $24,253,000 for
fiscal 1999 compared to fiscal 1998. This increase was primarily attributable
to increased goodwill amortization from the acquisitions of H&M and Pretzel
Time in fiscal 1997 and the acquisitions of Great American, Deblan, Chocolate
Chip and Pretzelmaker in fiscal 1998.
43
<PAGE>
During fiscal 1999, the Company wrote down, to net realizable value,
approximately $1,645,000 of impaired long-lived assets. This expense is
included in depreciation and amortization expense. The Company also assessed
the realization of goodwill associated with these stores and recorded an
impairment of goodwill totaling $237,000.
Depreciation and amortization expense for stores in the process of being
closed or franchised decreased $452,000, or 73.9%, from $612,000 to $160,000
for fiscal 1999 compared to fiscal 1998. This decrease in depreciation and
amortization expense was primarily attributable to closing or franchising 150
stores in fiscal 1999. Substantially all of the long-lived assets had been
written down to their net realizable value in fiscal 1998.
Total Operating Costs and Expenses. Total operating costs and expenses
increased by $10,358,000, or 6.5%, from $160,238,000 to $170,596,000 for fiscal
1999 compared to fiscal 1998 for the reasons discussed above.
Interest Expense. Interest expense increased $8,896,000, or 59.5%, from
$14,946,000 to $23,842,000 for fiscal 1999 compared to fiscal 1998. This
increase was primarily attributable to interest, including amortization of bond
discount and deferred loan costs, on the $95,000,000 in high yield notes, which
were issued in August 1998.
Interest Income. Interest income decreased $569,000, or 91.3%, from $623,000
to $54,000 for fiscal 1999 compared to fiscal 1998. In 1998, the Company earned
interest on excess cash provided by the $100,000,000 senior notes that were
placed in November 1997, the $40,000,000 senior notes placed in August 1998 and
the $55,000,000 principal amount of Notes of Mrs. Fields' Holding placed in
August 1998. This excess cash was used to acquire Great American and
Pretzelmaker and, therefore, was not available for investment in 1999.
Other Expenses. Other expenses for fiscal 1999 were comparable to fiscal
1998.
Net Loss. The net loss decreased by $7,287,000, or 33.9%, from $21,505,000 to
$14,218,000 for fiscal 1999, compared to fiscal 1998 due to the combination of
factors described above.
Income from Continuing Company-Owned Stores. Income from continuing company-
owned stores decreased $1,106,000, or 5.0%, from $22,220,000 in fiscal 1998 to
$21,114,000 in fiscal 1999. The decrease resulted primarily from increased
depreciation and amortization associated with the stores that were acquired in
1998.
Loss from Stores in the Process of Being Closed or Franchised. The loss from
stores in the process of being closed or franchised decreased by $1,742,000, or
84.8%, from $2,054,000 to $312,000 for fiscal 1999 compared to fiscal 1998. The
decreased loss was primarily attributable to closing 150 stores in fiscal 1999.
52 Weeks Ended January 2, 1999 ("Fiscal 1998") Compared to the 53 Weeks Ended
January 3, 1998 ("Fiscal 1997")
Company-owned and Franchised or Licensed Store Activity
As of January 2, 1999, there were 566 company-owned stores and 972 franchised
or licensed stores in operation. The store activity for fiscal 1997 and fiscal
1998 is summarized as follows:
44
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 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)................... 86 217 128 504
Stores closed (including
relocations)........................ (7) (89) (20) (78)
Non-continuing company-owned (exit
plan) stores closed (September 18,
1996 forward)....................... (73) -- (30) --
Stores sold to franchisees........... (3) 3 (11) 11
Non-continuing company-owned (exit
plan) stores franchised (September
18, 1996 forward)................... (9) 9 (15) 15
Stores acquired from franchisees..... 5 (5) 33 (33)
--- --- --- ---
Stores open as of the end of the
fiscal year......................... 481 553 566 972
=== === === ===
</TABLE>
Revenues
Net Store and Food Sales. Total net store and food sales, which includes
sales from stores and the mail order facility, increased $12,390,000, or 9.7%,
from $127,845,000 to $140,235,000 for fiscal 1998 compared to fiscal 1997.
Net store sales from continuing company-owned stores and mail order increased
$14,539,000, or 13.4%, from $108,174,000 to $122,713,000 for fiscal 1998
compared to fiscal 1997. The increase in net store sales from continuing
company-owned stores was primarily attributable to:
(1) the operation of 85 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 65 Great American stores acquired in connection
with the acquisitions of Great American, Deblan, Chocolate Chip, and
Karp in August and September 1998,
(3) a 35.5% increase in mail order sales.
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 fiscal 1997 and again in the
fourth quarter of fiscal 1997. The first quarter of 1998 did not benefit from
the New Year's holiday sales.
The increase in net store sales was also offset in part by negative same
store sales. Based on stores that have been open for at least two years
(adjusted for the calendar shift), system-wide continuing company-owned store
sales were down 1.8% during fiscal 1998 compared to fiscal 1997. Additionally,
there were only 52 weeks in fiscal 1998 compared to 53 weeks in fiscal 1997.
Net store sales from stores in the process of being closed or franchised
decreased $2,149,000, or 10.9%, from $19,671,000 to $17,522,000 for fiscal 1998
compared to fiscal 1997. This decrease results from closing or franchising 45
stores during fiscal 1998 and the effect of closing or franchising 82 stores
during fiscal 1997.
Franchising Revenues. Franchising revenues increased $7,929,000, or 174.8%,
from $4,535,000 to $12,464,000 for fiscal 1998 compared to fiscal 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, the 211 Great American franchised
stores obtained in connection with the acquisitions of Great American, Deblan,
Chocolate Chip and Karp in August and September 1998 and the 199 Pretzelmaker
franchised stores acquired in November 1998.
Licensing Revenues. Licensing revenues decreased $491,000, or 24.2%, from
$2,028,000 to $1,537,000 for fiscal 1998 compared to fiscal 1997. The decrease
in licensing revenues was primarily attributable to reduced concept licensing
royalties.
45
<PAGE>
Total Revenues. Total revenues increased by $19,828,000, or 14.8%, from
$134,408,000 to $154,236,000 for fiscal 1998 compared to fiscal 1997 due to the
reasons discussed above.
Operating Costs and Expenses
Selling and Store Occupancy Costs. Total selling and store occupancy costs
increased $8,171,000, or 12.2%, from $66,832,000 to $75,003,000 for fiscal 1998
compared to fiscal 1997.
Selling and store occupancy costs for continuing company-owned stores
increased by $10,042,000, or 19.7%, from $50,858,000 to $60,900,000 for fiscal
1998 compared to fiscal 1997. Within this overall increase, selling expenses
for continuing company-owned stores increased by $4,836,000, or 21.9%, from
$22,094,000 to $26,930,000 for fiscal 1998 compared to fiscal 1997. The
increase in selling expenses was primarily attributable to the 85 Pretzel Time
continuing company-owned stores acquired in connection with the acquisitions of
H&M and Pretzel Time in 1997, the 65 Great American continuing company-owned
stores acquired in connection with the acquisitions of Great American, Deblan,
Chocolate Chip and Karp in August and September 1998, the 2 Pretzelmaker stores
acquired in November 1998, and the effect of the minimum wage increasing to
$5.15 from $4.75 on September 1, 1997. Store occupancy costs for continuing
company-owned stores increased $5,206,000, or 18.1%, from $28,764,000 to
$33,970,000 for fiscal 1998 compared to fiscal 1997. The increase in store
occupancy costs was primarily attributable to the increase in the number of
stores discussed above, Mrs. Fields' reacquiring 33 continuing company-owned
stores from franchisees during fiscal 1998, rent escalations in existing leases
and lease renewal increases.
Selling and store occupancy costs for stores in the process of being closed
or franchised decreased $1,871,000, or 11.7%, from $15,974,000 to $14,103,000
for fiscal 1998 compared to fiscal 1997. This decrease was primarily the result
of closing or franchising 45 stores during fiscal 1998 and the effect of
closing or franchising 82 stores during fiscal 1997.
Cost of Sales. Total cost of sales increased $6,454,000, or 20.2%, from
$32,028,000 to $38,482,000 for fiscal 1998 compared to fiscal 1997.
Cost of sales for continuing company-owned stores increased $7,043,000, or
26.5%, from $26,578,000 to $33,621,000 for fiscal 1998. This increase was
primarily the result of the addition of 85 Pretzel Time continuing company-
owned stores in July 1997, 65 Great American continuing company-owned stores
acquired in connection with the acquisitions of Great American, Deblan,
Chocolate Chip and Karp in August and September 1998 and 2 Pretzelmaker stores
acquired in November 1998. 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, food costs associated with increased mail order sales
and the increasing cost of butter. Butter is one of the main ingredients in a
variety of our products and is a condiment for other products. The price of
butter has increased from $0.78/lb. at the beginning of fiscal 1997 to a peak
of $2.92/lb. in September 1998. Additionally, distribution costs increased
during fiscal 1998 as Mrs. Fields' changed distributors to improve product
availability and the reliability of service to the stores.
Cost of sales for stores in the process of being closed or franchised
decreased $589,000, or 10.8%, from $5,450,000 to $4,861,000 for fiscal 1998
compared to fiscal 1997. This decrease was primarily the result of closing or
franchising 45 stores during fiscal 1998 and the effect of closing or
franchising 82 stores during fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased $3,147,000, or 19.1%, from $16,436,000 to $19,583,000 for fiscal 1998
compared to fiscal 1997. The increase in general and administrative expenses
was primarily attributable to the acquisitions of H&M and Pretzel Time in 1997,
the acquisitions of Great American, Deblan, Chocolate Chip, Karp and
Pretzelmaker in 1998.
46
<PAGE>
Store Closure Provision. During the fourth quarter of 1998, management
reassessed its strategy with respect to acceptable levels of contribution from
certain existing stores. This resulted in management setting out a plan to
close or franchise 54 existing stores. The Company recorded an additional
$7,303,000 in store closure reserves to cover early lease termination costs.
Management believes that the level of store closure reserves is adequate to
provide for all closure costs for these stores.
Depreciation and Amortization Expense. Total depreciation and amortization
expense increased by $9,417,000, or 90.1%, from $10,450,000 to $19,867,000 for
fiscal 1998 compared to fiscal 1997. This increase was primarily attributable
to increased goodwill amortization from the acquisitions of H&M and Pretzel
Time in fiscal 1997 and the acquisitions of Great American, Deblan, Chocolate
Chip and Pretzelmaker in fiscal 1998.
For stores with negative contribution that were determined to be closed or
franchised, the Company wrote down the related long-lived assets to net
realizable value. This expense is included in depreciation and amortization in
the fiscal 1998 statement of operations and totaled $3,098,000. The Company
also assessed the realization of goodwill associated with these stores and
recorded an impairment of goodwill totaling $1,033,000 during fiscal 1998.
Depreciation and amortization expense for continuing company-owned stores
increased $ 2,076,000, or 53.3%, from $3,896,000 to $5,972,000 for fiscal 1998
compared to fiscal 1997. This increase in depreciation and amortization expense
was primarily attributable to the addition of 85 Pretzel Time continuing
company-owned stores in July 1997, 65 Great American continuing company-owned
stores in August and September 1998 and the acquisition of 2 Pretzelmaker
continuing company-owned stores in 1998.
Total Operating Costs and Expenses. Total operating costs and expenses
increased by $33,954,000, or 26.9%, from $126,284,000 to $160,238,000 for
fiscal 1998 compared to fiscal 1997 for the reasons discussed above.
Interest Expense. Interest expense increased $7,419,000, or 98.6%, from
$7,527,000 to $14,946,000 for fiscal 1998 compared to fiscal 1997. This
increase was primarily attributable to interest expense on the $100,000,000
senior notes that were placed in November 1997, the $40,000,000 principal
amount of notes of Mrs. Fields' and $55,000,000 principal amount of notes of
Mrs. Field's Holding placed in August 1998.
Interest Income. Interest income increased $377,000, or 153.3%, from $246,000
to $623,000 for fiscal 1998 compared to fiscal 1997. This increase was
primarily the result of interest earned on excess cash provided by the
$100,000,000 principal amount of senior notes that were placed in November 1997
and the $40,000,000 of Mrs. Fields and $55,000,000 principal amount of notes of
Mrs. Field's Holding placed in August 1998.
Other Expenses. Other expenses decreased $287,000, or 19.6%, from $1,467,000
to $1,180,000 for fiscal 1998 compared to fiscal 1997. This decrease was
primarily attributable to minority interest from the acquisitions of H&M and
Pretzel Time in 1997 and a decrease in the income tax provision during fiscal
1998.
Net Loss. The net loss increased by $20,881,000, or 3,346.3%, from $624,000
to $21,505,000 for fiscal 1998 compared to fiscal 1997 due to the combination
of factors described above.
Income from Continuing Company-Owned Stores. Income from continuing company-
owned stores decreased by $4,622,000, or 17.2%, from $26,842,000 to $22,220,000
for fiscal 1998 compared to fiscal 1997. Income from continuing company-owned
stores was negatively impacted by a 1.8% 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 Mrs. Fields' year end was December 28 for fiscal
1996 and January 3, 1998 for fiscal 1997. As a result, the New Year's holiday
week fell in the first quarter of 1997 and again in the fourth quarter fiscal
1997. The first quarter of fiscal 1998 did not benefit from the New Year's
holiday sales. Additionally, there were only 52 weeks in fiscal year 1998
compared to 53 weeks in fiscal 1997.
47
<PAGE>
Loss from Stores in the Process of Being Closed or Franchised. The loss from
stores in the process of being closed or franchised increased by $256,000, or
14.2%, from $1,798,000 to $2,054,000 for fiscal 1998 compared to fiscal 1997.
The increased loss was primarily attributable to the addition of 65 stores from
the acquisitions of Great American, Deblan, Chocolate Chip and Karp in August
and September 1998, offset in part by closing or franchising 45 stores during
fiscal 1998. See Note 5 to the January 1, 2000 Consolidated Financial
Statements for a complete analysis of Mrs. Fields' store closure reserve.
Liquidity and Capital Resources
General
Mrs. Fields' Holding's principal sources of liquidity are cash flows from
operating activities, cash on hand and available borrowings under Mrs. Fields'
existing revolving credit facility. At January 1, 2000, Mrs. Fields' Holding
had $4,919,000 of cash and cash equivalents and a $15,000,000 credit facility.
However, at January 1, 2000, availability under this facility was limited by
the bond indenture to $8,055,000. During fiscal 2000, Mrs. Fields' Holding
expects that its principal uses of cash will be for working capital, capital
expenditures, store closure costs, debt service requirements and other general
corporate purposes. Mrs. Fields' Holding is highly leveraged. Mrs. Fields'
Holding believes that its sources of cash will be adequate to meet its
anticipated requirements through at least fiscal 2000. There can be no
assurance, however, that Mrs. Fields' Holding's operating activities will
continue to generate cash flows at or above current levels. In addition, given
borrowing restrictions on the bond indenture and maintenance covenants in the
revolving credit facility, the ability for Mrs. Fields' Holding to make
additional borrowings is limited. Accordingly, Mrs. Fields' Holding may choose
to defer capital expenditure plans and extend vendor payments for additional
cash flow flexibility.
January 1, 2000 Compared to January 2, 1999
As of January 1, 2000, Mrs. Fields' Holding had liquid assets (cash and cash
equivalents and accounts receivable) of $12,922,000, a decrease of 8.4%, or
$1,182,000, from January 2, 1999 when liquid assets were $14,104,000. Current
assets decreased by $4,566,000, or 18.6%, to $19,956,000 at January 1, 2000
from $24,522,000 at January 2, 1999. This decrease was primarily the result of
a decrease in accounts receivable from franchisees and licensees, inventories
and prepaid rents, partially offset by an increase in accounts receivable.
Long-term assets decreased $19,717,000, or 9.4%, to $190,161,000 at January
1, 2000 from $209,878,000 at January 2, 1999. This decrease was primarily the
result of depreciation and amortization of property and equipment, goodwill and
other intangible assets.
Current liabilities decreased by $12,597,000, or 34.0%, to $24,473,000 at
January 1, 2000 from $37,070,000 at January 2, 1999. This decrease is due to
payments of debt due in 1999, the elimination of the bank overdraft and a
decrease in the current portion of the store closure reserve.
Mrs. Fields' Holding's working capital deficit decreased by $8,031,000, or
64.0%, to a deficit of $4,517,000 at January 1, 2000 from a deficit of
$12,548,000 at January 2, 1999, for the reasons described above.
Mrs. Fields' Holding generated $18,501 of cash from operating activities
during fiscal 1999, 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 the $140,000,000
senior notes and the $55,000,000 notes.
Mrs. Fields' Holding utilized $4,696 of cash from investing activities during
fiscal 1999, primarily for capital expenditures relating to store remodels and
renovations.
Mrs. Fields' Holding utilized $13,645 of cash from financing activities
during fiscal 1999, primarily for the payment of long-term debt and to decrease
its bank overdraft.
48
<PAGE>
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's working capital. We expect to expend approximately $9,000,000
for capital expenditures in fiscal year 2000. Management anticipates that these
expenditures will be funded with cash generated from operating activities and
short-term borrowings under its credit facility as needed. As of January 1,
2000, the Company had available borrowing capacity of $8,055,000.
On May 27, 1999, Mrs. Fields' Holding entered into an agreement with
Capricorn Investors II, L.P. ("Capricorn"), the majority shareholder of Mrs.
Fields' Holding, in which Capricorn agreed to make a contribution to Mrs.
Fields' Holding of $2,000,000 by assuming a contract payment for Mrs. Fields
due in the future. The consideration for this debt assumption was the issuance
of 101,420 shares of Mrs. Fields' Holding's common stock. Mrs. Fields' Holding
accounted for this transaction by reducing the debt obligation and increasing
common stock and additional paid-in capital.
Inflation
The impact of inflation on the operations 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 accounting principles generally accepted in the United States which
minimizes fluctuations in operating income. In addition, 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 the effect on sales. The impact on income from store
operations is more significant due to the fixed nature of certain store level
costs, such as occupancy costs and store manager salaries. 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.
49
<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 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 any documents, we refer you to the copy of the 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. You can obtain information on the public reference facilities
maintained by the Commission by calling 1-800-SEC-1330. This 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 on the financial
information 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 June 13, 2000.
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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 from Corey, Canapary and
Galanis, 94% of customers 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, Pretzelmaker
and H&M, which was formerly the largest Pretzel Time franchisee. As of January
1, 2000, our retail network consisted of 1,443 locations, of which 943 were
cookie stores and 500 were pretzel stores. Of the total 1,443 stores, 462 were
company-owned and 981 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 28
company-owned cookie stores and one company-owned pretzel store that do not
meet financial and geographical criteria established by management. For the
year ended January 1, 2000, Mrs. Fields generated net revenue and EBITDA of
$180.9 million and $34.6 million, respectively. For the year ended January 2,
1999, Mrs. Fields generated net revenue and EBITDA of $154.2 million and $13.9
million, respectively.
Cookies
We operate and franchise 943 retail cookie stores: 542 under the Mrs. Fields
brand, 93 under the Original Cookie brand and 308 under the Great American
brand. As a result of the acquisition of Great American, 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.
There is little overlap between Mrs. Fields and Great American stores, with a
dual presence in 18 of the 723 malls in which we have cookie stores. Management
believes that Mrs. Fields is positioned in the premium quality, baked on-
premises segment of the approximately $12 billion U.S. cookie industry. We
offer 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.
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, poor real estate locations, and a recessionary retailing environment.
In connection with a financial restructuring by its lenders, Mrs. Fields 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 income
before interest, taxes and other expenses
(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.
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Mrs. Fields reinvested the savings from the improved store operations in
marketing and other measures designed to improve sales from 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 1, 2000,
Capricorn had invested more than $30 million in Mrs. Fields through Mrs.
Fields' Holding. Capricorn retained Mr. Hodges as Chief Executive Officer of
Mrs. Fields.
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 January 1, 2000,
Great American had 308 in-line stores, including 93 Great American-operated and
215 franchised retail units, operating primarily in the southeastern and south
central United States, generating $109.3 million in estimated system-wide
annual sales for the 52-week period ended June 28, 1998. 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
We operate and franchise 500 retail pretzel stores: 234 under the Pretzel
Time brand, 52 under the Hot Sam brand and 214 under the Pretzelmaker 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 1999,
achieved higher average revenue for the continuing company-owned stores than
Hot Sam stores ($277,000 versus $232,000). As a result, Mrs. Fields intends to
continue converting 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 acquired the business of H&M and the common stock
of Pretzel Time and Pretzelmaker.
Business Strategy
Mrs. Fields' 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. The percentage change in sales from stores
that have been open at least two years was a negative .9% for the fiscal year
ended January 1, 2000
52
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compared to a negative 1.6% for the fiscal year ended January 2, 1999. Net
franchising and licensing revenues increased by 113.3% for the fiscal year
ended January 2, 1999 over the fiscal year ended January 3, 1998 and by 104.8%
for the fiscal year ended January 1, 2000 compared to the fiscal year ended
January 2, 1999. The key elements of Mrs. Fields' 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 our financial and geographical
criteria. From September 1996 through January 1, 2000, Mrs. Fields closed
178 Mrs. Fields brand stores and franchised an additional 56 Mrs. Fields
brand stores. We have targeted 29 additional stores that sell our various
products to be either closed or franchised by the end of 2000. These
measures are expected to result in increased income before interest, tax
and other expenses, as unprofitable stores are closed and other stores are
converted into franchises, with the result of increasing royalty payments
and eliminating administrative and other costs of Mrs. Fields associated
with those 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 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 the 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 Mrs. Fields brand
stores, for fiscal year 1999, achieved higher average revenue ($358,000
versus $270,000) for the continuing company-owned Mrs. Fields 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 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 29% and Great American stores
represent 29% 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 the ways we distribute 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 Mrs. Fields 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 Name. Management believes that the Great
American brand name has high consumer awareness in the southeast United
States. We intend to build on the Great American brand name 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
53
<PAGE>
operations by continuing to convert our continuing company-owned and to-be-
franchised Hot Sam stores to Pretzel Time stores. Pretzel Time stores have,
during fiscal year 1999, achieved higher average revenue per continuing
company-owned store than Hot Sam stores ($265,000 vs. $231,000). Hot Sam
stores represent 37% 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 19 existing cookie and 1
existing pretzel store. From fiscal year 1999 on, we intend to add
approximately 20 new company-owned stores per year and to franchise
approximately 38 new cookie and 36 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 January 1, 2000, there were 133 franchised Mrs. Fields and Pretzelmaker
brand stores open internationally.
Realize Purchasing and Overhead Cost Savings. As a result of the
acquisitions of Great American and the stock and stores of several 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 cost 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 2, 1999. The
savings include $2.2 million of savings on administrative and other costs
associated with stores of Mrs. Fields and $1.9 million of cost savings
related to one-time expenses of eliminating multiple headquarter
facilities.
Pursue Further Strategic Acquisitions of Related Businesses. We intend to
selectively pursue strategic acquisitions, in addition to the acquisitions
of Great American and the stock and stores of several of its franchises and
other recent acquisitions, in order to expand our geographic presence and
to achieve efficiencies from consolidating and reducing administrative and
other costs shared by stores. Our management has demonstrated its ability
to identify and integrate new businesses through its acquisitions of the
cookie and pretzel businesses of Original Cookie and Hot Sam, respectively,
in September 1996 and the majority interest in Pretzel Time and the
business of H&M in 1997 and the acquistion of the cookie and pretzel
businesses of Great American Cookie and Pretzelmaker in 1998.
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 1999, our revenue by product category consisted of the
following:
<TABLE>
<S> <C>
Cookies and Brownies................... 63%
Pretzels............................... 17%
Beverages.............................. 19%
Other.................................. 1%
</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 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 cake products in Mrs. Fields and
Original Cookie stores.
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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 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.
Store Operations
Store Base. As of January 1, 2000, Mrs. Fields' store portfolio consisted of
462 company-owned stores, 722 domestic franchised locations, 133 international
franchised locations and 126 licensed locations. By brand, the stores are
distributed as follows:
<TABLE>
<CAPTION>
Company-owned
----------------------------
Continuing
Company- To Be To Be Domestic International
Owned Closed Franchised Franchised Franchised Licensed Total
---------- ------ ---------- ---------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Mrs. Fields............. 113 3 18 206 88 114 542
Original Cookie......... 93 -- -- -- -- -- 93
Great American.......... 86 6 1 215 -- -- 308
--- --- --- --- --- --- -----
Cookie Subtotal......... 292 9 19 421 88 114 943
--- --- --- --- --- --- -----
Pretzel Time............ 85 -- 1 148 -- -- 234
Hot Sam................. 52 -- -- -- -- -- 52
Pretzelmaker............ 4 -- -- 153 45 12 214
--- --- --- --- --- --- -----
Pretzel Subtotal........ 141 -- 1 301 45 12 500
--- --- --- --- --- --- -----
Totals.................. 433 9 20 722 133 126 1,443
=== === === === === === =====
</TABLE>
55
<PAGE>
As of January 1, 2000, our domestic stores were located in 48 states, Guam
and Washington DC as follows:
<TABLE>
<CAPTION>
% of
Company- Retail
State Owned Franchised Licensed Total Outlets
- ----- -------- ---------- -------- ----- -------
<S> <C> <C> <C> <C> <C>
California 66 91 15 172 11.9%
Texas 43 55 5 103 7.1%
New York 32 24 11 67 4.6%
Ohio 47 13 7 67 4.6%
Florida 17 41 7 65 4.5%
Illinois 27 22 8 57 4.0%
Georgia 13 33 3 49 3.4%
Michigan 25 20 3 48 3.3%
Missouri 3 35 2 40 2.8%
Pennsylvania 15 12 13 40 2.8%
Virginia 17 18 2 37 2.6%
Arizona 12 18 3 33 2.3%
North Carolina 4 23 3 30 2.1%
Colorado 3 23 3 29 2.0%
New Jersey 9 16 3 28 1.9%
Indiana 13 10 4 27 1.9%
Iowa 3 24 -- 27 1.9%
Utah 6 20 1 27 1.9%
Washington 8 17 -- 25 1.7%
Louisiana 12 10 2 24 1.7%
Connecticut 8 11 4 23 1.6%
Wisconsin 16 7 -- 23 1.6%
Alabama -- 19 3 22 1.5%
Tennessee 2 18 2 22 1.5%
Maryland 12 6 3 21 1.5%
Minnesota 3 16 -- 19 1.3%
Massachusetts 6 7 5 18 1.2%
South Carolina 8 6 3 17 1.2%
Nevada 3 8 3 14 1.0%
Kansas 2 10 -- 12 0.8%
Kentucky 3 8 1 12 0.8%
Nebraska 3 9 -- 12 0.8%
Oklahoma 3 7 2 12 0.8%
West Virginia 4 5 1 10 0.7%
Oregon 1 8 -- 9 0.6%
Hawaii 1 7 -- 8 0.6%
Idaho 2 6 -- 8 0.6%
North Dakota -- 7 1 8 0.6%
Arkansas 3 3 1 7 0.5%
New Mexico 1 3 2 6 0.4%
South Dakota 1 5 -- 6 0.4%
New Hampshire 1 4 -- 5 0.3%
Wyoming 1 4 -- 5 0.3%
Mississippi -- 4 -- 4 0.3%
Alaska -- 2 -- 2 0.1%
Delaware 2 -- -- 2 0.1%
Guam -- 2 -- 2 0.1%
Maine 1 1 -- 2 0.1%
Montana -- 2 -- 2 0.1%
Washington DC -- 2 -- 2 0.1%
--- --- --- ----- ------
Subtotal 462 722 126 1,310 90.8%
International Locations -- 133 -- 133 9.2%
--- --- --- ----- ------
TOTAL 462 855 126 1,443 100.0%
=== === === ===== ======
</TABLE>
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Configuration. We have developed a number of retail configurations that 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.
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 a number of 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 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.
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 product'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 January 1,
2000, 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
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. 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.
Marketing and Advertising. Mrs. Fields' in-house marketing department and an
outside promotional agency emphasize 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 has made 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 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
approximately $6.4 million in revenues during fiscal year 1999. We believe that
there is significant potential in the mail order business and are 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 1999 have increased approximately 23.1% 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 its primary supplier, Pennant Food
Corp. Pennant uses stringent quality controls in testing ingredients and
manufacturing, and 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 expires
on December 31, 2000 and is renewable every three years at the option of Mrs.
Fields. 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.
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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.
Great American stores receive "ready to bake" refrigerated batter from a
batter facility in Atlanta, which Mrs. Fields acquired in the acquisition of
Great American. 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 installed our
upgraded back-office system, along with the point-of-sale registers and Pentium
computers, in our continuing company-owned Original Cookie stores, Hot Sam
stores, Pretzelmaker stores, Pretzel Time stores and selected Great American
stores as of December 1999.
We have replaced our sales collection systems with software and hardware that
is Year 2000 compliant. Replacement of the plant production and distribution
software was completed in the first half of 1999 at an estimated cost of
$10,000. For more information on our information technology, see "Management's
Discussion and Analysis of Financial Conditions and Results of Operations--Year
2000."
Prior to January 1, 2000, management assessed Year 2000 issues with respect
to its significant vendors and financial institutions as to their compliance
plans and whether any Year 2000 issues would impede the ability of such vendors
to continue providing goods and services to us. See "Risk Factors--failures in
Year 2000 compliance could disrupt our operations." We did not experience any
interruptions of our operations due to year 2000 issues experienced by any of
our vendors.
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, a separate staff of regionally based franchise operations consultants
had monitored franchisees. 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 four years (67% for over five years), and 51% of Mrs.
Fields' store managers have been with Mrs. Fields for at least four years (40%
for over five years).
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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 Mrs. Fields 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 one store. As of January 1, 2000, the 11 largest Mrs. Fields
franchisees operated 130 stores, and the largest Mrs. Fields franchisee
operated 16 stores.
Each Great American franchisee pays an initial licensing fee of $25,000 per
store and is responsible for funding the build-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
87 Pretzel Time stores, with rights to sub-franchise, if desired. Each
franchisee pays Pretzel Time an initial licensing fee of $25,000 per 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 Pretzel Time 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 flow 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
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(3) initial and continuing training of franchisees to improve their
financial and retail sales skills.
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 have utilized a "branding" strategy which allows a
licensee the right to use the Mrs. Fields name (which is a registered
trademark) from which a licensee can capitalize on the highly-recognized Mrs.
Fields brand to build traffic, expand sales, improve market share, and to
increase profits through cultivating different ways of distributing our
products. 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. Our licensees include Host Marriott, which has a non-exclusive
license to sell our product in airports and travel plazas from which we
receive a license on product sold, ARAMark, which sells our product in
stadiums and convention centers and Holiday Inn Worldwide, which sells our
product 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 Maxfield's
Chocolates, which has the exclusive North American rights to manufacture
and sell, under our registered trademarks, boxed chocolates and chocolate
candy bats and offers Mrs. Fields chocolates throughout the supermarket
industry.
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 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., Auntie Anne's Soft Pretzels, and Baskin-Robbins 31
Flavors.
Properties
As of January 1, 2000, we leased 787 retail stores, of which 331 were
subleased to franchisees under terms which cover all obligations of Mrs. Fields
thereunder. Under our franchise agreements, we have 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 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; if we do not obtain leases in high quality
shopping malls at reasonable rents", we may not be able to conduct our business
at a profit and "--We have continuing obligations under real estate leases; if
we close an unprofitable store but must still make lease payments on it, we
will lose money."
