SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to ___________________
Commission File Number: 0-18590
GOOD TIMES RESTAURANTS INC.
(Exact name of small business issuer in its charter)
Nevada 84-1133368
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)
8620 Wolff Court, Suite 330, Westminster 80030
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 427-4221
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
NONE _______________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Common Stock Purchase Warrants
(Title of class)
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-KSB is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
Registrant's revenues for the most recent fiscal year were $12,826,000.
As of January 6, 1997, the aggregate market value of voting stock held by non-
affiliates was $3,305,324.
As of January 6, 1997, the Registrant had 6,397,778 shares of common stock
outstanding.
Transitional Small Business Disclosure Format Yes No X <PAGE>
PART I
ITEM 1. BUSINESS
Background
Good Times Restaurants Inc. (the "Company") was organized under Nevada
law in 1987 and is the holding company for a wholly-owned subsidiary that is
engaged in the business of developing, owning, operating and franchising
restaurants under the name Good Times Drive Thru BurgersSM. Good Times Drive
Thru Burgers SM restaurants are owned, operated and franchised by the Company's
subsidiary, Good Times Drive Thru Inc. (Good Times Drive Thru Burgers SM and
Good Times Drive Thru Inc. are interchangeably referred to herein as "Good
Times" or "Drive Thru"). Round The Corner restaurants are owned and operated
by the Company's former subsidiary, Round The Corner Restaurants, Inc. (Round
The Corner and Round The Corner Restaurants, Inc. are interchangeably referred
to herein as "RTC"). With RTC's restaurant sales significantly declining in
1994 and 1995 and RTC incurring significant losses, the Company decided to
divest itself of RTC and focus all of its resources on development of the Good
Times concept. On September 30, 1995, the Company sold 100% of the stock of RTC
to Hot Concepts Management Group, L.L.C. ("Hot Concepts").
RTC was established in 1968 and developed a chain of sit-down gourmet
hamburger restaurants. In 1986, RTC, then a closely-held corporation, formed
Drive Thru in order to explore and develop the "Good Times! Drive Thru
Burgers"SM double drive through concept. Drive Thru was expected to take
advantage of the emerging industry and demographic trends that favor drive-
through and take-out patronage and to take advantage of RTC's experienced
management in site location, marketing, quality assurance programs, training,
accounting systems and distribution and purchasing networks.
In 1988, RTC distributed Drive Thru stock to its shareholders after which
Drive Thru operated as an independent company. Between 1990 and 1992, Drive
Thru entered into a series of transactions resulting in Drive Thru becoming a
public company and merging with RTC.
Prior to the merger, Drive Thru had maintained a close working
relationship with RTC through a management agreement, shared employees, certain
common officers and directors and shared administrative offices. The
relationship of Drive Thru with RTC enabled Drive Thru to benefit from the
years of testing for food and paper products and dependable suppliers by RTC.
Drive Thru also benefited from joint purchasing economies through RTC's
established network of suppliers and manufacturers and from joint marketing
expertise. These synergies were enhanced with the completion of the merger.
As the number of Good Times units increased, Drive Thru was able to function
autonomously and these synergies were no longer applicable. This, combined
with RTC's restaurant sales significantly declining in 1994 and 1995 and RTC
incurring significant losses, led the Company to divest itself of RTC and focus
all of its resources on development of the Good Times concept. On September 30,
1995, the Company sold 100% of the stock of RTC to Hot Concepts (see page 9).
Corporate Operations
In February 1993, the Company restructured the operations and management
of Drive Thru and RTC as separately accountable wholly-owned subsidiaries of
the Company to allow their managements to focus exclusively on their respective
businesses. The Company currently leases approximately 5,600 square feet of
space for its executive offices in Westminster, Colorado for $67,896 per year.
The lease is for a five year period commencing in April 1993, with an
additional five year renewal option. Through fiscal 1995, the Company
provided administrative and accounting support to Drive Thru and RTC and
charged monthly management fees for such services. With the sale of RTC, the
Company no longer provides such services to RTC and has consolidated its
operations with Drive Thru.
The Company is a holding company and its officers are the President and
Chief Executive Officer of the Company and the Controller, Secretary and
Treasurer. Officers of the Company hold the same position with Drive Thru and
all personnel associated with the Company are employees of Drive Thru.
For 1997, Drive Thru plans to concentrate its efforts and capital on the
growth of the Good Times restaurant chain in Colorado through additional
company-owned, joint-venture and franchised restaurants.
Good Times
Good Times Drive Thru Inc. is engaged in the operation and development
of the Good Times Drive Thru BurgersSM restaurants, featuring extremely fast
service and a limited, high quality menu for drive-through and walk-up
customers. Drive Thru currently operates and franchises twenty-three Good
Times restaurants in the State of Colorado, of which nineteen are located in
metropolitan Denver, one in Boulder, one in Longmont, one in Grand Junction,
and one in Greeley. There is also one franchised Good Times restaurant in
Boise, Idaho. Pursuant to the co-development provisions in its development
agreements with two Drive Thru franchisees, seven of these units in Colorado
are owned jointly with such franchisees. Ten Good Times units are franchised
restaurants with six operating in the Denver metropolitan area, one in Grand
Junction, Colorado, one in Greeley, Colorado, one in Longmont, Colorado and one
in Boise, Idaho. Good Times is offering franchises for the development of
additional Good Times restaurants.
In fiscal 1996, Drive Thru focused on the disposition or relocation of
under-performing restaurants, reductions in corporate overhead and solidifying
its working capital position and franchise partners for continued development
of the Colorado market.
The hamburger fast food market remains intensely competitive with the
major competitors aggressively discounting menu prices, which has had an
adverse impact on Drive Thru's sales and operating profits. The Company
believes it has an advantage in providing a superior level of service and
quality based upon consumer research studies, but is limited in its ability to
effectively advertise and communicate those advantages until "critical mass" in
restaurant sales are achieved in the Colorado market for consistent television
and radio advertising, which the Company estimates to be over $30,000,000 in
system-wide restaurant sales in Colorado, or approximately 30-35 restaurants.
The Company's objectives for fiscal 1997 are to continue to build
additional company-owned, joint-venture and franchised restaurants in Colorado
and add indoor seating to select existing restaurants to mitigate the adverse
impact of inclement weather and to increase sales during the dinner daypart.
Additionally, the Company will introduce limited new menu offerings and
advertise what it believes to be attractive price points for its products.
Colorado is divided into two primary television markets--Denver and
Colorado Springs/Pueblo. It is the Company's intent to fully develop the
Denver market to "critical mass" and then develop the Colorado Springs market
over the next three to four years, depending on availability of financing and
suitable sites. Management estimates the Denver market will support 40-50 Good
Times restaurants and the Colorado Springs market will support 8-10
restaurants.
Drive Thru's goals in fiscal 1995 were to continue to develop the
Colorado market and to expand the Good Times concept into an out-of-state
market. In the spring of 1995, Drive Thru reached an agreement with a
franchisee of four Rally's Hamburger restaurants in Las Vegas, Nevada to
acquire those four units. It was management's intent to convert those units
into Good Times restaurants and to develop an additional six Good Times
restaurants in Las Vegas over a twelve month period. Management believed that
with ten units operating in the Las Vegas market, Good Times would have
"critical mass" in the Las Vegas Area of Dominant Influence ("ADI"), or
television market. ("Critical mass" is defined by the Company as having a
sufficient number of restaurants in a market to economically advertise on
television and to take advantage of operational and distribution economies of
scale.) Drive Thru opened the first two converted Rally's units in June 1995
and the other two restaurants in August 1995. However, Drive Thru experienced
unexpected difficulty in securing suitable locations at reasonable cost in the
Las Vegas market and suitable financing for new stores and realized that
critical mass could not be achieved within an acceptable period of time.
During the same time period, media advertising costs in Denver increased
dramatically, requiring a higher level of store penetration in Colorado to
support the Company's advertising campaign. Since four units would continue
to operate at a significant loss until Drive Thru could effectively advertise
in the Las Vegas market, it was decided to cease operations in Las Vegas and
sell the stores. The four Las Vegas units were closed on October 31, 1995 and
sold as of November 30, 1995. Drive Thru will focus its development efforts
on new Colorado locations until full penetration and critical mass is achieved
of 30-35 restaurants.
The Concept. The concept of drive-through only restaurants has existed
for over 40 years. It addresses both changing consumer profiles and continuing
restaurant industry concerns. The simplicity and relatively low capital
requirements of the concept provide the opportunity for growth and
profitability.
Management believes, based upon its experience in the restaurant industry
and research reports, that the Company's hamburger restaurant concept has
proven to be successful because of the following principal factors:
... Consistently providing high perceived value, friendly and quick
service and a high quality product as rated by consumers.
... Capital investment of 1/2 to 2/3 that of a major fast-food
restaurant with seating and parking facilities.
... Ratio of sales to capital investment higher than a major fast-food
restaurant.
... Margins of sales to operating costs comparable to major fast-food
restaurants.
... Cost of menu items to the consumer comparable or lower than those
of large hamburger chains, yet providing similar or higher quality
products than those chains.
Good Times' unique 880 square foot "double drive-thru" modular buildings
are designed to serve a growing segment of the fast-food market (off-premise
consumption) that finds traditional sit-down dining too slow, too inconvenient
or too expensive for their needs. The Company plans to develop additional
restaurants with seating and a single drive thru lane in fiscal 1997 in select
locations to take advantage of conversion opportunities and to mitigate effects
of inclement weather. Good Times' food preparation and service systems deliver
a quality meal with a faster order-delivery response time and have the capacity
to reach the same sales levels as traditional hamburger chains. Typically, a
customer receives an order 30 to 45 seconds after his vehicle reaches the
take-out window. The simplicity of the menu, the relatively low capital
investment, and the efficient design of the building and equipment allow Good
Times to sell its products at comparable or lower prices than the major fast
food hamburger chains. The limited menu allows maximum attention to be devoted
to food quality and speed of service.
Menu. The menu of a Good Times restaurant is limited to hamburgers,
cheeseburgers, chicken sandwiches, french fries, milk shakes and soft drinks.
Each sandwich is made to order at the time the customer places the order and
is not pre-prepared.
The hamburger patty is 4.0 ounces of 100% USDA approved beef, served on
a four-inch sesame seed bun. Hamburgers and cheeseburgers are garnished with
fresh lettuce, fresh sliced, sweet red onions, mayonnaise, mustard, ketchup,
pickles and fresh sliced tomato. The cheese is 100% pure sharp American
thickly sliced. The chicken sandwiches include a spiced, battered deep-fried
breast patty and a 3-1/2 ounce grilled spicy breast patty, both served with
mayonnaise, lettuce and tomato. Fryers are equipped with compensating
computers to deliver a consistent product and minimize the skills required of
employees.
As of January 7, 1997, the price of the deluxe Good Times hamburger was
$1.10, the deluxe cheeseburger $1.39, the deluxe double cheeseburger $2.19, the
deluxe bacon-cheeseburger $1.89, the chicken sandwiches $2.19, the chicken club
sandwich $2.79, french fries $.79 and $.99 and a 16-ounce soft drink $.79. All
cups, sandwich bags and serving bags carry the Good Times Drive Thru BurgersSM
logo.
Good Times restaurants are generally open 14 to 16 hours per day, seven
days a week, for lunch, dinner and late-night snacks and meals.
The Building. The existing Good Times restaurants are less than one-third
the size of the typical restaurants of the four largest hamburger chains
and require approximately one-half the land area based upon management's
experience in the restaurant industry and research reports. The current
standard Good Times restaurant building is a double drive-through and walk-up
style structure containing approximately 880 square feet built on 18,000 to
30,000 square-foot lots. All existing restaurants utilize a double drive-thru
concept that allows simultaneous service from opposite sides of the restaurant
and one or two walk-up windows. There is currently no inside seating area
although most have a patio for outdoor eating.
Management of Drive Thru believes that the building form, design and
aesthetic appeal address key issues and concerns of the consumer: speed,
cleanliness, security, eye appeal and low maintenance. The building is modular
in construction with a reinforced concrete slab and welded tubular steel
structural members. The exterior consists of a cream-colored dry-vit system
with an enclosed glass vestibule at the front for walk-up service and to
exhibit the fast system of service. A brightly lit multi-colored fascia band
runs the entire length on both sides of the building in addition to product and
Good Times proprietary signage. The rest rooms and walk-in refrigerators are
modular components of the building. The buildings are transportable and
therefore can be moved from an unsuccessful site to a better location. Though
management does extensive site evaluation and expects a minimum number of
buildings will ever have to be moved, one under-performing Good Times unit was
relocated in 1996 and one will be relocated in 1997.
As a result of the relatively small size of the restaurant building, Good
Times restaurants require significantly less capital investment and have
substantially lower operating costs per unit than recently constructed full-
service fast food restaurants. The cost of a fully equipped Good Times
restaurant is one-half to two-thirds the cost for a major fast-food restaurant
with seating and parking facilities. Because Good Times restaurants are small,
Good Times can take advantage of smaller and odd-sized lots that have little
or no development value or small pads and out lots of shopping centers and
malls.
Plan of Operation. The first objective of Drive Thru has been to develop
critical mass in the Denver television market (referred to as the Denver ADI
which includes Boulder, Greeley, Longmont and other communities in northern
Colorado.) In the past, Management believed that, in Denver, critical mass
required approximately 20 restaurants to be operating, which was the number of
Good Times operating in the Denver ADI when the decision was made to open the
Las Vegas Good Times restaurants. However, increased advertising by its
competitors and significant increases in the cost of advertising in Denver has
caused management to reevaluate critical mass as requiring 30 to 35 Good Times
restaurants in the Denver ADI. Good Times currently has seven company-owned,
eight franchised and seven joint venture stores in the Denver ADI. Drive Thru
also has one franchised restaurant in Boise, Idaho and has one franchised
restaurant in Grand Junction, Colorado.
At January 6, 1997, the Company operated 14 company-owned and joint-venture
Good Times restaurants and had nine franchised restaurants open in
Colorado. Drive Thru acquired four former Rally's Hamburger restaurants in Las
Vegas, Nevada which were converted to Good Times units, but were sold as of
November 30, 1995. These units are not included in this total.
September 30, 1995 September 30, 1996
Company-owned restaurants 9 7
Joint venture restaurants 8 7
Franchise operated restaurants 7 10
Total restaurants 24 24
Drive Thru currently has in place nine franchise agreements; five are
in the Denver ADI and one is on the Western Slope of Colorado. During 1996,
Drive Thru sold one company-owned restaurant and one joint-venture restaurant
to franchisees, closed two company-owned restaurant, which is anticipated to
reopen in 1997 after remodeling with indoor seating, closed one joint-venture
restaurant, which will be relocated to a new site in 1997, and opened two
joint-venture restaurants and one franchised restaurant. Subsequent to
September 30, 1996, Drive Thru transferred its joint-venture partnership
interest in the Boise, Idaho restaurant to the joint-venture partner who will
operate the restaurant as a franchisee.
Management anticipates that Drive Thru and its existing franchisees will
develop a total of five to eight Good Times units in the Denver ADI in calendar
1997. One of those units is anticipated to be a joint venture unit, two to
three of these are to be company-owned and the remainder are to be franchised
units.
The implementation of the development schedule set forth above for the
Denver ADI during fiscal 1997 will help Drive Thru move toward the "critical
mass" for media advertising necessary to effectively compete in the Denver
market. Reaching such critical mass increases media advertising and
supervision efficiencies thereby creating greater consumer awareness so as to
increase average restaurant sales volumes and decrease general and
administrative expenses as a percentage of revenues.
Drive Thru's ongoing objective is to continue to increase average
restaurant sales through increased customer counts in each daypart (lunch,
dinner and late-night), selective menu and price promotions and effective
marketing of Good Times competitive attributes of high quality products, quick
service and competitive prices. The Company anticipates modest price increases
in 1997 in anticipation of higher hourly wages and to reduce cost of sales.
Operations and Management. Good Times has defined three ingredients
essential to its success: (i) consistent delivery of high quality products;
(ii) speed of service; and (iii) value pricing. The order system at each Good
Times restaurant is equipped with an internal timing device that displays and
records the time each order takes to prepare and deliver. The total
transaction time for the delivery of food at the window is approximately 30 to
45 seconds during peak times.
Each Good Times unit employs a general manager, one to two assistant
managers and approximately 25 employees most of whom work part-time during
three shifts. Operating systems and training materials are utilized to ensure
consistent performance to Good Times' standards. An eight to ten week training
program is utilized to train restaurant managers on all phases of the
operation. Ongoing training is provided as necessary. Management of Drive
Thru believes that incentive compensation of its restaurant managers is
essential to the success of its business. Accordingly, in addition to a
salary, managerial employees may be paid a bonus based upon proficiency in
meeting financial and performance objectives. Drive Thru provides a medical
and dental insurance plan to management with a portion of the cost contributed
by the participating employee.
Drive Thru presently purchases its products from independent food
processors and distributors and does not anticipate any difficulty in
continuing to obtain an adequate quantity of food products of acceptable
quality and at acceptable prices.
Financial and management control is maintained through the use of data
processing and centralized accounting and management information systems which
are provided by the Company. Restaurant managers forward sales reports, vendor
invoices, payroll data and other operating information to Drive Thru's
headquarters. Management receives daily, weekly and monthly reports
identifying food, labor and operating expenses and other significant indicators
of restaurant performance. Management of Drive Thru believes that such
reporting requirements enhance its ability to control and manage its expanding
operations.
Drive Thru employs a full-time Director of Human Resources whose
principal responsibility is to recruit and coordinate the training of
management personnel required for continued expansion of Good Times units in
the Denver ADI.
Marketing and Advertising. Marketing activities to date have focused on
radio advertising and restaurant level promotions in the immediate trade area
around each location. Within the Denver market the ultimate objective is to
develop adequate market penetration by establishing a sufficient number of Good
Times restaurants to support radio and television advertising.
In April 1993, Good Times initiated its first radio advertising campaign.
Management believes that the implementation of radio advertising and continued
complimentary "word of mouth" was the principal reason that same store sales
showed increases of 19.6% for fiscal 1994 over fiscal 1993 and 15.4% for the
first six months of fiscal 1995 over fiscal 1994. However, in the second half
of fiscal 1995, Good Times' competitors increased their advertising, focusing
on price promotions and tie-ins with major motion pictures. This aggressive
price promotion and expanded advertising has adversely impacted Drive Thru's
awareness and usage resulting in same store sales declines.
The cost of effective television advertising has also increased
significantly and Drive Thru does not anticipate consistent television
advertising until annualized sales trends approach $30,000,000. It is
anticipated that with the fulfillment of the 1997 development schedule, Good
Times will advertise on television in 1998. The marketing efforts of Good
Times focus on building "brand awareness" of the Good Times concept, combined
with product and pricing messages, which is important as hamburger operators
compete against one another based on price. Drive Thru believes that it has
a higher quality product, delivered to the customer faster, at an equal or
better value than its competitors.
Signage is one of the most important elements for establishing identity
at each location. The Good Times restaurant sign package that has been
developed offers flexibility based on local codes, site layout and surrounding
property. The free-standing sign can be dimensionally increased or decreased
while maintaining the same look and can be pole-mounted for high traffic areas
where allowed.
Franchise Program. Drive Thru has prepared prototype area rights and
franchise agreements, a Uniform Franchise Offering Circular and advertising
material to be utilized in soliciting prospective franchisees. Drive Thru
seeks to attract franchisees having experience as restaurant operators, that
are well-capitalized and have demonstrated the ability to develop multi-unit
franchises. Drive Thru will carefully review sites selected for franchises and
will monitor performance of franchise units. Good Times is currently working
with potential franchisees only for development of units in Colorado.
Drive Thru estimates that it will cost a franchisee on average
approximately $475,000 to $575,000 to open a Good Times restaurant, including
pre-opening costs and working capital and assuming the land is leased. A
franchisee typically will pay a royalty of 4% of net sales, an advertising fee
of at least .5% of net sales, plus participation in regional or national
advertising when developed up to 4% of net sales, and initial development and
franchise fees aggregating $20,000 per unit. Among the services and materials
which Drive Thru provides to franchisees are site selection assistance, plans
and specifications for construction of the Good Times restaurants, an operating
manual which includes product specifications and quality control procedures,
training, on-site pre-opening supervision and advice from time to time relating
to operation of the franchised restaurant.
Drive Thru has entered into five franchise development agreements in the
Denver ADI. Eight franchise restaurants and seven joint-venture restaurants
are operating under the development agreements for the Denver ADI. One
franchise restaurant in Grand Junction, Colorado has been open pursuant to the
development agreement for the Western Slope of Colorado and an additional
restaurant in Silverthorne, Colorado is anticipated to open by the franchisee
in January, 1997. One joint-venture restaurant opened in Boise, Idaho in
1995, and effective November 1, 1996, that restaurant has been sold as a
franchise restaurant.
In 1996, Drive Thru signed a franchise agreement and $1,000,000
Series A Convertible Preferred Stock Purchase Agreement with The Bailey Company
("TBC"), a 64 unit franchisee of Arby's (see "Bailey Preferred Stock
Investment"). It is anticipated that TBC will develop additional joint-venture
or franchise Drive Thru restaurants in 1997.
Development agreements provide for payment of development fees to Drive
Thru by the developer and require that the developer enter into a franchise
agreement covering each franchised restaurant. The franchise agreements
generally provide for payment of franchise fees and royalties of 4% of annual
sales. Under certain circumstances, Drive Thru has allowed a sliding scale of
royalty payments based on sales volumes.
Operations to Date. The first Good Times prototype unit was opened in
Boulder, Colorado, in September 1987. Operations were refined at that
restaurant so as to achieve greater efficiency and quality of products. The
next two Good Times Drive Thru BurgersSM restaurants were opened in 1988, one
in Denver and one in Thornton, Colorado. Subsequently, after it was determined
the Thornton location was not generating a desirable sales volume, the building
was dismantled and reassembled on a site in Denver. Management believes that
this relocation of the structure validated Drive Thru's subsequent decision to
use a modular building which can be economically dismantled and moved to a more
attractive site.
In August 1991, Drive Thru formed Good Times Limited Partnership I, of
which Drive Thru was the sole general partner. The Partnership opened a Good
Times restaurant in Greeley, Colorado, in August 1991. Effective October 1,
1992 all of the limited partners agreed to convert their limited partnership
interests into a total of 114,306 shares of common stock of the Company and
warrants to purchase 57,153 shares of common stock at $3.50 per share, such
warrants expiring July 15, 1995. The expiration date of the warrants was
subsequently extended to February 10, 1997 and recently to February 10, 1999.
In March 1992, Drive Thru opened a fifth Good Times restaurant in Denver. The
site was previously utilized for a Rally's double drive-through restaurant
which had been closed. The building was remodeled to generally conform to the
format, including signage, of Good Times units.
In November 1992 and March 1993, Drive Thru opened its sixth and seventh
restaurants in the Denver metropolitan area. These units were subsequently
sold to the franchisee for the south Denver metropolitan area pursuant to the
development agreement between Drive Thru and the franchisee.
Drive Thru opened its eighth unit on October 19, 1993, 50% of which was
sold to an existing franchisee on February 1, 1994, and opened twelve
additional restaurants during calendar 1994. Six of these were co-developed
with the same franchisee, two were franchises and four were company-owned. In
calendar 1995, Drive Thru opened six new restaurants, including four units in
the Denver ADI of which one was company-owned, two were joint-venture units and
one was a franchised unit. Drive Thru opened one franchised unit in Grand
Junction, Colorado and one joint-venture unit in Boise, Idaho. In calendar
1996, Good Times opened one new franchised restaurant and converted the Boise
Idaho restaurant to a franchised (from a joint venture) restaurant. Also in
1996, two Denver restaurants were subleased to a philly cheesesteak restaurant
company and later repossessed by Drive Thru as a result of such company's
breach of its contractual obligations to Drive Thru. One of these restaurants
is to be relocated to a new site in 1997 and one is to be reconverted to Good
Times with the addition of inside seating.
Good Times opened two restaurants in June 1995 and two restaurants in
August 1995 in Las Vegas, Nevada. These units were previously owned by a
franchisee of Rally's Hamburgers, Inc. However, Drive Thru experienced
unexpected difficulty in securing suitable locations on which it could develop
new units at reasonable cost in the Las Vegas market and realized that critical
mass could not be achieved within an acceptable period of time. Since the four
units would continue to operate at a significant loss until Drive Thru could
effectively advertise in the Las Vegas market, management decided to cease
operations in Las Vegas and sell the stores. The four Las Vegas units were
closed on October 31, 1995 and sold as of November 30, 1995.
Employees. At January 6, 1997, Drive Thru employed approximately 449
persons (including approximately 379 hourly restaurant employees), of whom 19
were management and staff personnel and 51 were restaurant management. Drive
Thru considers its employee relations to be good. None of its employees is
covered by a collective bargaining agreement.
Round The Corner
On September 30, 1995, the Company completed the sale of Round The Corner
Restaurants, Inc. ("RTC") to Hot Concepts in consideration for $100,000 in cash,
a note in the amount of $291,394, and the assumption of all of RTC's
liabilities. The sale of RTC by the Company resulted in a deferred gain of
$66,000. The Company was notified in August, 1996 of financial difficulties
at RTC and of its Chapter 11 bankruptcy filing in October, 1996. In addition
to the write-off of the note receivable, the Company recorded a reserve of
$333,000 for potential losses associated with its guarantee of two restaurant
leases and a note payable. One of such restaurants is now closed and the other
does not generate sufficient cash flow to cover the lease payments. The
Company is RTC's only secured creditor and holds a lien on the assets of a
profitable RTC restaurant. RTC has not yet proposed a plan of reorganization
in its bankruptcy and accordingly it is not yet possible to assess the ultimate
financial effect on the Company.
Bailey Preferred Stock Investment
On May 31, 1996, the Company entered into a Series A Convertible
Preferred Stock Purchase Agreement with The Bailey Company ("TBC") for the
purchase by TBC of one million shares of Series A Convertible Preferred Stock.
The aggregate purchase price for such shares is $1 million. The first
installment sale took place on October 1, 1996, for 500,000 shares in
consideration of $250,000 cash and the cancellation of a promissory note of the
Company payable to TBC in the amount of $250,000 arising out of a loan in that
amount made by TBC to the Company on March 1, 1996. The second installment of
250,000 shares occurred on January 1, 1997, in consideration of $250,000 cash
and the third installment of 250,000 shares will occur on April 1, 1997, in
consideration of $250,000 cash. The Company intends to use the funds received
for the development of additional Good Times restaurants.
The Series A Convertible Preferred Stock was authorized by the
stockholders of the Company at a special meeting held September 12, 1996. At
such meeting, the stockholders approved an amendment to the Company's Articles
of Incorporation authorizing five million shares of preferred stock, $.01 par
value. One million of such shares are designated as Series A Convertible
Preferred Stock with rights, designations, powers, preferences and restrictions
set forth in the amendment. The remaining four million shares may be issued
from time to time in one or more series, as determined by the Board of
Directors, but the Board of Directors may not authorize the issuance of
additional shares of preferred stock without the concurrence of TBC so long as
TBC holds two-thirds of the Series A Convertible Preferred Stock and/or the
Common Stock acquired by the conversion thereof.
The shares of Series A Convertible Preferred Stock are entitled to a
dividend of $.08 per share per annum, payable at the option of the holder in
cash or in Common Stock, valued for such purpose at 75 percent of the average
market value of the Common Stock for the fourteen trading days preceding the
dividend payment date. The one million shares of Series A Convertible
Preferred Stock are convertible into a maximum of 2,133,333 shares of Common
Stock in staggered intervals beginning October 1, 1997. The shares of Series
A Convertible Preferred Stock are entitled to vote together with the Common
Stock to the extent that such shares are convertible into Common Stock at the
time of the vote. The Company may redeem the outstanding Series A Preferred
Stock upon at least thirty days written notice at any time after October 1,
1998 by paying to the holders the original purchase price plus any accrued but
unpaid dividends. The holders of the Series A Convertible Preferred Stock also
have the right to elect two directors to the Board of Directors, one of which
will have the right to serve as Chairman of the Board. David E. Bailey and
Geoffrey R. Bailey are the current directors elected by TBC to the Board of
Directors, and Geoffrey R. Bailey serves as Chairman of the Board.
Government Regulation
Each of the Good Times restaurants is subject to the regulations of
various health, sanitation, safety and fire agencies in the jurisdiction in
which the restaurant is located. Difficulties or failures in obtaining the
required licenses or approvals could delay or prevent the opening of a new Good
Times restaurant. Federal and state environmental regulations have not had a
material effect on Good Times' operations. More stringent and varied
requirements of local governmental bodies with respect to zoning, land use and
environmental factors could delay or prevent development of new restaurants in
particular locations. The Company and Drive Thru are subject to the Fair Labor
Standards Act which governs such matters as minimum wages, overtime and other
working conditions. In addition, the Company and Drive Thru are subject to the
Americans With Disabilities Act (the "ADA") which requires restaurants and
other facilities open to the public to provide for access and use of facilities
by the handicapped. Management believes that the Company and Drive Thru are
in compliance with the ADA.
The Company and Drive Thru are also subject to federal and state laws
regulating franchise operations, which vary from registration and disclosure
requirements in the offer and sale of franchises to the application of
statutory standards regulating franchise relationships.
Competition
The restaurant industry, including the fast food segment, is highly
competitive. Drive Thru competes with a large number of other hamburger
oriented, fast food restaurants in the areas in which it operates. Many of
these restaurants are owned and operated by regional and national restaurant
chains, many of which have greater financial resources and experience than does
the Company. Restaurant companies that currently compete with Good Times in
the Denver market include McDonald's, Burger King, Wendy's and Hardee's.
Double drive through restaurant chains such as Rally's Hamburgers, Inc. and
Checker's Drive-In Restaurants, Inc., currently operating a total of over 900
double drive through restaurants in various markets in the United States, are
not currently operating in Colorado. Management of Drive Thru believes that
such double drive through restaurant chains will not expand into Colorado;
however, such possibility exists and would result in significant competition
for Drive Thru.
Management of Drive Thru believes that it may have a competitive
advantage in terms of quality of product and price-value compared to
traditional fast food hamburger chains. However, recent price discounting by
the major fast food hamburger chains has had a detrimental effect on Good
Times' sales. Early development of its double drive through concept in
Colorado has given Drive Thru an advantage over other double drive through
chains that may seek to expand into Colorado because of Good Times' brand
awareness and present restaurant locations. In addition, management of Drive
Thru believes Drive Thru has a competitive advantage in the areas of
purchasing and distribution, financial systems, marketing, construction, site
selection, quality assurance and training. Nevertheless, Drive Thru may be at
a competitive disadvantage with other restaurant chains with greater name
recognition and marketing capability. Furthermore, most of Drive Thru's
competitors in the fast-food business operate more restaurants, have been
established longer and have greater financial resources and name recognition
than Good Times. There is also active competition for management personnel,
as well as for attractive commercial real estate sites suitable for
restaurants.
Trademarks - Colorado
Drive Thru has registered its mark "Good Times! Drive Thru Burgers"SM in
the state of Colorado and will endeavor to register such mark in each state it
or a franchisee intends to open a restaurant. At present, Drive Thru relies
solely upon common law trademark protection and state registration. Such
reliance will not protect Drive Thru against a prior user of the mark and, if
prior use is established, Drive Thru may not be able to use the mark in the
area of such use. While the mark is important to Drive Thru, unavailability
of the mark in any particular geographic area into which it desires to expand
operations may not necessarily be materially adverse. Such name non-
availability may, however, preclude the economies and other advantages which
may be available through nationwide or regional marketing and advertising.
ITEM 2. PROPERTIES
As of January 6, 1997, Drive Thru has an ownership interest in 14 Good
Times units, all of which are located in Colorado. Seven are held in limited
partnerships of which Drive Thru is a general partner and has a 50% interest
in the partnership. There are seven Good Times units wholly-owned by Drive
Thru.
Each of the existing Good Times restaurants is a free-standing structure
containing approximately 880 square feet situated on lots of approximately
18,000 to 30,000 square feet. The land is leased at all of these locations.
Drive Thru intends to enter into ground leases wherever possible. However,
there is no assurance that leasing will be available for desirable sites and
Drive Thru may be required to purchase such sites. In the event financing is
not available for such acquisitions, Drive Thru may have to utilize cash that
could otherwise be used to develop additional Good Times restaurants. In such
event, Drive Thru will endeavor to enter into sale/leaseback transactions or
mortgage financing for such real estate.
All of the restaurants are regularly maintained by the Company's repair
and maintenance staff as well as by outside contractors, when necessary.
Management believes that all of its properties are in good condition and that
there will not be a need for significant capital expenditures to maintain the
operational and aesthetic integrity of the properties for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
GGP Limited Partnership v. Good Times Drive Thru Inc. and Good Times
Restaurants Inc. On October 2, 1996, GGP Limited Partnership ("GGP") filed a
complaint in the Colorado District Court for El Paso County alleging that Drive
Thru's termination of its September 1995 lease agreement with GGP for an
unimproved parcel of land located in the Chapel Hills Mall in Colorado Springs,
Colorado was invalid and constituted a breach of the lease agreement. GGP is
seeking an order of specific performance of the lease by the Company, whereby
the Company would be compelled to construct and operate a restaurant on the
parcel of land as contemplated by the lease, damages of $801,935.93
representing the value of the lease allegedly lost by GGP in the event that the
Company does not perform the lease, plus interest, attorney fees and costs.
Since the title commitment for the premises received by Drive Thru after
execution of the lease revealed certain title defects unacceptable to Drive
Thru, which defects were not cured by GGP within the required time period under
the lease, and since the lease agreement provided for the termination of the
lease by Drive Thru in the event of such uncured title defects, the Company
intends to vigorously defend the claims and it is the opinion of the Company's
legal counsel that it is probable that the Company will prevail.
Corporate Property Investors v. Round the Corner Restaurants, Inc.,
a Colorado corporation, Good Times Restaurants Inc., Hot Concepts Management
Company and Hot Concepts Management Group LLC. On October 1, 1996, Corporate
Property Investors ("CPI") filed a complaint in the Colorado District Court for
Arapahoe County alleging that the defendants, including the Company, are liable
for an unspecified amount of damages arising from defaults associated with a
ten-year lease entered into in October 1994 between CPI and Round the Corner
Restaurants Inc., a Colorado corporation ("RTC Colorado"), for a restaurant in
the Aurora Mall Shopping Center in Aurora, Colorado. The restaurant was
vacated by RTC Colorado in August 1996. The Company's liability associated
with the lease is limited to a guaranty of repayment by RTC Colorado of a
$150,000 renovation construction allowance provided by CPI less amortization
in the form of credits from a portion of the rental payments made, which
credits through August 1996 amounted to approximately $89,000, and less certain
other items which may reduce the net guarantee liability to CPI. It is the
intention of the Company to vigorously defend any claim against it in excess
of such net amount guaranteed and it is the opinion of the Company's legal
counsel that it is probable that the Company will prevail in that defense.
Heather Hotchkiss v. Good Times Restaurants, Inc. and Mark
Modester. On June 28, 1996, Heather Hotchkiss, a former employee of the
Company, filed a complaint in the Colorado District Court for Boulder County
alleging that the defendants, including the Company, are liable for an
unspecified amount of damages arising from the alleged sexual harassment of Ms.
Hotchkiss at the Company's restaurant in Boulder, Colorado by Mark Modester,
a former employee of the Company. On November 12, 1996, the Company filed an
answer denying any liability on its part. Due to the early stage of the
litigation, the Company's legal counsel is unable to express an opinion as to
the ultimate outcome of this matter.
Lester Gold, The Estate of Harry Cohen, Jess Kortz, The Estate of
Rose Kortz for the benefit of The Trust under The Will of Rose Kortz, Seymour
G. Laff and Pearle Rae Kortz v. Round the Corner Restaurants, Inc, a Colorado
corporation, and Round the Corner Restaurants, Inc., a Delaware corporation.
On February 22, 1996, a complaint was filed in the Colorado District Court for
the City and County of Denver by which the plaintiffs, who are collectively
doing business as Parkhampden Center in Denver, Colorado, seek a declaratory
judgment that the defendants are liable for an unspecified amount of increased
rental payments under a Parkhampden Center ground lease rental escalation
clause allegedly triggered by an assignment of the lease by a partnership to
RTC Colorado in July 1992 and a sublease of the premises in September 1995.
Under an indemnification agreement related to the September 1995 sale by the
Company of all of the issued and outstanding stock of Round the Corner
Restaurants Inc., a Delaware corporation ("RTC Delaware"), which owns all of
the issued and outstanding stock of RTC Colorado, the Company has agreed to
indemnify and hold harmless the defendants with respect to any losses,
liabilities, claims, costs or expenses as a result of the above ground lease
and sublease. Since the rental escalation clause does not apply to subleases,
but rather applies only to assignments approved by the landlord, which approval
is not required if the assignor has at least a fifty percent financial interest
in the assignee, and since the partners of the partnership which assigned the
lease to RTC Colorado in July 1992 had more than a fifty percent financial
interest in RTC Colorado, it is the intention of the defendants to vigorously
defend the allegations that any increased rental payments are due to the
plaintiffs, and it is the opinion of the Company's legal counsel that it is
probable that the Company will prevail in this defense. On October 25, 1996,
RTC Colorado filed a bankruptcy petition in the United States Bankruptcy Court
for the District of Colorado. On November 22, 1996, RTC Colorado filed in this
matter a notice of such bankruptcy petition and thus this litigation is
automatically stayed during the pendency of the bankruptcy.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 12, 1996, the Registrant held a special meeting of
shareholders pursuant to notice to act on management's proposal to amend the
Registrant's Articles of Incorporation to authorize the issuance of 5,000,000
shares of preferred stock, $.01 par value, 1,000,000 shares of which are to be
designated as Series A Convertible Preferred Stock to be sold to an investor,
4,000,000 shares of which are to be reserved for future issuance at the
discretion of the Board of Directors.
A quorum was present, 3,481,451 shares were voted in favor of the
proposal, 253,233 shares voted against the proposal, 92,983 shares specifically
abstained, and an additional 239,211 shares were represented by signed proxies,
but not specifically voted. Management determined not to utilize its option
to vote those shares as it was unnecessary for the passage of the proposal.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's outstanding shares of Common Stock (the "Common Stock") and
Common Stock Purchase Warrants (the "Warrants") are traded in the over-the-
counter market. The following table sets forth the quarterly high and low bid
prices as reported by the National Quotation Bureau Incorporated and NASDAQ
from December 31, 1994 through December 31, 1996, as adjusted for the one-for-
four reverse stock split in May 1992. The quotations represent prices quoted
between dealers and do not include commissions, mark-ups or mark-downs and thus
may not represent actual transactions.
Common Stock Series A Warrants Series B Warrants
Bid Prices Bid Prices Bid Prices
Quarter Ended High Low High Low High Low
December 31, 1994 1.63 1.25 .22 .19 .37 .25
March 31, 1995 1.62 1.19 .19 .09 .28 .13
June 30, 1995 1.94 1.25 .16 .13 .38 .19
September 30, 1995 1.31 .94 .13 .06 .19 .06
December 30, 1995 1.03 .47 .06 .03 .09 .03
March 31, 1996 .69 .31 .03 .03 .06 .03
June 30, 1996 .69 .50 .03 .03 .06 .03
September 30, 1996 .63 .44 .09 .03 .06 .03
December 31, 1996 .56 .32 .06 .03 .06 .03
As of January 6, 1997, there were approximately 388 holders of record of
Common Stock and 114 holders of Warrants. However, management estimates that
there are not fewer than 3,200 beneficial owners of the Company's Common Stock.
The NASDAQ symbols for the Common Stock and the outstanding Series A warrants
and Series B warrants are "GTIM", "GTIMW," and "GTIMZ", respectively.
In January 1997, the Company gave notice to the holders of the Series A and
Series B warrants that the expiration date of such warrants had been extended
from February 10, 1997 to February 10, 1999 and the exercise price of such
warrants had been reduced to $2.00 per share.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company's ability to
pay future dividends will necessarily depend upon its earnings and financial
condition. However, since restaurant development is capital intensive, it is
the intention of the Company to retain earnings, if any, for that purpose.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE COMPANY, GOOD TIMES AND RTC
On July 27, 1992, the stockholders of the Company approved a merger with
RTC. For financial statement purposes, RTC was considered the acquiring company
and the transaction was treated as a purchase by RTC of the Company, effective
August 1, 1992. For legal purposes, however, the Company remained the surviving
entity and the combined entity retained the Company's capital structure.
In February 1993, the Company's operations and management were reorganized
to allow Drive Thru and RTC to function as separately accountable entities and
to allow RTC's and Drive Thru's managements to focus exclusively on their
respective businesses. The Company provided administrative and accounting
support to Drive Thru and RTC in fiscal 1995 and charged monthly management fees
of $70,000 and $35,000, respectively, for such services. On September 29, 1995,
the Company completed the sale of RTC to Hot Concepts and ceased providing these
services to RTC. Beginning in fiscal 1996, the administrative and accounting
functions of the Company were consolidated with Drive Thru's operations and no
management fees were charged to Drive Thru.
The following selected financial data is derived from the companies'
historical financial statements and is qualified in its entirety by such
financial statements which are included in Item 7.
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
The following presents certain historical financial information of the
Company. This financial information includes the combined operations of the
Company, Drive Thru and RTC for the fiscal years ended September 30, 1995 and
the combined operations of the Company and Drive Thru for the fiscal year ended
September 30, 1996.
<PAGE>
Year Ended
September 30,
Operating Data: 1995 1996
Net Revenues $17,522,000 $12,826,000
Restaurant Operating Costs:
Food and paper costs 6,090,000 4,700,000
Labor, occupancy and other 9,169,000 6,520,000
Depreciation and amortization 700,000 770,000
Total restaurant operating costs 15,959,000 11,990,000
Income From Restaurant Operations 1,563,000 836,000
Other Operating Expenses:
Selling, General and Administrative
Expense 2,343,000 1,905,000
Loss on disposal of restaurants
and equipment 360,000 206,000
Loss on planned exit of certain
market areas 710,000 183,000
Total Other Operating Expenses 3,413,000 2,294,000
Income (Loss) from Operations (1,850,000) (1,458,000)
Other Income and (Expenses)
Minority income (expense), net (131,000) 181,000
Interest, net (10,000) (71,000)
Other, net (99,000) (109,000)
Losses from RTC bankruptcy - (564,000)
Total other income and (expenses) (240,000) (563,000)
Net Loss $ (2,090,000) $ (2,021,000)
Net Loss Per Share $ (.30) $ (.31)
Weighted Average Shares Outstanding 6,863,000 6,549,000
September 30,
1995 1996
Balance Sheet Data:
Working Capital (deficit) $ (795,000) $ (732,000)
Total assets 9,285,000 7,162,000
Minority Interest 1,735,000 1,653,000
Long-term debt and
long-term capital leases 378,000 479,000
Stockholders' equity $ 4,986,000 $ 3,007,000
Results of Operations
The operating results for fiscal 1995 include a full year of operations for
Drive Thru and the operations of RTC only for the first six months of fiscal
1995. Operating results of RTC from April 1, 1995 to September 30, 1995 are
included in loss on disposal of restaurants and equipment in the consolidated
statement of operations as a result of the Company's formal plan of disposal of
RTC adopted on March 31, 1995. Therefore, in the following discussion and
analysis, management has limited its discussion of RTC's operating results to
the net revenues and the net losses of the Company attributable to RTC.
Fiscal Years 1996 and 1995
Net Revenues. Net revenues for the year ended September 30, 1996 decreased
$4,696,000 (26.8%) to $12,826,000 from $17,522,000 for the year ended September
30, 1995. This decrease is primarily attributable to the sale of RTC and sale
and disposition of four Good Times units in Colorado during fiscal 1996 and the
disposition of four units in Las Vegas as of October 1, 1995. The Company
ceased reporting results from RTC as of April 1, 1995.
Drive Thru sold one company-owned restaurant to a franchisee in February
1996, sold one joint-venture restaurant to a franchisee in May 1996 and sub-let
one company-owned and one joint-venture restaurant in April and June 1996,
respectively. Net revenues decreased $1,585,000 for the year ended September
30, 1996 from the same prior year period as a result of these dispositions.
Net revenues decreased $316,000 for the year ended September 30, 1996 from
the same prior year period from the disposition of the Las Vegas restaurants.
Net revenues increased $840,000 for the year ended September 30, 1996 from
the same prior year period from the opening of two joint-venture restaurants in
October and December 1995.
Net revenues increased $746,000 for the year ended September 30, 1996 from
the same prior year period from four restaurants opened during fiscal 1995 that
were not open the entire fiscal 1995 year.
Net revenues decreased $784,000 or 9.3% during fiscal 1996 in same store
sales for restaurants that have been open for the full fiscal 1995 and 1996
periods . However, same store sales decreased 14.4% in the first six months of
fiscal 1996 and 4.3% in the last six months of fiscal 1996 for restaurants open
for the full fiscal 1995 and 1996 periods . Average unit revenues for company-
owned and joint-venture restaurants open all of fiscal 1996 were $847,000.
There were seven franchised restaurants open for the full 1996 fiscal year
generating $707,000 average unit revenues.
Net revenues from Drive Thru and its franchisees were $18,300,000 for the
fiscal year ended September 30, 1996.
Food and Paper Costs. In fiscal 1996, Drive Thru's food and paper costs
were 37.3% of net restaurant sales compared to 36.5% of net restaurant sales in
fiscal 1995. The increase in Drive Thru's food and paper costs is primarily
attributable to increased paper goods costs and an increase in promotional and
discounted sales.
Income From Restaurant Operations. For the year ended September 30, 1996
the Company's income from restaurant operations was $836,000 compared to
$1,563,000 (including $245,000 in income from restaurant operations of RTC
through March 31, 1995) in fiscal 1995.
Drive Thru's income from operations was negatively impacted in fiscal 1996
by decreased average unit volumes and increased promotional sales in response to
heavy discounting by the major fast food hamburger chains. Net franchise
development fees and royalties increased from $209,000 in fiscal 1995 to
$216,000 in fiscal 1996.
Loss from Operations
Drive Thru's loss from operations before other income and expenses was
($1,458,000) in fiscal 1996 compared to a loss from operations of ($1,850,000)
in fiscal 1995. Income from operations was negatively impacted by ($389,000) of
write-offs associated with the closing of one under-performing Colorado
restaurant and the planned disposition of one joint-venture restaurant in Boise,
Idaho to a franchisee. Selling, general and administrative expenses decreased
from $2,343,000 (13.4% of net revenues) to $1,905,000 (14.9% of net revenues)in
fiscal 1996. Management of the Company believes that selling, general and
administrative expenses will be reduced in fiscal 1997 by approximately
$200,000, which represents savings associated with a downsizing that occurred in
fiscal 1996.
Net Loss
The net loss for Drive Thru was (2,021,000) for the fiscal year ended
September 30, 1996 compared to a net loss of ($2,090,000) for the fiscal year
ended September 30, 1995. Of this amount, ($389,000) is attributable to the
closure of one Colorado restaurant and the planned disposition of a restaurant
in Boise, Idaho, and ($564,000) is attributable to costs associated with the RTC
bankruptcy, of which ($231,000) is a write-off of a note receivable net of a
deferred gain and ($333,000) is other anticipated costs (including guaranteed
rents, property taxes, legal fees and performance under a guarantee of a note
payable).
Liquidity and Capital Resources
As of September 30, 1996, the Company had $540,000 of cash and cash
equivalents on hand. This amount is believed sufficient to cover working
capital needs of the Company for the 1997 fiscal year.
The Company had a working capital deficit of ($732,000). Because
restaurant sales are collected in cash and accounts payable for food and paper
products are paid two to four weeks later, restaurant companies often operate
with working capital deficits. It is anticipated that working capital deficits
will expand as new Drive Thru restaurants are opened. Subsequent to September
30, 1996, the Company closed the sale of $1 million of preferred stock, $250,000
of which was the conversion of a note payable and $250,000 in cash on October 1,
1996. The balance of the preferred stock investment is due in installments of
$250,000 on January 1, 1997 and April 1, 1997. The proceeds of the preferred
stock sale are required to be used for the development of new Good Times
restaurants by December 31, 1997.
Subsequent to September 30, 1996, Drive Thru completed the transfer of its
partnership interest in the Boise, Idaho restaurant. The agreement includes
indemnification of the Company on $296,000 of notes payable and the assumption
of all liabilities, obligations and operating losses by the limited partner. As
a part of the agreement, the Company paid $75,000 to the partnership.
Net cash used in operating activities of the Company was ($893,000) for
fiscal 1996 compared to net cash used in operating activities of the Company of
($451,000) in fiscal 1995. This was the result of a net loss of ($2,021,000)
for fiscal 1996, non-cash reconciling items totaling $1,128,000 (comprised
principally of depreciation and amortization of $773,000, minority interest of
($181,000), losses associated with the RTC bankruptcy of $564,000, the closure
and disposition of two restaurants of $389,000, and decreases in operating
assets and liabilities totaling $384,000).
Net cash provided by investing activities by the Company in fiscal 1996 was
$418,000, which includes proceeds from the sale of assets of $819,000, and the
purchase of property and equipment of $401,000. Drive Thru utilizes all cash
provided by investing activities for capital expenditures consisting primarily
of expenditures for the development of new Good Times restaurants and
refurbishment of existing restaurants. In fiscal 1995 and 1996, Drive Thru
developed two company-owned Good Times restaurants and five co-developed units.
Net cash provided by investing activities by the Company in fiscal 1995 was
$1,041,000, which included proceeds from the sale of assets of $2,792,000, the
net sale of marketable securities for $1,024,000, and the purchase of property
and equipment of $2,775,000.
Net cash provided by financing activities by the Company in fiscal 1996 was
$248,000, which includes principal payments on notes payable and capital leases
of $99,000, borrowings on notes payable and long-term debt of $250,000,
distributions to minority interests in partnerships of $227,000, and
contributions from minority interests in partnerships of $324,000. The Company
has negotiated the restructuring of its existing lease financing and does not
anticipate entering into additional equipment leases pursuant to a lease line of
credit.
Net cash used in financing activities by the Company in fiscal 1995 was
$345,000 which includes principal payments on notes payable and long-term debt
of $630,000, borrowings on notes payable and long-term debt of $56,000,
distributions to minority interests in partnerships of $414,000, and
contributions from minority interests in partnerships of $643,000.
Neither the Company nor Drive Thru currently have any bank lines of credit.
The Company intends to use its cash resources and cash generated from
operations for working capital, two to three new restaurants and the remodel and
addition of inside seating to select existing restaurants. Drive Thru will
require additional capital in order to develop additional company-owned Good
Times Drive Thru restaurants in the future. In the event Drive Thru is not
successful in obtaining additional capital, management intends to continue to
develop Good Times Drive Thru restaurants through franchising and joint
development activities with existing and new franchisees.
Statements in this Filing that are not historical facts may be forward-
looking statements. Actual events may differ materially from those projected in
any forward-looking statement. There are a number of important factors beyond
the control the Company that could cause actual events to differ materially from
those anticipated by any forward-looking information. A description of risks
and uncertainties attendant to the Company and its industry and other factors
which could affect the Company's financial results are included in this Filing.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets." This new
standard is effective for years beginning after December 15, 1995 and would
change the Company's method of determining impairment of long-lived assets.
Although the Company has not performed a detailed analysis of the impact of this
new standard on the Company's financial statements, the Company does not believe
that adoption of the new standard will have a material effect on the financial
statements.
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation (FAS 123). The new
statement is effective for fiscal years beginning after December 15, 1995. FAS
123 encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options and other equity instruments to
employees based on fair value. Companies that do not adopt the fair value
accounting rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity instruments with non-
employees for goods or services must be accounted for on the fair value method.
The Company currently does not intend to adopt the fair value accounting rules
of FAS 123 for its employees, and will be subject only to the disclosure
requirements. However, the Company intends to continue its analysis of FAS 123
and may elect to adopt its provisions in the future. The Company does not
believe that adoption of the new standard will have a material effect on the
financial statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES:
Independent Auditor's Report
Consolidated Balance Sheet - September 30, 1996
Consolidated Statements of Operations - For the Years Ended
September 30, 1995 and 1996
Consolidated Statement of Stockholders' Equity - For the Period from
October 1, 1994 to September 30, 1996
Consolidated Statements of Cash Flows - For the Years Ended
September 30, 1995 and 1996
Notes to Consolidated Financial Statements
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
Good Times Restaurants Inc. and Subsidiaries:
Independent Auditor's Report . . . . . . . . . . . . . . . . .F-2
Consolidated Balance Sheet - September 30, 1996. . . . . . . .F-3
Consolidated Statements of Operations - For the Years Ended
September 30, 1995 and 1996 . . . . . . . . . . . . . . .F-5
Consolidated Statement of Changes of Stockholders' Equity -
For the Period from October 1, 1994
through September 30, 1996. . . . . . . . . . . . . . . .F-6
Consolidated Statements of Cash Flows - For the Years Ended
September 30, 1995 and 1996 . . . . . . . . . . . . . . .F-8
Notes to Consolidated Financial Statements . . . . . . . . . F-10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Good Times Restaurants Inc.
Westminster, Colorado
We have audited the accompanying consolidated balance sheet of
Good Times Restaurants Inc. and subsidiaries as of September 30,
1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended
September 30, 1995 and 1996. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Good Times Restaurants Inc. and subsidiaries as of
September 30, 1996, and the results of their operations and their
cash flows for the years ended September 30, 1995 and 1996, in
conformity with generally accepted accounting principles.
Hein + Associates LLP
Denver, Colorado
December 2, 1996
<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
Current Assets:
Cash and cash equivalents $ 540,000
Receivables 211,000
Inventories 48,000
Prepaid expenses and other 19,000
Total current assets 818,000
Property and Equipment, at cost:
Land and building 2,211,000
Leasehold improvements 2,424,000
Fixtures and equipment 2,879,000
7,514,000
Less accumulated depreciation
and amortization (1,819,000)
5,695,000
Other Assets:
Net assets held for sale 98,000
Note receivables 435,000
Other 116,000
649,000
Total Assets $7,162,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease
obligations $ 109,000
Accounts payable 368,000
Accrued wages and salaries 157,000
Accrued losses for closed/sold stores 226,000
Accrued losses associated with RTC
bankruptcy 278,000
Accrued property taxes 130,000
Accrued and other liabilities 282,000
Total current liabilities 1,550,000
Long-Term Capital Lease Obligations,
net of current portion 179,000
Long-term Debt 300,000
Convertible Note Payable (Notes 5 and 10) 250,000
Deferred Liabilities 223,000
Minority Interests in Partnerships 1,653,000
Commitments and Contingencies (Notes 2, 3 and 6)
Stockholders' Equity:
Preferred stock, .01 par value, 5,000,000
shares authorized, none issued
and outstanding -
Common stock, $.001 par value; 50,000,000
shares authorized, 6,314,820 shares
issued and outstanding 6,000
Capital contributed in excess of par value 10,845,000
Accumulated deficit (7,844,000)
Total stockholders' equity 3,007,000
Total Liabilities and Stockholders' Equity $ 7,162,000
See accompanying notes to these consolidated financial
statements.<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
September 30,
1995 1996
Net Revenues:
Restaurant sales $17,313,000 $12,610,000
Area development & franchise fees 55,000 40,000
Franchise royalties 154,000 176,000
17,522,000 12,826,000
Restaurant Operating Costs:
Food and paper costs 6,090,000 4,700,000
Restaurant labor costs 6,071,000 4,510,000
Restaurant occupancy costs 1,947,000 1,356,000
Accretion of deferred rent 60,000 57,000
Other restaurant operating costs 1,091,000 597,000
Depreciation and amortization 700,000 770,000
Total restaurant operating costs 15,959,000 11,990,000
Income from Restaurant Operations 1,563,000 836,000
Other Operating Expenses:
General and administrative 1,549,000 1,184,000
Advertising 794,000 721,000
Loss on disposal of restaurants
and equipment 360,000 206,000
Loss on planned exit of certain
market areas 710,000 183,000
Total other operating expenses 3,413,000 2,294,000
Other Income (Expenses):
Interest income 90,000 71,000
Interest expense (100,000) (142,000)
Minority interest in income
(loss) of partnerships (131,000) 181,000
Losses associated with RTC bankruptcy - (564,000)
Other, net (99,000) (109,000)
Total other expenses, net (240,000) (563,000)
Net Loss $(2,090,000) $(2,021,000)
Net Loss per Share $ (.30) $ (.31)
Weighted Average Shares Outstanding 6,863,000 6,549,000
See accompanying notes to these consolidated financial statements.
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 1994 THROUGH SEPTEMBER 30, 1996
Common Stock Preferred Stock
Issued Par Issue Par
Shares Value Shares Value
Balances, October 1, 1994 6,251,072 $ 6,000 - -
Additional cost incurred for
Good Times public offering - - - -
Stock issued to employee
benefit plan 22,080 - - -
Stock purchased by officers 625,000 1,000 - -
Notes receivable from officers
for stock purchase - - - -
Net loss - - - -
Balances, September 30, 1995 6,898,152 7,000 - -
Cancellation of note from
stockholders (625,000) (1,000) - -
Stock issued to employee
benefit plan 41,668 - - -
Net loss - - - -
Balances, September 30, 1996 6,314,820 $ 6,000 - $ -
See accompanying notes to these consolidated financial statements.<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 1, 1994 THROUGH SEPTEMBER 30, 1996
(Continued from previous page)
Capital in Officers
Excess of Notes Accumulated
Par Value Receivables Deficit Total
Balances, October 1, 1994 $10,777,000 $ - $(3,733,000) $7,050,000
Additional cost incurred for
Good Times public offering (7,000) - - (7,000)
Stock issued to employee
benefit plan 33,000 - - 33,000
Stock purchased by officers 880,000 - - 881,000
Notes receivable from officers
for stock purchase - (881,000) - (881,000)
Net loss - - (2,090,000) (2,090,000)
Balances, September 30, 1995 11,683,000 (881,000) (5,823,000) 4,986,000
Cancellation of note from
stockholders (880,000) 881,000 - -
Stock issued to employee
benefit plan 42,000 - - 42,000
Net loss - - (2,021,000) (2,021,000)
Balances, September 30, 1996 $10,845,000 $ - $(7,844,000) $3,007,000
See accompanying notes to these consolidated financial statements.
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
September 30,
1995 1996
Cash Flows from Operating Activities:
Net loss $(2,090,000) $(2,021,000)
Adjustments to reconcile net loss
to net cash from operating
activities:
Depreciation & amortization 700,000 773,000
Minority interest 131,000 (181,000)
Loss on planned exit of
certain market areas 710,000 183,000
Loss on disposal of restaurants
and equipment - 206,000
Losses associated with
RTC bankruptcy - 564,000
Gain on sale of property, net - (75,000)
Cash transferred in sale
of subsidiary (7,000) -
Common stock for services 26,000 42,000
Changes in operating assets
and liabilities:
(Increase) decrease in:
Receivables 287,000 130,000
Inventories (44,000) 19,000
Prepaid expenses and other 154,000 (130,000)
(Decrease) increase in:
Accounts payable (217,000) (241,000)
Accrued & other liabilities (101,000) (162,000)
Net cash provided by (used in)
operating activities (451,000) (893,000)
Cash Flows from Investing Activities:
Payments for the purchase of
property and equipment (2,775,000) (401,000)
Proceeds from sale of assets 2,792,000 819,000
Purchase of marketable securities (1,517,000) -
Sale of marketable securities 2,541,000 -
Net cash (used in) provided by
investing activities 1,041,000 418,000
<PAGE>
Cash Flows from Financing Activities:
Principal payments on notes
payable and long-term debt (630,000) (99,000)
Borrowings on notes payable and
long-term debt 56,000 250,000
Distributions paid to minority
interests in partnerships (414,000) (227,000)
Contributions from minority interest
in partnerships 643,000 324,000
Net cash provided by (used in)
financing activities (345,000) 248,000
Increase (Decrease) in Cash 245,000 (227,000)
Cash and Cash Equivalents, beginning
of period 522,000 767,000
Cash and Cash Equivalents, end of period $ 767,000 $ 540,000
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 100,000 $ 142,000
Purchase of land, building, and
equipment through long-term
debt and stock $ 351,000 $ -
Stock issued to officers for
notes receivable $ 881,000 $ -
Sale of land, building, and
equipment for notes receivable $ 450,000 $ 20,000
Stock issued to employee 401(k) plan $ 26,000 $ 42,000
Sale of RTC for notes receivable $ 391,000 $ -
Forgiveness of shareholder
notes for the return of stock $ - $ 881,000
See accompanying notes to these consolidated
financial statements.<PAGE>
GOOD TIMES RESTAURANTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies:
Organization - Good Times Restaurants Inc. (Good Times or the
Company) is a Nevada corporation. In July 1992, Good Times
merged with Round the Corner Restaurants, Inc. (RTC). The
Company operates through its subsidiary Good Times Drive
Thru Inc. (Drive Thru). All of the stock of RTC was sold as
of September 30, 1995.
Drive Thru commenced operations in 1986 and, as of
September 30, 1996, operates 15 company-owned and joint
venture double drive-thru fast food hamburger restaurants.
The Company's restaurants are primarily in Colorado. In
addition, Drive Thru has nine franchises operating in
Colorado, and is offering franchises for development of
additional Drive Thru restaurants.
Principles of Consolidation - The consolidated financial
statements include the accounts of Good Times and its
subsidiaries, including certain 50% owned limited
partnerships in which the Company exercises control as
general partner. All intercompany accounts and transactions
are eliminated. The unrelated limited partners' equity of
each partnership has been recorded as minority interest in
the accompanying consolidated financial statements.
Deferred Opening Costs - The Company has deferred certain
direct incremental costs in connection with the opening of
new restaurants. The net pre-opening costs included in
prepaid expenses is $16,000 at September 30, 1996.
The pre-opening costs are amortized over a one year period.
Inventories - Inventories are stated at the lower of cost or
market, determined by the first-in, first-out method, and
consist of restaurant food items and related paper supplies.
Property and Equipment - Depreciation is recognized on the
straight-line method over the estimated useful lives of the
assets or the lives of the related leases, if shorter, as
follows:
Building 15 years
Leasehold improvements 7-15 years
Fixtures and equipment 3-8 years
Maintenance and repairs are charged to expense as incurred,
and expenditures for major improvements are capitalized.
When assets are retired, or otherwise disposed of, the
property accounts are relieved of costs and accumulated
depreciation with any resulting gain or loss credited or
charged to income.
Sales of Restaurants and Restaurant Equity Interests - Sales
of restaurants or non-controlling equity interests in
restaurants developed by the Company are accounted for under
the full accrual method or the installment method. Under the
full accrual method, gain is not recognized until the
collectibility of the sales price is reasonably assured and
the earnings process is virtually complete without further
contingencies. When a sale does not meet the requirements
for income recognition, gain is deferred until those
requirements are met. Under the installment method, gain is
recognized as principal payments on the related notes
receivable are collected.
Deferred Liabilities - Rent expense is reflected on a
straight-line basis over the term of the lease for all leases
containing step-ups in base rent. An obligation representing
future payments (which totaled $143,000 as of September 30,
1996) has been reflected in the accompanying consolidated
balance sheet as a deferred liability. The remaining balance
includes a deferred gain of $53,000 on the sale of a
restaurant.
Advertising - The Company incurs advertising expense in
connection with marketing of its restaurant operations.
Advertising costs are expensed the first time the advertising
takes place.
Franchise and Area Development Fees - Individual franchise
fee revenue is deferred when received and is recognized as
income when the Company has substantially performed all of
its obligations under the franchise agreement and the
franchisee has commenced operations. Area development fees
and related direct expenses are recognized ratably upon
opening of the applicable restaurants. Continuing royalties
from franchisees, which are a percentage of the gross sales
of franchised operations, are recognized as income when
earned. Franchise development expenses, which consist
primarily of legal costs associated with developing and
executing master franchise agreements, are expensed as
incurred.
Statement of Cash Flows - For purposes of the statements of
cash flows, the Company considers all highly liquid debt
instruments purchased with an original maturity of three
months or less to be cash equivalents.
Income Taxes - Income taxes are provided for in accordance
with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires an
asset and liability approach in the recognition of deferred
tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying
amounts and the tax bases of the Company's assets and
liabilities.
Net Loss per Common Share - The computations of loss per
share are based on the weighted average number of common
shares outstanding during each fiscal period. Warrants and
options outstanding are not included in the computations in
loss years because their effect would be antidilutive.
Financial Instruments and Concentrations of Credit Risk -
Credit risk represents the accounting loss that would be
recognized at the reporting date if counter parties failed
completely to perform as contracted. Concentrations of
credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or
counter parties when they have similar economic
characteristics that would cause their ability to meet
contractual obligations to be similarly effected by changes
in economic or other conditions. Financial instruments with
off-balance-sheet risk to the Company include lease
guarantees whereby the Company is contingently liable as a
guarantor of certain leases that were assigned to third
parties in connection with various store closures (see
Note 6).
Financial instruments which potentially subject the Company
to concentration of credit risk consist principally of cash
and cash equivalents and receivables. At September 30, 1996,
the Company maintained cash balances with a commercial bank,
which were approximately $168,000 in excess of FDIC limits
and maintained a government fund balance of $219,000. At
September 30, 1996, notes receivable totaled $466,000 and
were from four entities. The notes receivables are generally
collateralized by buildings and equipment and guaranteed by
certain individuals. Additionally, the Company has
receivables of $180,000, which consists principally of
recurring rebates from vendors, current franchise
receivables, and amounts due from a restaurant co-developer.
The Company purchases 100% of its restaurant food and paper
from one vendor. The Company believes that there are a
sufficient number of other suppliers from which food and
paper could be purchased to prevent any long-term adverse
consequences.
The Company operates in one industry segment, restaurants. A
geographic concentration exists because the Company's
customers are generally located in the State of Colorado.
The estimated fair values for financial instruments are
determined at discrete points in time based on relevant
market information. These estimates involve uncertainties
and cannot be determined with precision. The carrying
amounts of cash, receivables, notes receivables, long-term
debt, capital lease obligations, accounts payable, and
accrued liabilities approximate fair value as a result of the
short-term maturities or interest rates that approximate the
Company's current expected borrowing and lending rates.
Accounting Estimates - The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the amounts reported in these
financial statements and the accompanying notes. The actual
results could differ from those estimates. Significant
estimates include accrued losses for RTC contingencies and
for a store closure and sale. Due to the nature of these
estimates, it is at least reasonably possible that they could
change in the near term, and that such a change could be
material.
Reclassifications - Certain reclassifications have been made
to conform 1995 financial statements to the presentation in
1996. The reclassifications had no effect on net income.
Impact of Recently Issued Accounting Standards - In March
1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived
Assets." This new standard is effective for years beginning
after December 15, 1995 and would change the Company's method
of determining impairment of long-lived assets. Although the
Company has not performed a detailed analysis of the impact
of this new standard on the Company's financial statements,
the Company does not believe that adoption of the new
standard will have a material effect on the financial
statements.
In October 1995, the Financial Accounting Standards Board
issued a new statement titled "Accounting for Stock-Based
Compensation" (FAS 123). The new statement is effective for
fiscal years beginning after December 15, 1995. FAS 123
encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and
other equity instruments to employees based on fair value.
Companies that do not adopt the fair value accounting rules
must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be
accounted for on the fair value method. The Company
currently does not intend to adopt the fair value accounting
rules of FAS 123 for its employees, and will be subject only
to the disclosure requirements. However, the Company intends
to continue its analysis of FAS 123 and may elect to adopt
its provisions in the future.
2. Liquidity and Continued Operations:
As reflected in the accompanying financial statements, the
Company has incurred net losses the past two years and has
negative cash flows from operations. Management has taken
the following actions to improve the Company's cash flow and
operating results:
Sold, or closed for relocation, certain restaurants that
were underpforming and had negative cash flow associated
with them (see Note 3).
Continued the pursuit of adding company owned restaurants
and franchises, which is expected to improve the
Company's operating results.
Entered into an agreement to sell $1,000,000 shares of
Series A preferred stock to help assist in the Company's
restaurant and franchisee expansion program (see
Note 10).
Management believes that the actions taken to improve
operating results will provide adequate cash flow to meet the
Company's operating needs and provide the capital needed to
fund the Company's fiscal 1997 restaurant and franchisee
expansion program. The results of the actions taken above
has enabled the Company to record positive cash flows from
operations in the third and fourth quarter of 1996.
Although there can be no assurances that the Company will be
successful in generating sufficient cash flow to meet its
operating needs, management believes that the actions taken
will be adequate to enable the Company to continue its
operations.
3. Sale of Restaurants:
On September 30, 1995, the Company sold all its stock in RTC,
a 100% owned subsidiary, for $100,000 cash and a $291,000
note. The note has an interest rate of prime minus 2% and is
payable quarterly based on an amortization period of
20 years, with a balloon payment at the end of 5 years. The
Company elected to report the gain on sale under the
installment method and originally deferred the unrealized
gain of $66,000 on the $291,000 note. The buyers of RTC
were, in part, members of the management of RTC before the
sale. An officer of Drive Thru is also an investor in the
entity that purchased RTC. Prior to the sale of RTC, Good
Times retained certain assets and liabilities of RTC,
including a $150,000 note payable and a $50,000 investment in
a real estate joint venture. In conjunction with the sale
certain RTC employees, who owned Incentive Stock Options,
received new Non-statutory Options with the same terms and
conditions as the old options, which were canceled.
In 1996, the purchaser of RTC declared bankruptcy. In
connection with the bankruptcy of RTC, the Company recorded
$231,000 associated with the write-off of the RTC note
receivable (net of deferred gain) and a $333,000 loss
associated with RTC leases and a note payable (net of
estimated recoveries) guaranteed by the Company. The Company
is currently managing certain RTC restaurants in order to
minimize future losses associated with its lease guarantees,
however, no future restaurant revenues will be recognized by
the Company from the RTC operations.
Included in restaurant sales for the year ended September 30,
1995 are revenues of $3,563,000 related to RTC prior to its
sale. A net loss of $614,000 was attributable to RTC
operations for the year ended September 30, 1995. The 1995
financial statements only reflect RTC net revenues and
operating costs for the six months ended March 31, 1995, the
date that a formal plan of disposition was approved.
Included in the net losses of RTC, is an operating loss of
approximately $229,000 from RTC operations from April 1, 1995
through September 30, 1995 (the effective sale date), which
is included in loss on disposal of restaurants.
In 1995, the Company adopted a plan to move a building and
equipment currently utilized by one of its restaurants to a
new location in 1996. Certain costs associated with the
building, in the amount of approximately $66,000 were
expensed in the prior year in loss on disposal of
restaurants. These costs mainly consisted of the write-off
of leasehold improvements and a land lease termination
provision. Additional losses in the amount of $10,000 were
expensed in 1996.
In 1995, the Company opened four stores in Las Vegas, and
operated the stores for approximately four months. In 1995,
the Company adopted a formal plan to exit from the Las Vegas
market. The Company entered into an agreement to sell all of
the Las Vegas stores, including certain items of furniture,
fixtures, and equipment, for approximately $120,000, and
assign its rights and obligations under the land and building
leases to the purchaser. The Company recognized a loss on
the exit of approximately $710,000 in 1995. Revenues of
$332,000 and net loss of $315,000 are attributable to the Las
Vegas restaurants' operations during the year ended
September 30, 1995.
During the year ended September 30, 1996, the Company closed
two of its restaurants and leased the land and building to an
entity owned by the purchaser of the Las Vegas restaurants.