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We lease 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. The batter facility remains in Atlanta.
Employees
As of January 1, 2000, we had approximately 3,893 employees in company-owned
stores, of whom approximately 691 were store managers and assistant store
managers and 3,202 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 1, 2000, 602 of our 3,893 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 $354,000 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
We are the holder of numerous trademarks that have been federally registered
in the United States and in other countries located throughout the world. We
are a party to disputes with respect to trademarks, none of which, in the
opinion of management of Mrs. Fields, is material to our business, financial
condition or results of operations.
We currently hold 52 trademarks that are federally registered in the United
States and 141 trademarks that are registered in 48 countries outside the
United States. Our trademarks consist of various brand and product names and
logos. Trademarks are registered under United States laws for periods of 7 to
10 years and in other countries for periods of 7 to 20 years, and at any time,
we may have trademarks whose registration will soon expire and must be renewed.
Under our license agreements, our licensees receive the rights to use our
recipes and our registered trademarks. We view our trademarks and the ability
to license them to third parties, as some of our most valuable assets.
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, after consultation with legal counsel, is material to our
business, financial condition or 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 most Great American
franchisees, those franchisees released all claims with respect to this
litigation. 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.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding the executive officers
and directors of Mrs. Fields' Holding as of April 1, 2000. The directors are
also directors of Mrs. Fields.
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
Larry A. Hodges.......... 51 Director, President and Chief Executive Officer
Pat W. Knotts............ 45 Senior Vice President of Operations
Garry Remington.......... 47 Senior Vice President of Real Estate
Mark S. Tanner........... 45 Senior Vice President and Chief Financial Officer
Michael R. Ward.......... 42 Vice President, General Counsel and Secretary
Herbert S. Winokur, Jr... 56 Chairman of the Board of Directors
Richard Ferry............ 62 Director
Nat Gregory.............. 51 Director
Walker Lewis............. 55 Director
Peter Mullin............. 59 Director
Gilbert Osnos............ 70 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 and Mrs.
Fields' Holding 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. 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. Tanner has been Chief Financial Officer and Senior Vice President of
Finance & Administration since June 1999. Prior to Mrs. Fields, Mr. Tanner held
the position of CFO and Sr. Vice President with the Salt Lake Organizing
Committee for the XIX Olympic Winter Games, where he was responsible for
finance and administration. Prior to SLOC, Mr. Tanner was Vice President and
CFO for Pepsi Cola International's operations in Asia, the Middle East, and
Africa (AMEA). He also held the positions of Vice President of Strategic
Planning & Finance for Pepsi Cola North America, and Chief Financial Officer,
Eastern Division of Pepsi Cola during his tenure with Pepsi Cola.
Mr. Ward serves as Vice President, General Counsel and Secretary for Mrs.
Fields' Holding and Mrs. Fields. Mr. Ward's responsibilities include management
of our Legal Department. Between 1991 and 1996, Mr.
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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. Mr. Ward was appointed acting Chief Financial Officer on April
30, 1999 and acted in that capacity prior to Mr. Tanner's assuming
responsibilities of Chief Financial Officer.
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
the managing member of Capricorn Holdings, L.L.C., the General Partner of
Capricorn, which owns the majority of Mrs. Fields' Holding's 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 Director of
Penn Central Corporation. Mr. Winokur is also a Director of NAC Re Corporation,
The WMF Group, Ltd., C.C.C. Information Services Corp., Inc., NATCO Group,
Inc., DynCorp., and Enron Corp.
Mr. Ferry has been a Director of Mrs. Fields' Holding 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.
Mr. Gregory has been a Director of Mrs. Fields' Holding since its inception
in September 1996. Since 1993, Mr. Gregory has served as Chairman and Chief
Executive Officer of NATCO Group, Inc., an international supplier of oilfield
production equipment, which is a portfolio company of Capricorn. 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' Holding 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' Holding 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 is a member of the Board
of Advisors of CMS Companies.
Mr. Osnos has been a Director of Mrs. Fields' Holding 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. He serves on the Advisory Committee
of Business Executive for National Security in the New York Chapter.
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Executive Compensation
The following table sets forth information with regard to compensation for
services rendered in all capacities to Mrs. Fields' Holding by its Chief
Executive Officer and the four other most highly compensated executive officers
of Mrs. Fields' Holding, other than the CEO, who were serving as executive
officers at the end of the last completed fiscal years'. Information described
in the table reflects compensation earned by these individuals for services
with Mrs. Fields' Holding or its subsidiaries.
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(4) Compensation
Principal Position Year ($) ($) ($) ($) (#) ($)
------------------ ---- -------- ------- ------------ ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Larry Hodges............ 1999 $354,667 $87,500 $4,410 $ -- -- --
President and CEO 1998 339,583 150,000 4,833 -- -- $471,000(5)
1997 300,000 185,412 2,177 50,000(3) -- --
Mark S. Tanner.......... 1999 137,873 20,000 -- -- 51,580 --
Senior Vice President 1998 -- -- -- -- -- --
and CFO 1997 -- -- -- -- -- --
L. Tim Pierce........... 1999 114,842 40,000 1,915 -- -- 20,000(6)
Senior Vice President 1998 193,430 70,000 2,634 -- -- --
and CFO 1997 175,000 103,607 1,287 -- -- 71,867(6)
Pat Knotts.............. 1999 222,001 43,000 -- -- -- --
Senior Vice President 1998 191,699 70,000 -- -- -- --
Operations 1997 162,500 27,321 -- -- -- 23,920(1)
Michael Ward............ 1999 158,013 42,000 6,133 -- -- --
Vice President 1998 135,385 50,000 1,370 -- -- --
General Counsel and 1997 109,904 56,393 619 -- -- 39,488(5)
Secretary
Garry Remington......... 1999 192,533 38,000 -- -- -- --
Senior Vice President 1998 180,000 33,945 -- -- -- --
Real Estate 1997 82,859 -- -- -- 24,642 46,707(2)
</TABLE>
- --------
(1) Represents payment of relocation expenses of $20,920 and a grant of $3,000
under the Original Cookie 401(k) plan.
(2) Represents payment of relocation expenses.
(3) 50% of the restricted shares vested on January 1, 1999 and the other 50%
vested on January 1, 2000.
(4) 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 and Mark Tanner's, which
were granted June 1, 1999. All options have an exercise price of $10.00 per
share, with the exception of Garry Remington's and Mark Tanner's, which
have an exercise price of $13.00 and $19.72 per share, respectively.
(5) Represents payment under Mrs. Fields Inc. Management Value Creation Plan.
(6) Mr. Pierce resigned from Mrs. Fields' Holding on April 30, 1999. Mrs.
Fields' Holding bought back his vested shares of stock for $291,560 and
entered into a severance agreement with him for $20,000.
Option Grants and Exercises
The Board of Directors of Mrs. Fields' Holding approved the provisions of a
director stock option plan (the "Director Stock Option Plan"), providing for
the issuance of common stock, par value $.001 per share, of Mrs. Fields'
Holding to directors of Mrs. Fields' Holding, 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 total 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 451,446 shares, representing approximately 11% of the total common stock
of Mrs. Fields' Holding on a fully diluted basis, after giving effect to the
issuance of stock under the warrants to purchase common stock of
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Mrs. Fields' Holding and to issuances of stock under options currently issued
to directors and employees under the Plans, have been issued. See "Beneficial
Ownership of Capital Stock."
Board Compensation
The Board of Directors of Mrs. Fields' Holding meets regularly on a quarterly
basis and more often as required. Board members, other than officers of Mrs.
Fields' Holding and Mr. Winokur, and 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,
under the Director Stock Option Plan.
The Board of Directors of Mrs. Fields' Holding approved the award of options
under the Director Stock Option Plan to purchase 1,792 shares of common stock
of Mrs. Fields' Holding to each of Messrs. Mullin, Ferry, Gregory, Lewis, Osnos
and Winokur as of January 1, 1998, at an exercise price of $16.74 per share,
and the award of options to purchase 634 and 648 shares of common stock of Mrs.
Fields' Holding as of January 1, 1999 and January 2, 2000, at an exercise price
of $19.72 and $19.29, respectively, 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 under a director stock purchase plan (the
"Director Stock Purchase Plan"). The 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 under the Director Stock
Purchase Plan.
Board Committees
Three functioning committees of the Board have been organized: 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.
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' Holdings accounting and financial reporting process in
consultation with Mrs. Fields' Holdings independent and internal auditors.
Indemnification and Compensation
Mrs. Fields' Holdings By-Laws authorize Mrs. Fields' Holding to indemnify its
present and former directors and officers and to pay or reimburse expenses for
those individuals in advance of the final disposition of a proceeding upon
receipt of an undertaking by or on behalf of those individuals to repay any
amounts if so required.
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<PAGE>
Employment Agreements
All of the executive officers are parties to employment agreements with Mrs.
Fields' Holding. 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 an over-the-
counter securities exchange. The employment agreements have customary
provisions for vacation, fringe benefits, payment of expenses and automobile
allowances. The employees who have employment agreements, and their base
salaries, are: Larry Hodges, President and Chief Executive Officer, $364,000,
Mark Tanner, Chief Financial Officer, $235,000, Pat Knotts, Senior Vice
President of Operations, $210,800, Michael Ward, Vice President, General
Counsel and Secretary, $165,000 and Garry Remington, Senior Vice President of
Real Estate, $197,600.
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<PAGE>
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
Mrs. Fields' Holding's address is 2855 East Cottonwood Parkway, Suite 400,
Salt Lake City, Utah 84121. The following table shows information, as of April
1, 2000, 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 Mrs. Fields' Holding to own beneficially in excess of 5% of the
outstanding common stock, and by each director, Mrs. Fields' Holding Chief
Executive Officer, each of Mrs. Fields' Holding other four most highly
compensated executive officers and all officers and directors as a group, as of
April 1, 2000. 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 described below include shares of common stock which were
outstanding or issuable within 60 days upon the exercise of options outstanding
as of April 1, 2000 and give effect to the exercise of the warrants issued by
Mrs. Fields' Holding. See "Management--Option Grants and Exercises" and "--
Board Compensation," As of April 1, 2000, 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>
Capricorn Investors II,
Common stock, par L.P.(1)(2)(3).................. 3,184,401 86.1%
value $0.001 per share, Larry Hodges(2)(3)............. 105,569 2.9%
of Mrs. Fields' Holding Peter Mullin(2)(3)............. 18,567 0.5%
Richard Ferry(2)(3)............ 13,567 0.4%
Walker Lewis(2)(3)............. 11,067 0.3%
Gilbert Osnos(2)(3)............ 11,067 0.3%
Pat Knotts(3).................. 18,892 0.5%
Michael Ward(3)................ 15,607 0.4%
Garry Remington(3)............. 10,541 0.3%
Mark Tanner.................... 2,054 0.1%
All executive officers and
directors
as a group (10
persons)(2)(3)(4)............. 3,391,332 91.8%
</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 the Company. 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 Mrs. Fields' Holding. See
"Management."
(3) The shares and percentages include shares subject to options granted to
directors and officers of Mrs. Fields' Holding that are currently vested as
of April 1, 2000, as follows: Capricorn, 7,148 shares; Mr. Hodges, 75,569
shares; Mr. Mullin, 3,567 shares; Mr. Ferry, 3,567 shares; Mr. Lewis, 3,567
shares; Mr. Osnos, 3,567 shares; Mr. Knotts, 18,892 shares; Mr. Ward,
15,607 shares; Mr. Remington, 10,541 shares; and Mr. Tanner, 2,054 shares;
all executive officers and directors as a group, 144,065.
(4) Includes shares beneficially owned by Capricorn.
68
<PAGE>
RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with Debbi Fields and Affiliates. In November 1996, Mrs. Fields
entered into a consulting agreement with Debbi Fields, a former director of
Mrs. Fields, under which Debbi Fields traveled and performed 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 increased by 10% a
year beginning on January 1, 1999. The consulting agreement expired on December
31, 1999.
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 selected 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 leased certain office space to an entity which is owned in part
by Debbi Fields. Billings to the entity for the fiscal year ended January 3,
1998 totaled approximately $274,000, of which approximately $23,000 was
included in accounts receivable as of January 3, 1998. 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. Mr. Lewis'
company, Devon Value Advisers, received a fee of $250,000, plus expenses, from
Mrs. Fields in the first quarter of 1998 under 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 $157,000,
$70,600 and $35,000 during the years ended January 3, 1998, January 2, 1999 and
January 1, 2000, 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 Notes--Covenants."
As of January 2, 1999, Mrs. Fields had a net payable of $105,000 due to Mrs.
Fields' Holding and as of January 1, 2000, a net receivable of $642,000 due
from Mrs. Fields' Holding. The receivables stem primarily from the payment of
debt offering costs by Mrs. Fields in behalf of Mrs. Fields' Holding. Mrs.
Fields believes that the terms of the transactions are essentially equivalent
to the terms that would have been obtained from an unaffiliated third party in
a similar transaction.
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 Mrs. Fields Inc. 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
69
<PAGE>
"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
under the Director Stock Purchase Plan.
The Plans. Under 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 to officers and other employees
of Mrs. Fields' Holding and its subsidiaries, and options for common stock of
Mrs. Fields' Holding. 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' Holding, which is equal to the excess of 5.5 times
Adjusted EBITDA for that fiscal year over net debt at the end of that 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 the option and a change of control, in accordance with
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.
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
adjustments),
(2) if the relevant date is the date of a change of control, the value
paid under 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 four 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 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 were awarded under the Director Stock Option
Plan to each of Messrs. Mullin, Ferry, Gregory, Lewis, Osnos and Winokur to
purchase 3,350 shares of common stock of Mrs. Fields' Holding at $10.00 as of
January 1, 1997, 1,792 shares of Mrs. Fields' Holding common stock at $16.74 as
of January 1, 1997, 634 shares of Mrs. Fields' Holding common stock at $19.72
as of January 1, 1999 and 648 shares of Mrs. Fields' Holding common stock at
$19.29 as of January 2, 2000. Options of Messrs. Gregory and Winokur have been
issued to Capricorn.
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<PAGE>
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 (the "Drag Along"). 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 "Tag Along"). 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 the
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. The holders
of warrants to purchase common stock of Mrs. Fields' Holding will be subject to
the Drag Along and benefit from the Tag Along.
Arrangements With Capricorn. On May 27, 1999, Mrs. Fields, Mrs. Fields'
Holding, Pretzel Time, Martin Lisiewksi and Capricorn entered into an
Assignment and Assumption Agreement under which Capricorn agreed to assume a
$2,000,000 payment obligation of Mrs. Fields for Pretzel Time stock held by
Mr. Lisiewksi that was due on December 31, 1999. In a related transaction on
the same date, Capricorn and Mrs. Fields' Holding entered into a contribution
agreement under which Mrs. Fields' Holding and Capricorn agreed to treat the
assumption by Capricorn of the Mrs. Fields payment obligation described above
as a capital contribution from Capricorn to Mrs. Fields' Holding, and Mrs.
Fields' Holding agreed either to issue 101,420 shares of its common stock to
Capricorn at the request of Capricorn or to enter into an economically
equivalent transaction that is permitted under the debt instruments of Mrs.
Fields' Holding and its subsidiaries. Mrs. Fields' Holding subsequently issued
101,420 shares of common stock to Capricorn. Mrs. Fields' Holding accounted for
this transaction by reducing the debt obligation and increasing additional
paid-in capital.
71
<PAGE>
DESCRIPTION OF NOTES
You can find the definitions of terms used in this description under the
subheading "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 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 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 1, 2000, Mrs. Fields' Holding had approximately $147.6 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 completed.
. The notes mature on December 1, 2005.
72
<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 described 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. We are not required to transfer or exchange any note selected for
redemption. Also, we are 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 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 those 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 those 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 those 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.
73
<PAGE>
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 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 under the indenture (other than those
surviving obligations 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 the 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 the note through that date,
that 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 August 24, 1998.
Except under 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) described
below plus accrued and unpaid interest and liquidated damages, if any, on those
notes, 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>
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 of $1,000) of that holder's notes under 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 the purchase is prior to December 1, 2002),
or 101% of the total principal amount of notes, plus accrued and unpaid
interest and liquidated damages, on those notes, if any, to the date of
purchase (if the date of purchase is on or after December 1, 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 the notice, under the procedures required
74
<PAGE>
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 under the Exchange Act to the extent those 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 of notes properly tendered
under 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 of notes so
tendered; and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an officers' certificate stating the total
principal amount of notes or portions of notes 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 those 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 new note will be in a principal amount
of $1,000 or an integral multiple of $1,000. 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, 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 that Indebtedness, even if the Change of
Control itself does not, due to the financial effect of those 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
described 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 the 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 its 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.
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<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 the Asset Sale at least equal
to the fair market value of the assets or Equity Interests issued
or sold or otherwise disposed of;
(2) the 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
described 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 the 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 the
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 of those liabilities) that are
assumed by the transferee of any assets under a customary
novation agreement that releases Mrs. Fields' Holding or the
Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Mrs.
Fields' Holding or the subsidiary from the transferee that
are immediately converted by Mrs. Fields' Holding or the
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 the Net Proceeds at its option:
(1) to make a Permitted Investment;
(2) to make a capital expenditure in the same or a similar line of
business as Mrs. Fields' Holding and its Subsidiaries were engaged
in on August 24, 1998, including, without limitation, the specialty
retail snack-food business or
(3) to acquire long-term assets in the same or a similar line of
business as Mrs. Fields' Holding and its Subsidiaries were engaged
in on August 24, 1998, including, without limitation, the specialty
retail snack-food business.
Pending the final application of any Net Proceeds, Mrs. Fields' Holding may
temporarily or permanently reduce Indebtedness under a credit facility of Mrs.
Fields with a maximum total amount of $15.0 million that is permitted under the
indenture, including the credit agreement with LaSalle National Bank, or
otherwise invest the 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
total 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 completion of an Asset Sale Offer, Mrs. Fields' Holding
may use those Excess Proceeds for general corporate purposes. If the total
principal amount of notes tendered into the Asset Sale
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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.
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
any 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 of that note 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.
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 the 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 of that Indebtedness; or
(4) make any Restricted Investment
(all of the payments and other actions described in clauses (1) through (4)
above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to the Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence of the Restricted
Payment, and
(2) Mrs. Fields' Holding would, at the time of the Restricted Payment
and after giving pro forma effect to it as if such Restricted
Payment had been made at the beginning of the applicable four-
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quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness under the Fixed Charge Coverage Ratio test
described in the first paragraph of the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
(3) the Restricted Payment, together with the total amount of all other
Restricted Payments made by Mrs. Fields' Holding and its
Subsidiaries after August 24, 1998 (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
August 24, 1998 to the end of Mrs. Fields' Holding's most
recently ended fiscal quarter for which internal financial
statements are available at the time of the Restricted
Payment (or, if the Consolidated Net Income for that period
is a deficit, less 100% of the deficit), plus
(b) 100% of the total 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 August 24, 1998 of Equity Interests of Mrs.
Fields' Holding (other than Disqualified Stock) or
Disqualified Stock or debt securities that have been
converted into 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 Investment other than a Permitted
Investment that was made after August 24, 1998 is sold for
cash or otherwise liquidated or repaid for cash, the lesser
of:
(1) the cash return of capital with respect to the
Investment (less the cost of disposition, if any),
and
(2) the initial amount of the Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at said date of declaration the
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 net cash proceeds that are utilized for that
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 under
any management equity subscription agreement or stock option
agreement; provided that the total price paid for all of those
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
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Mrs. Fields' Holding or its Subsidiaries during that period, which
total 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 the transaction;
(6) payments to Mrs. Fields' Holding under the Tax Sharing Agreement;
(7) payments under the Employment Agreement, dated as of September 2,
1997, between Pretzel Time and Martin E. Lisiewski and the
Management Agreement, dated as of September 2, 1997, between Mrs.
Fields and Pretzel Time; and
(8) the redemption or repurchase of preferred stock of Pretzel Time
outstanding on August 24, 1998.
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 its
Subsidiary, as the case may be, under 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 to it 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 the 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 the additional Indebtedness is incurred or the
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 that four-quarter period; and
(2) the Weighted Average Life to Maturity of the 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 Mrs. Fields' 10 1/8%
Series C Senior Notes due 2004.
(2) the incurrence by Mrs. Fields' Holding on August 24, 1998 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 Mrs.
Fields' 10 1/8% Series C Senior Notes due 2004 and the guarantee of
those notes by Mrs. Fields' Subsidiaries, and any other
Indebtedness of Mrs. Fields or its Subsidiaries permitted under
Mrs. Fields' indenture and
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the guarantee of the Indebtedness by Mrs. Fields' Subsidiaries
permitted under 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 Mrs. Fields' Holding or that Subsidiary, in an
total 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 Subsidiaries; provided, that:
(a) if Mrs. Fields' Holding is the obligor on that Indebtedness,
the Indebtedness must be 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 of the Indebtedness
being held by a Person other than Mrs. Fields'
Holding or a Wholly Owned Subsidiary thereof and
(2) any sale or other transfer of any of that
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 that Indebtedness by Mrs. Fields'
Holding or the 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 the
same or a similar line of business as Mrs. Fields' Holding
and its Subsidiaries were engaged in on August 24, 1998,
including, without limitation, the specialty retail snack-
food business and
(b) the extension of credit represented by the 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 total
amount of all Indebtedness incurred under 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
the business, assets or Subsidiary for the purpose of financing the
acquisition), provided that the maximum total 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 the 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;
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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 under the first paragraph of this covenant, Mrs.
Fields' Holding will be permitted to classify that 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.
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,
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 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 August 24, 1998
(2) the indenture and the notes and the Mrs. Fields Indenture and the
notes issued under it;
(3) the credit facility of Mrs. Fields with a maximum total amount of
$15.0 million that is permitted under the indenture;
(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 the acquisition (except to the extent the
Indebtedness was incurred in connection with or in contemplation of
the 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,
the 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 the Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
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(9) customary restrictions imposed on the transfer of copyrighted or
patented materials and customary provisions in agreements that
restrict the assignees of the agreements or any rights thereunder;
or
(10) restrictions with respect to a Subsidiary of Mrs. Fields' Holding
imposed under a binding agreement relating to the sale or
disposition of all or substantially all of the Capital Stock or
assets of the Subsidiary.
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:
(a) either:
(1) Mrs. Fields' Holding is the surviving corporation; or
(2) 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 of the United
States or the District of Columbia;
(b) the person formed by or surviving the consolidation or merger (if
other than Mrs. Fields' Holding) or the person to which the 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 under a supplemental indenture
reasonably satisfactory to the trustee;
(c) immediately after the transaction no Default or Event of Default
exists; and
(d) 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 the sale, assignment, transfer, lease, conveyance or other
disposition shall have been made:
(1) 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
(2) will, on the date of the transaction after giving pro forma
effect to it 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 under the Fixed Charge Coverage
Ratio test described 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) the Affiliate Transaction is on terms that are no less favorable to
Mrs. Fields' Holding or the relevant Subsidiary than those that
would have been obtained in a comparable transaction by Mrs.
Fields' Holding or the Subsidiary with an unrelated person; and
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(2) Mrs. Fields' Holding delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving total consideration
in excess of $1.0 million, a resolution of the Board of
Directors contained in an officers' certificate certifying
that the Affiliate Transaction complies with this covenant
and that the 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 total consideration
in excess of $5.0 million, an opinion as to the fairness to
the holders of the 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 under 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 the
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 the 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) the transfer, conveyance, sale, lease or other disposition is of
all the Capital Stock of the Wholly Owned Subsidiary; and
(2) the cash Net Proceeds from the 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 the same or a similar line of business as Mrs.
Fields' Holding and its Subsidiaries were engaged in on August 24, 1998,
including, without limitation, the specialty retail snack-food business, except
to an extent as would not be material to Mrs. Fields' Holding and its
Subsidiaries taken as a whole.
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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 of Mrs. Fields with a
maximum total amount of $15.0 million that is permitted under the
indenture).
Advances to Subsidiaries
All advances to Subsidiaries made by Mrs. Fields' Holding 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. These Subsidiary Intercompany Notes will be pledged under the
pledge agreement as collateral to secure 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 the loan is made.
"Senior Debt" of Subsidiaries for the purposes of the Subsidiary Intercompany
Notes will be defined as all Indebtedness of the Subsidiaries that is not
specifically by its terms made pari passu with or junior to the 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 under the pledge
agreement as collateral to secure the notes until those 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 the 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 the 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 described
in the solicitation documents relating to the 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 those
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 those reports.
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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 under 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;
(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 the
Indebtedness or guarantee now exists, or is created after August
24, 1998, if that default
(a) is caused by a failure to pay principal of or premium, if any,
or interest on that Indebtedness prior to the expiration of the
grace period provided in that Indebtedness on the date of that
default (a "Payment Default"); or
(b) results in the acceleration of that Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any that Indebtedness,
together with the principal amount of any other Indebtedness under
which there has been a Payment Default or the maturity of which has
been so accelerated, totals $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
described 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) 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 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 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.
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The holders of a majority in total 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
under 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 before 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 the 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, those obligations or their creation. Each holder of notes
by accepting a note waives and releases all liability of this kind. 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.
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 those notes when those 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 with them; 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 some
of the 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, some of the 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
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thereof, in amounts that 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 August 24, 1998, there has been a change in the applicable
federal income tax law, in either case to the effect that, and
based on which 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 the 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 the 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 the 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 the 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 the deposit); or
(b) 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) the 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
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;
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(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;
(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 total principal amount of the notes and a waiver of the payment
default that resulted from the 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 some cases, or to realize on
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 the 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
exceptions. The indenture provides that in case an Event of Default shall occur
and be continuing, 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 these 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 that 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 total
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
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Trust Company, under a FAST Balance Certificate Agreement between the trustee
and The Depository Trust Company and registered in the name of Cede & Co., as
nominee of The Depository Trust Company (that nominee being referred to as the
"Global Holder").
New notes exchanged for outstanding notes which are in the form of registered
definitive certificates will be issued in the form of certificated notes. The
certificated notes may, unless the 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 Trust Company has advised us that it is a limited-purchase
trust company that was created to hold securities for its participating
organizations (collectively, the "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 Participants
include securities brokers and dealers (including the placement agents for the
old notes), banks and trust companies, clearing corporations and other
organizations. Access to The Depository Trust Company system is also available
to the other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" Trust Company) 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 Trust Company only through the
Participants or The Indirect Participants.
We expect that under procedures established by The Depository Trust Company
(1) upon deposit of the New Global Note, The Depository Trust Company
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 Participants and the Indirect Participants.
The laws of some states require that 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 those new notes
represented by those 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 the 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 that interest to persons or entities that do not participate in the
Depository Trust Company's system or to otherwise take actions in respect of
that interest, may be affected by the lack of physical certificate evidencing
that interest. Accordingly, each person owning a beneficial interest in a New
Global Note must rely on the procedures of the Depository Trust Company and, if
that person is not a Participant or an Indirect Participant, on the procedures
of the Participant through which that person owns its interest, to exercise any
rights of a holder under that 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 Trust Company, or for maintaining, supervising
or reviewing any records of The Depository Trust Company relating to those 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 the Global Holder in its capacity as the registered holder under
the indenture. Under the terms of the indenture, Mrs. Fields' Holding and the
trustee may treat the persons in whose name the notes,
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including the New Global Notes, are registered as the owners of those notes for
the purpose of receiving those payments and all other purposes.
We expect that The Depository Trust Company 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 Trust Company. Neither Mrs. Fields' Holding
nor the trustee has any responsibility or liability for those payments.
Payments by the Participants and the Indirect Participants to the beneficial
owners of new notes will be governed by standing instructions and customary
practice. Those payments will be the responsibility of the Trust Company
Participants or the Indirect Participants.
Certificated Securities
If:
(1) Mrs. Fields' Holding notifies the trustee in writing that The
Depository Trust Company 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 conditions, any person having a beneficial interest
in the New Global Note may, upon request to the trustee, exchange that
beneficial interest for certificated notes. Upon issuance, the trustee is
required to register the new notes in the name of, and cause the same to be
delivered to, that person or persons (or the nominee of any of them). The 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 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 notes that are
subject to restrictions on transfer under the exchange offer who are able to
make the necessary representations the opportunity to exchange their notes that
are subject to restrictions on transfer for new notes.
If:
(1) Mrs. Fields' Holding had not been required to file the 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 notes that are subject to restrictions on transfer
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 registration statement
is not appropriate or available for resales or
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(c) that it is a broker-dealer and owns outstanding notes
acquired directly from Mrs. Fields' Holding or an affiliate
of Mrs. Fields' Holding,
then Mrs. Fields' Holding will file with the Commission a shelf registration
statement to cover resales of the old notes by the holders of those notes who
satisfy specific 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. Notes will be subject to
restrictions on transfer until:
(1) a person other than a broker-dealer has exchanged notes in the
exchange offer;
(2) a broker-dealer has exchanged notes in the exchange offer and sells
them to a purchaser that receives this prospectus from the broker-
dealer on or before the sale;
(3) the notes are sold under an effective shelf registration statement
that we have filed; or
(4) the notes are sold to the public under Rule 144 of 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 August 24, 1998,
(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 August 24, 1998,
(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 to it 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 that
filing obligation arises and to cause the shelf registration
statement to be declared effective by the Commission on or prior to
150 days after that 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 the filing,
(2) any of the registration statements is not declared effective by the
Commission on or prior to the date specified for 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 notes that are subject to
restrictions on transfer during the periods specified in the
registration rights agreement
(each 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 the 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 $.50 per week per $1,000 principal amount of old notes.
Mrs. Fields' Holding will pay 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
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specified by them or by mailing checks to their registered addresses if no
accounts have been specified. Following the cure of all Registration Defaults,
the accrual of liquidated damages will cease.
Since the registration statement was not effective by January 21, 1999, Mrs.
Fields' Holding has incurred liquidated damages of approximately 897,000 as of
May 1, 2000. Through May 1, 2000, Mrs. Fields' Holding had paid $409,000 of
this amount to the holders of old notes.
Holders of old notes will be required to make 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 described 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.
Definitions
Set forth below are some of the 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 in this prospectus 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 the other
person is merged with or into or became a Subsidiary of the
specified person, excluding, however, Indebtedness incurred in
connection with, or in contemplation of, the other person merging
with or into or becoming a Subsidiary of the specified person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
the 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 the 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 the 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, 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,
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(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 that 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 that term is used in Section 13(d)(3)
of the Exchange Act), that "person" shall be deemed to have beneficial
ownership of all securities that the "person" has the right to acquire, whether
that 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 generally accepted accounting principles in effect on August 24, 1998.
"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 of
any of them 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 of
any of them rated (at the time of the acquisition of the security)
at least "AA" by Standard & Poor's Rating Service or an equivalent
rating by Moody's Investors Service, Inc. and having maturities of
not more than one year from the acquisition of the 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 not exceeding six months 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;
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(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 that term is used in Section 13(d)(3) of the Exchange
Act) other than Herbert S. Winokur, Jr. and Capricorn Investors II,
L.P. 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 Herbert S. Winokur, Jr. and
Capricorn Investors II, L.P. or 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 that portion of the voting
stock as corresponds to the portion of equity of the entity that has been so
transferred.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of that Person for that period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale, to the extent those
losses were deducted in computing the Consolidated Net Income; plus
(2) provision for taxes based on income or profits of that person and
its Subsidiaries for that period, to the extent that the provision
for taxes was deducted in computing the Consolidated Net Income;
plus
(3) consolidated interest expense of that person and its Subsidiaries
for that 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, under Hedging
Obligations), to the extent that the expense was deducted in
computing the 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 the 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 the person and its Subsidiaries for that period to
the extent that the depreciation, amortization and other non-cash
expenses were deducted in computing the Consolidated Net Income;
minus
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(5) non-cash items increasing the Consolidated Net Income for that
period, in each case, on a consolidated basis and determined in
accordance with generally accepted accounting principles in effect
on August 24, 1998.
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 the 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 the
Subsidiary without prior governmental approval (that has not been obtained),
under 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 total of the Net Income of the Person and its Subsidiaries for that
period, on a consolidated basis, determined in accordance with generally
accepted accounting principles in effect on August 24, 1998; 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 of the person;
(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 the 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 the person
and its consolidated Subsidiaries as of that date plus
(2) the respective amounts reported on that 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 those dividends may be declared and
paid only out of net earnings in respect of the year of declaration
and payment, but only to the extent of any cash received by the
person upon issuance of the 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 August 24, 1998
in the book value of any asset owned by the person or a
consolidated Subsidiary of the person,
(b) all investments as of that 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 that date,
all of the foregoing determined in accordance with generally accepted
accounting principles in effect on August 24, 1998.
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"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 the Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to the Board of Directors
with the approval of a majority of the Continuing Directors who
were members of the Board at the time of the nomination or
election.
"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, under a sinking fund obligation or otherwise, or redeemable at the
option of its holder, in whole or in part, on or prior to the date that is 91
days after the date on which the notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely as
a result of any maturity or redemption of that Capital Stock shall not
constitute Disqualified Stock if that maturity or redemption complies with the
covenant described above under the caption "--Covenants--Restricted Payments."
"Existing Indebtedness" means Indebtedness of Mrs. Fields' Holding and its
Subsidiaries (including preferred stock of Pretzel Time outstanding on August
24, 1998 but excluding any Indebtedness of Mrs. Fields' Holding or any of its
Subsidiaries under any credit facility of Mrs. Fields with a maximum total
amount of $15.0 million that is permitted under the indenture existing on
August 24, 1998) in existence on August 24, 1998, until those 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 the person and its
Subsidiaries for that 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) under Hedging Obligations);
(2) the consolidated interest expense of the person and its
Subsidiaries that was capitalized during that period,
(3) any interest expense on Indebtedness of another person that is
guaranteed by that person or one of its Subsidiaries or secured by
a Lien on assets of that person or one of its Subsidiaries (whether
or not that 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 the 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 the person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with generally
accepted accounting principles in effect on August 24, 1998.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of that person for such period
to the Fixed Charges of that 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 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 that
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incurrence, assumption, guarantee or redemption of Indebtedness, or that
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 that 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 that reference period shall be
calculated without giving effect to clause (3) of the proviso
described in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with generally accepted accounting
principles in effect on August 24, 1998, 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 generally accepted accounting
principles in effect on August 24, 1998, 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 those 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 August 24, 1998
may be adjusted to eliminate some historical expenses that are not
expected to recur after the consummation of the Pretzel
Contributions so long as those 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 the same or a similar
line of business as Mrs. Fields' Holding and its Subsidiaries were engaged in
on August 24, 1998, including, without limitation, the specialty retail snack-
food 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 the 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.
"Hedging Obligations" means, with respect to any person, the obligations of
that 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 that person
against fluctuations in interest or foreign currency exchange
rates.
"Indebtedness" means, with respect to any specified person, any indebtedness
of that person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect of those
instruments);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any
property, except any balance that constitutes an accrued expense or
trade payable; or
(6) representing any Hedging Obligations,
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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 generally accepted accounting
principles in effect on August 24, 1998. In addition, the term "Indebtedness"
includes all Indebtedness of others secured by a Lien on any asset of the
specified person (whether or not the Indebtedness is assumed by the specified
person) and, to the extent not otherwise included, the guarantee by the person
of any indebtedness of any other person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness that does not require current payments of interest;
and
(2) the principal amount of the Indebtedness, together with any
interest on the Indebtedness 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 that
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
generally accepted accounting principles in effect on August 24, 1998, 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 the sale or disposition, the 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 sale or disposition equal to the
fair market value of the Equity Interests of the Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of that 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 of that of encumbrance, 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 the 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 under the covenant described under the caption "--
Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock."
"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.
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"Net Income" means, with respect to any person, the net income (loss) of that
person, determined in accordance with generally accepted accounting principles
in effect on August 24, 1998 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 that gain (but not loss), realized in connection with
(a) any Asset Sale (including, without limitation, dispositions
under sale and leaseback transactions) or
(b) the disposition of any securities by the person or any of
its Subsidiaries or the extinguishment of any Indebtedness
of the person or any of its Subsidiaries; and
(2) any extraordinary or nonrecurring gain (but not loss), together
with any related provision for taxes on that extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the total 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 the 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 the Asset Sale and any reserve for
adjustment in respect of the sale price of the asset or assets established in
accordance with generally accepted accounting principles in effect on August
24, 1998.
"Non-Core Stores" means the stores listed in Exhibit G to the Indenture.
"Permitted Investments" means:
(1) any Investment in Mrs. Fields' Holding or in a Wholly Owned
Subsidiary of Mrs. Fields' Holding that is engaged in the same
or a similar line of business as Mrs. Fields' Holding and its
Subsidiaries were engaged in on August 24, 1998, including,
without limitation, the specialty retail snack-food 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 the Investment:
(a) the person becomes a Wholly Owned Subsidiary of Mrs. Fields'
Holding that is engaged in the same or a similar line of
business as Mrs. Fields' Holding and its Subsidiaries were
engaged in on August 24, 1998, including, without limitation,
the specialty retail snack-food business or
(b) the 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 the
same or a similar line of business as Mrs. Fields' Holding and
its Subsidiaries were engaged in on August 24, 1998, including,
without limitation, the specialty retail snack-food business;
(4) any Investment other than a Permitted Investment made as a
result of the receipt of non-cash consideration from an Asset
Sale that was made under 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;
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(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 August 24, 1998; 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 of Mrs.
Fields with a maximum total amount of $15.0 million that is
permitted under the indenture 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 the person is
merged into or consolidated with Mrs. Fields' Holding or any
Subsidiary of Mrs. Fields' Holding, provided that those Liens
were in existence prior to the contemplation of the 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 those Liens were in existence prior to the
contemplation of the 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 clause (3), covering only the assets
acquired with that Indebtedness;
(7) Liens existing on August 24, 1998;
(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
generally accepted accounting principles in effect on August 24,
1998 shall have been made therefor; and
(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 total materially detract from the value of the
property or materially impair the use thereof in the
operation of business by Mrs. Fields' Holding or the
Subsidiary.
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"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 the
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) the 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, the 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) the 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.
"Public Equity Offering" means a public offering registered under the
Securities Act (except for any registration under Form S-8) of common stock of
Mrs. Fields' Holding.
"Related Party" with respect to Herbert S. Winokur, Jr. or Capricorn
Investors II, L.P. means:
(1) any greater than 50% owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of Herbert S.
Winokur, Jr. or Capricorn Investors II, L.P. 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 Herbert S. Winokur, Jr. or Capricorn
Investors II, L.P. and/or the other persons referred to in the
immediately preceding clause (1).
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act, as that Regulation is in effect on August 24, 1998.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing the Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase the interest or principal prior to the date
originally scheduled for payment.
"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
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(2) any partnership
(a) the sole general partner or the managing general partner of
which is that person or a Subsidiary of that person or
(b) the only general partners of which are that person or of one or
more Subsidiaries of that person (or any combination of the
preceding).
"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 the Subsidiary under any such
agreement do not exceed the corresponding tax payments that Mrs. Fields'
Holding or the Subsidiary would have been required to make to any relevant
taxing authority had Mrs. Fields' Holding or the Subsidiary not joined in those
consolidated or combined returns, but instead had filed returns including only
Mrs. Fields' Holding and its Subsidiaries.
"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 of the
Indebtedness, by
(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between that date and the making of that payment; by
(2) the then outstanding principal amount of that Indebtedness.
"Wholly Owned Subsidiary" of any person means a Subsidiary of that 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 that person or
by one or more Wholly Owned Subsidiaries of that person and one or more Wholly
Owned Subsidiaries of that person.
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DESCRIPTION OF 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 a total amount not to exceed $500,000. The total
amount of letters of credit issued plus the total 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 agreement.
The credit agreement contains restrictions on, among other things, payments,
the incurrence of indebtedness and liens, which are substantially similar to
the restrictions in the indenture. As of April 1, 2000, there was no balance
outstanding under the credit agreement. Under the borrowing base, Mrs. Fields
is limited to borrowing an additional $8.1 million in accordance with
restrictions of the indenture.
On May 27, 1999, Pretzel Time entered into agreements with LaSalle National
Bank under which Pretzel Time borrowed, on May 28, 1999, $1,000,000 in
aggregate principal amount from LaSalle. Pretzel Time issued a revolving note
to LaSalle to evidence its borrowing, which bears interest at the Prime rate,
or Prime plus 2% for any balance payable after the note has matured on June 30,
2000. Pretzel Time has pledged its assets to LaSalle to secure its obligations,
and Mrs. Fields has guaranteed Pretzel Time's obligations to LaSalle.
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 became separately transferable on
February 20, 1999, which was 180 days after the closing of the offering of
outstanding notes.
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 those 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 those 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 this type of resale. In addition, until August 13, 2000,
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 under the exchange offer may be sold
from time to time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the notes issued
in the exchange offer or a combination of these methods of resale, at market
prices prevailing at the time of resale, at prices related to those prevailing
market prices or negotiated prices. Any 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 the broker-dealer or the purchasers
of these notes issued in the exchange offer. Any broker-dealer that resells
notes issued in the
103
<PAGE>
exchange offer that were received by it for its own account under the exchange
offer and any broker or dealer that participates in a distribution of these
notes issued in the exchange offer may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on the resale of notes issued
in the exchange offer and any commission or concessions received by these
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 completion 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 these
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 some related
liabilities, including liabilities under the Securities Act.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of 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.
104
<PAGE>
EXPERTS
The consolidated financial statements of Mrs. Fields' Holding Company, Inc.
and subsidiaries as of January 2, 1999 and January 1, 2000 and for each of the
three fiscal years in the period ended January 1, 2000, the consolidated
financial statements of Mrs. Fields' Original Cookies, Inc. and subsidiaries as
of January 2, 1999 and January 1, 2000 and for each of the three fiscal years
in the period ended January 1, 2000; included in this registration statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect to them, and are included in this
registration statement in reliance upon the authority of said firm as experts
in accounting and auditing in giving said reports.
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Mrs. Fields' Holding Company, Inc. and subsidiaries
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000.... F-3
Consolidated Statements of Operations for the 53 weeks ended January 3,
1998 and for the 52 weeks ended January 2, 1999 and January 1, 2000..... F-5
Consolidated Statements of Stockholders' Equity for the 53 weeks ended
January 3, 1998 and for the 52 weeks ended January 2, 1999 and January
1, 2000................................................................. F-6
Consolidated Statements of Cash Flows for the 53 weeks ended January 3,
1998 and for the 52 weeks ended January 2, 1999 and January 1, 2000..... F-7
Notes to Consolidated Financial Statements............................... F-10
Mrs. Fields' Original Cookies, Inc. and subsidiaries
Report of Independent Public Accountants................................. F-40
Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000.... F-41
Consolidated Statements of Operations for the 53 weeks ended January 3,
1998 and for the 52 weeks ended January 2, 1999 and January 1, 2000..... F-43
Consolidated Statements of Stockholder's Equity for the 53 weeks ended
January 3, 1998 and for the 52 weeks ended January 2, 1999 and January
1, 2000................................................................. F-44
Consolidated Statements of Cash Flows for the 53 weeks ended January 3,
1998 and for the 52 weeks ended January 2, 1999 and January 1, 2000..... F-45
Notes to Consolidated Financial Statements............................... F-48
</TABLE>
F-1
<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 January
2, 1999 and January 1, 2000, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three fiscal
years in the period ended January 1, 2000. 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 auditing standards generally
accepted in the United States. 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' Holding Company, Inc. and subsidiaries as of January 2, 1999
and January 1, 2000, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended January 1,
2000 in conformity with accounting principles generally accepted in the United
States.
Arthur Andersen LLP
Salt Lake City, Utah
March 27, 2000
F-2
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
January January
2, 1,
1999 2000
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 4,759 $ 4,919
Accounts receivable, net of allowance for doubtful
accounts of $74 and $111,
respectively 3,208 4,295
Amounts due from franchisees and licensees, net of
allowance for doubtful accounts of $1,078 and $821,
respectively 6,137 3,708
Inventories............................................. 5,503 4,977
Prepaid rent and other.................................. 4,054 697
Deferred income tax assets.............................. 861 1,360
--------- ---------
Total current assets.................................. 24,522 19,956
--------- ---------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements.................................. 29,914 26,698
Equipment and fixtures.................................. 17,108 22,540
Land.................................................... 240 240
--------- ---------
47,262 49,478
Less accumulated depreciation and amortization.......... (15,465) (20,813)
--------- ---------
Net property and equipment............................ 31,797 28,665
--------- ---------
DEFERRED INCOME TAX ASSETS............................... 2,638 2,139
--------- ---------
GOODWILL, net of accumulated amortization of $11,338 and
$21,310, respectively................................... 146,375 133,025
--------- ---------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $2,615 and $3,700, respectively......... 14,296 13,062
--------- ---------
DEFERRED LOAN COSTS, net of accumulated amortization
of $1,406 and $4,523, respectively...................... 13,440 12,618
--------- ---------
OTHER ASSETS............................................. 1,332 652
--------- ---------
$ 234,400 $ 210,117
========= =========
</TABLE>
The accompanying notes to consolidated financial statementsare an integral part
of these balance sheets.
F-3
<PAGE>
MRS. FIELDS' HOLDING COMPANY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(Continued)
(Dollars in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January
2, January
1999 1, 2000
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt....................... $ 8,046 $ 781
Current portion of capital lease obligations............ 299 842
Accounts payable........................................ 10,723 10,514
Bank overdraft.......................................... 4,133 --
Accrued liabilities..................................... 3,597 2,851
Current portion of store closure reserve................ 4,577 3,665
Accrued salaries, wages and benefits.................... 3,155 3,180
Accrued interest payable................................ 1,260 1,380
Sales taxes payable..................................... 962 1,128
Deferred credits........................................ 318 132
--------- ---------
Total current liabilities............................. 37,070 24,473
LONG-TERM DEBT, net of current portion and discount...... 171,291 176,672
STORE CLOSURE RESERVE, net of current portion............ 10,134 3,529
CAPITAL LEASE OBLIGATIONS, net of current portion........ 997 3,107
--------- ---------
Total liabilities..................................... 219,492 207,781
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 3, 9 and 11)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of
Pretzel Time (a wholly owned subsidiary), aggregate
liquidation preference of $1,495 and $1,070,
respectively............................................ 1,261 1,070
--------- ---------
MINORITY INTEREST........................................ 119 111
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 100 shares authorized
for all series, excluding Series A, none issued -- --
Common stock, $.001 par value; 5,000,000 shares
authorized, 3,285,599 and 3,387,019 shares outstanding,
respectively........................................... 3 3
Warrants to purchase common stock....................... 2,895 2,895
Additional paid-in capital.............................. 33,919 35,711
Deferred compensation expense........................... (438) (385)
Accumulated deficit..................................... (22,851) (37,069)
--------- ---------
Total stockholders' equity............................ 13,528 1,155
--------- ---------
$ 234,400 $ 210,117
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-4
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
53 52 52
Weeks Weeks Weeks
Ended Ended Ended
January January January
3, 2, 1,
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Net store and food sales..................... $ 127,845 $ 140,235 $ 152,268
Franchising.................................. 4,535 12,464 24,782
Licensing.................................... 2,028 1,537 3,887
--------- --------- ---------
Total revenues............................. 134,408 154,236 180,937
--------- --------- ---------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs............ 66,832 75,003 79,634
Cost of sales................................ 32,028 38,482 46,323
General and administrative................... 16,436 19,583 21,965
Store closure provision (benefit)............ 538 7,303 (1,579)
Depreciation and amortization................ 10,450 19,867 24,253
--------- --------- ---------
Total operating costs and expenses......... 126,284 160,238 170,596
--------- --------- ---------
Income (loss) from operations............ 8,124 (6,002) 10,341
--------- --------- ---------
OTHER INCOME (EXPENSE), net:
Interest expense............................. (7,527) (14,946) (23,842)
Interest income.............................. 246 623 54
Other expense, net........................... (368) (409) (226)
--------- --------- ---------
Total other expense, net................... (7,649) (14,732) (24,014)
--------- --------- ---------
Income (loss) before provision for income
taxes, preferred stock accretion and
dividends of subsidiaries and minority
interest.................................... 475 (20,734) (13,673)
PROVISION FOR INCOME TAXES (655) (316) (218)
--------- --------- ---------
Loss before preferred stock accretion and
dividends of subsidiaries and minority
interest.................................... (180) (21,050) (13,891)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
SUBSIDIARIES................................. (306) (444) (305)
MINORITY INTEREST............................. (138) (11) (22)
--------- --------- ---------
Net loss................................... $ (624) $ (21,505) $ (14,218)
========= ========= =========
CUMULATIVE REDEEMABLE SERIES A PREFERRED STOCK
DIVIDENDS (2,173) -- --
--------- --------- ---------
Net loss applicable to common shares $ (2,797) $ (21,505) $ (14,218)
========= ========= =========
Basic and diluted net loss per common share $ (.88) $ (6.55) $ (4.23)
========= ========= =========
Weighted average number of common shares
outstanding 3,167 3,286 3,362
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Common Stock
----------------
Warrants
Common to Retained
Stock Purchase Additional Deferred Earnings
Subscriptions Common Paid-in Compensation (Accumulated
Shares Amount Receivable Stock Capital Expense Deficit) Total
--------- ------ ------------- -------- ---------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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............. -- -- 517 -- -- -- -- 517
Deferred compensation
expense related to
stock options.......... -- -- -- -- 808 (808) -- --
Amortization of deferred
compensation expense... -- -- -- -- -- 559 -- 559
Issuance of warrants to
purchase common stock.. -- -- -- 2,895 -- -- -- 2,895
Effect of change in par
value.................. -- (30) -- -- 30 -- -- --
Net loss................ -- -- -- -- -- -- (21,505) (21,505)
--------- ---- ----- ------- -------- ----- --------- -------
BALANCE, January 2,
1999................... 3,285,599 3 -- 2,895 33,919 (438) (22,851) 13,528
Issuance of common stock
upon assumption of
debt................... 101,420 -- -- -- 2,000 -- -- 2,000
Amortization of deferred
compensation expense... -- -- -- -- -- 53 -- 53
Reversal of deferred
compensation expense
upon termination of
employee............... -- -- -- -- (208) -- -- (208)
Net loss................ -- -- -- -- -- -- (14,218) (14,218)
--------- ---- ----- ------- -------- ----- --------- -------
BALANCE, January 1, 2000 3,387,019 $ 3 $ -- $ 2,895 $ 35,711 (385) $ (37,069) $ 1,155
========= ==== ===== ======= ======== ===== ========= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 3, January 2, January 1,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................... $ (624) $(21,505) $(14,218)
Adjustments to reconcile net loss to net cash
provided by operating activities, net of
effects from acquisitions:
Depreciation and amortization................ 10,450 19,867 24,253
Amortization of discount on notes............ 70 1,706 5,351
Amortization of deferred loan costs.......... -- 1,336 3,116
Deferred compensation expense (benefit)...... 94 559 (13)
Loss (gain) on disposition of assets......... 368 409 (142)
Deferred income taxes........................ 210 -- --
In-kind interest expense on note payable to
stockholder................................. 338 -- --
Preferred stock accretion and dividends of
subsidiaries................................ 306 444 305
Minority interest............................ 234 11 (8)
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable......................... (353) (1,673) (1,087)
Amounts due from franchisees and
licensees.................................. (514) (1,000) 2,429
Inventories................................. 136 (822) 526
Prepaid rent and other...................... (895) 1,000 3,357
Other assets................................ 427 1,437 680
Accounts payable and accrued liabilities.... (6,938) (2,017) (954)
Store closure reserve....................... (1,666) 5,196 (5,219)
Accrued salaries, wages and benefits........ 148 1,264 25
Accrued interest payable.................... (586) (713) 120
Sales taxes payable......................... 261 (80) 166
Deferred credits............................ (543) (838) (186)
------- -------- --------
Net cash provided by operating activities.. 923 4,581 18,501
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions and related
costs....................................... (12,014) (32,835) --
Purchase of property and equipment, net of
effects from acquisitions................... (4,678) (8,235) (5,157)
Issuance of note receivable to PTI founder... (500) -- --
Proceeds from the sale of assets............. 122 176 461
------- -------- --------
Net cash used in investing activities...... (17,070) (40,894) (4,696)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..... 108,250 70,264 --
Bank overdraft............................... -- 4,133 (4,133)
Principal payments on long-term debt......... (81,009) (41,257) (5,978)
Payment of debt financing costs.............. (5,976) (8,870) (2,294)
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) (123) (600)
Proceeds from exercise of stock options...... -- -- 148
Repurchase retirement of common stock........ -- -- (292)
Collection of common stock subscription
receivable.................................. -- 517 --
Reduction in preferred stock of Pretzel
Time........................................ -- (85) (496)
------- -------- --------
Net cash provided by (used for) financing
activities................................ 25,929 24,579 (13,645)
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 9,782 (11,734) 160
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
YEAR......................................... 6,711 16,493 4,759
------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF THE
YEAR......................................... $16,493 $ 4,759 $ 4,919
======= ======== ========
</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 CASH FLOWS
(Dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest was approximately $8,416, $12,440 and $17,957 for the
years ended January 3, 1998, January 2, 1999 and January 1, 2000, respectively.
Cash paid for income taxes was approximately $217, $209 and $401 for the
years ended January 3, 1998, January 2, 1999 and January 1, 2000, respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities:
On November 26, 1997, Mrs. Fields' Holding Company, Inc. ("Mrs. Fields'
Holding") converted to
common equity of the Company $4,643 total principal amount of convertible
subordinated notes and
contributed to the Company all of the common equity of Mrs. Fields' Brands
after converting its preferred
stock interests totaling $3,935 to common equity.
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. ("Pretzel Concepts") as
follows. Additionally, in connection
with the purchase accounting, certain other accruals were recorded (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>
On September 2, 1997, 56 percent of the shares of common stock of Pretzel
Time, Inc. ("Pretzel Time") were acquired by Mrs. Fields' Holding as follows.
Additionally, in connection with the purchase accounting, certain other
accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired........ $8,311
Net cash paid........................ (4,200)
------
Liabilities assumed................. $4,111
======
</TABLE>
On November 26, 1997, Mrs. Fields' Holding contributed all of the assets and
liabilities of Pretzel Concepts, Mrs. Fields' Holding's 56 percent of the
shares of common stock of Pretzel Time and a $500 note receivable from Pretzel
Time's founder and minority stockholder to the Company. Mrs. Fields' Holding
also contributed all of the common stock of Mrs. Fields' Brands to Mrs. Fields.
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.
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)
During the period from the acquisition of the majority ownership of Pretzel
Time (September 2, 1997) to January 1, 2000, Pretzel Time increased its
mandatorily redeemable cumulative preferred stock liquidation preference by
approximately $307, in lieu of paying cash dividends. In addition, for the same
period, Pretzel Time's mandatorily redeemable cumulative preferred stock was
increased by approximately $763 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 a total
purchase price of approximately $18,400. During August and September 1998, the
Company also entered into agreements with three franchisees of Cookies USA (the
"Great American Franchisees") under which the Company purchased a total of 37
Great American Cookies franchises for a total purchase price of $16,328. The
total purchase price for all of these acquisitions of $34,728 was allocated, as
follows. Additionally, in connection with the purchase accounting, certain
other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired....... $77,410
Net cash paid....................... (27,771)
-------
Liabilities assumed................ $49,639
=======
</TABLE>
In October 1998, the Company acquired the assets of the Cookie Conglomerate,
Inc. ("Cookie Conglomerate") for a total purchase price of $2,800. The total
purchase price was allocated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired......... $2,800
Net cash paid......................... --
------
Liabilities assumed.................. $2,800
======
</TABLE>
In November 1998, the Company acquired all of the outstanding stock of
Pretzelmaker Holdings, Inc. ("Pretzelmaker") for $5,419. The total purchase
price was allocated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired........ $8,519
Net cash paid........................ (1,100)
------
Liabilities assumed................. $7,419
======
</TABLE>
During the years ended January 2, 1999 and January 1, 2000, the Company
acquired property and equipment under capitalized lease obligations and long-
term debt totaling $3,786 and $3,997, respectively. No property and equipment
was acquired under capitalized lease obligations during the year ended January
3, 1998.
During the year ended January 1, 2000, Mrs. Fields' Holding made an equity
contribution to Mrs. Fields of $2,000 by assuming a $2,000 note payable that
was due December 31, 1999. Mrs. Fields' Holding sold 101,420 shares of its
common stock to Capricorn in exchange for Capricorn assuming this $2,000 note
payable.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-9
<PAGE>
MRS FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
Mrs. Fields' Holding Company, Inc. (the "Company" or "Mrs Fields' Holding"),
a Delaware corporation, was incorporated on July 31, 1996 and is a majority
owned subsidiary of Capricorn Investors II, L.P. ("Capricorn"). Mrs. Fields'
Holding has nine wholly owned operating subsidiaries; namely, Mrs. Fields'
Original Cookies, Inc. and subsidiaries ("Mrs. Fields'), Great American Cookie
Company, Inc. ("Great American"), The Mrs. Fields' Brand, Inc. ("Mrs. Fields'
Brand"), Pretzel Time, Inc. ("Pretzel Time"), Pretzelmaker Holdings, Inc.
("Pretzelmaker"), Mrs. Fields' Cookies Australia, Mrs. Fields' Cookies (Canada)
Ltd., H & M Canada and Pretzelmaker of Canada.
The Company primarily operates retail stores which sell freshly baked
cookies, brownies, pretzels and other food products through six specialty
retail chains. As of January 1, 2000, the Company owned and operated 134 Mrs.
Fields Cookies stores (including combination stores that include more than one
kind of store), 93 Original Cookie Company stores, 93 Great American Cookies
stores, 52 Hot Sam Pretzels stores, 86 Pretzel Time stores, and 4 Pretzelmaker
stores in the United States. Additionally, the Company has franchised or
licensed 848 stores in the United States and 133 stores in several other
countries. As of January 1, 2000, the Company owned and operated 433 continuing
stores and 29 stores which are in the process of being closed 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.
During the year ended January 1, 2000, the Company opened 13 new stores,
franchised an additional 100 stores, closed 37 stores, franchised 37 locations
and reacquired 5 stores from franchisees and had 123 franchisees discontinue
operations.
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. Additionally, the Company
markets and distributes its products through catalogs, other print media, the
internet 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
Mrs. Fields Inc. and Affiliates and Original Cookie Company 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 selling shareholders. The
acquisitions were accounted for as purchases. The total purchase price was
allocated
F-10
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1, 2000, approximately $2,215,000 of the $2,450,000 accrual for
legal and lease obligations has been utilized. The remaining amount as of
January 1, 2000 of approximately $235,000 is expected to be utilized by the end
of fiscal year 2000. 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
during fiscal year 1997.
H & M Concepts Ltd. Co.
On July 25, 1997, the Company 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. The
total consideration of $13,750,000 consisted of (i) $5,750,000 of cash, , (ii)
a $4,000,000 principal amount bridge note and (iii) a $4,000,000 principal
amount subordinated note of the Company 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.
Pretzel Time, Inc.
On September 2, 1997, the Company acquired 56 percent of the shares of common
stock of Pretzel Time for a total cash purchase price of $4,200,000, $750,000
of which was paid to Pretzel Time for working capital purposes, and the balance
of which was paid to the selling shareholders. In connection with the
acquisition, the Company extended a $500,000 loan including interest at an
annual rate of ten percent to the founder of Pretzel Time who continued to own
44 percent of the shares of common stock of Pretzel Time. Pretzel Time 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
F-11
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
On January 2, 1998, the Company purchased an additional four percent of the
shares of common stock of Pretzel Time 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. In June 1998, the Company
acquired an additional ten percent of the shares of common stock of Pretzel
Time from the founder for $875,000 in cash. On December 9, 1998, Mrs. Fields
purchased three percent of Pretzel Time 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 under a stock purchase agreement dated
December 30, 1998, for a purchase price of approximately $4,700,000, $2,500,000
of which was paid in cash in January 1999 and $2,000,000 of which was paid in
December 1999. The Company has included the appropriate percentage of Pretzel
Time's results of operations for each respective period in its consolidated
results of operations.
The Mrs. Fields' Brand, Inc.
Prior to November 26, 1997, the Company owned 50.1 percent of the shares of
the common stock of Mrs. Fields' Brand. Mrs. Fields' Brand 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, Mrs. Fields' Brand 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, the Company acquired the remaining 49.9 percent of the
shares of the common stock of Mrs. Fields' Brand 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 the Company .
The Company'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 the
Company'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.
Great American Cookie Company, Inc.
On August 24, 1998, the Company acquired all of the outstanding capital stock
and subordinated indebtedness of Cookies USA, Inc., the sole stockholder of
Great American Cookie Company, Inc., for a total purchase price of $18,400,000.
Great American is an operator and franchisor of mall-based specialty retail
F-12
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
cookie outlets and a manufacturer of cookie batter which is distributed to
Great American operated retail stores and sold to franchised retail stores.
Concurrently with the acquisition of Cookies USA, the Company entered into
agreements with two Great American franchisees under which the Company
purchased a total of 29 Great American franchises for a total 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
franchises operated. On September 9, 1998, the Company acquired eight
additional Great American franchised retail stores from a Great American
franchisee, under an asset purchase agreement, for a total 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 which 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 Great American. Great American 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 $29,056,000 from a Mrs. Fields' Holding offering to
the Company; and (iii) existing cash of the Company.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for a total
purchase price of $2,800,000 under an asset purchase agreement 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 through
borrowings.
Pretzelmaker Holdings, Inc.
On November 19, 1998, the Company purchased all of the outstanding capital
stock of Pretzelmaker Holdings, Inc. under an agreement among the Company,
Pretzelmaker, and the holders of its capital stock. Pretzelmaker is the holding
company for a pretzel retail company. The purchase price was approximately
$5,400,000 and Mrs. Fields assumed indebtedness, including severance payments,
totaling approximately $1,600,000.
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.
Pro Forma Acquisition Information (Unaudited)
The following unaudited pro forma information for the years ended January 3,
1998 and January 2, 1999 presents the results of operations of the Company
assuming that the H & M, Pretzel Time, The Mrs. Fields' Brand, Great American,
Cookie Conglomerate and Pretzelmaker acquisitions and related financings 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.