One of these restaurant sites was closed by the lessee in
September 1996 at which time, the Company adopted a plan to
move the building and equipment to a new location in fiscal
1997. During the year ended September 30, 1996, the Company
recorded a loss, net of minority interest, of approximately
$103,000 as a result of the plan. These costs mainly consist
of the write-off of leasehold improvements and estimated
future lease payments and termination penalties. In October
1996, the Company took over the second site from the
purchaser, and intends to convert this restaurant back to a
Drive-Thru concept restaurant in fiscal 1997.
During the year ended September 30, 1996, the Company
approved the sale of its interest in one of its managed
limited partnerships to the limited partner. The effective
date of the sale was November 1, 1996. The agreement
provides for the limited partner to assume all liabilities,
obligations, and operating losses, and the Company agreed to
pay the purchaser $75,000 and surrender its interest in the
limited partnership. As of September 30, 1996, the Company
recorded approximately $184,000 in losses as a result of this
transaction. The Company remains a guarantor on $296,000 of
notes payable. However, the purchaser and an additional
guarantor have personally agreed to indemnify the Company for
any payments made on the note by the Company.
During the year ended September 30, 1996, the Company sold a
restaurant to a franchisee for $480,000 cash and a $20,000
note. The Company recognized a gain on the sale in the
amount of approximately $95,000, which is included in other
income and expenses.
4. Notes Receivable:
Notes receivable consist of the following as of September 30,
1996:
Notes receivable, 10%, due March 1, 1997, monthly payments of
interest only, collateralized by a building and guaranteed by
an individual, classified as long-term due to expectation of
refinancing. $315,000
Note receivable, 12%, due October 1, 1997, monthly payments
of interest only, collateralized by a building and guaranteed
by an individual. 78,000
Note receivable, 9%, monthly payments of principal and
interest in the amount of approximately $1,000, with final
payment on September 1, 2000 collateralized by building and
equipment. 50,000
Other notes, various terms. 23,000
466,000
Less current portion 31,000
$435,000
5. Notes Payable and Long-Term Debt:
In March 1996, the Company signed a $250,000 promissory note.
The interest rate on the note was at prime plus 2% points.
On October 1, 1996, this note was converted to 250,000 shares
of preferred stock (see Note 10).
Also included in long-term debt is a $300,000 note payable to
an individual and his pension plan with interest at 12%, pay-
able quarterly, principal due in May 2000.
See Note 3 for additional note payable disclosures.
6. Commitments and Contingencies:
The Company's office space, and the land underlying the Drive
Thru restaurant facilities, are leased under operating
leases. Certain leases include provisions for additional
contingent rental payments if sales volumes exceed specified
levels. Property and equipment at September 30, 1996
includes equipment under capital leases of approximately
$440,000, less accumulated depreciation of approximately
$97,000. Depreciation of leased equipment is included in
depreciation and amortization expense.
Following is a summary of operating lease activities:
Operating
Leases
1996
Minimum rentals $968,000
Less sublease rentals (334,000)
Net rent expense $634,000
As of September 30, 1996, future minimum rental commitments
required under Good Times and Drive Thru capital and operating
leases that have initial or remaining noncancellable lease
terms in excess of one year are as follows:
Capital Operating
Leases Leases
1997 $143,000 $1,030,000
1998 131,000 1,000,000
1999 58,000 934,000
2000 - 908,000
2001 - 888,000
Thereafter - 7,626,000
332,000 12,386,000
Less sublease rentals - (4,570,000)
332,000 $7,816,000
Less amount representing interest (44,000)
Present value of net minimum
lease payments $ 288,000
The Company remains contingently liable on several leases of
restaurants that were previously sold. The future minimum
rental commitments relating to these leases totaled $481,000
at September 30, 1996, and have not been included in the
future minimum rental commitment schedule above. The Company
is also a guarantor on a RTC mortgage payable of approximately
$750,000 and a Small Business Administration loan to a
franchisee for approximately $400,000.
The Company is subject to various lawsuits in the normal
course of business. These lawsuits are not expected to have a
material impact to the Company.
7. Franchise and Area Development Agreements:
The Company has two area development agreements which give the
rights to franchise an additional two Drive Thru restaurants
in Colorado and two in Boise, Idaho. Under the area
development agreements, the Company generally has the right to
build restaurants within the specified geographical areas.
8. Managed Limited Partnerships:
Drive Thru is the general partner of certain limited
partnerships. These partnerships were entered into during the
years ended September 30, 1994 and 1996, and were formed to
develop Drive Thru restaurants. Limited partner contributions
have been used to construct new restaurants. Drive Thru, as a
general partner, receives an allocation of 50% of the profit
and losses and a fee for its management services. The limited
partners' equity has been recorded as a minority interest in
the accompanying consolidated financial statements.
During the year ended September 30, 1996, the Company approved
the sale of its interest in one of the limited partnerships to
the limited partner. The sale was effective November 1, 1996,
at which time the limited partner became a franchise (see
Note 3).
9. Income Taxes:
Deferred tax assets (liabilities) are comprised of the
following at September 30, 1996:
Long-Term
Deferred assets (liabilities):
Partnership basis difference $ 776,000
Net operating loss carryforward 1,902,000
Property and equipment basis
differences (1,499,000)
Net deferred tax assets 1,179,000
Less valuation allowance* 1,179,000
Net deferred tax assets $ -
________________________
* The valuation allowance increased by $337,000 during the
year ended September 30, 1996.
The Company has had no taxable income under Federal and state
tax laws. Therefore, no provision for income taxes was
included. The Company has net operating loss carryforwards
of approximately $5,100,000 for income tax purposes which
expire from 2002 through 2011. The use of these losses may
be restricted in the future due to changes in ownership
10. Stockholders' Equity:
The Company has the authority to issue 5,000,000 shares
of preferred stock. The Board of Directors has the
authority to issue such preferred shares in series and
determine the rights and preferences of the shares as may
be determined by the Board of Directors. As of
September 30, 1996, 1,000,000 shares have been authorized
as described below.
During the year ended September 30, 1996, the Company
entered into an agreement to sell 1,000,000 shares of
Series A preferred stock for $1.00 a share to a private
company. The sale of the preferred stock was scheduled
in three installments as follows: $500,000 closed
October 1, 1996, $250,000 to close on January 1, 1997,
and $250,000 to close on April 1, 1997. On October 1,
1996, the Company received $250,000 in cash and the
buyer's canceled a previously issued note for $250,000.
The preferred stock has a cumulative dividend rate of 8%
and a liquidation preference of $.46875, plus all accrued
but unpaid dividends. The dividend may be paid out, at
the option of the holder, in cash or common stock. If
paid in stock, the value of the stock will be determined
based on 75% of the average of the last 14 days trading
prices but not less than .46875 per share. 500,000 of
the shares are convertible to common stock on October 1,
1997, 750,000 shares are convertible on January 1, 1998,
and the full 1,000,000 shares are convertible on April 1,
1998. The conversion prices range from $.46875 to
$.56875 through April 30, 1999. Any shares that have not
been converted as of May 1, 1999, are convertible at the
greater of the dividend conversion rate described above
at the time of conversion or $.46875. The preferred
shareholders also have the right of participation on
additional security issuances, except for a straight debt
issuance, with no equity feature, and have certain
registration rights. The preferred shareholders can also
appoint two Board members, and one member of the
compensation committee. Among other restrictions and
requirements, the preferred stock agreement requires the
Company to restrict future long-term borrowings based on
percentage of earnings and requires the Company to spend
$1,000,000 for the development of new restaurants before
December 31, 1997 unless the board of directors
unanimously directs otherwise.
During 1995, the Board of Directors approved an executive
stock purchase plan. Under the plan, executive management
acquired 625,000 restricted shares of the Company's common
stock at $1.41 per share, which was the market price of the
Company's publicly traded common stock on the date of grant.
The Company agreed to allow the purchase of the common stock
through interest bearing notes. The notes and accrued
interest were payable in October 1999 and could be prepaid
anytime. In 1996, the Company's board of directors approved
the forgiveness of the executive management notes for the
return and cancellation of the 625,000 shares of the
Company's common stock.
The Company has an incentive stock option plan (the ISO) and
a non-statutory stock option plan (the NSO) whereby 750,000
shares and 300,000 shares, respectively, are reserved for
issuance. As of September 30, 1996, options for the purchase
of 366,300 and 105,602 shares of common stock are outstanding
under these plans, respectively, and no options have been
exercised.
The following is a table of activity under these plans:
Non-
Incentive Qualified
Stock Option Stock Exercise
Plan Options Price
Options outstanding
October 1, 1994 542,500 120,602 $1.25-$3.12
Options granted 25,000 - $1.44
Options canceled
or expired (15,000) - $3.12
Options canceled
or expired (15,000) - $1.75
Options outstanding
September 30, 1995 537,500 120,602 $1.25-$3.12
Options granted 10,000 $1.75
Options granted 10,000 $3.12
Options canceled
or expired (101,250) - $3.12
Options granted 56,300 - $1.25
Options canceled
or expired (101,250) (35,000) $1.75
Options canceled
or expired (15,000) - $1.25
Options canceled
or expired (10,000) - $1.44
Options outstanding
September 30, 1996* 366,300 105,602 $1.25-$3.12
________________________
* All incentive stock options outstanding at September 30,
1996 were canceled subsequent to September 30, 1996. The
Company issued new incentive stock options to its
employees for the purchase of 342,000 shares of common
stock. All options are subject to vesting schedules and
have an exercise price of $.50 per share and expire on
October 1, 2006. Non-qualified stock options expire from
1997 to 1999.
On October 1, 1995, the Company exchanged 10,000
incentive stock options with an exercise price of $3.12
and 10,000 incentive stock options with an exercise price
of $1.75 for an equal number of non-qualified stock
options with the same terms. The exchange was made to
enable former employees of RTC to maintain their options
to buy Good Times stock.
In 1996, the Company also issued 56,300 incentive stock
options to certain employees with an exercise price of $1.25.
In connection with Good Times' prior public offerings and
other debt financing arrangements of Drive Thru and RTC,
various warrants have been granted. The following is a
summary of shares reserved for possible future issuance:
Shares Price Expiration
Public offerings:
1994 offering* 1,608,000 $2.50 February 1997
1992 offering* 987,500 $3.50 February 1997
Underwriters 689,400 $2.10-$5.78 July 1997 -
February 1999
Converted partnerships* 87,513 $3.50 February 1997
Employment termination 52,063 $1.75-3.12 October 1997-
April 1999
Franchisees and co-
development partners 107,296 $1.67-$2.44 January 1997 -
August 1998
Commission to broker 37,500 $1.17 August 1998
Consideration for sales
leaseback 10,000 $1.75 March 1998-
July 1998
Other 70,000 $3.50 February 1997
Consideration for
various loans: 50,000 $1.40 May 2000
Warrants outstanding at
September 30, 1996 3,699,272
_______________________
* In December 1996, the expiration of these warrants were
extended to February 1999 and the exercise price reduced to
$2.00 per share.
11. Retirement Plan:
The Company has implemented a 401(k) profit sharing plan
(the Plan). Eligible employees may make voluntary
contributions to the Plan, which are matched by the Company,
using the Company's common stock in an amount equal to 50%of
the employees contribution up to 6% of their compensation.
The amount of employee contributions is limited as specified
in the Plan. The Company may, at its discretion, make
additional contributions to the Plan. The Company has
accrued for contributions of $50,000, at September 30, 1996.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS -- GOOD TIMES RESTAURANTS INC.
The executive officers and directors of the Company and Drive Thru are
as follows:
Name Age Positions Date Began With Company
Geoffrey R. Bailey 45 Chairman of the Board October 1996
Dan W. James II 48 Director August 1989
Boyd E. Hoback 41 President, Chief September 1987
Executive Officer
and Director
Robert D. Turrill 48 Vice President of October 1990
Marketing
Scott G. LeFever 38 Vice President of September 1987
Operations
Richard J. Stark 56 Director July 1990
Thomas P. McCarty 43 Director April 1994
Alan A. Teran 51 Director April 1994
David E. Bailey 41 Director October 1996
All directors of the Company hold office until their successors have
been elected and qualified. Officers serve at the discretion of the Board of
Directors. The Company does not currently have standing audit or, nominating
committees of the Board of Directors or committees performing similar
functions. The Board of Directors established a compensation committee of the
Board of Directors consisting of Directors Stark, Teran, McCarty and Geoff
Bailey
There are no family relationships among the directors or executive
officers except for Geoff and David Bailey who are brothers and principals of
The Bailey Company, a franchisee of Drive Thru and the purchaser under the
Series A Convertible Preferred Stock Purchase and Sale Agreement (see page 9).
There are no arrangements or understandings between any director and any other
person pursuant to which that director was elected except for David and Geoff
Bailey who were elected pursuant to the Series A Convertible Preferred Stock
Purchase and Sale Agreement (see "Bailey Preferred Stock Investment").
Eleven meetings of the Board of Directors of the Company (including
regularly scheduled and special meetings) were held during the last full
fiscal year. No member of the Board of Directors attended fewer than 75% of
the aggregate of the total number of meetings of the Board of Directors.
Geoffrey R. Bailey. Mr. Bailey is a director and executive vice
president of the Erie County Investment Company ("Erie"). He is responsible
for the Arby's operations and development of 64 restaurants owned by The
Bailey Company, a subsidiary of Erie. Mr. Bailey is a graduate of the
University of Denver with a Bachelor's Degree in Business Administration. He
joined Erie in 1979 and become Chairman of the Board of Good Times Restaurants
Inc. in October 1996.
Dan W. James II. Mr. James became a Director of the Company on December
18, 1990 and served as Chairman from December 16, 1992 to October 1, 1996.
Mr. James is one of the co-founders of RTC, the Company's former subsidiary,
and had served as a Director of RTC since 1968 until 1992. Mr. James devotes
the majority of his time to the management of private investments. Mr. James
is also a director of Drive Thru.
Boyd E. Hoback. Mr. Hoback had served as Vice President, Chief
Operating Officer and Treasurer of the Company since the Paramount Merger with
Drive Thru on December 18, 1990, and as a Director since February 1992. Prior
to that merger, Mr. Hoback held similar positions with Drive Thru from its
inception in December 1986. On December 16, 1992, Mr. Hoback was elected
President and Chief Executive Officer of the Company. He is also Chairman,
President and Chief Executive Officer of Drive Thru. Prior to assuming his
positions with Drive Thru, Mr. Hoback served as Executive Vice President of
Finance and Development of RTC since 1983. Mr. Hoback is also on the Board of
Drive Thru.
Robert D. Turrill. Mr. Turrill has been involved in all phases of
operations with direct responsibility for menu development, purchasing and
cost control, research and multi-media advertising for RTC. Subsequent to the
merger of the Company and RTC, Mr. Turrill devoted a portion of his time to
the development of a marketing program for Good Times. As Good Times
continued to expand, Mr. Turrill's time devoted to Good Times increased
significantly. Therefore, Mr. Turrill was transferred from RTC to the newly
created Company position of Vice President of Marketing, effective October 1,
1994. Mr. Turrill is also a principal in Great Burgers, Inc., the franchisee
of the RTC food court in Dallas, Texas.
Scott G. LeFever. Mr. LeFever has been involved in all phases of
operations with direct responsibility for unit service performance, personnel
and cost controls. Mr. LeFever was Director of Operations for Round The
Corner from 1983 to 1987. He then became Director of Operations for Good
Times from 1987 to 1992 during which time he helped develop the Good Times
operating systems. Mr. LeFever was reassigned to the position of Drive Thru's
Vice President of Operations in August 1995 and devotes his time to the
operational management of Drive Thru. Mr. LeFever continues as a Director of
RTC and a principal in Great Burgers, Inc., the franchisee of the RTC food
court in Dallas, Texas.
Richard J. Stark, CFA. Mr. Stark is President of Boulder Asset
Management, a firm advising several large individual investors. Prior to
forming Boulder Asset Management in 1984, Mr. Stark served as Chief Investment
Officer of InterFirst Investment Management in Dallas. Previously he was
responsible for all individual money management at Standard &
Poor's/Intercapital in New York.
Thomas P. McCarty. Mr. McCarty has spent the last 26 years in the food
service industry including eleven years owning and operating his own group of
restaurants, working for a major food service distributor, working for and
eventually owning a real estate brokerage company which specialized in
restaurant real estate and consulting, and he is currently the vice president
for development of Rock Bottom Restaurants, Inc. Mr. McCarty also serves as
the Vice President for Publications and Public Relations for the Colorado
Restaurant Association and serves on its Executive Committee and as a member
of its Board of Directors. Mr. McCarty has two degrees from the University of
Colorado including a B.S. in Accounting and a B.S. in Journalism.
Alan A. Teran. Mr. Teran has spent the past 26 years working in the
restaurant industry, beginning in 1969 as restaurant manager at Cork &
Cleaver. In 1971 Mr. Teran was a regional manager for Cork & Cleaver, in 1973
was promoted to Vice President of Operations and in 1976 became President of
the company. In October 1981, Mr. Teran acquired the Cork & Cleaver in
Boulder, Colorado. He went on to become one of the first franchisees of Le
Peep Restaurants in 1983. Mr. Teran currently holds a seat on three different
corporation's board of directors including Boulder Valley Bank and Trust,
Quantum Restaurant Group, operator of Morton Steak Houses, Micks and Peasants
restaurant concepts, and Good Times Restaurants Inc. Mr. Teran graduated from
the University of Akron in 1968 with a degree in business.
David E. Bailey. Mr. Bailey is a director and President of the Erie
County Investment Company ("Erie") (of which The Bailey Company is a
subsidiary). He is also the president of InverWest Development Corporation, a
subsidiary of Erie. Mr. Bailey is responsible for managing the day to day
operations of Erie and its subsidiaries with primary focus on Erie's real
estate, software development and energy businesses. Mr. Bailey has directed
the construction of Arby's restaurants, single family residences, apartment
buildings and numerous building renovations and additions. He received his
Bachelor of Finance Degree from the University of Colorado and his Masters
Degree in Business Administration in Construction Management and Real Estate
from the University of Denver in 1993. Mr. Bailey joined Erie in 1980 and
became a Director on the Board of Good Times Restaurants Inc. in October 1996.
Effective as of March 1, 1996, Thomas Gordon resigned from the Board of
Directors of the Company and as of June 6, 1996, B. Edwin Massey resigned from
the Board of Directors of the Company.
Compliance with Section 16(a) of the Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten-percent shareholders
are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting person, the Company believes
that, during the fiscal year ended September 30, 1996, all filing requirements
applicable to its officers, directors, and greater than ten-percent beneficial
owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
Cash Compensation
The following table shows all cash compensation paid by the Company or
any of its subsidiaries, as well as other compensation paid or accrued during
the fiscal years indicated, to the Chief Executive Officer and the next
highest paid executive officer of the Company as of the end of the Company's
last fiscal year (the "Named Executive Officers"). No other executive
officers of the Company received cash compensation for such period in all
capacities in which the executive officer served in excess of $100,000.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Name & Principal Fiscal Other Annual
Position Year Salary Bonus(2) Compensation(3) Options Other(5)
Boyd E. Hoback, 1996 $110,000 -0- $10,000 -0- 3,364
President & CEO(1) 1995 $110,000 -0- $10,000 -0- _____
1994 $97,500 $30,000 $10,000 175,000(4) _____
Robert D. Turrill 1996 $75,000 -0- $8,000 -0- 380
Vice President, 1995 $75,000 -0- $8,000 -0- _____
Marketing 1994 $68,250 $10,000 $8,000 60,000(4) _____
(1) Elected to these positions on December 16, 1992. During the last
three fiscal years he served continuously as an executive officer of
Drive Thru.
(2) The Board of Directors approved a bonus plan in fiscal 1995 for Mr. Hoback
that was contingent upon certain performance criteria. The plan provided
for a bonus of up to 50% of salary for Mr. Hoback. Due to the Company's
losses in fiscal 1995 and 1996, no bonuses were awarded to Mr. Hoback.
(3) Consists of an officers' expense allowance.
(4) Includes previously granted options, a portion of which were repriced during
the fiscal year ended September 30, 1994, from an exercise price of $3.12
per share to $1.75 per share and which were extended to expire on
October 26, 1999.
(5) Consists of 401(k) stock grants to match 50% employee contribution.
Option Grants
There were no grants of stock options made during the last fiscal year to any of
the Named Executive Officers.
Options Exercises and Values
None of the Named Executive Officers exercised stock options during the
last fiscal year of the Company. The fiscal year end value of unexercised
options follows:
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Value
Number Unexercised
Unexercised In-the-Money
Options at Options at
Shares Fiscal Year End (#) Fiscal Year End($)
Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized Unxercisable Unexercisable
Boyd E. Hoback N/A N/A 175,000/0 None (1)
Robert D. Turrill N/A N/A 60,000/0 None (1)
(1) The average market value of the Common Stock over the past 30 days was
approximately $.41 per share. Subsequent to September 30, 1996, the
Company's Board of Directors approved the cancellation of the existing
stock options and reissuance of the options at an exercise price of $.50 per
share.
Stock Options
On April 23, 1992, the Board of Directors of the Company adopted an
incentive stock option plan (the "1992 ISO") covering 300,000 shares of the
Company's Common Stock and a non-statutory stock option plan (the "1992 NSO")
covering 150,000 shares of the Company's Common Stock less outstanding options
for the purchase of 83,750 shares of such stock.
The optionees under the plans will not recognize income upon grant of the
options. Holders of non-statutory stock options will have income on the date of
exercise of the options equal to the then value of the Company's Common Stock
less the option exercise price. The holders of incentive stock options will not
be required to recognize income upon exercise of the options so long as the
Company's Common Stock issued upon option exercise is not sold until the later
of one year after the date of exercise or two years after the date of grant of
the option. If these requirements are satisfied, then the optionee will realize
capital gain upon sale of the Company's Common Stock in an amount equal to the
sale price less the option exercise price. If these requirements are not
satisfied, the optionee must recognize ordinary compensation income equal to the
excess of the fair market value of the stock on the date of exercise over the
price paid for such stock, and capital gain equal to the sale proceeds (or fair
market value if not disposed of for cash) in excess of the optionee's tax basis
(fair market value on exercise date); provided, however, such compensation
income will not exceed the amount of the sale proceeds over the price paid
for the stock on exercise of the option. For federal income tax purposes, the
Company will be allowed a deduction for the foregoing compensatory element.
For financial accounting purposes, so long as the exercise price is equal to or
in excess of fair market value of the Company's Common Stock on the date of
grant of the option, the Company will not be required to recognize any related
compensation expense upon either option grant or exercise. It has been proposed
that applicable accounting requirements be changed so as to require the issuer
of stock options to realize related compensation expense. However, it is
unknown when, if ever, such changes will be effective.
The spread between fair market value and exercise price as of the date of
exercise of an incentive stock option is an adjustment to income for alternative
minimum tax purposes, which, under certain conditions, may result in application
of the alternative minimum tax rate to such spread.
On May 18, 1993 the Board of Directors of the Company voted to increase the
number of shares authorized in the 1992 ISO from 300,000 to 550,000 shares of
the Company's Common Stock and on January 20, 1994, voted to increase the
number of shares authorized in the 1992 NSO from 150,000 to 300,000. Additional
options were granted to key management personnel and options were granted to
management of the Company, Drive Thru and RTC who previously had not been
participants in the 1992 ISO or in the 1992 NSO. The increase in the number of
shares authorized under the stock option plans and the granting of the
additional options reflected the changing responsibilities of executive
management as a result of the restructuring of the Company approved in December
1992, the need of the Company, Drive Thru and RTC to limit cash compensation to
its key employees and the desire of the Board of Directors to retain and
motivate key employees by providing quasi-equity participation in the Company.
At the 1993 annual meeting held in March 1994, the shareholders approved an
increase in the number of shares authorized under the 1992 ISO to 750,000
shares. In April 1994, the Board of Directors repriced one-half of the
incentive stock options granted to employees to $1.75 per share, initiated a new
three year vesting period for such options and extended the expiration date of
the repriced options to April 1999.
On November 22, 1996, the Board of Directors approved the cancellation of
the Company's incentive stock options outstanding at September 30, 1996. The
Company issued new incentive stock options to its employees for the purchase of
342,000 shares of common stock. All options are subject to vesting schedules,
are exercisable at $.50 per share and expire on October 1, 2001.
The following table summarizes outstanding options granted to executive and
other officers and current directors of the Company and Drive Thru as of
September 30, 1996:
Incentive Stock Options
Options Options Option Expiration
Name Issue (1) Vested Price (2) Date (3)
Boyd E. Hoback 70,000 70,000 $3.12 10/26/97
70,000 70,000 $1.75 4/26/99
Robert D. Turrill 30,000 30,000 $3.12 10/26/97
30,000 30,000 $1.75 4/26/99
Scott G. LeFever 36,250 36,250 $3.12 10/26/97
36,250 36,250 $1.75 4/26/99
10,000 6,667 $1.25 10/01/20
Sue Knutson 12,500 12,500 $3.12 10/26/97
12,500 12,500 $1.75 4/26/99
10,000 6,667 $1.25 10/01/20
(1) Pursuant to the cancellation and repricing of the Company's incentive
stock options outstanding at September 30, 1996, 150,000 options were
issued to Mr. Hoback; 50,000 options were issued to Mr. Turrill; 50,000
options were issued to Mr. LeFever; and 25,000 options were issued to Ms.
Knutson.
(2) The exercise price of the new options is $.50 per share.
(3) The new expiration date of the options is October 1, 2001.
Non-Statutory Stock Options
Options Options Option Expiration
Name Issued Vested Price Date
Boyd E. Hoback 35,000 35,000 $1.75 10/26/97
Thomas P. McCarty 5,000 5,000 $1.75 4/26/99
Alan A. Teran 5,000 5,000 $1.75 4/26/99
Richard J. Stark 4,996 4,996 $1.75 4/26/99
The options are non-transferable other than by will or by the laws of
descent and distribution and may be exercised during the optionee's lifetime
only by the optionee. Neither the options nor the shares of Common Stock
issuable upon exercise thereof have been registered for public sale under the
Securities Act of 1933, although the Company reserves the right to do so at any
time. Unless registered, the shares of Common Stock issued upon option exercise
will be restricted securities as defined in Rule 144 under the Securities Act.
Report of Board of Directors Regarding Repricing of Options
Effective April 26, 1994, the Board of Directors authorized an adjustment
to the exercise price of one-half of the incentive stock options granted under
the 1992 ISO to $1.75 per share. In addition, the Board of Directors approved
a new three year vesting period for such options and extended the expiration
date of the repriced options to April 26, 1999.
On November 22, 1996, the Board of Directors approved the cancellation of
the Company's incentive stock options outstanding at September 30, 1996. The
Company issued new incentive stock options to its employees for the purchase of
342,000 shares of common stock. All options are subject to vesting schedules,
are exercisable at $.50 per share and expire on October 1, 2001.
Over the past several years, the trading price of the Company's Common
Stock has declined significantly. Accordingly, the previously granted options,
whose exercise prices initially exceeded the trading prices of the Company's
shares, no longer provided the incentives to directors and employees that were
intended by the issuance thereof. For this reason, the Board of Directors
accepted management's recommendation that the outstanding options be repriced as
noted above.
Board of Directors
Geoffrey R. Bailey
David E. Bailey
Dan W. James II
Boyd E. Hoback
Richard J. Stark
Thomas P. McCarty
Alan A. Teran
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of January 6, 1997, certain
information with respect to the record and beneficial ownership of the
Company's Common Stock and Series A Preferred Stock by all stockholders known
by the Company to own more than 5% of its outstanding Common Stock, and by
directors and officers individually and as a group.
Number of
Number of Series A
Common Preferred
Shares Shares
Name, Address and Beneficially % Beneficially %
Position Held Owned of Class Owned** of Class
The Bailey Company, LP(1) - 0 - 750,000 100%
601 Corporate Circle
Golden, CO 80401
The Erie Co. Investment Co.(1) 90,000 1.4% 750,000 100%
601 Corporate Circle
Golden, CO 80401
David E. Bailey 5,000 *
601 Corporate Circle
Golden, CO 80401
Geoffrey R. Bailey 52,550 * - 0 - *
601 Corporate Circle
Golden, CO 80401
Chairman, Director
Dan W. James II 198,508(2) 3.1% - 0 - *
8620 Wolff Court, Suite 330
Westminster, CO 80030
Director
First Registration Corp. 114,502 1.8% - 0 - *
of Oklahoma City
120 N. Robinson Ave.
P.O. Box 25189
Oklahoma City, OK 73125
Shareholder
Boyd E. Hoback 166,248(3) 2.5% - 0 - *
8620 Wolff Court, Suite 330
Westminster, CO 80030
Officer and Director
Richard J. Stark - 0 - * - 0 - *
6075 South Quebec
Suite 103
Englewood, CO 80111
Director
Thomas P. McCarty 500 * - 0 - *
8779 Johnson Street
Arvada, CO 80005
Director
Alan A. Teran - 0 - * - 0 - *
2126 Knollwood Drive
Boulder, CO 80302
Director
Robert D. Turrill 63,895(4) * - 0 - *
8620 Wolff Court, Suite 330
Westminster, CO 80030
Officer
Scott G. LeFever 54,210(5) * - 0 - *
8620 Wolff Court, Suite 330
Westminster, CO 80030
All officers and directors
as a group (9 persons) 745,413 11.3%
* Less than one percent
** Rule 13-d under the Securities Exchange Act of 1934, involving the
determination of beneficial owners of securities, includes as beneficial
owners of securities, among others, any person who directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise
has or shares voting power and/or investment power with respect to such
securities; and, any person who has the right to acquire beneficial
ownership of such security within sixty days
through means, including, but not limited to, the exercise of any option,
warrant, right or conversion of a security. Any securities not outstanding
that are subject to such options, warrants, rights or conversion privileges
shall be deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person,
but shall not be deemed to be outstanding for the purpose of computing the
percentage of the class by any other person.
All shares held by the Officers, Directors and Principal Shareholders
listed above are "restricted securities" and are such are subject to
limitations on resale. The shares may be sold pursuant to Rule 144 under
certain circumstances.
(1) On October 1, 1996 and again on January 1, 1997, the Company issued a total
of 750,000 shares of its Series A Convertible Preferred Stock to The Bailey
Company, L.P., which is a wholly owned subsidiary of The Erie County
Investment Co. that should be deemed the beneficial owner.
(2) Includes 7,602 shares owned by the son of Mr. James, an aggregate of 6,966
shares owned by the Kent B. Hayes Trust, for the benefit of Mr. James.
(3) Includes an aggregate of 150,000 shares of presently exercisable options.
(4) Includes an aggregate of 50,000 shares of presently exercisable options.
(5) Includes an aggregate of 50,000 shares of presently exercisable options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Drive Thru and RTC historically have been under-capitalized and have
found it difficult to obtain required financing without the assistance of
certain of their officers and directors, primarily in the form of guarantees
of payment of restaurant leases by Messrs. Massey (a former director of the
Company) and James. These principally involved obligations of RTC. Neither
Mr. Massey nor Mr. James receive any compensation in connection with these
guarantees. While none of the related party transactions may be deemed to
have been negotiated at arms' length, all such transactions were approved by
the independent members of the RTC Board of Directors and, in the opinion of
Company management, all such transactions were fair and are upon terms which
were at least as favorable as could have been obtained from independent third
parties. To the extent that Messrs. Massey and James continue to be
guarantors of such obligations, the Company has agreed to indemnify each of
them from any losses that they may incur resulting from such guarantees.
The infusion of capital provided by net proceeds from the public
offering of the Company's stock in July 1992 and the subsequent merger of the
Company and RTC in July 1992 substantially reduced or eliminated many actual
and potential conflicts of interest as financial assistance from related
parties was no longer required and the effect of existing financial
arrangements with related parties (primarily guaranteed leases and loans) was
diminished due to the enhanced ability of Drive Thru and RTC to pay the
guaranteed obligations. Also, consummation of the merger eliminated many
actual and potential conflicts which arose as a result of the two companies
being engaged in the same general business and from having common directors
and officers.
Mr. Hoback entered into an employment agreement with the Company in May,
1996 that provides for his employment as president and chief executive officer
for three years from the date of the agreement at a salary of $110,000 per
year, terminable by the Company only for cause.
In February 1996, the Company repurchased 412,500 shares in the
aggregate of its common stock from Messrs. Hoback and Turrill in consideration
for the cancellation of their indebtedness to the corporation, plus accrued
interest thereon, resulting from their initial purchases of such stock
pursuant to an executive stock purchase plan. Additionally, in February 1996,
the Company repurchased 212,500 shares of its common stock from Thomas Gordon
in connection with the termination of his employment as Executive Vice
President and Chief Financial Officer of the Company.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description Location
2.1 Acquisition Agreement between Registrant
and RTC, as amended (6) - Exhibit 2.1
3.1 Articles of Incorporation of the Registrant (1) - Exhibit 3.1
3.2 Amendment to Articles of Incorporation of
the Registrant dated January 23, 1990 (2) - Exhibit 3.1
3.4 Restated Bylaws of Registrant dated
June 10, 1996 *
3.5 Certificate of Amendment of Articles
of Incorporation *
4.1. Form of Warrant Certificate for the
purchase of an aggregate of 920,000 shares
of Registrant's Common Stock issued in
1990 public offering (3) - Exhibit 4.2
4.2. Form of Underwriters' Warrant for the
purchase of 80,000 shares issued in
connection with 1990 public offering (3) - Exhibit 1.4
4.3. Form of Underwriters' Warrant for the
purchase of 69,000 units issued in
connection with 1992 public offering (6) - Exhibit 1.4
4.4. Form of Warrant Certificate for the
purchase of an aggregate of 720,000
shares of Registrant's common stock
issued in 1992 public offering (6) - Exhibit 4.4
4.5. Amended and Restated Warrant Agreement (6) - Exhibit 4.3
4.6. Form of Warrant Certificate to purchase
an aggregate of 105,000 shares of
Registrant's common stock issued in
November 1991 Private Offering (5) - Exhibit 4.2
4.7. Form of registration rights agreement
relating to 105,000 shares of the Registrant's
common stock issuable upon exercise of warrants
issued in November 1991 Private Offering (5) - Exhibit 4.3
4.8. Form of Warrant Certificate for the purchase
of an aggregate 50,000 shares of Registrant's
Common Stock issued to limited partners of
Good Times Limited Partnership I (6) - Exhibit 4.14
4.9. Incentive Stock Option Plan of Registrant (6) - Exhibit 4.9
4.10. Non-Statutory Stock Option Plan of
Registrant (6) - Exhibit 4.10
4.11. 1992 Incentive Stock Option Plan of
Registrant (6) - Exhibit 4.18
4.12. 1992 Incentive Stock Option Plan of
Registrant, as amended (7) - Exhibit 4.20
4.13. 1992 Non-Statutory Stock Option Plan of
Registrant (6) - Exhibit 4.19
4.14. 1992 Non-Statutory Stock Option Plan of
Registrant, as amended (7) - Exhibit 4.22
4.15. Form of warrant dated June 1, 1995 for the
purchase of 50,000 shares of Registrant's
Common Stock at an exercise price of
$1.40 per share issued to Boulder
Radiologists Inc., Defined Benefit Plan -
Dubach, of indebtedness by Registrant to
Dr. Kenneth Dubach (9) - Exhibit 4.15
4.16 First Amended and Restated Series B
Warrant Agreement *
4.17 Third Amended and Restated Warrant
Agreement *
10.1 Underwriting Agreement between Registrant
and Cohig & Associates, Inc. dated
June 15, 1992 (6) - Exhibit 1.1
10.2 Form of Agreement of Limited Partnership
of Good Times Limited Partnership I (5) - Exhibit 10.16
10.3 Promissory Note made by Fast Restaurants,
Inc. and Colfax & Krameria Inc. to
Good Times in the principal amount
of $280,000 (7) - Exhibit 10.49
10.4 Master Equipment Lease Agreement dated
March 16, 1993, between Community Bank of
Parker and Good Times (7) - Exhibit 10.54
10.5 Form of Promissory Note dated June 1, 1995
by and between Good Times Restaurants Inc.
and Boulder Radiologist Inc. Pension Plan
FBO Dubach in the amount of $300,000
due and payable on May 31, 2000 (9) - Exhibit 10.28
10.6 Lease by and between Sheridan Park 7
Partners, a Colorado limited partnership,
and Good Times Restaurants Inc. in
consideration for the payment of rent
for office space in the aggregate amount
of $350,796, commencing April 1, 1993
through April 1998 (9) - Exhibit 10.29
10.7 Master Lease Agreement in the aggregate
amount of $2,000,000 between Capital
Associates International, Inc., as Lessor,
and Good Times Drive Thru Inc. as Lessee (9) - Exhibit 10.30
10.8 Purchase letter agreement dated November
13, 1995 between Steakout, King of Steaks
and Good Times Drive Thru Inc. for the
purchase of assets of four Las Vegas
Good Times restaurants (without exhibits) (9) - Exhibit 10.31
10.9 Employment Agreement agreed to September
14, 1994 between Registrant and Boyd E.