F-13
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
53 Weeks 52 Weeks
Ended Ended
January 3, January 2,
(Unaudited) 1998 1999
- ----------- ------------ ------------
<S> <C> <C>
Total revenues.................................... $200,574,000 $191,246,000
Store closure provision........................... (538,000) (7,303,000)
Depreciation and amortization..................... (19,452,000) (25,629,000)
Income (loss) from operations..................... 12,431,000 (5,522,000)
Net loss.......................................... (7,888,000) (28,087,000)
Basic and diluted net income (loss) per common
share............................................ (3.21) (8.55)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Periods
The Company operates using a 52/53-week year ending near December 31.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly 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 accounting
principles generally accepted in the United States 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 January
1, 2000, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation. As
of January 1, 2000, the Company had restricted cash of $192,000.
Inventories
Inventories consist of food, beverages and supplies and are stated at the
lower of cost (first-in, first-out method) or market value.
F-14
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pre-Opening 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.
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 one to five years.
Deferred Loan Costs
Deferred loan costs totaling $17,141,000 resulted from the sale of
$100,000,000 total principal amount of
10 1/8 percent Series A Senior Notes (the "Series A Senior Notes") on November
26, 1997, the sale of $55,000,000 total principal amount of 14 percent Senior
Discount Notes ("Discount Notes") on August 24, 1998, and the sale of
$40,000,000 total principal amount of 10 1/8 percent Series C Senior Notes (the
"Series C Senior Notes") on August 24, 1998. These costs are being amortized to
interest expense over the approximate seven-year life of the Series A Notes,
the approximate seven-year life of the Discount Notes and the approximate six-
year life of the Series C Senior Notes (see Note 3).
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 total 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 their approximate six-year lives.
Long-Lived Assets
The Company reviews for impairment of long-lived assets when events or
changes in circumstances indicate that the book value of an asset may not be
fully recovered. The Company evaluates, at each balance sheet date, whether
events and circumstances have occurred that indicate possible impairment. 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 lowest level for which there are identifiable cash flows that are
independent of other groups of assets.
F-15
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the year ended January 2, 1999, the Company wrote-down approximately
$4,131,000 of impaired long-lived assets. The write-down included approximately
$2,243,000 of equipment and leasehold improvements at company-owned stores that
the Company intends to close or franchise (see Note 5). Substantially all of
these assets were disposed of during the year ended January 1, 2000. The write-
down also included approximately $855,000 of equipment and leasehold
improvements at ten company-owned stores that the Company intends to continue
to operate through the end of contractual lease terms. These assets are
expected to be disposed of when the leases expire ranging from June 1999 to
December 2008. Additionally, approximately $1,033,000 of goodwill that had been
allocated to the impaired assets was written-down.
During the year ended January 1, 2000, the Company wrote down approximately
$1,645,000 of impaired long-lived assets. The write down included approximately
$1,408,000 of equipment and leasehold improvements at 35 company-owned stores
that the Company intends to franchise or continue to operate through the end of
contractual lease terms. These assets are expected to be disposed of when the
leases expire or the store is franchised. Additionally, approximately $237,000
of goodwill that had been allocated to the impaired assets was written-down.
The net book value of the assets has either been fully or partially written-
down because the carrying amounts exceeded the estimated future cash flows as
determined in accordance with guidance in SFAS 121. During the years ended
January 2, 1999 and January 1, 2000, stores associated with impaired assets
generated losses of approximately $2,351,000 and $2,642,000, respectively. The
impairment provisions were included in depreciation and amortization in the
accompanying consolidated statements of operations for the years ended January
2, 1999 and January 1, 2000. No provisions were recorded for estimated future
operating losses.
Store Closure Reserve
The Company accrues an estimate for the costs associated with closing a non-
performing store in the period the determination is made to close the store.
The accruals are for estimated store lease termination costs (see Note 5).
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. Revenues from the
sale of batter that the Company produces and sells to franchisees are
recognized at the time of shipment and are classified in franchising revenue.
The Company receives rebates or other payments from suppliers based (directly
or indirectly) on sales to franchisees and company-owned stores. Rebates
related to franchisees are recorded as franchising revenue when earned. Rebates
related to company-owned stores are recorded as a reduction to cost of sales
when 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.
F-16
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 total fair market value of its Series A/B
Senior Notes and Series C Senior Notes (see Note 3) was approximately
$135,100,000 and $113,400,000 as of January 2, 1999 and January 1, 2000,
respectively. These estimates are based on quoted market prices. The book
values of the Company's other financial instruments, including cash and cash
equivalents, 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
fiscal year 1997 was adjusted for cumulative redeemable Series A preferred
stock dividends.
Recent Accounting Pronouncement
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133--an amendment of FASB Statement No. 133." 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, 2000 and is not expected to have a material impact on
the Company's consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with the current year presentation.
F-17
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
------------ ------------
<S> <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, 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, due December 1, 2004 ..... 40,000,000 40,000,000
Discount related to the issuance of $40,000,000
Series C senior unsecured notes, net of
accumulated amortization of $33,000 and $110,000,
respectively..................................... (566,000) (489,000)
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 Mrs. Fields .................... 55,000,000 55,000,000
Original issue discount related to the issuance of
$55,000,000 senior secured discount notes, net of
accumulated amortization of $1,674,000 and
$6,947,000, respectively......................... (25,356,000) (20,083,000)
Notes payable to individuals or corporations with
interest terms ranging from non-interest bearing
to 15 percent, due at various dates through 2001,
requiring monthly payments....................... 10,259,000 3,025,000
------------ ------------
179,337,000 177,453,000
Less current portion.............................. (8,046,000) (781,000)
------------ ------------
$171,291,000 $176,672,000
============ ============
</TABLE>
On August 24, 1998, in connection with the Great American Acquisitions, the
Company 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 the Company 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 the Company's common stock at a price of
$0.001 per share. The issuance price was $561.17 per Unit or a total price of
$30,864,350. The principal amount of the Discount Notes will accrete at a rate
of 14 percent compounded semi-annually to a total 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,
the Company recorded total original issue discount of $24,135,650.
Additionally, the value allocated to the Warrants of $2,895,000 has been
accounted for as 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 Warrants were valued using discounted cash flow and
multiples of EBITDA and revenue models employing data from comparable publicly
traded companies.
The discounted cash flow model valued the Warrants by discounting the
Company's projected cash flows for the five-year period ending 2002 using a 12%
weighted average cost of capital and adjusting for the present value of the
terminal value of the business computed using a multiple of 6 times the
forecasted 2002 cash flows.
F-18
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The multiple of EBITDA and revenue model valued the Warrants by computing the
market values of comparable publicly traded companies' shares as a multiple of
EBITDA and revenues and then applying those multiples to the EBITDA and
revenues of Mrs. Fields. The multiple of revenues used to value the Warrants
for Mrs. Fields was 1.2 times compared to a range of 0.4 times to 2.6 times for
comparable companies. The multiple of EBITDA used to value the Warrants for
Mrs. Fields was 7.3 times compared to a range of 5.7 times to 7.4 times for
comparable companies.
After generating the numerical results calculated above, the Company then
considered qualitative factors such as: (1) the historical and current
financial condition and results of operations of the Company and Great
American; (2) published information regarding the financial performance and
operating characteristics of a selected group of comparable companies; (3)
recent transactions in the specialty food retailing industry; and (4) certain
non-public financial and non-financial information to determine a composite
valuation of the Warrants.
The Discount Notes are secured by a pledge of all the outstanding capital
stock of Mrs. Fields' Original Cookies and are general obligations of the
Company, and rank senior in right of payment to all existing and future senior
indebtedness of the Company. The Discount Notes are redeemable at the option of
the Company, 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 the Company, 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 the Company 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, Mrs. Fields issued $100,000,000 total principal amount
of Series A Senior Notes due December 1, 2004 pursuant to an indenture between
Mrs. Fields and the Bank of New York (the "Indenture"). 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 due December 1, 2004, which were registered under
the Securities Act (collectively, the "Series A/B Senior Notes").
On August 24, 1998, Mrs. Fields issued $40,000,000 total 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 under 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 of 1933. The Series A/B Senior Notes and issuance of 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, Mrs. Fields
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 Mrs. Fields and
rank pari passu in right of payment with all existing and future senior
indebtedness of Mrs. Fields.
The Senior Notes are redeemable at the option of Mrs. Fields, 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, Mrs. Fields may redeem up to a total of 35
percent of the principal amount at a redemption price equal to 110.125 percent
of the principal, plus accrued and unpaid interest.
F-19
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Senior Notes contain certain covenants that limit, among other things,
the ability of Mrs. Fields and its subsidiaries to: (i) declare or pay
dividends or make any other payment or distribution on account of Mrs. Fields'
or any of its subsidiaries' equity interest (including without limitation, any
payment in connection with any merger or consolidation involving Mrs. Fields);
(ii) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
Mrs. Fields) any equity interest of Mrs. Fields or any direct or indirect
parent of Mrs. Fields or other affiliates of Mrs. Fields; (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.
The total amount of principal maturities of debt at January 1, 2000 are as
follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000......................................................... $ 781,000
2001......................................................... 673,000
2002......................................................... 729,000
2003......................................................... 619,000
2004......................................................... 195,104,000
Thereafter................................................... 119,000
------------
$198,025,000
============
</TABLE>
Line of Credit
On February 28, 1998, the Company entered into an amended and restated line
of credit agreement with a commercial bank which provides for a maximum
commitment of up to $15,000,000 secured by essentially all of the assets of the
Company. The availability under the line of credit was limited by the Company's
Indenture to $8,055,000 as of January 1, 2000. Borrowings under the agreement
bear interest, at the Company's option, at either the bank's prime rate or the
applicable LIBOR rate plus two percent, with interest payable monthly in
arrears. The Company is also obligated to pay the bank a commitment fee in the
amount of one quarter of one percent of the unused portion of the revolving
loan commitment. As of January 1, 2000, the Company had no outstanding
borrowings under the agreement, which expires March 31, 2001. The agreement
requires the Company to maintain certain financial ratios including a minimum
debt service coverage ratio. At January 1, 2000, the Company was in compliance
with the terms of the agreement.
Capital Lease Obligations
Future minimum lease payments for equipment held under capital lease
arrangements as of January 1, 2000 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000.......................................................... $1,192,000
2001.......................................................... 1,181,000
2002.......................................................... 1,099,000
2003.......................................................... 889,000
2004.......................................................... 297,000
Thereafter.................................................... 200,000
----------
Total future minimum lease payments.......................... 4,858,000
Less amount representing interest............................ (909,000)
----------
3,949,000
Less current portion......................................... (842,000)
----------
$3,107,000
==========
</TABLE>
F-20
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of January 2, 1999 and January 1, 2000, total assets held under capital
lease arrangements were approximately $1,024,000 and $8,170,000 with
accumulated amortization of approximately $108,000 and $1,907,000,
respectively.
4. INCOME TAXES
The components of the provision for income taxes for the years ended January
3, 1998, January 2, 1999 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
January January 2, January 1,
3, 1998 1999 2000
-------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................... $ 70,000 $ -- $ --
State..................................... 228,000 245,000 186,000
Foreign................................... 57,000 71,000 32,000
Deferred:
Federal................................... 367,000 (3,651,000) (1,687,000)
State..................................... 55,000 (567,000) (271,000)
Change in valuation allowance............. (122,000) 4,218,000 1,958,000
-------- ---------- ----------
Total provision for income taxes......... $655,000 $ 316,000 $ 218,000
======== ========== ==========
</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 years ended January 3, 1998, January 2, 1999 and January 1,
2000:
<TABLE>
<CAPTION>
January 3, January 2, January 1,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory income tax rate............. 34.0% (34.0)% (34.0)%
Dividends paid by subsidiary................. 34.5 -- --
Amortization of non-deductible goodwill...... 12.3 6.8 25.3
Net operating losses utilized................ (3.9) -- --
State income taxes, net of federal tax
effect...................................... 5.3 (5.3) (5.3)
Non-deductible interest...................... -- 0.8 10.0
State franchise minimum taxes................ 44.0 1.2 2.4
Foreign taxes................................ 12.3 0.3 0.4
Change in valuation allowance................ (26.3) 20.3 14.3
Other........................................ 29.3 11.4 (11.5)
----- ----- -----
Effective income tax rate..................... 141.5% 1.5% 1.6%
===== ===== =====
</TABLE>
F-21
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The significant components of the Company's deferred income tax assets and
liabilities at January 2, 1999 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Property and equipment reserve...................... $ 3,311,000 $ 1,760,000
Store closure reserve............................... 5,845,000 2,826,000
Transaction cost accrual............................ 514,000 306,000
Net operating loss carryforward..................... 12,342,000 13,511,000
Legal reserve....................................... 150,000 157,000
Other reserves...................................... 388,000 539,000
Original issue discount interest.................... 484,000 2,016,000
Non-cash compensation expense....................... 165,000 131,000
Accrued expenses.................................... 534,000 450,000
Alternative minimum tax credit carryforward......... 215,000 215,000
----------- -----------
Total deferred income tax assets................... 23,948,000 21,911,000
Valuation allowance................................. (16,288,000) (18,246,000)
----------- -----------
Deferred income tax assets net of valuation
allowance......................................... 7,660,000 3,665,000
----------- -----------
Deferred income tax liabilities:
Accumulated depreciation and amortization........... (3,464,000) (16,000)
Other............................................... (697,000) (150,000)
----------- -----------
Total deferred income tax liabilities.............. (4,161,000) (166,000)
----------- -----------
Net deferred income tax assets..................... $ 3,499,000 $ 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 connection with purchase accounting are not
recorded through the provision for income taxes, but rather, as an increase to
goodwill. During the years ended January 3, 1998 and January 2, 1999, valuation
allowances of $800,000 and $6,910,000, respectively, were recorded in
connection with accounting for business combinations.
As of January 1, 2000, the Company had net operating losses of $34,397,000
that can be carried forward to offset federal income taxes. If not utilized,
the tax net operating loss carryforwards begin to expire in 2009. As defined in
Section 382 of the Internal Revenue Code, the Company has acquired companies
which have had a greater than 50 percent ownership change. Consequently, a
certain amount of these companies' tax net operating loss carryforwards
available to offset future taxable income in any one year may be limited. The
maximum amount of carryforwards available in a given year is limited to the
product of these companies' value on the date of ownership change and the
federal long-term tax-exempt rate, plus any limited carryforwards not utilized
in prior years. Although realization of the net deferred income tax assets of
$3,499,000 is not assured, management believes that it is more likely than not
that these assets will be realized. The amount of net deferred tax assets
considered realizable, however, could be reduced in the near term based on
changing conditions.
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 net property investment or for targeted closing. The
Company's policy is to recognize a loss for that portion of the net property
investment determined
F-22
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
to be impaired. Additionally, when a store is identified for targeted closing,
the Company's policy provides for the costs of closing the store, which are
predominantly estimated lease termination costs. Lease termination costs
include both one-time settlement payments and continued contractual payments
over time under the original lease agreements where no settlement can be
resolved with the landlord. As a result, although all stores under the current
exit plans will be exited by at least the end of fiscal year 2000, a portion of
the store closure reserve will remain until all cash payments have been made.
The Company did not accrue for future expected operating losses. 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.
During fiscal year 1999, in accordance with accounting principles generally
accepted in the United States, the Company reassessed its lease termination
obligations on a store by store basis for stores closed or targeted for
closing. Management reassessed the remaining store closure reserves based on
all available relevant data. A portion of the reversal of the reserves was
recorded as a reduction to goodwill for those stores that had reserves
established at the time of an acquisition in accordance with Emerging Issues
Task Force Issue 95-3 ("EITF 95-3"). The remaining portion of the reversal of
the reserves was recorded to the store closure provision (benefit) in the
accompanying consolidated statement of operations for those stores that
initially had reserves established through that income statement line item in
accordance with the SEC Staff Accounting Bulletin No. 100, "Restructuring and
Impairment Charges". As of January 1, 2000, the remaining store closure reserve
was $7,194,000.
Mrs. Fields Inc. and Affiliates and Original Cookie Company and Affiliates
In connection with the Mrs. Fields Inc. and Original Cookie Company
acquisitions (see Note 1), the Company formulated a plan to exit certain stores
that did not meet certain financial and geographical criteria. In general, the
plan entailed closing stores that were not profitable and franchising stores
that were profitable but contributed less than $50,000 in annual store cash
contribution for cookie stores and less than $35,000 in annual 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 January 1, 2000, there
were no stores remaining to be closed and 14 stores remaining to be franchised.
Management estimates that the remaining stores will be franchised during the
first quarter of fiscal year 2000.
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3 ("EITF 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. During the
year ended January 2, 1999, the Company reassessed the adequacy of the store
closure reserve related to the remaining stores left to be closed and recorded
an additional $1,693,000 to the reserve. The additional $1,693,000 resulted
from management's expectation of higher lease termination costs than the costs
originally anticipated when the plan was finalized. This portion of the store
closure reserve was expensed in the Company's statement of operations for the
fiscal year ended January 2, 1999 as the decision to increase the reserve was
made subsequent to finalization of the original plan.
F-23
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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.
During the fiscal year ended January 3, 1998, the Company increased its store
closure reserve by $538,000 for nine continuing company-owned stores that were
closed during fiscal year 1997 and for one continuing company-owned store
targeted for closure. These costs represent lease termination costs which
include both one-time settlement payments and continued contractual payments
over time under the original lease agreements where no settlement has been
reached with the landlord. The amount also includes certain costs to write-down
equipment and leasehold improvements to their net realizable value. 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 as part of any of the Company's store closure
plan associated with the business combinations.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit 35 Mrs. Fields stores that
were not meeting certain financial and geographical criteria. The plan also
committed the Company to exit seven underperforming franchised stores that the
Company determined to disenfranchise as of January 2, 1999. The identified
stores to be exited under this plan are not part of the stores in the process
of being closed in connection with the business combination exit plan discussed
above. These stores were originally identified as continuing company-owned
stores at the date of acquisition, however, the stores have not performed as
expected. The Company intends to exit the stores primarily through closing and
franchising. In connection with this plan, the Company increased the store
closure reserve by $4,674,000 primarily for costs to be incurred for settling
lease termination costs for these stores. All of the stores identified for
closure are planned to be closed or franchised by the end of fiscal year 2000.
The charge was included in the store closure provision in the accompanying
consolidated statement of operations for the year ended January 2, 1999.
H&M
In connection with the H&M acquisition (see Note 1), the Company formulated a
plan to exit pretzel stores that did not meet certain financial and
geographical criteria. Management identified 11 stores to be closed and
14 stores to be franchised. At the date of the acquisition, in accordance with
EITF 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. All of the stores
identified to be exited were closed or franchised by the end of fiscal year
1999.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit five H&M stores that were
not meeting certain financial and geographical criteria. The stores identified
to be exited under this plan were not part of the stores in the process of
being closed in connection with the business combination exit plan discussed
above. In connection with this plan, the Company increased the store closure
reserve by $367,000 primarily for costs to be incurred for settling lease
termination costs for these stores. The charge was included in the store
closure provision in the accompanying consolidated statement of operations for
the year ended January 2, 1999. All of the stores identified for closure were
closed or franchised by the end of fiscal year 1999.
F-24
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Pretzel Time
In connection with the Pretzel Time acquisition (see Note 1), the Company
formulated a plan to exit pretzel stores that did not meet certain financial
and geographical criteria. Management identified four stores to be closed. At
the date of the acquisition, in accordance with EITF 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. All of the stores identified for closure
were closed by the end of fiscal year 1999.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit five Pretzel Time stores
that were not meeting certain financial and geographical criteria. The
identified stores to be exited under this plan are not part of the stores in
the process of being closed in connection with the business combination exit
plan discussed above. In connection with this plan, the Company increased the
store closure reserve by $264,000 primarily for costs to be incurred for
settling lease termination costs for these stores. The charge was included in
the store closure provision in the accompanying consolidated statement of
operations for the year ended January 2, 1999. All of the stores identified for
closure were closed or franchised by the end of fiscal year 1999.
Great American
In connection with the Great American Acquisitions (see Note 1), the Company
formulated a plan to exit cookie stores that did not meet certain financial and
geographical criteria. Management identified 54 stores to be closed and 11
stores to be franchised. At the date of the acquisitions, in accordance with
EITF 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. All of the stores identified for closure are
planned to be closed by the end of fiscal year 2000. The timing to implement
the plan was developed based on discussions and relationships with major
shopping mall developers.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit five underperforming Great
American franchised stores that the Company determined to disenfranchise as of
January 2, 1999. The identified stores to be exited under this plan were not
part of the stores in the process of being closed in connection with the
business combination exit plan discussed above. These stores were originally
franchised stores at the date of acquisition, however, the stores have not
performed as expected. In connection with this plan, the Company increased the
store closure reserve by $305,000 primarily for costs to be incurred for
settling lease termination costs for these stores. The charge was included in
the store closure provision in the accompanying consolidated statement of
operations for the year ended January 2, 1999. All of the stores identified for
closure were closed by the end of fiscal year 1999.
Pretzelmaker
In connection with the Pretzelmaker acquisition (see Note 1), the Company
formulated a plan to exit pretzel stores that did not meet certain financial
and geographical criteria. Management identified seven stores to be closed. At
the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the seven 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 $327,000 against the property and
equipment of the stores the Company planned to exit in order to record those
assets at net realizable value. All of the stores identified for closure were
closed by the end of fiscal year 1999.
F-25
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Consolidated Analysis
The following table presents a summary of the activity in the store closure
reserve for the periods indicated for stores to be closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields Inc. and
Original Cookie Co. H&M Pretzel Time Great American
------------------------ ----------------------- ----------------------- ------------------------
Company- Company- Company- Company-
Business Owned Owned Owned Owned
Combination Stores Stores Stores Stores
and Unrelated Unrelated Unrelated Unrelated
Subsequent to Business To Business to Business to
Adjustments Acquisition Combination Acquisition Combination Acquisition Combination Acquisition
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception,
September 16,
1996............ $5,060,000 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Utilization from
inception
(September 16,
1996) to
December 28,
1996............ (305,000) -- -- -- -- -- -- --
---------- ---------- --------- -------- -------- -------- ---------- --------
Balance,
December 28,
1996............ 4,755,000 -- -- -- -- -- -- --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
July 25, 1997... -- -- 1,000,000 -- -- -- -- --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
September 2,
1997............ -- -- -- -- 500,000 -- -- --
Finalization of
store closure
plan for
obligations
related to
stores
originally
identified...... 1,357,000 -- -- -- -- -- -- --
Provision for
continuing
company-owned
stores targeted
for closure..... -- 538,000 -- -- -- -- -- --
Utilization for
the 53 weeks
ended January 3,
1998............ (2,145,000) (538,000) -- -- (1,000) -- -- --
---------- ---------- --------- -------- -------- -------- ---------- --------
Balance, January
3, 1998......... 3,967,000 -- 1,000,000 -- 499,000 -- -- --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
August 24,
1998............ -- -- -- -- -- -- 3,548,000 --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
November 29,
1998............ -- -- -- -- -- -- -- --
Additional
reserves for
stores
originally
identified for
closure upon
acquisition,
January 2,
1999............ 1,693,000 -- -- -- -- -- -- -
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 2,
1999............ -- 4,674,000 -- 367,000 -- 264,000 -- 305,000
Utilization for
the 52 weeks
ended January 2,
1999............ (1,932,000) -- (19,000) -- (6,000) -- (149,000) --
---------- ---------- --------- -------- -------- -------- ---------- --------
Balance, January
2, 1999......... 3,728,000 4,674,000 981,000 367,000 493,000 264,000 3,399,000 305,000
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 1,
2000............ 810,000 -- 151,000 85,000 66,000 -- -- 389,000
Reversal during
the 52 weeks
ended January 1,
2000............ (1,524,000) (2,092,000) (418,000) -- (362,000) (155,000) (1,159,000) (100,000)
Utilization for
the 52 weeks
ended January 1,
2000............ (1,400,000) (1,001,000) (178,000) (158,000) (88,000) (23,000) (566,000) (49,000)
---------- ---------- --------- -------- -------- -------- ---------- --------
Balance, January
1, 2000......... $1,614,000 $1,581,000 $ 536,000 $294,000 $109,000 $ 86,000 $1,674,000 $545,000
========== ========== ========= ======== ======== ======== ========== ========
<CAPTION>
Pretzelmaker Consolidated
----------------------- ---------------------------------------
Company- Company-
Business Owned Total Owned Total
Combination Stores Business Stores Business
and Unrelated Combinations Unrelated Combinations
Subsequent to and Company- to and Company-
Adjustments Acquisition Owned Stores Acquisition Owned Stores
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Inception,
September 16,
1996............ $ -- $ -- $ 5,060,000 $ -- $5,060,000
Utilization from
inception
(September 16,
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
continuing
company-owned
stores targeted
for closure..... -- -- -- 538,000 538,000
Utilization for
the 53 weeks
ended January 3,
1998............ -- -- (2,146,000) (538,000) (2,684,000)
----------- ----------- ------------- ------------ ------------
Balance, January
3, 1998......... -- -- 5,466,000 -- 5,466,000
To record
obligations
related to
stores
identified for
closure upon
acquisition,
August 24,
1998............ -- -- 3,548,000 -- 3,548,000
To record
obligations
related to
stores
identified for
closure upon
acquisition,
November 29,
1998............ 500,000 -- 500,000 -- 500,000
Additional
reserves for
stores
originally
identified for
closure upon
acquisition,
January 2,
1999............ - -- 1,693,000 -- 1,693,000
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 2,
1999............ -- -- -- 5,610,000 5,610,000
Utilization for
the 52 weeks
ended January 2,
1999............ -- -- (2,106,000) -- (2,106,000)
----------- ----------- ------------- ------------ ------------
Balance, January
2, 1999......... 500,000 -- 9,101,000 5,610,000 14,711,000
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 1,
2000............ 88,000 650,000 1,115,000 1,124,000 2,239,000
Reversal during
the 52 weeks
ended January 1,
2000............ (366,000) -- (3,829,000) (2,347,000) (6,176,000)
Utilization for
the 52 weeks
ended January 1,
2000............ (117,000) -- (2,349,000) (1,231,000) (3,580,000)
----------- ----------- ------------- ------------ ------------
Balance, January
1, 2000......... 105,000 $650,000 $ 4,038,000 $3,156,000 $7,194,000
=========== =========== ============= ============ ============
</TABLE>
F-26
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of activity for stores originally
identified to be closed or franchised in connection with the applicable
business combination for the periods indicated. This table does not include a
summary of activity for stores the Company intends to close or franchise that
were not originally identified in connection with a business combination.
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and Original
Cookie Co. H&M Pretzel Time Great American Pretzelmaker Consolidated
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
To Be To Be 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 Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <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 14 -- -- -- -- -- -- 11 14
Stores
identified for
closure or
franchise upon
acquisition,
September 2,
1997........... -- -- -- -- 4 -- -- -- -- -- 4 --
Stores closed or
franchised for
the 53 weeks
ended January
3, 1998........ (70) (9) (3) -- -- -- -- -- -- -- (73) (9)
---- --- ---- ---- ---- ---- --- --- ---- ---- --- ---
Balance, January
3, 1998........ 38 52 8 14 4 -- -- -- -- -- 50 66
Stores
identified for
closure or
franchise upon
acquisition,
August 24,
1998........... -- -- -- -- -- -- 54 11 -- -- 54 11
Stores
identified for
closure or
franchise upon
acquisition,
November 19,
1998........... -- -- -- -- -- -- -- -- 7 -- 7 --
Stores closed or
franchised for
the 52 weeks
ended January
2, 1999........ (15) (16) (2) (7) (1) -- (11) -- -- -- (29) (23)
---- --- ---- ---- ---- ---- --- --- ---- ---- --- ---
Balance, January
2, 1999........ 23 36 6 7 3 -- 43 11 7 -- 82 54
Stores closed,
franchised or
reversed for
the 52 weeks
ended January
1, 2000........ (23) (22) (6) (7) (3) -- (37) (10) (7) -- (76) (39)
---- --- ---- ---- ---- ---- --- --- ---- ---- --- ---
Balance, January
1, 2000........ -- 14 -- -- -- -- 6 1 -- -- 6 15
==== === ==== ==== ==== ==== === === ==== ==== === ===
</TABLE>
F-27
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of activity for stores the Company
intends to close or franchise that were not originally identified to be closed
or franchised in connection with a business combination:
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and Original
Cookie Co. 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 (not included
in the original store
closure plan), during
the 53 weeks ended
January 3, 1998........ 10 -- -- -- -- -- -- -- 10 --
Stores closed or
franchised during the
53 weeks ended January
3, 1998................ (9) -- -- -- -- -- -- -- (9) --
--- --- --- --- --- --- --- --- --- ---
Balance, January 3,
1998................... 1 -- -- -- -- -- -- - 1 --
Stores identified for
closure or franchise
(not included in the
original store closure
plan), for the 52 weeks
ended January 2, 1999.. 20 10 4 1 2 3 5 -- 31 14
Stores closed or
franchised for the 52
weeks ended January 2,
1999................... (1) -- (2) -- -- -- -- -- (3) --
--- --- --- --- --- --- --- --- --- ---
Balance, January 2,
1999................... 20 10 2 1 2 3 5 -- 29 14
Stores closed or
franchised for the 52
weeks ended January 1,
2000................... (17) (6) (2) (1) (2) (2) (5) -- (26) (9)
--- --- --- --- --- --- --- --- --- ---
Balance, January 1,
2000................... 3 4 -- -- -- 1 -- -- 3 5
=== === === === === === === === === ===
</TABLE>
Store Closure Reserve Payment Obligations
As of January 1, 2000, the future estimated cash payments under the store
closure reserve are as follows:
Fiscal Year
<TABLE>
<S> <C>
2000................................................................ $ 3,665,000
2001................................................................ 1,401,000
2002................................................................ 802,000
2003................................................................ 591,000
2004................................................................ 415,000
Thereafter.......................................................... 320,000
-----------
$ 7,194,000
===========
</TABLE>
F-28
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The following table presents a summary of changes in the property and
equipment impairment reserves that were established in connection with the
applicable business combination for the periods indicated for stores to be
closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields
Inc. and
Original Great
Cookie Co. H&M American Pretzelmaker 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
Utilization for the 53
weeks ended January 3,
1998 related to stores
to be closed........... (3,299,000) (208,000) -- -- (3,507,000)
Utilization for the 53
weeks ended January 3,
1998 related to stores
to be closed........... (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
To record property and
equipment impairment
upon acquisition,
September 9, 1998...... -- -- 973,000 -- 973,000
To record property and
equipment impairment
upon acquisition,
November 19, 1998...... -- -- -- 327,000 327,000
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be closed........... (1,782,000) (93,000) (246,000) -- (2,121,000)
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be franchised....... (435,000) (819,000) -- -- (1,254,000)
----------- --------- ---------- -------- -----------
Balance, January 2,
1999................... 3,844,000 1,380,000 2,877,000 327,000 8,428,000
Addition to impairment
for the 52 weeks ended
January 1, 2000 related
to stores to be
closed................. 86,000 5,000 25,000 -- 116,000
Addition to impairment
for 52 weeks ended
January 1, 2000 related
to stores to be
franchised............. 443,000 11,000 -- -- 454,000
Utilization for the 52
weeks ended January 1,
2000 related to stores
to be closed........... (1,192,000) (410,000) (1,434,000) (158,000) (3,194,000)
Utilization for the 52
weeks ended January 1,
2000 related to stores
to be franchised....... (935,000) (346,000) (41,000) -- (1,322,000)
----------- --------- ---------- -------- -----------
Balance, January 1,
2000................... $ 2,246,000 $ 640,000 $1,427,000 $169,000 $ 4,482,000
=========== ========= ========== ======== ===========
</TABLE>
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
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 November 1997, the Preferred Stock, including accrued but unpaid dividends
totaling $2,815,000, was converted to common equity of the Company.