Hoback (9) - Exhibit 10.32
10.10 Employment Agreement agreed to July 14, 1994
between Registrant and Thomas A. Gordon (9) - Exhibit 10.33
10.11 Form of Promissory Note dated November 3, 1995
by and between AT&T Commercial Finance
Corporation, Boise Co-Development Limited
Partnership, Good Times Drive Thru Inc. as
general partner, and Good Times Restaurants
Inc. as guarantor in the amount of
$254,625 (9) - Exhibit 10.34
10.12 Form of Promissory Note dated November 3, 1995
by and between AT&T Commercial Finance
Corporation, Boise Co-Development Limited
Partnership, Good Times Drive Thru Inc. as
general partner, and Good Times Restaurants
Inc. as guarantor in the amount of
$104,055 (9) - Exhibit 10.35
10.13 Series A Convertible Preferred Stock Purchase
Agreement dated as of May 31, 1996 by and
among Good Times Restaurants Inc. and
The Bailey Company *
10.14 First Amendment to Series A Convertible
Preferred Stock Purchase Agreement
effective as of May 31, 1996 by and between
Good Times Restaurants Inc. and The
Bailey Company *
10.15 Registration Rights Agreement dated
May 31, 1996 regarding registration
rights of the common stock issuable
upon conversion of the Series A
Convertible Preferred Stock *
10.16 Letter Agreement between Good Times
Restaurants Inc. and Steakout, King of
Steaks Restaurants, Inc. dated
March 29, 1996 (10) - Exhibit A (10.1)
10.17 Employment Agreement dated May 3, 1996
between Registrant and Boyd E. Hoback *
22.1 Subsidiaries of Registrant (8)- Exhibit 22.1
23.1 Consent of HEIN + ASSOCIATES LLP *
(1) Incorporated by reference from Registrant's Registration Statement on Form
S-18 as filed with the Commission on November 30, 1988
(File No. 33-25810-LA).
(2) Incorporated by reference from Registrant's current report on Form 8-K
dated January 18, 1990 (File No. 33-25810-LA).
(3) Incorporated by reference from Registrant's Registration Statement on Form
S-1 as filed with the Commission on March 26, 1990 (File No. 33-33972).
(4) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1990
(5) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1991
(6) Incorporated by reference from Registrant's Registration Statement on Form
S-1 as filed with the Commission on March 27, 1992 (File No. 33-46813).
(7) Incorporated by reference from Registrant's Form 10-K for the fiscal year
ended September 30, 1993
(8) Incorporated by reference from Registrant's Form 10-KSB for the fiscal
year ended September 30, 1994.
(9) Incorporated by reference from Registrant's Form 10-KSB/A for the fiscal
year ended September 30, 1995.
(10) Incorporated by reference from Registrant's Form 10-QSB for the quarter
ended March 31, 1996.
(b) Current Reports on Form 8-K.
None.
* Filed herewith.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: January ____, 1997 GOOD TIMES RESTAURANTS INC.
By:
Boyd E. Hoback, President
Pursuant to the requirements of Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Geoffrey R. Bailey Chairman January 13, 1997
Geoffrey R. Bailey
/s/ Dan W. James, II Director January 13, 1997
Dan W. James, II
/s/ Boyd E. Hoback President, Chief January 13, 1997
Boyd E. Hoback Executive Officer
and Director
/s/ David E. Bailey Director January 13, 1997
David E. Bailey
/s/ Thomas P. McCarty Director January 13, 1997
Thomas P. McCarty
/s/ Alan A. Teran Director January 13, 1997
Alan A. Teran
/s/ Richard J. Stark Director January 13, 1997
Richard J. Stark
RESTATED
BYLAWS
OF
GOOD TIMES RESTAURANTS INC.
June 10, 1996<PAGE>
RESTATED
BYLAWS
OF
GOOD TIMES RESTAURANTS INC.
TABLE OF CONTENTS
PAGE
ARTICLE I. NAME, REGISTERED OFFICE AND REGISTERED AGENT
Section 1. Name. . . . . . . . . . . . . . . . . . . . . .1
Section 2. Registered Office and Registered Agent. . . . .1
ARTICLE II. SHAREHOLDERS MEETINGS
Section 1. Annual Meetings . . . . . . . . . . . . . . . .1
Section 2. Special Meetings. . . . . . . . . . . . . . . .1
Section 3. Notice of Shareholders Meetings . . . . . . . .2
Section 4. Place of Meeting. . . . . . . . . . . . . . . .2
Section 5. Record Date . . . . . . . . . . . . . . . . . .2
Section 6. Quorum. . . . . . . . . . . . . . . . . . . . .2
Section 7. Voting. . . . . . . . . . . . . . . . . . . . .2
Section 8. Proxies . . . . . . . . . . . . . . . . . . . .3
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. . . . . . . . . . . . . . . . .3
Section 2. Election of Directors . . . . . . . . . . . . 3
Section 3. Number, Tenure and Qualifications . . . . . . .3
Section 4. Regular Meetings. . . . . . . . . . . . . . . .3
Section 5. Special Meetings. . . . . . . . . . . . . . . .3
Section 6. Meetings by Telephone . . . . . . . . . . . . .4
Section 7. Quorum. . . . . . . . . . . . . . . . . . . . .4
Section 8. Manner of Acting. . . . . . . . . . . . . . . .4
Section 9. Vacancies . . . . . . . . . . . . . . . . . . .4
Section 10. Removals. . . . . . . . . . . . . . . . . . . .4
Section 11. Resignations. . . . . . . . . . . . . . . . . .5
Section 12. Presumption of Assent . . . . . . . . . . . . .5
Section 13. Compensation. . . . . . . . . . . . . . . . . .5
Section 14. Informal Action by Directors. . . . . . . . . .5
Section 15. Chairman. . . . . . . . . . . . . . . . . . . .5
<PAGE>
ARTICLE IV. DIVISIONS OF THE CORPORATION
Section 1. Operation of Divisions. . . . . . . . . . . . .6
Section 2. Advisory Board. . . . . . . . . . . . . . . . .6
Section 3. Officers of the Divisions . . . . . . . . . . .6
Section 4. Duties of Officers of Divisions . . . . . . . .6
Section 5. Term of Office, Resignation and Removal . . . .7
Section 6. Authorized Signatures and Checking Accounts . .7
ARTICLE V. OFFICERS
Section 1. Number. . . . . . . . . . . . . . . . . . . . .7
Section 2. Election and Term of Office . . . . . . . . . .7
Section 3. Resignations. . . . . . . . . . . . . . . . . .8
Section 4. Removals. . . . . . . . . . . . . . . . . . . .8
Section 5. Vacancies . . . . . . . . . . . . . . . . . . .8
Section 6. President . . . . . . . . . . . . . . . . . . .8
Section 7. Executive Vice-President. . . . . . . . . . . .8
Section 8. Vice-Presidents . . . . . . . . . . . . . . . .9
Section 9. Secretary . . . . . . . . . . . . . . . . . . .9
Section 10. Treasurer . . . . . . . . . . . . . . . . . . .9
Section 11. Assistant Secretaries and Assistant
Treasurers . . . . . . . . . . . . . . . . 10
Section 12. General Manager . . . . . . . . . . . . . . . 10
Section 13. Other Officers. . . . . . . . . . . . . . . . 11
Section 14. Salaries. . . . . . . . . . . . . . . . . . . 11
Section 15. Surety Bonds. . . . . . . . . . . . . . . . . 11
ARTICLE VI. COMMITTEES
Section 1. Executive Committee . . . . . . . . . . . . . 11
Section 2. Other Committees. . . . . . . . . . . . . . . 11
ARTICLE VII. CONTRACTS, LOANS, DEPOSITS AND CHECKS
Section 1. Contracts . . . . . . . . . . . . . . . . . . 12
Section 2. Loans . . . . . . . . . . . . . . . . . . . . 12
Section 3. Deposits. . . . . . . . . . . . . . . . . . . 12
Section 4. Checks and Drafts . . . . . . . . . . . . . . 12
Section 5. Bonds and Debentures. . . . . . . . . . . . . 12
<PAGE>
ARTICLE VIII. CAPITAL STOCK
Section 1. Certificates of Shares. . . . . . . . . . . . 13
Section 2. Transfers of Shares . . . . . . . . . . . . . 13
Section 3. Transfer Agent and Registrar. . . . . . . . . 13
Section 4. Lost or Destroyed Certificates. . . . . . . . 14
Section 5. Consideration for Shares. . . . . . . . . . . 14
Section 6. Registered Shareholders . . . . . . . . . . . 14
ARTICLE IX. INDEMNIFICATION
Section 1. Indemnification Against Third Party Claims. . 14
Section 2. Indemnification Against Derivative Claims . . 15
Section 3. Rights to Indemnification . . . . . . . . . . 15
Section 4. Authorization of Indemnification. . . . . . . 15
Section 5. Advancement of Expenses . . . . . . . . . . . 16
Section 6. Indemnification by Court Order. . . . . . . . 16
Section 7. Insurance . . . . . . . . . . . . . . . . . . 16
Section 8. Settlement by Corporation . . . . . . . . . . 17
ARTICLE X. WAIVER OF NOTICE. . . . . . . . . . . . . . . . 17
ARTICLE XI. AMENDMENTS. . . . . . . . . . . . . . . . . . . 17
ARTICLE XII. FISCAL YEAR . . . . . . . . . . . . . . . . . . 17
ARTICLE XIII. DIVIDENDS . . . . . . . . . . . . . . . . . . . 18
ARTICLE XIV. CORPORATE SEAL. . . . . . . . . . . . . . . . . 18<PAGE>
RESTATED BYLAWS
OF
GOOD TIMES RESTAURANTS INC.
ARTICLE I
NAME, REGISTERED OFFICE AND REGISTERED AGENT
Section 1. Name. The name of this corporation is Good
Times Restaurants Inc.
Section 2. Registered Office and Registered Agent. The
address of the registered office of this corporation is One East
First, Suite 1600, Reno, Nevada 89501. The name of the registered
agent of this corporation at that address is Corporation Trust
Company. The corporation shall at all times maintain a registered
office. The locations of the registered office may be changed by
the Board of Directors. The corporation may also have offices in
such other places within or without the State of Nevada as the
Board may from time to time designate.
ARTICLE II
SHAREHOLDERS MEETINGS
Section 1. Annual Meetings. The annual meeting of the
shareholders of the corporation shall be held at such place within
or without the State of Nevada and at such time as the Board of
Directors shall determine in compliance with these Bylaws. If such
day is a legal holiday, the meeting shall be on the next business
day. This meeting shall be for the election of Directors and for
the transaction of such other business as may properly come before
it.
Section 2. Special Meetings. Special meetings of
shareholders, other than those regulated by statute, may be called
at any time by the Chairman of the Board, the President, any two
Directors or the holder or holders of at least 25 percent of the
outstanding shares of Series A Convertible Preferred Stock, and
must be called by the President upon written request of the holders
of ten percent of the outstanding shares of capital stock entitled
to vote at such special meeting. Written notice of such meeting
stating the place, the date and hour of the meeting, the purpose or
purposes for which it is called, and the name of the person by whom
or at whose direction the meeting is called shall be given. Such
notice shall be given to each shareholder of record in the same
manner as notice of the annual meeting. No business other than
that specified in the notice of the meeting shall be transacted at
any such special meeting.
Section 3. Notice of Shareholders Meetings. The
Secretary shall give written notice stating the place, date and
hour of the meeting and, in the case of a special meeting, the
purpose(s) for which the meeting is called, which shall be
delivered not less than ten nor more than fifty days prior to the
date of the meeting, either personally or by mail to each
shareholder of record entitled to vote at such meeting. If mailed,
such notice shall be deemed to be delivered when deposited in the
United States mail, addressed to the shareholder at his address as
it appears on the stock transfer books of the corporation, with
postage thereon prepaid.
Section 4. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Nevada,
as the place of meeting for any annual meeting or for any special
meeting called by the Board of Directors. A waiver of notice
signed by all shareholders entitled to vote at a meeting may
designate any place, either within or without the State of Nevada,
as the place for the holding of such meeting. If no designation is
made, or if a special meeting is called by other than the Board of
Directors, the place of meeting shall be the principal business
office of the corporation.
Section 5. Record Date. The Board of Directors may fix
a date not less than ten nor more than fifty days prior to any
meeting as the record date for the purpose of determining
shareholders entitled to notice of and to vote at any such meeting
of the shareholders. The stock transfer books may be closed by the
Board of Directors for a stated period not to exceed fifty days for
the purpose of determining shareholders entitled to receive payment
of any dividend, or in order to make a determination of
shareholders for any other purpose.
Section 6. Quorum. Except as otherwise provided in
these Bylaws or the Articles of Incorporation, a majority of the
votes represented by the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of shareholders. If less than
a majority of such votes are represented at any such meeting, a
majority of the votes so represented may adjourn the meeting from
time to time without further notice. At a meeting resumed after
any such adjournment at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. The shareholders
present at any duly assembled meeting at which a quorum is present
may continue to transact business until adjournment,
notwithstanding the withdrawal of shareholders in such number that
less than a quorum remain.
Section 7. Voting. The holder of an outstanding share
entitled to vote at any meeting may vote at such meeting in person
or by proxy. Every shareholder of Common Stock shall be entitled
to one vote for each share standing in his name on the records of
the corporation upon each matter submitted to a vote at a meeting
of shareholders. Every holder of Series A Convertible Preferred
Stock shall have such number of votes per share on each matter
submitted to a vote at a meeting of shareholders as shall equal the
number of shares of Common Stock (including fractions of a share)
into which each share of Series A Convertible Preferred Stock would
be convertible based on the conversion price then in effect, as
provided in the terms of the Series A Preferred Stock set forth in
the Articles of Incorporation. All shareholder actions shall be
determined by a majority of the votes cast at any meeting of
shareholders by the holders or proxies of shares entitled to vote
thereon.
Section 8. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in writing by
the shareholder or by his duly authorized attorney-in-fact. Such
proxy shall be filed with the Secretary of the corporation before
or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise
provided in the proxy.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of
the corporation shall be managed by its Board of Directors. The
Board of Directors may adopt such rules and regulations for the
conduct of its meetings and the management of the corporation as it
deems proper.
Section 2. Election of Directors. The Board of Directors
shall be elected by the shareholders at the annual meeting, or if
not so elected, at a special meeting called for such purpose.
Notwithstanding the foregoing, the holders of the Series A
Convertible Preferred Stock voting together, separately as a class,
shall have the right to elect two Directors to the Board of
Directors, one of whom shall have the right to serve as the
Chairman of the Board at his or her discretion. At any meeting (or
in a written consent in lieu thereof) held for the purpose of
electing Directors, the presence in person or by proxy (or the
written consent) of the holders of a majority of the shares of
Series A Convertible Preferred Stock then outstanding shall
constitute a quorum of the Series A Convertible Preferred Stock for
the election of Directors to be elected solely by the holders of
the Series A Convertible Preferred Stock or jointly by the holders
of the Series A Convertible Preferred Stock and the Common Stock.
Section 3. Number, Tenure and Qualifications. The
number of Directors of the corporation shall be as determined by
the Board of Directors in accordance with the Articles of
Incorporation, but shall not be greater than seven unless an
increase in such number is approved by the holders of two-thirds of
the outstanding shares of Series A Convertible Preferred Stock.
Each Director shall hold office until the next annual meeting of
shareholders and until his successor shall have been duly elected
and qualified. Directors need not be residents of the State of
Nevada or shareholders of the corporation.
Section 4. Regular Meetings. A regular meeting of the
Board of Directors shall be held without other notice than by this
Bylaw, immediately following and at the same place as the annual
meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional
regular meetings without other notice than such resolution.
Section 5. Special Meetings. Special Meetings of the
Board of Directors may be called by order of the Chairman of the
Board, the President, any two Directors or the holder or holders of
at least 25 percent of the outstanding shares of Series A
Convertible Preferred Stock. The Secretary shall give notice of
the time and place of each special meeting by mailing the same at
least two days before the meeting or by telephoning or telegraphing
the same at least one day before the meeting to each Director.
Section 6. Meetings by Telephone. Any meeting of the
Board of Directors, regular or special, may be held by conference
telephone call.
Section 7. Quorum. A majority of the members of the
Board of Directors shall constitute a quorum for the transaction of
business, but less than a quorum may adjourn any meeting from time
to time until a quorum shall be present, whereupon the meeting may
be held, as adjourned, without further notice. At any meeting at
which every Director shall be present, even though without any
notice, any business may be transacted.
Section 8. Manner of Acting. At all meetings of the
Board of Directors, each Director shall have one vote. The act of
a majority present at a meeting shall be the act of the Board of
Directors, provided a quorum is present.
Section 9. Vacancies. A vacancy in any directorship
elected solely by the holders of the Series A Convertible Preferred
Stock shall be filled only by vote or written consent of the
holders of the Series A Convertible Preferred Stock in accordance
with Section 2 hereof, and any vacancy in any directorship elected
jointly by the holders of the Series A Convertible Preferred Stock
and the Common Stock shall be filled only by vote or written
consent of holders of the Series A Convertible Preferred Stock and
the Common Stock in accordance with Section 2 hereof.
Section 10. Removals. Directors may be removed at any
time with or without cause by vote of the shareholders holding a
majority of the shares outstanding which are at the time entitled
to vote on the election of the Director to be removed. Thus, the
Directors elected by the holders of the Series A Convertible
Preferred Stock may be removed only by a vote of the majority of
the outstanding shares of such stock and such vacancy shall be
filled in the manner specified in Section 9 above. No reduction of
the authorized number of Directors shall have the effect of
removing any Director prior to the expiration of his term of
office. Notwithstanding the foregoing, the holders of the Series
A Convertible Preferred Stock, voting as a separate class, shall be
entitled to remove with or without cause any or all of the
Directors and to elect four Directors to the Board of the
corporation if the following events occur: (1) the Board shall fail
to declare an Accruing Dividend (as such term is defined in the
terms of the Series A Convertible Preferred Stock set forth in the
Articles of Incorporation) when due if there is adequate surplus to
do so, unless the Board of Directors reasonably determines that the
payment of a cash dividend would jeopardize the corporation's
ability to meet its current and reasonably foreseeable obligations,
including reasonable reserves therefor; (2) the corporation files
a petition in bankruptcy, is adjudged bankrupt or insolvent, makes
an assignment for the benefit of creditors, applies to or petitions
any tribunal for the appointment of a receiver, intervenor or
trustee for all or a substantial part of its assets, or a
proceeding under any bankruptcy law or statute shall have commenced
and not been dismissed within sixty days; or (3) if there has been
a material breach of any agreement between the corporation and the
holders of the Series A Convertible Preferred Stock and the
corporation fails to remedy such breach within 14 days after
receiving notice of such breach or, if such breach cannot
reasonably be cured and the corporation continuously and diligently
proceeds to remedy such breach, within thirty days after receiving
notice of such breach.
Section 11. Resignations. A Director may resign at any
time by delivering written notification thereof to the President or
Secretary of the corporation. Resignation shall become effective
upon its acceptance by the Board of Directors; provided, however,
that if the Board of Directors has not acted thereon within ten
days after the date of its delivery, the resignation shall be
deemed accepted upon the tenth day.
Section 12. Presumption of Assent. A Director of the
corporation who is present at a meeting of the Board of Directors
at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary of the
corporation immediately after adjournment of the meeting. Such
right of dissent shall not apply to a Director who voted in favor
of such action.
Section 13. Compensation. By resolution of the Board of
Directors, the Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors, and may be
paid a fixed sum for attendance at each such meeting or a stated
salary as Director. No such payment shall preclude any Director
from serving the corporation in any other capacity and receiving
compensation therefor.
Section 14. Informal Action by Directors. Any action
required to be taken at a meeting of Directors or any action which
may be taken at a meeting of Directors may be taken without a
meeting by a written consent, setting forth the action so taken,
signed by all of the Directors of the corporation.
Section 15. Chairman. If one of the Directors elected
solely by the holders of the Series A Convertible Preferred Stock
does not elect to serve as Chairman of the Board, the Board may
elect from its own number a Chairman of the Board. The Chairman of
the Board shall preside at all meetings of the Board of Directors
and shall perform such other duties as may be prescribed from time
to time by the Board of Directors.
ARTICLE IV
DIVISIONS OF THE CORPORATION
Section 1. Operation of Divisions. The Board of
Directors shall have power to establish one or more operating
divisions of the corporation. Each division of the corporation
shall have such authority, responsibilities, and duties as may be
delegated to it from time to time by the Board of Directors. Each
division of the corporation shall adopt Rules of Procedure for the
conduct of its affairs not inconsistent with the Articles of
Incorporation and Bylaws of the corporation. Such Rules of
Procedure shall become effective when approved by the Board of
Directors.
Section 2. Advisory Board. The Board of Directors of
the corporation may appoint individuals who may, but need not, be
Directors, officers or employees of the corporation, to serve as
members of an Advisory Board to one or more of the divisions of the
corporation. The members of any such Advisory Board shall keep
minutes of their meetings which shall be submitted to the Board of
Directors of the corporation. The term of office of any member of
the Advisory Board shall be at the pleasure of the Board of
Directors of the corporation. The function of such Advisory Board
shall be to advise with respect to the affairs of the operating
divisions of the corporation to which it is appointed.
Section 3. Officers of the Divisions. The divisions of
the corporation shall each have a President and such Vice-Presidents as the
Board of Directors may appoint. The Secretary and Treasurer of the
corporation shall also be deemed the Secretary and Treasurer of each division.
Section 4. Duties of Officers of Divisions. Any
employee designated as an officer of a division shall have such
authority, responsibilities, and duties with respect to the
applicable division corresponding to those normally vested in the
comparable officer of the corporation by these Bylaws, subject to
such limitations as may be imposed by the Board of Directors, the
Articles of Incorporation or by these Bylaws. The President of a
division may sign, execute and deliver in the name of such division
only such contracts, agreements or other documents as may be
prescribed from time to time by the President of the corporation or
the Board of Directors. The designation of any individual as
President or Vice-President of any division of the corporation
shall not be permitted to conflict in any way with any executive or
administrative authority of any officer of the corporation
established from time to time by the Board of Directors of the
corporation. The President of each division shall report directly
to the President and Chief Executive Officer of the corporation.
The President of a division, upon written approval of the President
of the corporation, may appoint or remove such agents or employees
of a division as may, from time to time, become necessary or useful
to the operation of such division.
Section 5. Term of Office, Resignation and Removal.
Each officer of a division shall hold office until his successor
shall have been duly appointed by the Board of Directors, or until
his death, or until he shall resign. Any officer of a division may
resign at any time by delivery of a written resignation either to
the President of the corporation, the Secretary of the corporation
or to the Board of Directors. Such resignation shall take effect
upon delivery. Any officer of the division may be removed from
office only by the Board of Directors. Such officer shall be
removed when in the sole judgment of the Board of Directors the
best interests of the division or the corporation will be served
thereby. Any such removal shall require a majority vote of the
Board of Directors.
Section 6. Authorized Signatures and Checking Accounts.
The Board of Directors may authorize each division to have a
separate checking account. Any check issued by or for the benefit
of any division shall require at least two signatures. The
corporate or divisional officers authorized to sign such checks of
any division shall be the President of such division, the President
of the corporation and the Secretary of the corporation.
ARTICLE V
OFFICERS
Section 1. Number. The corporate officers shall be a
President, no Vice-Presidents or one or more Vice-Presidents as
determined from time to time by the Board of Directors, a Secretary
and a Treasurer, each of whom shall be elected by a majority of the
Board of Directors. Such other corporate officers and assistant
officers as may be deemed necessary may be elected or appointed by
the Board of Directors. In its discretion, the Board of Directors
may leave unfilled for any such period as it may determine any
corporate office except those of President and Secretary. Any two
or more corporate offices may be held by the same person, except
the offices of President and Secretary. Corporate officers need
not be Directors or shareholders of the corporation.
Section 2. Election and Term of Office. The corporate
officers to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the
shareholders. If the election for corporate officers shall not be
held at such meeting, such election shall be held as soon
thereafter as convenient. Each corporate officer shall hold office
until his successor shall have been duly elected and shall have
qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided.
Section 3. Resignations. Any corporate officer may
resign at any time by delivering a written resignation either to
the corporate President or to the corporate Secretary. Unless
otherwise specified therein, such resignation shall take effect
upon delivery.
Section 4. Removals. Any corporate officer or agent may
be removed by the Board of Directors, with or without cause,
whenever in its judgment the best interests of the corporation
would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Election or appointment of a corporate officer or agent shall not
of itself create contract rights. Any such removal shall require
a majority vote of the Board of Directors, exclusive of the
corporate officer in question if he is also a Director.
Section 5. Vacancies. A vacancy in any corporate office
because of death, resignation, removal, disqualification or
otherwise, or if a new corporate office shall be created, may be
filled by the Board of Directors for the unexpired portion of the
term.
Section 6. President. The President shall be the chief
executive and administrative officer of the corporation. He shall
preside at all meetings of the shareholders and, in the absence of
the Chairman of the Board, at meetings of the Board of Directors.
He shall exercise such duties as customarily pertain to the office
of President and shall have general and active supervision of the
property, business, offices and affairs of the corporation and each
division. He may appoint officers, agents, or employees on the
corporate or division level other than those appointed by the Board
of Directors. He may sign, execute and deliver in the name of the
corporation powers of attorney, contracts, bonds and other
obligations, and shall perform such other duties as may be
prescribed from time to time by the Board of Directors or by these
Bylaws.
Section 7. Executive Vice-President. The Executive
Vice-President shall be the chief executive and administrative
officer of the corporation in the absence of the President, and in
such absence shall be vested with all rights, powers, privileges
and obligations of the President as more fully set forth in Section
6 of this Article V. In addition, he may sign, execute and deliver
in the name of the corporation, powers of attorney, contracts,
bonds and other obligations when the President is present but
unavailable for the execution of such documents, and he shall
perform such other duties as may be prescribed from time to time by
the Board of Directors, the President or the Bylaws.
Section 8. Vice-Presidents. Vice-Presidents shall have
such powers and perform such duties as may be assigned to them by
the Board of Directors or by the President. In the absence or
disability of the President, the Vice-President designated by the
Board or by the President shall perform the duties and exercise the
powers of the President. A Vice-President may sign and execute
contracts and other obligations pertaining to the regular course of
his duties.
Section 9. Secretary. The Secretary shall also be
deemed the Secretary of each of the divisions. The Secretary
shall, subject to the direction of the President, Executive Vice-President, or a
designated Vice-President, keep the minutes of all
meetings of the shareholders and of the Board of Directors and, to
the extent ordered by the Board of Directors or the President, the
minutes of meetings of all divisions and committees. He shall
cause notice to be given of meetings of shareholders, of the Board
of Directors and of any committee appointed by the Board. He shall
have custody of the corporate seal and general charge of the
records, documents and papers of the corporation and each division
not pertaining to the performance of the duties vested in other
officers, which records, documents and papers shall at all
reasonable times be open to examination by any Director. He may
sign or execute contracts with the President, Executive Vice-President or Vice-
Presidents thereunto authorized in the name of
the corporation and affix the seal of the corporation thereto,
provided, however, that he may not simultaneously act both in the
capacity of Secretary and that of Executive Vice-President or Vice-President
upon the execution of such documents. He shall perform
such other duties as may be prescribed from time to time by the
Board of Directors or by these Bylaws. He shall be sworn to the
faithful discharge of his duties. If necessary, Assistant
Secretaries shall assist the Secretary and shall keep and record
such minutes of meetings as shall be directed by the Board of
Directors.
Section 10. Treasurer. The Treasurer shall, subject to
the direction of the President, Executive Vice-President or a
designated Vice-President, have general custody and control of the
collection and disbursement of funds of the corporation and each
division. He shall endorse on behalf of the corporation and each
division for collection checks, notes and other obligations, and
shall deposit the same to the credit of the corporation or the
division in such bank(s) or depositories as the Board of Directors
may designate. He may sign, with the President or such other
persons as may be designated for the purpose by the Board of
Directors, all bills of exchange or promissory notes of the
corporation or any division, provided, however, that he may not
simultaneously act both in the capacity of Treasurer and that of
Executive Vice-President or Vice-President upon the execution of
such documents. He shall enter or cause to be entered regularly in
the books of the corporation or any division a full and accurate
account of all monies received and paid by him or under his
direction on account of the corporation or such division. He shall
at all reasonable times exhibit his books and accounts to any
Director of the corporation upon timely application at the office
of the corporation during business hours, and whenever required by
the Board of Directors or the President, he shall render a
statement of his accounts. He shall perform such other duties as
may be prescribed from time to time by the Board of Directors or by
the Bylaws. If necessary, Assistant Treasurers shall assist the
Treasurer and shall perform such duties as shall be directed by the
Board of Directors. He shall give bond for the faithful
performance of his duties in such sum and with or without such
surety as shall be required by the Board of Directors.
Section 11. Assistant Secretaries and Assistant
Treasurers. The Board of Directors may appoint such Assistant
Secretaries and Assistant Treasurers as may be necessary for the
expedient discharge of the affairs of the corporation or any
division. The Assistant Secretaries and Assistant Treasurers shall
be authorized to perform any of the duties of the Secretary or
Treasurer, respectively, in the absence of the Secretary or
Treasurer, or in any situation where the Secretary or Treasurer may
be acting in another capacity such as Executive Vice-President or
Vice-President.
Section 12. General Manager. The Board of Directors may
employ and appoint a General Manager who may or may not be one of
the officers or Directors of the corporation. He shall be the
chief operating officer of the corporation, and subject to the
direction of the Board of Directors and of the President, shall
have general charge of the business operations of the corporation
and general supervision over its employees and agents. He may be
given the exclusive management of the business of the corporation
in any or all of its dealings, but at all times he shall be subject
to the control of the Board of Directors or of the Executive
Committee. He may employ all employees of the corporation, or
delegate such employment to subordinate officers or division
chiefs, and he may have the authority to discharge any person so
employed. He shall make a report to the President and to the Board
of Directors quarterly, or more often if required to do so, setting
forth the result of the operations under his charge, together with
suggestions looking to the improvement and betterment of the
condition of the corporation. He may perform such other duties as
the Board of Directors shall require.
Section 13. Other Officers. Other officers shall
perform such duties and have such powers as may be assigned to them
by the Board of Directors.
Section 14. Salaries. Salaries or other compensation of
the corporate officers and the officers of any division of the
corporation shall be fixed from time to time by the Board of
Directors, except that the Board of Directors may delegate to any
person or group of persons the power to fix the salaries or other
compensation of any such subordinate officers or agent. No officer
shall be prevented from receiving any such salary or compensation
because he is also a Director of the corporation.
Section 15. Surety Bonds. If the Board of Directors
shall so require, any corporate or division officer or agent shall
execute to the corporation a bond in such sums and with such surety
or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the corporation or the
applicable division, including his responsibility for negligence
and the accounting for all property, monies or securities of the
corporation or a division which may come into his hands.
ARTICLE VI
COMMITTEES
Section 1. Executive Committee. The Board of Directors
may appoint from among its members an Executive Committee of not
less than two nor more than five members, one of whom shall be the
President, and shall designate one of such members as Chairman.
The Board may also designate one or more of its members as
alternates to serve as members on the Executive Committee in the
absence or disability of a regular member(s). The Board of
Directors reserves to itself alone the power to declare dividends,
issue stock, recommend to shareholders any action requiring their
approval, change the membership of any committee at any time, fill
vacancies therein and disband any committee either with or without
cause at any time. Subject to the foregoing limitations, the
Executive Committee shall possess and exercise all other powers of
the Board of Directors during the intervals between meetings.
Section 2. Other Committees. The Board of Directors may
also appoint from among its own members such other committees as
the Board of Directors may determine. Such committees shall in
each case consist of not less than two Directors, and shall have
such powers and duties and shall from time to time be prescribed by
the Board. The President shall be a member ex officio of each
committee appointed by the Board of Directors. A majority of the
members of any committee may fix its rules of procedure.
ARTICLE VII
CONTRACTS, LOANS, DEPOSITS AND CHECKS
Section 1. Contracts. The Board of Directors may
authorize any officer(s) or agent(s) to enter into any contract or
execute and deliver any instrument in the name and on behalf of the
corporation, and such authority may be either general or confined
to specific instances.
Section 2. Loans. No loan(s) or advance(s) shall be
contracted on behalf of the corporation, no negotiable paper or
other evidence of its obligation under any loan or advance shall be
issued in its name, and no property of the corporation shall be
mortgaged, pledged, hypothecated or transferred as security for the
payment of any loan, advance, indebtedness or liability of the
corporation unless and except as authorized by the Board of
Directors. Any such authorization may be either general or
confined to specific instances.
Section 3. Deposits. All funds of the corporation not
otherwise employed shall be deposited from time to time to the
credit of the corporation in such banks, trust companies or other
depositories as the Board of Directors may select, or as may be
selected by any officer or agent so authorized by the Board of
Directors.
Section 4. Checks and Drafts. All notes, drafts,
acceptances, checks, endorsements and evidences of indebtedness of
the corporation shall be signed by such officer(s) or such agent(s)
of the corporation and in such manner as the Board of Directors
from time to time may determine. Endorsements for deposit to the
credit of the corporation in any of its duly authorized
depositories shall be made in such manner as the Board of Directors
from time to time may determine.
Section 5. Bonds and Debentures. Every bond or
debenture issued by the corporation shall be evidenced by an
appropriate instrument which shall be signed by the President or a
Vice-President and by the Treasurer or by the Secretary. The seal
may be a facsimile, engraved or printed. Where such bond or
debenture is to be authenticated with the manual signature of an
authorized officer of the corporation or other trustee designated
by the indenture of trust or other agreement under which such
security is issued, the signature of any of the corporation's
officers named thereon may be facsimile. In case any officer who
signed, or whose facsimile signature has been used on any such bond
or debenture, shall cease to be an officer of the corporation, such
bond or debenture may nevertheless be adopted by the corporation
and issued and delivered as though the person who signed it or
whose facsimile signature has been used thereon had not ceased to
be such officer.
ARTICLE VIII
CAPITAL STOCK
Section 1. Certificates of Shares. The shares of the
corporation shall be represented by certificates prepared by the
Board of Directors and signed by the President or the Vice-President
and by the Secretary, and sealed with the seal of the
corporation or a facsimile. The signatures of such officers upon
a certificate may be facsimiles if the certificate is countersigned
by a transfer agent or registered by a registrar other than the
corporation itself or one of its employees. All certificates for
shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued,
with the number of shares and the date of issue, shall be entered
on the stock transfer books of the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled. No
new certificates shall be issued until the former certificate for
a like number of shares shall have been surrendered and cancelled,
except that in case of a lost, destroyed or mutilated certificate,
a new one may be issued therefor upon such terms of indemnity to
the corporation as the Board of Directors may prescribe.
Section 2. Transfers of Shares. Transfers of shares of
the corporation shall be made only on the stock transfer books of
the corporation by the holder of record thereof or by his legal
representative, or by his attorney thereunto authorized by a power
of attorney duly executed and such representative or attorney shall
furnish proper evidence of his authority to so transfer the shares
to the Secretary of the corporation upon the surrender for
cancellation of the certificate for such shares. The person in
whose name shares stand on the stock transfer books of the
corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
Section 3. Transfer Agent and Registrar. The Board of
Directors shall have power to appoint one or more transfer agents
and registrars, who may also be employees of the corporation, for
the transfer and registration of certificates of stock of any
class, and may require that stock certificates shall be
countersigned and registered by one or more of such transfer agents
and registrars.