F-29
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK OF PRETZEL TIME, INC.
The mandatorily redeemable cumulative preferred stock of Pretzel Time (the
"Pretzel Time 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 Pretzel Time Preferred Stock must be
redeemed at $10,000 per share, plus unpaid and accumulated dividends. The
excess of the redemption price over the carrying value was accreted over the
period from issuance through September 1, 1999, using the effective interest
method and was charged to the accumulated deficit of Pretzel Time. During the
period from the acquisition of a majority ownership in Pretzel Time (September
2, 1997) to January 1, 2000, Pretzel Time increased the liquidation preference
of the Pretzel Time Preferred Stock by $307,000, in lieu of paying cash
dividends. In addition, the Pretzel Time Preferred Stock was increased by
$736,000, for the accretion required over time to amortize the original issue
discount incurred at the time of issuance.
As of January 1, 2000, the liquidation preference and the recorded amount in
the accompanying consolidated balance sheet was $1,070,000. Subsequent to
January 1, 2000, the Company redeemed all of the remaining Pretzel Time
Preferred Stock for $1,070,000.
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 November 1997, 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.
On November 26, 1997, as partial consideration for Harvard's 49.9 percent
interest in Mrs. Fields' Brand, the Company granted Harvard the rights to
approximately four percent, or 127,349 shares, of the Company's common stock.
The shares approximate total 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 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
Stock Pledged as Collateral
Mrs. Fields' Holding has pledged all of Mrs. Field's capital stock as
collateral for Mrs. Fields' Holding's 14 percent Senior Secured Discount Notes
due December 1, 2005 (the "Discount Notes"). Mrs. Fields' Holding issued the
Discount Notes on August 24, 1998, in connection with the Great American
Acquisitions (see Note 1). In connection with the issuance of the $55,000,000
principal amount at maturity of the Discount Notes, Mrs. Fields' Holding
recorded a total original issue discount of approximately $24,136,000. The
principal amount of the Discount Notes will accrete at a rate of 14 percent
compounded semi-annually to a
F-30
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
total principal amount of $55,000,000 at December 1, 2002. Thereafter, the
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.
Mrs. Fields' Holding is a holding company and does not have separate
operations from which it can generate cash flows. Under the circumstances, Mrs.
Fields' Holding would likely be dependent on its owners' and Mrs. Fields cash
flows to make principal and interest payments when due. Interest payments
totaling $7,700,000 per year will commence in 2003. Mrs Fields may pay
dividends to Mrs. Fields' Holding, in order for Mrs. Fields' Holding 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 Discount Notes are effectively subordinated to Mrs. Fields 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.
Rent expense was as follows for the periods presented:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 3, January January
1998 2, 1999 1, 2000
----------- ------------ ------------
<S> <C> <C> <C>
Minimum rentals.................. $30,654,000 $ 36,834,000 $ 35,510,000
Contingent rentals............... 432,000 553,000 415,000
Sub-lease rentals................ (8,756,000) (12,550,000) (10,487,000)
----------- ------------ ------------
$22,330,000 $ 24,837,000 $ 25,438,000
=========== ============ ============
</TABLE>
F-31
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of January 1, 2000, 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>
2000......................................................... $ 32,513,000
2001......................................................... 27,832,000
2002......................................................... 23,957,000
2003......................................................... 19,691,000
2004......................................................... 15,163,000
Thereafter................................................... 28,650,000
------------
$147,806,000
============
</TABLE>
As of January 1, 2000, the future minimum sublease payments due to the
Company under these leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000......................................................... $ 11,510,000
2001......................................................... 9,617,000
2002......................................................... 8,261,000
2003......................................................... 6,619,000
2004......................................................... 4,754,000
Thereafter................................................... 6,066,000
------------
$ 46,827,000
============
</TABLE>
Contractual Arrangements
The Company entered into a supply agreement to buy frozen dough products
through 2000. The agreement stipulates minimum annual purchase commitments of
not less than 23,000,000 pounds of the products each year through the end of
the contract. The terms of the supply 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 2, 1999 and January 1, 2000 were approximately
$295,000 and $92,000, 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 1, 2000, the Company has assumed obligations totaling
approximately $33,000, which are included in the current portion of long-term
debt in the accompanying consolidated balance sheets.
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 Mrs. Fields Inc. and affiliates and Original
Cookie Company 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
F-32
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, Pretzel Time entered into a
long-term marketing and supply agreement with a supplier. Under terms of the
agreement, the Company is obligated to purchase a minimum amount of product
from the supplier. An additional $437,000 in deferred credits were recorded
under this agreement. The termination date of this agreement will be the later
of December 31, 2003 or when Pretzel Time has met its purchase commitment.
Under these agreements, the Company recognized approximately $1,393,000, and
$812,000 primarily as a reduction to food cost of sales during the years ended
January 3, 1998 and January 2, 1999.
In connection with the Pretzelmaker acquisition, the Company recorded
deferred credits of approximately $170,000 relating to long-term marketing and
supply agreement that Pretzelmaker had entered into in November of 1997, which
was later amended in April 1998. Under the terms of the agreement, the Company
is obligated to purchase a minimum amount of product from the supplier. Under
this agreement the Company recognized approximately $40,000 primarily as a
reduction to foods cost of sales during fiscal 1999. The termination date of
this agreement is April 2003.
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 traveled and performed 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 increased by
10 percent for 1999. The Consulting Agreement expired on December 31, 1999 and
is not expected to be renewed.
The Company has entered into employment agreements with five key officers
with terms of two to three years. The agreements are for a total annual base
salary of $1,172,000. 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 January 2, 1999 and January 1, 2000, the Company had receivables due
from franchisees and licensees, primarily related to prepaid rent which the
Company had paid on behalf of franchisees, totaling approximately $6,003,000
and $3,708,000, respectively. These amounts are included in amounts due from
franchisees and affiliates and are net of allowance for doubtful accounts
totaling $1,078,000 and $821,000, respectively.
The Company paid fees to Korn/Ferry International ("Korn/Ferry") totaling
approximately $157,000, $70,600 and $35,200, during the years ended January 3,
1998, January 2, 1999 and January 1, 2000, respectively. Korn/Ferry is an
executive search firm of which one of the Company's directors is the Chairman.
The Company believes that the arrangements were on terms that could have been
obtained from an unaffiliated third party.
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. The director's company did not receive a fee from the Company
during the fiscal years ended January 2, 1999 or January 1, 2000. The Company
believes that the arrangements were on terms that could have been obtained from
an unaffiliated third party.
F-33
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1999, the founder and minority stockholder of Pretzel Time paid to the
Company all but $107,000 of amounts owed the Company for loans and lease
payments. The remianing $107,000 is expected to be paid to the Company during
2000. This amount is recorded in accounts receivable and other assets in the
accompanying consolidated balance sheets.
In May 1999, Mrs. Fields' Holding, Mrs. Fields, Pretzel Time, a former
Pretzel Time shareholder and Capricorn entered into an assignment and
assumption agreement under which Capricorn agreed to assume a payment
obligation of Mrs. Fields of $2,000,000 for Pretzel Time stock held by the
former shareholder that was due on December 31, 1999. In a related transaction
on the same date, Capricorn and Mrs. Fields' Holding entered into a
contribution agreement under which Mrs. Fields' Holding and Capricorn agreed to
treat the assumption by Capricorn of the Mrs. Fields payment obligation as a
capital contribution from Capricorn to Mrs. Fields' Holding, and as a capital
contribution from Mrs. Fields' Holding to Mrs. Fields. Under the terms of the
agreement, Mrs. Fields' Holding issued 101,420 shares of common stock to
Capricorn.
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 for
the settlement of 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 and recorded the shares 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 fiscal 1998,
the Company collected all $517,000 of common stock subscriptions receivable.
Additionally, on January 1, 1997, the Company granted to the participating
directors a total of 28,333 restricted shares of the Company's common stock for
no cash consideration. Restricted shares vested 50 percent on January 1, 1999
and 50 percent on January 1, 2000. The Company recognized compensation cost
totaling approximately $283,000 related to the grant of restricted shares on a
straight-line basis over the vesting period.
The Company recorded the 51,677 vested shares and 28,333 restricted shares to
the directors as outstanding in the accompanying consolidated financial
statements at the time of issuance. On July 17, 1998, the Company issued common
stock certificates to the directors for a total of 51,667 vested shares and
28,333 restricted shares.
F-34
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 Mrs. Fields. Options expire no later than ten years after the date
the options are granted. A total 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 and January 1, 1999, the Company
issued options to purchase 10,752 and 3,804 shares of common stock,
respectively, with exercise prices of $16.74 and $19.72, respectively, 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. Although, in
1998 the Company did not achieve the performance requirement, the Board of
Directors deemed the performance-vested options vested an additional 20 percent
for 1998. 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 Mrs. Fields. 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. A total 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. During fiscal 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. During fiscal 1999, the Company issued performance-
vested options to purchase 42,218 shares of common stock and time-vested
options to purchase 42,218 shares of common stock to key employees of the
Company at exercise prices of $19.72 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 dates as valued
by the Board of Directors.
F-35
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 related to the grants of such
options because the number of options that will ultimately vest is not known.
During the years ended January 2, 1999 and January 1, 2000, the Company
recorded compensation expense (benefit) of $420,000 and $(13,000),
respectively, related to these options in accordance with variable plan
accounting.
Accounting For Stock-Based Compensation Plans
The Company applies APB No. 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 years ended January 3, 1998, January 2, 1999 and January 1, 2000,
the Company recorded compensation expense (benefit) totaling $94,000, $559,000
and $(13,000), 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 pro forma net income (loss) would have
been as follows:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January January 2, January 1,
3, 1998 1999 2000
--------- ------------ -----------
<S> <C> <C> <C>
Net loss:
As reported............................... $(624,000) $(21,505,000) (14,218,000)
Pro forma................................. (747,000) (21,598,000) (14,313,000)
</TABLE>
As of January 3, 1998, January 2, 1999 and January 1, 2000 and for the years
then ended, the Company's stock option information is as follows:
<TABLE>
<CAPTION>
January 3, 1998 January 2, 1999 January 1, 2000
---------------- ---------------- -----------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Exercise Exercise Exercise
Shares Prices Shares Prices Shares Prices
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year.................. 340,446 $10.00 375,840 $10.39 379,644 $10.48
Granted................... 35,394 14.14 3,804 19.72 84,436 19.72
Forfeited................. -- -- -- -- (18,071) 10.00
Exercised................. -- -- -- -- (14,785) 10.00
------- ------- -------
Outstanding at end of
year..................... 375,840 10.39 379,644 10.48 431,224 12.33
======= ======= =======
Exercisable at end of
year..................... 55,815 10.04 119,384 10.31 142,011 10.54
Weighted average fair
value of options
granted.................. $ 3.01 $ 4.21 $ 6.76
</TABLE>
F-36
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about the stock options
outstanding at January 1, 2000:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------
Number Wtd. Avg. Options
Outstanding Remaining Exercisable
at January 1, Contractual at January 1,
Range of Exercise Prices 2000 Life 2000
------------------------ ------------- ----------- -------------
<S> <C> <C> <C>
$10.00........................... 307,590 6.7 years 125,142
$13.00........................... 24,642 7.5 years 10,542
$16.74........................... 10,752 8.0 years 5,376
$19.72........................... 88,240 9.6 years 951
------- -------
$10.00 to $19.72................. 431,224 7.3 years 142,011
======= =======
</TABLE>
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions used for grants during the years ended January 3, 1998,
January 2, 1999, and January 1, 2000: risk-free interest rate of 6.0 percent
for each of the three years, expected dividend yields of zero percent, expected
lives of 4 to 7 years, and no volatility.
12. 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 years ended January 3, 1998, January 2, 1999
and January 1, 2000 were approximately $97,900, $171,000 and $168,000,
respectively.
13. REPORTABLE SEGMENTS
Operating segments are components of the Company for which separate financial
information is available that is evaluated regularly by the Chief Operating
Decision Maker in deciding how to allocate resources and in assessing
performance. This information is reported on the basis that it is used
internally for evaluating segment performance. Mrs. Fields' Holding has two
reportable operating segments; namely, company-owned stores and related
activity and franchising and licensing activity. The segments are determined by
revenue source; direct sales or royalties and license fees. The company-owned
stores segment consists of both cookie and pretzel stores owned and operated by
Mrs. Fields. The franchising and licensing segment consists of cookie and
pretzel stores, which are owned and operated by third parties who pay Mrs.
Fields an initial franchise or license fee and monthly royalties based on a
percentage of gross sales, and other licensing activity not related to cookie
or pretzel stores. The accounting policies for the segments are discussed in
the summary of significant accounting policies (see Note 2). Sales and
transfers between segments are eliminated in consolidation.
Mrs. Fields' Holding evaluates performance of each segment based on
contribution margin. Mrs. Fields' Holding does not allocate any interest
income, interest expense, depreciation and amortization or assets to its
reportable operating segments.
F-37
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment revenue and contribution margin are presented in the following table:
<TABLE>
<CAPTION>
Franchising,
Company- Licensing
Owned Stores and Other Total
------------ ------------ ------------
<S> <C> <C> <C>
Year ended January 3, 1998
Revenue................................. $127,845,000 $6,563,000 $134,408,000
Contribution margin..................... 28,985,000 6,563,000 35,548,000
Year ended January 2, 1999
Revenue................................. 140,235,000 14,001,000 154,236,000
Contribution margin..................... 30,337,000 10,414,000 40,751,000
Year ended January 1, 2000
Revenue................................. 152,268,000 28,669,000 180,937,000
Contribution margin..................... 31,189,000 23,791,000 54,980,000
</TABLE>
The reconciliation of contribution margin to net loss is as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998 Fiscal 1999
----------- ------------ ------------
<S> <C> <C> <C>
Contribution margin................... $35,548,000 $ 40,751,000 $ 54,980,000
General and administrative expense.... (16,436,000) (19,583,000) (21,965,000)
Store closure (provision) benefit..... (538,000) (7,303,000) 1,579,000
Depreciation and amortization......... (10,450,000) (19,867,000) (24,253,000)
Interest expense, net................. (7,281,000) (14,323,000) (23,788,000)
Other expense, net.................... (1,467,000) (1,180,000) (771,000)
----------- ------------ ------------
Net loss.............................. $ (624,000) $(21,505,000) $(14,218,000)
=========== ============ ============
</TABLE>
Geographic segment information is as follows:
<TABLE>
<CAPTION>
Domestic
Domestic International Franchising International
Company- Company-Owned and Franchising
Owned Stores Stores Licensing and Licensing
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue
Fiscal 1997................ $127,736,000 $109,000 $ 6,150,000 $413,000
Fiscal 1998................ 140,018,000 217,000 13,738,000 263,000
Fiscal 1999................ 152,249,000 19,000 28,450,000 219,000
</TABLE>
Revenues from international franchising and licensing are earned principally
from Canada and Australia with no other countries having material
representation. Revenues from international company-owned stores are
immaterial.
There were no customers who accounted for more than 10% of Mrs. Fields'
Holdings total revenue or either segment's revenue. The Company has a
$1,326,000 receivable from a company, which represents 14.8 percent of the
Company's total receivables.
F-38
<PAGE>
MRS. FIELDS' HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. SUBSEQUENT EVENT
On February 9, 2000, Capricorn Investors III, L.P., an affiliate of
Capricorn, entered into an agreement to acquire TCBY Enterprises, Inc.
("TCBY"), a retail snack food company. It is expected that, if this acquisition
is completed, Mrs. Fields will enter into a management agreement to provide
management services to TCBY. If completed, this acquisition would occur no
earlier than the second quarter of 2000. There can be no assurance that this
acquisition will be completed. There has been no agreement signed regarding the
terms of the management agreement. Management of Mrs. Fields believes that, if
completed, this acquisition would offer Mrs. Fields the opportunity to sell its
products in TCBY stores.
F-39
<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 January
2, 1999 and January 1, 2000, and the related consolidated statements of
operations, stockholder's equity and cash flows for each of the three fiscal
years in the period ended January 1, 2000. 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 auditing standards generally
accepted in the United States. 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 January 2, 1999
and January 1, 2000, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended
January 1, 2000 in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
Salt Lake City, Utah
March 27, 2000
F-40
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 4,751 $ 4,919
Accounts receivable, net of allowance for doubtful
accounts of and $74 and $111, respectively........... 3,208 4,295
Amounts due from franchisees and licensees, net of
allowance for doubtful accounts of $1,078 and $821,
respectively......................................... 6,003 3,708
Inventories........................................... 5,503 4,977
Prepaid rent and other................................ 4,017 1,336
Deferred income tax assets............................ 861 1,360
-------- --------
Total current assets................................ 24,343 20,595
-------- --------
PROPERTY AND EQUIPMENT, at cost:
Leasehold improvements................................ 29,914 26,698
Equipment and fixtures................................ 17,108 22,540
Land.................................................. 240 240
-------- --------
47,262 49,478
Less accumulated depreciation and amortization........ (15,465) (20,813)
-------- --------
Net property and equipment.......................... 31,797 28,665
-------- --------
DEFERRED INCOME TAX ASSETS.............................. 2,638 2,139
-------- --------
GOODWILL, net of accumulated amortization of $11,231 and
$21,156, respectively.................................. 145,782 132,479
-------- --------
TRADEMARKS AND OTHER INTANGIBLES, net of accumulated
amortization of $2,615 and $3,700, respectively........ 14,296 13,062
-------- --------
DEFERRED LOAN COSTS, net of accumulated amortization of
$1,320 and $4,052, respectively........................ 11,718 10,818
-------- --------
OTHER ASSETS ........................................... 1,332 652
-------- --------
$231,906 $208,410
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-41
<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 2, January 1,
1999 2000
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt..................... $ 8,046 $ 781
Current portion of capital lease obligations.......... 299 842
Accounts payable...................................... 10,723 10,514
Bank overdraft........................................ 4,133 --
Accrued liabilities................................... 3,597 2,851
Current portion of store closure reserve.............. 4,577 3,665
Accrued salaries, wages and benefits.................. 3,155 3,180
Accrued interest payable.............................. 1,260 1,288
Sales taxes payable................................... 962 1,128
Deferred credits...................................... 318 132
-------- --------
Total current liabilities........................... 37,070 24,381
LONG-TERM DEBT, net of current portion and discount..... 141,647 141,755
STORE CLOSURE RESERVE, net of current portion........... 10,134 3,529
CAPITAL LEASE OBLIGATIONS, net of current portion....... 997 3,107
-------- --------
Total liabilities................................... 189,848 172,772
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK of
Pretzel Time (a wholly owned subsidiary), aggregate
liquidation preference of $1,495 and $1,070,
respectively........................................... 1,261 1,070
-------- --------
MINORITY INTEREST....................................... 119 111
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; 1,000 shares authorized,
400 shares outstanding............................... -- --
Additional paid-in capital............................ 59,899 61,899
Accumulated deficit................................... (19,221) (27,442)
-------- --------
Total stockholder's equity.......................... 40,678 34,457
-------- --------
$231,906 $208,410
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-42
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 3, January 2, January 1,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Net store and food sales.................... $127,845 $140,235 $152,268
Franchising................................. 4,535 12,464 24,782
Licensing................................... 2,028 1,537 3,887
-------- -------- --------
Total revenues............................ 134,408 154,236 180,937
-------- -------- --------
OPERATING COSTS AND EXPENSES:
Selling and store occupancy costs........... 66,832 75,003 79,634
Cost of sales............................... 32,028 38,482 46,323
General and administrative.................. 16,192 19,017 21,972
Store closure provision (benefit)........... 538 7,303 (1,579)
Depreciation and amortization............... 10,403 19,820 24,206
-------- -------- --------
Total operating costs and expenses........ 125,993 159,625 170,556
-------- -------- --------
Income (loss) from operations........... 8,415 (5,389) 10,381
-------- -------- --------
OTHER INCOME (EXPENSE), net:
Interest expense............................ (7,830) (13,197) (17,880)
Interest income............................. 246 623 53
Other expense, net.......................... (368) (409) (230)
-------- -------- --------
Total other expense, net.................. (7,952) (12,983) (18,057)
-------- -------- --------
Income (loss) before provision for income
taxes, preferred stock accretion and
dividends of subsidiaries and minority
interest................................... 463 (18,372) (7,676)
PROVISION FOR INCOME TAXES.................... (655) (316) (218)
-------- -------- --------
Loss before preferred stock accretion and
dividends of subsidiaries and minority
interest................................... (192) (18,688) (7,894)
PREFERRED STOCK ACCRETION AND DIVIDENDS OF
SUBSIDIARIES................................. (644) (444) (305)
MINORITY INTEREST............................. (138) (11) (22)
-------- -------- --------
Net loss.................................. $ (974) $(19,143) $ (8,221)
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-43
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------- Paid-in (Accumulated
Shares Amount Capital Deficit) Total
------ ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 28, 1996..... 400 $ -- $15,000 $ 1,961 $ 16,961
Parent contribution of
investment in Pretzel Time.. -- -- 4,200 -- 4,200
Parent contribution of note
receivable due from Pretzel
Time's minority stockholder
and founder................. -- -- 500 -- 500
Parent contribution of
investment in Mrs. Fields'
Brand....................... -- -- 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....... -- -- 29,056 -- 29,056
Net loss..................... -- -- -- (19,143) (19,143)
--- ----- ------- -------- --------
BALANCE, January 2, 1999....... 400 -- 59,899 (19,221) 40,678
Parent contribution.......... -- -- 2,000 -- 2,000
Net loss..................... -- -- -- (8,221) (8,221)
--- ----- ------- -------- --------
BALANCE, January 1, 2000....... 400 $ -- $61,899 $(27,442) $ 34,457
=== ===== ======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-44
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
January 3, January 2, January 1,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss..................................... $ (974) $(19,143) $ (8,221)
Adjustments to reconcile net loss to net cash
provided by operating activities, net of
effects from acquisitions:
Depreciation and amortization............... 10,403 19,820 24,206
Amortization of discount on notes........... -- 32 77
Amortization of deferred loan costs......... -- 1,250 2,732
Loss (gain) on disposition of assets........ 368 409 (142)
Deferred income taxes....................... 210 -- --
In-kind interest expense on note payable to
stockholder................................ 338 -- --
Preferred stock accretion and dividends of
subsidiaries............................... 644 444 305
Minority interest........................... 234 11 (8)
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable........................ (353) (1,673) (1,087)
Amounts due from franchisees and
licensees................................. (514) (866) 2,295
Inventories................................ 136 (822) 526
Prepaid rent and other..................... (895) 932 2,681
Other assets............................... 427 1,437 680
Accounts payable and accrued liabilities... (6,651) (1,364) (955)
Store closure reserve...................... (1,666) 5,196 (5,219)
Accrued salaries, wages and benefits....... 80 1,264 25
Accrued interest payable................... (586) (713) 28
Sales taxes payable........................ 261 (80) 166
Deferred credits........................... (543) (838) (186)
-------- -------- --------
Net cash provided by operating
activities............................... 919 5,296 17,903
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions and related
costs....................................... (10,949) (32,835) --
Purchase of property and equipment, net of
effects from acquisitions................... (4,678) (8,235) (5,157)
Proceeds from the sale of assets............. 122 176 461
-------- -------- --------
Net cash used in investing activities..... (15,505) (40,894) (4,696)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..... 108,250 39,400 --
Bank overdraft............................... -- 4,133 (4,133)
Principal payments on long-term debt......... (77,009) (41,257) (5,978)
Payment of debt financing costs.............. (5,976) (7,062) (1,832)
Cash advance from Mrs. Fields' Holding....... 1,500 -- --
Repayment of cash advance to Mrs. Fields'
Holding..................................... (1,500) -- --
Payment of cash dividend to Mrs. Fields'
Holding..................................... (1,065) -- --
Equity contribution from Mrs. Fields'
Holding..................................... -- 29,056 --
Principal payments on capital lease
obligations................................. (36) (123) (600)
Reduction in preferred stock of Pretzel
Time........................................ -- (85) (496)
-------- -------- --------
Net cash provided by (used in) financing
activities............................... 24,164 24,062 (13,039)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 9,578 (11,536) 168
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE
YEAR......................................... 6,709 16,287 4,751
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF THE YEAR.. $ 16,287 $ 4,751 $ 4,919
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-45
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(Dollars in thousands)
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest was approximately $8,416, $12,440 and $17,957 for the
years ended January 3, 1998, January 2, 1999 and January 1, 2000, respectively.
Cash paid for income taxes was approximately $217, $209 and $401 for the
years ended January 3, 1998, January 2, 1999 and January 1, 2000, respectively.
Supplemental Disclosure of Noncash Investing and Financing Activities:
On November 26, 1997, Mrs. Fields' Holding Company, Inc. ("Mrs. Fields'
Holding") converted to common equity of the Company $4,643 total principal
amount of convertible subordinated notes and contributed to the Company all of
the common equity of Mrs. Fields' Brands after converting its preferred stock
interests totaling $3,935 to common equity.
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.
("Pretzel Concepts") as follows. Additionally, in connection with the purchase
accounting, certain other accruals were recorded (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>
On September 2, 1997, 56 percent of the shares of common stock of Pretzel
Time, Inc. ("Pretzel Time") were acquired by Mrs. Fields' Holding as follows.
Additionally, in connection with the purchase accounting, certain other
accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 8,311
Net cash paid.................................................... (4,200)
-------
Liabilities assumed............................................ $ 4,111
=======
</TABLE>
On November 26, 1997, Mrs. Fields' Holding contributed all of the assets and
liabilities of Pretzel Concepts, Mrs. Fields' Holding's 56 percent of the
shares of common stock of Pretzel Time and a $500 note receivable from Pretzel
Time's founder and minority stockholder to the Company. Mrs. Fields' Holding
also contributed all of the common stock of Mrs. Fields' Brands to Mrs. Fields.
During the period from the acquisition of the majority ownership of Pretzel
Time (September 2, 1997) to January 1, 2000, Pretzel Time increased its
mandatorily redeemable cumulative preferred stock liquidation preference by
approximately $307, in lieu of paying cash dividends. In addition, for the same
period, Pretzel Time's mandatorily redeemable cumulative preferred stock was
increased by approximately $763 for the accretion required over time to
amortize the original issue discount.
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 CASH FLOWS--(Continued)
(Dollars in thousands)
In August 1998, the Company acquired all of the outstanding capital stock and
subordinated indebtedness of Cookies USA, Inc. ("Cookies USA") for a total
purchase price of approximately $18,400. During August and September 1998, the
Company also entered into agreements with three franchisees of Cookies USA (the
"Great American Franchisees") under which the Company purchased a total of 37
Great American Cookies franchises for a total purchase price of $16,328. The
total purchase price for all of these acquisitions of $34,728 was allocated, as
follows. Additionally, in connection with the purchase accounting, certain
other accruals were recorded (see Note 1).
<TABLE>
<S> <C>
Fair value of assets acquired................................... $ 77,410
Net cash paid................................................... (27,771)
--------
Liabilities assumed........................................... $ 49,639
========
</TABLE>
In October 1998, the Company acquired the assets of the Cookie Conglomerate,
Inc. ("Cookie Conglomerate") for a total purchase price of $2,800. The total
purchase price was allocated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired..................................... $2,800
Net cash paid..................................................... --
------
Liabilities assumed............................................. $2,800
======
</TABLE>
In November 1998, the Company acquired all of the outstanding stock of
Pretzelmaker Holdings, Inc. ("Pretzelmaker") for $5,419. The total purchase
price was allocated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 8,519
Net cash paid.................................................... (1,100)
-------
Liabilities assumed............................................ $ 7,419
=======
</TABLE>
During the years ended January 2, 1999 and January 1, 2000, the Company
acquired property and equipment under capitalized lease obligations and long-
term debt totaling $3,786 and $3,997 respectively. No property and equipment
was acquired under capitalized lease obligations during the year ended January
3, 1998.
During the year ended January 1, 2000, Mrs. Fields' Holding made an equity
contribution of $2,000 by assuming a $2,000 note payable that was due December
31, 1999.
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-47
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. ("Mrs.
Fields' Holding"). Mrs. Fields' Holding is a majority owned subsidiary of
Capricorn Investors II, L.P. ("Capricorn"). The Company has eight wholly owned
operating subsidiaries; namely, Great American Cookie Company, Inc., The Mrs.
Fields' Brand, Inc., Pretzel Time, Inc., Pretzelmaker Holdings, Inc., Mrs.
Fields' Cookies Australia, Mrs. Fields' Cookies (Canada) Ltd., H & M Canada and
Pretzelmaker of Canada; and three partially owned subsidiaries.
The Company primarily operates retail stores which sell freshly baked
cookies, brownies, pretzels and other food products through six specialty
retail chains. As of January 1, 2000, the Company owned and operated 134 Mrs.
Fields Cookies stores, 93 Original Cookie Company stores, 93 Great American
Cookies stores, 52 Hot Sam Pretzels stores, 86 Pretzel Time stores, 4
Pretzelmaker stores in the United States. Additionally, the Company has
franchised or licensed 848 stores in the United States and 133 stores in
several other countries. As of January 1, 2000, the Company owned and operated
433 continuing stores and 29 stores which are in the process of being closed 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.
During the year ended January 1, 2000, the Company opened 13 new stores, and
franchised an additional 100 stores closed 37 stores, franchised 37 locations,
reacquired 5 stores from franchisees and had 123 franchisees discontinue
operations.
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. Additionally, the Company
markets and distributes its products through catalogs, other print media, the
internet 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
Mrs. Fields Inc. and Affiliates and Original Cookie Company 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.
F-48
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1, 2000, approximately $2,215,000 of the $2,450,000 accrual for
legal and lease obligations has been utilized. The remaining amount as of
January 1, 2000 of approximately $235,000 is expected to be utilized by the end
of 2000. 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 during fiscal
1997.
H & M Concepts Ltd. Co.
On July 25, 1997, Mrs. Fields' Pretzel Concepts, Inc., a wholly owned
subsidiary of Mrs. Fields' Holding, 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. The total consideration of $13,750,000 consisted of (i) $5,750,000 of
cash, financed through an advance from Mrs. Fields' Holding of $1,500,000 and a
$4,250,000 bank loan to Pretzel Concepts, (ii) a $4,000,000 principal amount
bridge note of Pretzel Concepts and (iii) a $4,000,000 principal amount
subordinated note of Mrs. Fields' Holding 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, Mrs. Fields' Holding contributed all of the
assets and liabilities of Pretzel Concepts to the Company and, in consideration
thereof, the Company assumed the H & M Debt, including all accrued but unpaid
interest. Pretzel Concepts 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 Pretzel Concepts' assets or liabilities. Beginning
with July 25, 1997, the Company has included Pretzel Concepts' results of
operations in the Company's consolidated results of operations.
Pretzel Time, Inc.
On September 2, 1997, Mrs. Fields' Holding acquired 56 percent of the shares
of common stock of Pretzel Time for a total cash purchase price of $4,200,000,
$750,000 of which was paid to Pretzel Time for working capital purposes, and
the balance of which was paid to the selling shareholders. In connection with
the acquisition, Mrs. Fields' Holding extended a $500,000 loan to the founder
of Pretzel Time who continued to own 44 percent of the shares of common stock
of Pretzel Time. The note bears interest at an annual rate of ten percent (see
Note 8). Pretzel Time is a franchisor of hand rolled soft pretzel outlets
located in North America.