Section 4. Lost or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued to replace any
certificate theretofore issued by the corporation and alleged to
have been lost or destroyed if the new owner makes an affidavit
that the certificate is lost or destroyed. The Board of Directors
may, at its discretion, require the owner of such certificate or
his legal representative to give the corporation a bond in such sum
and with such sureties as the Board of Directors may direct to
indemnify the corporation and transfer agents and registrars, if
any, against claims that may be made on account of the issuance of
such new certificates. A new certificate may be issued without
requiring any bond.
Section 5. Consideration for Shares. The capital stock
of the corporation shall be issued for such consideration as shall
be fixed from time to time by the Board of Directors, but in no
event shall such value be less than the par value of such shares.
In the absence of fraud, the determination of the Board of
Directors as to the value of any property or services received in
full or partial payment for shares shall be conclusive.
Section 6. Registered Shareholders. The corporation
shall be entitled to treat the holder of record of any share or
shares of stock as the holder thereof in fact and shall not be
bound to recognize any equitable or other claim to or interest in
the shares.
ARTICLE IX
INDEMNIFICATION
Section 1. Indemnification Against Third Party Claims.
The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the
right of the corporation, by reason of the fact that he is or was
a Director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a Director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and
in a manner which he reasonably believed to be in or not opposed to
the best interests if the corporation, and, with respect to any
criminal action or proceeding, has no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself,
create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and that, with respect to
any criminal action or proceeding, he had reasonable cause to
believe that his conduct was unlawful.
Section 2. Indemnification Against Derivative Claims.
The corporation shall further indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a Director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a Director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses, including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if
he acted in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation;
provided that indemnification shall not be made for any claim,
issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that
the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of
all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such expenses as the court
deems proper.
Section 3. Rights to Indemnification. To the extent
that a Director, officer, employee or agent of the corporation has
been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or
in defense of any claim, issue or matter therein, he shall be
indemnified by the corporation against expenses, including
attorneys' fees, actually and reasonably incurred by him in
connection with the defense.
Section 4. Authorization of Indemnification. Any
indemnification under subsections 1 and 2, unless ordered by a
court or advanced pursuant to subsection 5, shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the Director, officer,
employee or agent is proper in the circumstances. The
determination shall be made: (a) by the shareholders, (b) by the
Board of Directors by majority vote of a quorum consisting of
Directors who were not parties to the act, suit or proceeding, (c)
if a majority vote of a quorum consisting of Directors who were not
parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion, or (d) if a quorum consisting
of Directors who were not parties to the act, suit or proceeding
cannot be obtained, by independent legal counsel in a written
opinion.
Section 5. Advancement of Expenses. The expenses of
officers and Directors incurred in defending a civil or criminal
action, suit or proceeding, by reason of the fact that he was a
Director or officer of the corporation, shall be paid by the
corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the Director or officer to repay the
amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection 5 do not affect any
rights to advancement of expenses to which corporate personnel
other than Directors and officers may be entitled under any
contract or otherwise by law.
Section 6. Indemnification by Court Order. The
indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section (a) does not exclude
any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under these Articles of
Incorporation or the Bylaws of the corporation, or any other
agreement, vote of shareholders or disinterested Directors or
otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection
2 hereof or for the advancement of the expenses made pursuant to
subsection 5 hereof, may not be made to or on behalf of any
Director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a
knowing violation of the law and was material to the cause of
action and (b) continues for a person who has ceased to be a
Director, officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such a person.
Section 7. Insurance. The Board of Directors may, in
its discretion, direct that the corporation purchase and maintain
insurance on behalf of any person who is or was a Director,
officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a Director, officer, employee
or agent of another corporation, partnership, joint venture, trust
or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status
as such, whether or not the corporation would have the power to
indemnify him against liability under the provisions of this
Section.
Section 8. Settlement by Corporation. The right of any
person to be indemnified shall be subject always to the right of
the corporation by the Board of Directors, in lieu of such
indemnification, to settle any such claim, action, suit or
proceeding at the expense of the corporation by the payment of the
amount of such settlement and the costs and expenses incurred in
connection therewith.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given to any
shareholder or Director of the corporation under the provision of
these Bylaws or under the provisions of the Articles of
Incorporation or under the provisions of the laws of the State of
Nevada, a waiver thereof in writing signed by the person(s)
entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
Attendance at any meeting shall constitute a waiver of notice of
such meetings, except where attendance is for the express purpose
of objecting to the legality of that meeting.
ARTICLE XI
AMENDMENTS
These Bylaws may be altered, amended, repealed, or new
bylaws adopted by a majority vote of the entire Board of Directors
at any regular or special meeting. Any bylaw adopted by the Board
of Directors may be repealed or changed by a majority vote of the
shareholders.
ARTICLE XII
FISCAL YEAR
The fiscal year end of the corporation shall be fixed and
may be varied by resolution of the Board of Directors.
ARTICLE XIII
DIVIDENDS
The Board of Directors may at any regular or special
meeting, as it deems advisable, declare dividends payable out of
the surplus of the corporation.
ARTICLE XIV
CORPORATE SEAL
The corporation shall have an official seal which shall
bear the name of the corporation and the state and year of
incorporation.
These Restated Bylaws were adopted for the corporation by
the Board of Directors on the 10th day of June, 1996.
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
Good Times Restaurants Inc., a corporation organized under the
laws of the State of Nevada (the "Corporation"), by its President
and Secretary does hereby certify:
I. That the Board of Directors of the Corporation at a
meeting duly held on the 10th day of June, 1996, passed a
resolution declaring that the following change and amendment to the
Corporation's Articles of Incorporation is advisable.
RESOLVED, that the Articles of Incorporation of the
Corporation be amended by deleting Article Fourth thereof and
substituting therefor the following:
ARTICLE IV - AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock which
the Corporation shall have the authority to issue is 55,000,000
shares, consisting of 50,000,000 shares of common stock, $.001 par
value per share ("Common Stock"), and 5,000,000 shares of preferred
stock, $.01 par value per share ("Preferred Stock").
The designations, powers, preferences and rights and the
qualifications, limitation or restrictions of the Preferred Stock
shall be as follows:
a. Series A Convertible Preferred Stock.
One million shares of Preferred Stock shall be designated
as Series A Convertible Preferred Stock and shall have the
following designations, powers, preferences and rights and the
qualifications, limitations or restrictions as follows:
i. Number of Shares. The series of Preferred
Stock designated and known as "Series A Convertible
Preferred Stock" shall consist of 1,000,000 shares.
ii. Voting.
(1) General. Except as may be otherwise
provided in these terms of the Series A
Convertible Preferred Stock or by law, the
Series A Convertible Preferred Stock shall
vote together with all other classes and
series of stock of the Corporation as a single
class on all actions to be taken by the
stockholders of the Corporation. Each share
of Series A Convertible Preferred Stock shall
entitle the holder thereof to such number of
votes per share on each action as shall equal
the number of shares of Common Stock
(including fractions of a share) into which
each share of Series A Convertible Preferred
Stock would be convertible based on the
Conversion Price then in effect.
(2) Board Size. The Corporation shall not,
without the written consent or affirmative
vote of the holders of at least two-thirds of
the then outstanding shares of Series A
Convertible Preferred Stock, given in writing
or by vote at a meeting, consenting or voting
(as the case may be) separately as a series,
increase the maximum number of Directors
constituting the Board of Directors to a
number in excess of seven.
(3) Board Seats. The holders of the Series A
Convertible Preferred Stock voting together
separately as a class shall have the right to
elect two Directors to the Board of Directors
of the Corporation, one of whom shall have the
right to serve as the Chairman of the Board at
their discretion. Notwithstanding the
foregoing or anything else to the contrary
provided in these Articles of Incorporation,
the holders of Series A Convertible Preferred
Stock, voting as a separate series, shall be
entitled to remove with or without cause any
or all of the Directors and to elect four
Directors to the Board of the Corporation if
the following events occur: (1) the Board
shall fail to declare an Accruing Dividend
when due if there is adequate surplus to do
so, unless the Board of Directors reasonably
determines that the payment of a cash dividend
would jeopardize the Corporation's ability to
meet its current and reasonably foreseeable
obligations, including reasonable reserves
therefor; (2) the Corporation files a petition
in bankruptcy, is adjudged bankrupt or
insolvent, makes an assignment for the benefit
of creditors, applies to or petitions any
tribunal for the appointment of a receiver,
intervenor or trustee for all or a substantial
part of its assets, or a proceeding under any
bankruptcy law or statute shall have commenced
and not been dismissed within 60 days; or (3)
if there has been a material breach of any
agreement between the Corporation and the
holders of the Series A Convertible Preferred
Stock and the Company fails to remedy such
breach within 14 days after receiving notice
of such breach or, if such breach cannot
reasonably be cured and the Company
continuously and diligently proceeds to remedy
such breach, within 30 days after receiving
notice of such breach. At any meeting (or in
a written consent in lieu thereof) held for
the purpose of electing Directors, the
presence in person or by proxy (or the written
consent) of the holders of a majority of the
shares of Series A Convertible Preferred Stock
then outstanding shall constitute a quorum of
the Series A Convertible Preferred Stock for
the election of Directors to be elected solely
by the holders of the Series A Convertible
Preferred Stock or jointly by the holders of
the Series A Convertible Preferred Stock and
the Common Stock. A vacancy in any
directorship elected solely by the holders of
the Series A Convertible Preferred Stock shall
be filled only by vote or written consent of
the holders of the Series A Convertible
Preferred Stock, and a vacancy in the
directorship elected jointly by the holders of
the Series A Convertible Preferred Stock and
the Common Stock shall be filled only by vote
or written consent of holders of the Series A
Convertible Preferred Stock and the Common
Stock as provided above.
iii. Dividends. The holders of the Series A
Convertible Preferred Stock shall be entitled to
receive, out of funds legally available therefor,
when and as declared by the Board of Directors,
cumulative cash dividends on each share of
Preferred Stock equal to 8% of the purchase price
paid for such share per annum (the "Accruing
Dividend"). The Accruing Dividend shall accrue
with respect to each share of Series A Convertible
Preferred Stock issued and outstanding from day to
day from the date of original issuance of such
shares and shall be payable quarterly on January 1,
April 1, July 1 and October 1 of each year (each a
"Payment Date") commencing July 1, 1997, whether or
not earned or declared, and such dividends shall be
cumulative if not paid. The Accruing Dividend
shall be paid, at the option of the holder of the
Series A Convertible Preferred Stock, in cash or in
Common Stock. If a holder elects to receive an
Accruing Dividend in cash, the Company shall
promptly pay such Accruing Dividend unless the
Board of Directors reasonably determines that the
payment of such dividend would jeopardize the
Corporation's ability to meet its current and
reasonably foreseeable obligations, including the
establishment of reasonable reserves therefor, in
which case the payment of such cash dividend will
be deferred until such time as the payment of the
dividend, in the reasonable discretion of the Board
of Directors, would not jeopardize the
Corporation's ability to meet such obligations. If
a holder elects to receive a dividend of Common
Stock, the Corporation shall issue to such holder,
within 30 days after the date on which such
dividend was due, the number of shares of Common
Stock calculated by dividing (i) the dollar value
of the dividend, by (ii) 75% of the Dividend
Conversion Rate. The "Dividend Conversion Rate"
shall be equal to the average of the prices set
forth in the "Last Price" column in the NASDAQ
Small-Cap issues for the 14 business days
immediately preceding the applicable Dividend
Payment Date. Notwithstanding the foregoing, if on
the July 1, 1997 Payment Date, 75% of the Dividend
Conversion Rate is less than $0.46875, then the
Dividend Conversion Rate used on that Payment Date
shall be $0.46875. If a holder or holders of
Series A Convertible Preferred Stock elect to
receive a dividend in cash, such holders shall have
the right, until such time as the cash dividend is
actually paid, to change their election and receive
such dividend in the form of Common Stock as
provided above; provided, that the size of such
Common Stock dividend shall be calculated using the
Dividend Conversion Rate applicable at the time the
dividend was declared.
iv. Liquidation. Upon any liquidation,
dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of
the shares of Series A Convertible Preferred Stock
shall first be entitled, before any distribution or
payment is made upon any stock ranking on
liquidation junior to the Series A Convertible
Preferred Stock, to be paid an amount equal to
$0.46875 per share plus, in the case of each share,
an amount equal to all Accruing Dividends accrued
but unpaid thereon (whether or not declared)
computed to the date payment thereof is made
available (such amount payable with respect to one
share of Series A Convertible Preferred Stock being
sometimes referred to as the "Liquidation
Preference Payment" and with respect to all shares
of Series A Convertible Preferred Stock being
sometimes referred to as the "Liquidation
Preference Payments"). If upon such liquidation,
dissolution or winding up of the Corporation,
whether voluntary or involuntary, the assets to be
distributed among the holders of Series A
Convertible Preferred Stock shall be insufficient
to permit payment in full to the holders of Series
A Convertible Stock of the Liquidation Preference
Payments, then the entire assets of the Corporation
to be so distributed shall be distributed ratably
among the holders of Series A Convertible Preferred
Stock. Upon any such liquidation, dissolution or
winding up of the Corporation, immediately after
the holders of Series A Convertible Preferred Stock
shall have been paid in full the Liquidation
Preference Payments, the remaining net assets of
the Corporation available for distribution shall be
distributed ratably among the holders of Common
Stock. Written notice of such liquidation,
dissolution or winding up, stating a payment date,
the amount of the Liquidation Preference Payments
and the place where said Liquidation Preference
Payments shall be payable, shall be delivered in
person, mailed by certified or registered mail,
return receipt requested, or sent by telecopier or
telex, not less than 20 days prior to the payment
date stated therein, to the holders of record of
Series A Convertible Preferred Stock, such notice
to be addressed to each such holder at its address
as shown by the records of the Corporation. The
consolidation or merger of the Corporation into or
with any other entity or entities which results in
the exchange of outstanding shares of the
Corporation for securities or other consideration
issued or paid or caused to be issued or paid by
any such entity or affiliate thereof (other than a
merger to reincorporate the Corporation in a
different jurisdiction), and the sale, lease,
abandonment, transfer or other disposition by the
Corporation of all or substantially all its assets,
shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of
the provisions of this paragraph 4. For purposes
hereof, except as provided herein, the Common Stock
shall rank on liquidation junior to the Series A
Convertible Preferred Stock.
v. Restrictions. At any time when shares of
Series A Convertible Preferred Stock are
outstanding, without the unanimous consent of both
Directors of the Corporation that are elected by
the holders of the Series A Convertible Stock,
consenting or voting separately as a class, the
Corporation will not:
(1) (1) Consent to any liquidation,
dissolution or winding up of the Corporation,
(2) consolidate or merge into or with any
other entity or entities, (3) consent to any
acquisition of stock or assets of another
person or entity (except for Steak Out, King
of Steaks, Inc.), (4) sell, lease, abandon,
transfer or otherwise dispose of in excess of
51% of the Corporation's total assets
(including intellectual property rights), or
(5) incur any additional long term debt (i.e.,
debt that is payable over a period of longer
than one year) at any time at which the
Corporation's earnings before interest, taxes,
depreciation and amortization ("EBITDA"),
excluding extraordinary items of gain or loss,
is less than 120% of the aggregate interest
and principal payments on long term debt that
the Corporation reasonably expects to be
obligated for over the subsequent 12-month
period.
(2) Amend, alter or repeal its Certificate of
Incorporation or By-laws;
(3) Purchase or set aside any sums for the
purchase of, or pay any dividend or make any
distribution on, any shares of stock other
than the Series A Convertible Preferred Stock,
except for dividends or other distributions
payable on the Common Stock solely in the form
of additional shares of Common Stock and
except for the purchase of shares of Common
Stock from former employees of the Corporation
who acquired such shares directly from the
Corporation, if each such purchase is made
pursuant to contractual rights held by the
Corporation relating to the termination of
employment of such former employee and the
purchase price does not exceed the original
issue price paid by such former employee to
the Corporation for such shares; or
(4) Redeem or otherwise acquire any shares of
Series A Convertible Preferred Stock except as
expressly authorized in paragraph 7 hereof or
pursuant to a purchase offer made pro rata to
all holders of the shares of Series A
Convertible Preferred Stock on the basis of
the aggregate number of outstanding shares of
Series A Convertible Preferred Stock held by
each such holder.
vi. Conversion. The holders of shares of Series A
Convertible Preferred Stock shall have the
following conversion rights:
(1) Right to Convert. Subject to the terms
and conditions of this paragraph 6, the
holders of Series A Convertible Preferred
Stock shall have the right at any time during
each Conversion Period shown on the table
below (each a "Conversion Period"), to convert
up to the Maximum Number of Shares of Series A
Convertible Preferred Stock shown on such
table for that Conversion Period into such
number of fully paid and nonassessable shares
of Common Stock as is obtained by dividing the
number of shares of Series A Convertible
Preferred Stock to be converted by the
applicable Conversion Price as set forth in
the following table:
<PAGE>
Maximum
Conversion Period Number of Shares Conversion Price
October 1, 1997 - 500,000 $0.46875
October 31, 1997
November 1, 1997 - 500,000* $0.56875
December 31, 1997
January 1, 1998 - 250,000 $0.46875
January 31, 1998 500,000* $0.56875
February 1, 1998 - 750,000* $0.56875
March 31, 1998
April 1, 1998 - 250,000 $0.46875
April 30, 1998 750,000* $0.56875
May 1, 1998 -
April 30, 1999 1,000,000* $0.56875
May 1, 1999, and thereafter 1,000,000* the greater of
(i) the
Dividend
Conversion Rate
at the time of
such
conversion, and
(ii) $0.46875
* To the extent not previously converted.
Such rights of conversion shall be exercised by the holder
thereof by giving written notice to the Corporation during the
applicable Conversion Period stating that the holder elects to
convert a stated number of shares of Series A Convertible
Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares so to be converted to
the Corporation at its principal office (or such other office or
agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Series A Convertible
Preferred Stock) at any time during its usual business hours on
the date set forth in such notice, together with a statement of
the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued;
provided, however, that following each Conversion Period, no more
than the Maximum Number of Shares in the aggregate shall be
converted. If holders of the Series A Convertible Preferred
Stock desire to convert in excess of the Maximum Number of Shares
for a particular Conversion Period, such holders shall have the
right to convert up to their pro rata share of the Maximum Number
of Shares, unless otherwise agreed by the holders desiring to
convert their shares hereunder.
(2) Issuance of Certificate; Time Conversion
Effected. Promptly after the receipt of the
written notice referred to in subparagraph
6(a) and surrender of the certificate or
certificates for the share or shares of
Series A Convertible Preferred Stock to be
converted, the Corporation shall issue and
deliver, or cause to be issued and delivered,
to the holder, registered in such name or
names as such holder may direct, a
certificate or certificates for the number of
whole shares of Common Stock issuable upon
the conversion of such share or shares of
Series A Convertible Preferred Stock. To the
extent permitted by law, such conversion
shall be deemed to have been effected as of
the close of business on the date on which
such written notice shall have been received
by the Corporation and the certificate or
certificates for such share or shares shall
have been surrendered as aforesaid, and at
such time the rights of the holder of such
share or shares of Series A Convertible
Preferred Stock shall cease, and the person
or persons in whose name or names any
certificate or certificates for shares of
Common Stock shall be issuable upon such
conversion shall be deemed to have become the
holder or holders of record of the shares
represented thereby.
(3) Fractional Shares; Dividends; Partial
Conversion. No fractional shares shall be
issued upon conversion of Series A
Convertible Preferred Stock into Common Stock
and no payment or adjustment shall be made
upon any conversion on account of any cash
dividends on the Common Stock issued upon
such conversion. At the time of each
conversion, the Corporation shall pay in cash
an amount equal to all dividends accrued and
unpaid on the shares of Series A Convertible
Preferred Stock surrendered for conversion to
the date upon which such conversion is deemed
to take place as provided in subparagraph
6(b). In case the number of shares of Series
A Convertible Preferred Stock represented by
the certificate or certificates surrendered
pursuant to subparagraph 6(a) exceeds the
number of shares converted, the Corporation
shall, upon such conversion, execute and
deliver to the holder, at the expense of the
Corporation, a new certificate or
certificates for the number of shares of
Series A Convertible Preferred Stock
represented by the certificate or
certificates surrendered which are not to be
converted. If any fractional share of Common
Stock would, except for the provisions of the
first sentence of this subparagraph 6(c), be
delivered upon such conversion, the
Corporation, in lieu of delivering such
fractional share, shall pay to the holder
surrendering the Series A Convertible
Preferred Stock for conversion an amount in
cash equal to the current market price of
such fractional share as determined in good
faith by the Board of Directors of the
Corporation.
(4) Subdivision or Combination of Common
Stock. In case the Corporation shall at any
time subdivide (by stock split, stock
dividend or otherwise) its outstanding shares
of Common Stock into a greater number of
shares, the Conversion Price in effect
immediately prior to such subdivision shall
be proportionately reduced and, conversely,
in case the outstanding shares of Common
Stock shall be combined into a smaller number
of shares, the Conversion Price in effect
immediately prior to such combination shall
be proportionately increased.
(5) Reorganization or Reclassification. If
any capital reorganization or
reclassification of the capital stock of the
Corporation shall be effected in such a way
that holders of Common Stock shall be
entitled to receive stock, securities or
assets with respect to or in exchange for
Common Stock, then, as a condition of such
reorganization or reclassification, lawful
and adequate provisions shall be made whereby
each holder of a share or shares of Series A
Convertible Preferred Stock shall thereupon
have the right to receive, upon the basis and
upon the terms and conditions specified
herein and in lieu of the shares of Common
Stock immediately therefor receivable upon
the conversion of such share or shares of
Series A Convertible Preferred Stock, such
shares of stock, securities or assets as may
be issued or payable with respect to or in
exchange for a number of outstanding shares
of Common Stock equal to the number of shares
of such Common Stock immediately therefore
receivable upon such conversion had such
reorganization or reclassification not taken
place. In any such case, appropriate
provisions shall be made with respect to the
rights and interests of such holder to the
end that the provisions hereof (including
without limitation provisions for adjustments
of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation
to any shares of stock, securities or assets
thereafter deliverable upon the exercise of
such conversion rights.
(6) Other Notices. In case at any time:
(a) the Corporation shall declare any
dividend upon its Common Stock payable
in cash or stock or make any other
distribution to the holders of its
Common Stock;
(b) the Corporation shall offer for
subscription pro rata to the holders of
its Common Stock any additional shares
of stock of any class or other rights;
(c) there shall be any capital
reorganization or reclassification of
the capital stock of the Corporation, or
a consolidation or merger of the
Corporation with or into another entity
or entities, or a sale, lease,
abandonment, transfer or other
disposition of all or substantially all
its assets; or
(d) there shall be a voluntary or
involuntary dissolution, liquidation or
winding up of the Corporation;
then, in any one or more of such cases, the Corporation shall
give, by delivery in person, certified or registered mail, return
receipt requested, telecopier or telex, addressed to each holder
of any shares of Series A Convertible Preferred Stock at the
address of such holder as shown on the books of the Corporation,
(a) at least 20 days' prior written notice of the date on which
the books of the Corporation shall close or a record shall be
taken for such dividend, distribution or subscription rights or
for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding up, and (b) in
the case of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or
winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with
the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and
such notice in accordance with the foregoing clause (b) shall
also specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, as the case may be.
(7) Stock to be Reserved. The Corporation
will at all times reserve and keep available
out of its authorized Common Stock, solely
for the purpose of issuance upon the
conversion of Series A Convertible Preferred
Stock as herein provided, such number of
shares of Common Stock as shall then be
issuable upon the conversion of all
outstanding shares of Series A Convertible
Preferred Stock. The Corporation covenants
that all shares of Common Stock which shall
be so issued shall be duly and validly issued
and fully paid and nonassessable and free
from all taxes, liens and charges with
respect to the issue thereof, and, without
limiting the generality of the foregoing, the
Corporation covenants that it will from time
to time take all such action as may be
requisite to assure that the par value per
share of the Common Stock is at all times
equal to or less than the Conversion Price in
effect at the time. The Corporation will
take all such action as may be necessary to
assure that all such shares of Common Stock
may be so issued without violation of any
applicable law or regulation, or of any
requirement of any national securities
exchange upon which the Common Stock may be
listed. The Corporation will not take any
action which results in any adjustment of the
Conversion Price if the total number of
shares of Common Stock issued and issuable
after such action upon conversion of the
Series A Convertible Preferred Stock would
exceed the total number of shares of Common
Stock then authorized by the Certificate of
Incorporation.
(8) No reissuance of Series A Convertible
Preferred Stock. Shares of Series A
Convertible Preferred Stock which are
converted into shares of Common Stock as
provided herein shall not be reissued.
(9) Issue Tax. The issuance of certificates
for shares of Common Stock upon conversion of
Series A Convertible Preferred Stock shall be
made without charge to the holders thereof
for any issuance tax in respect thereof,
provided that the Corporation shall not be
required to pay any tax which may be payable
in respect of any transfer involved in the
issuance and delivery of any certificate in a
name other than that of the holder of the
Series A Convertible Preferred Stock which is
being converted.
(10) Closing of Books. The corporation will
at no time close its transfer books against
the transfer of any Series A Convertible
Preferred Stock or of any shares of Common
Stock issued or issuable upon the conversion
of any shares of Series A Convertible
Preferred Stock in any manner which
interferes with the timely conversion of such
Series A Convertible Preferred Stock, except
as may otherwise be required to comply with
applicable securities laws.
(11) Definition of Common Stock. As used in
this paragraph 6, the term "Common Stock"
shall mean and include the Corporation's
authorized Common Stock, par value $0.01 per
share, as constituted on the date of filing
of these terms of the Series A Convertible
Preferred Stock, and shall also include any
capital stock of any class of the Corporation
thereafter authorized which shall not be
limited to a fixed sum or percentage in
respect of the rights of the holders thereof
to participate in dividends or in the
distribution of assets upon the voluntary or
involuntary liquidation, dissolution or the
distribution of assets upon the voluntary or
involuntary liquidation, dissolution or
winding up of the Corporation; provided that
the shares of Common Stock receivable upon
conversion of shares of Series A Convertible
Preferred Stock shall include only shares
designated as Common Stock of the Corporation
on the date of filing of this instrument, or
in case of any reorganization or
reclassification of the outstanding shares
thereof, the stock, securities or assets
provided for in subparagraph 6(g).
vii. Redemption. The shares of Series A
Convertible Preferred Stock may be redeemed by the
Corporation, at its option, as follows:
(1) Optional Redemption. The Corporation
shall have the right at any time after
October 1, 1998, at its option, to redeem all
of the then-outstanding shares of Series A
Convertible Preferred Stock, or any portion
thereof, in blocks of 100,000 shares;
provided, however, that such right is
contingent upon all accrued and unpaid
Accruing Dividends being fully paid prior to
the Corporation's exercise of its redemption
rights hereunder; and provided, further,
however, that for so long as a holder of
Series A Convertible Preferred Stock and its
affiliates, in the aggregate, own at least
66.67% of the Series A Convertible Preferred
Stock and Conversion Shares, the Corporation
shall not have the right to redeem any shares
hereunder to the extent that (i) there are
fewer than 1,000 shares of Series A
Convertible Preferred Stock outstanding, or
(ii) such redemption would result in fewer
than 1,000 shares of Series A Convertible
Preferred Stock remaining outstanding.
(2) Redemption Price and Payment. The
shares of Series A Convertible Preferred
Stock to be redeemed hereunder shall be
redeemed by paying in cash an amount equal to
$1.00 per share plus, in the case of each
share, an amount equal to all Accruing
Dividends declared but unpaid thereon,
computed to the date of such redemption, such
amount being referred to as the "Redemption
Price." Such payment shall be made in full
on the date such shares are redeemed to the
holders entitled thereto.
(3) Redemption Mechanics. At least 30 but
not more than 40 days prior to the date on
which the Corporation proposes to redeem such
shares (the "Redemption Date"), written
notice (the "Redemption Notice") shall be
given by the Corporation by delivery in
person, certified or registered mail, return
receipt requested, telecopier or telex, to
each holder of record (at the close of
business on the business day next preceding
the day on which the Redemption Notice is
given) of shares of Series A Convertible
Preferred Stock notifying such holder of the
redemption and specifying the Redemption
Price, such Redemption Date, the number of
shares of Series A Convertible Preferred
Stock to be redeemed from such holder
(computed on a pro rata basis in accordance
with the number of such shares held by all
holders thereof) and the place where such
Redemption Price shall be payable. The
Redemption Notice shall be addressed to each
holder at his address as shown by the records
of the Corporation. Notwithstanding anything
to the contrary contained herein, holders of
Series A Convertible Preferred Stock
receiving such Redemption Notice shall have
the right to convert their shares of Series A
Convertible Preferred Stock subject to such
Redemption Notice into Common Stock pursuant
to paragraph 6 above. From and after the
close of business on a Redemption Date,
unless there shall have been a default in the
payment of the Redemption Price, all rights
of holders of shares of Series A Convertible
Preferred Stock (except the right to receive
the Redemption Price) shall cease with
respect to the shares to be redeemed on such
Redemption Date, and such shares shall not
thereafter be transferred on the books of the
Corporation or be deemed to be outstanding
for any purpose whatsoever. If the funds of
the Corporation legally available for
redemption of shares of Series A Convertible
Preferred Stock on a Redemption Date are
insufficient to redeem the total number of
shares of Series A Convertible Preferred
Stock to be redeemed on such Redemption Date,
the holders of such shares shall share
ratably in any funds legally available for
redemption of such shares according to the
respective amounts which would be payable to
them if the full number of shares to be
redeemed on such Redemption Date were
actually redeemed. The shares of Series A
Convertible Preferred Stock required to be
redeemed but not so redeemed shall remain
outstanding and entitled to all rights and
preferences provided herein. At any time
thereafter when additional funds of the
Corporation are legally available for the
redemption of such shares of Series A
Convertible Preferred Stock, such funds shall
be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of such
shares, or such portion thereof for which
funds are then legally available, on the
basis set forth above.
(4) Redeemed or Otherwise Acquired Shares to
be Retired. Any shares of Series A
Convertible Preferred Stock redeemed pursuant
to this paragraph 7 or otherwise acquired by
the Corporation in any manner whatsoever
shall be canceled and shall not under any
circumstances be reissued; and the
Corporation may from time to time take such
appropriate action as may be necessary to
reduce accordingly the number of authorized
shares of Series A Convertible Preferred
Stock.
viii. Amendments. No provision of these terms
of the Series A Convertible Preferred Stock
may be amended, modified or waived without
the written consent or affirmative vote of
the holders of at least two-thirds of the
then outstanding shares of Series A
Convertible Preferred Stock.
b. Other Preferred Stock.
The Preferred Stock other than the Series A Convertible
Preferred Stock may be issued from time to time in one or more
series and for such consideration as the Board of Directors shall
determine. Subject to the limitations set forth herein and any
limitations then prescribed by law, authority is hereby expressly
granted to the Board of Directors to fix by resolution from time
to time the designation of such series and the powers,
preferences and rights of the shares of such series, and the
qualifications, limitations or restrictions thereof, including,
without limitation, the following:
(a) the designation and number of shares
comprising such series, which number may from time to time
be decreased by the Board of Directors (but not below the
number of such shares then outstanding) or may be increased
(unless prohibited by action of the Board of Directors in
resolutions creating such series);
(b) the rate, amount and times at which, and the
preferences and conditions under which, dividends shall be
payable on shares of such series, including, without
limitation, whether such dividends are cumulative or
noncumulative and whether the shares of such series
participate or do not participate in additional dividends
after the payment of preferential dividends with respect to
such shares;
(c) any rights and preferences of the holders of
shares of such series upon the liquidation, dissolution or
winding up of the affairs of, or upon any distribution of
the assets of, the Corporation, and whether such amounts
vary depending upon whether such liquidation, dissolution or
winding up is voluntary or involuntary;
(d) the full or limited voting rights, if any, of
the shares of any such series, in addition to voting rights
provided by law; and whether or not, under what conditions
and with respect to what subject matters, the shares of such
series shall be entitled to vote separately as a class;
(e) any times, terms and conditions upon which
the shares of such series may be subject to redemption and
the amount, terms, conditions and manner of operation of any
purchase, retirement or sinking fund to be provided with
respect to the redemption of such shares;
(f) any rights to convert such shares into, or to
exchange such shares for, shares of any other class or
classes of capital stock or of any other series of the same
class, including, without limitation, the prices, rates,
conversion or exchange and any other terms or conditions
applicable to such conversion or exchange;
(g) any limitations upon the payment of dividends
or the making of distributions on or the acquisition or
redemption of Common Stock or any other class of shares
subordinate to the shares of such series with respect to the
payment of dividends;
(h) any conditions or restrictions upon the issue
of any additional shares on a parity with or superior to the
shares of such series other than the Series A Convertible
Preferred Stock; and
(i) any other relative powers, preferences or
rights and any other qualifications, limitations or
restrictions with respect to the shares of such series as
the Board of Directors may deem advisable and as shall not
be inconsistent with the provisions of this Article IV.
Except as specified by the Board of Directors, all
shares of Preferred Stock shall be identical to and of equal
rank with all shares of any other series of Preferred Stock,
except as to the terms from which cumulative dividends, if
any, shall accumulate.
II. That at a duly held Special Meeting of Stockholders
held on September 12, 1996, the foregoing amendment was adopted
by the affirmative vote of a majority of the total number of
shares outstanding and entitled to vote on the amendment.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to be signed by its President and its
Secretary and its corporate seal to be hereto affixed this 23rd
day of September, 1996.
GOOD TIMES RESTAURANTS INC.
By: /s/ Boyd E. Hoback, President
Boyd E. Hoback, President
By: /s/ Susan Knutson, Secretary
Susan Knutson, Secretary
(Seal)
STATE OF COLORADO )
) ss.
COUNTY OF Adams )
On September 23, 1996 personally appeared before me, a
Notary Public, Boyd E. Hoback and Susan Knutson, who acknowledged
that they executed the above instrument.
My commission expires:
7/13/99 /s/ Robin L. Boeff
Notary Public
FIRST AMENDED AND RESTATED SERIES B WARRANT AGREEMENT
THIS FIRST AMENDED AND RESTATED SERIES B WARRANT AGREEMENT
(this "Agreement"), dated effective as of February 10, 1997, is
between GOOD TIMES RESTAURANTS INC., a Nevada corporation (the
"Company") and AMERICAN SECURITIES TRANSFER & TRUST, INCORPORATED,
an independent stock transfer company (called, as well as any
successor acting as warrant agent under this Agreement, the
"Warrant Agent"),
RECITALS:
A. This Agreement amends and restates the Series B Warrant
Agreement dated as of February 10, 1994 between the Company and the
Warrant Agent.
B. In connection with a public offering by the Company in
1994, the Company issued 1,608,000 Series B Redeemable Common Stock
Purchase Warrants (the "Warrants") to purchase in the aggregate up
to 1,608,000 shares of common stock, par value $.001 per share
("Common Stock") (all shares to be purchased upon the exercise of
the Warrants being called the "Warrant Stock").
C. The Common Stock and Warrants were issued in units (the
"Units"), each Unit consisting of two shares of Common Stock and
one Warrant, with each Warrant being exercisable for the purchase
of one share of Common Stock. The Units were offered and sold
pursuant to a Registration Statement on Form SB-2, as amended
(Registration No. 33-72052), filed with the Securities and Exchange
Commission on November 23, 1993.