F-49
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, Mrs. Fields' Holding contributed its 56 percent
of the shares of common stock of Pretzel Time to the Company. Mrs. Fields'
Holding also contributed to the Company the $500,000 note due from Pretzel
Time'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 Pretzel Time's assets or liabilities.
On January 2, 1998, the Company purchased an additional four percent of the
shares of common stock of Pretzel Time 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. In June 1998, the Company
acquired an additional ten percent of the shares of common stock of Pretzel
Time from the founder for $875,000 in cash. On December 9, 1998, Mrs. Fields
purchased 3% of Pretzel Time 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 under a stock purchase agreement dated December 30, 1998,
for a purchase price of approximately $4,700,000, $2,500,000 of which was paid
in cash on January 5, 1999 and $2,000,000 of which was paid in December 1999
(see Note 8). The Company has included the appropriate percentage of Pretzel
Time's results of operations for each respective period in its consolidated
results of operations.
The Mrs. Fields' Brand, Inc.
Prior to November 26, 1997, Mrs. Fields' Holding owned 50.1 percent of the
shares of the common stock of Mrs. Fields' Brand. Mrs. Fields' Brand 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, Mrs. Fields' Brand
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, Mrs. Fields' Holding acquired the remaining 49.9
percent of the shares of the common stock of Mrs. Fields' Brand 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
Mrs. Fields' Holding. Mrs. Fields' Holding'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 Mrs. Fields' Holding'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, Mrs. Fields' Holding contributed all of the
common stock of Mrs. Fields' Brand to the Company. As a result of this capital
contribution, Mrs. Fields' Brand 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 Mrs.
Fields' Brand's assets or liabilities
F-50
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Great American Cookie Company, Inc.
On August 24, 1998, the Company acquired all of the outstanding capital stock
and subordinated indebtedness of Cookies USA, Inc., the sole stockholder of
Great American Cookie Company, Inc., for a total purchase price of $18,400,000.
Great American is an operator and franchisor of mall-based specialty retail
cookie outlets and a manufacturer of cookie batter which is distributed to
Great American operated retail stores and sold to franchised retail stores.
Concurrently with the acquisition of Cookies USA, the Company entered into
agreements with two Great American franchisees under which the Company
purchased a total of 29 Great American franchises for a total 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
franchises operated. On September 9, 1998, the Company acquired eight
additional Great American franchised retail stores from a Great American
franchisee, under an asset purchase agreement, for a total 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 which 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 Great American. Great American 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 $29,056,000 from a Mrs. Fields' Holding offering to
the Company; and (iii) existing cash of the Company.
On October 5, 1998, Mrs. Fields purchased all of the retail cookie and
related business and operations of eleven Great American stores for a total
purchase price of $2,800,000 under an asset purchase agreement 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 through
borrowings.
Pretzelmaker Holdings, Inc.
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
$5,400,000 and Mrs. Fields assumed indebtedness, including severance payments,
totaling approximately $1,600,000.
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.
Pro Forma Acquisition Information (Unaudited)
The following unaudited pro forma information for the years ended January 3,
1998 and January 2, 1999 presents the results of operations of the Company
assuming that the H & M, Pretzel Time, The Mrs. Fields'
F-51
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Brand, Great American, Cookie Conglomerate and Pretzelmaker acquisitions and
related financings 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>
53 Weeks Ended 52 Weeks Ended
January 3, January 2,
(Unaudited) 1998 1999
----------- -------------- --------------
<S> <C> <C>
Total revenues.............................. $200,574,000 $191,246,000
Store closure provision..................... (538,000) (7,303,000)
Depreciation and amortization............... (19,405,000) (25,582,000)
Income (loss) from operations............... 12,738,000 (4,909,000)
Net loss.................................... (3,638,000) (22,471,000)
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Periods
The Company operates using a 52/53-week year ending near December 31.
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 accounting
principles generally accepted in the United States 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 January
1, 2000, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation. As
of January 1, 2000, the Company had restricted cash of $192,000.
Inventories
Inventories consist of food, beverages and supplies and are stated at the
lower of cost (first-in, first-out method) or market value.
F-52
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pre-Opening 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.
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 one to five years.
Deferred Loan Costs
Deferred loan costs totaling $14,870,000 resulted from the sale of
$100,000,000 total principal amount of 10 1/8 percent Series A Senior Notes
(the "Series A Senior Notes") and the sale of $40,000,000 total principal
amount of 10 1/8 percent Series C Senior Notes (the "Series C Senior Notes").
These costs 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 Series C 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 reviews for impairment of long-lived assets when events or
changes in circumstances indicate that the book value of an asset may not be
fully recovered. The Company evaluates, at each balance sheet date, whether
events and circumstances have occurred that indicate possible impairment. 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 lowest level for which there are identifiable cash flows that are
independent of other groups of assets.
During the year ended January 2, 1999, the Company wrote-down approximately
$4,131,000 of impaired long-lived assets. The write-down included approximately
$2,243,000 of equipment and leasehold improvements at company-owned stores that
the Company intends to close or franchise (see Note 5). Substantially all of
these assets were disposed of during the year ended January 1, 2000. The write-
down also included approximately $855,000 of equipment and leasehold
improvements at ten company-owned stores that the Company intends to continue
to operate through the end of contractual lease terms. These assets are
F-53
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
expected to be disposed of when the leases expire ranging from June 1999 to
December 2008. Additionally, approximately $1,033,000 of goodwill that had been
allocated to the impaired assets was written-down.
During the year ended January 1, 2000, the Company wrote down approximately
$1,645,000 of impaired long-lived assets. The write down included approximately
$1,408,000 of equipment and leasehold improvements at 35 company-owned stores
that the Company intends to franchise or continue to operate through the end of
contractual lease terms. These assets are expected to be disposed of when the
leases expire or the store is franchised. Additionally, approximately $237,000
of goodwill that had been allocated to the impaired assets was written-down.
The net book value of the assets has either been fully or partially written-
down because the carrying amounts exceeded the estimated future cash flows as
determined in accordance with guidance in SFAS 121. During the years ended
January 2, 1999 and January 1, 2000, stores associated with impaired assets
generated losses of approximately $2,351,000 and $2,642,000, respectively. The
impairment provisions were included in depreciation and amortization in the
accompanying consolidated statements of operations for the years ended January
2, 1999 and January 1, 2000. No provisions were recorded for estimated future
operating losses.
Store Closure Reserve
The Company accrues an estimate for the costs associated with closing a non-
performing store in the period the determination is made to close the store.
The accruals are for estimated store lease termination costs (see Note 5).
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. Revenues from the
sale of batter that the Company produces and sells to franchisees are
recognized at the time of shipment and are classified in franchising revenue.
The Company receives rebates or other payments from suppliers based (directly
or indirectly) on sales to franchisees and company-owned stores. Rebates
related to franchisees are recorded as franchising revenue when earned. Rebates
related to company-owned stores are recorded as a reduction to cost of sales
when 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.
F-54
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 total fair market value of its Series A/B
Senior Notes and Series C Senior Notes (see Note 3) was approximately
$135,100,000 and $113,400,000 as of January 2, 1999 and January 1, 2000,
respectively. These estimates are based on quoted market prices. The book
values of the Company's other financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued liabilities and
other long-term debt obligations, approximate fair values at the respective
balance sheet dates.
Recent Accounting Pronouncement
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 to the prior years' consolidated
financial statements to conform with the current year presentation.
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
------------ ------------
<S> <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, 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, due December 1, 2004...... 40,000,000 40,000,000
Discount related to the issuance of $40,000,000
Series C senior unsecured notes, net of
accumulated amortization of $33,000 and $110,000,
respectively..................................... (566,000) (489,000)
Notes payable to individuals or corporations with
interest terms ranging from non-interest bearing
to 15 percent, due at various dates from 1999
through 2001, requiring monthly payments......... 10,259,000 3,025,000
------------ ------------
149,693,000 142,536,000
Less current portion.............................. (8,046,000) (781,000)
------------ ------------
$141,647,000 $141,755,000
============ ============
</TABLE>
On November 26, 1997, the Company issued $100,000,000 total principal amount
of Series A Senior Notes due December 1, 2004 pursuant to an indenture between
the Company and the Bank of New York (the
F-55
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
"Indenture"). 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 due
December 1, 2004 (collectively, the "Series A/B Senior Notes"), which were
registered under the Securities Act.
On August 24, 1998, the Company issued $40,000,000 total 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 under 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." As of January 1, 2000,
the Series C Senior Notes had not been registered under the Securities Act.
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 a total of 35
percent of the principal amount at a redemption price equal to 110.125 percent
of the principal, 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.
The total amount of principal maturities of debt at January 1, 2000 are as
follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000......................................................... $ 781,000
2001......................................................... 673,000
2002......................................................... 729,000
2003......................................................... 619,000
2004......................................................... 140,104,000
Thereafter................................................... 119,000
------------
$143,025,000
============
</TABLE>
Line of Credit
On February 28, 1998, the Company entered into an amended and restated line
of credit agreement with a commercial bank which provides for a maximum
commitment of up to $15,000,000 secured by essentially all
F-56
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of the assets of the Company. The availability under the line of credit was
limited by the Company's Indenture to $8,055,000 as of January 1, 2000.
Borrowings under the agreement bear interest, at the Company's option, at
either the bank's prime rate or the applicable LIBOR rate plus two percent,
with interest payable monthly in arrears. The Company is also obligated to pay
the bank a commitment fee in the amount of one quarter of one percent of the
unused portion of the revolving loan commitment. As of January 1, 2000, the
Company had no outstanding borrowings under the agreement, which expires March
31, 2001. The agreement requires the Company to maintain certain financial
ratios including a minimum debt service coverage ratio. At January 1, 2000, the
Company was in compliance with the terms of the agreement.
Capital Lease Obligations
Future minimum lease payments for equipment held under capital lease
arrangements as of January 1, 2000 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000.......................................................... $1,192,000
2001.......................................................... 1,181,000
2002.......................................................... 1,099,000
2003.......................................................... 889,000
2004.......................................................... 297,000
Thereafter.................................................... 200,000
----------
Total future minimum lease payments......................... 4,858,000
Less amount representing interest............................. (909,000)
----------
3,949,000
Less current portion........................................ (842,000)
----------
$3,107,000
==========
</TABLE>
As of January 2, 1999 and January 1, 2000, total assets held under capital
lease arrangements were approximately $1,024,000 and $8,170,000 with
accumulated amortization of approximately $108,000 and $1,907,000 respectively.
4. INCOME TAXES
The components of the provision for income taxes for the years ended January
3, 1998, January 2, 1999 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
January 3, January 2, January 1,
1998 1999 2000
---------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal.................................. $ 70,000 $ -- $ --
State.................................... 228,000 245,000 186,000
Foreign.................................. 57,000 71,000 32,000
Deferred:
Federal.................................. 367,000 (3,021,000) 106,000
State.................................... 55,000 (469,000) 17,000
Change in valuation allowance............ (122,000) 3,490,000 (123,000)
--------- ----------- ---------
Total provision for income taxes....... $ 655,000 $ 316,000 $ 218,000
========= =========== =========
</TABLE>
F-57
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 years ended January 3, 1998, January 2, 1999 and January 1,
2000:
<TABLE>
<CAPTION>
January 3, January 2, January 1,
1998 1999 2000
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory income tax rate...... 34.0% (34.0)% (34.0)%
Dividends paid by subsidiary......... 34.5 -- --
Amortization of non-deductible
goodwill............................ 12.3 7.7 25.3
Net operating losses utilized........ (3.9) -- --
State income taxes, net of federal
tax effect.......................... 5.3 (5.3) (5.3)
State franchise minimum taxes........ 44.0 1.3 2.4
Foreign taxes........................ 12.3 0.4 0.4
Change in valuation allowance........ (26.3) 19.0 (1.6)
Other................................ 29.3 12.6 15.6
----- ----- -----
Effective income tax rate.............. 141.5% 1.7% 2.8%
===== ===== =====
</TABLE>
The significant components of the Company's deferred income tax assets and
liabilities at January 2, 1999 and January 1, 2000 are as follows:
<TABLE>
<CAPTION>
January 2, January 1,
1999 2000
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Property and equipment reserve..................... $ 3,311,000 $ 1,760,000
Store closure reserve.............................. 5,845,000 2,826,000
Transaction cost accrual........................... 514,000 306,000
Net operating loss carryforward.................... 12,268,000 13,095,000
Legal reserve...................................... 150,000 157,000
Other reserves..................................... 388,000 539,000
Accrued expenses................................... 529,000 450,000
Alternative minimum tax credit carryforward........ 215,000 215,000
----------- -----------
Total deferred income tax assets................. 23,220,000 19,348,000
Valuation allowance................................ (15,560,000) (15,683,000)
----------- -----------
Deferred income tax assets net of valuation
allowance....................................... 7,660,000 3,665,000
----------- -----------
Deferred income tax liabilities:
Accumulated depreciation and amortization.......... (3,464,000) (16,000)
Other.............................................. (697,000) (150,000)
----------- -----------
Total deferred income tax liabilities............ (4,161,000) (166,000)
----------- -----------
Net deferred income tax assets................... $ 3,499,000 $ 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 connection with purchase accounting are not
recorded through the provision for income taxes, but rather, as an increase to
goodwill. During the years ended January 3, 1998 and January 2, 1999, valuation
allowances of $800,000 and $6,910,000, respectively, were recorded in
connection with accounting for business combinations.
F-58
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of January 1, 2000, the Company had net operating losses of $33,337,000
that can be carried forward to offset federal income taxes. If not utilized,
the tax net operating loss carryforwards begin to expire in 2009. As defined in
Section 382 of the Internal Revenue Code, the Company has acquired companies
which have had a greater than 50 percent ownership change. Consequently, a
certain amount of these companies' tax net operating loss carryforwards
available to offset future taxable income in any one year may be limited. The
maximum amount of carryforwards available in a given year is limited to the
product of these companies' value on the date of ownership change and the
federal long-term tax-exempt rate, plus any limited carryforwards not utilized
in prior years. Although realization of the net deferred income tax assets of
$3,499,000 is not assured, management believes that it is more likely than not
that these assets will be realized. The amount of net deferred tax assets
considered realizable, however, could be reduced in the near term based on
changing conditions.
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 net property investment or for targeted closing. The
Company's policy is to recognize a loss for that portion of the net property
investment determined to be impaired. Additionally, when a store is identified
for targeted closing, the Company's policy provides for the costs of closing
the store, which are predominantly estimated lease termination costs. Lease
termination costs include both one-time settlement payments and continued
contractual payments over time under the original lease agreements where no
settlement can be resolved with the landlord. As a result, although all stores
under the current exit plans will be exited by at least the end of fiscal year
2000, a portion of the store closure reserve will remain until all cash
payments have been made. The Company did not accrue for future expected
operating losses. 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.
During fiscal year 1999, in accordance with accounting principles generally
accepted in the United States, the Company reassessed its lease termination
obligations on a store by store basis for stores closed or targeted for
closing. Management reassessed the remaining store closure reserves based on
all available relevant data. A portion of the reversal of the reserves was
recorded as a reduction to goodwill for those stores that had reserves
established at the time of an acquisition in accordance with Emerging Issues
Task force Issue 95-3 ("EITF 95-3"). The remaining portion of the reversal of
the reserves was recorded to the store closure provision (benefit) in the
accompanying consolidated statement of operations for those stores that
initially had reserves established through that income statement line item in
accordance with the SEC Staff Accounting Bulletin No. 100, "Restructuring and
Impairment Charges". As of January 1, 2000, the remaining store closure reserve
was $7,194,000.
Mrs. Fields Inc. and Affiliates and Original Cookie Company and Affiliates
In connection with the Mrs. Fields Inc. and Original Cookie Company
acquisitions (see Note 1), the Company formulated a plan to exit certain stores
that did not meet certain financial and geographical criteria. In general, the
plan entailed closing stores that were not profitable and franchising stores
that were profitable but contributed less than $50,000 in store annual cash
contribution for cookie stores and less than $35,000 in annual 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 January 1, 2000, there
were no stores remaining to be closed and 14 stores remaining to be franchised.
Management estimates that the remaining stores will be franchised during the
first quarter of fiscal year 2000.
F-59
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At the date of the acquisitions, in accordance with Emerging Issues Task
Force Issue 95-3 ("EITF 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. During the
year ended January 2, 1999, the Company reassessed the adequacy of the store
closure reserve related to the remaining stores left to be closed and recorded
an additional $1,693,000 to the reserve. The additional $1,693,000 resulted
from management's expectation of higher lease termination costs than the costs
originally anticipated when the plan was finalized. This portion of the store
closure reserve was expensed in the Company's statement of operations for the
fiscal year ended January 2, 1999 as the decision to increase the reserve was
made subsequent to finalization of the original plan.
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.
During the fiscal year ended January 3, 1998, the Company increased its store
closure reserve by $538,000 for nine continuing company-owned stores that were
closed during fiscal year 1997 and for one continuing company-owned store
targeted for closure. These costs represent lease termination costs which
include both one-time settlement payments and continued contractual payments
over time under the original lease agreements where no settlement has been
reached with the landlord. The amount also includes certain costs to write-down
equipment and leasehold improvements to their net realizable value. 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 as part of any of the Company's store closure
plan associated with the business combinations.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit 35 Mrs. Fields stores that
were not meeting certain financial and geographical criteria. The plan also
committed the Company to exit seven underperforming franchised stores that the
Company determined to disenfranchise as of January 2, 1999. The identified
stores to be exited under this plan are not part of the stores in the process
of being closed in connection with the business combination exit plan discussed
above. These stores were originally identified as continuing company-owned
stores at the date of acquisition, however, the stores have not performed as
expected. The Company intends to exit the stores primarily through closing and
franchising. In connection with this plan, the Company increased the store
closure reserve by $4,674,000 primarily for costs to be incurred for settling
lease termination costs for these stores. All of the stores identified for
closure are planned to be closed or franchised by the end of fiscal 2000. The
charge was included in the store closure provision in the accompanying
consolidated statement of operations for the year ended January 2, 1999.
F-60
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
H&M
In connection with the H&M acquisition (see Note 1), the Company formulated a
plan to exit pretzel stores that did not meet certain financial and
geographical criteria. Management identified 11 stores to be closed and 14
stores to be franchised. At the date of the acquisition, in accordance with
EITF 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. All of the stores
identified to be exited were closed or franchised by the end of fiscal year
1999.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit five H&M stores that were
not meeting certain financial and geographical criteria. The stores identified
to be exited under this plan were not part of the stores in the process of
being closed in connection with the business combination exit plan discussed
above. In connection with this plan, the Company increased the store closure
reserve by $367,000 primarily for costs to be incurred for settling lease
termination costs for these stores. The charge was included in the store
closure provision in the accompanying consolidated statement of operations for
the year ended January 2, 1999. All of the stores identified for closure were
closed or franchised by the end of fiscal year 1999.
Pretzel Time
In connection with the Pretzel Time acquisition (see Note 1), the Company
formulated a plan to exit pretzel stores that did not meet certain financial
and geographical criteria. Management identified four stores to be closed. At
the date of the acquisition, in accordance with EITF 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. All of the stores identified for closure
were closed by the end of fiscal year 1999.
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit five Pretzel Time stores
that were not meeting certain financial and geographical criteria. The
identified stores to be exited under this plan are not part of the stores in
the process of being closed in connection with the business combination exit
plan discussed above. In connection with this plan, the Company increased the
store closure reserve by $264,000 primarily for costs to be incurred for
settling lease termination costs for these stores. The charge was included in
the store closure provision in the accompanying consolidated statement of
operations for the year ended January 2, 1999. All of the stores identified for
closure were closed or franchised by the end of fiscal year 1999.
Great American
In connection with the Great American Acquisitions (see Note 1), the Company
formulated a plan to exit cookie stores that did not meet certain financial and
geographical criteria. Management identified 54 stores to be closed and 11
stores to be franchised. At the date of the acquisitions, in accordance with
EITF 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. All of the stores identified for closure are
planned to be closed by the end of fiscal year 2000. The timing to implement
the plan was developed based on discussions and relationships with major
shopping mall developers.
F-61
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the fourth quarter of fiscal year 1998, the Company's management
approved and committed the Company to a plan to exit five underperforming Great
American franchised stores that the Company determined to disenfranchise as of
January 2, 1999. The identified stores to be exited under this plan were not
part of the stores in the process of being closed in connection with the
business combination exit plan discussed above. These stores were originally
franchised stores at the date of acquisition, however, the stores have not
performed as expected. In connection with this plan, the Company increased the
store closure reserve by $305,000 primarily for costs to be incurred for
settling lease termination costs for these stores. The charge was included in
the store closure provision in the accompanying consolidated statement of
operations for the year ended January 2, 1999. All of the stores identified for
closure were closed by the end of fiscal year 1999.
Pretzelmaker
In connection with the Pretzelmaker acquisition (see Note 1), the Company
formulated a plan to exit pretzel stores that did not meet certain financial
and geographical criteria. Management identified seven stores to be closed. At
the date of the acquisition, in accordance with EITF 95-3, the Company
established a store closure reserve of $500,000 for the seven 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 $327,000 against the property and
equipment of the stores the Company planned to exit in order to record those
assets at net realizable value. All of the stores identified for closure were
closed by the end of fiscal year 1999.
F-62
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidated Analysis
The following table presents a summary of the activity in the store closure
reserve for the periods indicated for stores to be closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields Inc. and
Original Cookie Co. H&M Pretzel Time Great American
------------------------ ----------------------- ----------------------- ------------------------
Company- Company- Company- Company-
Business Owned Owned Owned Owned
Combination Stores Stores Stores Stores
and Unrelated Unrelated Unrelated Unrelated
Subsequent to Business to Business to Business to
Adjustments Acquisition Combination Acquisition Combination Acquisition Combination Acquisition
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception,
September 16,
1996............ $ 5,060,000 $ -- $ -- $ -- $ -- $ -- $ -- $ --
Utilization from
inception
(September 16,
1996) to
December 28,
1996............ (305,000) -- -- -- -- -- --
----------- ----------- --------- --------- --------- --------- ----------- ---------
Balance,
December 28,
1996............ 4,755,000 -- -- -- -- -- -- --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
July 25, 1997... -- -- 1,000,000 -- -- -- -- --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
September 2,
1997............ -- -- -- -- 500,000 -- -- --
Finalization of
store closure
plan for
obligations
related to
stores
originally
identified...... 1,357,000 -- -- -- -- -- -- --
Provision for
continuing
company-owned
stores targeted
for closure..... 538,000 -- -- -- -- -- --
Utilization for
the 53 weeks
ended January 3,
1998............ (2,145,000) (538,000) -- -- (1,000) -- -- --
----------- ----------- --------- --------- --------- --------- ----------- ---------
Balance, January
3, 1998......... 3,967,000 -- 1,000,000 -- 499,000 -- -- --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
August 24,
1998............ -- -- -- -- -- -- 3,548,000 --
To record
obligations
related to
stores
identified for
closure upon
acquisition,
November 29,
1998............ -- -- -- -- -- -- -- --
Additional
reserves for
stores
originally
identified for
closure upon
acquisition,
January 2,
1999............ 1,693,000 -- -- -- -- -- -- --
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 2,
1999............ -- 4,674,000 -- 367,000 -- 264,000 -- 305,000
Utilization for
the 52 weeks
ended January 2,
1999............ (1,932,000) -- (19,000) -- (6,000) (149,000) --
----------- ----------- --------- --------- --------- --------- ----------- ---------
Balance, January
2, 1999......... 3,728,000 4,674,000 981,000 367,000 493,000 264,000 3,399,000 305,000
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 1,
2000............ 810,000 -- 151,000 85,000 66,000 -- -- 389,000
Reversal during
the 52 weeks
ended January 1,
2000............ (1,524,000) (2,092,000) (418,000) -- (362,000) (155,000) (1,159,000) (100,000)
Utilization for
the 52 weeks
ended January 1,
2000............ (1,400,000) (1,001,000) (178,000) (158,000) (88,000) (23,000) (566,000) (49,000)
----------- ----------- --------- --------- --------- --------- ----------- ---------
Balance, January
1, 2000......... $ 1,614,000 $ 1,581,000 $ 536,000 $ 294,000 $ 109,000 $ 86,000 $ 1,674,000 $ 545,000
=========== =========== ========= ========= ========= ========= =========== =========
<CAPTION>
Pretzelmaker Consolidated
----------------------- ---------------------------------------
Company- Company-
Business Owned Business Owned Total
Combination Stores Combination Stores Business
and Unrelated and Unrelated Combinations
Subsequent to Subsequent to and Company-
Adjustments Acquisition Adjustments Acquisition Owned Stores
----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Inception,
September 16,
1996............ $ -- $ -- $ 5,060,000 $ -- $ 5,060,000
Utilization from
inception
(September 16,
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
continuing
company-owned
stores targeted
for closure..... -- -- -- 538,000 538,000
Utilization for
the 53 weeks
ended January 3,
1998............ -- -- (2,146,000) (538,000) (2,684,000)
----------- ----------- ------------ ------------ -------------
Balance, January
3, 1998......... -- -- 5,466,000 -- 5,466,000
To record
obligations
related to
stores
identified for
closure upon
acquisition,
August 24,
1998............ -- 3,548,000 -- 3,548,000
To record
obligations
related to
stores
identified for
closure upon
acquisition,
November 29,
1998............ 500,000 -- 500,000 -- 500,000
Additional
reserves for
stores
originally
identified for
closure upon
acquisition,
January 2,
1999............ -- -- 1,693,000 -- 1,693,000
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 2,
1999............ -- -- -- 5,610,000 5,610,000
Utilization for
the 52 weeks
ended January 2,
1999............ -- -- (2,106,000) -- (2,106,000)
----------- ----------- ------------ ------------ -------------
Balance, January
2, 1999......... 500,000 -- 9,101,000 5,610,000 14,711,000
Additional
reserves for
continuing
company-owned
and franchised
stores targeted
for closure,
January 1,
2000............ 88,000 650,000 1,115,000 1,124,000 2,239,000
Reversal during
the 52 weeks
ended January 1,
2000............ (366,000) -- (3,829,000) (2,347,000) (6,176,000)
Utilization for
the 52 weeks
ended January 1,
2000............ (117,000) -- (2,349,000) (1,231,000) (3,580,000)
----------- ----------- ------------ ------------ -------------
Balance, January
1, 2000......... $ 105,000 $650,000 $ 4,038,000 $ 3,156,000 $ 7,194,000
=========== =========== ============ ============ =============
</TABLE>
F-63
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of activity for stores originally
identified to be closed or franchised in connection with the applicable
business combination for the periods indicated. This table does not include a
summary of activity for stores the Company intends to close or franchise that
were not originally identified in connection with a business combination.
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and Original
Cookie Co. H&M Pretzel Time Great American Pretzelmaker Consolidated
----------------- ----------------- ----------------- ----------------- ----------------- -----------------
To Be To Be 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 Closed Franchised
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <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 14 -- -- -- -- -- -- 11 14
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 14 4 -- -- -- -- -- 50 66
Stores
identified for
closure or
franchise upon
acquisition,
August 24,
1998............ -- -- -- -- -- -- 54 11 -- -- 54 11
Stores
identified for
closure or
franchise upon
acquisition,
November 19,
1998............ -- -- -- -- -- -- -- -- 7 -- 7 --
Stores closed or
franchised for
the 52 weeks
ended January 2,
1999............ (15) (16) (2) (7) (1) -- (11) -- -- -- (29) (23)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance, January
2, 1999......... 23 36 6 7 3 -- 43 11 7 -- 82 54
Stores closed,
franchised or
reversed for the
52 weeks ended
January 1,
2000............ (23) (22) (6) (7) (3) -- (37) (10) (7) -- (76) (39)
--- --- --- --- --- --- --- --- --- --- --- ---
Balance, January
1, 2000......... -- 14 -- -- -- -- 6 1 -- -- 6 15
=== === === === === === === === === === === ===
</TABLE>
F-64
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents a summary of activity for stores the Company
intends to close or franchise that were not originally identified to be closed
or franchised in connection with a business combination:
<TABLE>
<CAPTION>
Mrs. Fields Inc.
and
Original Cookie
Co. 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 (not included in
the original store
closure plan), during
the 52 weeks ended
January 3, 1998......... 10 -- -- -- -- -- -- -- 10 --
Stores closed or
franchised during the 52
weeks ended January 3,
1998.................... (9) -- -- -- -- -- -- -- (9) --
--- ---- ---- ---- ---- ---- ---- ---- --- -----
Balance, January 3,
1998.................... 1 -- -- -- -- -- -- -- 1 --
Stores identified for
closure or franchise
(not included in the
original store closure
plan), January 2, 1999.. 20 10 4 1 2 3 5 -- 31 14
Stores closed or
franchised for the 52
weeks ended January 2,
1999.................... (1) -- (2) -- -- -- -- -- (3) --
--- ---- ---- ---- ---- ---- ---- ---- --- -----
Balance, January 2,
1999.................... 20 10 2 1 2 3 5 -- 29 14
Stores closed or
franchised for the 52
weeks ended January 1,
2000.................... (17) (6) (2) (1) (2) (2) (5) -- (26) (9)
--- ---- ---- ---- ---- ---- ---- ---- --- -----
Balance, January 1,
2000.................... 3 4 -- -- -- 1 -- -- 3 5
=== ==== ==== ==== ==== ==== ==== ==== === =====
</TABLE>
F-65
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Store Closure Reserve Payment Obligations
As of January 1, 2000, the future estimated cash payments under the store
closure reserve are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000.......................... $3,665,000
2001.......................... 1,401,000
2002.......................... 802,000
2003.......................... 591,000
2004.......................... 415,000
Thereafter.................... 320,000
----------
$7,194,000
==========
</TABLE>
The following table presents a summary of changes in the property and
equipment impairment reserves that were established in connection with the
applicable business combination for the periods indicated for stores to be
closed and franchised:
<TABLE>
<CAPTION>
Mrs. Fields
Inc. and
Original Great
Cookie Co. H&M American Pretzelmaker 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
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
To record property and
equipment impairment
upon acquisition,
September 9, 1998...... -- -- 973,000 -- 973,000
To record property and
equipment impairment
upon acquisition,
November 19, 1998...... -- -- -- 327,000 327,000
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be closed........... (1,782,000) (93,000) (246,000) -- (2,121,000)
Utilization for the 52
weeks ended January 2,
1999 related to stores
to be franchised....... (435,000) (819,000) -- -- (1,254,000)
----------- ---------- ----------- --------- -----------
Balance, January 2,
1999................... 3,844,000 1,380,000 2,877,000 327,000 8,428,000
Addition to impairment
for the 52 weeks ended
January 1, 2000 related
to stores to be
closed................. 86,000 5,000 25,000 -- 116,000
Addition to impairment
for 52 weeks ended
January 1, 2000 related
to stores to be
franchised............. 443,000 11,000 -- -- 454,000
Utilization for the 52
weeks ended January 1,
2000 related to stores
to be closed........... (1,192,000) (410,000) (1,434,000) (158,000) (3,194,000)
Utilization for the 52
weeks ended January 1,
2000 related to stores
to be franchised....... (935,000) (346,000) (41,000) -- (1,322,000)
----------- ---------- ----------- --------- -----------
Balance, January 1,
2000................... $ 2,246,000 $ 640,000 $ 1,427,000 $ 169,000 $ 4,482,000
=========== ========== =========== ========= ===========
</TABLE>
F-66
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. MANDATORILY REDEEMABLE CUMULATIVE PREFERRED STOCK OF PRETZEL TIME, INC.