D. The Company desires to enter into this Agreement to
establish the terms and conditions of the Warrants, to set forth
the rights of the registered holders of the Warrants (the "Warrant
Holders"), and to provide for the issuance, transfer and exercise
of the Warrants and other matters; and
E. The Company desires the Warrant Agent to act on behalf of
the Company with respect to the Warrants and the Warrant Agent is
willing so to act under the terms of this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual agreements
stated in this Agreement, the Company and the Warrant Agent agree:
Section 1. Warrants. Subject to the provisions of this
Agreement, a Warrant shall entitle the Warrant Holder by exercising
such Warrant to purchase from the Company one share of Common Stock
at a price of $2.00 per Share for each Warrant (called the
"Exercise Price"). The Warrants will be exercisable at any time
and will expire at 3:00 p.m., Denver, Colorado time, on February
10, 1999, or, if such day in Denver, Colorado shall be either a
holiday or a day on which banks are authorized or obligated by law
to be closed, then at 3:00 p.m., Denver, Colorado time, on the next
following day which in Denver, Colorado, shall not be either a
holiday or a day on which banks are authorized or obligated by law
to be closed (the actual time of expiration of the Warrants being
called the "Expiration Date"). At the time of expiration of the
Warrants, any unexercised Warrants will become void and all rights
of the Warrant Holders under the terms of the Warrant Certificates,
this Agreement and otherwise shall cease.
Section 2. Warrant Certificates. The Warrant Certificates
shall be in registered form only. The text of the Warrant
Certificates, including the forms of exercise and assignment to be
printed on the reverse side of the Warrant Certificate, shall be
substantially in the form set forth in Exhibit A attached to this
Agreement. Warrant Certificates shall be signed by, or shall bear
the facsimile signatures of the President or a Vice President of
the Company and the Secretary or an Assistant Secretary of the
Company, and shall bear a facsimile of the Company's seal. If any
person whose facsimile signature has been placed upon any Warrant
Certificates as the signature of an officer of the Company shall
have ceased to be such officer before such Warrant Certificate is
countersigned, issued and delivered, such Warrant Certificate may
be countersigned, issued and delivered with the same effect as if
such person had not ceased to be such officer. Any Warrant
Certificate may be signed by, or may bear the facsimile signature
of, any person who at the actual date of the preparation of such
Warrant Certificate shall be a proper officer of the Company to
sign such Warrant Certificate even though such person was not such
an officer upon the date of this Agreement.
Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Agent is hereby authorized to
countersign and deliver to, or in accordance with the instructions
of, any Warrant Holder any Warrant Certificate which is properly
issued under the terms of this Agreement.
Section 3. Registration of Transfers and Exchanges.
a. The Warrant Agent shall from time to time
register the transfer of any outstanding Warrant Certificate upon
records to be maintained by the Warrant Agent for such purpose upon
surrender of such Warrant Certificate to the Warrant Agent for
transfer, accompanied by appropriate instruments of transfer in
form satisfactory to the Company and the Warrant Agent and duly
executed by the Warrant Holder or a duly authorized attorney. Upon
any such registration of transfer, a new Warrant Certificate shall
be issued in the name of and to the transferee and the surrendered
Warrant Certificate shall be cancelled.
b. Any outstanding Warrant Certificate may be
surrendered by the Warrant Holder to the Warrant Agent in exchange
for other Warrant Certificates of like tenor and representing in
the aggregate the same number of Warrants. Warrant Certificates so
surrendered for exchange shall be cancelled.
Section 4. Exercise of Warrants.
a. Warrants may be exercised at any time on or
before the Expiration Date. Warrants shall be exercised by the
Warrant Holder by surrendering to the Warrant Agent the Warrant
Certificate evidencing such Warrants with the exercise form on the
reverse of such Warrant Certificate duly completed and executed and
paying to the Warrant Agent, in lawful money of the United States
of America in cash or by good check (either certified or a bank
cashier's check) payable to the order of the Company, the Exercise
Price for the Shares to be purchased. In order for the exercise of
a Warrant to be valid, a properly executed Warrant with the
appropriate payment must be received by the Warrant Agent prior to
the Expiration Date.
b. Upon receipt of a Warrant Certificate with the
exercise form thereon duly executed together with payment in full
of the Exercise Price for the Shares for which Warrants are then
being exercised, the Warrant Agent shall requisition from any
transfer agent for the Shares, and upon receipt shall make delivery
of, certificates evidencing the total number of whole Shares for
which Warrants are then being exercised in such names and
denomination as are required for delivery to, or in accordance with
the instructions of, the Warrant Holder. The Warrant Agent shall
promptly deliver to the Company cash or checks received in payment
of the Exercise price, and shall establish such procedures as the
Company reasonably requests to assure collection of such payments
before delivering such certificates. Such certificates for the
Shares shall be deemed to be issued, and the person to whom such
Shares are issued of record shall be deemed to have become a
holder, of record of such Shares, as of the date of the surrender
of such Warrant Certificate and payment of the Exercise Price,
whichever shall last occur, provided that if the books of the
Company with respect to the Shares shall be closed as of such date,
the certificates for such Shares shall be deemed to be issued, and
the person to whom such Shares are issued of record shall be deemed
to have become a holder of record of such Shares, as of the date on
which such books shall next be open (whether before, on or after
the Expiration Date).
c. If less than all of the Warrants evidenced by
a Warrant Certificate are exercised upon a single occasion, a new
Warrant Certificate for the balance of the Warrants not so
exercised shall be issued and delivered to, or in accordance with
transfer instructions properly given by, the Warrant Holder.
d. The Company may, in whole or in part and at any
time and from time to time, on not less than 45 days' written
notice, call the Warrants for redemption at a price of $.05 per
share covered thereby at any time after the closing high bid price
of the Common Stock (if then traded on the over-the-counter market
other than on the National Market System of NASDAQ) or the closing
price of the Common Stock (if then traded on the National Market
System of NASDAQ or on a national securities exchange) exceeds 150%
of the Exercise Price for a period of 20 of the 30 consecutive
trading days immediately preceding the date of mailing of the
notice of redemption. Notice of any redemption will be mailed to
the Warrant Holders at their addresses of record. The Warrants may
be exercised any time prior to the specified redemption date set
forth in such notice; provided, however, that in the event exercise
of the Warrants is not made prior to the redemption date, then the
right to purchase the shares of Common Stock underlying such
Warrants shall be forfeited.
e. All Warrant Certificates surrendered upon
exercise of Warrants shall be cancelled.
Section 5. Reduction of Exercise Price and/or Extension of
Expiration Date. At any time prior to the Expiration Date, the
Company may reduce the Exercise Price and/or extend the Expiration
Date effective on thirty days' prior written notice to the Warrant
Holders. A copy of the resolution of the Board of Directors of the
Company authorizing such extension shall be made available by the
Company for inspection by the Warrant Holders and the Warrant Agent
during such 30-day notice period.
Section 6. Payment of Taxes. The Company will pay all
taxes attributable to the initial issuance of Warrant Stock upon
exercise of Warrants. The Company shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in the issue of any Warrant Certificates or in the issue
of any certificates for Warrant Stock in a name other than that of
the Warrant Holder upon the exercise of any Warrant.
Section 7. Mutilated or Missing Warrant Certificates. If
any Warrant Certificate is mutilated, lost, stolen, or destroyed,
the Company and the Warrant Agent may, on such terms as to
indemnity or otherwise as they may in their discretion impose
(which shall, in the case of a mutilated Warrant Certificate,
include the surrender thereof), and upon receipt of evidence
satisfactory to the Company and the Warrant Agent of such loss,
theft or destruction, issue a substitute Warrant Certificate of
like denomination and tenor as the Warrant Certificate so
mutilated, lost, stolen or destroyed. Applicants for such
substitute Warrant Certificate shall also comply with such other
reasonable regulations and pay any reasonable charges as the
Company or the Warrant Agent may prescribe. If any Warrant
Certificate is mutilated, lost, stolen or destroyed, and the
Warrant Holder desires to exercise any Warrants evidenced thereby,
the Company and the Warrant Agent may authorize such exercise upon
receipt of such evidence and indemnity in lieu of issuing any
substitute Warrant Certificate to evidence the Warrants so
exercised.
Section 8. Reservation of Shares.
a. The Company will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock, for the purpose of
enabling it to satisfy any obligation to issue Warrant Stock upon
exercise of Warrants, the full number of shares issuable upon the
exercise of all outstanding Warrants.
b. The Company covenants that all Warrant Stock
which may be issued upon exercise of Warrants will upon issue be
fully paid and nonassessable by the Company and free from all
taxes, liens, charges and security interests with respect to the
issue thereof.
Section 9. Obtaining of Governmental Approvals and Stock
Exchange Listings. If any Warrant Stock issuable upon the exercise
of Warrants require registration or approval of any governmental
authority or the taking of any other action under the laws of the
United States of America, any state or any political subdivision
thereof before such Warrant Stock may be validly and lawfully
issued, the Company will in good faith and as expeditiously as
possible after surrender of the Warrant Certificates to the Warrant
Agent for exercise of Warrants evidenced thereby endeavor to secure
such registration or approval or to take such other action,
provided that in no event shall such Warrant Stock be issued, and
the Company shall have the authority to suspend the exercise of all
Warrants, until such registration or approval shall have been
obtained or such other action shall have been taken, but all
Warrants the exercise of which is requested during any such
suspension shall be exercisable at the Exercise Price and upon the
other conditions in effect on the date of surrender of the Warrant
Certificate and payment of the Exercise Price. If the Company is
unable to obtain such registration or approval within a reasonable
time, the Company may direct the Warrant Agent to return the
Warrant to the Warrant Holder and inform him that such Warrant may
not be exercised in such jurisdiction, and the Warrant Agent shall
comply with such directions.
Section 10. Adjustments of Exercise Price and Either Shares
Purchasable or Number of Warrants. The Exercise Price and either
the number of Shares purchasable upon exercise of each Warrant or
the number of Warrants outstanding shall be subject to adjustment
from time to time as provided herein.
a. Adjustment of Number of Shares. In case the
Company shall at any time issue shares of Common Stock by way of
dividend or other distribution to the holders of the outstanding
shares of Common Stock of the Company or subdivide or combine the
outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of such issuance (on the day
following the date fixed for determining shareholders entitled to
receive such dividend or other distribution) or decreased in the
case of such subdivision or increased in the case of such
combination (on the date that such subdivision or combination shall
become effective).
b. No Adjustment for Small Amounts. The Company
shall not be required to give effect to any adjustment in the
Exercise Price unless and until the net effect of one or more
adjustments, determined as above provided, shall have required a
change of the Exercise Price by at least one cent, but when the
cumulative net effect of more than one adjustment so determined
shall be to change the actual Exercise Price by at least one cent,
such change in the Exercise Price shall thereupon be given effect.
c. Number of Shares Adjusted. Upon any adjustment
of the Exercise Price, the holder of this Warrant shall thereafter
(until another such adjustment) be entitled to purchase, at the new
Exercise Price, the number of Shares of Common Stock, calculated to
the nearest full share, obtained by multiplying the number of
Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the new Exercise Price.
d. Officer's Certificate. Whenever the Exercise
Price shall be adjusted as required herein, the Company shall
forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office, and with its Warrant Agent, an
officer's certificate showing the adjusted Exercise Price
determined as herein provided and setting forth in reasonable
detail the facts requiring such adjustment. Each such officer's
certificate shall be made available at all reasonable times for
inspection by the Holder and the Company shall, forthwith after
each such adjustment, give notice thereof to the Holder. Such
certificate shall be conclusive as to the correctness of such
adjustment.
Section 11. Notices to Warrant Holders. So long as this
Warrant shall be outstanding and unexercised (i) if the Company
shall pay any dividend or make any distribution upon the Common
Stock; or (ii) if the Company shall offer to the holders of Common
Stock for subscription or purchase by them any shares of stock of
any class or any other rights; or (iii) if any capital
reorganization of the Company; reclassification of the capital
stock of the Company; or voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be effected, then,
in any such case, the Company shall cause to be given to the
Holder, at least ten calendar days prior to the date specified in
(x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which
(x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification,
reorganization, consolidation, dissolution, liquidation or winding
up is to take place and the date, if any is to be fixed, as of
which the holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or
winding up.
Section 12. Reclassification, Reorganization or Merger. In
case of (i) any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company (other
than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of an issuance of
Common Stock by way of dividend or other distribution or of a
subdivision or combination); or (ii) in case the Company should
spin-off a subsidiary by distributing to the shareholders of the
Company, as a dividend or otherwise, the capital stock of the
subsidiary, the Company shall cause effective provision to be made
so that the Holder shall have the right thereafter, by exercising
this Warrant prior to the Expiration Date, to purchase or acquire
the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital
reorganization or other change, consolidation, as if the Holder had
exercised this Warrant prior to such transaction. Any such
provision shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided
for in this Warrant. The foregoing provisions of this Section
shall similarly apply to successive reclassification, capital
reorganizations and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
Section 13. Merger or Sale. In case of (i) any
consolidation or merger of the Company with or into another
corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation) or (ii) any sale, lease,
exchange or other disposition of all or substantially all of the
property and assets of the Company not in the usual and regular
course of the Company's business and in a transaction or series of
transactions requiring shareholder approval under the laws of the
State of Colorado, the Company shall cause notice thereof to be
given to the Holder at least 30 calendar days prior to the
anticipated date of closing of such transaction and,
notwithstanding any other provisions of this Agreement, the Warrant
shall expire upon the completion of such transaction to the extent
not exercised prior to such transaction closing.
Section 14. No Fractional Shares. No fractional shares or
scrip representing fractional shares will be issued upon exercise
of this Warrant. With respect to any fraction of a share called
for upon exercise hereof, the Company shall pay to the Holder an
amount in cash equal to such fraction multiplied by the then
current fair market value per Share determined by the Company.
Section 15. Notice to Warrant Holders. Any notice required
to be given to the Holder shall be deemed to have been given if in
writing and upon deposit in the United States mail, with postage
fully prepaid, and addressed to the Holder at the registered
address maintained on the books of the Company or the Warrant
Agent. Any notice or other communication to the Company shall be
deemed to have been given or to be effective for any purpose only
upon actual receipt thereof by the Company at its principal office
or by the Warrant Agent, as the case may be.
The form of Warrant Certificate need not be changed because of
any adjustment in the Exercise Price, the number of Shares
purchasable upon the exercise of a Warrant or the number of
Warrants outstanding and Warrant Certificates issued after any such
adjustment may state the same Exercise Price, the same number of
Warrants and the same number of Shares purchasable upon exercise of
a Warrant as are stated in the Warrant Certificates issued before
such adjustment as if such adjustment had not occurred. However,
the Company may at any time with the approval of the Warrant Agent
make any change in the form of Warrant Certificate that it may deem
appropriate and that does not affect the substance thereof and any
Warrant Certificates thereafter issued or countersigned, whether in
exchange or substitution for an outstanding Warrant Certificate or
otherwise, may be in the form as so changed.
Section 16. Rights of Warrant Holders.
a. No Warrant Holder, as such, shall have any
rights of a stockholder of the Company, either at law or equity,
and the rights of the Warrant Holders, as such, are limited to
those rights expressly provided in this Agreement or in the Warrant
Certificates.
b. The Company and the Warrant Agent may treat the
registered Warrant Holder in respect of any Warrant Certificate as
the absolute owner thereof for all purposes notwithstanding any
notice to the contrary.
Section 17. Warrant Agent.
a. The Company hereby appoints the Warrant Agent
to act as the agent of the Company in accordance with this
Agreement and the Warrant Agent hereby accepts such appointment.
b. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and
conditions by all of which the Company and every Warrant Holder, by
acceptance of any Warrants, shall be bound:
(1) The statements contained in this Agreement
and in the Warrant Certificates shall be taken as statements
of the Company and the Warrant Agent assumes no responsibility
for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it.
(2) The Warrant Agent shall not be responsible
for any failure of the Company to comply with any of the
covenants contained in this Agreement or in the Warrant
Certificates to be complied with by the Company.
(3) The Warrant Agent may consult at any time
with counsel satisfactory to it (who may be counsel for the
Company) and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder in
respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or
the advice of such counsel, provided the Warrant Agent shall
have exercised reasonable care in the selection and continued
employment of such counsel.
(4) The Warrant Agent shall incur no liability
or responsibility to the Company or to any Warrant Holder for
any action taken in reliance on any notice, resolution,
waiver, consent, order, certificate or other paper, document
or instrument believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
(5) The Company agrees to pay to the Warrant
Agent reasonable compensation for all services rendered by the
Warrant Agent in the execution of this Agreement including
fees for exercise of the Warrants, to reimburse the Warrant
Agent for all expenses, taxes and governmental charges and
other charges of any kind and nature incurred by the Warrant
Agent in the execution of this Agreement and to indemnify the
Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution
of this Agreement except as a result of the Warrant Agent's
negligence, bad faith or willful misconduct.
(6) The Warrant Agent shall be under no
obligation to institute any action, suit or legal proceeding
or to take any other action likely to involve expense unless
the Company or one or more Warrant Holders shall furnish the
Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper, whether with
or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may
be enforced by the Warrant Agent without the possession of any
of the Warrant Certificates or the production thereof at any
trial or other proceeding relative thereto, and any such
action, suit or proceeding instituted by the Warrant Agent
shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the
Warrant Holders as their respective rights or interests may
appear.
(7) The Warrant Agent and any stockholder,
director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the
Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend
money to the Company or otherwise as fully and freely as
though it were not Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal
entity.
(8) The Warrant Agent shall act hereunder
solely as agent for the Company, and its duties shall be
determined solely by the provisions hereof.
Section 18. Merger, Consolidation or Change of Name of
Warrant Agent.
a. Any corporation into which the Warrant Agent
may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or
consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the transfer agency business of the
Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any
further act on the part of the parties hereto, except that the
prior written consent thereto of the Company shall first be
obtained. In case at the time such successor to the Warrant Agent
shall succeed to the agency created by this Agreement, and in case
at that time any of the Warrant Certificates shall have been
countersigned but not delivered, any such successor to the Warrant
Agent may adopt the countersignature of the original Warrant Agent;
and in case at that time any of the Warrant Certificates shall not
have been countersigned, any successor to the Warrant Agent may
countersign such Warrant Certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant
Agent; and in all such cases such Warrant Certificates shall have
the full force provided in the Warrant Certificates and in this
Agreement.
b. In case at any time the name of the Warrant
Agent shall be changed and at such time any of the Warrant
Certificates shall have been countersigned but not delivered, the
Warrant Agent may adopt the countersignature under its prior name;
and in case at that time any of the Warrant Certificates shall not
have been countersigned, the Warrant Agent may countersign such
Warrant Certificates either in its prior name or in its changed
name; and in all such cases such Warrant Certificates shall have
the full force provided in the Warrant Certificates and in this
Agreement.
Section 19. Change of Warrant Agent. The Warrant Agent may
resign and be discharged from its duties under this Agreement by
giving to the Company notice in writing, and by giving notice in
writing to each Warrant Holder at his address appearing in the
Warrant register, specifying a date when such resignation shall
take affect, which notice shall be sent at least 30 days prior to
the date so specified and which notice shall be paid for by the
Company. If the Warrant Agent shall resign or shall otherwise
become incapable of acting, the Company shall appoint a successor
to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified
in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Warrant Holder, then any
Warrant Holder may apply to any court of competent jurisdiction for
the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to the Warrant Agent, either by the
Company or by such court, the duties of the Warrant Agent shall be
carried out by the Company. Any successor Warrant Agent, whether
appointed by the Company or by such a court, shall be a transfer
agent registered pursuant to Section 17A(c) of the Securities
Exchange Act of 1934, as amended. After appointment the successor
Warrant Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Warrant
Agent without further act or deed and the former Warrant Agent
shall deliver and transfer to the successor Warrant Agent any
property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the
purpose. Failure to give any notice provided for in this Section,
however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 20. Notices. Any notice or demand authorized by
this Agreement to be given or made by the Warrant Agent or by any
Warrant Holder to or on the Company shall be sufficiently given or
made only if in writing and upon actual receipt at the following
address (until another address is filed in writing by the Company
with the Warrant Agent):
Good Times Restaurants Inc.
8620 Wolff Court, Suite 330
Westminster, CO 80030
Attention:____________________
Any notice or demand authorized by this Agreement to be given or
made by any Warrant Holder or by the Company to or on the Warrant
Agent shall be sufficiently given or made if sent by mail,
certified or registered, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company),
as follows:
American Securities Transfer & Trust, Incorporated
938 Quail Street, Suite 101
Lakewood, CO 80215
Attention:_____________________
Any distribution, notice or demand required or authorized by this
Agreement to be given or made by the Company or the Warrant Agent
to or on the Warrant Holders shall be sufficiently given or made if
in writing and upon deposit in the United States mail, first-class
or registered, postage prepaid, addressed to the Warrant Holders at
their last known addresses as they shall appear on the registration
books for the Warrant Certificates maintained by the Warrant Agent.
Section 21. Supplements and Amendments. The Company and
the Warrant Agent may from time to time supplement or amend this
Agreement without the approval of any Warrant Holders in order to
cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any
other provision herein, or to make any other change which the
Company and the Warrant Agent may deem necessary or desirable and
which shall not adversely affect the interests of the Warrant
Holders.
Section 22. Successors. All the covenants and provisions
of this Agreement by or for the benefit of the Company or the
Warrant Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 23. Termination. This Agreement shall terminate at
the close of business on the Expiration Date or such earlier date
upon which all Warrants have been exercised. The provisions of
Section 11 shall survive such terminations.
Section 24. Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Colorado and for all purposes shall
be construed in accordance with the laws of said State.
Section 25. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation
other than the Company, the Warrant Agent and the Warrant Holders
any legal or equitable right, remedy or claim under this Agreement;
but this Agreement shall be for the sole and exclusive benefit of
the Company, the Warrant Agent and the Warrant Holders.
Section 26. Agreement Available to Warrant Holders. A copy
of this Agreement shall be available at all reasonable times at the
office of the Warrant Agent for inspection by any Warrant Holder.
As a condition of such inspection, the Warrant Agent may require
any Warrant Holder to submit his Warrant Certificate for
inspection.
Section 27. Counterparts. This Agreement may be executed
in any number of counterparts, each of such counterparts shall for
all purposes be deemed to be an original and all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first
above written.
GOOD TIMES RESTAURANTS INC.,
[seal] a Nevada corporation
By: /s/ Boyd E. Hoback, President
Boyd E. Hoback, President
ATTEST:
/s/ Sue Knutson ,
Secretary
AMERICAN SECURITIES TRANSFER &
TRUST, INCORPORATED, an independent
stock transfer company
[seal]
By: /s/ Gregory D. Tubbs, Vice
President
Gregory D. Tubbs, Vice President
ATTEST:
/s/ Lori S. Zimmerman ,
Assistant Secretary
THIRD AMENDED AND RESTATED WARRANT AGREEMENT
THIS THIRD AMENDED AND RESTATED WARRANT AGREEMENT (this
"Agreement"), dated effective as of February 10, 1997, is between
GOOD TIMES RESTAURANTS INC., a Nevada corporation (the "Company")
and AMERICAN SECURITIES TRANSFER & TRUST, INCORPORATED, an
independent stock transfer company (called, as well as any
successor acting as warrant agent under this Agreement, the
"Warrant Agent"),
RECITALS:
A. This Agreement supersedes the Warrant Agreement made
effective June 21, 1990, the Amended and Restated Warrant Agreement
made effective June 15, 1992, and the Second Amended and Restated
Warrant Agreement dated as of March 8, 1994, between the Company
and the Warrant Agent.
B. The Company has previously issued warrants for the
purchase of shares of Common Stock, for which the Warrant Agent
presently serves as registrar and warrant agent, as follows:
1. 87,513 warrants (the "S-3 Warrants") for the
purchase of up to an aggregate of 87,513 shares of the
Company's common stock, par value $.001 per share (the
"Common Stock") pursuant to a Form S-3 Registration
Statement, as thereafter amended (Registration No. 33-73062),
filed with the Securities and Exchange Commission
on December 20, 1993;
2. 720,000 warrants (the "1992 Warrants") for the
purchase of up to an aggregate of 720,000 shares of
Common Stock issued pursuant to the Company's public
offering of its securities in June 1992;
3. 230,000 warrants (the "1990 Warrants") for the
purchase of up to an aggregate of 230,000 shares of
Common Stock issued pursuant to the Company's public
offering of its securities in 1990; and
4. 37,500 warrants (the "1989 Warrants") for the
purchase of up to an aggregate of 37,500 shares of Common
Stock issued pursuant to the Company's public offering of
its securities in 1989.
The S-3 Warrants, 1992 Warrants, 1990 Warrants and 1989 Warrants
may be collectively referred to herein as a "Warrant" or the
"Warrants".
C. The Company desires to enter into this Agreement to
establish the terms and conditions of the Warrants, to set forth
the rights of the registered holders of the Warrants (the "Warrant
Holders"), and to provide for the issuance, transfer and exercise
of the Warrants and other matters; and
D. The Company desires the Warrant Agent to act on behalf of
the Company and the Warrant Agent is willing so to act under the
terms of this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual agreements
stated in this Agreement, the Company and the Warrant Agent agree:
Section 1. Warrants. Subject to the provisions of this
Agreement, a Warrant shall entitle the Warrant Holder by exercising
such Warrant to purchase from the Company one share of Common Stock
at a price of $2.00 per Share for each Warrant (called the
"Exercise Price"). The Warrants will be exercisable at any time
and will expire at 3:00 p.m., Denver, Colorado time, on February
10, 1999, or, if such day in Denver, Colorado shall be either a
holiday or a day on which banks are authorized or obligated by law
to be closed, then at 3:00 p.m., Denver, Colorado time, on the next
following day which in Denver, Colorado, shall not be either a
holiday or a day on which banks are authorized or obligated by law
to be closed (the actual time of expiration of the Warrants being
called the "Expiration Date"). At the time of expiration of the
Warrants, any unexercised Warrants will become void and all rights
of the Warrant Holders under the terms of the Warrant Certificates,
this Agreement and otherwise shall cease.
Section 2. Warrant Certificates. The Warrant Certificates
shall be in registered form only. The text of the Warrant
Certificates, including the forms of exercise and assignment to be
printed on the reverse side of the Warrant Certificate, shall be
substantially in the form set forth in Exhibit A attached to this
Agreement. Warrant Certificates shall be signed by, or shall bear
the facsimile signatures of the President or a Vice President of
the Company and the Secretary or an Assistant Secretary of the
Company, and shall bear a facsimile of the Company's seal. If any
person whose facsimile signature has been placed upon any Warrant
Certificates as the signature of an officer of the Company shall
have ceased to be such officer before such Warrant Certificate is
countersigned, issued and delivered, such Warrant Certificate may
be countersigned, issued and delivered with the same effect as if
such person had not ceased to be such officer. Any Warrant
Certificate may be signed by, or may bear the facsimile signature
of, any person who at the actual date of the preparation of such
Warrant Certificate shall be a proper officer of the Company to
sign such Warrant Certificate even though such person was not such
an officer upon the date of this Agreement.
Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Agent is hereby authorized to
countersign and deliver to, or in accordance with the instructions
of, any Warrant Holder any Warrant Certificate which is properly
issued under the terms of this Agreement.
Section 3. Registration of Transfers and Exchanges.
a. The Warrant Agent shall from time to time
register the transfer of any outstanding Warrant Certificate upon
records to be maintained by the Warrant Agent for such purpose upon
surrender of such Warrant Certificate to the Warrant Agent for
transfer, accompanied by appropriate instruments of transfer in
form satisfactory to the Company and the Warrant Agent and duly
executed by the Warrant Holder or a duly authorized attorney. Upon
any such registration of transfer, a new Warrant Certificate shall
be issued in the name of and to the transferee and the surrendered
Warrant Certificate shall be cancelled.
b. Any outstanding Warrant Certificate may be
surrendered by the Warrant Holder to the Warrant Agent in exchange
for other Warrant Certificates of like tenor and representing in
the aggregate the same number of Warrants. Warrant Certificates so
surrendered for exchange shall be cancelled.
Section 4. Exercise of Warrants.
a. Warrants may be exercised at any time on or
before the Expiration Date. Warrants shall be exercised by the
Warrant Holder by surrendering to the Warrant Agent the Warrant
Certificate evidencing such Warrants with the exercise form on the
reverse of such Warrant Certificate duly completed and executed and
paying to the Warrant Agent, in lawful money of the United States
of America in cash or by good check (either certified or a bank
cashier's check) payable to the order of the Company, the Exercise
Price for the Shares to be purchased. In order for the exercise of
a Warrant to be valid, a properly executed Warrant with the
appropriate payment must be received by the Warrant Agent prior to
the Expiration Date.
b. Upon receipt of a Warrant Certificate with the
exercise form thereon duly executed together with payment in full
of the Exercise Price for the Shares for which Warrants are then
being exercised, the Warrant Agent shall requisition from any
transfer agent for the Shares, and upon receipt shall make delivery
of, certificates evidencing the total number of whole Shares for
which Warrants are then being exercised in such names and
denomination as are required for delivery to, or in accordance with
the instructions of, the Warrant Holder. The Warrant Agent shall
promptly deliver to the Company cash or checks received in payment
of the Exercise price, and shall establish such procedures as the
Company reasonably requests to assure collection of such payments
before delivering such certificates. Such certificates for the
Shares shall be deemed to be issued, and the person to whom such
Shares are issued of record shall be deemed to have become a
holder, of record of such Shares, as of the date of the surrender
of such Warrant Certificate and payment of the Exercise Price,
whichever shall last occur, provided that if the books of the
Company with respect to the Shares shall be closed as of such date,
the certificates for such Shares shall be deemed to be issued, and
the person to whom such Shares are issued of record shall be deemed
to have become a holder of record of such Shares, as of the date on
which such books shall next be open (whether before, on or after
the Expiration Date).
c. If less than all of the Warrants evidenced by
a Warrant Certificate are exercised upon a single occasion, a new
Warrant Certificate for the balance of the Warrants not so
exercised shall be issued and delivered to, or in accordance with
transfer instructions properly given by, the Warrant Holder.
d. The Company may, in whole or in part and at any
time and from time to time, on not less than 60 days' written
notice, call the Warrants for redemption at a price of $.05 per
share covered thereby at any time after the closing high bid price
of the Common Stock (if then traded on the over-the-counter market
other than on the National Market System of NASDAQ) or the closing
price of the Common Stock (if then traded on the National Market
System of NASDAQ or on a national securities exchange) exceeds 120%
of the Exercise Price for a period of 20 consecutive trading days
prior to such call for redemption. Notice of any redemption will
be mailed to the Warrant Holders at their addresses of record. The
Warrants may be exercised any time prior to the specified
redemption date set forth in such notice; provided, however, that
in the event exercise of the Warrants is not made prior to the
redemption date, then the right to purchase the shares of Common
Stock underlying such Warrants shall be forfeited.
e. All Warrant Certificates surrendered upon
exercise of Warrants shall be cancelled.
Section 5. Reduction of Exercise Price and/or Extension of
Expiration Date. At any time prior to the Expiration Date, the
Company may reduce the Exercise Price and/or extend the Expiration
Date effective on thirty days' prior written notice to the Warrant
Holders. A copy of the resolution of the Board of Directors of the
Company authorizing such extension shall be made available by the
Company for inspection by the Warrant Holders and the Warrant Agent
during such 30-day notice period.
Section 6. Payment of Taxes. The Company will pay all
taxes attributable to the initial issuance of Warrant Stock upon
exercise of Warrants. The Company shall not, however, be required
to pay any tax which may be payable in respect of any transfer
involved in the issue of any Warrant Certificates or in the issue
of any certificates for Warrant Stock in a name other than that of
the Warrant Holder upon the exercise of any Warrant.
Section 7. Mutilated or Missing Warrant Certificates. If
any Warrant Certificate is mutilated, lost, stolen, or destroyed,
the Company and the Warrant Agent may, on such terms as to
indemnity or otherwise as they may in their discretion impose
(which shall, in the case of a mutilated Warrant Certificate,
include the surrender thereof), and upon receipt of evidence
satisfactory to the Company and the Warrant Agent of such loss,
theft or destruction, issue a substitute Warrant Certificate of
like denomination and tenor as the Warrant Certificate so
mutilated, lost, stolen or destroyed. Applicants for such
substitute Warrant Certificate shall also comply with such other
reasonable regulations and pay any reasonable charges as the
Company or the Warrant Agent may prescribe. If any Warrant
Certificate is mutilated, lost, stolen or destroyed, and the
Warrant Holder desires to exercise any Warrants evidenced thereby,
the Company and the Warrant Agent may authorize such exercise upon
receipt of such evidence and indemnity in lieu of issuing any
substitute Warrant Certificate to evidence the Warrants so
exercised.
Section 8. Reservation of Shares.
a. The Company will at all times reserve and keep
available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock, for the purpose of
enabling it to satisfy any obligation to issue Warrant Stock upon
exercise of Warrants, the full number of shares issuable upon the
exercise of all outstanding Warrants.
b. The Company covenants that all Warrant Stock
which may be issued upon exercise of Warrants will upon issue be
fully paid and nonassessable by the Company and free from all
taxes, liens, charges and security interests with respect to the
issue thereof.
Section 9. Obtaining of Governmental Approvals and Stock
Exchange Listings. If any Warrant Stock issuable upon the exercise
of Warrants require registration or approval of any governmental
authority or the taking of any other action under the laws of the
United States of America, any state or any political subdivision
thereof before such Warrant Stock may be validly and lawfully
issued, the Company will in good faith and as expeditiously as
possible after surrender of the Warrant Certificates to the Warrant
Agent for exercise of Warrants evidenced thereby endeavor to secure
such registration or approval or to take such other action,
provided that in no event shall such Warrant Stock be issued, and
the Company shall have the authority to suspend the exercise of all
Warrants, until such registration or approval shall have been
obtained or such other action shall have been taken, but all
Warrants the exercise of which is requested during any such
suspension shall be exercisable at the Exercise Price and upon the
other conditions in effect on the date of surrender of the Warrant
Certificate and payment of the Exercise Price. If the Company is
unable to obtain such registration or approval within a reasonable
time, the Company may direct the Warrant Agent to return the
Warrant to the Warrant Holder and inform him that such Warrant may
not be exercised in such jurisdiction, and the Warrant Agent shall
comply with such directions.
Section 10. Adjustments of Exercise Price and Either Shares
Purchasable or Number of Warrants. The Exercise Price and either
the number of Shares purchasable upon exercise of each Warrant or
the number of Warrants outstanding shall be subject to adjustment
from time to time as provided herein.
a. Adjustment of Number of Shares. In case the
Company shall at any time issue shares of Common Stock by way of
dividend or other distribution to the holders of the outstanding
shares of Common Stock of the Company or subdivide or combine the
outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of such issuance (on the day
following the date fixed for determining shareholders entitled to
receive such dividend or other distribution) or decreased in the
case of such subdivision or increased in the case of such
combination (on the date that such subdivision or combination shall
become effective).
b. No Adjustment for Small Amounts. The Company
shall not be required to give effect to any adjustment in the
Exercise Price unless and until the net effect of one or more
adjustments, determined as above provided, shall have required a
change of the Exercise Price by at least one cent, but when the
cumulative net effect of more than one adjustment so determined
shall be to change the actual Exercise Price by at least one cent,
such change in the Exercise Price shall thereupon be given effect.
c. Number of Shares Adjusted. Upon any adjustment
of the Exercise Price, the holder of this Warrant shall thereafter
(until another such adjustment) be entitled to purchase, at the new
Exercise Price, the number of Shares of Common Stock, calculated to
the nearest full share, obtained by multiplying the number of
Shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the
product so obtained by the new Exercise Price.
d. Officer's Certificate. Whenever the Exercise
Price shall be adjusted as required herein, the Company shall
forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office, and with its Warrant Agent, an
officer's certificate showing the adjusted Exercise Price
determined as herein provided and setting forth in reasonable
detail the facts requiring such adjustment. Each such officer's
certificate shall be made available at all reasonable times for
inspection by the Holder and the Company shall, forthwith after
each such adjustment, give notice thereof to the Holder. Such
certificate shall be conclusive as to the correctness of such
adjustment.