The mandatorily redeemable cumulative preferred stock of Pretzel Time (the
"Pretzel Time 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 Pretzel Time Preferred Stock must be
redeemed at $10,000 per share, plus unpaid and accumulated dividends. The
excess of the redemption price over the carrying value was accreted over the
period from issuance through September 1, 1999, using the effective interest
method and was charged to the accumulated deficit of Pretzel Time. During the
period from the acquisition of a majority ownership in Pretzel Time (September
2, 1997) to January 1, 2000, Pretzel Time increased the liquidation preference
of the Pretzel Time Preferred Stock by $307,000, in lieu of paying cash
dividends. In addition, the Pretzel Time Preferred Stock was increased by
$736,000, for the accretion required over time to amortize the original issue
discount incurred at the time of issuance.
As of January 1, 2000, the liquidation preference and the recorded amount in
the accompanying consolidated balance sheet was $1,070,000. Subsequent to
January 1, 2000, the Company redeemed all of the remaining Pretzel Time
Preferred Stock for $1,070,000.
7. COMMITMENTS AND CONTINGENCIES
Stock Pledged as Collateral
Mrs. Fields' Holding has pledged all of the Company's capital stock as
collateral for Mrs. Fields' Holding's 14 percent Senior Secured Discount Notes
due December 1, 2005 (the "Mrs. Fields' Holding Discount Notes"). Mrs. Fields'
Holding issued the Mrs. Fields' Holding Discount Notes on August 24, 1998, in
connection with the Great American Acquisitions and the Mrs. Fields' Holding
equity contribution (see Note 1). In connection with the issuance of the
$55,000,000 principal amount at maturity of Mrs. Fields' Holding Discount
Notes, Mrs. Fields' Holding recorded an total original issue discount of
approximately $24,136,000. The principal amount of the Mrs. Fields' Holding
Discount Notes will accrete at a rate of 14 percent compounded semi-annually to
a total principal amount of $55,000,000 at December 1, 2002. Thereafter, the
Mrs. Fields' Holding 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.
Mrs. Fields' Holding is a holding company and does not have separate
operations from which it can generate cash flows. Under the circumstances, Mrs.
Fields' Holding 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 in 2003. The Company has not
guaranteed, nor is it obligated to make principal or interest payments related
to the Mrs. Fields' Holding Discount Notes. However, in accordance with the
Company's Indenture, the Company may pay dividends to Mrs. Fields' Holding, in
order for Mrs. Fields' Holding 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 Mrs. Fields' Holding 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.
F-67
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
Rent expense was as follows for the periods presented:
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 3, 1998 January 2, 1999 January 1, 2000
--------------- --------------- ---------------
<S> <C> <C> <C>
Minimum
rentals........ $30,654,000 $ 36,834,000 $ 35,510,000
Contingent
rentals........ 432,000 553,000 415,000
Sub-lease
rentals........ (8,756,000) (12,550,000) (10,487,000)
----------- ------------ ------------
$22,330,000 $ 24,837,000 $ 25,438,000
=========== ============ ============
</TABLE>
As of January 1, 2000, 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>
2000............................ $ 32,513,000
2001............................ 27,832,000
2002............................ 23,957,000
2003............................ 19,691,000
2004............................ 15,163,000
Thereafter...................... 28,650,000
------------
$147,806,000
============
</TABLE>
As of January 2, 1999, the future minimum sublease payments due to the
Company under these leases are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000............................. $11,510,000
2001............................. 9,617,000
2002............................. 8,261,000
2003............................. 6,619,000
2004............................. 4,754,000
Thereafter....................... 6,066,000
-----------
$46,827,000
===========
</TABLE>
Contractual Arrangements
The Company entered into a supply agreement to buy frozen dough products
through 2000. The agreement stipulates minimum annual purchase commitments of
not less than 23,000,000 pounds of the products each year through the end of
the contract. The terms of the supply 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.
F-68
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 2, 1999 and January 1, 2000 were approximately
$295,000 and $92,000, 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 1, 2000, the Company has assumed obligations totaling
approximately $33,000 which are included in the current portion of long-term
debt in the accompanying consolidated balance sheet.
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 Mrs. Fields Inc. and affiliates and Original
Cookie Company 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, Pretzel Time entered into a long-term marketing
and supply agreement with a supplier. Under terms of the agreement, the Company
is obligated to purchase a minimum amount of product from the supplier. An
additional $437,000 in deferred credits were recorded under this agreement. The
termination date of this agreement will be the later of December 31, 2003 or
when Pretzel Time has met its purchase commitment. Under these agreements, the
Company recognized approximately $1,393,000, and $812,000 primarily as a
reduction to food cost of sales during the years ended January 3, 1998 and
January 2, 1999.
In connection with the Pretzelmaker acquisition the Company recorded deferred
credits of approximately $170,000 relating to a long-term marketing and supply
agreement that Pretzelmaker had entered into in November of 1997, which was
later amended in April of 1998. Under the terms of the agreement, the Company
is obligated to purchase a minimum amount of product from the supplier. Under
this agreement the Company recognized approximately $40,000 primarily as a
reduction to food cost of sales during fiscal 1999. The termination date of
this agreement is April 2003.
In November 1996, the Company entered into a consulting agreement with Debbi
Fields, a former director of the Company, under which Debbi Fields traveled and
performed 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 increased by 10 percent for 1999. The
consulting agreement expired on December 31, 1999 and is not expected to be
renewed.
The Company has entered into employment agreements with five key officers
with terms of two to three years. The agreements are for a total annual base
salary of $1,172,000. 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.
F-69
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. RELATED-PARTY TRANSACTIONS
As of January 2, 1999 and January 1, 2000, the Company had receivables due
from franchisees and licensees, primarily related to prepaid rent which the
Company had paid on behalf of franchisees, totaling approximately $6,003,000
and $3,708,000, respectively. These amounts are included in amounts due from
franchisees and affiliates and are net of allowance for doubtful accounts
totaling $1,078,000 and $821,000, respectively.
As of January 2, 1999 and January 1, 2000, the Company had a net payable and
a net receivable of approximately $150,000 and $642,000, respectively, with
Mrs. Fields' Holding. The amounts due to or from Mrs. Fields' Holding are
recorded in prepaid rent and other in the accompanying consolidated balance
sheets.
During the years ended January 3, 1998, the Company accrued approximately
$441,000 of interest expense due to Mrs. Fields' Holding related to the
convertible subordinated notes Mrs. Fields' Holding purchased. Mrs. Fields'
Holding converted all of the $4,643,000 convertible subordinated notes to
equity and the notes were cancelled (see Note 3) in 1997.
The Company paid fees to Korn/Ferry International ("Korn/Ferry") totaling
approximately $157,000 and $70,600 and $35,200, during the years ended January
3, 1998, January 2, 1999 and January 1, 2000, respectively. Korn/Ferry 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. The director's company did not receive a fee from the Company
during the fiscal years ended January 2, 1999 or January 1, 2000. The Company
believes that the arrangements were on terms that could have been obtained from
an unaffiliated third party.
As of January 2, 1999, the Company has a loan due from the founder and
minority stockholder of Pretzel Time totaling $567,000. 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
Pretzel Time stock; provided that in any calendar year no more than $100,000
may be so offset. In addition, as of January 2, 1999, the Company is due
approximately $451,000 from the founder in connection with certain lease
payments related to the purchase of Pretzel Time for which the Company is
indemnified. These amounts are recorded in accounts receivable and other assets
in the accompanying consolidated balance sheets.
In May 1999, Mrs. Fields, Mrs. Fields' Holding, Pretzel Time, a former
Pretzel Time shareholder and Capricorn entered into an assignment and
assumption agreement under which Capricorn agreed to assume a payment
obligation of Mrs. Fields of $2,000,000 for Pretzel Time stock held by the
former shareholder that was due on December 31, 1999. In a related transaction
on the same date, Capricorn and Mrs. Fields' Holding entered into a
contribution agreement under which Mrs. Fields' Holding and Capricorn agreed to
treat the assumption by Capricorn of the Mrs. Fields payment obligation as a
capital contribution from Capricorn to Mrs. Fields' Holding, and as a capital
contribution from Mrs. Fields' Holding to Mrs. Fields.
The Company and Mrs. Fields' Holding 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
F-70
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Plan, a portion of which is matched by contributions from the Company. The
total Company contributions to the Plan for the years ended January 3, 1998,
January 2, 1999 and January 1, 2000 were approximately $97,900, $171,000 and
$168,000, respectively.
10. REPORTABLE SEGMENTS
Operating segments are components of the Company for which separate financial
information is available that is evaluated regularly by the Chief Operating
decision maker in deciding how to allocate resources and in assessing
performance. This information is reported on the basis that it is used
internally for evaluating segment performance. Mrs. Fields has two reportable
operating segments; namely, company-owned stores and related activity and
franchising and licensing activity. The segments are determined by revenue
source; direct sales or royalties and license fees. The company-owned stores
segment consists of both cookie and pretzel stores owned and operated by Mrs.
Fields. The franchising and licensing segment consists of cookie and pretzel
stores, which are owned and operated by third parties who pay Mrs. Fields an
initial franchise or license fee and monthly royalties based on a percentage of
gross sales and other licensing activity not related to cookie or pretzel
stores. The accounting policies for the segments are discussed in the summary
of significant accounting policies (see Note 2). Sales and transfers between
segments are eliminated in consolidation.
Mrs. Fields evaluates performance of each segment based on contribution
margin. Mrs. Fields does not allocate any interest income, interest expense,
depreciation and amortization or assets to its reportable operating segments.
Segment revenue and contribution margin are presented in the following table:
<TABLE>
<CAPTION>
Franchising,
Company- Licensing
Owned Stores and Other Total
------------ ------------ ------------
<S> <C> <C> <C>
Year ended January 3, 1998
Revenue................................. $127,845,000 $ 6,563,000 $134,408,000
Contribution Margin..................... 28,985,000 6,563,000 35,548,000
Year ended January 2, 1999
Revenue................................. 140,235,000 14,001,000 154,236,000
Contribution Margin..................... 30,337,000 10,414,000 40,751,000
Year ended January 1, 2000
Revenue................................. 152,268,000 28,669,000 180,937,000
Contribution Margin..................... 31,189,000 23,791,000 54,980,000
</TABLE>
The reconciliation of contribution margin to net income (loss) is as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998 Fiscal 1999
------------ ------------ ------------
<S> <C> <C> <C>
Contribution margin.................. $ 35,548,000 $ 40,751,000 $ 54,980,000
General and administrative expense... (16,192,000) (19,017,000) (21,972,000)
Store closure (provision) benefit.... (538,000) (7,303,000) 1,579,000
Depreciation and amortization........ (10,403,000) (19,820,000) (24,206,000)
Interest expense, net................ (7,584,000) (12,574,000) (17,827,000)
Other expense, net................... (1,805,000) (1,180,000) (775,000)
------------ ------------ ------------
Net income (loss).................... $ (974,000) $(19,143,000) $ (8,221,000)
============ ============ ============
</TABLE>
F-71
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Geographic segment information is as follows:
<TABLE>
<CAPTION>
Domestic
Domestic International Franchising International
Company-owned Company-owned and Franchising
Stores Stores Licensing and Licensing
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue
Fiscal 1997............... $127,736,000 $109,000 $ 6,150,000 $413,000
Fiscal 1998............... 140,018,000 217,000 13,738,000 263,000
Fiscal 1999............... 152,249,000 19,000 28,450,000 219,000
</TABLE>
Revenues from international franchising and licensing are secured from Canada
and Australia with no other countries having material representation. Revenues
from international company-owned stores are immaterial.
There were no customers who accounted for more than 10 percent of Mrs.
Fields' total revenue or either segments' revenue. The Company has a $1,326,000
receivable due from one company which represents 14.8 percent of the Company's
total receivables.
11. SUBSEQUENT EVENT
On February 9, 2000, Capricorn, Investors III, L.P., an affiliate of
Capricorn, entered into an agreement to acquire TCBY Enterprises, Inc.
("TCBY"), a retail snack food company. It is expected that, if this acquisition
is completed, Mrs. Fields will enter into a management agreement to provide
management services to TCBY. If completed, this acquisition would occur no
earlier than the second quarter of fiscal year 2000. We cannot be sure that
this acquisition will be completed, and there has been no agreement signed
regarding the terms of the management agreement. Management of Mrs. Fields
believes that, if completed, this acquisition would offer Mrs. Fields the
opportunity to sell its products in TCBY stores.
12. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's obligation related to its $140,000,000 total 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 four 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., The Mrs. Fields' Brand, Inc.,
Pretzelmaker Holdings, Inc., which are Guarantors, and Pretzel Time, Inc.,
which will become a Guarantor (collectively, the "Guarantor Subsidiaries") and
Mrs. Fields' Cookies Australia, Mrs. Fields' Cookies (Canada) Ltd., H & M
Canada and Pretzelmaker of Canada, and three partially owned subsidiaries,
(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.
F-72
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 53 WEEKS 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............ $125,991 $ 2,004 $7,077 $ (664) $134,408
-------- ------- ------ ------ --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs...... 63,765 -- 3,731 (664) 66,832
Cost of sales......... 31,173 -- 855 -- 32,028
General and
administrative....... 14,215 1,066 911 -- 16,192
Store closure
provision............ 538 -- -- -- 538
Depreciation and
amortization......... 8,745 1,125 533 -- 10,403
-------- ------- ------ ------ --------
Total operating
costs and
expenses........... 118,436 2,191 6,030 (664) 125,993
-------- ------- ------ ------ --------
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-73
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
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 Mrs.
Fields' Holding...... (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-74
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 1999
(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.......... $ 3,539 $ 1,134 $ 78 $ -- $ 4,751
Accounts receivable,
net.................. 2,860 304 44 -- 3,208
Amounts due from
franchisees and
licensees, net....... 1,297 4,706 -- -- 6,003
Inventories........... 4,631 863 9 -- 5,503
Other current assets
and amounts due from
(to) affiliates,
net.................. 39,368 (33,898) (592) -- 4,878
-------- -------- ----- -------- --------
Total current
assets............. 51,695 (26,891) (461) -- 24,343
PROPERTY AND EQUIPMENT,
net.................... 29,900 1,654 243 -- 31,797
INTANGIBLES, net........ 75,875 95,601 320 -- 171,796
INVESTMENT IN
SUBSIDIARIES........... 66,484 -- -- (66,484) --
OTHER ASSETS............ 3,688 252 30 -- 3,970
-------- -------- ----- -------- --------
$227,642 $ 70,616 $ 132 $(66,484) $231,906
======== ======== ===== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 7,141 $ 1,204 $ -- $ -- $ 8,345
Accounts payable...... 14,223 564 69 -- 14,856
Accrued liabilities... 10,956 2,895 18 -- 13,869
-------- -------- ----- -------- --------
Total current
liabilities........ 32,320 4,663 87 -- 37,070
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 142,367 216 61 -- 142,644
OTHER ACCRUED
LIABILITIES............ 10,134 -- -- -- 10,134
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- 1,261 -- -- 1,261
MINORITY INTEREST....... -- -- -- 119 119
STOCKHOLDERS' EQUITY.... 42,821 64,476 (16) (66,603) 40,678
-------- -------- ----- -------- --------
$227,642 $ 70,616 $ 132 $(66,484) $231,906
======== ======== ===== ======== ========
</TABLE>
F-75
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 52 WEEKS ENDED JANUARY 2, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES........... $144,057 $13,939 $ 377 $ (4,137) $ 154,236
-------- ------- ----- -------- ---------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs..... 76,437 -- 334 (1,768) 75,003
Cost of sales........ 37,165 3,587 99 (2,369) 38,482
General and
administrative...... 21,213 5,107 -- -- 26,320
Depreciation and
amortization........ 16,624 3,196 -- -- 19,820
-------- ------- ----- -------- ---------
Total operating
costs and
expenses.......... 151,439 11,890 433 (4,137) 159,625
-------- ------- ----- -------- ---------
(Loss) income from
operations.......... (7,382) 2,049 (56) -- (5,389)
INTEREST EXPENSE AND
OTHER, net............ (13,064) 81 -- -- (12,983)
-------- ------- ----- -------- ---------
(Loss) income before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (20,446) 2,130 (56) -- (18,372)
PROVISION FOR INCOME
TAXES................. (197) (119) -- -- (316)
-------- ------- ----- -------- ---------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (20,643) 2,011 (56) -- (18,688)
PREFERRED STOCK
ACCRETION AND
DIVIDENDS OF
SUBSIDIARIES.......... -- (444) -- -- (444)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES.......... 1,500 -- -- (1,511) (11)
-------- ------- ----- -------- ---------
NET (LOSS) INCOME...... $(19,143) $ 1,567 $ (56) $ (1,511) $ (19,143)
======== ======= ===== ======== =========
</TABLE>
F-76
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 52 WEEKS ENDED JANUARY 2, 1999
(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............. $(27,953) $33,382 $ (133) $ -- $ 5,296
-------- ------- ------ ----- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Net cash paid for
acquisitions and
related Expenses..... (39,873) 7,038 -- -- (32,835)
Purchase of property
and equipment, net... (8,228) (7) -- -- (8,235)
Proceeds for asset
sales................ 176 -- -- -- 176
-------- ------- ------ ----- -------
Net cash (used in)
provided by Investing
activities........... (47,925) 7,031 -- -- (40,894)
-------- ------- ------ ----- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-
term debt............ 39,400 -- -- -- 39,400
Bank overdraft........ 4,133 -- -- -- 4,133
Payment of debt
financing costs...... (7,062) -- -- -- (7,062)
Equity infusion from
Mrs. Fields'
Holding.............. 29,056 -- -- -- 29,056
Principal payments on
long-term debt and
capital lease
obligations.......... (257) (41,000) -- -- (41,257)
Capital lease
repayments........... (123) -- -- -- (123)
Reduction in preferred
stock of Pretzel
Time................. -- (85) -- -- (85)
-------- ------- ------ ----- -------
Net cash provided by
(used in) Financing
activities......... 65,147 (41,085) -- -- 24,062
-------- ------- ------ ----- -------
NET DECREASE IN CASH AND
CASH EQUIVALENTS....... (10,731) (672) (133) -- (11,536)
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 14,270 1,806 211 -- 16,287
-------- ------- ------ ----- -------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 3,539 $ 1,134 $ 78 $ -- $ 4,751
======== ======= ====== ===== =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid......... $ 12,405 $ 35 $ -- $ -- $12,440
Taxes paid............ 141 68 -- -- 209
</TABLE>
F-77
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 1, 2000
(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.......... $ 3,886 $ 792 $ 241 $ -- $ 4,919
Accounts receivable,
net.................. 2,151 2,131 13 -- 4,295
Amounts due from
franchisees and
licensees, net....... 1,314 2,394 -- -- 3,708
Inventories........... 4,009 968 -- -- 4,977
Other current assets
and amounts due from
(to) affiliates,
net.................. 22,236 (18,898) (642) -- 2,696
-------- -------- ----- -------- --------
Total current
assets............. 33,596 (12,613) (388) -- 20,595
PROPERTY AND EQUIPMENT,
net.................... 26,481 2,033 151 -- 28,665
INTANGIBLES, net........ 74,301 81,769 289 -- 156,359
INVESTMENT IN
SUBSIDIARIES........... 65,468 -- -- (65,468) --
OTHER ASSETS............ 2,714 134 (57) -- 2,791
-------- -------- ----- -------- --------
$202,560 $ 71,323 $ (5) $(65,468) $208,410
======== ======== ===== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of
long-term debt and
capital lease
obligations.......... $ 1,377 $ 246 $ -- $ -- $ 1,623
Accounts payable...... 8,823 1,676 15 -- 10,514
Accrued liabilities... 11,134 1,000 110 -- 12,244
-------- -------- ----- -------- --------
21,334 2,922 125 -- 24,381
LONG-TERM DEBT AND
CAPITAL LEASE
OBLIGATIONS, net of
current portion........ 144,582 280 -- -- 144,862
OTHER ACCRUED
LIABILITIES............ 3,529 -- -- -- 3,529
MANDATORILY REDEEMABLE
CUMULATIVE PREFERRED
STOCK.................. -- 1,070 -- -- 1,070
MINORITY INTEREST....... -- -- -- 111 111
STOCKHOLDER'S EQUITY.... 33,115 67,051 (130) (65,579) 34,457
-------- -------- ----- -------- --------
$202,560 $ 71,323 $ (5) $(65,468) $208,410
======== ======== ===== ======== ========
</TABLE>
F-78
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE 52 WEEKS ENDED JANUARY 1, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUES........... $156,727 $29,691 $658 $(6,139) $180,937
-------- ------- ---- ------- --------
OPERATING COSTS AND
EXPENSES:
Selling and store
occupancy costs..... 80,702 -- 288 (1,356) 79,634
Cost of sales........ 41,369 9,678 74 (4,798) 46,323
General and
administrative...... 11,622 10,140 210 -- 21,972
Depreciation and
amortization........ 15,933 6,702 -- (8) 22,627
-------- ------- ---- ------- --------
Total operating
costs and
expenses.......... 149,626 26,520 572 (6,162) 170,556
-------- ------- ---- ------- --------
(Loss) income from
operations.......... 7,101 3,171 86 23 10,381
INTEREST EXPENSE AND
OTHER, net............ (17,634) (435) 12 -- (18,057)
-------- ------- ---- ------- --------
(Loss) income before
provision for income
taxes, preferred
stock accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (10,533) 2,736 98 23 (7,676)
PROVISION FOR INCOME
TAXES................. (218) -- -- -- (218)
-------- ------- ---- ------- --------
(Loss) income before
preferred stock
accretion and
dividends of
subsidiaries and
equity in net loss
of consolidated
subsidiaries........ (10,751) 2,736 98 23 (7,894)
PREFERRED STOCK
ACCRETION AND
DIVIDENDS OF
SUBSIDIARIES.......... -- (305) -- -- (305)
EQUITY IN NET LOSS OF
CONSOLIDATED
SUBSIDIARIES.......... 2,507 -- -- (2,529) (22)
-------- ------- ---- ------- --------
NET (LOSS) INCOME...... $ (8,244) $ 2,431 $ 98 $(2,506) $ (8,221)
======== ======= ==== ======= ========
</TABLE>
F-79
<PAGE>
MRS. FIELDS' ORIGINAL COOKIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE 52 WEEKS ENDED JANUARY 1, 2000
(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............. $16,392 $ 1,348 $ 163 $ -- $ 17,903
------- ------- ----- ----- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property
and equipment, net... (5,157) -- -- -- (5,157)
Proceeds for asset
sales................ 461 -- -- -- 461
------- ------- ----- ----- --------
Net cash (used in)
provided by
investing
activities......... (4,696) -- -- -- (4,696)
------- ------- ----- ----- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payment of debt
financing costs...... (1,832) -- -- -- (1,832)
Principal payments on
long-term debt and
capital lease
obligations.......... (5,384) (1,194) -- -- (6,578)
Bank overdraft........ (4,133) -- -- -- (4,133)
Reduction in preferred
stock of Pretzel
Time................. -- (496) -- -- (496)
------- ------- ----- ----- --------
Net cash provided by
(used in) financing
activities......... (11,349) (1,690) -- -- (13,039)
------- ------- ----- ----- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS....... 347 (342) 163 -- 168
CASH AND CASH
EQUIVALENTS, beginning
of period.............. 3,539 1,134 78 -- 4,751
------- ------- ----- ----- --------
CASH AND CASH
EQUIVALENTS, end of
period................. $ 3,886 $ 792 $ 241 $ -- $ 4,919
======= ======= ===== ===== ========
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Interest paid......... $17,444 $ 513 $ -- $ -- $ 17,957
Taxes paid............ 204 197 -- -- 401
</TABLE>
F-80
<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 in this
prospectus is correct as of any time subsequent to its date.
Until August 13, 2000, 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
Discount Notes
Due 2005
----------------
PROSPECTUS
----------------
May 16, 2000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
1.1+ Purchase Agreement, dated as of August 13, 1998, among Mrs. Fields'
Holding Company, Inc., Jefferies & Company, Inc. and BT Alex. Brown
Incorporated
2.2** Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time, Inc. dated as of
June 12, 1998
2.3** 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
2.4+ 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
2.5+ 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
2.6+ 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
2.7+ 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
2.8+ 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
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
2.10+ 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
2.12** Asset Purchase Agreement between Mrs. Field's Original Cookies, Inc.
as buyer. The Cookie Conglomerate, Inc. and The Cookie Conglomerate,
LLP. the sellers and Ronald A. Eichel and Alan M. Kuehn, partners in
Cookie Comglomerate, LLP and shareholders of Cookie Conglomerate,
Inc., dated as of October 5, 1998.
2.13** Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc. as
the buyer and Martin E. Lisiewski, a shareholder of Pretzel Time,
Inc., dated as of December 9, 1998
2.14** Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc., and
Mrs. Fields Original Cookies, Inc., as buyer, and Pretzel Time, Inc.
and Martin E. Lisiewski, as seller, dated as of December 30, 1998
2.15** Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
as buyer and Pretzelmaker Holdings, Inc., Mark N. Geman, Donald G.
Cox, Jr., and Louis H. Marks as principal sellers, dated as of
November 19, 1998
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
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
4.12** Fourth Supplemental Indenture, dated as of December 30, 1998, among
Mrs. Field's Original Cookies, Inc., The Mrs. Fields' Brand, Inc.,
Great American Cookie Company, Inc., Pretzelmaker Holdings, Inc.,
Pretzel Time, Inc., and The Bank of New York, as Trustee
4.13** Fifth Supplemental Indenture, dated as of January 27, 2000, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., Pretzelmaker Holdings, Inc., Pretzel
Time, Inc. and The Bank of New York, as Trustee
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to
legality of the new senior secured discount notes to be issued by
Mrs. Fields' Holding 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 (No. 333-45179) 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. Registration Statement
on S-4 (No. 333-45179) 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 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
10.11** Employment Agreement, dated as of July 10, 1998, between Garry
Remington and Mrs. Fields' Original Cookies, Inc.
10.12+ Employment Agreement, dated as of June 1, 1999, between Mark Tanner
and Mrs. Fields' Original Cookies, Inc.
10.14+ 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
10.15+ 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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
10.16+ 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
10.17+ 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
10.20+ 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
10.21+ 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
10.24+ 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
10.26+ 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
10.31+ 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
10.38+ 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
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
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
10.51** First Amendment to Amended and Restated Loan Agreement, dated as of
July 31, 1998 by and between Mrs. Fields' Original Cookies, Inc. and
LaSalle National Bank.
10.52** Second Amendment to Amended and Restated Loan Agreement, dated as of
April 1, 1999 by Mrs. Fields' Original Cookies, Inc. and LaSalle
National Bank.
10.53** Third Amendment to Amended and Restated Loan Agreement, dated as of
February 1, 2000 by Mrs. Fields' Original Cookies, Inc. and LaSalle
National Bank.
12.1 Computation of ratio of earnings to fixed charges of Mrs. Fields'
Holding Company, Inc.
21.1+ Subsidiaries of Mrs. Fields' Holding Company, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.3+ 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
</TABLE>
- --------
+Filed previously
**Incorporated by reference to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on Form S-4 (File No. 333-67389)
II-5
<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.
The undersigned hereby undertakes that:
(1) For purposes of determining liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of the
information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purpose of determining liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
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
May, 2000.
Mrs. Fields' Holding Company, Inc.
/s/ Larry A. Hodges
By: _________________________________
Larry A. Hodges
President/CEO
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 May 16, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* President, Chief Executive Officer and
________________________________________ Director
(Larry A. Hodges)
/s/ Mark S. Tanner Senior Vice President and Chief
________________________________________ Financial Officer (Principal Financial
(Mark S. Tanner) and Accounting Officer)
* 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)
</TABLE>
/s/ Michael R. Ward
*By: ______________________________
Michael R. Ward
Attorney-in-Fact
II-7
<PAGE>
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
1.1+ Purchase Agreement, dated as of August 13, 1998, among Mrs. Fields'
Holding Company, Inc., Jefferies & Company, Inc. and BT Alex. Brown
Incorporated
2.2** Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc. and
Martin E. Lisiewski, shareholder of Pretzel Time, Inc. dated as of
June 12, 1998
2.3** 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
2.4+ 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
2.5+ 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
2.6+ 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
2.7+ 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
2.8+ 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
2.10+ 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
2.12** Asset Purchase Agreement between Mrs. Field's Original Cookies, Inc.
as buyer. The Cookie Conglomerate, Inc. and The Cookie Conglomerate,
LLP. the sellers and Ronald A. Eichel and Alan M. Kuehn, partners in
Cookie Comglomerate, LLP and shareholders of Cookie Conglomerate,
Inc., dated as of October 5, 1998.
2.13** Stock Purchase Agreement among Mrs. Fields' Original Cookies, Inc. as
the buyer and Martin E. Lisiewski, a shareholder of Pretzel Time,
Inc., dated as of December 9, 1998
2.14** Stock Purchase Agreement among Mrs. Fields' Holding Company, Inc., and
Mrs. Fields Original Cookies, Inc., as buyer, and Pretzel Time, Inc.
and Martin E. Lisiewski, as seller, dated as of December 30, 1998
2.15** Stock Purchase Agreement between Mrs. Fields' Original Cookies, Inc.
as buyer and Pretzelmaker Holdings, Inc., Mark N. Geman, Donald G.
Cox, Jr., and Louis H. Marks as principal sellers, dated as of
November 19, 1998
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
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
</TABLE>
<PAGE>
EXHIBIT (CONTINUED)
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
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
4.12** Fourth Supplemental Indenture, dated as of December 30, 1998, among
Mrs. Field's Original Cookies, Inc., The Mrs. Fields' Brand, Inc.,
Great American Cookie Company, Inc., Pretzelmaker Holdings, Inc.,
Pretzel Time, Inc., and The Bank of New York, as Trustee
4.13** Fifth Supplemental Indenture, dated as of January 27, 2000, among Mrs.
Fields' Original Cookies, Inc., The Mrs. Fields' Brand, Inc., Great
American Cookie Company, Inc., Pretzelmaker Holdings, Inc., Pretzel
Time, Inc. and The Bank of New York, as Trustee
5.1 Opinion and consent of Skadden, Arps, Slate, Meagher & Flom LLP as to
legality of the new senior secured discount notes to be issued by
Mrs. Fields' Holding 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 (No. 333-45179) 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. Registration Statement
on S-4 (No. 333-45179) 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 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
10.11** Employment Agreement, dated as of July 10, 1998, between Garry
Remington and Mrs. Fields' Original Cookies, Inc.
10.12+ Employment Agreement, dated as of June 1, 1999, between Mark Tanner
and Mrs. Fields' Original Cookies, Inc.
10.14+ 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
10.15+ 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
10.16+ 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
</TABLE>
<PAGE>
EXHIBIT (CONTINUED)
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
10.17+ 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 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
10.20+ 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
10.21+ 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
10.24+ 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
10.26+ 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
10.31+ 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
</TABLE>
<PAGE>
EXHIBIT (CONTINUED)
<TABLE>
<CAPTION>
Exhibit
-------
<C> <S>
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
10.51** First Amendment to Amended and Restated Loan Agreement, dated as of
July 31, 1998 by and between Mrs. Fields' Original Cookies, Inc. and
LaSalle National Bank.