Section 11. Notices to Warrant Holders. So long as this
Warrant shall be outstanding and unexercised (i) if the Company
shall pay any dividend or make any distribution upon the Common
Stock; or (ii) if the Company shall offer to the holders of Common
Stock for subscription or purchase by them any shares of stock of
any class or any other rights; or (iii) if any capital
reorganization of the Company; reclassification of the capital
stock of the Company; or voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be effected, then,
in any such case, the Company shall cause to be given to the
Holder, at least ten calendar days prior to the date specified in
(x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which
(x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification,
reorganization, consolidation, dissolution, liquidation or winding
up is to take place and the date, if any is to be fixed, as of
which the holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or
winding up.
Section 12. Reclassification, Reorganization or Merger. In
case of (i) any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company (other
than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of an issuance of
Common Stock by way of dividend or other distribution or of a
subdivision or combination); or (ii) in case the Company should
spin-off a subsidiary by distributing to the shareholders of the
Company, as a dividend or otherwise, the capital stock of the
subsidiary, the Company shall cause effective provision to be made
so that the Holder shall have the right thereafter, by exercising
this Warrant prior to the Expiration Date, to purchase or acquire
the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital
reorganization or other change, consolidation, as if the Holder had
exercised this Warrant prior to such transaction. Any such
provision shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided
for in this Warrant. The foregoing provisions of this Section
shall similarly apply to successive reclassification, capital
reorganizations and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
Section 13. Merger or Sale. In case of (i) any
consolidation or merger of the Company with or into another
corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation) or (ii) any sale, lease,
exchange or other disposition of all or substantially all of the
property and assets of the Company not in the usual and regular
course of the Company's business and in a transaction or series of
transactions requiring shareholder approval under the laws of the
State of Colorado, the Company shall cause notice thereof to be
given to the Holder at least 30 calendar days prior to the
anticipated date of closing of such transaction and,
notwithstanding any other provisions of this Agreement, the Warrant
shall expire upon the completion of such transaction to the extent
not exercised prior to such transaction closing.
Section 14. No Fractional Shares. No fractional shares or
scrip representing fractional shares will be issued upon exercise
of this Warrant. With respect to any fraction of a share called
for upon exercise hereof, the Company shall pay to the Holder an
amount in cash equal to such fraction multiplied by the then
current fair market value per Share determined by the Company.
Section 15. Notice to Warrant Holders. Any notice required
to be given to the Holder shall be deemed to have been given if in
writing and upon deposit in the United States mail, with postage
fully prepaid, and addressed to the Holder at the registered
address maintained on the books of the Company or the Warrant
Agent. Any notice or other communication to the Company shall be
deemed to have been given or to be effective for any purpose only
upon actual receipt thereof by the Company at its principal office
or by the Warrant Agent, as the case may be.
The form of Warrant Certificate need not be changed because of
any adjustment in the Exercise Price, the number of Shares
purchasable upon the exercise of a Warrant or the number of
Warrants outstanding and Warrant Certificates issued after any such
adjustment may state the same Exercise Price, the same number of
Warrants and the same number of Shares purchasable upon exercise of
a Warrant as are stated in the Warrant Certificates issued before
such adjustment as if such adjustment had not occurred. However,
the Company may at any time with the approval of the Warrant Agent
make any change in the form of Warrant Certificate that it may deem
appropriate and that does not affect the substance thereof and any
Warrant Certificates thereafter issued or countersigned, whether in
exchange or substitution for an outstanding Warrant Certificate or
otherwise, may be in the form as so changed.
Section 16. Rights of Warrant Holders.
a. No Warrant Holder, as such, shall have any
rights of a stockholder of the Company, either at law or equity,
and the rights of the Warrant Holders, as such, are limited to
those rights expressly provided in this Agreement or in the Warrant
Certificates.
b. The Company and the Warrant Agent may treat the
registered Warrant Holder in respect of any Warrant Certificate as
the absolute owner thereof for all purposes notwithstanding any
notice to the contrary.
Section 17. Warrant Agent.
a. The Company hereby appoints the Warrant Agent
to act as the agent of the Company in accordance with this
Agreement and the Warrant Agent hereby accepts such appointment.
b. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and
conditions by all of which the Company and every Warrant Holder, by
acceptance of any Warrants, shall be bound:
(1) The statements contained in this Agreement
and in the Warrant Certificates shall be taken as statements
of the Company and the Warrant Agent assumes no responsibility
for the correctness of any of the same except such as describe
the Warrant Agent or action taken or to be taken by it.
(2) The Warrant Agent shall not be responsible
for any failure of the Company to comply with any of the
covenants contained in this Agreement or in the Warrant
Certificates to be complied with by the Company.
(3) The Warrant Agent may consult at any time
with counsel satisfactory to it (who may be counsel for the
Company) and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder in
respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or
the advice of such counsel, provided the Warrant Agent shall
have exercised reasonable care in the selection and continued
employment of such counsel.
(4) The Warrant Agent shall incur no liability
or responsibility to the Company or to any Warrant Holder for
any action taken in reliance on any notice, resolution,
waiver, consent, order, certificate or other paper, document
or instrument believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
(5) The Company agrees to pay to the Warrant
Agent reasonable compensation for all services rendered by the
Warrant Agent in the execution of this Agreement including
fees for exercise of the Warrants, to reimburse the Warrant
Agent for all expenses, taxes and governmental charges and
other charges of any kind and nature incurred by the Warrant
Agent in the execution of this Agreement and to indemnify the
Warrant Agent and save it harmless against any and all
liabilities, including judgments, costs and counsel fees, for
anything done or omitted by the Warrant Agent in the execution
of this Agreement except as a result of the Warrant Agent's
negligence, bad faith or willful misconduct.
(6) The Warrant Agent shall be under no
obligation to institute any action, suit or legal proceeding
or to take any other action likely to involve expense unless
the Company or one or more Warrant Holders shall furnish the
Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred, but this provision
shall not affect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper, whether with
or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may
be enforced by the Warrant Agent without the possession of any
of the Warrant Certificates or the production thereof at any
trial or other proceeding relative thereto, and any such
action, suit or proceeding instituted by the Warrant Agent
shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the
Warrant Holders as their respective rights or interests may
appear.
(7) The Warrant Agent and any stockholder,
director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of the
Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend
money to the Company or otherwise as fully and freely as
though it were not Warrant Agent under this Agreement.
Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal
entity.
(8) The Warrant Agent shall act hereunder
solely as agent for the Company, and its duties shall be
determined solely by the provisions hereof.
Section 18. Merger, Consolidation or Change of Name of
Warrant Agent.
a. Any corporation into which the Warrant Agent
may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or
consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the transfer agency business of the
Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any
further act on the part of the parties hereto, except that the
prior written consent thereto of the Company shall first be
obtained. In case at the time such successor to the Warrant Agent
shall succeed to the agency created by this Agreement, and in case
at that time any of the Warrant Certificates shall have been
countersigned but not delivered, any such successor to the Warrant
Agent may adopt the countersignature of the original Warrant Agent;
and in case at that time any of the Warrant Certificates shall not
have been countersigned, any successor to the Warrant Agent may
countersign such Warrant Certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant
Agent; and in all such cases such Warrant Certificates shall have
the full force provided in the Warrant Certificates and in this
Agreement.
b. In case at any time the name of the Warrant
Agent shall be changed and at such time any of the Warrant
Certificates shall have been countersigned but not delivered, the
Warrant Agent may adopt the countersignature under its prior name;
and in case at that time any of the Warrant Certificates shall not
have been countersigned, the Warrant Agent may countersign such
Warrant Certificates either in its prior name or in its changed
name; and in all such cases such Warrant Certificates shall have
the full force provided in the Warrant Certificates and in this
Agreement.
Section 19. Change of Warrant Agent. The Warrant Agent may
resign and be discharged from its duties under this Agreement by
giving to the Company notice in writing, and by giving notice in
writing to each Warrant Holder at his address appearing in the
Warrant register, specifying a date when such resignation shall
take affect, which notice shall be sent at least 30 days prior to
the date so specified and which notice shall be paid for by the
Company. If the Warrant Agent shall resign or shall otherwise
become incapable of acting, the Company shall appoint a successor
to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified
in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Warrant Holder, then any
Warrant Holder may apply to any court of competent jurisdiction for
the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to the Warrant Agent, either by the
Company or by such court, the duties of the Warrant Agent shall be
carried out by the Company. Any successor Warrant Agent, whether
appointed by the Company or by such a court, shall be a transfer
agent registered pursuant to Section 17A(c) of the Securities
Exchange Act of 1934, as amended. After appointment the successor
Warrant Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named as Warrant
Agent without further act or deed and the former Warrant Agent
shall deliver and transfer to the successor Warrant Agent any
property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the
purpose. Failure to give any notice provided for in this Section,
however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
Section 20. Notices. Any notice or demand authorized by
this Agreement to be given or made by the Warrant Agent or by any
Warrant Holder to or on the Company shall be sufficiently given or
made only if in writing and upon actual receipt at the following
address (until another address is filed in writing by the Company
with the Warrant Agent):
Good Times Restaurants Inc.
8620 Wolff Court, Suite 330
Westminster, CO 80030
Attention:____________________
Any notice or demand authorized by this Agreement to be given or
made by any Warrant Holder or by the Company to or on the Warrant
Agent shall be sufficiently given or made if sent by mail,
certified or registered, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company),
as follows:
American Securities Transfer & Trust, Incorporated
938 Quail Street, Suite 101
Lakewood, CO 80215
Attention:_____________________
Any distribution, notice or demand required or authorized by this
Agreement to be given or made by the Company or the Warrant Agent
to or on the Warrant Holders shall be sufficiently given or made if
in writing and upon deposit in the United States mail, first-class
or registered, postage prepaid, addressed to the Warrant Holders at
their last known addresses as they shall appear on the registration
books for the Warrant Certificates maintained by the Warrant Agent.
Section 21. Supplements and Amendments. The Company and
the Warrant Agent may from time to time supplement or amend this
Agreement without the approval of any Warrant Holders in order to
cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any
other provision herein, or to make any other change which the
Company and the Warrant Agent may deem necessary or desirable and
which shall not adversely affect the interests of the Warrant
Holders.
Section 22. Successors. All the covenants and provisions
of this Agreement by or for the benefit of the Company or the
Warrant Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 23. Termination. This Agreement shall terminate at
the close of business on the Expiration Date or such earlier date
upon which all Warrants have been exercised. The provisions of
Section 11 shall survive such terminations.
Section 24. Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Colorado and for all purposes shall
be construed in accordance with the laws of said State.
Section 25. Benefits of This Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation
other than the Company, the Warrant Agent and the Warrant Holders
any legal or equitable right, remedy or claim under this Agreement;
but this Agreement shall be for the sole and exclusive benefit of
the Company, the Warrant Agent and the Warrant Holders.
Section 26. Agreement Available to Warrant Holders. A copy
of this Agreement shall be available at all reasonable times at the
office of the Warrant Agent for inspection by any Warrant Holder.
As a condition of such inspection, the Warrant Agent may require
any Warrant Holder to submit his Warrant Certificate for
inspection.
Section 27. Counterparts. This Agreement may be executed
in any number of counterparts, each of such counterparts shall for
all purposes be deemed to be an original and all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, all as of the day and year first
above written.
GOOD TIMES RESTAURANTS INC.,
[seal] a Nevada corporation
By: /s/ Boyd E. Hoback, President
Boyd E. Hoback, President
ATTEST:
/s/ Sue Knutson ,
Secretary
AMERICAN SECURITIES TRANSFER &
TRUST, INCORPORATED, an independent
stock transfer company
[seal]
By:/s/ Gregory D. Tubbs, Vice
President
Gregory D. Tubbs, Vice President
ATTEST:
/s/ Lori S. Zimmerman ,
Assistant Secretary
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
by and among
GOOD TIMES RESTAURANTS INC.
and
THE BAILEY COMPANY
Dated as of May 31, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE ITHE PREFERRED SHARES. . . . . . . . . . . . . . . . . .1
SECTION 1.01 Issuance, Sale and Delivery of the Preferred
Shares . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE IIREPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . .2
SECTION 2.01 Organization, Qualifications and Corporate
Power. . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 2.02 Authorization of Agreements, Etc. . . . . . .2
SECTION 2.03 Validity. . . . . . . . . . . . . . . . . . .3
SECTION 2.04 Authorized Capital Stock. . . . . . . . . . .3
SECTION 2.05 Litigation; Compliance with Law . . . . . . .4
SECTION 2.06 Subsidiaries. . . . . . . . . . . . . . . . .4
SECTION 2.07 Loans and Advances. . . . . . . . . . . . . .5
SECTION 2.08 Assumptions, Guaranties, Etc, of Indebtedness
of Other Person. . . . . . . . . . . . . . . . . . . .5
SECTION 2.09 Governmental Approval . . . . . . . . . . . .5
SECTION 2.10 Agreements. . . . . . . . . . . . . . . . . .5
SECTION 2.11 Undisclosed Liabilities . . . . . . . . . . .6
SECTION 2.12 Disclosure. . . . . . . . . . . . . . . . . .6
SECTION 2.13 Offering of the Preferred Shares. . . . . . .6
SECTION 2.14 Brokers . . . . . . . . . . . . . . . . . . .7
ARTICLE IIIREPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . .7
ARTICLE IVCONDITIONS TO THE OBLIGATIONS OF THE PURCHASER . . . .8
ARTICLE VCONDITIONS TO THE OBLIGATIONS OF THE COMPANY. . . . . 13
ARTICLE VICOVENANTS OF THE COMPANY . . . . . . . . . . . . . . 13
SECTION 6.01 Financial Statements, Reports, Etc. . . . . 13
SECTION 6.02 Right of Participation. . . . . . . . . . . 14
SECTION 6.03 Reserve for Conversion Shares . . . . . . . 15
SECTION 6.04 Corporate Existence . . . . . . . . . . . . 16
SECTION 6.05 Properties, Business, Insurance . . . . . . 16
SECTION 6.06 Inspection, Consultation and Advice . . . . 16
SECTION 6.07 Restrictive Agreements Prohibited . . . . . 16
SECTION 6.08 Transactions with Affiliates. . . . . . . . 16
SECTION 6.09 Use of Proceeds . . . . . . . . . . . . . . 17
SECTION 6.10 Board of Directors Meeting. . . . . . . . . 17
SECTION 6.11 Compensation Committee. . . . . . . . . . . 17
SECTION 6.12 Capital Expenditures. . . . . . . . . . . . 18
SECTION 6.13 Employment. . . . . . . . . . . . . . . . . 18
SECTION 6.14 Investments . . . . . . . . . . . . . . . . 18
SECTION 6.15 Maintenance of Properties . . . . . . . . . 18
SECTION 6.16 D&O Insurance . . . . . . . . . . . . . . . 18
SECTION 6.17 By-laws . . . . . . . . . . . . . . . . . . 18
SECTION 6.18 Activities of Subsidiaries. . . . . . . . . 18
SECTION 6.19 Compliance with Laws. . . . . . . . . . . . 19
SECTION 6.20 Keeping of Records and Books of Account . . 19
SECTION 6.21 Change in Nature of Business. . . . . . . . 19
ARTICLE VIIBREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS 19
SECTION 7.01 Redemption. . . . . . . . . . . . . . . . . 19
ARTICLE VIIIMISCELLANEOUS. . . . . . . . . . . . . . . . . . . 19
SECTION 8.01 Survival of Agreements. . . . . . . . . . . 19
SECTION 8.02 Brokerage . . . . . . . . . . . . . . . . . 19
SECTION 8.03 Parties in Interest . . . . . . . . . . . . 20
SECTION 8.04 Assignment. . . . . . . . . . . . . . . . . 20
SECTION 8.05 Notices . . . . . . . . . . . . . . . . . . 21
SECTION 8.06 Entire Agreement. . . . . . . . . . . . . . 21
SECTION 8.07 Counterparts. . . . . . . . . . . . . . . . 21
SECTION 8.08 Amendments. . . . . . . . . . . . . . . . . 21
SECTION 8.09 Severability. . . . . . . . . . . . . . . . 21
SECTION 8.10 Titles and Subtitles. . . . . . . . . . . . 21
SECTION 8.11 Governing Law . . . . . . . . . . . . . . . 21
SCHEDULE I Disclosure Schedule
SCHEDULE II Other Securities
SCHEDULE III Security Holders
INDEX TO EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Articles and all amendments thereto<PAGE>
THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
(this "Agreement"), dated as of May __, 1996, is by and between
Good Times Restaurants Inc., a Nevada corporation (the
"Company"), and The Bailey Company, a Colorado limited
partnership ("Purchaser").
WHEREAS, the Company wishes to issue and sell to the
Purchaser an aggregate of 1,000,000 shares (the "Preferred
Shares") of the authorized but unissued Series A Convertible
Preferred Stock, $0.01 par value, of the Company (the "Series A
Convertible Preferred Stock"); and
WHEREAS, the Purchaser wishes to purchase the Preferred
Shares on the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, the parties agree
as follows:
ARTICLE I
THE PREFERRED SHARES
SECTION 1.01 Issuance, Sale and Delivery of the Preferred
Shares. The Company agrees to issue and sell to the Purchaser,
and the Purchaser hereby agrees to purchase from the Company, an
aggregate of 1,000,000 Preferred Shares at the purchase price of
$1.00 per share for an aggregate purchase price of $1,000,000
(the "Purchase Price"). Purchaser shall purchase from the
Company, and the Company shall sell to Purchaser, the Preferred
Shares in three installments (the "Installments") as follows:
(i) on the later to occur of June 1, 1996 and the first day of
the month immediately following the approval by the Company's
shareholders of the transactions contemplated hereby (the "First
Installment Date"), Purchaser shall purchase 500,000 of the
Preferred Shares for $250,000 in cash by applying the proceeds
from the collection of the $250,000 owed by the Company to
Purchaser pursuant to that certain Promissory Note made by the
Company and payable to Purchaser dated March 1, 1996 (the
"Note"); (ii) on the date that is three (3) months after the
First Installment Date (the "Second Installment Date"), Purchaser
shall buy 250,000 of the Preferred Shares for $250,000; and
(iii) on the date that is three (3) months after the Second
Installment Date (the "Third Installment Date"), Purchaser shall
buy 250,000 of the Preferred Shares for $250,000 (each, an
"Installment Date"). On each Installment Date, the Company shall
issue and deliver to the Purchaser a stock certificate or
certificates in definitive form, registered in the name of the
Purchaser or its designee, representing the Preferred Shares
being purchased at such time. As payment in full for the
Preferred Shares being purchased by Purchaser on each Installment
Date and against delivery of the stock certificate or
certificates therefor, the Purchaser shall transfer to the
account of the Company by wire transfer or other immediately
available funds the portion of the Purchase Price attributable to
such Installment.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that,
except as set forth in the Disclosure Schedule attached as
Schedule I (which Disclosure Schedule makes explicit reference to
the particular representation or warranty as to which exception
is taken, which in each case shall constitute the sole
representation and warranty as to which such exception shall
apply):
SECTION 2.01 Organization, Qualifications and Corporate
Power.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Nevada and is duly licensed or qualified to transact business as
a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business transacted by it
or the character of the properties owned or leased by it requires
such licensing or qualification. The Company has the corporate
power and authority to own and hold its properties and to carry
on its business as now conducted and as proposed to be conducted,
to execute, deliver and perform this Agreement and the
Registration Rights Agreement with the Purchaser in the form
attached hereto as Exhibit A (the "Registration Rights
Agreement"), and all agreements ancillary thereto, to issue, sell
and deliver the Preferred Shares and to issue and deliver the
shares of Common Stock, $0.001 par value, of the Company ("Common
Stock") issuable upon conversion of the Preferred Shares (the
"Conversion Shares").
(b) Except for Good Times Drive Thru Inc. (the
"Subsidiary"), the Company does not (i) own of record or
beneficially, directly or indirectly, (A) any shares of capital
stock or securities convertible into capital stock of any other
corporation or (B) except as disclosed on Schedule II, any
participating interest in any partnership, joint venture or other
non-corporate business enterprise, or (ii) control, directly or
indirectly, any other entity.
SECTION 2.02 Authorization of Agreements, Etc.
(a) Other than obtaining shareholder approval for the
transactions contemplated hereby, which the Company shall make a
good faith effort to obtain prior to the first Installment, the
execution and delivery by the Company of this Agreement and the
Registration Rights Agreement, and the performance by the Company
of its obligations hereunder and thereunder, the issuance, sale
and delivery of the Preferred Shares and the issuance and
delivery of the Conversion Shares, have been duly authorized by
all requisite corporate action and will not violate any provision
of law, any order of any court or other agency of government, the
Articles of Incorporation of the Company, as amended (the
"Articles"), or the By-laws of the Company, as amended, or any
provision of any indenture, agreement or other instrument to
which the Company, or any of its properties or assets is bound,
or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties
or assets of the Company.
(b) If the shareholders of the Company approve the
transactions contemplated hereby, the Preferred Shares will be
duly authorized and, when issued in accordance with this
Agreement, will be validly issued, fully paid and nonassessable
shares of Series A Convertible Preferred Stock with no personal
liability attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set
forth in the Registration Rights Agreement. If the shareholders
of the Company approve the transactions contemplated hereby, the
Conversion Shares will be duly reserved prior to the first
Installment for issuance upon conversion of the Preferred Shares
and, when so issued, will be duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock with no
personal liability attaching to the ownership thereof and will be
free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set
forth in the Registration Rights Agreement. Neither the
issuance, sale or delivery of the Preferred Shares nor the
issuance or delivery of the Conversion Shares is subject to any
preemptive right of stockholders of the Company or to any right
of first refusal or other right in favor of any person.
SECTION 2.03 Validity. This Agreement has been duly
executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable in
accordance with its terms. The Registration Rights Agreement,
when executed and delivered in accordance with this Agreement,
will constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its respective terms.
SECTION 2.04 Authorized Capital Stock. If the shareholders
of the Company approve the transactions contemplated hereby, as
of the First Installment Date the authorized capital stock of the
Company shall consist of (i) 10,000,000 shares of Series A
Convertible Preferred Stock which is the only class of preferred
stock of the Company, and (ii) 10,000,000 shares of Common Stock.
As of the date hereof, 6,314,824 shares of Common Stock are
validly issued and outstanding, fully paid and nonassessable with
no personal liability attaching to the ownership thereof and no
shares of Preferred Stock have been issued. The holders of
subscriptions, warrants, options, convertible securities, and
other rights (contingent or other) to purchase or otherwise
acquire equity securities of the Company, and the number of
shares of Common Stock and the number of such subscriptions,
warrants, options, convertible securities, and other such rights
held by each, are as set forth in the attached Schedule III. If
the shareholders of the Company approve the transactions
contemplated hereby, the designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect
of each class and series of authorized capital stock of the
Company will be, as of the First Installment Date, as set forth
in the Articles, a copy of which is attached hereto as Exhibit B,
and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding
and enforceable and in accordance with all applicable laws.
Except as set forth in the attached Schedule III, (i) no
subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or otherwise acquire
equity securities of the Company is authorized or outstanding,
and (ii) except as provided herein there is no commitment by the
Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to
holders of any of its equity securities any evidence of
indebtedness or asset. Except as provided for in the Articles or
as set forth in the attached Schedule III, the Company does not
have any obligation (contingent or other) to purchase, redeem or
otherwise acquire any of its equity securities or any interest
therein or to pay any dividend or make any other distribution in
respect thereof. There are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to
any securities of the Company. All of the outstanding securities
of the Company were issued in compliance with all applicable
Federal and state securities laws.
SECTION 2.05 Litigation; Compliance with Law. There is no
(i) action, suit, claim, proceeding or investigation pending or,
to the best knowledge of the Company, threatened against or
affecting the Company or any principal of any of the foregoing,
at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii)
arbitration proceeding relating to the Company pending under
collective bargaining agreements or otherwise, or (iii)
governmental inquiry pending or, to the best of the knowledge of
the Company, threatened against or affecting the Company
(including without limitation any inquiry as to the qualification
of the Company to hold or receive any license or permit), and to
the best of the Company's knowledge there is no basis for any of
the foregoing. The Company has not received any opinion or
memorandum or legal advice from legal counsel to the effect that
it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business, prospects,
financial condition, operations, property or affairs. The
Company is not in default with respect to any order, writ,
injunction or decree known to or served upon the Company of any
court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no action or suit by the Company
pending or threatened against others. The Company has complied
with all laws, rules, regulations and orders applicable to its
business, operations, properties, assets, products and services
the noncompliance with which would have a material adverse effect
on the Company; the Company has all necessary permits, licenses
and other authorizations required to conduct its business as
conducted and as proposed to be conducted; and the Company has
been operating its business pursuant to and in compliance with
the terms of all such permits, licenses and other authorizations.
There is no existing law, rule, regulation or order, and the
Company after due inquiry is not aware of any proposed law, rule,
regulation or order, whether Federal, state, county or local,
which would prohibit or restrict the Company from, or otherwise
materially adversely affect the Company in, conducting its
business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
SECTION 2.06 Subsidiaries. The Subsidiary is a corporation
duly incorporated, validly existing and in good standing under
the laws of the State of Colorado and is duly licensed or
qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which it is required to be
licensed or qualified. The authorized stock of the Subsidiary
consists of 10,000,000 shares of common stock, 999,900 shares of
which are issued and outstanding. All of the issued and
outstanding shares of its common stock have been duly authorized
and are validly issued, fully paid and non-assessable. The
Company owns all of the issued and outstanding shares of common
stock of the Subsidiary, free and clear of any restrictions on
transfer (other than restrictions under the Securities Act and
state securities laws). There are no outstanding or authorized
options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or
commitments that could require the Subsidiary to issue, sell, or
otherwise cause to become outstanding any of its own capital
stock. There are no outstanding stock appreciation, phantom
stock, profit participation, or similar rights with respect to
the Subsidiary. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of any
capital stock of the Subsidiary.
SECTION 2.07 Loans and Advances. Except as set forth in
the Schedule I, the Company does not have any outstanding loans
or advances to any person and is not obligated to make any such
loans or advances.
SECTION 2.08 Assumptions, Guaranties, Etc, of Indebtedness
of Other Person. The Company has not assumed, guaranteed,
endorsed or otherwise become directly or contingently liable on
any indebtedness of any other person, business or entity
(including, without limitation, liability by way of agreement,
contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor, or
otherwise to assure the creditor against loss), except for
guaranties by endorsement of negotiable instruments for deposit
or collection in the ordinary course of business.
SECTION 2.09 Governmental Approval. Subject to the accuracy
of the representations and warranties of the Purchaser set forth
in Article III of this Agreement, no registration or filing with,
or consent or approval of or other action by, any Federal, state
or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by
the Company of this Agreement or the Registration Rights
Agreement, the issuance, sale and delivery of the Preferred
Shares or, upon conversion thereof, the issuance and delivery of
the Conversion Shares, other than (i) filings pursuant to state
securities laws (all of which filings have been made by the
Company, other than those which are required to be made after the
date hereof and which will be duly made on a timely basis) in
connection with the sale of the Preferred Shares, and (ii) with
respect to the Registration Rights Agreement, the registration of
the shares covered thereby with the Securities and Exchange
Commission (the "Commission") and filings pursuant to state
securities laws.
SECTION 2.10 Agreements. Consummation of the transactions
contemplated hereby (i) will not affect the validity of any
material contract, agreement, commitment, license or other
understanding or arrangement (collectively, "Contracts") to which
the Company is a party; and (ii) will not entitle any parties
related to the Company (including without limitation officers and
directors of the Company) to any payments, bonus or other
benefits that may be considered "golden parachute" payments
("Golden Parachute Payments") or any payments or other benefits
made or granted in connection with the transactions contemplated
hereby. The payment by the Company of Golden Parachute Payments,
if any, shall be subordinate to any and all payments to the
holders of the Preferred Shares. Notwithstanding the foregoing,
the Company shall be free to perform its obligations pursuant to
its current agreement with Boyd E. Hoback if Mr. Hoback is
terminated by the Company without "cause", unless such
termination occurs within 60 days of a determination by the Board
of Directors of the Company to dissolve the Company; provided,
however, this Section 2.10 shall not in any way modify or alter
the Company's agreement with Mr. Hoback.
SECTION 2.11 Undisclosed Liabilities. Neither the Company
or the Subsidiary has any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent,
whether accrued or unaccrued) except for (i) liabilities set
forth on the Company's most recent balance sheet and
(ii) liabilities which have arisen after the date of the most
recent balance sheet in the ordinary course of business (none of
which results from, arises out of, relates to, or was caused by
any breach of contract).
SECTION 2.12 Disclosure. To the best of the Company's
knowledge (i) neither this Agreement, nor any Schedule or Exhibit
to this Agreement, or ancillary agreements hereto or thereto (the
"Acquisition Documents ") contains an untrue statement of a
material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading, (ii) none
of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the
transactions contemplated hereby contains an untrue statement of
a material fact or omits a material fact necessary to make the
statements contained therein not materially misleading, and (iii)
there is no fact which the Company has not disclosed to the
Purchaser and its counsel in writing and of which the Company is
aware which materially and adversely affects or could materially
and adversely affect the business, financial condition,
operations, property or affairs of the Company. The financial
projections and other estimates provided to Purchaser by the
Company were prepared by the Company based on the Company's
experience in the industry and on assumptions of fact and opinion
as to future events which the Company, at the date of their
preparation, believed to be reasonable. As of the date hereof no
facts have come to the attention of the Company which would, in
its opinion, require it to revise or amplify the assumptions
underlying such projections and other estimates or the
conclusions derived therefrom.
SECTION 2.13 Offering of the Preferred Shares. Neither the
Company nor any person authorized or employed by the Company as
agent, broker, dealer or otherwise in connection with the
offering or sale of the Preferred Shares, or any security of the
Company similar to the Preferred Shares, has offered the
Preferred Shares or any such similar security for sale to, or
solicited any offer to buy the Preferred Shares or any such
similar security from, or otherwise approached or negotiated with
respect thereto with, any person or persons so as to subject the
offering, issuance or sale of the Preferred Shares to the
registration provisions of the Securities Act; and neither the
Company nor any person acting on its behalf has taken or will
take any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under
circumstances which might require the integration of such
security with Preferred Shares under the Securities Act or the
rules and regulations of the Commission thereunder), so as to
subject the offering, issuance or sale of the Preferred Shares to
the registration provisions of the Securities Act.
SECTION 2.14 Brokers. The Company does not have any
contract, arrangement or understanding with any broker, finder or
similar agent with respect to the sale of the Preferred Shares
contemplated by this Agreement.
For purposes of this Article II, "knowledge of the Company"
means that nothing has come to the attention of either the
Company that (i) gives the Company actual knowledge, or (ii) is
sufficient to put the Company on notice of, or cause the Company
to make further inquiry into, the existence or absence of any
material information or fact bearing on the matter.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the
specific purpose of acquiring the Preferred Shares;
(b) it has sufficient knowledge and experience in investing
in companies similar to the Company in terms of the Company's
stage of development so as to be able to evaluate the risks and
merits of its investment in the Company and it is able
financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's
management;
(d) except as permitted by the Registration Rights
Agreement, the Preferred Shares being purchased by it are being
acquired for its own account and for the purpose of investment
and not with a view to or for sale in connection with any
distribution thereof;
(e) it understands that (i) the Preferred Shares and the
Conversion Shares have not been registered under the Securities
Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to
Section 4(2) thereof or Rule 505 or 506 promulgated under the
Securities Act, (ii) the Preferred Shares and, upon conversion
thereof, the Conversion Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities
Act or is exempt from such registration, (iii) the Preferred
Shares and the Conversion Shares will bear a legend to such
effect, and (iv) the Company will make a notation on its transfer
books to such effect; and
(f) if it sells any Conversion Shares pursuant to Rule 144A
promulgated under the Securities Act, it will take all necessary
steps in order to perfect the exemption from registration
provided thereby, including (i) obtaining on behalf of the
Company information to enable the Company to establish a
reasonable belief that the purchaser is a qualified institutional
buyer and (ii) advising such purchaser that Rule 144A is being
relied upon with respect to such resale.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligation of the Purchaser to purchase and pay for the
Preferred Shares being purchased by it on each Installment Date
is, at its option, subject to the satisfaction, on or before such
Installment Date, of the following conditions:
(a) Opinions of Counsel. The Purchaser shall have received
from counsel for the Company on or before June 5, 1996 an opinion
dated as of the date hereof, in form and scope satisfactory to
Purchaser and its counsel, to the effect that:
(i) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company is duly licensed
or qualified to transact business as a foreign corporation
and is in good standing in each jurisdiction in which it
owns or leases real property. The Company has the corporate
power and authority to own and hold its properties and to
carry on its business as currently conducted and as proposed
to be conducted. The Company has the corporate power and
authority to execute, deliver and perform this Agreement and
the Registration Rights Agreement, to issue, sell and
deliver the Preferred Shares and, upon conversion thereof,
to issue and deliver the Conversion Shares.
(ii) This Agreement and the Registration Rights
Agreement have been duly authorized, executed and delivered
by the Company and constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with
their respective terms (subject, as to enforcement of
remedies, to the discretion of courts in awarding equitable
relief and to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the rights
of creditors generally), except that such counsel need not
express any opinion as to the validity or enforceability of
the indemnification and contribution provisions of the
Registration Rights Agreement.
(iii) The execution and delivery by the Company of
this Agreement and the Registration Rights Agreement, the
performance by the Company of its obligations hereunder and
thereunder, the issuance, sale and delivery of the Preferred
Shares and, upon conversion thereof, the issuance and
delivery of the Conversion Shares, will not violate any
provision of law, the Articles or By-laws, each as amended,
of the Company, any order of any court or other agency of
government or any indenture, agreement or other instrument
known to such counsel to which the Company, or any of their
respective properties or assets is bound, or conflict with,
result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the
properties or assets of the Company. In rendering the
foregoing opinion, such counsel may assume full disclosure
to Purchaser of all material facts and, with respect to
performance by the Company of its obligations under the
Registration Rights Agreement, may assume compliance by the
Company at such time with the registration requirements of
the Securities Act and with applicable state securities laws
and may disclaim any opinion as to the validity or
enforceability of the indemnification and contribution
provisions of the Registration Rights Agreement.
(iv) The authorized capital stock of the Company
consists of (i) 10,000,000 shares of Series A Convertible
Preferred Stock which is the only class of preferred stock
of the Company, and (ii) 10,000,000 shares of Common Stock.
As of the date hereof, 6,314,824 shares of Common Stock are
validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and no
shares of Preferred Stock have been issued, except as
provided for herein. As of the date hereof, holders of
record of subscriptions, warrants, options, convertible
securities, and other rights (contingent or other) to
purchase or otherwise acquire equity securities of the
Company, and the number of shares of Common Stock and the
number of such subscriptions, warrants, options, convertible
securities, and other such rights held by each, are as set
forth in Schedule III. The designations, powers,
preferences, rights, qualifications, limitations and
restrictions in respect of each class or series of
authorized capital stock of the Company are as set forth in
the Articles, and all such designations, powers,
preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in
accordance with all applicable laws (subject, as to
enforcement, to the discretion of courts in awarding
equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws
affecting the rights of creditors generally). Except as set
forth in Schedule III, to the knowledge of such counsel, but
without independent investigation, as of the date hereof no
subscription, warrant, option, convertible security, or
other right (contingent or other) to purchase or acquire
equity securities of the Company is authorized or
outstanding and there is no commitment by the Company to
issue shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders
of any of its equity securities any evidence of indebtedness
or asset. Except as set forth in Schedule III or as
provided for in the Articles, to the knowledge of such
counsel, but without independent investigation, the Company
has no obligation (contingent or other) to purchase, redeem
or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other
distribution in respect thereof.
(v) The Preferred Shares and the Conversion Shares
have been duly authorized. The issuance, sale and delivery
of the Preferred Shares and the issuance and delivery of the
Conversion Shares upon conversion of the Preferred Shares
have been duly authorized by all required corporate action;
the Preferred Shares have been validly issued, are fully
paid and nonassessable with no personal liability attaching
to the ownership thereof and, to the knowledge of such
counsel, are free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through
the Company except as set forth in the Registration Rights
Agreement; and the Conversion Shares have been duly reserved
for issuance upon conversion of the Preferred Shares and,
when so issued, will be validly issued, fully paid and
nonassessable with no personal liability attaching to the
ownership thereof and, to the knowledge of such counsel,
will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company
except as set forth in the Registration Rights Agreement.
Neither the issuance, sale or delivery of the Preferred
Shares nor the issuance or delivery of the Conversion Shares
is subject to any preemptive right of stockholders of the
Company arising under law or the Articles or By-laws of the
Company, each as amended, or, to the knowledge of such
counsel, to any contractual right of first refusal or other
right in favor of any person.
(vi) Except as described in Schedule I, to the
knowledge of such counsel, but without independent
investigation, as of the date hereof there is no material
(A) action, suit, claim, proceeding or investigation pending
or threatened against or affecting the Company, at law or in
equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, (B)
arbitration proceeding relating to the Company pending under
collective bargaining agreements, or (C) governmental
inquiry pending or threatened against or affecting the
Company. To the knowledge of such counsel, but without
independent investigation, the Company is not in default
with respect to any order, writ, injunction or decree known
to such counsel of any court or of any Federal, state,
municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or
foreign.
(vii) Assuming the accuracy of the representations
and warranties of the Purchaser set forth in Article II of
this Agreement, no registration or filing with, and no
consent or approval of, or other action by any Federal,
state or other governmental agency or instrumentality is or
will be necessary for the valid execution, delivery and
performance by the Company of this Agreement and the
Registration Rights Agreement, the issuance, sale and
delivery of the Preferred Shares or, upon conversion
thereof, the issuance and delivery of the Conversion Shares,
other than filings pursuant to federal and state securities
laws (all of which filings, other than those which are
required to be made after the date hereof, have been made by
the Company). In rendering the foregoing opinion with
respect to performance by the Company of its obligations
under the Registration Rights Agreement, such counsel may
assume compliance by the Company at such time with the
registration requirements of the Securities Act and with
applicable state securities laws and may disclaim any
opinion as to the validity or enforceability of the
indemnification and contribution provisions of the
Registration Rights Agreement.
(b) Representations and Warranties to be True and Correct.
The representations and warranties contained in Article II of
this Agreement shall be true, complete and correct in all
material respects on and as of the date hereof and the President
and Treasurer of the Company shall have certified to such effect
to the Purchaser in writing.
(c) Performance. The Company shall have performed and
complied in all material respects with all agreements contained
herein required to be performed or complied with by it prior to
or at the date hereof, and as of each Installment Date, as
applicable, and the President and Treasurer of the Company shall
have certified to the Purchaser in writing as of each Installment
Date to such effect and to the further effect that all of the
conditions set forth in this Article IV have been satisfied.
(d) All Proceedings to be Satisfactory. As of the First
Installment Date, all corporate and other proceedings to be taken
by the Company in connection with the transactions contemplated
hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Purchaser and its
counsel, and the Purchaser and its counsel shall have received
all such counterpart originals or certified or other copies of
such documents as they reasonably may request.
(e) Supporting Documents. As of the First Installment
Date, the Purchaser and its counsel shall have received copies of
the following documents and all changes, amendments or
modifications thereto:
(i) (A) the Articles, certified as of a recent date by
the Secretary of State of the State of Nevada, (B) a
certificate of said Secretary dated as of a recent date as
to the due incorporation and good standing of the Company,
the payment of all excise taxes by the Company and listing
all documents of the Company on file with said Secretary,
and (C) the By-laws of the Company;
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company dated as of the Installment Date
and certifying: (A) that attached thereto is a true and
complete copy of the By-laws of the Company as in effect on
the date of such certification; (B) that attached thereto is
a true and complete copy of all resolutions adopted by the
Board of Directors or the stockholders of the Company
authorizing the execution, delivery and performance of this
Agreement and the Registration Rights Agreement, the
issuance, sale and delivery of the Preferred Shares and the
reservation, issuance and delivery of the Conversion Shares,
and that all such resolutions are in full force and effect
and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement and the
Registration Rights Agreement; (C) that the Articles have
not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause
(i)(B) above; and (D) to the incumbency and specimen
signature of each officer of the Company executing this
Agreement and the Registration Rights Agreement, the stock
certificates representing the Preferred Shares and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
incumbency and signature of the officer signing the
certificate referred to in this clause (ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs
of the Company as the Purchaser or its counsel reasonably
may request.
(f) Certificates. As of each subsequent Installment Date,
Purchaser shall have received a certificate of the Secretary or
an Assistant Secretary of the Company dated as of the Installment
Date and certifying that (A) neither the Articles nor the By-laws
were amended, revised or modified in any way that could adversely
affect the Preferred Shares since the First Installment Date; (B)
that the resolutions of the Board of Directors or the
stockholders of the Company authorizing the execution, delivery
and performance of the Agreement and the Registration Rights
Agreement, the issuance, sale and delivery of the Preferred
Shares and the reservation, issuance and delivery of the
Conversion Shares delivered to Purchaser are in full force and
effect and have not been effectively altered or changed by
subsequent action by the Board of Directors or shareholders of
the Company.
(g) Approval. The Board of Directors of Purchaser shall
have approved the transactions contemplated hereby on or before
May 31, 1996.
(h) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement.
(i) Articles. The Articles shall read in their entirety as
set forth in Exhibit B. The Articles shall have been duly
amended, if necessary, to provide that: (i) all directors of the
Company shall be indemnified against, and absolved of, liability
to the Company and its stockholders to the maximum extent
permitted under the laws of the State of Nevada, and (ii) the
number of shares of authorized Common Stock of the Company may be
increased or decreased (but not below the number then
outstanding) by the affirmative vote of the holders of two-thirds
of the outstanding shares of capital stock of the Company
entitled to vote thereon, voting together as a single class.
(j) By-Laws. The Company's By-laws shall have been
amended, if necessary, to provide that (i) unless otherwise
required by the laws of the State of Nevada, (A) any two
directors and (B) any holder or holders of at least 25% of the
outstanding shares of Series A Convertible Preferred Stock, shall
have the right to call a meeting of the Board of Directors or
stockholders of the Company, and (ii) the number of directors
fixed in accordance therewith shall in no event conflict with any
of the terms or provisions of the Series A Convertible Preferred
Stock as set forth in the Articles.
(k) Election of Directors. The number of directors
constituting the entire Board of Directors shall have been fixed
at seven (7) and the following persons shall have been elected as
the directors and shall each hold such position as of the date
hereof: Dan W. James, III, Boyd E. Hoback, Richard J. Stark,
Thomas P. McCarty, Geoffrey R. Bailey, David E. Bailey and Alan
A. Teran.
(l) Lenders. Purchaser's performance hereunder shall not
materially conflict with or result in a breach of any of its
obligations or agreements existing as of the date hereof with any
of its lenders.
(m) Solvency. As of the date of such performance, neither
Purchaser nor the Company shall have (i) filed a voluntary
petition in bankruptcy or been adjudged bankrupt or insolvent,
(ii) made an assignment for the benefit of creditors, (iii)
applied to or petitioned any tribunal for the appointment of a
receiver, intervenor or trustee for all or a substantial part of
its assets, or (iv) been involved in a proceeding under any
bankruptcy law or statute which was commenced and not dismissed
within 60 days.
All such documents shall be reasonably satisfactory in form and
substance to the Purchaser and its counsel.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
The obligation of the Company to sell the Preferred Shares
hereunder is subject to (i) the Company receiving, on or before
the First Installment Date, approval of the shareholders of the
Company of the transactions contemplated hereby as required by
the Articles, Bylaws or applicable law; and (ii) the approval of
the Company's Board of Directors of the transactions contemplated
hereby on or before June 14, 1996.
ARTICLE VI
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that
prior to the issuance of the Preferred Shares, and for as long as
any of the Preferred Shares are outstanding:
SECTION 6.01 Financial Statements, Reports, Etc. The
Company shall furnish to the Purchaser:
(a) within 105 days after the end of each fiscal year of
the Company, any and all documents that the Company is required
to file with the Securities and Exchange Commission; and
comparative statements for the prior fiscal year and the budget
for the fiscal year then ended showing comparisons on a monthly
basis;
(b) at the time of delivery of each annual financial
statement pursuant to Section 6.01(a), a certificate executed by
the President or Chief Financial Officer of the Company stating
that such officer has caused this Agreement and the Series A
Convertible Preferred Stock to be reviewed and has no knowledge
of any default by the Company (or such subsidiary, as the case
may be) in the performance or observance of any of the provisions
of this Agreement or the Series A Convertible Preferred Stock or,
if such officer has such knowledge, specifying such default and
the nature thereof;
(c) no later than sixty (60) days prior to the start of
each fiscal year, consolidated capital and operating expense
budgets, cash flow projections and income and loss projections
for the Company and each of its subsidiaries in respect of such
fiscal year, all itemized in reasonable detail and prepared on a
monthly basis, and, promptly after preparation, any revisions to
any of the foregoing;
(d) promptly following receipt by the Company, each audit
response letter, accountant's management letter and other written
report submitted to the Company or any subsidiary of the Company
by its independent public accountants in connection with an
annual or interim audit of the books of the Company or any of its
subsidiaries;
(e) promptly after the commencement thereof, notice of all
actions, suits, claims, proceedings, investigations and inquiries
of the type described in Section 2.07 that could materially
adversely affect the Company individually or any of its
subsidiaries or the Company and all of its subsidiaries taken as
a whole;
(f) promptly upon sending, making available or filing the
same, all press releases, reports and financial statements that
the Company or any subsidiary of the Company sends or makes
available to its stockholders or directors or files with the
Commission; and
(g) promptly, from time to time, such other information
regarding the business, prospects, financial condition,
operations, property or affairs of the Company and its
subsidiaries as Purchaser reasonably may request.
SECTION 6.02 Right of Participation. (a) The Company shall,
prior to any proposed issuance by the Company of any of its
securities (other than debt securities with no equity feature),
offer to the Purchaser by written notice the right, for a period
of fifteen (15) days, to purchase for cash at an amount equal to
the price or other consideration for which such securities are to
be issued, a number of such securities so that, after giving
effect to such issuance (and the conversion, exercise and
exchange into or for (whether directly or indirectly) shares of
Common Stock of all such securities that are so convertible,
exercisable or exchangeable), the Purchaser will continue to
maintain its same proportionate equity ownership in the Company
represented by the Preferred Shares and the Conversion Shares
that it owns, if any, as of the date of such notice (treating the
Purchaser, for the purpose of such computation, as the holder of
the number of shares of Common Stock which would be issuable to
the Purchaser upon conversion, exercise and exchange of all
securities (including but not limited to the Preferred Shares)
held by such Purchaser on the date such offer is made, that are
convertible, exercisable or exchangeable into or for (whether
directly or indirectly) shares of Common Stock and assuming the
like conversion, exercise and exchange of all such other
securities held by other persons); provided, however, that the
participation rights of the Purchaser pursuant to this Section
6.02 shall not apply to securities issued (A) upon conversion of
any of the Preferred Shares, (B) as a stock dividend or upon any
subdivision of shares of Common Stock, provided that the
securities issued pursuant to such stock dividend or subdivision
are limited to additional shares of Common Stock, (C) pursuant to
subscriptions, warrants, options, convertible securities, or
other rights which are listed in Schedule III as being
outstanding on the date of this Agreement, (D) solely in
consideration for the acquisition (whether by merger or
otherwise) by the Company or any of its subsidiaries of all or
substantially all of the stock or assets of any other entity, (E)
pursuant to a firm commitment public offering. The Company's
written notice to the Purchaser shall describe the securities
proposed to be issued by the Company and specify the number,
price and payment terms. (The number of shares that the Purchaser
is entitled to purchase under this Section 6.02 shall be referred
to as its "Pro Rata Share." The total number of shares that the
Purchaser is entitled to purchase under this Section 6.02 shall
be referred to as "Offered Shares").
(b) The Purchaser may accept the Company's offer as to the
full number of securities offered to it or any lesser number, by
written notice thereof given by it to the Company prior to the
expiration of the aforesaid fifteen (15) day period, in which
event the Company shall sell and the Purchaser shall buy, upon
the terms specified, the number of securities agreed to be
purchased by Purchaser. The Company shall then be free at any
time prior to ninety (90) days after the date of its notice of
offer to the Purchaser, to offer and sell to any third party or
parties the remainder of such securities proposed to be issued by
the Company (including but not limited to the securities not
agreed by the Purchaser to be purchased by it), at a price and on
payment terms no less favorable to the Company than those
specified in such notice of offer to the Purchaser. However, if
such third party sale or sales are not consummated within such
ninety (90) day period, the Company shall not sell such
securities as shall not have been purchased within such period
without again complying with this Section 6.02.
SECTION 6.03 Reserve for Conversion Shares. The Company
shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, for the purpose
of effecting the conversion of the Preferred Shares and otherwise
complying with the terms of this Agreement, such number of its
duly authorized shares of Common Stock as shall be sufficient to
effect the conversion of the Preferred Shares from time to time
outstanding or otherwise to comply with the terms of this
Agreement. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the
conversion of the Preferred Shares or otherwise to comply with
the terms of this Agreement, the Company will forthwith take such
corporate action as may be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes. The Company will obtain
any authorization, consent, approval or other action by or make
any filing with any court or administrative body that may be
required under applicable federal and state securities laws in
connection with the issuance of shares of Common Stock upon
conversion of the Preferred Shares.
SECTION 6.04 Corporate Existence. The Company shall
maintain, and except as otherwise permitted by Section 6.18 cause
each of its subsidiaries to maintain, their respective corporate
existence, rights and franchises in full force and effect.
SECTION 6.05 Properties, Business, Insurance. The Company
shall maintain and cause each of its subsidiaries to maintain as
to their respective properties and business, with financially
sound and reputable insurers, insurance against such casualties
and contingencies and of such types and in such amounts as is
customary for companies similarly situated, which insurance shall
be deemed by the Company to be sufficient.
SECTION 6.06 Inspection, Consultation and Advice. The
Company shall permit and cause each of its subsidiaries to permit
the Purchaser and such persons as it may designate, at
Purchaser's expense, to visit and inspect any of the properties
of the Company and its subsidiaries, examine their books and take
copies and extracts therefrom, discuss the affairs, finances and
accounts of the Company and its subsidiaries with their officers,
employees and public accountants (and the Company hereby
authorizes said accountants to discuss with Purchaser and its
designees such affairs, finances and accounts), and consult with
and advise the management of the Company and its subsidiaries as
to their affairs, finances and accounts, all at reasonable times
and upon reasonable notice.
SECTION 6.07 Restrictive Agreements Prohibited. Neither
the Company nor any of its subsidiaries shall become a party to
any agreement which by its terms restricts the Company's
performance of this Agreement, the Registration Rights Agreement
or the Articles. The Company shall not become party to any
agreement which by its terms restricts the Company's right to pay
dividends on the Preferred Shares or to meet the redemption
rights of the Preferred Shares.
SECTION 6.08 Transactions with Affiliates. Except for
transactions (i) contemplated by this Agreement, or (ii) with
Purchaser or its affiliates, neither the Company nor any of its
subsidiaries shall enter into any transaction with any director,
officer, employee or holder of more than 5% of the outstanding
capital stock of any class or series of capital stock of the
Company or any of its subsidiaries, member of the family of any
such person, or any corporation, partnership, trust or other
entity in which any such person, or member of the family of any
such person, is a director, officer, trustee, partner or holder
of more than 5% of the outstanding capital stock thereof, except
for transactions on customary terms related to such person's
employment.
SECTION 6.09 Use of Proceeds. The Company shall spend an
amount equal to or greater than the proceeds from the sale of the
Preferred Shares for the development of new Good Times
restaurants on or before December 31, 1997, unless the Board of
Directors unanimously directs otherwise.
SECTION 6.10 Board of Directors Meeting. The Company shall
use its best efforts to ensure that meetings of its Board of
Directors are held at least once each quarter. The Company shall
permit Purchaser, for so long as Purchaser holds of record or
beneficially any Preferred Shares and/or Conversion Shares, or
its designee to have one representative attend each meeting of
the Board of Directors of the Company and each meeting of any
Committee thereof and to participate in all discussions during
each such meeting. The Company shall send to the Purchaser and
designee the notice of the time and place of such meeting in the
same manner and at the same time as it shall send such notice to
its directors or committee members, as the case may be. The
Company shall also provide to the Purchaser and designee copies
of all notices, reports, minutes and consents at the time and in
the manner as they are provided to the Board of Directors or
committee, except for information reasonably designated as
proprietary information by the Board of Directors.
SECTION 6.11 Compensation Committee. The Company shall
establish and maintain a Compensation Committee of the Board of
Directors, which shall consist of three (3) directors, one of
whom shall be a director elected by the holders of the Preferred
Stock voting as a separate series. The Compensation Committee
shall have as its functions the approval of any employee's
compensation over $75,000 per year and overall approval of
employee stock option grants. No compensation or other
remuneration at an annual rate in excess of $75,000 (inclusive of
salary and bonus arrangement) shall be paid to, and no capital
stock of the Company shall be issued or granted to, any director,
officer or employee of, or any consultant or adviser to, the
Company or any of its subsidiaries, without the approval of the
Compensation Committee. No employee stock option plan, employee
stock purchase plan, employee restricted stock plan or other
employee stock plan shall be established without the approval of
the Compensation Committee, other than those already in
existence. Notwithstanding the foregoing, the Company shall not,
without the unanimous consent of the Board of Directors,
(i) issue, grant or sell any stock options, warrants or other
securities convertible into Common Stock to any director, officer
or employee of, or a consultant or advisor to, the Company or any
of its subsidiaries to the extent that such issuance, grant or
sale would result in there being outstanding options and other
securities convertible into Common Stock held by directors,
officers and employees of, and consultants and advisors to, the
Company constituting in the aggregate in excess of 15% of the
outstanding capital stock of the Company (assuming for purposes
of such computation the conversion, exercise and exchange of all
securities of the Company that are convertible, exercisable or
exchangeable into or for shares of Common Stock), or (ii) modify
any terms of any options, warrants or other securities
convertible into Common Stock except that, in the case of the
Company's publicly held warrants and other convertible
securities, the Board of Directors may extend the exercise date
thereof.
SECTION 6.12 Capital Expenditures. Without the prior
approval of the Board of Directors, the Company shall not make
any capital expenditure, including expenditures for capitalized
leases, in an amount in excess of 120% of the budget for such
items approved by the Board of Directors.
SECTION 6.13 Employment. The Company shall not hire, or
commit itself to hire, any individual whose annual compensation,
in salary and benefits, is in excess of $75,000, without the
prior approval of the Board of Directors.
SECTION 6.14 Investments. The Company shall not make any
investment in, or loans or advances to, or guarantees of the
obligations of, any person or entity, except as approved by the
Board of Directors.
SECTION 6.15 Maintenance of Properties. The Company shall
maintain its properties in good condition and operating repair.
SECTION 6.16 D&O Insurance. The Company shall, if required
by the stockholders holding two-thirds of the Preferred Shares
and if not prohibitively expensive as determined in good faith of
the Board of Directors, purchase and maintain adequate liability
insurance coverage for the directors of the Company.
SECTION 6.17 By-laws. The Company shall at all times cause
its By-laws to provide that, (a) unless otherwise required by the
laws of the State of Nevada, (i) any two directors or (ii) any
holder or holders of at least 25% of the outstanding shares of
Series A Convertible Preferred Stock, shall have the right to
call a meeting of the Board of Directors or stockholders, and (b)
the number of directors fixed in accordance therewith shall in no
event conflict with any of the terms or provisions of the Series
A Convertible Preferred Stock as set forth in the Articles. The
Company shall at all times maintain provisions in its By-laws
and/or Articles indemnifying all directors against liability and
absolving all directors from liability to the Company and its
stockholders to the maximum extent permitted under the laws of
the State of Nevada.
SECTION 6.18 Activities of Subsidiaries. The Company shall
not, without the affirmative vote by holders of two-thirds of the
Preferred Shares, permit any subsidiary to consolidate or merge
into or with or sell or transfer all or substantially all its
assets, except that any subsidiary may (i) consolidate or merge
into or with or sell or transfer assets to any other subsidiary,
or (ii) merge into or sell or transfer assets to the Company.
The Company shall not sell or otherwise transfer any shares of
capital stock of any subsidiary, except to the Company or another
subsidiary, or permit any subsidiary to issue, sell or otherwise
transfer any shares of its capital stock or the capital stock of
any subsidiary, except to the Company or another subsidiary. The
Company shall not permit any subsidiary to purchase or set aside
any sums for the purchase of, or pay any dividend or make any
distribution on, any shares of its stock, except for dividends or
other distributions payable to the Company or another subsidiary.
SECTION 6.19 Compliance with Laws. The Company shall
comply, and cause each subsidiary to comply, with all applicable
laws, rules, regulations and orders, noncompliance with which
could materially adversely affect its business or condition,
financial or otherwise.
SECTION 6.20 Keeping of Records and Books of Account. The
Company shall keep, and cause each subsidiary to keep, adequate
records and books of account, in which complete entries will be
made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of
the Company and such subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes
in connection with its business shall be made.
SECTION 6.21 Change in Nature of Business. The Company
shall not, and shall not permit any subsidiary to, engage in any
business other than the restaurant business without the unanimous
approval of the Board of Directors.
ARTICLE VII
BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 7.01 Redemption. In the event the Company
materially breaches any of its representations, warranties or
covenants contained herein and the Company (i) fails to remedy
such breach within 14 days after receiving notice of such breach
or (ii) if such breach cannot reasonably be cured within 14 days,
and the Company commences to remedy such breach within 14 days of
notice continuously and diligently proceeds to remedy such
breach, fails to remedy such breach within 30 days after
receiving notice thereof, the Company shall, at the election of
Purchaser, redeem some or all of the Preferred Shares held by
Purchaser for a price equal to the Redemption Price for each
share so redeemed. The Company shall redeem such shares within
30 days after its receipt of Purchaser's notice stating the
number of Preferred Shares that Purchaser desires to have
redeemed pursuant to this Section 7.01.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Survival of Agreements. All covenants,
agreements, representations and warranties made herein or in the
Registration Rights Agreement or any certificate or instrument
delivered to the Purchaser pursuant to or in connection with this
Agreement or the Registration Rights Agreement shall survive the
execution and delivery of this Agreement and the Registration
Rights Agreement, the issuance, sale and delivery of the
Preferred Shares, and the issuance and delivery of the Conversion
Shares, and all statements contained in any certificate or other
instrument delivered by the Company hereunder or thereunder or in
connection herewith or therewith shall be deemed to constitute
representations and warranties made by the Company.
SECTION 8.02 Brokerage. Each party hereto will indemnify
and hold harmless the other against and in respect of any claim
for brokerage or other commissions relative to this Agreement or
to the transactions contemplated hereby, based in any way on
agreements, arrangements or understandings made or claimed to
have been made by such party with any third party (including,
without limitation, amounts paid to any shareholder, officer,
director or affiliate of such party).
SECTION 8.03 Parties in Interest. All representations,
covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the
benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and
agreements benefiting Purchaser shall inure to the benefit of any
and all subsequent holders from time to time of Preferred Shares
or Conversion Shares.
SECTION 8.04 Assignment. (a) Purchaser may not assign this
Agreement or any of its rights and obligations hereunder
(including the Preferred Shares) to any person, business or
entity without the prior written approval of the Company which
approval shall not be unreasonably withheld; provided, however,
Purchaser may assign this Agreement, any and all of its rights
and obligations hereunder and the Preferred Shares (i) to any
person, business or entity that is affiliated with Purchaser or
The Erie County Investment Co. and (ii) to any member of the
Control Group (as defined below) if the Control Group in the
aggregate is affiliated with Purchaser. For purposes of this
agreement, (i) an "affiliate" of, or a person "affiliated" with,
a specified person, is a person that directly, or indirectly,
controls, is controlled by or is under common control with, the
person specified; (ii) the term "control" (including the terms
"controlling", "controlled by" and "under common control with")
means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a
person, whether through the ownership (beneficial or otherwise)
of voting securities, by contract or otherwise; and (iii)
"Control Group" shall mean Paul T. Bailey, his spouse, children
and grandchildren. The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written
consent of Purchaser.
(b) Purchaser shall not offer or agree to sell or
otherwise transfer any or all of its Preferred Shares to a third
party (other than any person, business or entity affiliated with
Purchaser, or to any officer, director, shareholder or partner of
Purchaser or The Erie County Investment Co.), without first
offering (the "Offer") to sell such Preferred Shares to the
Company or its designee by delivering written notice thereof to
the Company which notice shall include the price, terms and
conditions of the Offer. The Company shall have fourteen days
after its receipt thereof (the "Offer Period") to accept the
Offer by delivering written notice of its acceptance thereof to
Purchaser. If the Company fails to deliver its acceptance within
the Offer Period, Purchaser shall be free (subject to the terms
of Section 8.04(a) above) to sell or otherwise transfer such
Preferred Shares to a third party for a period of 90 days after
the end of the Offer Period at a price and on terms and
conditions no less favorable to the Purchaser than those offered
to the Company.
SECTION 8.05 Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be
delivered in person, mailed by certified or registered mail,
return receipt requested, or sent by telecopier or telex,
addressed as follows:
(a) if to the Company: Good Times Restaurants Inc.
8620 Wolff Court, Suite 330
Westminster, Colorado 80030
Attn: Boyd E. Hoback, President
(b) if to the Purchaser: The Erie County Investment Co.
601 Corporate Circle
Golden, Colorado 80401
Attn: David E. Bailey, President
SECTION 8.06 Entire Agreement. This Agreement, including
the Schedules and Exhibits hereto, constitutes the sole and
entire agreement of the parties with respect to the subject
matter hereof. All Schedules and Exhibits hereto are hereby
incorporated herein by reference.
SECTION 8.07 Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
SECTION 8.08 Amendments. This Agreement may not be amended
or modified, and no provisions hereof may be waived, without the
written consent of the Company and the holders of at least two-thirds of the
outstanding shares of Common Stock issued or issuable upon conversion of the
Preferred Shares.
SECTION 8.09 Severability. If any provision of this
Agreement shall be declared void or unenforceable by any judicial
or administrative authority, the validity of any other provision
and of the entire Agreement shall not be affected thereby.
SECTION 8.10 Titles and Subtitles. The titles and
subtitles used in this Agreement are for convenience only and are
not to be considered in construing or interpreting any term or
provision of this Agreement.
SECTION 8.11 Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of Colorado.
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have
executed this Series A Convertible Preferred Stock Purchase
Agreement as of the day and year first above written.
GOOD TIMES RESTAURANTS, INC.
By: /s/ Boyd E. Hoback
Name: Boyd E. Hoback
Title: President
PURCHASER:
THE BAILEY COMPANY,
a Colorado limited partnership
By: The Erie County Investment Co.,
as General Partner
By: /s/ David E. Bailey, President
David E. Bailey, President
<PAGE>
SCHEDULE I
Disclosure Schedule
<PAGE>
SCHEDULE II
Other Interests
<PAGE>
SCHEDULE III
Security Holders
FIRST AMENDMENT TO SERIES A CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT
The First Amendment to Series A Convertible Preferred Stock
Purchase Agreement (this "Amendment") dated this day of
September, 1996, effective as of May 31, 1996, is by and between
Good Times Restaurants Inc. (the "Company") and The Bailey Company
("Purchaser").
RECITALS
A. The Company and Purchaser entered into that certain
Series A Convertible Preferred Stock Purchase Agreement dated May
31, 1996 (the "Agreement"), by which Purchaser agreed to purchase
1,000,000 shares of the Company's Series A Convertible Preferred
Stock (the "Preferred Shares"), and the Company agreed to issue the
Preferred Shares to Purchaser, on the terms and conditions
contained in the Agreement.
B. The Company and Purchaser desire to modify and amend
certain terms of the Agreement and certain Exhibits thereto.
AMENDMENT
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
Company and Purchaser agree that the Agreement, and certain
Exhibits thereto, are hereby amended as follows:
1. Capitalized terms used herein, and not otherwise defined,
shall have the meanings ascribed to such terms in the Agreement.
References to Sections and paragraphs shall refer to Sections and
paragraphs of the Agreement, unless the context requires otherwise.
2. The first sentence of Section 2.04, Authorized Capital
Stock, is hereby deleted in its entirety and replaced with the
following language: "If the shareholders of the Company approve the
transactions contemplated hereby, as of the First Installment Date
the authorized capital stock of the Company shall consist of (i)
5,000,000 shares of preferred stock, $.01 par value per share, of
which 1,000,000 shares shall be designated as Series A Convertible
Preferred Stock, and (ii) 50,000,000 shares of Common Stock.
3. The first sentence of Article IV, paragraph (a)(iv) is
hereby deleted in its entirety and replaced with the following
language: "The authorized capital stock of the Company consists of
(i) 5,000,000 shares of preferred stock, of which only 1,000,000
shares are designated as Series A Convertible Preferred Stock, and
(ii) 50,000,000 shares of Common Stock."
4. The second sentence of Article IV, paragraph (i) is
hereby deleted in its entirety and replaced with the following
language:
The Articles shall have been duly amended, if
necessary, to provide that all directors of
the Company shall be indemnified against, and
absolved of, liability to the Company and its
stockholders to the maximum extent permitted
under the laws of the State of Nevada.
5. The following language shall be added to the Agreement as
Section 6.22:
"Authorized Common Stock. For so long as
Purchaser and its affiliates, in the
aggregate, beneficially own two-thirds of the
Preferred Shares (including the Common Stock
into which such Preferred Shares are
convertible), the number of shares of
authorized Common Stock of the Company may not
be increased or decreased by the Company
without the approval of Purchaser."
6. The following language shall be added to the Agreement as
Section 6.23:
"Additional Series of Preferred Stock.
Notwithstanding anything in the Articles to
the contrary, for as long as Purchaser and its
affiliates, in the aggregate, beneficially own
two-thirds of the Preferred Shares (including
the Common Stock into which such Preferred
Shares are convertible), the Company shall not
issue any series of preferred stock in
addition to the Series A Convertible Preferred
Stock without the approval of Purchaser."
7. Section A.1. to Exhibit B to the Agreement, which is
entitled Series A Convertible Preferred Stock Terms, (referred to
in this Amendment as "Terms") is hereby deleted in its entirety and
replaced with the following language: "1. Number of Shares. The
series of Preferred Stock designated and known as "Series A
Convertible Preferred Stock" shall consist of 1,000,000 shares."
8. Section 5.b. of the Terms is hereby amended to replace
the term "Certificate of Incorporation" with the Term "Articles of
Incorporation."
9. The table in Section 6.a. of the Terms is hereby deleted
in its entirety and replaced with the following table:
Maximum
Conversion Period Number of Shares Conversion
Price
October 1, 1997 - 500,000 $0.46875
October 31, 1997
November 1, 1997 - 500,000* $0.56875
December 31, 1997
January 1, 1998 - 250,000 $0.46875
January 31, 1998 500,000* $0.56875
February 1, 1998 - 750,000* $0.56875
March 31, 1998
April 1, 1998 - 250,000 $0.46875
April 30, 1998 750,000* $0.56875
May 1, 1998 -
April 30, 1999 1,000,000* $0.56875
May 1, 1999, and thereafter 1,000,000* the
greater of
(i) the
Dividend
Conversion
Rate at
the time
of such
conversion, and (ii)
$0.46875
* To the extent not previously converted.
10. Except as expressly set forth in this First Amendment,
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
First Amendment effective as of the day and year first above
written.
GOOD TIMES RESTAURANTS INC.
By: /s/ Boyd E. Hoback
Name: Boyd E. Hoback
Title: President
<PAGE>
THE BAILEY COMPANY,
a Colorado limited partnership
By: The Erie County Investment Co.,
as to General Partner
By: /s/ David E. Bailey, President
May 3, 1996
Boyd E. Hoback
8620 Wolff Court
Suite 330
Westminster, CO 80030
Dear Boyd:
This letter will set forth our agreement with respect to
your continued employment by Good Times Restaurants Inc. ("Good
Times"). For convenience, we shall refer to you as "Hoback."
1. Good Times shall continue to employ Hoback as
President and Chief Executive Officer. Hoback shall devote his
full time and best efforts to such position and in general to
protecting and advancing the best interests of Good Times.
2. Hoback's compensation shall be $110,000 per annum.
Such compensation shall be periodically increased to the extent, if
any, determined reasonable and appropriate by the Board of
Directors of Good Times. Hoback shall also have a general
perquisite allowance of $10,000 per annum. Hoback shall also
participate in the other fringe benefits, including vacations,
accorded by Good Times to its key executives at benefit levels no
less favorable than those currently accorded to him.
3. The employment of Hoback hereunder shall continue
for a term of three years from the date of this agreement. Such
three-year term shall be extended each year by one additional year
upon the approval of such extension by the Board of Directors of
Good Times. Good Times may terminate the employment of Hoback
during such term only for cause consisting of a consistent and
substantial failure of Hoback to discharge the responsibilities and
authority of his position hereunder after notice to Hoback of such
failure and a reasonable opportunity for him to remedy such
failure.
4. In consideration for the efforts put forth by Hoback
in enhancing the value of Good Times, upon (i) the sale of all or
substantially all of the assets of Good Times to a party that is
not a "Related Party" (as defined below), (ii) the sale of at least
ninety percent of the capital stock of Good Times to a party which
is not a Related Party, or (iii) a merger, consolidation,
reorganization or similar transaction to which Good Times is a
party, except for a transaction in which Good Times is the
surviving corporation and, after giving effect to such transaction,
the holders of Good Times' outstanding capital stock immediately
before the transaction own enough of Good Times' outstanding
capital stock after the transaction to elect a majority of Good
Times' Board of Directors under ordinary circumstances, and in the
event that within one year after any of the foregoing transactions
(A) the employment of Hoback is terminated for any reason other
than cause (as defined above), or (B) if the employment duties of
Hoback are substantially diminished or (C) if the place of
employment of Hoback is relocated outside of the Denver
metropolitan area, Hoback shall be entitled to compensation equal
to one years' salary plus his perquisite allowance and other fringe
benefits for such year. For purposes of this paragraph 4, a
"Related Party" means any of the shareholders or any entity which
controls, is controlled by, or under common control with a
shareholder or group of shareholders that own enough of Good Times'
outstanding capital stock to elect a majority of Good Times' Board
of Directors.
If this letter correctly sets forth our agreement, kindly
sign and return the attached copy hereof.
Sincerely,
GOOD TIMES RESTAURANTS INC.
By: /s/ Dan W. James, II, Chairman
Dan W. James II, Chairman
AGREED to this 17th day of May, 1996.
/s/ Boyd E. Hoback
Boyd E. Hoback
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Good Times Restaurants Inc.
Westminster, Colorado
We have audited the accompanying consolidated balance sheet of
Good Times Restaurants Inc. and subsidiaries as of September 30,
1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended
September 30, 1995 and 1996. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Good Times Restaurants Inc. and subsidiaries as of
September 30, 1996, and the results of their operations and their
cash flows for the years ended September 30, 1995 and 1996, in
conformity with generally accepted accounting principles.
Hein + Associates llp
Denver, Colorado
December 2, 1996
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 540000
<SECURITIES> 0
<RECEIVABLES> 211000
<ALLOWANCES> 0
<INVENTORY> 48000
<CURRENT-ASSETS> 818000
<PP&E> 7514000
<DEPRECIATION> (1819000)
<TOTAL-ASSETS> 7162000
<CURRENT-LIABILITIES> 1550000
<BONDS> 0
6000
0
<COMMON> 0
<OTHER-SE> 3001000
<TOTAL-LIABILITY-AND-EQUITY> 7162000
<SALES> 12610000
<TOTAL-REVENUES> 12826000
<CGS> 4700000
<TOTAL-COSTS> 11990000
<OTHER-EXPENSES> 2857000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142000
<INCOME-PRETAX> (2021000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2021000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2021000)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
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