10.52** Second Amendment to Amended and Restated Loan Agreement, dated as of
April 1, 1999 by and between Mrs. Fields' Original Cookies, Inc. and
LaSalle National Bank.
10.53** Third Amendment to Amended and Restated Loan Agreement, dated as of
February 1, 2000 by and between Mrs. Fields' Original Cookies, Inc.
and LaSalle National Bank.
12.1+ Computation of ratio of earnings to fixed charges of Mrs. Fields'
Holding Company, Inc.
21.1+ Subsidiaries of Mrs. Fields' Holding Company, Inc.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 5.1)
23.3+ 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
</TABLE>
- --------
+Filed previously
**Incorporated by reference to the Mrs. Fields' Original Cookies, Inc.
Registration Statement on Form S-4 (File No. 333-67389)
<PAGE>
Exhibit 5.1
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
May 16, 2000
Mrs. Fields' Holding Company, Inc.
2855 East Cottonwood Parkway, Suite 400
Salt Lake City, Utah 84121
Re: Exchange Offer Offering $55,000,000 Aggregate
Principal Amount at Maturity of
14% Series B Senior Secured Discount
Notes due 2005
Mrs. Fields' Holding Company, Inc.
Registration Statement on Form S-4
-----------------------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Mrs. Fields' Holding Company,
Inc., a Delaware corporation (the "Company"), in connection with the public
offering of $55,000,000 aggregate principal amount at maturity of the Company's
14% Series B Senior Secured Discount Notes due 2005 (the "New Senior Notes").
The New Senior Notes are to be issued pursuant to an exchange offer (the
"Exchange Offer") in exchange for a like principal amount of the issued and
outstanding 14% Series A Senior Secured Discount Notes due 2005 of the Company
(the "Old Senior Notes"), and are to be governed by an Indenture dated as of
August 24, 1998 (the "Indenture"), by and between the Company and The Bank of
New York, as Trustee (the "Trustee").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
<PAGE>
Mrs. Fields' Holding Company, Inc.
May 15, 2000
Page 2
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-4 (File No. 333-67393) relating to the Exchange Offer as
filed with the Securi ties and Exchange Commission (the "Commission") on
November 17, 1998 under the Act, Amendment No. 1 thereto, filed with the
Commission on February 8, 1999, Amendment No. 2 thereto, filed with the
Commission on September 14, 1999, Amendment No. 3 thereto, filed with the
Commission on November 4, 1999, and Amendment No. 4 thereto, filed with the
Commission on February 11, 2000, Amendment No. 5 thereto, filed with the
Commission on May 10, 2000, and Amend ment No. 6 thereto, filed with the
Commission on the date hereof (such Registration Statement, as so amended, being
hereinafter referred to as the "Registration Statement"), (ii) an executed copy
of the Registration Rights Agreement, dated August 24, 1998 (the "Registration
Rights Agreement"), by and among the Company, Jefferies & Company, Inc. and BT
Alex. Brown Incorporated, (iii) an executed copy of the Indenture, (iv) the
Restated Certificate of Incorporation of the Company, as amended to date, (v)
the By-Laws of the Company, as amended to date, (vi) certain resolutions adopted
by the Board of Directors of the Company (dated August 20, 1998), relating to,
among other things, the Exchange Offer, the issuance of the Old Senior Notes and
the New Senior Notes, the Indenture and related matters, (vii) the Form T-1 of
the Trustee filed as an exhibit to the Registration Statement, and (viii) the
form of the New Senior Notes included as an exhibit to the Indenture. We have
also examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and such agree ments, certificates
of public officials, certificates of officers or other representatives of the
Company and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be
<PAGE>
Mrs. Fields' Holding Company, Inc.
May 15, 2000
Page 3
executed by parties other than the Company, we have assumed that such parties
had or will have the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof on such parties.
As to any facts material to the opinions expressed herein which we did not
independently establish or verify, we have relied upon oral or written
statements and representations of officers, trustees and other representatives
of the Company and others.
Our opinion set forth herein is limited to the corporate law of the
State of Delaware and the laws of the State of New York which are normally
applicable to transactions of the type contemplated by the Exchange Offer and,
to the extent that judicial or regulatory orders or decrees or consents,
approvals, licenses, authorizations, validations, filings, recordings or
registrations with governmental authorities are relevant, to those required
under such laws (all of the foregoing being referred to as "Opined on Law"). We
do not express any opinion with respect to the law of any jurisdiction other
than Opined on Law or as to the effect of any such non opined law on the
opinions herein stated.
Based upon and subject to the foregoing and limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that when (i) the Registration Statement becomes effective and the
Indenture has been qualified under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"), and (ii) the New Senior Notes have been duly
executed by the Company and authenticated by the Trustee in accordance with the
provisions of the Indenture and have been delivered upon consummation of the
Exchange Offer against receipt of Old Senior Notes surrendered in exchange
therefor in accordance with the terms of the Exchange Offer, the New Senior
Notes will be valid and binding obligations of the Company, entitled to the
benefits of the Indenture and enforceable against the Company in accordance with
their terms, except to the extent that enforcement thereof may be limited by (A)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws
<PAGE>
Mrs. Fields' Holding Company, Inc.
May 15, 2000
Page 4
now or hereafter in effect relating to creditors' rights generally and (B)
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
In rendering the foregoing, we have assumed that the execution and
delivery by the Company of the New Senior Notes and the Indenture and the
performance by the Company of its obligations thereunder do not and will not
violate or constitute a default under any agreement or instrument to which the
Company or any of its properties is subject (except that we do not make the
assumptions set forth in this clause with respect to the Restated Certificate of
Incorporation or By-Laws of the Company or to the agreements filed as exhibits
to the Registration Statement).
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE>
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.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
May 12, 2000
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
MRS. FIELDS' HOLDING COMPANY, INC.
Offer for all Outstanding
14% Series A Senior Secured Discount Notes due 2005
in Exchange for
14% Series B Senior Secured Discount Notes due 2005
which Have Been Registered Under
the Securities Act of 1933, As Amended,
Pursuant to the Prospectus, dated May 16, 2000
THE EXCHANGE OFFER WILL EXPIRE AT MIDNIGHT NEW YORK CITY TIME, ON June 20,
2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
PRIOR TO MIDNIGHT, NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery To: The Bank of New York, Exchange Agent
By Mail, By Hand or Overnight Courier:
The Bank of New York
101 Barclay Street 7 East
New York, New York 10286
Attention: Odell Romeo
By Facsimile Transmission:
(for Eligible Institutions Only)
(212) 815-6339
Confirm by Telephone:
(212) 815-6337
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY OF THIS LETTER OF
TRANSMITTAL.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated May 16, 2000 (the "Prospectus"), of Mrs. Fields' Holding
Company, Inc., a Delaware corporation (the "Issuer") and this Letter of
Transmittal (the "Letter of Transmittal" or the "Letter"), which together
constitute the Issuer's offer (the "Exchange Offer") to exchange an aggregate
principal amount at maturity of up to $55,000,000 of the Issuer's 14% Series B
Senior Secured Discount Notes due 2005 which have been registered under the
Securities Act of 1933, as amended (the "New Notes"), for a like principal
amount, in the aggregate, of the Issuer's issued and outstanding 14% Series A
Senior Secured Discount Notes due 2005 (the "Old Notes") from the registered
holders thereof.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid. Accordingly, registered holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the
most recent date to which interest has been paid. Old Notes accepted for
exchange will cease to accrue interest from and after the date of consummation
of the Exchange Offer. Holders of Old Notes whose Old Notes are accepted for
exchange will not receive any payment in respect of accrued interest on such
Old Notes otherwise payable on any interest payment date the record date for
which occurs on or after consummation of the Exchange Offer.
<PAGE>
This Letter is to be completed by a Holder of Old Notes either if
certificates for such Old Notes are to be forwarded herewith or if a tender is
to be made by book-entry transfer to the account maintained by The Bank of New
York, as Exchange Agent for the Exchange Offer (the "Exchange Agent"), at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in "The Exchange OfferCBook-Entry Transfers" section of
the Prospectus and an Agent's Message is not delivered. Tenders by book-entry
transfer may also be made by delivering an Agent's Message in lieu of this
Letter. The term "Agent's Message" means a message, transmitted by the Book-
Entry Transfer Facility to and received by the Exchange Agent and forming a
part of a Book-Entry Confirmation (as defined below), which states that the
Book-Entry Transfer Facility has received an express acknowledgment from the
tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by this Letter and that the Issuers may
enforce this Letter against such participant. Holders of Old Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-
Entry Confirmation") and all other documents required by this Letter to the
Exchange Agent on or prior to the Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set forth in "The Exchange
OfferCGuaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space provided
below is inadequate, the certificate numbers and principal amount of Old Notes
should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES
- ----------------------------------------------------------------------------
1 2 3
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Name(s) and Address(es) of
Registered Holder(s) Aggregate Principal
(Please fill in, if Certificate Amount of Principal Amount
blank) Number(s)* Old Note(s) Tendered**
- ----------------------------------------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
Total
- ----------------------------------------------------------------------------
</TABLE>
*Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a Holder will be deemed to
have tendered ALL of the Old Notes represented by the Old Notes indicated
in column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
------------------------------------------------------
Account Number Transaction Code Number
----------------------- -------------------
By crediting the Old Notes to the Exchange Agent's account at the Book-Entry
Transfer Facility's Automated Tender Offer Program ("ATOP") and by complying
with applicable ATOP procedures with respect
2
<PAGE>
to the Exchange Offer, including transmitting to the Exchange Agent a
computer-generated Agent's Message in which the Holder of the Old Notes
acknowledges and agrees to be bound by the terms of, and makes the
representations and warranties contained in, the Letter, the participant in
the Book-Entry Transfer Facility confirms on behalf of itself and the
beneficial owners of such Old Notes all provisions of this Letter (including
all representations and warranties) applicable to it and such beneficial owner
as fully as if it had completed the information required herein and executed
and transmitted this Letter to the Exchange Agent.
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s)
----------------------------------------------------
Window Ticket Number (if any)
----------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------------------------------
Name of Institution Which Guaranteed Delivery
-----------------------------------------
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number
---------------------------------------------------------------
Transaction Code Number
---------------------------------------------------------
Name of Tendering Institution
------------------------------------------------------
[_]CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
-----------------------------------------------------------------------
Address:
---------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for
its own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act of
1933, as amended, in connection with any resale of such New Notes; however, by
so acknowledging and by delivering such a prospectus the undersigned will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended. If the undersigned is a broker-dealer that
will receive New Notes, it represents that the Old Notes to be exchanged for
the New Notes were acquired as a result of market-making activities or other
trading activities.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
3
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Issuer all right, title
and interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among
other things, to cause the Old Notes to be assigned, transferred and
exchanged. The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Old
Notes, and to acquire New Notes issuable upon the exchange of such tendered
Old Notes, and that, when the same are accepted for exchange, the Issuer will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim
when the same are accepted by the Issuer. The undersigned hereby further
represents that any New Notes acquired in exchange for Old Notes tendered
hereby will have been acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the
undersigned, that neither the Holder of such Old Notes nor such other person
has any arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder of such Old Notes
nor any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Issuer.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred
by Holders or other persons receiving the New Notes thereof (other than any
such Holder or other person that is an "affiliate" of the Issuer 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 New Notes are acquired in the ordinary course of business
of the person receiving such New Notes, whether or not such person is the
Holder, and neither the Holder nor such other person has any arrangement or
understanding with any person to participate in the distribution of such New
Notes. However, the SEC 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 SEC
would make a similar determination with respect to the Exchange Offer as in
other circumstances. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of New Notes and has no arrangement or understanding
to participate in a distribution of New Notes. If any Holder is an affiliate
of the Issuer, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such Holder (i) could not rely on the
applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. If the undersigned is a broker-dealer
that will receive New Notes for its own account in exchange for Old Notes, it
represents that the Old Notes to be exchanged for the New Notes were acquired
by it as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus meeting the requirements of the
Securities Act, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Issuer to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange OfferCWithdrawal Rights"
section of the Prospectus.
4
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the account indicated above maintained at
the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New
Notes (and, if applicable, substitute certificates representing Old Notes for
any Old Notes not exchanged) to the undersigned at the address shown above in
the box entitled "Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES
AS SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS (See
Instructions 3 and 4)
To be completed ONLY if
certificates for Old Notes not
exchanged and/or New Notes are to
be issued in the name of someone
other than the person or persons
whose signature(s) appear(s) on
this Letter above, or if Old Notes
delivered by book-entry transfer
which are not accepted for
exchange are to be returned by
credit to an account maintained at
the Book-Entry Transfer Facility
other than the account indicated
above.
Issue: New Notes and/or Old Notes
to:
Name(s)
-----------------------------
(Please Type or Print)
-----------------------------------
(Please Type or Print)
Address
-----------------------------
-----------------------------------
(Zip Code)
(Complete Substitute Form W-9)
[_]Credit unexchanged Old Notes
delivered by book-entry trans-
fer to the Book-Entry Transfer
Facility account set forth be-
low.
-----------------------------------
(Book-Entry Transfer Facility
Account Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if
certificates for Old Notes not
exchanged and/or New Notes are to
be sent to someone other than the
person or persons whose
signature(s) appear(s) on this
Letter above or to such person or
persons at an address other than
shown in the box entitled
"Description of Old Notes" on this
Letter above.
Mail: New Notes and/or Old Notes
to:
Name(s)
-----------------------------
(Please Type or Print)
-----------------------------------
(Please Type or Print)
Address
-----------------------------
-----------------------------------
(Zip Code)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU
THEREOF (TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY
CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED
DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO MIDNIGHT, NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
5
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete Accompanying Substitute Form W-9 on reverse side)
Dated:....................., 2000
X ....................................
.......................... , 2000
X ....................................
Signature(s) of Owner .......................... , 2000
Date
Area Code and Telephone Number .................................................
This Letter must be signed by the registered holder(s) as the name(s)
appear(s) on the certificate(s) for the Old Notes hereby tendered or on a
security position, on listing or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer or other
person acting in a fiduciary or representative capacity, please set forth full
title. See Instruction 3.
Name(s): .......................................................................
(Please Type or Print)
Capacity: ......................................................................
Address: .......................................................................
................................................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 3)
Signature(s) Guaranteed by an Eligible Institution: ............................
(Authorized Signature)
................................................................................
(Title)
................................................................................
(Name and Firm)
Dated: ............................................................. , 2000
6
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer for the
14% Series A Senior Secured Discount Notes due 2005
of Mrs. Fields' Holding Company, Inc. in Exchange for the
14% Series B Senior Secured Discount Notes due 2005, which Have Been
Registered Under the
Securities Act of 1933, As Amended
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures.
This letter is to be completed by Holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in
"The Exchange OfferCBook-Entry Transfers" section of the Prospectus and an
Agent's Message is not delivered. Tenders by book-entry transfer may also be
made by delivering an Agent's Message in lieu of this Letter. The term
"Agent's Message" means a message, transmitted by the Book-Entry Transfer
Facility to and received by the Exchange Agent and forming a part of a Book-
Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the tendering participant, which
acknowledgment states that such participant has received and agrees to be
bound by the Letter of Transmittal and that the Issuer may enforce the Letter
of Transmittal against such participant. Certificates for all physically
tendered Old Notes, or Book-Entry Confirmation, as the case may be, as well as
a properly completed and duly executed Letter (or manually signed facsimile
hereof or Agent's Message in lieu thereof) and any other documents required by
this Letter, must be received by the Exchange Agent at the address set forth
herein on or prior to the Expiration Date, or the tendering Holder must comply
with the guaranteed delivery procedures set forth below. Old Notes tendered
hereby must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old
Notes pursuant to the guaranteed delivery procedures set forth in "The
Exchange OfferCGuaranteed Delivery Procedures" section of the Prospectus.
Pursuant to such procedures, (i) such tender must be made through an Eligible
Institution, (ii) prior to midnight, New York City time, on the Expiration
Date, the Exchange Agent must receive from such Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Issuer (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of Old Notes and the amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that within
five New York Stock Exchange ("NYSE") trading days after the date of execution
of the Notice of Guaranteed Delivery, the certificates for all physically
tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation,
as the case may be, together with a properly completed and duly executed
Letter (or facsimile thereof or Agent's Message in lieu thereof) with any
required signature guarantees and any other documents required by this Letter
will be deposited by the Eligible Institution with the Exchange Agent, and
(iii) the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, together with
a properly completed and duly executed Letter (or facsimile thereof or Agent's
Message in lieu thereof) with any required signature guarantees and all other
documents required by this Letter, are received by the Exchange Agent within
five NYSE trading days after the Expiration Date. An "Eligible Institution" is
a firm which is a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering Holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the
mailing be registered mail, properly insured, with return receipt requested,
made sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to midnight, New York City time, on the Expiration Date.
7
<PAGE>
See "The Exchange Offer" section of the Prospectus.
2. Partial Tenders (not applicable to Holders who tender by book-entry
transfer).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering Holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of
Old NotesCPrincipal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering Holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
3. Signatures on this Letter; Bond Powers and Endorsements; Guarantee of
Signatures.
If this Letter is signed by the Holder of the Old Notes tendered hereby, the
signature must correspond exactly with the name as written on the face of the
certificates or on the Book-Entry Transfer Facility's security position
listing as the Holder of such Old Notes without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter as there are different registrations of
certificates.
When this Letter is signed by the registered Holder or Holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
written instrument or instruments of transfer or exchange are required. If,
however, the Old Notes are registered in the name of a person other than a
signer of the Letter, the Old 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 the Issuer in its sole
discretion, duly executed by the registered national securities exchange with
the signature thereon guaranteed by an Eligible Institution.
If this Letter is signed by a person or persons other than the registered
Holder or Holders of Old Notes, such Old 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 Old Notes.
If this Letter or any Old Notes or powers of attorneys are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Issuer,
proper evidence satisfactory to the Issuer of their authority to so act must
be submitted with the Letter.
Endorsements on certificates for Old Notes or signatures on powers of
attorneys required by this Instruction 3 must be guaranteed by an Eligible
Institution.
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Notes are tendered: (i) by a registered Holder of Old Notes
(which term, for purposes of the Exchange Offer, includes any participant in
the Book-Entry Transfer Facility system whose name appears on a security
position listing as the Holder of such Old Notes) who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. Special Issuance and Delivery Instructions
Tendering Holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and
or substitute certificates evidencing Old Notes not exchanged
8
<PAGE>
are to be issued or sent, if different from the name or address of the person
signing this Letter. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated. Holders tendering Old Notes by book-entry transfer may request that
Old Notes not exchanged be credited to such account maintained at the Book-
Entry Transfer Facility as such Holder may designate hereon. If no such
instructions are given, such Old Notes not exchanged will be returned to the
name and address of the person signing this Letter.
5. Taxpayer Identification Number.
Federal income tax law generally requires that a tendering Holder whose Old
Notes are accepted for exchange must provide the Issuer (as payor) with such
Holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering Holder who is an individual, is his or
her social security number. If the Issuer is not provided with the current TIN
or an adequate basis for an exemption, such tendering Holder may be subject to
a $50 penalty imposed by the Internal Revenue Service. In addition, delivery
to such tendering Holder of New Notes may be subject to backup withholding in
an amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt Holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines")
for additional instructions.
To prevent backup withholding, each tendering Holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from backup withholding, or (ii) the
Holder has not been notified by the Internal Revenue Service that such Holder
is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
Holder that such Holder is no longer subject to backup withholding. If the
tendering Holder of Old Notes is a nonresident alien or foreign entity not
subject to backup withholding, such Holder must give the Exchange Agent a
completed Form W-8, Certificate of Foreign Status. These forms may be obtained
from the Exchange Agent. If the Old Notes are in more than one name or are not
in the name of the actual owner, such Holder should consult the W-9 Guidelines
for information on which TIN to report. If such Holder does not have a TIN,
such Holder should consult the W-9 Guidelines for instructions on applying for
a TIN, check the box in Part 2 of the Substitute Form W-9 and write "applied
for" in lieu of its TIN. Note: Checking this box and writing "applied for" on
the form means that such Holder has already applied for a TIN or that such
Holder intends to apply for one in the near future. If such Holder does not
provide its TIN to the Exchange Agent within 60 days, backup withholding will
begin and continue until such Holder furnishes its TIN to the Exchange Agent.
The information requested above should be directed to the Exchange Agent at
the following address:
Delivery To: The Bank of New York, Exchange Agent
By mail, By Hand and Overnight Courier:
The Bank of New York
101 Barclay Street 7 East
New York, New York 10286
Attention: Odell Romeo
By Facsimile
(for Eligible Institutions Only):
Confirm by Telephone:
(212) 815-6339
9
<PAGE>
6. Transfer Taxes.
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old Notes tendered, or if a transfer tax is imposed
for any reason other than the exchange of Old Notes in connection with the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with this Letter, the amount of such transfer taxes
will be billed directly to such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. Waiver of Conditions.
The Issuer reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Note either before or after the Expiration Date (including the right to waive
the ineligibility of any Holder who seeks to tender Old Notes in the Exchange
Offer)
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders of Old Notes, by execution of this Letter or
an Agent's Message in lieu thereof, shall waive any right to receive notice of
the acceptance of their Old Notes for exchange.
Neither the Issuer, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them.
9. Mutilated, Lost, Stolen or Destroyed Old Notes.
Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
10. Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to 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 the address set forth above prior to
midnight, New York City time, on the Expiration Date. Any such notice of
withdrawal must: (i) specify the name of the person having tendered the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the principal amount of such Old Notes), and (iii) (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the Depositor. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then prior to the release of such certificates the Depositor
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 Old
Notes have been tendered pursuant to the procedure for book-entry transfer set
forth in "The Exchange OfferCBook-Entry Transfers" section of the Prospectus,
any notice of withdrawal must specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuer, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer and no
New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are
10
<PAGE>
validly retendered. Any Old Notes that 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 (or, in the case of Old Notes tendered by book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures set forth in "The
Exchange OfferCBook-Entry Transfers" section of the Prospectus, such Old Notes
will be credited to an account maintained with the Book-Entry Transfer
Facility for the Old Notes) as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following the procedures described above at any time on
or prior to midnight, New York City time, on the Expiration Date.
11. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices
of Guaranteed Delivery and other related documents may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: THE BANK OF NEW YORK
Part 1: PLEASE PROVIDE YOUR TIN: _________________
TIN IN THE BOX AT RIGHT AND Social Security Number
CERTIFY BY SIGNING AND or Employer
DATING BELOW. Identification Number
SUBSTITUTE
Form W-9
Department of
the Treasury --------------------------------------------------------
Internal Part 2: TIN Applied For
Revenue --------------------------------------------------------
Service Payor's Request For Taxpayer Identification Number
("TIN") and Certification
Payor's Request for Taxpayer Identification Number ("TIN") and Certification
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT:
(1) the number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me).
(2) I am not subject to backup withholding either
because: (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
backup withholding, and
(3) any other information provided on this form is
true and correct.
SIGNATURE ______________ DATE _______
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
______________________________________ ______________________________________
Signature Date
12
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR
MRS. FIELDS' HOLDING COMPANY, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Mrs. Fields' Holding Company, Inc. (the "Issuer") made
pursuant to the Prospectus, dated May 16, 2000 (the "Prospectus"), if
certificates for the outstanding 14% Series A Senior Secured Discount Notes due
2005 of the Issuer (the "Old Notes") are not immediately available or if the
procedure for book-entry transfer cannot be completed on a timely basis or time
will not permit all required documents to reach The Bank of New York, as
exchange agent (the "Exchange Agent") prior to midnight, New York City time, on
the Expiration Date of the Exchange Offer. Such form may be delivered or
transmitted by facsimile transmission, mail or hand delivery to the Exchange
Agent as set forth below. Capitalized terms not defined herein are defined in
the Prospectus.
Delivery To: The Bank of New York, Exchange Agent
By Mail or Hand Delivery or Overnight Courier:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Odell Romeo
By Facsimile Transmission:
(for Eligible Institutions Only)
(212) 815-6339
Confirm by Telephone:
(212) 815-6337
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus, the undersigned
hereby tenders to the Issuer the principal amount of Old Notes set forth below
pursuant to the guaranteed delivery procedure described in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus.
<PAGE>
Principal Amount of Old Notes
Tendered:* If Old Notes will be delivered by
$ ___________________________________ book-entry transfer to The
Certificate Nos. (if available): Depository Trust Company, provide
- ------------------------------------- account number.
Account Number ______________________
Total Principal Amount Represented by Old Notes Certificate(s):
$ ___________________________________
- --------------------------------------------------------------------------------
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X _______________________________ --------
X _______________________________ --------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number: ________________
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
Please print name(s) and address(es)
Name(s):
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Capacity:
---------------------------------------------------------------------
Address(es):
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
- --------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, an Eligible Institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program), hereby guarantees
that the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof or Agent's Message in lieu thereof) with any required signature
guarantees and any other documents required by the Letter of Transmittal, will
be received by the Exchange Agent at the address set forth above, within five
New York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery.
- ------------------------------------- -------------------------------------
Name of Firm Authorized Signature
- ------------------------------------- -------------------------------------
Address Title
- ------------------------------------- Name: _______________________________
Zip Code (Please Type or Print)
Dated: ______________________________
Area Code and Tel. No. ______________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED
LETTER OF TRANSMITTAL.
<PAGE>
EXHIBIT 99.4
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer-- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- ----------------------------------- -----------------------------------
<TABLE>
<CAPTION>
Give the
TAXPAYER
IDENTIFICATION
For this type of account: number of--
- --------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on
the account(1)
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor
guardian or committee or
for a designated ward, incompetent(3)
minor, or incompetent
person(3)
7.a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
8. Sole proprietorship The owner(4)
account
- --------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Give the
TAXPAYER
IDENTIFICATION
For this type of account: number of--
--
<S> <C>
9. A valid trust, estate, The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
payments
--
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number or employer identification number.
(4) Show your individual name. You may also enter your business name. You may
use your social security umber or employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you do not have a taxpayer identification number or you do not know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), at the local office of the Social
Security Administration or the Internal Revenue Service and apply for a
number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual retirement
plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a) of the Code.
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of
1940.
. A foreign central bank of issue.
. A future commission merchant registered with the Commodity Futures Trading
Commission.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441
of the Code.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to an appropriate nominee.
. Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
. Payments described in section 6049(b)(5) of the Code to nonresident
aliens.
. Payments on tax-free covenant bonds under section 1451 of the Code.
. Payments made by certain foreign organizations.
. Payments of mortgage interest to you.
. Payments made to an appropriate nominee.
Exempt payees described above should file substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT
ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A
COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest, or other payments to give correct taxpayer identification numbers to
payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file a tax return. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a correct taxpayer identification number to a payer. Certain
penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your correct taxpayer identification number to a payer, you
are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 20% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information With Respect To Withholding.--If you
make a false statement with no reasonable basis that results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
EXHIBIT 99.6
MRS. FIELDS' HOLDING COMPANY, INC.
Offer for all Outstanding
14% Series A Senior Secured Discount Notes due 2005
in Exchange for
14% Series B Senior Secured Discount Notes due 2005,
which Have Been Registered Under
the Securities Act of 1933,
As Amended
To:Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Mrs. Fields' Holding Company, Inc. (the "Issuer") is offering, upon and
subject to the terms and conditions set forth in the prospectus dated May 16,
2000 (the "Prospectus"), and the enclosed letter of transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") their 14% Series B Senior
Secured Discount Notes due 2005, which have been registered under the
Securities Act of 1933, as amended, for their outstanding 14% Series A Senior
Secured Discount Notes due 2005 (the "Old Notes"). The Exchange Offer is being
made in order to satisfy certain obligations of the Issuer contained in the
registration rights agreement in respect of the Old Notes, dated August 24,
1998, by and among the Issuer and the initial purchasers referred to therein.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated May 16, 2000;
2. The Letter of Transmittal for your use and for the information of your
clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange Offer if
certificates for Old Notes are not immediately available or time will not
permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account you
hold Old Notes registered in your name or the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Exchange
Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to The Bank of New York, the Exchange Agent for
the Exchange Offer.
Your prompt action is requested. The Exchange Offer will expire at midnight,
New York City time, on June 20, 2000, unless extended by the Issuer (the
"Expiration Date"). Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed and properly completed
Letter of Transmittal (or facsimile thereof or Agent's Message in lieu
thereof), with any required signature guarantees and any other required
documents, should be sent to the Exchange Agent and certificates representing
the Old Notes, or a timely confirmation of a book-entry transfer of such Old
Notes, should be delivered to the Exchange Agent, all in accordance with the
instructions set forth in the Letter of Transmittal and the Prospectus.
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If a registered holder of Old Notes desires to tender, but such Old Notes are
not immediately available, or time will not permit such holder's Old 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 by following the guaranteed delivery procedures
described in the Prospectus under "The Exchange Offer--Guaranteed Delivery
Procedures."
The Issuer will, upon request, reimburse brokers, dealers, commercial banks
and trust companies for reasonable and necessary costs and expenses incurred by
them in forwarding the Prospectus and the related documents to the beneficial
owners of Old Notes held by them as nominee or in a fiduciary capacity. The
Issuer will not make any payments to brokers, dealers, or others soliciting
acceptances of the Exchange Offer. The holders will not be obligated to pay or
cause to be paid all stock transfer taxes applicable to the exchange of Old
Notes pursuant to the Exchange Offer.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to The Bank
of New York, the Exchange Agent for the Exchange Offer, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
Mrs. Fields' Holding Company, Inc.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE
IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
Enclosures
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EXHIBIT 99.7
MRS. FIELDS' HOLDING COMPANY, INC.
Offer for all Outstanding
14% Series A Senior Secured Discount Notes due 2005
in Exchange for
14% Series B Senior Secured Discount Notes due 2005,
which Have Been Registered Under
the Securities Act of 1933,
As Amended
To Our Clients:
Enclosed for your consideration is a prospectus dated May 16, 2000 (the
"Prospectus"), and the related letter of transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Mrs. Fields'
Holding Company, Inc. (the "Issuer") to exchange their 14% Series B Senior
Secured Discount Notes due 2005, which have been registered under the
Securities Act of 1933, as amended, for their outstanding 14% Series A Senior
Secured Discount Notes due 2005 (the "Old Notes"), upon the terms and subject
to the conditions described in the Prospectus and the Letter of Transmittal.
The Exchange Offer is being made in order to satisfy certain obligations of the
Issuer contained in the registration rights agreement in respect of the Old
Notes, dated August 24, 1998, by and among the Issuer and the initial
purchasers referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes held by us for your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms
and conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in order
to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at midnight,
New York City time, on June 20, 2000, unless extended by the Issuer. Any Old
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Certain Conditions to
the Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the holder
to the Issuer will be paid by the Issuer.
4. The Exchange Offer expires at midnight, New York City time, on June 20,
2000, unless extended by the Issuer.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for information only
and may not be used directly by you to tender Old Notes.
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INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Mrs.
Fields' Holding Company, Inc with respect to their Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
Aggregate Principal Amount of Old
Notes
14% Series A Senior Secured Discount
Notes due 2005
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[_]Please do not tender any Old
Notes held by you for my account.
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Dated: May 16, 2000 Signature(s)
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Please print name(s) here
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Address(es)
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Area Code and Telephone Number
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Tax Identification or Social
Security No(s).
None of the Old Notes held by us for your account will be tendered unless we
receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for
your account.
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